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CUs in media on interchange small biz lending economy

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WASHINGTON (12/28/09)--Credit unions and the Credit Union National Association (CUNA) were in the media limelight last week on several issues, including interchanges, business lending, the economy and the backlash against bankers. They were featured in the Boston Globe (Dec. 23), PBS "Nightly Business Report" (Dec. 22), Reuters (Dec. 23), (Dec. 22); Marketplace (Dec. 22), and Denver Daily News (Dec. 23). In a letter to the editor of the Boston Globe, CUNA Board member Robert Cashman, CEO of $764 million asset Metro CU in Chelsea, Mass., discussed the interchange issue and noted the "myriad benefits that merchants receive by accepting credit cards." He urged members of Congress to oppose legislation that would lower interchange fees. "Artificially lowering interchange fees could force credit unions like mine to either raise fees for our members, or possibly stop offering credit cards," Cashman wrote. "All we ask is for merchants to pay their fair share in a system that brings them clear benefits." Bill Bynum, CEO of Hope Community CU, Jackson, Miss., discussed with PBS "Nightly Business Report" his attendance at a White House meeting with President Barack Obama and his economic team and community financial institutions. Bynum explained the concerns smaller financial institutions have about regulators in the financial crisis, noting that regulators "really tightened their examinations quite a bit." "It's quite a balancing act to make sure that we are operating within the bounds that the regulators look for, but also serving our members in the communities that we serve," he added. He said the president wants to hear from community financial institutions such as community credit unions about the challenges they are facing so he can communicate those to the regulators. In Reuters, an analysis by Mike Schenk, CUNA's senior economist, was the lead interview discussing the drop in demand for U.S. home loans. See related article in News Now's Market section, "Rising home sales hopeful sign, Schenk tells Reuters. Schenk also was quoted last week on, discussing consumers' dissatisfaction with banks and how to join a credit union. In the article, Schenk explained that credit unions weren't as tangled up in the subprime mess, "so while the big banks are hunkering down and licking their wounds, we're in much better shape to make consumer loans, and are continuing to do so as we watch our market share grow in every market we serve." In "Bank's failure gets personal," in Public Radio's "Marketplace," senior editor Paddy Hirsch discusses his experience after his small bank, First Federal Bank of California, failed two weeks ago. His conclusion: "I'm going to have to do some pretty careful shopping around in the new year. And frankly, I'm seriously considering a credit union." And, the national press coverage of a bill introduced last week in the Senate that would extend the member business lending cap continued, with an article in the Denver Daily News. To access the articles, use the links.

Corporate One releases financial report for November

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COLUMBUS, Ohio (12/28/09)--Corporate One FCU reported positive reserves and undivided earnings (RUDE) of $25.6 million in its semi-annual review of its November securities portfolio, released last week. All member Paid-in-Capital (PIC) and Member Capital Shares (MCS) remain intact, the Columbus, Ohio-based corporate said. The corporate's losses totaled nearly $40.4 million for the 11 months ending Nov. 30. That compares to a net income of $19.7 million a year earlier. Losses for November totaled $32.3 million. The losses, "while disappointing" were fully anticipated, said President/CEO Lee C. Butke in the report's executive summary. Based on what is known today, "we do not anticipate having to impair our members' capital in the future," Butke said. November's losses stemmed from several factors, primarily $17.7 million in other-than-temporary impairment (OTTI) write-downs related to available-for-sale investments; $4.6 million in its capital investment in U.S. Central, and $10 million impairment on securities insured by Financial Guarantee Insurance Corp. As of Nov. 30, the corporate no longer has any capital exposure to U.S. Central, having written off 100% of its investment in U.S. Central's capital investments. That means that any future losses at U.S. Central will no longer impact Corporate One's RUDE statistics. Core earnings totaled $13.4 million for the 11 months ending Nov. 30. The corporate noted it has nearly $5 billion in assets under management, a 7% increase over a year earlier, and it has budgeted more than $9 million in core earnings for 2010 (35 basis points). Liquidity remained strong, with the corporate ending November with cash and cash equivalents totaling $874 million. Average shares for the month totaled $3.64 billion, compared with $3.32 billion for November 2008--a 10% increase. Corporate One said it continues to maintain access to multiple lines of liquidity and had, at November's end, more than $1.58 billion in tested, liquidity sources. For the full report, use the link.

Calif. chamber asks AltaOne to reconsider branch closure

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KERNVILLE, Calif. (12/28/09)--The Kernville (Calif.) Chamber of Commerce wrote an open letter to AltaOne FCU in the Kern Valley Sun last week, seeking reconsideration of the credit union's decision to close its Kernville branch. AltaOne FCU, headquartered in Ridgecrest, Calif., announced Dec. 15 that it would close three branches--including the Kernville branch--because of the economy's effect on its operating expenses. It will keep an external ATM operating with full service. Members had begun to go delinquent on loans, and the mounting chargeoffs affected the credit union's capital ratio, which dropped to below the well-capitalized standard of the National Credit Union Administration (NCUA), according to AltaOne President/CEO Bob Boland. The hit on its provisions for loan losses totaled $12 million this year, Boland told News Now. Other contributing factors were the assessment for the National Credit Union Share Insurance Fund and the $2.9 million in capital held at Western Corporate FCU (WesCorp). NCUA encouraged the credit union to review its operating expenses and take measures to increase its capital, he said. Boland told News Now the credit union had received a letter from Kernville chamber asking management to reconsider, based on the need of its members there. "We're sensitive to our members-owners in the community," he said. "Kernville is located in a remote, rural area and is a very small community that is isolated. Bank of America and Comerica banks both had abandoned the area, and the credit union was the community's preference, he said, noting the area has some small businesses that cater to tourists. "The president has been encouraging credit unions and others to serve small businesses," Boland told News Now, "but in California, unemployment is at 15%, we're seeing bankruptcies triple, car dealers are closing down and it's a very severe state of affairs. We have to reduce our operating expenses to get back to a position of profit, and we've had to make some very tough, tough choices." To cut expenses, the credit union already had closed its Mammoth Lakes location in October. Its 14 locations have been reduced to 10. Other towns' residents have been vocal about missing their credit union's convenient services. "Most members don't understand we went through a wave of layoffs to help our operating expenses," he said, adding, "There were no other options." He noted that the credit union owns the Kernville facility and will keep the building and a tenant, so it isn't abandoned. However the credit union can't staff it. "Should our financial situation improve, we'll reconsider, but we can't make promises, and we won't hold out false hope." The credit union is also closing its RiverWalk branch in Bakersfield; closing an in-store mini branch in the Albertsons grocery in northern Ridgecrest; and eliminating free-standing ATMs at the NAWS Recreation Center, China Lake and at the southern Ridgecrest Albertsons in-store branch. Like Kernville, the Bakersfield and northern Ridgecrest locations will keep full-service external ATMs. Member accounts from Kernville and the RiverWalk locations are being transferred to Lake Isabella and the Ming center in Bakersfield, said the credit union. In it's letter, the Kernville Chamber of Commerce said it "is very much opposed" to the closure because "it is the only financial institution located in the northern part of Kern Valley." The area includes Kernville, which has a population of 2,000; nearby Wofford Heights with 4,000 in population; Riverkern, Fairview and Johnsondale (Kern Valley Sun Dec. 22).

Invest or stay liquid Corporate offers 2010 strategy

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PLANO, Texas (12/28/09)--Share growth of 10.4% and loan growth of 2.7% in 2009 have left credit unions flush with cash during a period of extremely low investment yields. In the absence of loan demand, what options do credit unions have for excess funds? Three divergent strategies have emerged, said Andy Swoger, senior investment officer with Southwest Corporate CU Investment Services in Plano, Texas:
* Leave cash liquid and wait for increasing rates; * Increase holdings of agency callable and mortgage-backed securities (MBS) bonds; and * Increase short-term laddering into bank certificates of deposit (CD) portfolios and corporate certificates.
Credit union cash and equivalents rose 32.8% over the same period in 2008, according to third-quarter National Credit Union Administration (NCUA) data. “The increase suggests many credit union portfolio managers are reluctant to allocate excess funds in the current low rate environment,” Swoger said. “Unfortunately, unallocated funds coupled with low interest rates are driving down investment yields.” NCUA data also indicate total investments for the third quarter increased 25.5% over third quarter 2008. Credit union investment portfolios experienced significant growth in every category, with agency MBS ($12.6 billion), agency bullets/callables ($12.2 billion), bank CDs ($9.8 billion), collateralized mortgage obligations ($6 billion), and corporate certificates ($3.3 billion) leading the way. As of early December, bank CD rates “were relatively high compared with agency bullets and corporate certificates,” Swoger said. “As CD portfolios have grown, many credit unions dissatisfied with CD yield are looking to agency step-ups and shorter average life MBS alternatives. "In my experience, bank CDs traditionally provide more value in a declining rate environment due to less efficient pricing methods (lag), but those inefficiencies are also present when rates turn around,” he continued. “In a rising rate environment, agency securities and MBS provide strong relative value due to constant re-pricing.” Heading into 2010, Swoger anticipates that credit unions will continue to grow and diversify into agency markets, based on the large shift experienced into these investment vehicles in 2009. “Credit unions are becoming increasingly comfortable investing in agency securities. Generating earnings is more difficult than in the past, and in a cash-rich environment, evaluating other investment options may be a good idea,” he said. “The agency market provides credit unions the ability to put larger amounts of cash to work with relative ease.” As the yield curve steepened during 2009, portfolio managers began extending out investment maturities, Swoger said. Investments with maturities less than one year grew during the first half of 2009, but the trend reversed in the third quarter. Investments with terms of fewer than one year decreased, and investments with one-to-three-year terms experienced growth. “The Federal Reserve has stated that the depressed economy and slow recovery may require the Federal Open Market Committee to keep rates low for an extended period,” Swoger said. “I think credit unions now realize that in order to pick up yield, they have to move a little further out on the curve.” Portfolio managers should always carefully weigh the high cost of keeping funds liquid versus the impact of interest rate risk on the investment portfolio, and more important, on the total balance sheet, Swoger said. A valuable exercise when analyzing this dilemma is to calculate how much rates would have to rise for a credit union to break even on holding short-term funds yielding less than 50 basis points, he said. Retaining excess cash flow in overnight cash accounts yielding 15 to 25 basis points while waiting for rates to rise may not be the best alternative, especially for credit unions suffering from slow loan growth, he added. With economic pundits forecasting low rates for the next six months and slow-rising rates the remainder of 2010, extending duration may be warranted, Swoger said.

CU System brief (12/27/2009)

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* EL CAJON, Calif. (12/28/09)--Grossmont Schools FCU hosted more than 60 school district superintendents, cabinet members, school board trustees and educational stakeholders at its "Advocacy for
Click to view larger image Click for larger view
Education--A Dialogue With Sen. Mark Wyland" on Dec. 12). Wyland (R-38) is a member of the California Senate Education Committee. Wyland detailed the Senate version of "Race to the Top" legislation, S.B. X51, which he coauthored with Sens. Gloria Romero (D-24), Bob Huff (R-29) and Elaine Alquist (D-13), and updated attendees on its progress. He also spoke about the state's 2010/2011 education budget. Other topics included allowing school districts greater flexibility on deciding how to best use their funds; the impact of the H1N1 flu virus on school districts, and states' deferred payments to school districts, which are contributing to negative cash flows. From left are Assemblyman Joel Anderson (R-77), Wyland, and Grossmont Schools FCU CEO Steve Devan. (Photo provided by the California Credit Union League) …

Tinker goes beyond ADA mandates to serve blind members

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OKLAHOMA CITY (12/28/09)--Tinker FCU is going beyond the legal requirements of the Americans with Disabilities Act to help members with visual impairments. In February, Tinker FCU merged with a small credit union that serves individuals with visual impairments--The Associated Blind of Oklahoma/Texas FCU (ABOT FCU). Since the merger, Tinker employees have explored hardware and software technology to help members read disclosures, conduct their financial business independently and receive information about the accounts and services the credit unions offer. “We realized very quickly in the merger process that we were going to have to make some changes in the way we do things, in order to truly meet the needs of these members we had pledged to serve,” said Billie Houston, executive vice president and chief financial officer. “While we can offer them much more in the way of account and service options than their previous credit union was able to, we realized we must also be able to cater to their special needs, in order for them to be able to take advantage of what we offer. “It would be unfair to them to always have to depend on others to help them conduct their personal business,” Houston added. Tinker will install JAWS, a software program that can electronically read printed type and translate it to audio, at its branches next year. Marketing has also made its accounts and services brochures available in large print--both on the credit union’s Web site and internal Intranet system. About 10% of members read Braille, so the credit union is researching Braille options. Tinker employees also have received sensitivity training, conducted by the director of the Oklahoma League for the Blind. “We realized the steps we’re taking also will help many of our older members who may be experiencing sight problems simply due to their age,” Houston said. “We’re very happy to serve these members as they deserve, and our research and discussions have also led us into thinking about service to other members with special needs other than vision.” Tinker has $2 billion in assets.

CUs offering advice for fiscally fit 2010

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MADISON, Wis. (12/28/09)--Credit unions are offering their members advice on how they can stay “fiscally fit” in the new year. The Ohio Credit Union League said that Ohio credit unions are encouraging consumers to review their finances and incorporate five steps into their New Year resolutions:
* Pay down credit card debt. Set a goal to pay off debt by making monthly payments beyond the minimum amount due. * Review monthly budgets. * Save for 2010 and beyond. The league recommended having six months’ worth of salary saved. * Check credit reports. * Educate children about money.
Affinity FCU, Basking Ridge, N.J., also offered five financial tips for consumers to consider:
* Evaluate the terms and conditions of credit cards. Card companies have raised rates as high as 29.9% and lowered spending limits, the credit union said. * Take advantage of free online money management tools. Affinity will offer FinanceWorks to its members as a part of its online banking service. * Set up a meeting with a financial adviser. * Contribute to an individual retirement account. Consumers have until April 15 to make contributions for 2009. * Review credit reports.

Pa. CUs in district meetings with state legislators

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HARRISBURG, Pa. (12/28/09)--Pennsylvania credit unions have participated in several district meetings with state legislators, discussing overdraft protection, member business lending, interchange and the positive actions credit unions are taking for their communities.
On Dec. 22, Rep. Glenn Thompson (R-5) and Charles Dent (R-15) were briefed on key credit union issues by Connie Wheeler, CEO, and Jim Beierlein, board member, both of Penn State FCU, Bellefonte (Life is a Highway Dec. 23). Thompson, who is a member of two credit unions, said credit unions did not contribute to the nation’s financial crisis. If there were more credit unions, there would not have been a financial meltdown, he added. Dent met with Fran Muto, CEO, People First FCU, Allentown; Rosie Krantz, CEO, Lehigh Valley Educators CU, Allentown; and Alan Musselman, chief financial officer, First Commonwealth FCU, Lehigh Valley. Rick Wargo, Pennsylvania Credit Union Association (PCUA) executive vice president and general counsel, and M.E. Siegfried, PCUA communications specialist, also attended.
Rep. Glenn Thompson (R-5) met with Connie Wheeler and Jim Beierlein, Penn State FCU, Dec. 22. Thompson is a member of two credit unions.
Rep. Charles Dent (R-15) met with credit union representatives Dec. 22. From left are Rick Wargo, Pennsylvania Credit Union Association executive vice president and general counsel; Fran Muto, CEO, People First FCU; Dent; Rosie Krantz, CEO, Lehigh Valley Educators CU; and Alan Musselman, chief financial officer, First Commonwealth FCU. (Photos provided by the Pennsylvania Credit Union Association)
During the meeting, Dent agreed with the credit union representatives on the value of overdraft protection and how it helps consumers. He also addressed concerns about the proposed Consumer Financial Protection Agency, saying that it is “going after a lot of folks who are already regulated but aren’t the cause of the problem we’re in today.” On Dec. 18, Mark Brennan, PCUA governmental affairs committee member; Ron Celaschi, Clearview FCU, Moon Township; and Lisa Florian, Riverset CU, Pittsburgh, met with Rep. Tim Murphy (R-18). The group discussed financial literacy; overdrafts; interchange; member business lending; cramdowns; and the Credit Card Accountability, Responsibility, and Disclosures Act. PCUA Director Cookie Yoder and Ron Lasich, PCUA governmental affairs committee member, met with Rep. Mike Doyle (D-14). They discussed what credit unions are doing for their members in the stressed economy, overdraft protection, interchange and member business lending.