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I know we are all growing weary of the endless procession of bad financial news, stock market gyrations, announcements of failed companies, increasing job losses, property value declines, troubled financial institutions and even bankrupt government entities. As the Credit Union navigates through this economic slowdown and turbulence, inevitably, I get asked two questions by members, employees, friends, family, and even the media ... "When is this going to end?" and "How is the Credit Union doing through this?". As much as I would like to, I have no way to predict, with certainty, the length or severity of this economic calamity. The recent events in the financial markets have rendered both historical experience and sophisticated econometric computer models virtually useless in preparing for what may be lurking next. On the other hand, I can confidently answer how the Credit Union is doing. I reassure those asking that your Board and Executive Team are constantly working to make prudent decisions and ensure the institution remains agile and adjusting quickly to each new challenge this volatile market throws at us. After all, we are member/owners ourselves so we share your desire for stability during these uncertain times.
That being said, our members should consider their Credit Union a safe haven, an island of calm, in times of storm and crisis. While some in the banking community had dismissed the credit union business model for being "plain vanilla," we remained focused on our member-owners and provided excellent basic services delivered with a banking experience exceeding expectations. "Great Rates. Smart Banking." It may not be as "sexy" as the big banks, Wall Street firms and other competitors, but as I speak with members day in and day out, I am confident we have made the right decisions. It is funny how the more things change, the more they stay the same ... we never abandoned the basic tenets of sound banking and it seems things are coming back full-circle to "old school" banking. No doubt, our competition will be completely distracted by the challenges of survival ... desperately seeking capital, initiating draconian cost cuts, announcing massive layoffs and frantically integrating huge, forced mergers/acquisitions that are sure to come in an effort to keep banks afloat. Your Credit Union, on the other hand, is exceptionally well capitalized and enviably positioned to not only weather the storm, but emerge stronger and better able to serve our members when the economy recovers from these headwinds.
On behalf of your Board and Executive Team, I want to briefly reassure you on the financial soundness of your Credit Union.
Insured Funds
The shares in your credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF). Your share insurance is exactly the same as the deposit insurance protection offered by the Federal Deposit Insurance Corporation (FDIC), and, like the FDIC, the NCUSIF is backed by the full faith and credit of the United States government. In addition, the limits of insurance were recently raised to $250,000 with the passage of the "Emergency Economic Stabilization Act of 2008" ... exactly the same as the FDIC.
Financial Condition
Your credit union is rated a five-star institution by BauerFinancial ... their highest rating. BauerFinancial, Inc. has been analyzing and reporting on the financial condition of the nation's banking industry since 1983. Through the years BauerFinancial has earned the reputation of "the nation's bank rating service." Hundreds of newspapers depend on their ratings for their readers while federal and state regulators refer thousands of inquiries to them each year.
Investment Portfolio and Liquidity
With respect to the investments the Credit Union holds as assets...we hold no securities having underlying sub-prime backed securities, no commercial mortgage-backed securities (CMBS) or collateralized debt obligations (CDO). Your Credit Union has followed very conservative investment strategies, maintained a historically high level of liquidity, and as of September 30, 2008, had nearly 40% of total assets in available funds that can be accessed immediately. This level is far superior to our peers.
Loan Portfolio
With respect to the loan portfolio the Credit Union manages...we have no sub-prime mortgages in the portfolio. We have followed a conservative business model by utilizing prudent underwriting standards throughout the South Florida housing boom and proactively setting aside adequate reserves for increased loan delinquencies and loan losses as the economy struggles. As of September 30, 2008, your Credit Union had $1.22 reserved for losses for every $1.00 in delinquent loans ... some may argue that is too conservative but we believe until property values in South Florida recover, pessimistic views for losses is the prudent way our members want us to manage their institution. As a comparison, as reported in the South Florida Business Journal, the average for national banks is only $0.89 for every $1.00 and the average for South Florida banks is only $0.58 for every $1.00.
Capital
Capital is your Credit Union's reserves for unexpected losses. As of September 30, 2008, your Credit Union is exceptionally well-capitalized with a capital ratio in excess of 13% - a level of capital superior to our peers and should give you great comfort regarding financial soundness and our ability to deal with an economic slowdown.
In Summary
The recent passage of the "Emergency Economic Stabilization Act of 2008" is a landmark piece of legislation and introduces unprecedented government intervention in the financial markets ... the biggest bailout in history in order to save our financial structure. Only time will tell if the solution will work. In the meantime, we are proud to say, we need no bailout funds! We have no "toxic investments," have money readily available to lend and have not made enormous changes in our loan approval criteria ... there is no liquidity crisis or credit freeze at your credit union. We are doing business the same way now as we were before this crisis ... prudent, sound and with integrity.
Your Board and Executive Team have made rational decisions with you, our member, in mind. Your Credit Union's solid financial position, modest overall exposure to current market conditions and ability to confidently weather the current financial "storm" is attributable to a variety of things, not the least of which is the conservative and responsible manner in which the Credit Union is managed. Rest assured, our members are our primary focus and we manage the Credit Union accordingly - - we are not immune from economic downturns but we "stayed the course" proving our decisions to be sound and prudent.
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