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INTER OFFICE CIRCULATION AND BULLETIN
BOARDS
July 2008
Dear Friends:
For the past several months we have
experienced an unprecedented
turmoil in the financial markets. When Merrill Lynch announced a
billion dollar
plus loss last year, it was thought to be an isolated case and an error
of judgment.
Now, eight months later, we know that nearly every financial
institution is affected.
The big behemoths in the financial world are making daily headlines.
The
question of local and regional bank solvency is still open. Hopefully,
we do
not need a government sponsored Resolution Trust Company for a bail out.
Yes, we’ve been here before, and it is
no more pleasant now
then it was then. The financial markets have to find their own level
now before
any bottom fishing can begin. If you are in the market, do not panic,
but keep
a keen eye open for options, and seek multiple opinions before you act.
Regarding the financials of your
credit union, we can safely
say that everything is well and that we have an adequate reserve
ratio over
11% compared
to major banks that are struggling to maintain a 6% level. We are not
exposed
to sub prime mortgages and all delinquent loans are 100% covered by our
reserves for loan losses.
You might be surprised to see that
after payment of
competitive rates, we show quite favorable earnings. Are we financial
mavericks? Not really, we just invested a
larger
portion of our portfolio for the long term to achieve a higher net
spread, “over
jumping” the mid-term inverted yield curve. This strategy has resulted
in a
sizable windfall in the earnings for the first half of the year.
Recognizing
future increases in the Fed rate, we have set aside about 500K from
current
earnings to cover any future negative interest gap.
The conversion from Visa to MasterCard
is now complete and we
would like to thank all our card holders for their cooperation during
this
time.
As for the remainder of the year for
the credit union, we expect
a “flight without turbulence” and a “safe landing" at year end.
Sincerely,
Franz Herzig
Treasurer
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