Texas League Helps Credit Unions Beef up ALM Skills

FARMERS BRANCH, Texas – Life got tougher for credit unions back in 1980 and that’s kept Debbie Rightmire’s calendar full. Rightmire, VP of the Texas Credit Union League’s Asset Management Department, works with credit unions to help them handle ALM. Before deregulation hit 24 years ago, most credit unions offered regular share accounts paying 5% or 6%. They loaned that money at 12%. Life was easy. Today Rightmire works extensively with credit unions in Texas, Arkansas, Oklahoma and Missouri helping them keep pace with today’s more demanding environment. She also is tapped as a speaker at ALM seminars in other states. What prompted this interest? For one thing, “NCUA has shown they feel asset/liability management is an integral part of a successful operation. Credit unions really have no choice if they want to respond to economic changes and satisfy regulatory concerns,” Rightmire says. About 90% of Texas credit unions use the league’s ALM Analysis service, and every six months she has the opportunity to look closely at the operations of some 1,000 credit unions. The three-page report the TCUL ALM staff prepares includes historical information such as key ratios and peer group statistics as well a commentary and some suggestions. “Credit unions as a whole continue to be well-capitalized,” Rightmire says. “Some credit unions would probably disagree because of their own experience, but overall we have amazingly good loan quality. On a less positive note, she continues, “Earnings in 2004 are down for a lot of credit unions, and it is difficult to maintain spreads because we have lowered dividend rates probably as low as they will ever go. We have been surviving on very low loan rates, and will have to continue doing so in the short term because a lot of those loans are longer-term auto and real estate loans. We don’t have the ability to adjust loan income as quickly as we’ve been forced to adjust deposit rates.” As credit unions struggle to maintain margins and as they eye the potential impact of rising rates, Rightmire has been offering some advice. “A large number of credit unions have plenty of liquidity at this point. So what we have been suggesting to them is if the Fed funds rate has gone up 75 basis points, and the credit union can avoid raising dividend rates for the first 100 or so basis point increase and you started raising your loan rates at the point where the Fed fund rate started going up, that will buy you some time. “The bottom line is, when you raise dividends the cost goes up that moment. If you change your loan rates, it will be 20 to 24 months before a typical credit union starts seeing the impact,” Rightmire says. She believes credit unions have done a “fantastic” job of using basic ALM analysis and adjusting rates, controlling operating expenses and keeping on top of loan quality issues. Many have become more astute in the investment marketplace. The biggest challenge she sees is responding in a more timely way to marketplace conditions. While at a recent meeting in South Carolina, Rightmire noted the Fed rate was up 75 points since the end of June, 2004. She then asked how many credit unions had hiked their loan rates. Only two of more than 50 people raised their hands. “Everyone in that room probably should have,” Rightmire says. Even so, “Credit unions are doing well. I don’t think we can say we are anything but successful.” -