ALEXANDRIA, Va. — In a Supervisory Letter earlier this year distributed to all examiners as well as federal credit unions, NCUA hoped to steer examiners away from the suggested 1% return on average assets to achieve a CAMEL 1 rating.

"NCUA appreciates the delicate balance credit unions must strive to achieve between the short-term and long-term needs of the credit union. In this regard, I encourage credit union officials to be committed to a sincere, conscientious, and well-planned strategy to safely balance the net worth and earnings needs of the credit union with strategies to achieve longer-term objectives," NCUA Chairman JoAnn Johnson wrote in Letter to Federal Credit Unions 06-FCU-04. "I am confident that with an open dialogue examiners will be supportive of such endeavors."

"Lower earnings are being observed nationwide," the Supervisory Letter, attached to the Letter to FCUs, acknowledged. "This trend is the result of rising interest rates, a flat yield curve, and some credit unions incurring costs to position themselves strategically. There is no simple metric for determining what a credit union's retained earnings level should be…CAMEL ratings are not automatically determined by matrix ratios. Striving for an arbitrary 1% Return on Average Assets just to achieve a CAMEL 1 rating based on the CAMEL matrix is not an acceptable argument, especially in the current economy, for a well-capitalized credit union. Each credit union's earnings level must be evaluated relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution's strategic plans."