RALEIGH, N.C. – State Employees’ CU is lucky to keep its head above water in 2009 – a healthy 0.9% return-on-assets – even after writing down its membership shares in 11 different corporate credit unions.
"Imagine having to tell your members you’re invested in one of these corporates; now imagine telling them you’re invested in 11," said Jim Blaine, president of the $19.6 billion credit union. "It’s a fundamental investment strategy: diversify your risk," Blaine said. "So we were in 11 corporates."
What turned out to be a faulty strategy cost the credit union giant $30 million for 2009, as it wrote off all of the capital it held in those corporates, starting with its own local, First Carolina Corporate CU (where Blaine previously sat on the board). Among others, SECU was in: WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU, Southeast Corporate FCU, EasCorp FCU and Volunteer Corporate FCU, though not all of the corporates caused a loss at SECU.
"You name it, we were there," Blaine told The Credit Union Journal yesterday. "We wrote down everything, even our membership in the Federal Home Loan Bank," he added.
The losses combined with a $40 million assessment SECU accrued for the NCUA premium, to drain $70 million from the credit union’s bottom line.
The losses could have created some embarrassment were it not for a smarter investment move, SECU’s sale of U.S. Treasuries at year-end 2008 as rates declined, allowing the credit union giant to book an $80 million gain in early 2009. "We saw the huge (corporate) expense coming so we tried to generate some revenue to pay for it," Blaine explained.
Even with the corporate expenses and the NCUA assessment, SECU was able to report one of its best years ever, with $175.9 million in net income and almost $3 billion in new shares.
SECU, the nation’s second-largest credit union, reported 18% growth in assets for 2009 and net income of $176 million – more than twice the $73 million net for 2008.
SECU did report higher delinquencies, still a meager 0.62%, compared to 0.51% for 2008; and slightly higher charge-offs of 0.19%, up from 0.12% for 2008.
For the year, loans grew by 6%; deposits by 19% and capital by 15%.
