Skip Martin, president and chief executive of Pocahontas (Ark.) Federal Savings and Loan Association, is worried that small savings and loans, wooed by low interest rates, don't have a plan to manage the mismatch between their assets and liabilities.

He doesn't expect a wave of failures, but says S&Ls could get hurt if they don't mend their ways.

For Mr. Martin, 44, S&L is in the blood. A thrift executive all of his working life, he follows his father and grandfather as head of Pocahontas Federal, which has $166 million in assets.

An outspoken director of the Savings and Community Bankers of America, Mr. Martin shared his views in an interview with American Banker reporter Bill Atkinson.

Q.: How big of a problem do we have with thrifts getting mismatched?

MARTIN: I hope that we all learned our lesson from interest rate risk back in the |80s, but I have a real bad feeling in my gut that we didn't.

Things have been so good lately that we may have forgotten. I think a lot of people are getting severely mismatched in this loan environment, and they may not have a plan in place to correct it.

Q.: Do you expect failures?

MARTIN: No, I think there will be a mad scramble of people trying to learn things real quick. What a lot of institutions are doing is extending their CDs, thinking that is going to protect them against rising interest rates.

The problem is their customer can come in and call those deposits away from them so they really haven't hedged against interest rates going up.

Q.: How conservative are you?

MARTIN: My brokers think I'm ultraconservative. My board thinks I'm a screaming liberal. I manage my shop as if interest rates are going to go up.

It is so tempting to get mismatched right now and throw everything out the window and say, "Gosh, I hate to live on this 4% spread."

Everytime you are matched you take income out of your pocket, and who wants to do that.

I'm concerned that the smaller institutions are depending too much on TB 13 (Thrift Bulletin 13) modeling. It's the Office of Thrift Supervision bulletin that tells them when liabilities and assets reprice.

Q.: What's so bad about TB 13?

MARTIN: It's good; it's just not complete. Thrifts still need to hire somebody to model their institutions on a computer simulation.

Q.: Do you have any other worries?

MARTIN: The portfolio lender is almost going to become a thing of the past. We are almost going to have to make a choice as to whether we are going to have a niche portfolio lenders or secondary market lenders.

Q.: Why?

MARTIN: Are there enough non-conforming loans out there for me to survive? It is always difficult to completely change your approach to business. But the portfolio lender is going to find it harder and harder to keep their loan portfolio up. My point is that I think there are going to be fewer and fewer loans held by portfolio lender-type institutions. We are going to have to start making more conforming secondary market loans. I am fighting this battle out with myself.

Q.: Any predicitions about the future?

MARTIN: I'm afraid the Savings Association Insurance Fund [premiums] are going to go up and the Bank Insurance Fund [premiums] are going to go down, and that is going to lead to unfair competition.

Q.: Why will SAIF premiums go up?

MARTIN: There are still some brain-dead institutions out there. So there are still probably going to be some hits to SAIF, not huge ones.

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