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Message to Our Members
March 2009

There is just no escaping the daily news reminding us that our economy is fragile and its future uncertain. Over the past few weeks I’ve had a few members ask if VSECU is in good shape and able to withstand this stormy cycle. It’s a good question to ask. The credit union is financially strong. We
have followed a conservative and prudent path to expanding our business and diversifying our risks. As a member-owner you should know that:

• Your deposits are federally insured up to $250,000.
• Our capital position is strong at 8.44% when
  7% is the regulatory level of a “well-capitalized” credit union.
• Our net earnings from on-going operations, which we intentionally keep modest, are positive and on target with our business plan.
• Our loan portfolio is performing well. While we are seeing increased signs of stress, delinquency and loan losses remain well below industry averages.
• Our investment portfolio is made up of securities and deposits that are either backed directly by the U.S. Government or by one of its agencies.
• We continue to attract deposits and have ample money to meet the responsible borrowing needs of our members.

These very real and positive conditions are the basis of our long term strength and stability. The reality though is that our prudence does not exempt us from paying the price of mistakes made by others and the catastrophic collapse of the financial markets that we are witnessing. Let me explain: One of the key components of the nation’s credit union system is US Central Federal Credit Union – a credit union for credit unions. This is where many credit unions deposit excess liquid funds after meeting their members’ borrowing needs. US Central in turn invests in highly rated securities. Upon close examination of the assets held by US Central at the end of the year it was determined that the value of those assets had fallen, creating a need to infuse money into the central credit union system. The National Credit Union Association (NCUA) has agreed to inject $1 billion into US Central and to insure all of the deposits in the network of corporate credit unions. Unlike the for-profit banking system that relies on the government and taxpayers to pay for recapitalization, the credit union system has never taken any money from the Federal government (thus far). It has operated as an independent cooperative. So when NCUA steps in as it has to ensure the stability of the credit union industry, the funds come from within the industry—in other words: credit unions helping credit unions. Our required contribution to this effort will be approximately $3 million, or about 8% of our capital reserves, and be recorded on our books in March. All credit unions are being called on to make a similar contribution in proportion to their asset size. This extraordinary event will have a direct impact on our financial statement. This expense will offset all other earnings in 2009. It is anticipated that 80% to 90% of all credit unions in the U.S. will experience negative earnings in 2009 as a result of the NCUA action. As alarming as this may sound, most credit unions in the U.S. are well capitalized and in good position to absorb this loss. VSECU is no exception. We, like the credit union industry as a whole, have built-up reserves to handle catastrophes and economic situations like the one we are currently facing. Based on information we have today, we project that we will end the year with a net worth ratio of over 8%, still above the 7% level of a “well-capitalized” credit union.

Best,
Steve Post, CEO

Check out the links below to learn more about this situation and be sure to check next month for an update on the financial landscape and how VSECU is doing.

Vermont Credit Unions Discuss Impact of Stabilization Plan

Q&A from National Credit Union Association