New 'Buffer' Seeks To Boost Loan-To-Share Ratio

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1st City Savings FCU has resolved to be more efficient in 2002, as it also rolls out a new product aimed at boosting its loan-to-share ratio.

That strategy is the best way, said CEO Stephen Punch, to alleviate the effect on the credit union from delays in the state charter approval process.

Because the credit union did not expect to wait more than a year and a half for its state charter, it structured investment portfolios to provide liquidity for increased lending in anticipation of the new charter.

Add to that the size of Los Angeles County, the relative high price of doing business in the area, a field-of-membership comprised increasingly of savers rather than borrowers, a high expense-to-asset ratio and a low loan-to-share ratio as it continues to take on deposits.

In an effort to respond to that combination of market factors, the $250-million, 45,000-member credit union has designed a new product that it believes will serve as an acquisition tool for new accounts while helping existing members.

"We don't have an official name yet, but we will basically tie a checking account to a courtesy pay feature that will provide members with a buffer between paydays," Punch told The Credit Union Journal. "It's a little different than a typical courtesy pay checking account, because we are targeting that product for the emerging middle class or people who have had some payment problems in the past."

A credit report done on every new account is used to determine the level of risk and the fee structure.

Tied to the direct deposit account is a credit line that kicks in if overdrafts are not settled by the next payday after the overdraft protection is used.

"Our goal is to increase our loan-to-asset ratio," Punch explained. "Another goal is to increase the number of relationships per member, primarily loan relationships and transaction account relationships and to increase the level of efficiency. One thing we know is that in an increasingly competitive marketplace prices tend to favor the consumer and businesses have to conform with that reality. The best way to deal with that is to become more efficient."

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