How One Corporate Got Back Into The Black
COLUMBUS, Ohio-Corporate One FCU has returned to profitability-$9.8 million in revenue through May for 64 basis points of ROA-is sitting on $33.3 million of RUDE, and has not touched any member capital, which now stands at $177 million.
Credit Union Journal recently asked Corporate One CEO Lee Butke to outline the actions his CU has taken over the last three years that helped it mitigate losses.
Credit Union Journal: What do you think were the most important steps you took that has placed your corporate in a respectable position today?
Lee Butke: Our concentration and our exposure to private-label mortgages was considerably less (than many other corporates). That probably was our saving grace, and that boiled down to having a portfolio allocation limit in place that kept us from investing more than 25% in mortgages. We had the same exposure limit for credit cards, etc. Fairly similar to what the new regs are.
We have had some very good off-balance-sheet efforts and opportunities. Our brokerage business produced about $4 million worth of gross revenue for us in 2009. Our debit and ATM revenue has been strong. In 2009 we generated about $20.2 million through fee income, and not a penny had to do with the balance sheet.
In 2007, literally in one week, we took off $750 million worth of borrowing. We sold $750 million in assets because we saw liquidity drying up in the entire financial network, and that move has done well for us.
CUJ: Has expense control has played a role, as well?
Butke: We have prided ourselves about keeping a watchful eye on our expense ratio. That has allowed us to cover 85% of every expense in our building with fee income. One of the other key points: Let's say your products and services had to be subsidized, the only place to pick up that juice was to take exposure on the investment side. We didn't really need that since our efficiency ratio is good. We did not need to subsidize what we were not earning on our products and services by taking aggressive balance sheet risks.
CUJ: You mentioned the importance of limiting investment concentrations. Why did Corporate One stick to that policy when many other corporates did not?
Butke: I attribute that to two functioning aspects of our organization. We have a solid and experienced investment staff who know what to buy and what not to buy and did a good job of that during the last three years. If they did not feel comfortable with an investment or did not understand the story behind the bond, we did not buy it. We could not understand how CDOs worked so we did not do them. We have a class of asset backs that we did not buy-option-adjusted ARMs. We had a complete prohibition against those. Nether investments nor risk management could figure out how you could have an interest-only mortgage, or give the consumer all the options, and have that become a successful mortgage. And we always tried to ensure our exposure to U.S. Central was appropriate.
CUJ: You mentioned risk management.
Butke: We also have a strong and functioning risk-management department with individuals who are just as skilled as the investment staff and h
ave just as much relative power. We have two functioning and independent arms that are able to provide controls to each other.
CUJ: How much did competition among the corporates drive riskier investments?
Butke: We like to think of ourselves as competitive, and we did not give it away on the product side, we paid fair and going rates of return, but we did not try to win every deal. I think that is an inappropriate way to think about business. I think competition is just an excuse for the way business was done.
CUJ: There had to be some things you wish you could change?
Butke: I wish we would not have bought AAA asset-backed bonds backed up by FGIC and Ambac. Those have come back to haunt us and have been some of our more severe exposures.