The NCUA Call Report aims to measure and identify risks and potential red flags at your credit union. But the report and instructions for filling it out are, in some cases, “as clear as mud,” says Kevin Durrance, CEO of Texans Credit Union in Richardson, Texas.
Certain line items in the call report and related instructions cause problems for many credit union chief financial officers (CFOs), says Durrance, who addressed the 2018 CUNA CFO Council Conference Sunday in Austin, Texas.
He cites several NCUA Call Report pain points:
• Call report instructions. Read the call report instructions from front to back every year, Durrance advises. “NCUA will change things in the instructions without citing them on the change report. They don’t tell you that. Always look for changes to the instructions and forms.”
• FAQs on NCUA’s website. Again, the agency doesn’t advertise when they make changes to this section.
“NCUA has made changes to this within the last 60 days,” he says, most notably to instructions regarding business loan participations made to nonmembers. “That’s a big change.”
• Errors and warnings. Credit unions can view NCUA’s Historical Warnings Report in real time.
“Carefully read and check these warnings to identify if you have made an error,” Durrance says. “Fix any errors you find, and keep proof that you’ve checked the report. You want to find the error, not the examiner.”
• Cash and cash equivalent classification, which Durrance calls a “common error.” To be classified as “cash equivalent,” an instrument must have a maturity of three months or less.
• Foreclosed or repossessed assets. Reassess your repossessed assets periodically to make sure you’re disposing of them in a timely manner.
The value of a repossessed vehicle, for example, drops the longer you wait to sell it, says Durrance, citing a credit union whose repossessed vehicles sat for an average of a year and a half before being sold.
“NCUA wants to see these assets depreciated,” he says.
• Courtesy pay. Count these in your total number of loans granted year-to-date because you provided funding for the overdraft. These funds can’t be considered deposits because classifying them as such results in a miscalculation of shares.
• Reporting income and expenses. Doing so must always be year-to-date, from Jan. 1 to the current quarter-end date.
Also, when a loan is more than 90 days past due, it must stop accruing interest. “If you charged interest at that point, you must reverse it,” Durrance says. “It’s incumbent upon the CFO to communicate this to loan officers.”
• Classifying noninterest income. Credit unions must classify income generated directly from members (i.e., through courtesy pay or nonsufficient funds fees) differently than income derived indirectly—namely interchange income.
“They’re checking for this,” Durrance says.
• Loans outstanding held by members in bankruptcy. If the number of these loans continuously rises, “you’re doing it wrong,” he says.
The number of these loans should increase when members with loans file bankruptcy and decline after loans are charged off. NCUA wants to know how many are hanging, Durrance says. “This is the second most common error credit unions make on the call report.”
• Commercial loans vs. business loans. Each has a distinct definition.
Durrance advises CFOs to review a chart on page 72 of the call report instructions for clarification on what a commercial loan is and what a business loan is.
• Indirect loans. Vehicle loans account for most indirect loans, but any type of loan can be indirect.
"If another party makes the loan and you own, it’s indirect,” he explains. “Even if it’s generated by a [credit union service organization] you own, it’s considered an indirect loan.
“NCUA wants to know because your due diligence requirements are greater with indirect loans,” Durrance adds. “More credit unions have failed due to indirect lending than any other type.”
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