Rolling the Dice … Aloha Pacific Federal Credit Union

The Credit Union Journal’s headline, “Aloha Pacific Rolls the Dice on Las Vegas” sums up my initial reaction to Aloha Pacific’s decision to acquire a Las Vegas branch. They are seriously rolling the dice.

I’ve had experience in managing out-of-state branches and including operations in Las Vegas and New York. Today these branches are closed but I remember the challenges very well.

The first thing to understand is that out-of-state branches are expensive to manage. It is hard to anticipate these additional overhead expenses but they can be considerable. Starting with travel for management, staff, auditors and others, courier expenses, developing and maintaining new vendor relationships, communications expenses and endless other items. Recruiting employees thousands of miles away can be a lot of fun also. It probably costs an additional 20% to manage the out-of-state branch.

The key question is how to pay for the operation. What is going to be the source of income? The CEO of Aloha Pacific says that they will offer commercial loans, residential mortgage loans and home equity loans. He said that the Credit Union’s philosophy is to get aggressive when others are curtailing operations.

Does anyone see a problem with this strategy? Las Vegas is ground zero for bad real estate loans. Las Vegas is the bankruptcy capital.  Thinking that you are going to just bounce into town and jump into the residential or commercial real estate market is breathtaking. I guess this could be called the “swinging for the fences” strategy.

Would part of their aggressive strategy include automobile loans?  Maybe even indirect automobile loans.  Discounting the fact that members aren’t buying cars right now, automobile lending in Las Vegas is a thrill ride. Nothing that this Hawaiian credit union ever learned in Hawaii will prepare them for Las Vegas. I’m sure there are honest car dealers in Las Vegas but I don’t recall ever getting introduced to one. And if the dealers don’t get you the Las Vegas members will have you for lunch.

How about are credit cards? A possible source of income by it would be a trickle. Non-interest income. Yeah, maybe there would be some fee income but these are well established members who aren’t going to drop their current relationships and come running in just because the Credit Union opened their doors.

This is the first effort by an Hawaiian credit union to open an out-of-state branch. Aloha Pacific FCU is Hawaii’s third largest credit union. CEO Wallace Y. Watanabe says that the leadership team has decided to embark on a bold new plan to leverage a great financial opportunity. I hope that this strategy works out exactly as planned. But I’m not betting on it.

Charles Bruen

Today is Edward A. Filene's 150th birthday

Filene was born in 1860 in Salem, Massachusetts. His life achievements included business success, social entrepreneurship and philanthropy. In addition to building the Filene’s department store chain, he played a decisive role in pioneering credit unions in the U.S.

Edward A. Filene first brought cooperative credit to the United States.  He was the movement’s spiritual leader. It is right and proper that we honor him on his 150th birthday.

http://en.wikipedia.org/wiki/Edward_Filene 

First Tech Credit Union's squirrel commercial

Credit Union Failure #24: First American Credit Union
Why did this Credit Union fail?

It looks like this one can be chalked up to “member business loans/participations.” They had 60 MBLs for about $40 million of which 13.63% were 60 days or more delinquent. I’ll be interested to read more about these loans that buried the Credit Union. Their indirect lending program was a loser also with a delinquency ratio of 2.41% on their $13 million portfolio.

The Credit Union didn’t offer credit cards which probably would have been a much safer risk than their MBLs or indirect loans.

There is another First American Credit Union ($75 million) which is located in Casa Grande, AZ. I’m sure they wince at the name association.

Charles Bruen

Chiphone: The "About Us" page explains the name although I should have guessed it

Chiphone About Us

 

 

CUSAG: Got to love the name
CUSAG

 

Refinancing? Rates on auto loans are falling, too.
It's easy to overlook the cost of auto loans with mortgage rates grabbing all the attention.

Yet rates on auto loans have edged lower as the cost of lending has gone down for banks. And car buyers who didn't get the best terms in the past year or so can capitalize by refinancing their loans.

The option should be of particular interest to anyone who obtained a loan from a car dealership. That's because dealers are a middleman in the transaction. They typically mark up the interest rates they get from lenders to make money. Another reason to check how much you're paying? Dealers are leaning more heavily on auto loans for profits as shoppers get savvier about researching car prices online.

The result is that refinancing could bring significant savings. [Read story at The Washington Post/by Candice Choi].

Phibsboro & District CU, Ireland

Loss of financial freedom

I’ve read several articles, including the editorial page of the Wall Street Journal, about the increasing interest rates on credit cards and the decreasing availability of credit.

The new rules governing our credit cards kicked in this month following the passage of the Credit Card Accountability and Responsibility Act, signed into law last year. The point of the CARD Act is to protect us consumers from the scheming bankers, including credit unions, from whom we get our credit cards.

Because of these new protections, we can be grateful that credit card interest rates are the only interest rates that are not now dropping. According to the Wall Street Journal, the average card interest rate is now 1.6% higher than last year and the gap between credit card rates and the prime lending interest rate is the highest it’s been in 22 years.

It’s my observation that many credit unions have increased their interest rates also but probably not as steeply as banks and other issuers.

More good news for consumers is that there is less credit available. The average credit limit on new cards being issued is down 11% from last year.

And, because the CARD Act implements new rules limiting the flexibility that card issuers have, for example, in changing rates on balances of overdue accounts or on exceeding credit limits, credit card issuers are looking for and finding new ways to raise revenue.

Over the last year median annual fees on cards increased 18% and median fees on cash advances increased 33%.

Soon we will have the Bureau of Consumer Financial Protection in place, as result of the Dodd-Frank financial regulation bill just signed into law. The new bureau was set up in about 400 pages of the several thousand page bill, and, with a $500 million dollar budget and several thousand employees, will protect us in every other aspect of our financial lives.

As usual the folks most negatively impacted by these new rules are the everyday consumers/card holders/members who use their cards responsibly and pay their bills on time.

Are Americans getting tired yet on having the government control every aspect of their lives including their financial transactions? We’ll find out in November.

Charles Bruen

Enjoy your friends!