Industry Trends, Supervisory Concerns and The Directors/OFIS Role Addressing Them MCUL Fall...
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Industry Trends, Supervisory Concerns and The Directors/OFIS Role Addressing Them MCUL Fall Leadership Conference John J. Kolhoff, Assistant Director Michigan Office of Financial and Insurance Services
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Transcript of Industry Trends, Supervisory Concerns and The Directors/OFIS Role Addressing Them MCUL Fall...
Industry Trends, Supervisory Concerns and The Directors/OFIS
Role Addressing Them
MCUL Fall Leadership Conference
John J. Kolhoff, Assistant DirectorMichigan Office of Financial and Insurance Services
Agenda
Industry Trends Supervisory Concerns Role of the Director and Regulator Questions
Industry Trends
Industry Trends Michigan credit unions remain safe and
sound. Well capitalized with aggregate Net Worth to
Avg. Assets of 12.17%.
Net Worth / Total Assets
10.50
11.00
11.50
12.00
12.50
13.00
2003 2004 2005 2006 2007
Per
cen
tag
e
Industry Trends Earnings trending downward from .64% at
December 2006 to .30% ROA. NIM has stabilized at 4.76%. Provision for ALLL to Avg. Assets up
from .39% at December 2006 to .74% at June.
Return on Average Assets
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
2003 2004 2005 2006 2007
Per
cen
tag
e
Industry Trends Aggregate delinquency climbing from 1.08%
of total loans to 1.34%. Aggregate charge offs stable at .53% of
average loans. Aggregate loan delinquency up 24% from
December 2006 at $281 million. First mortgage delinquency (fixed rate) up
74% to $98.5 million (or 1.20%). First mortgage delinquency (adjustable) up
51% to $12.1 million (or .48%).
Delinquency
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2003 2004 2005 2006 2007
Per
cen
tag
e Total Delinquency
1st Mtg Fixed
1st Mtg Adj
Oth RE Fixed
Net Charge Offs / Average Loans
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
2003 2004 2005 2006 2007
Per
cen
tag
e
Industry Trends Commercial RE/Construction/Land
Development commitments up 381% to $32.7 million (2.6%).
Total MBL delinquency up 311% to $16.8 million.
Number of MI institutions down to 227 (from 250 at 12/05).
Mergers are of like kind as well as small to larger institutions. Trend is expected to continue.
MI has not shared in the economic improvements seen nationwide.
Supervisory Concerns
Supervisory Concerns
Increased credit risk due to falling property values. Lack of recognition of Commercial purpose real estate
loans. Unrecognized losses due to falling market values
and/or management’s perception of low credit risk. Liquidity/market risk impact on CU who are
inexperienced in the product. Non traditional products slowly moving into Michigan.
Real Estate Lending
Supervisory Concerns
Lack of due diligence on new programs Lack of recognition of the more volatile market
values of commercial real estate values. Lack of understanding on how the new products
impact the inherent credit, liquidity, and interest rate risk of the institution.
NCUA 723 compliance.
Commercial Lending
Supervisory Concerns
CU have significant connection because of their SEG based roots.
Recent “geographic” FOM diversification has helped but as we know doesn’t mitigate the regional connection to employers.
Credit Union Technical Assistance Program.
Automotive Industry
Supervisory Concerns
Narrowing margins and member service competition has pushed CU to diversify into more complex balance sheet products and riskier services.
Some management teams have not completed appropriate due diligence, set up adequate control systems and/or demonstrated an understanding of the implication these products have on the institutions risk profile.
Management
Supervisory ConcernsMichigan Chartered
CAMEL Components 3, 4 or 5
C 7 (3.1%) A 46 (20%) M 57 (25%) E 81 (36%) L 12 (5.3%)
Supervisory Concerns
Average Credit Union Size $89.6 million Average Problem C.U. Size $38.1 million
Excludes CenCorp
Michigan Chartered3, 4 or 5 Institutions
Director’s Role
Directors Role
Understand the duties prescribed by the bylaws, common law, and regulations.
Have an interest an ability to keep well informed about the CU.
Be loyal to their office and not engage in activities adverse to the CU.
Generally a Director should:
Directors Role
Possess the integrity not to use their office for personal benefit.
Be Capable of retaining confidences. Be able to evaluate facts, free from
prejudices or personal interests, in reaching sound, independent decisions.
Generally a Director should:
Directors Role
Differentiate their “oversight” role from the “hands on” participation of executive management.
Remember that their authority rests with the board, not with each individual director.
Understand their primary responsibility to protect the members interests.
Generally a Director should:
Directors Role
Be involved in communications with auditor/examiners.
Ensure Safety and Soundness and accounting deficiencies are handled appropriately.
Generally a Director should:
Regulators Role
Ensure the Safety and Soundness of the CU Industry.
Ensure compliance with appropriate regulations.
Ensure compliance with Board approved policies.
Report to the chartering agent, insurer AND the Board of Directors findings.
Questions?
John J. Kolhoff
Email: [email protected]
Phone No: 517-373-6930
Office of Financial and Insurance Svcs
611 West Ottawa
Lansing, MI 48909
