Managing Well in Tough Times: Interview with Tom Baldwin, EVP & CFO of Space Coast CU

A good capital postition helps; so does taking advantage of opportunities.

Space Coast Credit Union began in 1951 and now serves nine counties in central Florida from Vero Beach to Palm Coast. It has 155,000 members and $1.6 billion in assets. Recent growth has been concentrated in indirect auto lending and residential and commercial mortgage lending. Space Coast is part-owner of The Cypress Group, LLC, a business-lending CUSO serving seven Florida credit unions.

What is your credit union’s outlook for short-term interest rates for 2009?
TB: We’ve planned on short-term rates staying pretty close to where they are for most of 2009, but we aremanaging our balance sheet to be prepared for rapid increases in interest rates once the economy turns around in future years. This means selling most of the influx of 30-year refinance fixed-rate mortgages we have seen in the past month and a half, and managing the extension risk of mortgage-backed securities added to our investment portfolio.

What issue or choices does 0% marginal return on your investments create for you?
TB: We have to make difficult choices right now about current earnings vs. future earnings and interest rate risk vs. credit risk.Credit risk is especially tricky right now since unemployment rates in our core market area have gone from the 3% – 4% to anywhere from 8% – 11%.

What kinds of opportunities could be created?
TB: With some of our top competitors pulling out of consumer and business lending in this market owing to financial performance issues, we have a significant opportunity to increase our market share of high credit quality auto loans, mortgage loans and business loans with underwriting terms that are more conservative than in the past.

What is your biggest concern for 2009?
TB: It’s that the government stimulus efforts fail miserably and unemployment continues to skyrocket. If that happens it would be impossible to continue to have any certainty about the level of future charge-offs from our existing loan portfolios. I am also very concerned about how far real estate values will fall given all of the foreclosures currently coming into the market in our local area.

How do you think members are going to be reacting to the economic environment we are facing this year?
TB: We have already seen a significant decrease in spending and increase in savings in our local area as evidencedby significant declines in auto sales, relatively few home purchases, declining debt service coverage ratios for many of our business loan applicants and our first quarter deposit growth.

Overall, what kind of year do you think Space Coast is going to have?
TB: For Space Coast CU, 2009 will be a year for focusing on efficiency and market share growth in several products. We would have been luckyto make some net income before the announcement from the NCUA about the NCUSIF premium assessments, but now we will likely show at least a negative .50% ROA. But we were fortunate enough to head into 2009 with more than 12% net worth, so a year ortwo of poor earnings should not stop any of our major initiatives.

April 19, 2016

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