One CU's Strategy For Increasing Yield Without Increasing Risk
Credit Union: Schools Financial,
Nominated By: WesCorp, San Dimas, Calif.
Nominated For: Investment Strategy
It is the Holy Grail of investment strategies: increase yield without increasing risk exposure.
Schools Financial Credit Union says it has been able to do so, with the assistance of WesCorp.
Jack Kocunik, chief financial officer for Schools Financial CU, said the credit union manages 100% of its investments with WesCorp.
"We have always been a conservative credit union, and we've always had a one-year investment ladder-typically one-year CDs-with WesCorp," he said. "It has worked well for us, and we've always scored well on peer comparisons with other top-25 credit unions in California."
Because loan activity dropped in recent years, SFCU found itself with a "considerable amount" of excess deposits by its members, Kocunik acknowledged. The credit union went to WesCorp and said it wanted to increase yield and asked the company to do an analysis of its portfolio.
WesCorp's suggestion was to change the one-year investment ladder to something a little longer. Kocunik said the CU agreed to a mixed ladder with one-, two- and three-year certificates.
"If we stayed with one-year certificates, we would meet our liquidity needs, but we wouldn't take advantage of the rates being offered. We maintained our philosophy of being safety-first and concerned for our members, but this allowed us to increase our income. The one-year CD will allow us to continue to have liquidity. The two- and three-year certificates allow us to increase yield because of a higher rate, but without risk," he said.
"And it was a simple process, because WesCorp did all the work," Kocunik added.
As a result of this restructured program, Schools Financial has increased its investment yield by 59 basis points, which Kocunik said translated to approximately a $2.5-million annual increase. The risk factor rose slightly to 10.4% from 7.6%.
"NCUA considers anything under 25% to be low-risk. We stayed well under that mark, yet we increased considerably our earnings potential," said Kocunik.