The Federal Home Loan Bank (FHLB) of Atlanta offers a safekeeping program that's second to none. Mark Treichel introduces Alonzo Swann, a credit union strategist at the Federal Home Loan Bank of Atlanta. Alonzo talks with Mark about the many benefits of joining an FHLB. In fact, any credit union that's doing mortgages should be a member. Just like cooperatives, FHLBs make product decisions according to their members’ needs. There are consistent regulatory updates as well to make sure everything runs smoothly. If you want to know more about the benefits of joining federal home loan banks, this episode is for you.
Listen to the podcast here
Federal Home Loan Banks With Alonzo Swann
I am excited to have Alonzo Swann who is a Credit Union Strategist for the Federal Home Loan Bank of Atlanta. Alonzo, how are you doing?
I’m doing great, Mark.
I know Alonzo from his time at NCUA back when he was one of the RB’s Regional Directors that I aspired to be. I met Alonzo somewhere on the West Coast at our regional conference and we were playing basketball. Alonzo, your son was there and your team went undefeated that weekend. That is where I first met you. I had the opportunity later in my career after I had moved up a few steps to work with you as a peer. Your name still comes up in credit unions. It is because of what you are doing at the Federal Home Loan Bank but also from your days as a Regional Director as well.
I have clients and different people that I chat with. If they are in the Southeast, they always wonder what it is that you are up to. Hopefully, they will get an opportunity to know from you on this show. With that, Alonzo, I want to turn it over to you to introduce yourself before we jump into chatting about what you are doing.
I still play basketball occasionally but only HORSE. I got to let you know that. I started with NCUA in the early ‘80s. With the pertinent back then, I had a 13% mortgage, if you can believe that. That is how old I am. I spent many years with the government and had a ball. I retired in 2010 as the Regional Director in Atlanta. At the same time, I had a parallel career as well. I was in the Air Force Reserve for my entire career. I retired from the Air Force in September of 2010 and NCUA in July of 2010. From the perspective of being a Regional Director, a parallel career was a benefit along the way. It shaped how I managed but more importantly, those two careers were the spark for me to retire.
I was overloaded, as you can imagine, between dealing with sand states, corporates, Great Recession, frauds, major frauds and running the Eastern half of the United States Reserve Program for the National Security Agency’s Air Force Unit. It was an interesting time and a great career. I loved NCUA and the Air Force. I am a team player, big time. I have been married for many years. A gold medal from there. I retired and took a serious break that I needed mentally.
A couple of years after retiring and spending most of my retirement money on my bucket lists, I decided to come back out and do something relevant and something where I could use the skills that I gained over my NCUA and Air Force career quite frankly. That is how I landed at the Federal Home Loan Bank of Atlanta. It is an interesting story and that is a whole different story of how I ended up doing what I do with them. It has been a journey. I hit many years with the bank and I love it.
I remember some stories about your father having a military background as well. You followed in his footsteps in that regard, if I am not mistaken.
My dad was a Navy Veteran from WWII. He ended up getting a Navy Cross and that is a whole other story but for any tourist, if you’re ever in New York City, there is an aircraft area parked on the West of Manhattan called the Intrepid. My dad has a monument on there for him. He had a bit of a career.
Make sure that you and the other person meet in the middle of getting to the point of agreement.
I remember reading a story about your dad as you started reminding me of your military career. Thank you for your service and your dad’s service as well. It is much appreciated. That is fantastic. Alonzo, you took a couple of years off, got back into the game and got connected with the Federal Home Loan Bank of Atlanta. A Credit Union Strategist, to me, means you help them get potential new clients or communicate to credit unions about how the Federal Home Loan Bank of Atlanta can help credit unions.
The two spots that I went to were the Federal Reserve of Atlanta and the Federal Home Loan Bank of Atlanta. When I was first hired, I went there to be a Junior Relationship Manager. The whole quick story is I was looking for a junior position. He saw my resume and said, “I noticed your name from somewhere.” The reason he knew me is that I had spoken at the Federal Home Loan Bank of Atlanta’s Credit Union Conference 5 or 6 times. He called me in for an interview, found out who I was and drove up in my fancy Rick Merrill at the time.
He said, “We got something better for you.” We agreed that I didn’t have to be an employee, which I did not want to be for my firm. The difference is I got one single client, which is the Federal Home Loan Bank of Atlanta and they have been the only one for the last number of years. My initial mission there was to recruit credit unions to let them know what the benefits of joining a Federal Home Loan Bank were. We saturated that and have a lot of new members from that. It was a great opportunity for me to get back into credit unions because everything I did was onsite. I would visit credit unions and let them know what benefits they could get from joining the Federal Home Loan Bank, which is enormous.
We were very successful. Most of the big ones would do it or had already joined but from a credit union perspective, any credit union that is doing mortgages should be a member of the Federal Home Loan Bank. As I tell credit unions, I used to have to walk in and disarm them right off the bat. I said, “I am here representing the Federal Home Loan Bank of Atlanta.” When the government sent them through somebody must have been asleep at the switch because they are not federal, they don’t do home loans and most importantly, I am at your credit union. They are not a bank.
Federal Home Loan Banks are cooperatives run very similar to the structure of a credit union. The Board of Directors is made up of members from the membership. Decisions are made by the members for what products are the best to fit our membership. It was fun. I got a lot of new folks morphed. I got most of the folks who were going to join did join even though I am still getting some joining that I thought would not join but benefits are enormous.
From there, I morphed to make sure that I could deliver value during our visits and/or strategic phone calls, which we’ve been doing since COVID. I also give a regulatory update during the visits and calls. That requires me to keep up with NCUA. The bottom-line, one of the things you have found out if not, you will is in my next life if I go back to NCUA, I would be better if I remember what I have been doing for the last number of years.
There are a lot of things that I have picked up since I left. Everything seems crystal clear when you are at an organization for many years. When you go to the other side and start understanding some of the real-world challenges when we would come out with a regulation or guidance, that seemed clear to us but it was muddy in the credit unions. One of the other takeaways I have had from working with credit unions relates to the weight that they have on their shoulders sometimes because of what NCUA is requesting or demanding. Almost each time NCUA asks something, credit unions have to go through the mental math. “Is this something that I want to do, something that I can do and go along to get along or something where I might want to push back on?”
Thinking back to when you were at NCUA, you might get a situation where someone would come to you, maybe CUNA, the league or somebody saying, “We have a situation where someone might be being a little heavy-handed but we don't want to give you the details of that.” It’s because of their fear of retaliation. Our response at NCUA would be, “If I don't have specifics, there is not much I can do about it.” We have zero-tolerance. We don't take retaliation. Not that there is retaliation but they have to weigh a lot of the conversations that they have with NCUA in that light and the magnitude of that is something I never fully grasped until I was consulting.
A lot of times the regulatory language is that regulatory language and you are discussing it with not only CEO C-Suite folks but also a board of directors who are volunteers. One of my roles is to explain where examiners are coming from. Sometimes it is on target and sometimes it is in the way of the strategic plan of the credit union that has to compete against everybody in its territory. What the NCUA examiner is looking at it from a perspective and more times than not was based on the material difference between a credit union’s liquidity level and peer average. Despite the credit union having a good explanation for that revenue enhancement, it’s long to your ratio. That ratio is a starting point.
A lot of times I understand that the examiner may not understand the complexities of cash balance management. They keep bringing it closer to peer average. It is things like that that I will come in and explain. The first thing I ask that I used to have much more benefit in the Southeast was, “Who is your examiner?” If I knew the examiner then each examiner has their particulars. I would drive it through that person’s thinking pattern to get them to understand where they are coming from, give thoughts to go back and discuss with them. It has been very successful. It is like what you are doing. A simple way of explaining that is interpreting French to English and vice versa and then making sure that they meet in the middle on getting to a point of agreement.
We are the journey that we have taken to this point in time. If you are dealing with an examiner who has an interest in lending as opposed to accounting or information system as opposed to accounting, they tend to highlight that area more because it is the background that they come from. They have other team members and specialists that interact with that. It can get real complicated from the NCUA side. Having someone like you out there in the Southeast can help the credit unions that might be dealing with that. Relative to the liquidity as it relates to real estate lending because real estate lending continues to become a bigger part of credit unions’ balance sheets.
I can see why the Federal Home Loan Bank has more and more credit unions involved in it. I was also looking in 2013 or 2014 when NCUA came out with the regulation requiring an investment policy and having more robust contingencies in place for liquidity whether it is the Fed or the Federal Home Loan Bank. I am guessing if you went back to that period, that might have been where you had quite a bit of your growth where they were trying to comply with the new regulation.
I wanted to make sure that the bank had a relationship. At least Atlanta had a relationship with NCUA folks who dealt with that. That is the capital market area. We wanted to make sure that we talked the same language and NCUA understood Federal Home Loan Bank’s role very clearly. We dealt with Federal Home Loan Banks when we were dealing with the corporates. That experience may not have been as popular as we wanted it to be. We had to define how it would use it at the regular credit union level and make sure that NCUA credit unions trade and everybody else understands that we are all strategic partners, ensuring that credit unions are safe and sound. The industry grows and has the tools to be able to compete in financial services in both regulated and unregulated markets.
Part of my journey included making sure I am in touch with NCUA folks and they come down to our conferences. My colleagues and I have spoken at NCUA’s capital market training sessions to make sure we are on the same sheet of music and all holding hands. The way I try to get folks to visualize that is through my efforts in hurricanes in the Southeast. I got to Atlanta in ’97. I had to deal with hurricanes in 2004, which helped me during Katrina. To me, a hurricane was a big tornado. I am from the Midwest and I was like, “What is the big deal?”
I will never forget one story I told. I was at Keesler Air Force base in 1974. Everybody was talking about Hurricane Camille. I finally asked the question, “How many months ago was Camille?” Hurricane Camille was in 1969. I was there in ‘74 and they were still talking about it. I didn’t understand that as a guy from the Midwest. We had big tornadoes and get over it. In 2004, we had to go through that and I had to figure out how I helped those credit unions. I waited for them to call me, which during hurricane does not happen.
Katrina came and we learned how to hold hands. After Katrina, the calls during emergencies and hurricanes went national. I went from handling and talking to the Federal Reserve of Atlanta as my only phone call to after Camille and the hurricanes ended up being a call initiated by The White House. I tell you that because we had a similar hurricane come through called the Great Recession. We had to learn at NCUA how to hold hands with partners who had as much stake in recovery as we did.
We all need to be holding hands and understand each other.
That has been my mission at Federal Home Loan Bank to understand the general liquidity market. We all need to be holding hands and understand each other before events. That has been one of my goals to make sure we have written policies and procedures so that in the case of a liquidity event, we have the Federal Reserve Federal Home Loan Banks and NCUA CLF, all communicating on how best to ensure the safety and soundness, in our case, credit unions.
You talked about the capital markets and the different speakers you’ve had. You have spoken at NCUAs. Owen Cole used to always say, “You want to fix the roof when it is not raining.” It is like what you described. When these events come, you want to be ready for them. That is why someone would sign up and be involved in understanding what the Federal Home Loan Bank can do relative to the liquidity side of things.
With COVID and the growth that has been created in financial institutions and credit unions, it may be a short-term thing that they need the lesser reason to borrow from the Federal Home Loan Bank because they’ve had their assets inflated but long-term, they are likely going to need that source, especially if they are heavily into real estate lending. What have you seen are best practices around the liquidity side of things in credit unions over the last couple of years because of the COVID growth?
Historically, you go back and look at patterns. I have sat through similar patterns. I did not even know the big event that caused it. All I knew is that things change. If you remember the dot-com bust back in the early 2000s, a lot of money flooded out. We went from historical highs loan to share ratios back down coming out of the stock market. That is what I equate to. Things were back normalized by 2003 and we went on a housing boom that took all the liquidity out of the market. We are coming back and credit unions had learned to use Federal Home Loan Banks predominantly before the pandemic. The last trip that I traveled out to before being shut down was a liquidity stress test workshop in Fairfax, Virginia.
We were discussing how to manage your cash, how to prepare for worst-case scenarios and cash management, loan to share ratios in the industry where 85% plus on average, a lot of credit unions over 100%. We were discussing how to stress test and what Federal Home Loan Bank might do. Those workshops were based on our conversations with NCUA. We were trying to make sure that we passed on the credit unions what we understood for what NCUA wanted us to prepare credit unions for any liquidity events.
Back to that low loan to share ratio if not, historical low, we’re close to it. Back to the dot-com bust, it will correct itself. At least I hope it does because that means our economy will be coming back. Folks will be spending again. That 70% of the economy that consumers comprise will come back up. That is going to be coupled with credit unions keeping more real estate loans on the balance sheet because they need loans and revenue. They are prepared. One of the things we are doing is making sure we stay in contact and let them know their strategic partners are here.
Going back to what you said on Owen’s statement about making sure you don’t have any leaks before it rains, we are making sure that they understand collateral requirements and getting collaterals to levels to the maximum that they can even though you might not need it. Thinking long-term, if you keep more real estate loans on a balance sheet, you got to hedge that interest rate risk. We are doing a lot of training on that. That will be my colleagues who are the experts. Nothing has changed much from that perspective. I leave the technical stuff to the experts and stay in my helicopter above the forest. I let them go down and hit the trees that need to be hit.
Years ago, while I was still at NCUA as an Executive Director, we said that we were going to pause from going into credit unions for two weeks. We are several years into that and NCUA still generally is not doing examinations onsite. What is it you are seeing out when you are visiting your credit unions that are involved at the Federal Home Loan Bank? Are you seeing that they are more back to normal than they had been? What are the trends there as far as the open nature and people working onsite?
NCUA is not onsite at all. Everything I have seen has been virtual. From an examination standpoint, that process has gotten much more thorough. What I am hearing is the depth of the examination is deeper than it was pre-COVID. What I joke with folks about is that normally, if you have got a team job at NCUA, we used to go take these two-hour lunch hours and talk amongst each other. You are virtual so you don't have folks taking long lunch hours. You don’t even get a break because you got somebody in Michigan who might be calling during somebody’s lunch hour. NCUA has learned and perfected the process as well as the state regulators.
I don’t know how NCUA is going to go back. I listened to the budget briefing and it sounded like the plan is to go back to normal but the discussions that I am hearing in credit unions is the biggest one which is, “What is the new normal going to be? Is it going to be painful before we get there?” The recruiting retention process is a huge discussion. At the HR level, it’s like, “Which is more important, retention or recruitment?” Retention had come up a little bit than recruitment. It is balanced between recruiting and retention, working back onsite versus being virtual.
There is a lot of discussion about that. That is a huge concern for everybody, as we try to figure out what the world is going to look like when we get to “normal.” Consumers are coming back pretty good. I read in one of the trade newsletters that lendings are up. Share growth is slowing down as expected. Those two go hand in hand. When one goes up, one goes down when you are spending those savings. As supply line stuff is solved, folks can get back and go buy a car, we will be on the way to normalization. I bought a new car, a minivan for the grandkids. I have put that on the table. I am old and no way in hell I would have a minivan if I did not have grandkids.
You love minivans, Alonzo. You have always had one. What do you mean?
That is because I always had grandkids. I am up to nine. You are on one. I lucked out getting it. I had to get one. My granddaughter directed me. As soon as that process is back to the way it used to be, it will never get back to the way it used to be but to some form of normalization then lending will pick up and those funds will come back out. It will be back to march up to 80% plus loan to share ratios.
The pendulum always swings. What is the new normal going to be? I heard somebody even trademarked it as, “No Normal.” We are never going back to what we were at and will never be normal again but that will become the new normal. That whole recruiting, I have had clients that are having challenges because they have gone offsite and trying to fill positions. There is this expectation and the reality that a lot of things that people thought could only be done onsite can be done offsite. As a result, that impacts how you can bring the people in.
NCUA, from some of the conversations I have had, are still trying to figure that out. They have the union that they have to work that through. There is a lot of dust in the air relative to that but you make a good point that with the economy picking up, people spending money and getting the supply chain figured out, that will allow some of the dust to clear and for us to get towards this new normal. Hopefully, that will lead to exams being back onsite.
The exams are more detailed. While you might not go off for lunch for two hours where you can have a conversation, have some bonding with your team members and have conversations about what is going on at that credit union and other places, that’s not happening. It is more individualized and siloed whether that is the silo between the NCUA staff that are trying to do an exam or the silo that you have between the credit union and NCUA trying to negotiate and talk through some things. It is different and more challenging. Both sides are doing their best but I also get the sense that everybody is looking forward to the point in time when they can have more face-to-face interaction with either the credit union or NCUA.
Make sure you don't have any leaks before it rains.
Like when we go to credit unions, our meetings are much longer when we are onsite than they were over the phone because the first part of it is catching up after not seeing each other and how we are working. We are having more in-depth meetings when we go onsite. We are getting more participants from the credit union and we always liked that. Federal Home Loan Bank is not just a liquidity provider. One of the other mandates that the Federal Home Loan Banks have is that 10% of their earnings have to go back through their members in the form of affordable housing products.
We have a very robust program in Atlanta where what it is is that a credit union that signs up for the affordable housing program can offer their members who meet income guidelines up to $10,000 on mortgage assistance. That assistance can be used for a down payment, closing costs and improvements. It is a very robust program. That is one we are trying to highlight while our liquidity business is down. We want folks to know that we have a large presence in that space, which is also why one of my other functions is to make sure that I look for relationship opportunities with folks in that space, set up meetings and get onsite.
Not just in that space but I go to all league meetings, league annual meetings and other stuff. We sponsor an app for you, which is Kuna. I make sure I hang out. I came from Tallahassee. I was not at the Florida Credit Unions League of Southeastern Credit Unions Advocacy Conference for Florida. We did Georgia and then Alabama after. That is how I keep my finger to the pulse.
I want to let folks know that we do other things. The Federal Home Loan Bank of Atlanta offers a safekeeping program. That is second to none, in my opinion, one of the better things I have seen. It also fits into collateral plans. If you safe-keep your investments, you can collateralize some of them as well. Some other products that we are making sure that we let our members know who have not been using and taking those opportunities that they are available.
If a credit union is in Georgia or Florida, the way the system works is if they want to be a member, they come to the Atlanta Federal Home Loan Bank. Do I have that right?
You have it correct. I can give you the seven states. Starting with Maryland, going South down the Atlantic coast to Florida. We tossed in Alabama to make the gumbo taste better. With that being said, I like the Southeast conference. I got to give a shout-out to the Georgia Bulldogs, national champions. We do Maryland, DC, Virginia, North and South Carolina, Florida, Georgia and Alabama. If you are in that territory, there are eleven Federal Home Loan Banks. They are like the corporates used to be.
If you get pissed at us in Atlanta, you can go over and join Dallas. Not that you would want to, we are the best ones. It is territorial. I could see the benefits to that but each bank operates separately within the road set out by the Federal Home Loan Bank regulator, which is the Federal Housing Finance Agency, FHFA. All credit unions, banks and CDFIs within our territory, their option is here.