ALEXANDRIA, Va.-NCUA recently signed a Letter of Understanding and Agreement with St. Clements Parish Federal Credit Union of Lakewood, Ohio regarding its troubled loan and management practices. The LUA cited several adverse conditions leading to the administrative action, including poor loan quality, ineffective loan collections, inadequate loan charge-off policy, inadequate allowance for loan and lease loss policy, negative earnings, declining net worth, and weak management. At year-end 2005, the credit union's net worth was at 7.90%, but loan delinquencies/total loans had rapidly climbed to 31.33% and delinquent loans/net worth was 259% compared to a peer average of 20.44%. NCUA agreed not to take further administration action with the specific conditions addressed in the letter "as long as the credit union and its officials make a sustained, effective, and good faith effort to comply with all terms of this Agreement, including on required timeframes, or unless such administrative action is required by law or regulation." The agency declined to comment on details of St. Clements Parish FCU's situation. However, Joseph Murray, the credit union's CEO, said, "NCUA is coming down hard on small credit unions." St. Clements Parish is a $1.74 million credit union with 656 members. In signing the LUA, the credit union agreed to conditions in its lending, such as limiting signature loans to $5,000, certain restrictions on auto lending, verifying borrower income, and using credit reports with credit scores in making credit determinations, among numerous other things. The credit committee and loan officers agreed to stop extending credit to applicants: with credit scores under 670 without a co-signer with a credit score of at least 670; currently delinquent with one or more creditors; repeatedly delinquent over the last year; delinquent more than 30 days with St. Clements Parish within the last six months. It has also made changes to its loan collections, charge-off policy, and allowance for loan and lease losses policy. NCUA is also requiring the credit union to develop a plan to return to positive earnings for 2006. The credit union's return on average assets was -0.65%. The credit union must also adopt a plan to keep its net worth ratio above 6% and comply with NCUA's regulation on organizational changes for troubled credit unions and maximum borrowing authorities. "We've done everything they've asked us to, we think," Murray said. The cost of the compliance has only been "time" and "aggravation" at this point, he said, in addition to turning accounts over to collections earlier, but that is difficult to calculate. The credit union also put nearly $80,000 into its allowance for loan and lease losses at year-end. He called the reasons behind the LUA "a lot of nitpicking stuff." The credit union is located in the "rust belt" near Cleveland, which is a very depressed area, Murray explained. Last year, the credit union experienced around a dozen member bankruptcy filings that hurt the tiny credit union a great deal before the reforms became effective. Since the new law, the credit union has not had any bankruptcies that have cost it money. Because of the NCUA-imposed restrictions on the credit union, he said, "We had no loans last month" and only two-both share-secured-all year. He complained that the 670 credit score requirement was too high. "All we're doing is loaning money to people who don't need it," he said. Murray added that the credit union has been approached by two potential merger partners but has not responded to either. -

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