Issued PWLs in 2016 Were Up, Issued LUAs in 2016 Were Down

Information obtained under a Freedom of Information Act showed that in 2016 there was an increase in the issuance of preliminary warning letters (PWL) and a decrease in the issuance of letters of understanding and agreement (LUA) by the National Credit Union Administration (NCUA).

ALL LUAs were unpublished in 2016.

One LUA was issued by field staff to Servco FCU (Bensalem, PA) on February 25, 2016 -- just weeks before NCUA liquidated the credit union. If it was not for the Material Loss Review issued in February, we would not have known about the LUA.

The following table reports the trend in PWLs, LUA, and cease and desist orders (C&D) issued by NCUA from 2013 through 2016.

Tiny Philadelphia CU Under Cease and Desist Order

The National Credit Union Administration has issued a cease and desist order to S M Federal Credit Union of Philadelphia, Pennsylvania.

S M Federal Credit Union officials have consented to the order, which requires the following actions:

• Provide credit union records to the compensated auditor;
• Complete a member account verification and supervisory committee audit;
• Reconcile and maintain accurate financial statements and member share and loan records;
• Calculate and track loan delinquency;
• Actively and effectively collect past due loans;
• Cease granting new loans;
• Ensure the supervisory committee is fully staffed and fulfilling all obligations; and
• Provide the agency with monthly financial statements; and board and committee minutes.

Chartered in 1959, S M Federal Credit Union has assets of $56,005 and serves 115 members, according to the credit union’s most recent Call Report.

Read the press release.
Read the final order.

Supervisory Actions at Closed Board Meeting Need to be Made Public

On September 16, the National Credit Union Administration (NCUA) Board in a closed meeting will be considering 4 supervisory actions.

After the meeting, I believe the NCUA Board has an affirmative obligation to make public any supervisory actions that it take against credit unions.

It was the intent of Congress when The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 became law that formal enforcement actions needed to be disclosed by federal banking regulators, including NCUA.

Valley Pride Under Enforcement Order

The National Credit Union Administration has entered into a Letter of Understanding and Agreement (LUA) with the Valley Pride Federal Credit Union of Plains, Pa.

The LUA identified significant safety and soundness issues at Valley Pride and stated that the credit union was in troubled condition.

The LUA cited that the credit union had not:

• complied with requirements from previous Reports on Examination and enforcement actions;
• operated with adequate supervision by the Board;
• maintained accurate books and records; and
• developed adequate internal controls.

The specific steps required of Valley Pride include:

• Engage a qualified individual to reconcile bank and corporate accounts;
• Engage a Certified Public Accountant to perform an opinion audit;
• Obtain training for the board of directors; and
• Implement internal control procedures through the Supervisory Committee

Read the enforcement order.

Enforcement Orders in 2012

The National Credit Union Administration (NCUA) failed to disclose any information about enforcement orders in its Annual Report for 2012. This is the second year in a row, where the agency did not disclose this information.

Through a Freedom of Information Act request, I discovered that in 2012 NCUA issued:

• 75 preliminary warning letters;
• 205 unpublished letters of understanding and agreement;
• 1 published letter of understanding and agreement; and
• 5 cease and desist orders.

The following table compares the number of enforcement orders issued by NCUA for the years 2010 through 2012. What jumps out is the total lack of transparency with regard to enforcement orders. Between 2010 and 2012 NCUA issued 1,004 letters of understanding and agreement and only published 6 of those letters.

NCUA Supervisory Actions Up in 2011

The number of supervisory actions issued by NCUA rose sharply in 2011.

The charts at the bottom of this post show the number of supervisory actions issued in 2010 and 2011. Both Preliminary Warning Letters and Letters of Understanding and Agreement jumped sharply in 2011 compared to 2010.

There were 135 Preliminary Warning Letters issued for 2011 -- an increase of 382 percent from 2010.

There were 465 Letters of Understanding and Agreement issued for 2011 up from 333 for 2010. However, don't go looking for these Letters of Understanding and Agreement, because almost all (463) were not published.

The only category of supervisory action that fell for 2011 was Cease and Desist Orders, which were down by 3 to 25 issued for 2011.

Information for the number 2010 supervisory actions can be found in NCUA's 2010 Annual Report. However, 2011 information was obtained by filing a Freedom of Information Act request with NCUA; because the agency did not disclose this information in its 2011 Annual Report.

Economy Takes a Toll on Kern County CUs

Here is a story about the economy taking a toll on Kern County, California credit unions.

Bulk of the losses incurred by Kern County credit unions reside at Kern Schools FCU, which reported a loss of $40.6 million. The credit union as of the end of 2009 was undercapitalized.

In an October 20, 2009, I reported that Kern Schools was under a supervisory agreement to rebuild its capital.