Make Big Plans for 2011 — and in a hurry!

Positive indicators abound for credit unions, and it’s never too soon to start lifting expectations.

 
 

Traditionally, this is the time of year credit unions wrap up their books and consider distributing patronage dividends. Last week, I received information that two $1 billion credit unions are disbursing patronage dividends for the first time. One credit union is returning $4 million to members; the other is giving back more than $14 million.

This action not only confirms these credit unions’ confidence in their financial position but also shows members another aspect of credit unions’ design difference. 

Late last week, I met a CEO whose credit union originated more than $500 million in loans during the third quarter; this is its highest quarterly volume ever.

State Employees Credit Union ($21.4B, Raleigh, NC) has used its Mortgage Assistance Program to keep members in their homes despite the tough economic climate. According to an article in the Raleigh News & Observer, SECU foreclosed on just .15% (179 of 121,625) of outstanding mortgages and home equity loans last year. This year, the number is only 175 out of 123,815.

And the good news isn’t limited to credit unions.

An article in Monday’s edition of USA Today offered numerous positive statistics that indicate the economy is in the midst of a hearty rebound. Spending is up for businesses and consumers. Household purchases, demand for durable goods, and incomes all appear to be on the uptick. Firings are down. (Click here to read the original Bloomberg article).

And the optimism doesn’t stop there.

  • According to Treasury Secretary Timothy Geithner, the taxpayer loss on the TARP program, which was authorized at more than $700 billion, could be less than the recently estimated $25 billion. 
  • Last week’s tax extension and stimulus passage is projected to boost the economy.
  • Consumer confidence is up, and retail spending continues to accelerate.
  • Economists, such as Goldman Sachs, have revised their 2011 GDP forecasts upward.
  • Consumer borrowing is growing again according to the Fed’s monthly estimates.
  • The FDIC has reduced its budget, cancelled its 2010 premium, and announced plans to reduce staff.

Credit unions’ net income year-to-date for 2010 is up 80% compared to the first three quarters of 2009. Balance sheets are stronger, and asset quality is slowly improving.

In fact, economic momentum has already manifested itself. The stock market recently hit a new high for the year while interest rates rebounded from early November’s lowest rates in memory.

According to a Financial Times columnist, 2010 was “the year when it was just hard to lose money.” This description reflects the strength of virtually all segments of the market.

NCUA’s December testimony before Congress is an exception to this pattern of good news. According to one press report, Chairman Debbie Matz’s presentation said the expense to credit unions for corporate stabilization has jumped from $7 billion to more than $15 billion. The upper end of public costs remaining for the stabilization has always been $6 billion; Chairman Matz did not explain how the costs jumped so quickly. The increase is puzzling in light of the improvements in the corporates’ individual balance sheets and in virtually every investment segment the corporates hold. Even more ironically, the Chairman says NCUA needs to examine third party vendors who might cause credit unions a loss, but the organization responsible for the largest loss in credit union history is its supposed overseer.

In other words, NCUA, which was responsible for considerable losses to the industry, is concerned about losses.

Was Congress not paying attention to this third party responsibility? If not, who is responsible for overseeing NCUA?  If NCUA must oversee vendors, who oversees the overseer? This will be an issue that could take longer than an economic recovery to resolve. 

But let’s not lose sight of the most important trend at year’s end:  Overall momentum is positive. It might not be too early to start revising 2011 expectations.

 

 
 

Dec. 20, 2010


Comments

 
 
 
  • Aside from the NCUA stuff, really enjoy seeing this latest batch of positive news. And from your research, Chip, you're not sugar coating it. This data is for real. It's high time we all need a dose of good and real news to get us feeling confident again. There's a lot to be said for that.

    Thank you, Chip!
    mike lawson
     
     
     
  • Where is their auditor? >> Chairman Debbie Matz’s presentation said the expense to credit unions for corporate stabilization has jumped from $7 billion to more than $15 billion. The upper end of public costs remaining for the stabilization has always been $6 billion; Chairman Matz did not explain how the costs jumped so quickly. <<
    jane