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NCUA supervisory letter provides guidance on CU earnings reviews
ALEXANDRIA, Va. (11/20/09)--In a National Credit Union Administration (NCUA) supervisory letter published on Wednesday, Office of Examination and Insurance Director Melinda Love said that “examiners must evaluate each credit union’s earnings level relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution’s strategic plans,” when reviewing the adequacy of credit union earnings. Love in the letter also recommended that NCUA staff “continue to utilize a balanced approach in assessing earnings,” as there is “no simple metric for determining what an individual credit union’s earnings level should be.” A glut of restatements “will make the evaluation and trending of earnings more challenging,” the letter added. The letter also encourages examiners to review prior guidance on earnings adequacy reviews and “stresses the importance of communication with credit union officials and management regarding earnings deficiencies.” Specifically, the letter recommends that examiners consider the adequacy of net worth given the risk profile of the credit union and the quality and sources of the credit unions’ earnings structure. The letter also states that examiners must consider the risk profile, the operational structure, and the strategic plans of the credit union while they complete their earnings review. Examiners should also ensure that credit unions can “realize an adequate level of earnings in a safe and sound manner.” For the full NCUA release, use the resource link.
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