WICHITA, Kan. -
Eleven-year-old Communities United CU had until last Thursday to raise some $200,000 in capital reserves or else the state regulator would be forced to take action, either merging the $2.3-million into a healthier credit union or liquidating it entirely.
Either way, said CUCU Chairman Milford Adams, any such action would spell doom for the state's only CDCU. "Even if they decide to merge us instead of liquidating us, Communities United-and its mission-as we know it, would cease to exist," he told Credit Union Journal. "This is the worst position that we have ever been in."
And that's saying a lot, given that in its 11 years of existence it has had to go on all-out fundraising effort in order to survive. The last time was early in 2005, when the CU had just a matter of weeks to raise $150,000 in order to fend of regulatory action. As was the case then, CUCU cannot raise the money in the form of non-member deposits.
"The funds have to come in the form of a grant, a donation or a gift," Adams explained. "We have a 501(c)3 set up for that so that individuals who make donations can get the tax deduction for this."
Scrambling To Build Reserves
The CU first learned it was back in this position at the end of January and spent the intervening weeks scrambling to build up its reserves.
"Last time we went through this, we just had to raise a little money within the community, and we ended up raising about $35,000," Adams related. "This time, we're trying to raise $200,000 for capital reserves and another $300,000 in working capital, so it's a much more ambitious goal of a half-million dollars."
The initial $200,000 will keep the regulators at bay, he noted, but because the credit union doesn't want to end up back in this same situation a year or two from now, it hopes to raise the other $300,00 with an eye to the future.
"The challenge has always been that we are undercapitalized; have been from Day One," Adams observed. "We just don't have the resources to do what we want to do, and to do what we need to do. Our hands are tied because we can't bring on additional staff or offer additional services that would bring in more revenue until we get our capital up. If we raise the half-million, then we can bring in a full-time collector and hire a full-time loan officer. Then we can do the things we need to do to get our net worth to where it needs to be."
Once that happens, CUCU would then also be eligible for a number of grants and other resources available through the CU system that it currently isn't eligible for due to its undercapitalization.
"The board is committed. We are not giving up this fight," Adams said. "We want to continue our mission, but we don't have to have to go through this again, no more band-aids."
A Unique Business Model
With a low-income designation, CUCU is affiliated with both the Kansas league as well as the National Federation of Community Development Credit Unions. "We have had other credit union people come in to look at what we're doing and try to show us what they've done at their credit unions, but the problem is, ours is a new model, so what they do doesn't always work here," he suggested. "We have a lot more hands-on financial counseling, for example."
Adams said about 88% of the CU's accounts are in good shape-but the other 12% are doing a lot of damage. "We have a plan, we know what we have to do, we just need to have the capital to do it," he noted. "Even if we just get firm commitments in place and can show that we will be able to turn this around, we believe the regulator will work with us. But this is going to come down to the wire."
