Some Credit Union Concerns Going Forward

The NCUSIF / Corporate CU restructuring plan will cost .15 basis points per year over the next 7 years, probably more. In addition, some corporates are writing down their capital; this will be handed down to natural persons CUs and cannot be recovered.

Increasing loan losses related to job losses and sluggish economic growth continue to be a concern. Unknown how deep the problem can go.

Interest margin pressures are a real concern. Deposit rates can move up much faster than loan rates.

Mortgage rates are being manipulated and are artificially low right now. Jack Brick’s (Brick and Associates) challenge question: “Do you really want to play in this Game”? Low yielding long-term mortgages and mortgage backed investments present risk of both lost income and market value risks when rates move north.

Bankruptcy “Cram-down” proposals were defeated in Congress for now, but may be coming back.

Interest rate risk is a major concern. Credit unions with a large percentage of long-term loan and investment assets are at risk. Brick cautions against reaching for yield in a low-yield environment.

Business loans can be an opportunity or an emerging problem. Brick warns against doing business loans as a “Hail Mary Pass” out of desperation for net income. Few CUs have the expertise and the market is risky as ever right now.

Loan modifications in problem loans – credit unions are finding that they don’t usually work unless there is underlying good credit, at least 20% equity in the collateral, etc.

New branches now take about ten years to start being profitable - be realistic in your analysis. Switching financial institutions is not a high priority with anyone, says Brick; few will switch because of a new facility.

Liquidity can be a major risk. Money Market accounts are projected to exceed recent 4.5% 15 year mortgages at some point. Selling mortgages or mortgage backed investments later will not be an option to fix a liquidity problem.

The pace of new regulations has been picking up with no abatement in sight. This can be a drag on efficiency and earnings.

President Obama hosted a conference of all the Native American tribes. I know the U.S. economy's in bad shape, but Obama told the Indians, 'Look, you can have the country back. Okay, fine.' –Jay Leno