Southeast Corporate Getting Into Business Services With New CUSO; Partnering with Other Corporates on ALM

TALLAHASSEE, Fla. -Southeast Corporate is the latest corporate to offer its member credit unions business services. The corporate is establishing a new CUSO – Member Business Solutions, LLC – that will offer a variety of products to help credit unions better serve business accounts. Products include a sample member business-loan policy, staff training and underwriting services to meet credit unions’ policy requirements, credit analysis, underwriting, credit policy and back-office support. Southeast has brought on a commercial lending veteran to spearhead this effort. Jim Gallagher, with 20-years of commercial banking experience, has been hired as SVP of Business Services. Gallagher was most recently VP of business banking and team leader/sales officer with Suntrust bank. The CUSO will begin a pilot with several member credit unions starting in January. After those pilots are complete, Southeast will open up the program to all of its members. Northwest Corporate was the first corporate to get into the business services area. It started its own CUSO last year. Since then Empire Corporate and FirstCorp have joined on as partners. “Ultimately what we’re going to be doing is setting up a program for complete business services,” said Southeast Corporate President/CEO Bill Birdwell. He noted that initially the focus will be on the lending side, but the services will grow to include serving businesses on the deposit side, merchant card processing, payroll services, and others. “We’ve been talking to credit unions for the last six months and a lot are interested in this. Many of the mid-size to small ones want to do it, but don’t have the resources,” said Birdwell. Gallagher said he expects 90% of the loans to be under $500,000, and a large share of those will be under $100,000. Gallagher, who knows the banking side well, said credit unions can fill a niche in this loan range. “The main thing small businesses want is someone at a local location that cares about their business, knows about their business. That’s where credit unions can win out,” said Gallagher. Instead of investing in the personnel to handle business accounts, Gallagher said CUs should focus on the member’s experience in the MBL process and let the CUSO handle the back office work. The new CUSO will provide extensive training for CU staff to handle business accounts, said Gallagher. It’s been a busy time at Southeast Corporate, especially in terms of working with other corporates. Southeast recently completed four ALM investment seminars in Alabama in conjunction with that state’s corporate, Corporate America. It’s the first time the two corporates have coordinated on ALM education. Interestingly, Southeast and Corporate America were discussing a potential merger, but the deal never came to be. Southeast Corporate SVP, Chief Investment Officer Gregory Wirthmann said with credit union balance sheets becoming more complex and a system flush with liquidity, ALM education is as important to CUs as it’s ever been. “More credit unions are retaining fixed rate mortgages on their balance sheets. More are purchasing CMOs than we’ve seen in some time. In this low rate interest rate environment credit unions are willing to go out a little further to get that extra 15 and 25 basis points,” said Wirthmann. But doing all this takes expertise. “We do find there’s a wide disparity in credit union understanding of CMOs. We did some seminars with the Mississippi Credit Union System last year at their request because we became concerned with the number of CMOs being purchased,” said Wirthmann. Keeping an eye on where rates are going is crucial for managing a balance sheet. Wirthmann said he doesn’t expect the Fed to make a move on increasing rates until well into next year. “We think that you’re going to see increases in rates across the Treasury yield curve. The Fed won’t move until May or June of 2004,” said Wirthmann. The 10-year Treasury will start to come up, and that means credit unions that have retained 30-year mortgages on their books could start incurring some extension risk, said Wirthmann. Fortunately, most CUs in this position have exposure pretty well-managed and there are hedging tools available to help manage the risk, said Wirthmann. He noted U.S. Central’s Reverse ACP, which is a corporate certificate in which the principle amortizes. In a Reverse ACP, cash flows return faster if rates go up, and slow down if interest rates go down. Southeast has launched two ALM models to help CUs – CorpAnalytics and ALMonitor. CorpAnalytics is a more complex ALM product while ALMonitor is designed for smaller CUs with less complex investment portfolios. Southeast is even sharing the wealth with these two products. Georgia Central will be offering both products to its member credit unions. “Even though Georgia Central was already offering its members a full-featured ALM product, we realized that some credit unions didn’t need a very sophisticated reporting tool. We were pleased to learn..that Southeast Corporate had a product under development to meet these members’ needs,” said Amy Fuller, Georgia Central’s COO. ALMonitor automatically pulls NCUA 5300 call report data for report generation, including ROA analysis, key trends and ratios and GAP analysis. Fuller said she was excited about the cost of the product, which she believes it will fit the budgets of small credit unions. [email protected]