August 2019 – Apple Federal Credit Union was originally founded in 1956 as a member-owned cooperative for teachers. While the credit union continues to serve school district employees in its market, it has since expanded membership to anyone who lives or works in Fairfax, Frederick, and Prince William counties. Today, Apple FCU operates 22 branches across Northern Virginia.
Apple FCU joined FHLBank Atlanta as a shareholder in 1998 and has grown its usage of Bank products over the years. Chris Cooper, chief financial officer for Apple FCU, says that the credit union benefits from its access to FHLBank Atlanta in a number of ways, including managing balance sheet positions and mitigating the risk associated with holding long-term mortgages in portfolio. The credit union also participates in FHLBank Atlanta’s homeowner assistance products, giving them access to down-payment grant funding to help low-income members purchase a home.
“Our relationship with FHLBank Atlanta has allowed us to mitigate the interest-rate risk associated with holding mortgages, more accurately budget asset growth, maintain contingent liquidity, and gain the advantage of hedging with derivatives without dealing with the related compliance and accounting issues,” said Cooper.
Advances in particular help Apple FCU manage risk associated with its mortgage portfolio. Cooper says that the credit union routinely uses long-term Fixed Rate Credit (FRC) advances to offset risk of holding mortgages and that they have taken down advances with embedded options that lower their interest rate as market rates rise. Forward starting advances, which allow a borrower to lock in an interest rate for funding at a future date, also have been helpful for managing seasonal deposit outflows that come with having a significant number of members who are teachers.
“We have offset the interest-rate risk associated with growing our mortgage portfolio in the second half of the year by taking forward advances that funded the following summer,” said Cooper. “This helped to maintain liquidity and asset growth during the summer, when we have a seasonal outflow of deposits.”
Advances have also been important balance sheet management tools as Apple FCU has merged with other credit unions. Cooper notes that mergers often temporarily reduce the net worth to net assets ratio, which can require a temporary reduction in the asset growth rate. To manage this, Apple FCU has implemented a strategy of laddering FRC advances, where they borrow multiple advances at various maturities and re-evaluate funding needs at each maturity date.
“Having a ladder of FHLBank Atlanta advances maturing each year gives us the ability to slow down our asset growth without slowing down deposit growth,” said Cooper.
Meeting the Mortgage Lending Needs of Low-income Members
Apple FCU’s vision is to improve the lives and fulfill the dreams of its members. As part of this vision, the credit union seeks solutions to help its lower-income members achieve their homeownership goals. Cooper says that Apple FCU taps two sources of funds from FHLBank Atlanta to support these lending needs: Community Investment Program (CIP) advances and the Bank’s Affordable Housing Program homeowner assistance products.
CIP advances provide Apple FCU with fixed-rate funding at an interest rate that is generally less than standard advance rates, but the funds must be used to support housing for families earning 115 percent or less than the area median income. Apple FCU uses CIP advances to fund home mortgages for their low- and moderate-income members.
Additionally, in 2018, Apple FCU began using homeowner assistance products to provide down-payment assistance grants to prospective homebuyers and has since delivered hundreds of thousands of dollars in grants to its members. Most individual recipients receive $7,500, which goes a long way toward making the mortgage affordable to the member.
“The cost of housing in Northern Virginia is very expensive, which makes the grants extremely important to us,” said Cooper. “They enable Apple FCU to help local school employees, including bus drivers, custodians, and cafeteria workers afford to live in the school district in which they work.”
“The most important impact is the difference the program makes in the lives of our members,” added Cooper.
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