ALEXANDRIA, Va.—The NCUA board in October upheld the Supervisory Review Committees (SRC) affirmation of the denials of two unnamed low-income credit unions' applications to accept secondary capital by regional directors. The actions were taken during its closed board meeting.
In one appeal, the board on Sept. 9, 2019 denied a request for an oral hearing from a low-income credit union (LICU), but agreed to consider the merits of the appeal on the basis of the written record, reported Keith Leggett, the former senior vice president and senior economist at the ABA.
Chairman Rodney Hood and Board Member Todd Harper considered the appeal. Board Member McWatters was recused from this matter, Leggett said.
In its October 24 decision, the board found there was ample evidence that the LICU's secondary capital plan was unsound. The board viewed that the LICU's secondary plan reflected inadequate due diligence, Leggett said.
‘Lacked Detail’
“The pro forma financial statements lacked detail and had material omissions, which did not allow the agency to properly evaluate the safety and soundness of the plan. Moreover, the secondary capital plan failed to adequately align with the LICU’s forecasts and strategic plan. Specifically, both the region and the SRC have determined, and the board agrees, that because there is a negative spread between the projected interest rate for the secondary capital loan and the average rate of return for the assets in the safety net plan, this negative spread will become a stress on earnings and a duration mismatch between funding sources,” Leggett said.
The board concluded the SRC was correct in affirming the regional director's denial.
Oral Appeal Made
In the other appeal, the board on Aug. 8, 2019 granted the LICU's request to present its case orally before the board. The hearing was held on Sept. 24.
Hood and Harper considered this appeal, while McWatters was recused from this matter, Leggett said.
The credit union contended its secondary capital plan met the criteria in §701.34(b)(1). Therefore it should receive the requested capital. The LICU stated that the three deficiencies identified by the region were subjective and should not be a valid basis for denying the secondary capital plan.
The region, on the other hand, argued that the five enumerated criteria provide for the minimum components that are required to be included in a secondary capital application. The SRC found ample support for the region’s assessments that the LICU's secondary capital plan was not sound, and concluded the denial of the plan was reasonable, Leggett said.
Not Persuasive
In its Oct. 11 decision, the board did not find the LICU's arguments to be persuasive. The board stated it should not substitute its judgment for the SRC. Therefore, the board affirmed the SRC decision. The board stated that in both cases the credit unions choose to reapply for secondary capital. But if they decide to re-apply, the agency encourages ongoing dialogue to address deficiencies discussed in previous denials, Leggett said.