COLUMBUS, Ohio-Corporate credit unions are going to be under a lot of pressure to perform as they move forward, and one person believes some simply aren't going to make it.
'There's some [corporates] that are de novo corporates; they've never really operated as a standalone entity, so we'll see," said Lee Butke, president and CEO of Corporate One FCU here. "We wish them good luck. We don't want to see another debacle in the industry. We don't want to see another failure. Credit unions don't deserve that-they deserve better from their corporate."
Some corporate CEOs have cited a hesitation among CUs to recapitalize a corporate, but Butke believes that really only applies to a small subset of natural-person CUs. "I think that's also changing fairly quickly."
"Right now, liquidity or the need for lines of credit is not as apparent as it will be when interest rates rise and loan volume picks up," he said. Once that happens, "people will be very aggressively looking for and seeking out lines of credit," but they may be harder to come by.
"We do see one of our traditional value propositions, that of being a liquidity provider, continuing to be a real critical aspect of this," Butke said. He added that one of the biggest challenges for the corporate movement is the low rate environment, "but that's a cyclical thing and it will change over time and we'll see a yield curve come back."
Changes Ahead
Butke pointed out that changes still lie ahead in the corporate landscape and that consolidations will continue. "There have been some corporates that have come out of this that will have to figure out how to make a buck," he said, noting new reserves/earnings requirements from NCUA.
Corporate One is in the process of acquiring Southeast Corporate FCU after the latter's failed capital call earlier this year. When Butke spoke to Credit Union Journal he was in the middle of a road trip through the region holding town hall meetings with Southeast members.
The CEO said that there was no timeline for the merger-"It's not a date, it's a process," he said-and added that Corporate One hoped to submit the merger to NCUA within 60-90 days. "We feel very strongly that we have NCUA support as we move forward, but obviously not their approval yet."
Corporate One currently serves 780 member credit unions, while Southeast serves approximately 400, and Butke said that nearly all current Southeast members are expected to participate in the merger. Despite Southeast's failed capital call earlier this year, Butke said that there was a lot of enthusiasm for the merger, in part because of Corporate One's strong capital position, but also "one of the reasons we were selected is because minimal disruptions and continuity in their services is key for the credit unions. They have other things to do rather than worry about us converting their back office systems."
Status Report
Corporate One's interim leverage ratio currently stands at 8.45%, whereas its permanent contributed capital ratio is at 5.56%. The corporate is also already 20 basis points ahead of the requirement for its six-year retained earnings ratio, at 120bps.
As the merger process continues (along with the potential for more corporate mergers), Butke noted that "there are folks that have either abandoned or have yet to make a final decision as to which corporate they're going to use." Corporate One's goal for the year was to grow membership by 75 credit unions, and Butke said they have already picked up 54 new members, particularly from the western part of the country. "This is an industry where word of mouth is very powerful," he added.
