Lessons In Liquidity: How 2 Sunbelt Cooperatives Attract Deposits

Credit unions need money to lend money. Unfortunately, personal savings rates and share growth are both at historic lows, and liquidity is squeezing cooperatives across the country.

Texas Trust Credit Union ($2.1B, Arlington, TX) and Credit Union West ($1.1B, Glendale, AZ) are attracting deposits through creative product development, agile marketing responsive to market conditions, and interest rate management that adheres to the risk and liquidity parameters recommended by senior managers and ALCO committees.

Checking Accounts Power Deposits

Texas Trust is relying on checking to fuel its lending engine, which is chugging along at a dramatically stronger pace than the national average. Texas Trust’s first quarter lending was up nearly 20% year-over-year, compared with a decline of nearly 30% in the same period for all U.S. credit unions.

Its strategic shift to promote checking is in response to fast-moving interest rates, says Peggy Esparza, chief financial officer at Texas Trust.

“More than a year ago, we were pushing CDs to offer members a savings tool with a return,” Esparza says. “Now, we’re heavily focused on growing our Power Checking and Bonus Checking accounts.”

According to Esparza — who joined Texas Trust 28 years ago as a part-time teller and has been CFO since November 2021 — the checking accounts offer member benefits as well as better interest rates without locking the credit union into a set term.

“This gives us the flexibility to adjust the rate of the checking account based on market changes, which we can’t do with a CD until it matures,” Esparza says.

Power Checking is one of four checking accounts available at Texas Trust. The account currently offers a rate of 4.18% — a full 5 basis points higher than the credit union’s one-year CD — with a required monthly balance of $5,000 to $250,000 and 20 non-ATM debit or credit card transactions per month.

The credit union is currently promoting Power Checking, in part, to lure money away from locked-down CD accounts. The strategy seems to be working.

“We grew deposits of our Power Checking accounts by nearly $26 million, or 20%, after we increased the balance cap to $250,000 last year,” Esparza says. “The average monthly balance of these accounts is $50,000, which is slightly higher than what we saw in average balances the previous year. They’re also our highest retention checking accounts.”

Esparza says her cooperative currently has 3,054 Power Checking accounts with total balances of $153 million. The credit union had 65,960 total checking accounts with a total balance of $497.7 million at the end of April.

Swipes And Certificates In Phoenix

Meanwhile, in Arizona, Credit Union West is encouraging members to use their debit or credit cards to “Swipe to Win” or participate in a new certificate promotion.

In Swipe to Win, any member who completes 10 or more transactions with their Credit Union West debit or credit card earns a chance to win $10,000. The more they use their cards, the better their chances of winning, says Connie Loveland, Credit Union West’s chief financial officer.

For members who prefer share certificates, Credit Union West is offering up to 4.75% for a 25-month certificate. To take advantage of the promotion, members must bring at least $10,000 of new money. They can transfer funds above $10,000 from existing accounts, but the balance of the certificate cannot exceed $250,000.

The certificates promotion has attracted more than 200 new memberships with combined balances exceeding $60 million, Loveland says. Swipe to Win wrapped on May 31, and those results are not yet available.

“This is the largest giveaway amount to date and indicates how committed we are to providing value to members,” says Loveland, who joined the credit union in December 2020 with more than 20 years of financial services executive experience. “Both promotions were designed to help drive membership growth, additional deposits, and retain existing deposits.”

Models For Interest Rate Risk

A year ago, Esparza says, the Power Checking account paid a 1% APY with a balance cap of $100,000. Now it’s north of 4% and the balance cap is up to the federally guaranteed maximum of $250,000. That’s in response to rising interest rates, of course, and the CFO notes these times require close monitoring and responsiveness to properly manage the balance sheet.

“Even before the series of rate hikes in the past year, we used data modeling and analysis to assess rates, risk, and liquidity factors for all of our products and services,” Esparza says.

Texas Trust also conducts 18-month rolling forecasts along with quarterly “what if” scenarios.

“This enables us to stay ahead of the curve and proactively respond to market conditions,” Esparza says. “I also review data on a weekly basis and compare it to our monthly forecasting models, so we’re able to quickly adjust course if we’re not meeting our targets.”

Much the same occurs in the Valley of the Sun.

“We run every strategy through an interest rate risk model,” says Loveland at Credit Union West. “A few other things come into play with each decision we make. They include system constraints, the target audience, strategies around the balance sheet, and other key growth metrics.”

Credit Union West ran a TV ad to promote its liquidity-building, member-rewarding debit swipe campaign, Swipe to Win.

At its branches, Credit Union West promoted its share certificate campaign via on-site televisions. The campaign was designed to boost liquidity for the cooperative and interest income for members.

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Shifting Strategies

Esparza says her shop compares its products to competitors based on a deposit survey, then the team looks at loan volume before assessing its next move.

“Depending on the data, we might decide to raise rates, broker some non-member CDs, or borrow from the Federal Home Loan Bank,” the Texas Trust CFO says. “Most importantly, we price in rates to ensure we are making money at the Fed rate.”

According to Esparza, the credit union primarily bases its liquidity needs on loan volume. Currently, it is focusing less on indirect lending and more on direct lending — including cards, unsecured loans, and mortgages — with an eye toward balancing growth and liquidity by carefully managing rates and keeping an eye on the future, too. It monitors both primary liquidity and total liquidity targets, with a minimum target ratio of 15% for primary liquidity and 50% for total liquidity.

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“Texas Trust maintains sufficient liquid assets to cover all foreseeable demands for cash,” Esparza says.

According to Esparza, Texas Trust’s primary liquidity sources are cash and overnight funds, marketable investments available for sale, and borrowing coming due within 12 months.

“Our target minimum ratio is 15%, but we have maintained an average of 19.1% since the first Fed rate hike in March 2022,” Esparza says.

Credit Union West also conducts extensive interest rate risk modeling.

“Every strategy is run through the model to understand the outcomes before implementing,” Loveland says. “Our asset liability management committee meets monthly to review balance sheet requirements, including liquidity needs. Interest rates are set with approval from the board of directors based on those requirements and influences from competitor rates.”

Metrics That Make A Difference

Both Credit Union West and Texas Trust carefully assess liquidity risk, balance the need for liquidity with growth objectives, and have contingency plans in place. By effectively managing liquidity, they can continue to serve their members and contribute to members’ financial wellbeing.

“This is a constant balancing act,” says Esparza at Texas Trust. “Using data analytics, we can look at our membership from a corporate view as well as drill down to the individual member and their overall relationship with us.”

That kind of insight provides a degree of flexibility that marks the credit union difference.

“We’ve empowered staff to make rate exceptions based on a member’s relationship and longevity,” Esparza says. “For example, to help a True Blue member needing a loan or looking to move funds to another institution, we might make an exception by matching a rate or making a counteroffer.”

— This originally appeared on July 24, 2023, on CreditUnions.com.