The Markets, Credit Crunch and LAFCU

By

Mike Mastro

– October 13, 2008Posted in: CU Industry

I have received a number of questions recently regarding the significant amount of stock market volatility as well as questions as to how that may impact member’s funds in their LAFCU money market accounts as well as other accounts at the Credit Union.

Because the Credit Union does not investment in stocks, we are immune from the stock market fluctuations that occur. Your deposit in our money markets funds, CD’s etc. are invested primarily in loans to members and Federal agency securities with some investments in corporate central credit unions.

A general review and look back at previous stock market declines that have included the years subsequent to the 1929 great depression up to the present have shown that the percentage declines from the top of the market to their low points for the worst of those “bear markets” was around 40 to 45%. The current market decline at it’s lowest point a few days ago was down approximately 44%. I am certainly not a market forecaster or analyst but I thought this might be of some interest.

Relative to the tight credit conditions that are impacting the economy, I am pleased to report that Los Angeles Firemen’s Credit Union is in a very liquid position and has plenty of cash to fund all loan types including home loans, auto loans, RV Loans and business loans. Our current loan to share ratio which is a good gauge of a financial institutions liquidity position is approximately 91% is calculated simply by taking total loan balances and dividing that by all share balances. On an interesting side note, our members have been bringing in very significant deposits as a “flight to safety” and that also keeps our loan to share ratio low. The only outstanding loans we owe to others and have on our books is 20 million in low rate fixed rate borrowings which has been used by the credit union to protect against interest rate changes and quite frankly is generating a nice income spread for the members today as we have generated higher income over and above the cost of that borrowing. At any rate we can pay that off at any time from our large investment portfolio. The Credit Union also owns “free and clear” all of it’s land, buildings and property.

Please know that during these turbulent times the Los Angeles Firemen’s Credit Union stands ready “as a safe harbor” to accept your consumer and/or business deposits from other institutions in addition to 401K and 457 funds that can be deposited into our traditional Freedom IRA, IRA money market and IRA CD accounts.

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About Mike Mastro

Mike Mastro graduated from California State University Northridge in 1975 with a bachelor's degree in both Accounting and Finance. In 1975, he began his professional career at City National Bank where he performed the role of Trust Investment Analyst. In that role, he performed financial analysis on the financials of publicly traded corporations to determine their suitability for inclusion in the portfolios of the bank's various client pension and profit sharing accounts. In 1978, Mike assumed the CFO responsibilities for Ralph's Grocery Company Credit Union where he managed and oversaw the accounting and investment activities of the credit union. He also developed and implemented the credit union's certificate of deposit program. In 1980, he assumed the role of "controller" at Los Angeles Firemen's Credit Union where he oversaw accounting and investment activities and was instrumental in developing new credit union products and services. In 1992, he was promoted to President/CEO of LAFCU. Today, Los Angeles Firemen's Credit Union exclusively serves full time, paid, professional firefighters and their families throughout the State of California, has over 29,000 members, and assets over $800 million.

5 Comments

1. Reply

   Kathy Robinett

   Posted October 13, 2008 at 2:33 PM

   Thank you !!!

   One of the best things that ever happened was being able to remain a member.

2. Reply

   Mike Mastro

   Posted October 15, 2008 at 6:14 AM

   Thanks for your positive comments.

   We will, of course, continue to deliver products and services as well as new business opportunities to our Fire Family when we determine it is a value add for our members and makes good economic sense for the Credit Union. I am very proud that we put in place a number of years ago “FIREHOUSE Financial” where members can obtain trusted financial advice and a written, “no cost”, professionally prepared financial plan from our licensed investment representatives whether you decide to invest or not. Simply sitting down and having one of our investment representatives assist you in developing and putting the plan in place will help you plan much more effectively in these challenging times for your future.

   I am pleased to tell you that LAFCU members value our financial strength and trusted service and have been transferring large traditional deposits to LAFCU as well as 457 (Deferred Comp) account balances in addition to 401K balances. Members have the choice to place those funds either in our traditional fully insured IRA CD’s or money market fund or in non-insured market investments offered through FIREHOUSE Financial. This service is a great member benefit especially in trying times such as these.

   Our Financial planners Jason Torrey Payne 323-550-2269 and Jack Edelman 323-550-4928 have offices located at the Credit Union in Pasadena – but they can also come out to the stations or to your residence.

   Please also keep in mind that I, your Board of Directors, as well as my leadership team are available to take your calls and questions as they come up.

   Thanks,
   Mike

3. Reply

   Art Haendiges

   Posted November 6, 2008 at 7:15 AM

   I am inquiring about what percentage of LAFIRECU was invested in the Stock Market. I know that my account does not have any direct exposure to the stock market, but as a large share holder in the credit union, I am concerned as to the over all exposure to the stock market. I believe that the US Governments massive liquidity injection into the stock market has put a artificial floor in the stock market and in time this floor will fail and the stock market will go much lower. There are many more shoes to drop. I took my money out of the stock market three years ago and put in CD’s in the credit union, because I new the stock market was going into the tank. As my CD’s have been maturing I have been putting the assets into Hard Gold, not gold ETF. With the massive printing of the dollar, inflation will eventually come back and the dollar will drop in value. I know you told not to worry about my cash because it is insured by American Share Insurance, but insurance companies can fail too, example AIG.

   So that said, I would like to hear a more updated message and know the percentage of LAFIRCU exposure to the stock market.

4. Reply

   Mike Mastro

   Posted November 10, 2008 at 1:55 PM

   Art,

   Thanks for your comments and questions.

   The Credit Union has no investments in the stock market and never has. Our regulator strictly prohibits that type of investing for credit unions. In addition it would be very inappropriate for a financial institution such as ours to do so because our net income model is primarily derived by generating a positive income spread between our cost of funds (What we pay members in interest) and what we earn in interest income from loans to members and investments. The type of investments we earn interest on include Federal agency notes as well as corporate central credit union certificates of deposit and money market accounts.

   Mike

5. Reply

   Pat Metzger

   Posted November 22, 2008 at 10:51 AM

   Many thanks for allowing me, daughter of deceased fireman Tom Metzger, to remain a member of the LAFCU Fire Family. I am most grateful for the care you have given me over the years.
   Pat