Credit Union Borrowings Near Record Levels

Borrowing gives CFOs a flexible tool to manage short-term liquidity and longer-term interest rate risk.

 
 

Borrowing gives CFOs a flexible tool to manage short-term liquidity and longer-term interest rate risk.

Credit unions’ quarterly 5300 data often reveals a “story” that generates interest among industry participants. For the first quarter of 2005, one number creating some buzz is borrowings.

At the end of the first quarter of 2004, borrowings for the entire credit union system totaled $11.7 billion. One year later, that figure has grown to $15.5 billion, a 32% jump in one year.

What does the increase in borrowings tell us about the strategies used by credit union financial managers? Are the borrowings more a function of funding short-term liquidity, or a strategic decision to insulate interest rate risk? To help answer these questions, let’s look at the top ten borrowers in the credit union system and the maturity structure of their borrowings.

Rank

State

Credit Union

Borrowings as of 3/31/05

% of Borrowings < 1 Year

Loan/ Share Ratio

1

VA

Navy

$ 2,934,570,078

99%

79%

2

NY

ESL

$ 616,995,292

75%

104%

3

CA

Wescom

$ 495,849,880

39%

96%

4

TX

San Antonio

$ 410,714,066

38%

138%

5

FL

Eastern Financial Florida

$ 311,148,034

0%

94%

6

MA

HarborOne

$ 286,161,854

21%

120%

7

TX

OmniAmerican

$ 275,522,609

37%

104%

8

CA

Orange County Teachers

$ 250,000,000

6%

68%

9

CA

North Island

$ 234,356,471

<1%

109%

10

TX

Security Service

$ 213,772,600

56%

106%

The data illustrates two different borrower profiles. One group—Navy, ESL and Security Service—is borrowing short, with the majority of their outstanding debt coming due within a year. The data on this group points to a short-term liquidity strategy.

The remaining top-ten borrowers have at least half of their borrowings maturing in more than one year, signifying that they may be employing more of a “macro” interest rate risk management strategy against longer-term assets.

The one consistent attribute among the top ten borrowers is a high average loan-to-share ratio of 102 percent, compared to the industry average of 73 percent.

Borrowing was a popular topic at CUNA’s annual CFO Council in May. One of this year’s presenters was James Eibel, Vice President with the Federal Home Loan Bank of Indianapolis, who discussed the importance of establishing funding options as part of an overall ALM strategy. Having a prudent borrowing structure in place can provide valuable funding flexibility without imposing an actual obligation to borrow.

Learn more on the topic of liquidity and funding strategies in the webinar recording, Understanding Liquidity Options and Strategies, sponsored by The Callahan Center for Credit Union Leadership. If you missed him at the CFO Council, James Eibel of the Federal Home Loan Bank of Indianapolis speaks on the webinar.

 

 

 

June 13, 2005


Comments

 
 
 
  • Great article Mike, Steve Hennigan SACU
    Anonymous
     
     
     
  • This helps the CU world to understand that "borrowing" isn't a dirty word. Thanks!
    Anonymous
     
     
     
  • Informative & timely - Jim Girardeau, SACU
    Anonymous