Members of Elevations Credit Union ($1.2B, Boulder, CO) want more liquidity, but the credit union itself wants to shed deposits while snagging a return.
Like many credit unions across the U.S., Elevations’ shares are increasing substantially. Shares increased 19.24% in the first quarter of 2012 from a year prior while its total loans grew 7.61%. Elevations’ total share balances grew to $1.1 billion in the first quarter of 2012 from $886.3 million the same quarter last year, according to Callahan & Associates’ Peer-to-Peer data. Its loan-to-share ratio has decreased to 62.0% in the first quarter of 2012 from 68% in 2011.
“This is a good problem to have to some extent, but it does pose some problems," says Michael Calcote, Elevations’ chief financial officer. "It can inhibit your ability to deleverage your balance sheet.”
Large amounts of cash on a credit union’s balance sheet puts pressure on its capital position while driving insurance premiums higher. To handle its excess deposits, Elevations first looked at its funding strategy. It paid off debt and decided to improve its ability to adjust deposit rates quickly. It then sold mortgages to the secondary market and diversified its portfolio to include auto and credit card loans.
“As the economy turns up and improves, we’ll likely see some portion of those funds go back into the market,” Calcote says. He believes three-month yields will increase 75 basis points over the next year and yields will increase almost 200 basis points over the next two years.
Elevations uses its investment portfolio as a source of liquidity, focusing on floating-rate, mortgage-backed securities and structured, collateralized mortgage obligation securities. The securities, which have manageable interest rate risk, return cash flow monthly. Elevations has additional liquidity strength with large amounts of borrowing capacity from the Federal Home Loan Bank.
To protect against an unpredictable economic climate, Elevations looks at reinvesting transient deposits, which are deposits that are likely to leave the financial institution if the economy improves. It invests the deposits for short-term returns like through insured CDS and avoids mortgage-backed securities.
“Certainly the emphasis is on maintaining a strong liquidity position and also a well matched position from an asset liability perspective,” says Calcote. “Doing this has positioned us to perform at an acceptable level should the economic conditions continue to be sluggish and also position us to perform well as the economy improves.”
Helping Members Invest
Elevations is also striving to be more pro-active in offering members wealth management. Its interactive wealth management microsite allows members to create personalized savings goals based on retirement, college, or anticipated job changes. Members are trusting the cooperative with more of their business in reponse to the credit union’s financial literacy efforts, Calcote says.
The credit union has had a retail investment program since 2005 through CUSO Financial Services. Elevations has streamlined business, expanded staff, and paid special attention to member outreach to successfully orchestrate its retail investment program.
“It’s important to offer our members as many options as possible for investing their funds, but particularly so when CD rates are so unattractive,” Calcote says.
At the end of June, assets under Elevations’ management were $163 million, which is double the levels it held at the end of 2009. The credit union’s goal is to generate three times as much as this year’s $1.6 million in gross dealer concession (GDC). Calcote says the program is beginning to mature.
“Members do respond well to our efforts to make sure they’re fully aware of all the options,” says Calcote. “They recognize us as partners helping them find solutions in this challenging yield environment.”