“…while it remains a challenging year, we are still financially strong and expect to remain that way.”
Over the last several months, we have really felt the impact of the struggling economy. Despite this, we are still in great financial shape.
In the month of September, we examined our portfolio of mortgage loans and decided to record “impairment. ‘ Impairment is recorded when you come to the conclusion that the decline in housing values may result in an eventual loss on a loan. We decided to get many of these potential losses behind us by recording a large expense in the month of September.
Many of our members are understandably under financial stress due to job loss and declining income. Our financial counselors have been busy helping these members develop plans so that they can meet their financial obligations to the greatest extent possible. Sometimes, these plans include a modification to their mortgage or other loans with Verity. When this occurs, we record impairment when the amount of the loan exceeds that value of the property. Only after the member has demonstrated the ability to make the new payments do we reverse the impairment.
The extra expense for September due to impairment in our mortgage portfolio was a little over $1.7 million. For the month of September, we show a net loss of over $1.6 million. For the first nine months of 2009, we show a net loss of $1.1 million. This has been an unusual year. In addition to the high loan losses, credit unions were assessed a premium by the National Credit Union Share Insurance Fund to cover the losses at two large corporate credit unions. We do not receive a bailout. We actually fund the bailout for other credit unions.
By taking a proactive stance now, we get a lot of the loan losses behind us. We do expect to continue to experience higher than normal loan losses into 2010, but with the belt-tightening that we are doing, the worst should be behind us.
As of September 30th, our reserve ratio is at 7.76%. The standard for being considered “well-capitalized” is 7.00%, so we have a nice cushion.
In summary, while it remains a challenging year, we are still financially strong and expect to remain that way.
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