Reader: I Must Be an Idiot!

It has taken me three days to respond to your April 27, 2009 article titled "FIs Won't Do Well on Treasury 'Stress Test'." I must be an idiot because I do not see the validity of these comments as it relates to my credit union!

While I understand the need to realistically evaluate our assets, I find it difficult to believe that a third party, be it a consultant, regulator, or auditor, can arbitrarily elect to discount assets across the board.

What has happened to management's capability to prudently manage the credit union and evaluate the risks associated with that credit union? What has happened to the regulators risk-based analysis? What good are the various ALM models that the industry uses to assist in managing risk?

Last time I looked at my balance sheet, delinquent loan performance, and operating performance (using the current NCUA Financial Performance Report):

  • Our total loans to total assets exceeded our peer group by over 50% (88% to 58%).
  • We were still making good, quality loans to our members and significantly exceeded our peer group loan growth (12% to 1%).
  • Those members who were delinquent were less than our peer group by over 40% (0.38% to 0.93%).
  • Our gross income to average assets exceeded our peer group by 11 basis points (6.94% to 6.83%).
  • Our return on assets was significantly higher than our peer group (0.96% to 0.30%).
  • Our net worth of 8.56% exceeds our RBNW requirement of 5.60% by 296 basis points.
As I re-read your article, I looked at the section where the values of the various portions of the portfolio were reduced by 10%, 20% or 30%, depending upon the type of asset. Imputing those discounted values into my balance sheet creates a 17% net discount on those assets and would reduce net worth by $3.8 million. I would need a net worth of greater than my peer group (14.1%) just to absorb this discount.

This article also failed to include the impact of the cost of the NCUSIF impairment/assessment and the impact of any potential impairment of the credit union's investment in corporate credit unions.

I must be an idiot because I do not understand why my credit union is performing so well when this "stress test" is so negative! I must be an idiot because I do not see how this article can properly reflect the value of the credit union industry's investment in our members! I must be an idiot because if this "stress test" is realistic there will be no credit unions around to help the members, which I thought was the founding principle of the credit union industry!

Knut Hovde, President
Share Advantage CU, Duluth, Minn.