Teachers Credit Union, headquartered in South Bend, is the largest credit union in Indiana with 250,000 members and $1.8 billion in assets. TCU serves 7,000 SEGs and has branches in Michigan was well as its home state. It offers travel services and insurance along with the traditional credit union products. TCU is state-chartered and federally insured. Amy Sink is TCU’s CFO. Amy spoke with Credit Union Strategy & Performance editor Brooke Stoddard in early March.
C&A: How have you been doing in this environment?
Sink: Better than many I would suspect. We have been high loan-to-share (about 110%), so we’re taking advantage of margins as high as we have ever had (in the upper 3s). What would sidetrack us is a huge assessment to take care of the corporate credit union problem.
C&A: How has that affected your thinking so far?
Sink: If we had an assessment of the magnitude first proposed, it would wipe out our expected ROA of 56 basis points in 2009. So we’re looking at wherever we can to cut costs and increase income. We’re looking at salary and benefit decisions, especially in locations we had planned to open this year and next. We’ll look at cutting human resources and marketing. We are going to cut back on fixed asset expenditures by taking off the table two branches we had hoped to open this year, and three ATMs. The budget that was meant to help members and expand service is now positioned as defensive.
As to revenues, we think we can get by without adding new fees, but we are looking at charges on closing costs for mortgages. In addition, we will try to find new revenue sources from our travel and insurance agencies.
It wasn’t going to be a business as usual this year any way, but with the assessment, it really is not.
C&A: Will you be able to maintain loan volume this year?
Sink: Yes, there is good loan demand here. Our portfolio is mostly cars, followed by first mortgages. We’ll see some refinancing of our existing loans. We’ll also see more people coming in to refinance with us, but we consider that new money. Generally these new people coming into us to refinance their mortgages elsewhere are good credit risks, but ones angry at the institutions they have been with.
In some cases, we are turning people away – they took out too much equity, are upside down, etc. But we don’t see too much of this because our housing price run-up was not so large and thus not so dramatic going down again. And our homes are more modest homes, not large ones – say $120,000. Our mortgages have already been low.
C&A: What is your biggest concern right now?
Sink: Mortgage lending. Regulators will be even more rigorous in reviewing mortgage product. Since the secondary market is more costly now, and fewer options exist, it is more important than ever to have a strategy for mortgage lending at your credit union. Keeping the product on your books requires managing the interest rate risk with borrowing. Regulators are not as comfortable with leverage strategies and therefore holding mortgages on your books needs to be done wisely. Normally we do not sell our loans; we usually hedge the risk with borrowing.
In effect, regulators are looking for us to fund our balance sheet in cash, telling us we should be living within our means, that the membership should provide all the cash needed to run the credit union. I agree that we should not be leveraged 50% but I think 5-10% is normal.
C&A: How is your membership going to do this year?
Sink: Some communities we serve have over 15% unemployment. Elkhart County is looking at 20% unemployment, more than twice the national average. So people are going to try to sell their homes and go where they can find jobs.
That said, I don’t expect a significant drop in membership numbers. In addition, our credit union has a very viable balance sheet with attractive loan and deposit products. Our loan-to-share is 110%; people want our products. We are locally owned and visible in the community; people appreciate that.
C&A: Will you benefit from banks closing branches?
Sink: Yes. Chase and National City will close branches in the state and we will pick up market share. We’ll see most of this in Indianapolis.
C&A: What is your outlook on the economy?
Sink: Our national economy was built for spending, so if people start savings then there is going be a painful recession. And if the only thing that can pull us out is spending I really don’t see it happening any time soon. It makes you wonder: which is worse -- consumers saving or consumers spending? People were sitting on virtually no net worth. We haven’t seen savings in a decade or more. There has been such a long period of growth and spending that we have been spoiled.
C&A: Will Indiana do better or worse than places elsewhere?
Sink: We have some pluses and minuses. Our credit union is going to be a mirror of the nation. Some of our SEGs will be fine – especially ones representing health and education. At least Indiana as a state is positioned fairly well because of a balanced state budget. But we don’t have job growth; we don’t have large corporations here capable of hiring lots of people.
C&A: Do you have advice for other credit unions?
Sink: Watch out for second mortgages; they are basically becoming unsecured loans. Selling the firsts and keeping the seconds was considered a better interest rate risk management tool, but the credit risk has become a problem. Persons who sold firsts and wrote seconds took comfort in the fact that they were writing smaller loans, but this might not have been protection if they made a lot of them. Because of falling house values, seconds basically can be unsecured.
Amy Sink has been the Senior Vice President and CFO at Teachers for 11 years. She is responsible for the Finance, Accounting, EFT and Human Resources functions at the credit union. She holds degrees from Indiana University and Notre Dame.