Tuesday, January 5, 2010

2010 Resolution: More posts!

Happy New Year to all! (both of you, hahaha)

I have resolved to post more about local issues and finances. As I write this, Meadows Field is under lock-down because a piece of baggage sickened some TSA workers when they opened it. The unidentified substance that sickened them is probably someone's dirty socks ;)

I would like to suggest that people move their banking/checking activities to smaller banks, away from the big money-center banks such as Wells Fargo, B of A, or Chase (a.k.a JP Morgan/Chase). I prefer Credit Unions, for reasons I cited earlier.

Rather than reinvent the wheel, I will just link to a very useful article that I read recently (HERE).

There is a link (ALSO HERE) in that article that allows you to check the health of your local Thrift or Credit Union. Imagine my surprise at learning that Kern Schools FCU is not very healthy compared to its peers.

Here is the summary of my Credit Union, and it validates my earlier suspicion why my money still needs to be kept (as cash) in a coffee can.

Institution Commentary
OVERVIEW of Institution
KERN SCHOOLS is a federally chartered credit union, which, as of June 30, 2009, reported total assets of approximately $1.7300 billion. At that date, loans and deposits held by the instutition amounted to $1.1415 billion and $1.6078 billion, respectively. Equity, the difference between a credit union's total assets and total liabilities, was determined to have been $76.4024 million, which was 4.42% of total assets.

Bankrate believes that, as of June 30, 2009, this credit union exhibited a below average condition, characterized by well below standard capitalization, questionable asset quality, substantially lower than normal profitability, and near normal liquidity.

Balance sheet structural changes, through the one year period of time ended June 30, 2009, have had little or no positive, and quite possibly a negative, impact upon the instutition's capital position. Our analytical methodology does take into account the quantity, quality, durability, and direction of net worth, and, as set forth above, we have determined, based upon our series of tests, that this credit union demonstrates well below standard capitalization. Notwithstanding any of the information contained within this section, we believe, based on our analysis, that the institution should consider plans for enhancing reported capitalization.

The institution revealed, as previously stated, questionable asset quality. That conclusion incorporates our analysis of data depicting regional economic conditions as well as our computations of a substantially higher than standard June 30, 2009 nonperforming asset ratio and much better than normal reserve coverage for nonperforming loans. The institution's current level of nonperforming assets could lead to sharp write-downs and consequent substantial loss provisions. Hence, careful monitoring and additional inquiry are warranted.

Credit card lending activities should not, based on our analysis of asset quality trends and conditions, have a substantial negative impact upon future results.

For the six months ended June 30, 2009, this institution recorded a net loss of $-17,934.54 thousand, which represented a return on average assets (ROA) of -2.11%. Year earlier results amounted to a net loss of $-5,620.62 thousand, or a -0.65% annualized ROA. ROA is the key measurement of profitability within the credit union industry, and the industry's ROA, for the six months ended June 30, 2009, approximated 0.5%.

We have concluded that, for the first half of 2009, the institution achieved a substantially below average return on average assets , and, in fact, sustained an actual loss for that six month period ended June 30, 2009, as noted perviously . A significantly higher than average overhead ratio is in evidence.

As of June 30, 2009, the institution displayed strong balance sheet liquidity. Accounting principles require some security investments to be categorized as "Available-for-Sale." Changes in market value of securities so classified are reflected through GAAP (Generally Accepted Accounting Principles) net worth. We believe that, in view of the composition of the institution's reported investment portfolio, securities categorized as "Available-for-Sale" are almost certain to have a very meaningful effect upon future net worth.

This credit union has been rated below average.
Negative factors that impacted that rating follow:

* Capitalization
* Asset Quality
* Earnings

As noted previously, early warning indicators possibly requiring specific investigation include:

* Capital Adequacy
* Nonperforming Assets
* Overhead

As stated, we have determined a Composite Star rating for this credit union of 2 stars, indicative of a below average financial condition. At times, conditions of financial institutions change rapidly and significantly. Hence, our Safe & Sound Star ratings should not be deemed predictive of likely future ratings. However, in view of early warning indicators set forth within this report, in combination with the institution's financial data, we believe that the Star rating for this institution is likely to decline within the ensuing twelve month period.

I did not look up the status of other small Bakersfield financial institutions, but the answers are easy to get with the links provided.


I realize that this Credit Union is FDIC-insured. However since the FDIC itself is effectively insolvent, the FDIC guarantee doesn't give me a great deal of comfort. I view it as the equivalent of one Subprime borrower guaranteeing the mortgage of another Subprime borrower.

From Wikipedia:

A March 2008 memorandum to the FDIC Board of Directors shows a 2007 year-end Deposit Insurance Fund balance of about $52.4 billion, which represented a reserve ratio of 1.22% of its exposure to insured deposits totaling about $4.29 trillion. The 2008 year-end insured deposits were projected to reach about $4.42 trillion with the reserve growing to $55.2 billion, a ratio of 1.25%.[19] As of June 2008, the DIF had a balance of $45.2 billion.[20] However, 9 months later, in March, 2009, the DIF fell to $13 billion.[21] That was the lowest total since September, 1993[21] and represented a reserve ratio of 0.27% of its exposure to insured deposits totaling about $4.83 trillion.

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