The NCUA announced June 14 it had inked a letter of understanding and agreement with the $7.4 million Valley Pride Federal Credit Union of Plains, Pa. The LUA requires the 1,588-member credit union to take steps to correct unsafe and unsound practices, including:

• 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.

According to the credit union's financial performance reports available publicly on the NCUA's website, Valley Pride suffers from poor loan quality. As of March 31, delinquencies had increased to 12.16% of total loans. There were no charge offs reported during the first quarter, but loan losses have historically been a problem: during first quarter 2012, the credit union reported 6.49% net charge-offs to average loans.

A lack of loan volume contributes to volatile loan quality measurements. As of March 31, Valley Pride reported a 13.71% loan-to-share ratio. Although the credit union's 8.08% average loan yield is nearly 100 basis points above peers, the lack of loan volume contributes to a much lower than peer net margin, just 1.46% during the first quarter.

The NCUA said it is working with the credit union to make a sustained, conscientious effort to correct the regulatory deficiencies detailed in the LUA. With 21.59% net worth reported in the first quarter, the credit union is not in danger of becoming undercapitalized in the near future.