Today, we are celebrating the 76^th Anniversary of the beginning of Los Angeles Firemen’s Credit Union.

I am sure that our founders never envisioned the size and scope that this Credit Union has grown to. What they did vision for within the depths and deep struggles of the 1930’s depression…was a financial institution that they could trust to build their families financial lives around.  The vision would also focus on being a financial institution that provided fair loan rates and good savings rates and who would not gouge or cheat them for basic loans.

Well, I for one can tell you that the torch of that vision that was created way back then and has  been carried forward by past and present Boards of Directors and staff lives on very strongly today.  And, in fact, it is deeply embedded in who and what we are and how we represent ourselves to members and others.

Do we look different than 76 years ago?  Absolutely!  We have many more products and services, robust business units, a field of membership exclusively serving professional firefighters across the state of California (almost 200 fire departments), and a dedicated staff who share that same basic 76-year-old vision.

We will continue to evolve, but we will do that on a bedrock foundation of that 76-year-old vision.  And in the process, we will become more successful and create more value for more members in the process.

Happy 76^th to all of you and for your efforts in taking us forward.

Please join us at the Credit Union branch for cake and refreshments.

Happy Birthday!

Mike

The year is finally coming to a close and in looking back we have had some significant victories as well as some of the biggest challenges we have had to face as a Credit Union.  With that being said, after seventy five years of history, we want to let you know that your Credit Union remains very safe and sound.

Our system conversion this year was significant.  We thank you for your patience and your understanding.  We were told by our third party vendors that it was one of the smoothest conversions they have experienced due to the magnitude of change involved in converting to a new platform.  Although we know it may have impacted you and our operations internally; we believe that this core operating system will give us the opportunity to better serve you in the future. 

This year has also been very difficult for our firefighter families as they have experienced state and city budget impacts along with family members being financially challenged due to the recession.  This has resulted in escalated loan losses which may continue into 2011.  Therefore, the Board of Directors has decided to not pay out an interest refund and extraordinary bonus dividend in 2010 in order to ensure our strong capital position and the continued safety and soundness of this organization.

We want to wish you and your families a wonderful holiday season and a Happy New Year.  Thank you for your patience, your loyalty, your trust, and most importantly for being part of our Fire Family. 

Sincerely,
Mike Mastro                     Larry Metz
President/CEO               Board Chair

I’ve given this issue some thought and perhaps the following analogy will add some clarity to just how important this issue is to each of its members. Let’s use the example of house dues to make the comparison hit home. Lets say fire station 10 decides to purchase some athletic equipment which includes weights, a weight bench and a couple of stair steppers. The members of 10’s vote and decide to take out a loan with, who else, the Credit Union. Each member agrees to an increase of $10 per month on his/her house dues to cover the loan payments. Everyone is content using the new equipment until a year goes by and they discover they can now purchase the same equipment at Costco for a significantly reduced price from what they paid initially. To make matters worse, the year old equipment cannot be sold on Craig’s list or EBay for the amount still owed on the loan. One firefighter at 10’s becomes irritated with the situation and decides he is no longer going to participate in paying his extra $10 per month to house dues. This means that the rest of the members at 10’s are going to have to pick up the slack to cover firefighter X’s decision. Unless there are some extenuating circumstances behind this decision, the peer pressure at 10’s is going to become very intense on firefighter X. This peer pressure has prevented many poor decisions over the years.

The example cited above is the exact same scenario we are facing within the Credit Union family. The initial result will be the loss of profit sharing within the membership as others are forced to pick up the slack. If this action spreads, we will experience reduced service levels to shave costs. The service level we take for granted has been the direct result of a default rate that is historically well-below credit union industry averages. I for one have depended upon those service levels for over 35 years. I have come to have a great deal of “trust” in the Los Angeles Firemen’s Credit Union, remembering that when I speak of this institution, I am actually speaking of each of its members, not an institution or a building. I have come to trust my fellow Credit Union Members.

This brings up the final point I would like to express. Trust is the very basis of our Credit Union and trust is the very essence of the fire service. In the example cited above, the firefighters at 10’s will have experienced a significant decrease of trust in firefighter X. This will translate to a diminished team effort at emergency operations with a level of doubt injected into the dynamics at station 10. When doubt replaces trust within the fire service, be it emergency operations or our routine dealings and relationships with each other, we all suffer and become less than our best.

If you find yourself in a difficult financial situation, I urge you to contact the Credit Union and seek assistance and advice. It may not be easy, but becoming firefighter X is not going to be an easy path either.

Ted Menold, LAFD Retired

Did you know that in some fire stations, an elephant is not only in the room, but lurks around the kitchen table? What I am referring to is the discussion of household finances and some of the discussions and decisions are impacting the Credit Union. The reason for this article is to inform you about both the structure of Your Credit Union and how the decisions made by our members affect us all.

Delinquencies and charge offs have risen within our organization which is not a surprise due to the economic challenges we have all been facing. However, we are seeing more strategic defaults and this may be due to discussions at the kitchen table. A strategic default is when a member is capable of making their mortgage and/or consumer loan payments but chooses not to because they are “upside down” as it relates to their loan-to-value. There are many of us in this situation due to the housing market, but our morals and values should prevent us from walking away from an obligation we signed up for. This decision not only impacts the members’ credit rating, but also our entire Fire Family.

The Credit Union is not a bank and does not have shareholders. The members of this organization are the owners of the institution. The income we generate is for the benefit of all our members and in the past, we have given this back in the form of an Interest Refund and/or Extraordinary Dividend Bonus. We have also reinvested some of the income into new products/services like online check deposits or business services. The remainder has gone into our capital holdings for rainy days. Each time the Credit Union books a loss, it negatively impacts the entire membership. The Credit Union cannot raise capital like banks are able to do. The loan losses automatically hit our bottom-line and take away from our opportunity to provide a profit sharing plan to members and to invest in the future of this organization.

In 1935, a few firefighters pooled their money to create this organization to exclusively serve firefighters and their families. This has remained the focus of this organization for more than 75 years and we hope to keep that focus for another seventy-five. But we need your help as owners of this organization. If a member is having true financial difficulties due to a loss in income or health issues, etc. please have them contact us. We are here to help with the many programs we have in place from loan modifications, to extensions, to a third-party consulting company that could work with each member anonymously to develop a budget that fits within the family’s income structure.

Have you had to change your lifestyle? This is an important topic because we are seeing that families are having a hard time adjusting to this. Overtime in some cases has decreased, a spouse may have reduced or lost their income, which can have a major impact on a families’ lifestyle. What we have enjoyed during positive economic times when home values were increasing at a rapid rate, we need to adjust to because we can no longer afford to maintain the annual Hawaii vacation, Starbucks every morning, or the boat, two jet skis, three dirt bikes, and the motor home. It is difficult to cut things and readjust our lifestyles, but we are living in different times that require us to make difficult choices. Some of our habits will need to be changed for all of us to prosper in the long term. Trying to keep up with the Jones’ may not always be in our families’ best interest.

The Credit Union is not here to tell members how to live their lives, but we are here as a cooperative and would like to help every family that is part of our membership. But as in any family, there must be a give and take so that we all prosper in the end. We are here to help financially as much as we can without negatively impacting the entire membership. We have the resources available to help all our members that are having true financial difficulties to the extent we can. For those that are not in a true hardship, we hope that you will support us and the fire family community that we represent.

Please be assured that LAFCU still remains safe and strong as evidenced by our strong capital ratio. We wanted to put in writing some of what we are hearing from our members so that we can help each other keep this organization safe and sound in the future.

If you have any questions or concerns regarding this article, please contact me directly at 323-550-2240. I am also open to coming out to your fire station.

The more business we do together as a Fire Family, the greater the financial reward will be for all members!

Have a great month!

Mike Mastro

Why are you now asking for more identification when I call or come in?

The Patriot Act was introduced in 2001 and it requires us to validate your identity through at least two forms of identification.  This is a regulation that we must abide by for your protection and ours.  This was instituted after 9-11. It tightened the record keeping requirements for financial institutions, making financial institutions record the aggregate amounts of transactions processed from areas of the world where money laundering is a concern to the U.S. government. It also made institutions put into place reasonable steps to identify beneficial owners of bank accounts and those who are authorized to use or route funds through payable-through accounts. The U.S. Treasury was charged with formulating regulations intended to foster information sharing between financial institutions to prevent money-laundering.

Why didn’t I get an interest refund in 2009?

Several factors caused the Board of Directors to not move forward with an interest refund in 2009.  Although we were working hard on reducing as many of our expenses as possible internally, the economy, fire department budget cuts, loss of overtime, reduction and/or loss of spousal income caused higher loan loss expense. In addition , Wescorp, one of the largest corporate credit unions that handles much of the credit union system processing needs had to significantly write down their capital.  Our portion equated to a write down of $4.9M. We expensed that amount from our income in 2009.  That write down, in addition to loan loss expenses, resulted in the Board to make an appropriate and conservative determination to not pay the interest refund and bonus dividend in 2009 and to instead retain our strong reserve position.

In addition, we paid an assessment to our share insurance company to assist them with their capital position. We expensed $1.2 million and placed those funds into a capital holding position with American Share Insurance (our private share insurance provider).  They have regulatory thresholds they must maintain and those funds come from the hundreds of credit unions in the program.  Interestingly enough, the insurance assessments to federally insured credit unions have been ever more extensive and those assessments to these credit unions are expected to continue for several years to come.  We are not federally chartered—we are state chartered and privately insured.  These are a few of the impacts to LAFCU outside our span of control.  We are hopeful that the economy will eventually recover and we can once again give back financially to our members.  However, many of our members are also experiencing financial difficulties and we are unfortunately charging off more loans than we have in the past.  We have a strong capital and reserve position; but, we must work hard to maintain it and bring it up to the levels prior to the recession in order for us to remain safe and sound in the future should the economy turn for the worse.

Why can’t you pay higher dividends on term certificates?

Why is the Credit Union initiating a fee for business accounts?

These are all very good questions and I hope giving you direct answers will provide some comfort in knowing that we are working very hard on behalf of the organization and the membership.

In terms of the rates we are paying the membership, we of course must earn a spread over our dividends to cover operating expenses. We are currently earning 25 basis points (1/4 of 1%) in our daily account with the Federal Reserve. And our yields on our conservative investments (Treasury issues/Federal Agency issues, etc.) have also fallen. In addition, members are borrowing less due to their own needs to pay down debt (deleverage). Due to economic conditions and the very low rate environment (the lowest in recent history), it is challenging to earn higher rates and pass them on to you. We remain very competitive and typically pay much higher rates than most banks and credit unions. It should also be noted that the Credit Union remains focused on reducing expenses (over $1 million in lower operating expenses in 2009-2010) in order to have greater capacity to pay higher rates. Another option we have for our membership is FIREHOUSE Financial which can also help you put your money in safe interest bearing financial instruments.

We do many loan modifications as well as loan extension agreements. In the past, we were challenged due to regulatory restrictions, but now we evaluate each member’s situation and if appropriate, we will do a loan modification, extension, and in many cases consolidations. If you are in financial distress, please call our loan department.

In terms of fees, as you know, we have tried very hard over the years to keep fees low or non-existent. However, in most instances we need to be able to manage our costs related to the service we are providing. We will remain competitive as it relates to the market, but changes to fee structures although fairly rare do occur.

During these economic challenges a refocus on the roots of the credit union movement may be in order. “Not for Profit – Not for Charity – But for Service” has been the credit union industry motto for over 100 years, and LAFCU’s philosophy for over 75 years. A credit union is a cooperative financial institution that is owned by its members and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

The most important difference between Banks and Credit Unions might be this: Banks are for profit and credit unions are not. Though credit unions have existed in America for over 100 years – and nearly 100 million Americans already belong to a credit union – many still don’t think of credit unions as being free from profit motives. Credit Unions function like banks in that they take deposits and make loans and provide a wealth of financial services, but exist solely to serve their members, never for profit.

Here are a few additional ways that credit unions and Los Angeles Firemen’s Credit Union are unique:

• Every credit union member owns a share of the credit union, and each member has the ability to elect a Board of Director’s who represent their needs and interests in the Board room on a 1 vote per member basis irrespective of the amount of money individual members have in the credit union.
• Credit unions do not look to make profit for shareholders. Instead of turning profits, credit unions return the money they make to their member shareholders in the form of higher rates on savings, lower rates on loans, reduced fees, as well as new and improved services such as FIREHOUSE Financial, FIREHOUSE Business Services and most recently Firefighter Insurance services.
• Credit union strategic direction and operations are overseen by a non-paid volunteer Board of Directors whose role is to represent member interests. They are motivated by service to their fellow firefighters, not by compensation.
• Credit unions are cooperatives, meaning they work with – not in competition with – each other. What’s the benefit? One example is CO-OP Network, which offers credit union members access to more than 28,000 surcharge-free ATMs nationwide.
• Credit Unions ultimate success is determined by how well each member serves their fellow members. For example LAFCU relies on members who are savers to fund loans to those members who are borrowers. The amount and degree of loan delinquency and charge offs by some members determine the end of year ability to share refunds and bonus dividends with the entire membership in addition to the ultimate financial stability of the credit union.
• Concern for community (California’s firefighter community in our case) is a credit union value, whether through services to people of modest means or the creation of foundations (Fire Family Foundation, for example) that helps our fire families in time of need.
• Credit unions invest in their members by providing educational opportunities and financial education for members and youth.

The margins we are able to earn from interest on loans less dividends paid on member shares cover the operating expenses to run the organization and allow for improved and new services to get introduced. The remainder of the funds (after interest refunds and bonus dividends in those years we pay them) goes into our capital bucket which is set aside for when bad things happen (such as the economic conditions we are faced with today). Today those reserves stand at a very healthy $80 million.

So you may ask why I just gave you a history lesson on credit unions. This model is our model at L.A. Firemen’s Credit Union and as such it is important to note that we are very different from other financial institutions, including banks. I am hopeful that understanding this fundamental difference will provide good context to my ongoing comments in this blog and will be helpful to you “our members” as we continue our discussions.

And, it goes without saying that the LAFCU Credit Union Model is built on Integrity, Trust and Doing the Right Thing for the membership of this Credit Union.

Due to the job stability of municipally and state paid firefighters, we have been able to enjoy almost non-existent loan losses over these many years. State budgets were never impacted to the point they are today. Now fire departments that are challenged with city budgets must revisit their budgets frequently because cuts in overtime and other benefits are common. We are fortunate that job losses are few and far between for fire service personnel; but, firefighters are faced with the challenges of reduced income as well as pay cuts and/or layoffs for many working spouses. This impacts our membership and the Credit Union causing higher delinquencies and charge offs today. This in turn affects LAFCU’s ability to give back to the members in the form of interest refunds and bonus dividends.

The Credit Union is weathering this storm well but not without some impacts. Delinquencies and Charge Offs have increased and that contributed to the Credit Union’s net loss in 2009. That being said, our financial position and strength is considerable and our capital ratio approximates 9% whereby 6 % is noted by credit union regulators as being adequately capitalized and 7% as well capitalized.

We are working with members in financial distress and continue to provide loan extensions, loan modifications, and consolidations, along with a free in house and an outsourced budget counseling service called Balance. We also have many resources on our website from calculators to articles to financial coaching videos that can help improve a family’s cash flow. Although the Credit Union is here to assist our members in every way possible, we have found ourselves not being able to help every member. Sometimes the wound is too big and a band aid will not help in the long run.

During these tough economic times, the Board of Directors and Management will continue to take a leadership role and make difficult decisions (such as not paying an interest refund and bonus dividend in 2009) to ensure the financial security of the “membership at large” as well as to ensure the safety and security of this organization that was built by firefighters for firefighters.

Please provide me your comments and thoughts along with any questions I can answer. Thank you all for your loyalty and for participating in this exclusive firefighter community – our families benefit – our fire departments benefit – and the fire family community benefits.

Mike

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.

How do these events affect LAFCU today and into the future?

Our credit union as most business and financial institutions are impacted by the general direction and level of economic activity in the country. It is the relatively low degree of impact to Los Angeles Firemen’s Credit Union that I wish to chat with you about today.

Your Credit Union is in exceptionally strong condition and is doing very well financially due to a number of factors:

1. First and foremost, it is because of the special nature of our members and the “exclusivity” as to who may be a member and participate. Yes we have been called a special club by some and I am pretty darn proud of that club that I have been working with for over 28 years now.

   Our Credit Union began as a financial co-operative serving firefighters of the City of Los Angeles. Today we proudly and successfully offer our services to paid, professional firefighters and their immediate families throughout the State of California. Our new membership base has provided the Credit Union diversification (added safety) and the opportunity to come together with firefighters across the state who perform the same life saving and heroic deeds on a daily basis.

   An important foundation to our ongoing success is that our members are paid by cities and counties (tax supported) who rely on fire and emergency service personnel to protect citizens. Thus our primary base of members have very stable, well paying jobs and are willing and able to pay their debts because they can afford to and because they have high moral integrity. Thus our delinquencies and charge offs remain well below credit union industry levels.

2. The Credit Union operates safely and conservatively and does not and will not engage in “high risk” lending or investment activity.
3. LAFCU has grown its reserve base to over $80 million dollars, well in excess of required regulated reserve levels. Our projections also call for over $5 million dollars in net income for 2008.
4. LAFCU, its CEO, Board and staff have always and will continue to place the safety and soundness of our member’s life savings at the forefront of our business model. We know and understand that our “fire family” has come to trust that their funds are safe and well secured by those who have the member’s best interests at heart.
5. LAFCU chooses its business and investment partners carefully and chooses high integrity, high performing partners and monitors their safety and soundness with vigilance.

A couple of notes of information:

LAFCU is very limited as to what types of investments we can make and as a result primarily invests in U.S. government and agency securities in addition to certificates of deposits with a well diversified group of corporate central credit unions. We are not allowed to invest in corporate stocks and, of course, do not do so.

Thanks for reading this, I look forward to your replies and I can always be reached at the Credit Union at 323-550-2240 if you wish to chat.

Mike Mastro
President/CEO
Los Angeles Firemen’s Credit Union

Even in these difficult times, we are proud to report that Los Angeles Firemen’s Credit Union remains safe, sound, and secure. Some financial institutions are experiencing problems due to their participation in negative amortization and/or sub-prime mortgage loan fundings. LAFCU never invested in these types of mortgages. Furthermore, LAFCU is well capitalized and at levels far above what our regulators require to be “Well Capitalized.”

Today we continue to offer both deposit and lending services, including firsts, seconds, and home equity lines of credit. Due to our exclusive firefighter field of membership and strong underwriting practices, we are not experiencing significant levels of delinquencies and/or loan losses. When evaluating our future growth, we strive to offer the best products and services without compromising the integrity, value, trust, and safety and soundness of LAFCU. The best investment we can make with your savings dollars is to loan it to another member of the Fire Family with proper underwriting. This focus has allowed your Credit Union to grow financially strong in both good and bad economic conditions.

Many members, knowing that LAFCU is a safe and trusted financial institution have been bringing in additional funds to the Credit Union. We stand ready to provide that safe harbor for all members. We want you to know that LAFCU is privately insured by the nation’s largest provider of private insurance for Credit Unions. Your accounts are protected through American Share Insurance for up to $500,000 per account type (i.e. savings, checking, term certificate, etc.). To view our annual report, please visit the About LAFCU section on our website.

Los Angeles Firemen’s Credit Union is committed to providing its members with exceptional financial products and services, along with quality service. And as member owners of the organization, our members share in our success and profitability through competitive share and loan rates, value added services, lower fee structure, and an interest refund and extraordinary dividend bonus.

Attention to members’ needs and expectations has enabled us to grow from just over 800 members the first year, to 26,000 members today, with current assets at over $800 million. We serve over 140 fire departments across the state of California. At LAFCU, our mission is to provide you superior, fire family service while maintaining our financial security.

If you ever have any concerns, please call me directly at 323-550-2240. Thank you for your partnership and trust for over 73 years.

Mike Mastro
President/CEO