In our low rate enviroment, be careful not to "sell" your money too cheaply.

"What does that mean?" You ask.  Well, we have long said that we are in the business of buying and selling money.  We buy from our members in the form of dividends.  We sell in the form of either making loans or putting funds out in investments. 

"Which is best and when?"  Like everything in our business, it depends.  

For the simplest break-even analysis look at your investment yield and you net loan loss ratio.  In order for a loan to have a better return to the credit union, the loan rate must be greater than the investment yield available and the loan loss ratio.  Say you earn 1.75% on investments and your loan loss ratio is 1.25%.  You would have to grant loans at 3% or higher to have an improvement over what you could obtain by simply investing the funds in government agencies or other investment programs.  I've seen credit union chasing auto loan rates too low when an investment would have been a better return.  Let someone else take the hit on losses.... at these rates, you don't have to go far above normal losses to have absolutely NO return on loans.

See my back? Hop off!!! Only $2B $6B to go? Bring it on and be done with it!

At 25BP per cu per $2Billion of assessment, we only have 1 to 3 assessments to go if we use 25BP as the "pay-down standard".  My vote --- Let's get it over with... hit me with 25 BP for 3 years and let's call it a day. Why do I say this?  Two reasons:

1.  The sheep that leave the fold are not obligated to pay future assessments.  Having an overhanging and ongoing exposure to lessening the "pain" now only increases the amount us remaining "sheep" will have to pay when the wolves move to another charter.

2.  Sooner is better for all... the larger cu's have higher ROA's and can take the hit. They are well above 25BP ROA... That's nothing - Yawn! Smaller cu's have excess capital and the also can take the hit (since they don't seem to be doing anything with their capital anyway!  If you have over 20% capital and you're haven't used it to increase member services / programs by now... I'm pretty sure you're not planning on doing that anytime soon!).

Besides, what better time?  If you have excess capital... you're not earning anything on the funds and paying assessments going forward will be harder due to regulations and competition.  Pay now ... while we still can afford it.

So, let's all pony up and put this behind us, so we can focus on the current issues... Dodd/Frank, Interchange, NCUA, NCUA, NCUA and, last but not least - NCUA, the real threat to cu's.

BTW  on the now-computed worse case, that would bring my total DTD (see post below) to 17% of my 2007 YE capital.  My members are not happy with the hit to "Their Capital", and neither am I.

New item added to Chart of Accounts - DTD

It stands for "Debacle To Date".... it represents the total amount your credit union members have paid in lost Capital and NCUA assessments for the Corporate debacle since it exploded.  It will be the topic of board and annual meetings for years to come. 

But, No Thanks Chuck!. Not everyone is wacky about MBL!

We've seen some really wacky CU lending already with MBL.... We've also seen NCUA's total and complete lack of supervision and oversight of cu activities.... corporate and NPCU.  So it comes as no surprise that the New York Credit Union Association is so pumped up on MBL.... they won't be paying the price of clean up!  It reminds me of the little guy pushing the group on to a fight... while remaining well out of harms way.

You're totally right --- It won't cost the federal government $1..... it will however, result in massive assessments to the members of credit unions under the current set up.  

Have NCUA get their act together.  Put some beefed up capital requirements in place (so the tab is smaller when it all goes south).  Limit the MBL to real MBL and not speculation, require some "skin in the game" .... then I'll say Thanks Chuck.    Right now..... NO THANKS Chuck...  

We haven't finished paying for the last debacle.... why set us up for another when we still have all the assessments to go?  Everyone said "no one saw it coming" with the corporate melt-down... I'm telling you now.... under the current regulations -- the next one is coming soon!

Look in the mail.... your reality check has arrived. 70% reject UR's business plan

Wow... the deadline date has come and gone.  After much to do... the proposed business plan was rejected by the vast majority of credit unions.  Now we'll see where they end up... Fed Direct.. yep, lots going that way.  Another Corporate.... duh!  "Anywhere but here!" was the rallying cry of the old WesCorp owners.  Time to shut it down and move on. 

The "11 ratios every board should know" meets the KISS principle

1 – ROA  Is it positive? Is it becoming more positive or less? Keep an eye on the components that make up the ratio.  ROA is a benchmark… the following are the building blocks.

            1a – Gross Spread – the difference between cost of funds and yield on earning assets (loans and investments).  Again, is it growing or shrinking?  

            1b – Non-interest Income/ Total income -  How dependent are we on this income? 

            1c – Operating expenses / Assets – how expensive are our operations?

            A to C gives a glimpse as to why ROA is either great or just making sucking sounds.

2 – Net Charge offs to total Loans.  It’s not what you make, it’s what you keep that's important.

            2a – As a general rule, loans that are not delinquent are not losses…. Keep this low and all good things will follow.  This is the barometer of what #2 will be. (In general – we have all witnessed the phenomenon of “current to c/o” because of bankruptcy.  I call these “lightning losses” …. They strike hard, without warning, and from the damndest places!)

3 – Net Worth.  You have to have it and you have to keep it to fulfill the #1 rule of CU’s --- BE HERE NEXT YEAR!  #1 and #2 will indicate if this is going to be a good ratio or a problem ratio. Lose sight of this ratio and you are either in PCA hell or Toast... AKA, between a rock and a hard place.

 

            3a – RBNWR – for those of us who push the envelope in investing (because lending sucks), sometimes we need more Net Worth than the minimum 7%. 

Increase income, decrease expenses, shrink assets, make better loans, and investing wisely are methods to assist you in the successful management of these ratios. It’s not complex, but it’s not easy… it takes all our waking hours to be vigilant in keeping these in balance when times get tough.

Get these three right, and life is good…. If they fall out of whack… you’ve got some (or a lot) of work to do.  

If the decisions seem tough…. Refer to the #1 rule of cu’s…

Guest post - Fed Direct... It's easy, it's safe, and better than funding WesCorp!

I sat through umpteen meetings where I was told by the folks at WesCorp... "Don't go to the Fed, gloom and doom are sure to follow".  Scare tactic after scare tactic.  "Watch out for the Fed-man".  Ok.... so a few folks didn't drink the Kool-aid and went to the Fed.... GUESS WHAT?  No SWEAT!

I asked a real live Fed user to tell everyone about the experience.... This is what I received:

We are a federal credit union located in the County of Los Angeles. We went Check-21 direct to the Federal Reserve over 5 years ago. Yes, we moved to the Federal Reserve before WesCorp went Bankrupt (Bankrupt is a technical term for Conservatorship). The Federal Reserve is a branch of the U.S. Federal Government. Unlike the NCUA, the Federal Reserve provides products and services that are of great benefit to financial institutions. Imagine a branch of the Federal Government that is competent. It could happen. We are pleased with the level of service at the L.A. Branch of the Federal Reserve. Contact Manuel Ramirez the Account Executive for Business Development at the Federal Reserve. Manuel can be reached at (213) 683-2885. Ask Manuel for credit union references. We have had no counterfeit checks, no forgery, and no complaints. We get immediate settlement credit. Returns are prompt. We balance daily to the Federal Reserve and it takes all of 15 minutes per day. Going direct with the Federal Reserve is less expensive & more efficient than going through WesCorp FCU. We would do it again. We have no regrets. Don't take my word for it. Give Manuel Ramirez a call at the Federal Reserve and get credit union references.

There it is... from the mouth of a real end-user.  So, now who are you going to believe?  Someone begging for your future monies, or a fellow CU that has nothing to gain?

There are options.... REAL live and functioning options.

You'da thunk the CEO's of Western Bridge, the League, the board of Western Bridge, and the "Nifty Fifty" in Newport would have clued us in....  NOPE... we play politics... we don't cooperate or assist our fellow cu's.... unless we need them to serve our purposes! 

Thank you GUEST POSTER.... one honest voice!

Don't fear the Fed.... Don't drink the Kool-aid....  Take the options available.

It grinds this blogger that all of a sudden Corporates have become sacred cows.... we put them in place back in the 70's to serve a need...  Is it just possible that the need has passed, and others can do the job better?  AND for less?

Just because they will soon be turning out the lights in San Dimas, doesn't mean you will be left in a lurch.