CFOs Not Yielding to Temptations

Ray Birch
October 7, 2010 | COMMENTS

Credit union CFOs admit extending investment maturity to chase yield is a consideration due to earnings pressure.

However, CFOs who spoke with Credit Union Journal say they are resisting the temptation.

David D'Annunzio, CFO at the $415-million Heritage Trust Federal Credit Union in Charleston, South Carolina, said his credit union is more cautious than ever about going long. "We are trying to maximize yield by considering a mix of all the different investment products available and being fairly aggressive at looking at options."

D'Annunzio said on his radar are conservative investments, like the SimpliCD offered by many corporate credit unions, and aggressively managing the portfolio. "We mostly limit ourselves to what's guaranteed by the government,” he said. “But we cherry-pick on a daily basis by contacting our brokers and asking what's the best yield we can get in a term of one to three years, and then taking advantage of those."

That is difficult to do in large volume, acknowledged D'Annunzio, whose credit union’s investment portfolio is $70 million. "But if you stay at it, you can actually enhance the yield of the whole portfolio to a great extent."

Brandon Michaels, CFO for the $416-million Mazuma Credit Union in Kansas City, Missouri, admitted that with the two-year T-bill at 49 basis points, it is enticing to go out three to four years, but Mazuma will not do so. "You have to be very cautious and forward thinking-beyond the current interest-rate environment. We are buying some callables now, if you can withstand the maturity possibly coming at the call date. We are buying those as long as there is a decent amount of lockout period."

At the 109%-loaned-out Marine Credit Union in La Crosse, Wisconsin, CFO Peggy Lamb understands she is fortunate to have a loan portfolio position that means there is little extra cash in need of investing at the $420-million credit union.. "We really are not investing right now. We have only two tiny little securities," she said.

Still, Lamb said she plans to develop a laddered investment portfolio for liquidity purposes. "It makes sense to ladder out some pretty risk-free treasuries so we have the ability to call in those investments when we need them,” she said. “We might look at a one-time callable just because the one-time call gets you a little bump."

Lamb expects to borrow to build the portfolio. "I may borrow from our members as opposed to borrowing from the wholesale market, and go out with a CD special since it is still really cheap to do that."

In Colorado Springs, Aventa Credit Union has employed a strategy to make the credit union less dependent on investments. The $130-million credit union has lowered rates to drive out high-priced deposits and reduce assets and cost of funds, while at the same time growing loans. "It's probably been two to three months since we bought any investments," said CFO Dan Leclerc. "The last time we did buy anything it was not a lot of money and I kept durations under two years. I bought mostly callables that had step-up features."

D'Annunzio, Lamb, Michaels, and Leclerc are members of the CUNA CFO Council.

This article appeared at www.cujournal.com and is reprinted with permission.