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CU System Archive

CU System

U.S. Central corporates in good company on ratings

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WASHINGTON (12/29/08)--U.S. Central has joined a host of financial institutions receiving substantial credit rating downgrades in recent days. Moody’s Investor Services announced last week that it downgraded U.S. Central’s long-term debt rating to A1 and placed the wholesale liquidity provider’s long- and short-term debt on review for further possible downgrades. Among U.S. financial institutions, U.S. Central is far from alone in seeing its ratings reduced amid the historic dislocation in global credit markets. Just last week, Standard & Poor’s issued multiple downgrades for several large global banks, ranging from Bank of America and Citibank to Goldman Sachs and the Royal Bank of Scotland. Conversely, U.S. Central remains just one of three depository institutions rated at AA+, now the highest rating S&P bestows on any U.S. financial institution, U.S. Central said.. Moody’s action last Monday targeted growing unrealized losses that have emerged on U.S. Central’s balance sheet. The losses stem from the declining market values of debt securities, primarily mortgage-backed securities, in its investment portfolio. However, Moody’s acknowledged that those unrealized losses considerably overstate potential real losses. While a small portion of U.S. Central’s securities may not pay off completely, and therefore represent a realized loss, the only way that the bulk of the unrealized losses will become realized is if U.S. Central sells securities in the current weakened market. U.S. Central repeatedly has emphasized it does not intend take such action. “The vast majority of the securities owned in our portfolios continue providing consistent cash flow in the form of regularly scheduled principal and interest payments,” said Francis Lee, CEO of U.S. Central. “We continue to put these bonds through ongoing rigorous analytics to determine that we are still ‘money-good.’ ” For its part, U.S. Central agreed with Moody’s on the nature of losses in its investment portfolio, stating that it believes “economic losses will be much less severe than current unrealized losses.” Those unrealized losses, of course, could reverse if the market value of securities rebound, it said. At the same time, U.S. Central likely will declare additional “other-than-temporary-impairments (OTTI)” in coming months on those securities that are not expected to pay off completely. These charges will have the effect of reducing earnings and regulatory capital. The likelihood of such impairments contributed to Moody’s downgrades, U.S. Central said. “We have told our members that we are likely to experience realized losses in our portfolio in 2008,” Lee said. “Based on our analysis and on that of third party experts, we believe that any OTTI will be manageable in relation to current earnings and retained earnings, but we’re still finalizing our assessments.” U.S. Central noted that 82.2% of its investment securities portfolio remain rated AAA or AA. It has managed to maintain that high level of quality despite the narrowing availability of debt securities boasting those ratings, it said. Since the credit crisis began in mid-2007, ratings agencies have downgraded more than 50,000 residential mortgage-backed securities (RMBS), representing more than half of all RMBS issued between 2005 and 2007. Prior to 2005, there were typically less than 500 downgrades in a year. Several corporates also received ratings actions last week. WesCorp was one of two corporate entities with long-term debt ratings that were reviewed. “There is no immunity from the current market dislocation,” said Jim Hayes, WesCorp senior vice president and chief financial officer, when the ratings were announced Dec. 22. “Today’s action further illustrates the continuing devaluation that all financial institutions are experiencing in their portfolios.” Hayes noted that 100% of the securities in WesCorp’s portfolio were government-backed or were rated AAA or AA, the two highest rating categories, at the time of purchase. Moody’s acknowledged that WesCorp’s securities portfolio is of “relatively high quality.”

U.S. Centrals November net income at 32.8 million

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LENEXA, Kan. (12/29/08)—U.S. Central announced it had recorded net income of $32.8 million for November, bringing its year-to-date earnings to $108.7 million. However, Treasury plans and fears about the economy and overall market illiquidity have affected market pricing of its assets, it said last week. Members’ share and certificate accounts averaged $24.5 billion during November, compared with $36.4 billion in November 2007, according to U.S. Central’s monthly financial statement posted Dec. 19. Net interest income totaled $39.1 million in November, compared with $37 million in October. Fed funds/LIBOR spreads were again historically wide in November and were the primary reason for the high net interest income total, said the report by Kathryn E. Brick, senior vice president and chief financial officer. Net losses on financial instruments totaled $1.4 million for the month, primarily as a result of gains paid to members on the redemption of member certificates. Also, U.S. Central reclassified securities with a fair value of $145.2 million from trading to available-for-sale ($124.7 million) and held-to-maturity ($20.5 million). As of Nov. 30, accumulated other comprehensive income (AOCI) on the balance sheet reflected an unrealized loss of $5.6 billion, up from $4.6 billion a month earlier. The announcement that the Treasury Department would no longer plan to purchase mortgage-related assets under the Troubled Asset Relief Program (TARP), coupled with continued fears about the U.S. economy and overall market illiquidity, caused spreads on these assets to widen significantly, resulting in a decline in fair value of approximately $650 million, the report said. Securities backed by credit card receivables, auto loans and student loans also experienced spread widening, which accounted for the remainder of the AOCI change.

Pennsylvania CUs report strong third-quarter growth

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HARRISBURG, Pa. (12/29/08)--Pennsylvania’s credit unions reported growth in earnings, membership and loans for the period ending Sept. 30. The Pennsylvania Profile Third Quarter 2008 indicates that despite the recession, loans for the state’s credit unions grew 7.5% in the 12 months preceding Sept. 30, compared with the national growth rate of 7.1% (Life is a Highway Dec. 23). Loans totaled $17.1 billion-- up from $1 billion in September 2007. Loan delinquencies and chargeoff rates also edged up the past year. Pennsylvania credit unions continued to grow in member business loans--by 5% from third quarter 2007 and nearly 30% for the 12 months ending Sept. 30. The 30% figure is nearly double the national rate of 18.4% for that period. Credit unions in Pennsylvania experienced 18.2% growth in first mortgages, which compares with 15.8% in mortgage growth nationwide. Used-auto loans grew 7%, compared with a 4.4% growth nationwide over 2007. The savings growth rate for the period was 8%, compared with 5.8% nationally, largely due to growth in certificates (12.5% compared with a 3.9% national growth) and individual retirement accounts (13% growth for the state’s credit unions and 8.9% for credit unions nationwide). The movement gained 29,000 members in Pennsylvania during the year ending Sept. 30, and all asset categories posted new member growth.

CUNA Mutual to end retiree medical benefits subsidy

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MADISON, Wis. (12/29/08)--A shaky economy and its impact on balance sheets has led to cutbacks in companies’ medical benefits programs for retirees. CUNA Mutual will end its subsidy of retiree medical benefits effective Jan. 1--a decision that will affect 1,000 retirees. The insurance company is one of two in Madison that recently announced such measures. The subsidy currently provided by CUNA Mutual covers 50% of retirees’ medical coverage premium, the company said.. CUNA Mutual will provide a lump sum payment to retirees equal to two years of the company subsidy to help them through the transition. Retirees can still purchase group medical plans through the company, but will have to bear the full premium costs. CUNA Mutual said it regrets having to cut the benefit. The health subsidy represents $100 million on the company’s balance sheet. “That is simply too much for a company of our size in these uncertain economic times,” Rick Uhlmann, CUNA Mutual senior manager of media relations, told News Now. “This very difficult decision is one of several actions we are taking to retain appropriate levels of capital and thus our strong financial ratings. Ultimately, it's a decision that is being made in the best interest of our 400,000 policyholders during this economic downturn,” he added.

Legacy Community CU discusses CU difference in media

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CHARLOTTE, N.C. (12/29/08)--Despite a turbulent economy, First Legacy Community CU, Charlotte, N.C., recently changed to a community charter, added a new branch, and is seeking an expansion to a new location. Saundra Scales, president/CEO of the credit union, recently discussed her credit union’s charter change, success and the credit union difference with The Charlotte Observer Dec. 21. First Legacy was originally chartered as School Workers FCU to serve black teachers in the Charlotte-Mecklenberg area. In September 2006, the credit union opened to anyone who lives, works, attends school or worships in the 10-county area around Charlotte. “We felt that we were missing out on a lot of people who wanted credit,” Scales told the Observer. After the change, the credit union averaged 100 new members in the first month, compared with 30 or 40 previously. The difference between First Legacy and a bank--besides offering better rates on loans and higher dividends--is in developing relationships with members, which minimizes defaults, she said. The economic downturn has affected First Legacy’s loan delinquencies--0.75% of 1%, compared with half of 1% previously—but it is overall very healthy, Scales said. Many of First Legacy’s members do not have 600 to 700 credit scores, so the credit union looks beyond the scores when lending. A member’s rental history, utility payments, and job stability are taken into consideration, Scales said. The credit union also offers financial counseling, she added. During her work as president/CEO, Scales said she has learned that credit unions need to understand their target market to be successful. They also need to be responsive. “I can’t change the world but I’m maybe able to influence one person at a time,” she told the newspaper.

Grant brings Culture of Savings to Latino Community

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DURHAM, N.C. (12/29/08)--Latino Community Credit Union (LCCU) has earned a $60,000 Innovation Grant from the National Credit Union Foundation (NCUF) to create a “Culture of Savings” throughout a state with one of the fastest-growing Latino populations. In North Carolina, the Latino population has surged to over 600,000 from 22,000 in 1990. LCCU estimates that 80% of Latinos in North Carolina are unbanked--twice the national average for Latinos. Their per-capita income of $8,650 is less than half of other North Carolina households, and their average household net worth of $8,000 is less than one-tenth of white families.
A graduate of Latino Community Credit Union’s financial education course makes his first savings deposit. (Photo provided by the National Credit Union Foundation)
“Creating a culture of savings is critical for the Latino population,” emphasized LCCU CEO Luis Pastor. “Our Culture of Savings initiative will educate LCCU members as well as create a vital program that can be a model for other organizations to follow.” Latino families tend to be younger than the rest of the U.S. population, so they may be more responsive to financial education. LCCU’s membership reflects this trend, with an average age of 34, compared with the national average credit union membership age of 47. “We plan to develop and pilot three projects targeting three distinct age groups,” explained LCCU Financial Education Director Erika Bell. “Our hope is that by influencing multiple generations, this will instill and perpetuate a culture of savings. The projects will get everyone involved in and learning about the concept of savings, and will include monetary awards through long-term share term certificates.” Primary goals are to increase the number of savings accounts and the amount of savings for children, youth, and adults. “The implementation of this Culture of Savings initiative beginning in 2009 is particularly crucial,” Pastor said, “because we are planning to open three new branches and expand our financial education program. By implementing this initiative now, we will be able to attract, educate, and retain new members.” LCCU currently has seven branches throughout North Carolina. Chartered with just 500 members in the year 2000, LCCU has grown to serve over 50,000 members--95% are Latino; 97% are low-income, and 70% were previously unbanked. “The credit union can create opportunities for young families in this target population,” Pastor concluded. “Providing financial education in conjunction with access to affordable financial services, helping to create credit histories, and building toward homeownership are necessary steps to improve their lives.” This is the 11th of 14 Innovation Grants approved by NCUF in 2008. Innovation Grants are made possible by members of corporate credit unions who invest in the Community Investment Fund (CIF).

CU System briefs (12/26/2008)

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* RICHMOND, Va. (12/29/08)--Chris Saneda, senior vice president and chief information officer for Virginia CU, Richmond, has been selected as one of IDG Computerworld’s Premier 100 Information Technology Leaders for 2009. Saneda has been with Virginia CU since 2007. Computerworld’s Premier 100 IT Leaders Awards Program honors executives who show exemplary technology leadership in resolving pressing business problems. Virginia CU has $1.6 billion in assets. (Photo provided by Virginia CU) ... * RALEIGH, N.C. (12/29/08)--On Dec. 19, State Employees’ Credit Union (SECU) unveiled its 1,000th Cash Points ATM in Lizard Lick, N.C. SECU chose Lizard Lick as its landmark ATM site for the unique name and history of the community. SECU constructed a special themed ATM featuring a giant lizard replica and a commemorative plaque marking the milestone. Town officials, including Lizard Lick “Mayor” Charles Wood and Wendell Town Commissioner Sid Baynes attended the ribbon cutting ceremony Friday afternoon. Baynes, Wood, and SECU Board of Directors Chairman Shirley Bell addressed those in attendance. From left are: SECU Advisory Board members Lou Ann Cooke, Felisa Parker, Dale McLeod; SECU Vice President Kim Canipe; SECU Board of Directors’ Chairman Shirley Bell; Wood; SECU Facilities Services employees Vice President Dot Hinton and Specialist Ben Falk; Baynes, who is also and SECU Advisory Board member; and SECU Advisory Board members Dyke Hostettler and Beth Barham. (Photo provided by State Employees’ CU) ... * SALT LAKE CITY (12/29/08)--Mountain America CU was recognized as one of the best companies to work for by Utah Business magazine. The magazine noted Mountain America’s First Day Lunch. Since new employees may be nervous on their first day at work, the credit union provides lunch hosted by a member of the executive staff. During these lunches, senior staff members share their stories of career success from within the company to motivate and support the new employees. Mountain America has more than $2.8 billion in assets ... * KANSAS CITY, Mo. (12/29/08)--Bob Ziegler, a former Missouri Credit Union Association (MCUA) board chairman and long-time leader in the Kansas City Credit Union Chapter, died Dec. 19. He was 79. Ziegler was CEO of American Enterprise CU, Liberty, Mo., from 1966 until he retired in 1991. The credit union later became Midwest United. Ziegler also served for about two decades on the MCUA Board of directors, including a term as board chairman in 1981-1982. He also served as a director for the Credit Union National Association, representing Missouri credit unions (The Missouri difference Dec. 24) ...

CUNAs Small CU Committee offers free white paper

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MADISON, Wis. (12/29/08)--The Credit Union National Association (CUNA) Small Credit Union Committee’s newly published free white paper, “Managing Through Tough Times,” is now available on CUNA’s website. Small credit union professionals are often stretched thin, so the committee decided to detail some of the operational issues it had been discussing in the paper. The paper may be of interest to large credit unions too, the committee said. The paper was a collaborative effort, said committee chair and CUNA Board member Pat Wesenberg. Wesenberg is CEO of Point Plus CU, Stevens Point, Wis. “Our committee spends a great deal of time talking about small credit union challenges and what might be done from a regulatory perspective,” she said. “But we also keep a close watch on small credit union financial results, and it's certainly obvious that many are feeling the strain of the current market turmoil.” Wesenberg noted recently released National Credit Union Administration data show that credit unions with less than $35 million in assets recorded return on assets of 0.42%. “That’s down from 0.61% in 2007,” she said. “Perhaps more disturbing--recent results show that 23% of small credit unions were 'unprofitable' [with negative return on assets]. That's up from 14% in 2007.” To read the paper, use the link.