May 1, 2012
Credit Union, Financial services, National Credit Union Administration, Net worth
Due to recent declines in the equity markets, some credit unions may experience an increased flow of funds coming into their organization at a time of weak loan demand and low investment returns. This “flight-to-safety” for some credit unions could result in the need to submit a “Net Worth Restoration Plan”.
The Net Worth Restoration Plan commonly referred to as NWRP serves as a blueprint for the board and management to restore and maintain for four consecutive quarters the credit union’s net worth ratio to 6% or greater and to establish a financial framework for the 1/10th percent (0.1%) quarterly earnings waivers transfers.
Understanding the implications of the credit union having an inadequate level of net worth is important. Your primary goal should be safeguarding the member’s deposits through sound policies and practices, and by creating and sustaining a sufficient amount of net worth and reserves to absorb possible losses without endangering the stability of the credit union.
Your plan needs to meet the criteria set forth in NCUA Rules and Regulations 702.206-NWRP including: More
March 1, 2011
Credit Union, Financial services, Ratio, Return on Assets (ROA)
Key ratios are relatively unimportant in isolation. Board members should monitor trends (e.g., ratio this month compared to same month last year) & compare your ratios to peer averages or another type of benchmark (i.e., ratio compared to other credit unions with similar characteristics).
The following 8 key ratios will give you a very good picture of your credit union’s performance.
Net Economic Value
Return on Assets (ROA)
Loan to Share Ratio
Net Expense to Assets Ratio
Loan Charge-off Ratio
Checking Accounts to Members Ratio
This blog entry you have just read was written by Edward Lis who is a former senior executive of three different credit unions. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com or by calling 518-420-2108.
February 1, 2011
Asset, Credit Union, Financial services
ALM is a subject that has constantly evolved over the years. It is expected that the knowledge level of the credit union personnel responsible for ALM evolve as well. ALM is a process and involves more than simply reporting on ALM result or just having an ALLL Policy
Here are some key points to remember relative to ALM:
- ALM is the process of coordinating actions to control the credit union’s risk and reach it financial goals;
- Every action taken by the credit union sooner or later affects the ALM position;
- Good ALM measurement and management processes are a must;
- The ALM Policy sets the guidelines for the ALM process including key measurements; and
- The “red zone” shows whether the credit union is in compliance with these measures. If not, take action.
ALCO and the board should be aware of ratios or trends that may signal an existing or potential problem by analyzing the past, present, and future direction of the credit union.
ALCO should be alert for the appearance of “red flags”, investigate their sources, and if necessary, develop action plans to address the issues.
Asset-Liability Red Flags: More