WEST PALM BEACH, Fla. — The costs of the corporate assessment are causing course corrections-big and small-at credit unions across the country, sending many asset/liability committees back to the drawing board.
For some, that means tossing out the old plan, reworking it, and then changing it again. Others are making less drastic changes and adjusting the current plan to address shrinking capital and find ways to save money.
At minimum, the corporate rescue is changing the emphasis on Asset/Liability Committees and what's being discussed in the meetings. It's also affecting what's a priority for balance sheet planning, placing a greater focus on loans than deposits and reducing asset size.
For example, in Aliso Viejo, Calif., the $109-million Patriots FCU is feeling some angst as a result of the corporate bailout, having tossed its original 2009 strategic plan and budget, reworking them in February.
CFO Dan Campbell shared that even that work became outdated quickly. "Given the extreme uncertainty, we have resorted to reacting instead of planning," Campbell said during the midst of the corporate collapse.
That uncertainty has led to doubling ALCO meetings, convening four times a month, and adding "confusion, frustration, as well as a little apprehension" to the meetings themselves, Campbell shared. "It is difficult to decide on a direction when the industry is in a constant state of flux. For now we have taken the most conservative approach possible on most issues. This may not be the best way to serve our members. But with our capital rapidly evaporating, we don't see many viable alternatives."
The balance sheet issue most perplexing to PFCU, according to Campbell, is how to position its investment portfolio. "We have an over abundance of liquidity," he said. "What to do with it is challenging in the current environment. We have started to invest in three-year, FDIC-insured bank CDs, which takes money out of the corporate system, which we don't want to do. But low rates and too much uncertainty at WesCorp are powerful disincentives to keeping our money there."
Other areas of the balance sheet are easier for PFCU to handle, though it does not like what it has been forced to do, Campbell said. "We would like to book more loans since our portfolio is declining, but good auto loans are difficult to find and we are already too real estate heavy. With too much liquidity we have lowered deposit rates to drive out some of this money and bring down our asset size, which improves our capital ratio. But this is a scary tactic since we will someday have to compete to bring back these deposits, which will be costly."
Like many others, Campbell does not believe the corporate assessment will be the last "surprise" from the NCUA this year. "So we are working on a capital restoration plan that includes lower dividend rates, higher loan rates, smaller asset size, and lower operating costs. This is not a healthy, long-term solution, but with our capital ratio dropping from 11.02% in December to 9.38% in February, we do not feel we have much of a choice. The WesCorp member capital write-off will bring our capital ratio down to as low as 8%."
