Complexity taken out of the "Complex" issue at New York CU League seminars

Albany, N.Y. - With five months to go until NCUA adopts as a final rule its definition of a "complex" credit union adopted as a proposed rule at the agency's Feb. 3 board meeting (CU Times Feb. 9), local NCUA supervisory examiners were on hand for a recent three half-day seminars presented by the New York State Credit Union League to help credit union officers, staff members and volunteers understand Prompt Corrective Action (PCA) requirements. At sessions in Albany, Manhattan and Batavia, NCUA examiners also explained the process of how a credit union falls under the proposed "complex" definition under PCA and how that will affect true net worth and capitalization. PCA, part of The Credit Union Membership Access Act, requires NCUA to develop a definition of a complex credit union based on the risk level of a credit union's portfolio of assets and liabilities. Under NCUA's current definition of complex, which it must adopt as a final rule by August 7, but doesn't take effect until January 2001, a credit union is complex if its assets are greater than the threshold percentage of assets allowed for a particular risk portfolio. "PCA is going to have a tremendous impact on how credit unions do business here on out," said Amy Colodny, vice president government affairs and association services for the League. "That is why the League put these sessions together around the state. We wanted to give credit unions as much information as possible to understand PCA and the proposed definition of complex and what it means to individual credit unions." NCUA supervisory examiners discussed the four complex threshold categories. Also discussed was the calculation of risk-based net worth which, along with a credit union's net worth ratio, determines an institution's capitalization category. Net worth restoration plans and discretionary actions were also covered for credit unions that will be labeled as undercapitalized once their Call Reports have been reviewed. "NCUA examiners did a great job in going through and explaining all the complex and capitalization categories and the ways to calculate net worth. They also explained that even if a credit union is well capitalized, it can fall into the complex definition when risk-based net worth is taken into consideration," said Colodny. One of the League's goals, through the seminars, was to make members realize that PCA is going to affect all business decisions. "The types of investments that are made, the types of products and services that are provided-these things can all tip the scale in making a credit union complex or not," Colodny explained. "In making decisions, you have to make sure you are well-capitalized." In attendance at the Albany seminar was Karen Ellis, vice president of finance at Sidney Federal Credit Union, Sidney, N.Y., who said everyone was inquisitive as to how PCA was going to affect their individual credit unions. "Credit unions should fully understand the PCA implications (change in net worth categories)," she said. "Any business decision and planning going forward may affect asset growth and capital growth." Sidney FCU, with 47,687 members, total assets of $143.8 million (end of February) and deposits of $126.8 million, has already filled out its PCA worksheet that is incorporated into the Call Report. "We know where we stand and we are comfortable with that, but things may change," she said. Ellis is referring to the April 18 deadline that NCUA has set to hear comments and feedback on the complex definition and risk-based net worth requirements. According to Colodny, this is another reason why the seminars were important. "Because the commentary period is still open, members had a chance to `kick the tires,' so to speak, and look at what complex means right now and make any comments they feel are appropriate to NCUA." "I think a lot of credit unions are waiting for the final ruling before they really start thinking about this," said Ellis, "but it's important that they start researching now and make comments while there is still time to do so." Overall, she said the seminar and NCUA examiner presentation were very helpful. Asked if credit unions will be given any leeway by NCUA when complex threshold requirements are calculated, Colodny responded by saying that the four established thresholds was NCUA's way of doing so. According to the thresholds, a credit union is complex if: it has more than 25% of assets in long-term real estate loan portfolios; it has more than 12.25% of assets in combined member loan risk portfolio; it has more than 15% of total assets in long-term investments portfolios; and it has more than 5% of total assets in the loans sold with recourse portfolio. "It is pretty unique that this kind of partnership exists between the League, NCUA and credit unions," Colodny continued. "It is commendable on the part of NCUA to come to the table and be part of the solution and show credit unions that it is interested in helping them get to where they need to be." -Birritteri@hotmail.com