GREENSBORO, N.C.-Four years after a crisis among some corporate credit unions began, the corporate CU marketplace has been forever changed.
While one person notes that the services and values corporate credit unions offer to natural-person CUs have stayed somewhat similar, David Brehmer, CEO of First Carolina Corporate CU quickly adds, "But we are playing with a different deck."
Brehmer told Credit Union Journal the "major worry period" has passed for corporates, and today the current primary concerns are two-fold: how long does the market stay in the current low-rate environment, particularly with the Fed policy of keeping interest rates between zero and 25 basis points; and the ongoing trend of consolidation of natural-person credit unions.
"It is not as if we have a big market outside credit unions, so if credit unions continue to disappear, that affects us," he assessed. "We have to make sure we have the right mix of assets so we can be safe and make a little bit of money."
Rising Rates, Rising Challenge
To be sure, there remain critics of how NCUA handled the corporate CU crisis, in particular the conservatorship of five corporates, including the three largest. Some of those corporates are operating in a different form and under a different name today. The so-called corporates' corporate, U.S. Central, is gone.
While others debate the agency's response to the crisis, the current leaders of the various corporate CUs are busy dealing with a host of present challenges, such as that rising rate scenario.
When interest rates start going up, Brehmer believes a significant number of natural-person credit unions will have long-term assets at very low rates and they will become illiquid. Because of this, Brehmer said he and other corporate managers spend a lot of time making sure they will be able to help their credit union members.
An additional concern he shares with natural-person CUs: he "cannot remember" the last time corporates entered a year with fewer regulations than the year before.
"But for those of us who lived through the corporate crisis, that was an extremely stressful period," he recalled. "Today, we are dealing with a challenging environment where it is difficult to generate non-interest income. We are left with trying to generate fee income-but not at the expense of our member credit unions. We have to work very hard to be successful because it is a very challenging rate environment."
In Middletown, Penn., Jay Murray, president and CEO of Mid-Atlantic Corporate FCU, agreed, noting every corporate CU is dealing with a low-rate environment and regulations post-crisis.
"No one expected rates to be as low as they are for as long as they have been, which has made it difficult to manage in that environment," he said. "We have had to make a lot of changes internally, even to our structure, in an effort to reduce costs to meet regulations. And then there is no U.S. Central to take on investments, so we have had to handle a lot more of our investments ourselves."
Under the new regulations affecting corporate CUs there is a requirement for an enterprise risk committee with at least one independent person on the board. Murray said that has added some additional expense and adds to the process of vetting new investments and analysis functions that previously were carried out by U.S. Central.
New Bank Relationship
"We always have had relationships with banks, but what is different today is we have lines of credit at a major bank to back up what U.S. Central used to provide for us," he reported.
There are some positives, however, to the new corporate market, Murray asserted. He said it has given all corporates time to examine what is going on with their membership and what they provide.
"At Mid-Atlantic we never lost any money to investments; our only losses were from U.S. Central," he said. "We have seen a rekindling of the cooperative spirit. All credit unions are struggling in this low-rate environment, which has forced credit unions to work together to survive. In the end, many crises unite people, and it this case all types of credit unions, corporate and natural-person, are working together."
Trust Issues
Asked his assessment of the current state of the corporate CU market, Lee Butke, president and CEO of Corporate One FCU, Columbus, Ohio, said it is important to realize how bad things were a relatively short time in the past.
"A few years ago, this interview would have been about our efforts to recapitalize," he said, adding, "which we have done successfully. We brought in $217 million in perpetual contributing capital, more than any other corporate. That is the capital base that will drive us forward for the next 10 years. We already meet the 2016 regulatory requirements for capital."
Atop the agenda now, Butke continued, is restoring member trust and getting back to the "regular challenges" of running a business. He said the business model at Corporate One is "working successfully" and "profitability is there."
Like Brehmer and Murray, Butke also cited the ongoing challenge from a flood of liquidity and the few available options to invest it.
Winning Back Business
"We are doing a town hall series to try to win back credit unions that have left the corporate system," he reported. "It is about winning back business and keeping those that are still with us informed of how we are doing."
When Tallahassee, Fla.-based Southeast Corporate merged into Corporate One, several accounts were lost, Butke said, noting July 1 will be the one-year anniversary of the effective date of the merger. "We have identified 82 accounts we are specifically trying to win back. We are telling them there is a new corporate in town that is strong and capable. Just as credit unions want to see every U.S. citizen be a member of a credit union, we want to see every credit union be a member of a corporate, preferably ours."
