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Service One Credit Union is very fortunate to be governed by an outstanding board and supervisory committee. Attendance at board and committee meetings constantly reaches 100%, and all are committed to furthering their credit union education.

I want to recognize these individuals and thank them for their support and willingness to serve the membership during this trying financial time in our nation's economic history. Even though they serve as volunteers, elected by the membership, they do so at personal and professional risk.

Richard L. Miller, Chair, Board of Directors
John Wassom, Vice-Chair
Brenda Willoughby, Secretary-Treasurer
Richard Aldridge, Member
Carol Glaser, Member
Frank Conley, Member
Louella Fong, Member

Pamela Napier, Chair, Supervisory Committee
Harold Little, Member
Leslie Weigel, Member
Patrick Stuart, Member

Hyland to CU volunteers: Your 'job' is critical

CU News Today (12/16/08)—National Credit Union Administration (NCUA) board member Gigi Hyland told an audience of credit union volunteers recently that while their "jobs" are tougher than ever, they are also more critical to the success of the credit union system.

"As volunteers, you are charged with assuring that the spirit of 'people helping people' continues," Hyland said at last week's Credit Union Executive Society's Directors Conference.

Hyland said the role of volunteer requires an individual to "be active, informed, knowledgeable, visionary, and constantly challenge and question management's assumptions."

"You are your institution's first line of defense in risk management. These turbulent economic times require the utmost vigilance on the part of the regulator and the regulated. These times also require innovation," she said.

Regarding innovation, Hyland urged volunteers to look at:

The larger credit union system to seek ways to cooperate and leverage resources, and utilizing capital wisely to weather the current turbulent economic climate;

Understanding your current field of membership, its diversity and making sure that your board and staff look like your membership and are responding to what your members' need; and

Recognizing that now is not the time to cut back on marketing or member services.

"As I stated earlier, despite the challenges, this is a time of tremendous opportunity for credit unions – a time to continue to do what you do best – serve your members and meet their needs in a manner that is safe and sound," Hyland said.

One of the reasons that Service One Credit Union remains financially strong during this time of economic upheaval is due to the intellectual depth of the Board. Dr. John Wassom, former Head of the Department of Economics, observed the convergence of disturbing factors last June. I have included his musings for your reading enjoyment and contemplation.

"We" have had a convergence of a variety of factors, all of which collectively will lead to a decrease in economic activity - either a slowdown in the rate of increase in GDP, or an absolute decrease in it.
(The second derivative may be positive but at a lower rate, or it may change from a + to a - value). The current economic environment may well turn out to be a case of the "perfect" (adverse) economic storm. For purposes of analysis, one can parse out several of the more salient variables that are adversely impacting business and household spending and expectations (which also feed back on spending.)

I. The significant increases in commodity prices. Many input prices have increased significantly but the most important for the average household are energy, both for transportation and heating/cooling, and grains, which impacts the cost of basics like cereals but also, with a time lag, prices of chicken, pork, and beef. In many respects these price increases impact the economy in a manner similar to a tax increase. To the extent that more of a household's (or business's) budget is devoted to the items that have gone up in price significantly, less is available for other discretionary type spending, cet. par. More on this when discussing the real and money wage below.

II. The constraining impact of item # I. would be mitigated if household (and business) incomes were rising faster than the rate of selected commodities (inputs). However,in this decade, the value of real wage has fallen because the value of the money wage has been relatively constant while the CPI has increased. Given a constant money wage and a rising price level, the value of one's real wage is decreased. The same would be true for business income (profit) though this has continued to rise in this decade (at least until now - 2008 - there have been some businesses that cannot offset input cost increases easily so their profits have atrophied, while others are able to increase selling prices to compensate for higher input prices so their profits do not fall and, may, increase) while the money wage has been flat for the whole decade. Ergo, the real wage has fallen. If the real wage declines, then the amount that can be spent on other items (given an increase in the relative prices of energy & food), the less is available to be spent on anything else (this includes other consumption type items but also savings - the value of savings has decline in this decade and one frequently finds editorial writers waxing about the lack of discipline by American households, but there is a rational reason why savings has fallen given the economic environment.)

III. The continual and significant decrease in the price of homes (~ 25% since 2006). Just as the increase in the value of homes during the 2001-2006 time frame stimulated additional consumption, their subsequent decline acts to reduce spending. For the average household the equity value of their home represents the largest single component of their wealth. Even if one is not engaged in house "flipping," the steady erosion of value in one's home impacts your real wealth which reduces the value of your assets if you sell (or try to sell) your home, so less is available for your next home (or other significant) purchase. In a similar fashion, one's spending is also constrained when the equity value of your home is reduced and you are using a home equity loan to finance other purchases. There is both a direct effect on spending and an adverse impact on society's expectations which also constrains spending (especially for "big ticket" items - those that are more like a capital good in nature - that will generate a flow of services over a period of years). A similar contractionary impact on business spending will occur if and when commercial real estate values decline. So far (2006-mid 2008) there has been some weakening in the commercial real estate sector but the decline in values has not been as severe(probably because the speculative side of the commercial real estate market has not been as significant as it has for the home building market.)

IV. Lack of a coherent, rational energy policy. The U.S. energy policy is fragmented and confusing. It attempts to placate a variety of political entities and issues without successfully satisfying any. For example, the federal government has not taken a direct stand on increasing the average mileage requirement on automobiles until this (2008) year, and the impacts of significant increased mileage requirements are delayed until 2012. The lack of a continued, marginal increase in the required average mileage required for new automobiles was done so as to (misguidedly) provide a competitive advantage to U.S. versus other car producers. But while we have stood (relatively) still, other car markets have steadily increased their mileage requirements so that now (in a period of high energy prices) U.S. producers are in a competitive disadvantage (be careful what you ask for). In a similar fashion, the federal mandate that U.S. gasoline have a significant (30%) component of ethanol from grain has led to a reduction in the amount of grain available for basic foodstuffs and,ipso facto, an acceleration in their prices for the consumer. The prohibition of drilling in coastal areas and the significant regulatory delays for new refining plants, nuclear power plants, or coal-fired power plants have all delayed (& reduced) the number of energy sources available to the economy. These limits were imposed for a variety of other goals (most notable environmental), but they also reflect the ad hoc nature of our energy policy. The lack of a single overriding objective for energy leaves us now in a very vulnerable position (one with fewer options in the short run to adjust to vicissitudes.)

V. Increased number of job losses and a concomitant increase in unemployment. The former (announced plant closing, job losses) have been less than the latter (unemployment) but it has increased and will likely continue to increase. The constraint in employment will also limit consumption spending by households and adversely impact expectations.

VI. Tightening of credit market conditions. The financial system has responded to the collapse in home lending in a fairly standard way. They have made it more difficult (in a variety of ways) to obtain financing for homes. These responses include: increasing the % of a home's value that must be paid as a down payment, eliminating a variety of loan feature (interest only loans, balloon payments, etc.) that caused the home bubble in the first place, making evaluations of a property's value more closely aligned with its market value , and reducing the percentage of a home's value that can be borrowed (home equity type loans). The losses banks have suffered in their home loans have also led to tighter lending standards/requirements for other types of loans as well (viz. educational, commercial, etc.). We can subsume all of these under the rubric of "tighter credit conditions".

VII. Political uncertainty. In an election year (such as this one)there is always some additional amount of uncertainty about the future course of fiscal (sic. taxes and spending) policy. In turn, increased uncertainty normally leads to a hesitation (reduction-delay) in spending by businesses and households. However, this year the differences in views between the two principal antagonists is less than normal (ergo, the degree of uncertainty is greater). Both the level and the priorities in federal spending (military vs civilian) differ. The views on taxation (for social security as well as income) also differ substantially. If the more favorable taxation of dividends is allowed to lapse (2010) and the marginal tax rates on income are raised (as well, perhaps, as the level of income that is subject to social security taxes) this will lead to a reduction in spending by those groups
impacted, and, may well result in a change in the use of corporate financing (fewer dividends, more reliance on bond financing). Uncertainty itself leads to greater unknowns about the future flow of revenues and the purposes to which they can be put. In most circumstances society (and individuals) avoid uncertainty. Ways to avoid uncertainty lead, sooner or later, to a slower (lower) volume of spending and economic activity.

All of these factors combined have created the "perfect storm" for planning (individual, household, and corporate) and the possibility that the current economic slow down will last longer and be more severe than is currently forecasted.

This article tickled me. Thank you to the San Antonio Express-News and David Hendricks. Enjoy.


David Hendricks: Man, credit unions have really got their nerve

Those darn credit unions. They're at it again, trying to lure business away from banks.

Can you believe it? The credit unions are attempting to lend a little more of their money to small businesses.

Shame on them.

Credit unions are just trying to take advantage of banks, now that banks are crying big tears after being wounded by all the securities they bought that were tainted with subprime mortgages.

As a result, banks have had to raise their interest rates and their loan standards, leaving small businesses out of the picture.

Oh, wait. Many small businesses were already out of the picture. Banks were sure subprime mortgage securities were safe and could return bigger yields than loans of less than $100,000 to little-bitty companies.

Back in the days when banks profited by lending to small companies that grew bigger and took out even bigger loans, credit unions had no limits on lending to small companies.

That's because credit unions were too small themselves to lend to businesses. They were doing what credit unions, with their amateur, volunteer directors, were supposed to do. They simply took deposits and made car, vacation and Christmas shopping loans.

Some of those darn credit unions became too popular. They collected so much in deposits that they found they could write loans for small-business owners who were credit-union members. Members, after all, own the credit unions.

Small-business owners had to ask their credit unions for loans because banks increasingly stopped making them, especially as credit crunches set in.

A safer buck could be made, bankers decided, by making gigantic loans to gigantic companies. Who can make money writing $50,000 loans to companies that need just a couple more trucks and some tools?

That's when credit unions became alarming, and banks knew what to do. They hired lobbyists to make sure the credit unions didn't get too big for their britches. Congress set things straight in 1998 by limiting credit-union business loans to 12.25 percent of any credit union's assets.

That meant a credit union with $90 million in assets could make only about $10 million in commercial loans. Bankers felt better.

Many of the bigger credit unions have reached the limit. Small businesses, after all, have hardly anywhere else to turn. Some banks actually avoided making business loans and put more effort into locating other sources for their giant loans, charging finder fees instead of interest.

So here we go again: The uppity credit unions want Congress to lift the asset limit on small-business lending to 20 percent.

Some misguided congressmen who like credit unions filed a bill a couple of years ago to raise the limit. Banks weren't worried. They knew the leadership of the congressional committees in Washington would sit on the bill.

Not anymore. Another political party has control of congressional committees. That blasted credit union bill is back and has some extra support this year.

Banks know what to do. They have their lobbyists back on the job.

Maybe, just maybe, the world will remain safe from those darn credit unions that want to lend to small businesses.

Web Posted: 02/26/2008 08:27 PM CST
San Antonio Express-News

Because your credit union is a business cooperative, I found this to be relevant to the holiday.

A Harvard Business School Professor stated in a 1996 article, "Effectiveness comes from recognizing interdependence and independence is something of a myth. Value creation is fundamentally. . . . a cooperative activity." Without the 13 original colonies, there would have been no United States. Cooperation is the basis for independence.

Have a Happy, Cooperative 4th of July!

Happy Valentine's Day to all of our members. We wish you love and prosperity on this sweetheart's day. Two tellers at the Campus branch gave me a green-beanie frog in a Valentine's Day cup to make my day very special. Thank you Heather and Carrie!

Have you put March 15, the Annual Shareholder's Meeting on your calendar yet? Come and hear about the great year your credit union had in 2006 and our plans for 2007 and the future. We will be using a St. Patrick Day's theme and maybe you will be one of the winners in our POT-OF-GOLD prize drawing. Look for the registration form in your newsletter which should be arriving by mail this week.

I love to hear from our members! Here is an interesting one from a man who ponders the absurdities of the financial marketplace and our culture.

"One and all,
The weather is cold, there is no heat in the building, and the construction "guys" - Larry and Darrel - are using the jack hammers with frapious joy (which sets off the fire alarms about every third day). Thus, Wanny retreats to the dark recesses of the little grey cells and reflects on some of today's events.

I was pondering (similar to real thinking but not as difficult) the other day --- Once financial institutions started down that yellow brick road of awarding loans with minimal (perhaps zero) down payments (viz.reduces risk to the borrower - cet.par.) and interest only payments when economic conditions were (relatively) positive and interest rates were falling, is it now any surprise that institutions who made more of this type of loan are now experiencing higher default rates? Come on now, what else would one expect?? This week the Bank of America made public the fact that they have been
offering credit cards to those without documentation (no social, no residency, no nada). Am sure others will mimic BAC and follow a similar
path. In two or three years will it be a surpirse to find BAC (and others) wil be writing off a higher % of their credit card loans and, in turn, their share/bond prices experience "turbulence"" Is every day a new day? have we no memory, no ability to forecast or analyze anything?

Would it really be all that difficult to run a hedge fun in contemporary society?

Mr. Curious (always)

I have a more academic train of thought I am working on related to uncertainty/risk and assets (real versus financial). When it is in better shape I will send it."

The following correspondence came to us today. You might find it interesting. We also learned that some check images were included in the data compromise.


Subject: TJs Data Compromise

If members have any questions regarding the data compromise you can direct them to the corporate website, click on the "Important Customer Alert", click on their press release.
http://www.tjx.com/index.html