Funds Unwelcome

HOLLYWOOD, Calif.-With member borrowing way down and deposits continuing to flow in, AFTRA-SAG FCU is asking large depositors to move their money to another institution.

Plummeting loan-to-share ratios (52% at AFTRA-SAG) and low-paying investments have plagued numerous CUs across the country. But only a few have taken the steps AFTRA-SAG has, including Nevada FCU in Las Vegas. Unlike Nevada FCU, however, AFTRA-SAG is not offering a cash premium to those who make withdrawals.

In a letter to members, AFTRA-SAG said, "Due to the unusual economic and market conditions, we are asking you, a select group of our large depositors, to move a portion of your funds to another institution. This request is a temporary one, so we would like to explain why we are making this request: The credit union is flooded with cash."

The letter explained to members that the investment return it is earning on the excess deposits is quite low, also assuring "there is no cause for alarm. Your individual savings and individual retirement accounts are safe and continue to be insured up to $250,000 by the National Credit Union Share Insurance Fund." Affected members can withdraw a portion or their entire IRA deposit without incurring an interest penalty and receive all interest accrued.

Two weeks into the move about $2-million has flowed out, estimated Laura Dowd, VP lending and branches, who described member reaction to the letter as "favorable. Members are directed to speak with branch managers, which is making them more comfortable. Certainly many of the members are surprised to get the letter, but once they speak with the credit union things have gone well."

With the credit union's capital hovering just over 7% and ROA at .35% after assessments, Dowd said the CU expects the move will give it a "breather" during a time in which the credit union's investment rates are "horrible." She noted that loan growth has been negative in a year in which lending was projected to be flat. "We are suffering from the economy just like everyone else. But we have members who are predominantly self employed. They know what it is to have and have not, so they manage their money very well and are reluctant to borrow now."

AFTRA-SAG FCU has 35,000 members who primarily work in the entertainment industry, including the Screen Actors Guild.

Some members are telling the credit union that despite low rates-this summer AFTRA-SAG dropped rates for savings, IRAs, and MMAs to .10% across the board-they do not care what the CU is paying and intend to leave their money where it is. "And that is fine," Dowd said. "We thank them and do not try to convince them to do otherwise."

Dowd said the decision to send the letters was extremely difficult but reminded that "these are unusual times" that forced the credit union take an action it previously never considered. "This is a very unusual situation we find ourselves in," noted Dowd, who said the move is in many ways a hedge against an unpredictable economy.

AFTRA-SAG targeted longer-term members with the letter, hoping they would better understand the reasons for the request, remain loyal to the credit union, and bring their money back when the CU can afford to pay more or investment yields improve.

The $210-million credit union's initial target was about 800 members who had $100,000 or more, totaling $27 million in deposits. Dowd said AFTRA-SAG hopes to see assets decline to approximately $200 million, noting it recently dropped the target for the letter to include depositors with just under $100,000. Through October, total share deposits stood at $192.7 million and total loans were $98 million.

Dowd said AFTRA-SAG has not developed any secondary or follow-up steps at this point should members opt not to withdrawal sufficient funds. "We do not know what that would be right now. That is for discussion perhaps later in December. All of the employees who have been at the credit union for a long time, including myself, can't remember a time like this. We are in uncharted waters."