Stepping It Up: Using Laddering Funds to Reach More Car Loans

posted on Tuesday, April 12, 2016 in Advances

Member Profile

Ascentra Credit Union was chartered in 1950 as Alcoa Credit Union, serving as the financial institution for the Davenport, Iowa-based global manufacturer. The credit union underwent a rebrand in 2007 in order to grow its consumer base to the greater community, changing their name to Ascentra. Since then, they have also expanded through mergers with the Members Choice Community Credit Union. Ascentra serves 35,000 members from 10 different locations. Ascentra has $370 million in assets.

Challenge

Ascentra is always trying to remain competitive for consumer banking clientele while meeting regulatory burden, especially during times of change in the financial services landscape. According to Dale Owen, president and chief executive officer, “In our market, there's been market disruptors: consolidations of some rather large banks, and the University of Iowa credit union entered the picture.”

“We've done a better job than some others,” maintains Owen, largely due to Ascentra's community focus. Ascentra exemplifies its commitment to the Quad City, Clinton and Muscatine markets not only through its member-first business model, but also in its support of youth programs, credit education and its work through the Ascentra Credit Union Foundation. To better serve the financial interests of its members, Ascentra was looking for a cost-effective solution to offering longer-term car loans.

Solution

Ascentra used advance funds from FHLB Des Moines to attract and reward its consumer loan members. “FHLB Des Moines has been a key partner for liquidity. That flows to our consumer loans, including car and some home equity loans,” explained Owen.

Ascentra consulted with FHLB Des Moines VP/Member Solutions Bill Venema, who shared with them different advance scenarios through fund modeling. By laddering advances with different maturity dates, Ascentra was able to optimize interest rates and maximize returns.

According to Owen, “Bill is good about presenting other options we maybe didn't think about. We have him on speed dial. He has a gift of making the complex easy. It's spelled out very well. Obviously, the regulators love it, too.”

Results

Ascentra can promote longer-term, low-rate car loans while earning valuable basis points. By laddering 3-, 4-, 5- and 6-year advances at $500,000 each, Ascentra was able to offer competitive 7-year car loans and make an anticipated weighted average lifetime spread of 272 bps.

Car loans make up more than 30 percent of Ascentra's consumer loan portfolio. Owen credits much of their success to partnering with FHLB Des Moines. “The growth we had during the downturn was largely due to our relationship with FHLB Des Moines.”

Looking Ahead

Beyond its consumer loan business, Ascentra is signed up with the MPF Xtra and Traditional program. Owen said the hands-on service of FHLB Des Moines has been key. “Bill went above and beyond. He presented the MPF Program multiple times.”

“If there's a boom we haven't planned on, we don't miss a beat,” continued Owen. “Our partnership with FHLB Des Moines really allowed us to very responsibly grow the credit union. Today, we have a portfolio of 2,300 loans valued at $236 million.”


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