PLANO, Texas-Today it is the corporate that the former WesCorp had thought it would become.
But members of WesCorp, or more accurately Western Bridge FCU, refused to recapitalize it after it was placed into conservatorship by NCUA in 2009, and its natural-person CU members are today served by another corporate that was also in conservatorship but whose members did agree to get their corporate back on its feet.
Catalyst Corporate FCU has emerged from the corporate crisis with a cleaner bill of health and a restructured balance sheet. Technically, the former Southwest Corporate, or more accurately, Southwest Bridge Corporate, was acquired by the $2.5-billion Georgia Corporate FCU in 2010. But it is essentially the former Southwest Corporate and its management team that is leading Catalyst today, with Greg Moore, former CEO of Georgia Corporate, EVP-member relations with corporate.
It is member relations that have been one of the keys to survival of the institution. Catalyst Corporate President/CEO Kathy Garner noted it was only with the support of those natural-person CUs that Catalyst was able to recapitalize. But there was also another difference from WesCorp, where some member CUs took big losses on paid in capital.
'Cost-Effective Business Model'
"The largest hit to one of our members was $1 million, because that was the cap," she explained. "Since the crisis we determined a cost-effective business model. Because we are so efficient, our products are sustainable."
Since that crisis Catalyst has rebounded. At year-end 2012 it reported .84% in retained earnings, compared to the .45% standard NCUA has set for corporate CUs to meet by October of this year.
The efficiencies cited by Garner can be seen in its "coverage ratio," or the percentage of expenses covered by fee income. It noted that ability to cover expenses through fee income means less reliance on balance sheet activity for income and reduced exposure to risk. Catalyst said its coverage ratio "generally ranges" between 75% and 85%.
Today Catalyst requires what Garner called "low" minimum capital requirement due to that fee-revenue model, a model other corporates have had little choice but to also follow given the shallow spreads in the market. Its one-time $10-billion balance sheet has shrunk considerably, and is currently at $2.6 billion.
"Credit unions have those funds; we are helping them manage off-balance sheet," she said. "We help them manage short-term cash, buy securities, or we give them other off-balance-sheet activities such as ALM advisory services or brokerage services."
Lessons Learned
Garner said the biggest lesson corporates learned from the economic crisis is the necessity to be ready for change. "You have to be ready to move quickly. What happened with the corporate crisis and the conservation of Southwest Corporate really enforced that efficiency is critical, as is keeping up really good relationships with members. When you take members' capital, and then have to go out and ask for more capital, you have to have really strong relationships."
Related to change, Garner noted being innovative is important, because times and market conditions change and keep changing fast. "You cannot live in the past, you have to be ready to move forward," she observed.
Balance Sheet Differences
Day-to-day operations at Catalyst largely are the same as they were at Southwest Corporate, Garner said. She said the corporate did not change any member services; the primary difference is the balance sheet.
"We are helping credit unions invest in term, but in securities rather than on our balance sheet," she said. "We do not take anything for granted. We learned a lot of lessons, and we stay very engaged with our members. We always were engaged, but we had to really re-engage with our members through the conservatorship."
Among the changes to communication: Garner said Catalyst gathers significantly more feedback on product offerings. One example is loan participations. She said Catalyst has been working on a loan participation product for some time, prior to new regulations on the product.
While Catalyst's increased offerings of mobile banking and mobile item capture did not come from credit union suggestions, Garner said there was an element of credit unions telling the corporate they planned to move into that market and said, in essence, "You are our payment provider so we want you to move there with us."
Another difference from five years ago is Catalyst is focusing on cash management rather than an investment portfolio, Garner explained. She said payment processing is the same, although it has more volume because it picked up the bulk of business from Western Bridge (which Catalyst acquired) and First Corporate.
What CUs Want From Corporates
There are a number of particulars in the operation of a corporate today versus five years ago. Garner said CUs want "a lot" more communication, especially due-diligence information.
"The credit union boards used to not have much interaction with the corporate, but now they want to know how their investment is doing," she said. "We do a lot of reporting on that. We have always focused on fee revenue efficiency, but with a smaller balance sheet and interest rates so low, we have to really focus on keeping expenses down and generating new fee revenue by adding new services and adding members."
Natural-person CUs actually do need help managing liquidity due to ongoing cash inflows, and at Catalyst that has included assistance with laddering investments or managing overnight accounts.
"We cannot help them with loan demand, but we can help them until the liquidity cycle changes, then we will help them on the other side," she said. "Our balance sheet is more focused on managing short-term investments rather than long-term, and that is by regulation."
In general, payment volume through operations with the same infrastructure drives fee revenue, Garner said.
Looking Ahead
Catalyst is "meeting or exceeding" all of its financial projections, said Garner, who celebrated her one-year anniversary as CEO on March 1. She said its retained earnings ratio for Q1 2013 was .85%. Its interim leverage ratio, which is required to be 4% or higher, was 7.13%. Its coverage was 85.6%, while daily average assets were $2.5 billion.
"Things are ahead of plan for adding members and services," she said. "The numbers for the second quarter are in line with the positive trend. We continue to see good earnings and ratios continue to go up."
