Corporates Have Plenty of Non-Corporate Investment Dollars To Go After. WEST PALM BEACH, Fla. – Corporate credit unions have expanded their product lines, investment expertise and reach with national FOMs, but just how much are credit unions utilizing corporate credit unions? Credit Union Times talked to credit union executives from CUs in a number of states and found that credit union usage of corporates follows no set pattern. Some credit unions rely primarily on their home state corporate, while others like to use multiple corporates, and still others rely on the Federal Reserve, Federal Home Loan Banks and commercial banks for a number of services. And of course many CUs do a combination of all of these things. It does appear that credit unions are aware of how easy it is today to have relationships with more than one corporate as most corporates require a very small dollar deposit to gain membership. Corporates can take stock in the fact that some CUs use multiple broker-dealers and commercial banks for investment services, so they represent fertile opportunities for corporates to increase penetration. Former longtime WesCorp CEO Dick Johnson was always fond of saying that while there is a perception that corporates are becoming much more competitive with each other, there are millions of dollars corporates can go after that are outside the corporate network. "We are members of WesCorp, Southwest Corporate, Southeast Corporate and Corporate One. A bank has done our safekeeping for years. We use Southwest to clear checks, and we use them as a source of ALM management," said Terry West, CEO of the $2.8 billion VyStar CU in Jacksonville, Florida. West said the CU keeps overnight money in Southeast Corporate and hopes to move its deposit processing from the Federal Reserve to Southwest. The CU also has longstanding bank relationships. "We are working to move more business with them (corporates) and away from banks. That's one of our goals. We haven't been able to accomplish that yet." West said all of the corporates VyStar is a member of do a good job keeping the CU up to date with various marketing materials, noting that WesCorp and Southeast are the most active on the marketing front, followed by Southwest and Corporate One. In the Northeast, the $2.2 billion Pennsylvania State Employees CU has a strong relationship with home state corporate Mid-Atlantic, and relies on other corporates and broker dealers. "A lot of what we do with Mid-Atlantic is overnight stuff. Our investment portfolio is heavily invested in agency securities, treasuries. We've got relationships with Merrill Lynch, and have made some trades through Mid-Atlantic and brokers like CNBS," said PSECU CEO Greg Smith, who noted that the CU's investment style is "very, very boring," but it helps him sleep easier at night. The CU has a $900 million portfolio. PSECU is a member of WesCorp for diversification purposes. Smith is a fan of WesCorp's conferences. "They hold some nice conferences and bring in some top economists and national leaders." Smith said PSECU is aware of some of Mid-Atlantic's non-traditional corporate services like bill pay and says he is fortunate that Mid-Atlantic can serve as a back-up to PSECU's own in-house bill pay program. "In the event of an equipment failure, we have a contractual relationship where they'll step in." PSECU was once a member of the FHLB, but it didn't have a need for them as a source of funds. Smith expects PSECU will likely rejoin the FHLB in the future. Then there are those CUs that don't rely much on corporates at all, such as the $754 million Municipal Employees CU of Baltimore. "Over the years we've had relationships with the commercial banks in town. We have a very good relationship with M&T Bank. We use them for processing and they provide some management services for investments," said Andy Pataki, COO of the CU. The relationship is clearly very strong as the CU and the bank have an arrangement where the CU can use the bank's ATM network for free. "It helps our members get cash wherever they want," said Pataki. "We really have looked at the corporates. We've compared corporate pricing for several functions and we have to take the best that's out there for our members," said Pataki, and M&T is usually the best deal. Then there are CUs that want to rely on their home state corporate as much as possible. "We try to stay true to our home state corporate. We have our overnight investments there, purchase CDs there. They have a broker/dealer set-up with ISI and we use that some. We use their ALM product and use them for short-term borrowings," said Jack Braswell, CEO of the $175 million Members CU in Winston-Salem, N.C. The home state corporate is First Carolina Corporate. The CU's corporate checking account is with Wachovia, where the CU takes its daily deposits. Some corporate leaders noted that CUs should be wary of banks that offer them free accounts for their daily deposits, yet wait a few days to credit the credit union's accounts. Braswell wished there was a way it could move this relationship to a corporate or even the mammoth State Employees CU of N.C. which boasts over 170 branches. "I know some credit unions use bank as a four letter work, but sometimes they're the only game in town. We would be interested in a network where we could take our deposits for cleared checks, rather than use a bank," said Braswell. That would mean that the CU would need facilities near its branches to take deposits. "There are 400 miles between our eastern most and western most branches. It would take some coordinated effort with say a State Employees to get the coverage needed," said Braswell. He did note that the CU is open to looking at products from other corporates. Some credit unions have multiple corporate relationships primarily to shop the best investment rates. Bill Connor, EVP and CFO for the $623 million America's First FCU in Birmingham, Alabama, said the CU has had a relationship with home state corporate Corporate America for years for things like overnight accounts, settlement accounts, short term investments, and a line-of-credit. In recent years it started joining other corporates mainly for investments. "As corporates have branched out and got national charters, we have looked at other corporates to spread the risk around. We have relationships with Southeast Corporate and Southwest Corporate. We look at rates. They tend to bounce around as to who is paying a better rate," said Connor. The CU has a $120 million investment portfolio. "We've very conservative with it. We're 83% loaned out. Our investments are a small part of our strategy. Our duration averages about two years." The country, the $175 million Mid-West Financial FCU, based in Ann Arbor, Michigan, has a strong relationship going with home state corporate CenCorp. The corporate handles the CU's check processing, collection items, investments, overnight accounts, and safekeeping. But the CU relies on the Fed for ACH and has a direct relationship with BankOne for foreign items (cables and drafts). Its deposit items go to Comerica, but that is part of an existing relationship CenCorp has in place with Comerica and two other large banks. CenCorp CEO William Walby said the advantage to the CU is the deposits at the banks are credited instantly to their corporate account. Dan Garrison, VP of Accounting for the CU, said Midwest Financial CU is also in the early stages of potentially joining Southwest Corporate to take advantage of its services. "I've got some information from Southwest, but it's very preliminary," he said. The $1.7 billion Ent FCU in Colorado has multiple relationships with home state corporate SunCorp. "We use SunCorp for our overnight deposits, our money market. They do all of our item processing and international wires. We purchase investments from SunCorp itself, and also through them via ISI," said M.J. Coon, SVP and CFO for Ent FCU. It should be noted that Coon is on the board of SunCorp and is also a past corporate CU examiner for NCUA. Some corporates gain business for unique offerings. For example, Ent recently joined WesCorp for its derivative powers, used as a hedging tool for CUs. Ent already had relationships with two non-credit union related entities for derivative hedging. It joined WesCorp to hopefully bring some more competition. Ent utilizes two firms – ALM First, which was up until recently owned by EasCorp, for ALM modeling, and C. Myers – for ALM modeling. Ent does use a bank for foreign currency exchanges and it is a member of the Federal Home Loan Bank. Coon believes in having a strong primary relationship with SunCorp, but also believes it makes sense to have secondary corporate relationships. She said for CUs that have limits in place on how much money they can have in one corporate, multiple corporate relationships should be a no-brainer. Coon is disappointed that some credit unions are not utilizing corporates enough for borrowings. "It strikes me sometimes, why they have not talked to their corporate. They (SunCorp) will bend over backwards, to structure a borrowing with what we need," she said. Some credit unions don't see the need for multiple corporate relationships. Bruce Foulke, CEO of American Heritage FCU in Philadelphia, from time to time gets marketing pieces from other corporates. "I just really don't call them back. I'm not interested at this time. Mid-Atlantic meets our needs." Foulke's CU uses Mid-Atlantic for overnight accounts, safekeeping and some investments. American Heritage also has a relationship with the Federal Home Loan Bank to sell off mortgages, and clears checks with the Federal Reserve. He said some corporates have tried to get the CU's item processing business, but he found on average the Fed was about $20,0000 cheaper. For those corporates that don't think credit unions are paying attention to their internal moves, they should think again. The $2 billion Portland Teachers CU is a good example. PTCU Investment Manager Jim Carlson says the CU does a lot of investing with WesCorp, and up until recently not that much with Northwest. However the CU has started to put more dollars into Northwest because they hired a new investment professional that has reenergized pricing. "They added a gentleman that really knows his stuff and his pricing has been very competitive since," said Carlson. PTCU has a lot of non-corporate relationships. For example right now it has $64 million in interest rate risk borrowing with the FHLB of Seattle. Carlson said the CU loves its sweep account with Key Bank, where each day the bank either sweeps funds or borrows from the Fed to bring the account positive. It also has a Fed funds line open with Bank of America, though it hasn't used it. Carlson said PTCU also has a number of broker/dealer relationships, but being 95% loaned out the CU's main goal is managing liquidity, not striving for yield in its $256 million investment portfolio. One thing is clear, credit unions have more options than ever these days to shop for the best deal. [email protected]