Common Questions in Uncertain Times
How does the Credit Union invest or utilize member deposits?
Chevron Federal Credit Union (CFCU) follows a very traditional “credit union” approach to managing funds. We take in member deposits and lend out funds to members in the form of consumer and real estate loans. We do not lend more than we have on deposit. Currently, almost 70% of member deposits are loaned out to members. The remaining 30% or so of member deposits is invested in securities, virtually all of which are issued directly by a government agency with the full faith and credit of the U.S. government or by government-sponsored entities (including Fannie Mae and Freddie Mac, which now also have the explicit backing of the U.S. government).
This traditional approach is applied to all deposited funds, whether in savings accounts, checking accounts, money market accounts, or certificates.
What is the condition of the Credit Union’s real estate loan portfolio?
CFCU has traditionally maintained a loan portfolio with one of the lowest loss ratios in the industry, and that remains true today:
- Real estate loan delinquencies at September month-end were 0.38%, far below the commercial bank average of 4.33% (as of June 30th).
- Overall loan delinquencies (including consumer loans) at the end of September comprised 0.34% of all loans. This compared favorably to the 0.97% average for all credit unions, which itself was far better than commercial banks’ average delinquency rate of 3.31% (as of June 30th).
This helps explain why, as many financial institutions now sit on the sidelines, CFCU continues to offer all varieties of loans – first mortgages, home equity loans, auto loans, etc. – while providing our members with great rates and personal service. Our ability and willingness to lend has most recently led to an invitation from Chevron Global Relocation Services to be a preferred lender for relocating employees.
How safe are the Credit Union’s investments?
By policy, CFCU’s primary investment objective is to ensure preservation of principal. Accordingly, our investments are limited almost entirely to the safest type of securities, those that have the explicit or implied backing of the U.S. government. This includes investments in Fannie Mae and Freddie Mac comprised of highly liquid mortgage backed securities now fully backed by the federal government. (Previously, there was an implicit guarantee of U.S. government backing of these securities; the guarantee became explicit after the government placed both entities under conservatorship.) None of the collateral behind these investments includes the mortgage instruments that have been prominent in the news, i.e., subprimes, option adjustable rate mortgages, and no-documentation loans. There is a ready market for these securities. Indeed, since the beginning of summer, when Fannie Mae and Freddie Mac were in turmoil, securities prices have declined by only 40 to 90 bps (i.e., less than one percent), declines which are not unusual even in more normal market conditions. Since CFCU typically holds investments to maturity, we expect all of our investments to return full principal plus interest.