PLANO, Tex.-The vacuum created by the demise of U.S. Central FCU is being felt by other corporates and, in turn, their natural-person CU members.
Dianne Addington, CEO of Catalyst Corporate FCU, reminded that the corporates' corporate had "provided some services to corporates at greatly subsidized pricing."
"This will not happen going forward," said Addington. "When the dust settles, corporates will experience an increase in cost and most likely will have to pass the cost to credit unions using those services. The good news is that credit unions will have options if they are willing to make changes."
The profitability challenge to corporate credit unions is compounded by a declining number of natural-person CUs and an ongoing low-rate environment, added Addington. With rates forecast to remain low over at least the next few years, Addington said "corporates with little to no fee income are going to struggle to achieve the retained earnings requirements under the new regulation."
Catalyst Corporate is relatively new, having been formed out of a merger between Georgia Corporate and Southwest Bridge Corporate. Among its newest initiatives is "Catalyst Councils," which it is describing as member-engagement groups that will help shape the way the corporate does business. The councils-of which there will be three-will officially begin meeting early next year, focusing on service delivery, product development and enhancement, and long-term planning. Each council will consist of about a dozen CUs.
Addington noted that both Southwest and Georgia Corporate had operated similar member councils that helped not only to improve service but "provided insight for prioritization of initiatives that competed for the corporate's internal resources."
Addington called the continuation of such councils a best practice. While the three councils will have specific areas of focus, Addington stressed that "we fully expect the professionals serving on the councils to help create the agenda."
More Subscribers Added
Catalyst opened its doors under its new name in early September, with $93-million in perpetual contributed capital. Since then, said Addington, it has received five new subscriptions totaling about $2-million in perpetual contributed capital, along with eight more verbal commitments, which would net an additional $1.2 million. But one of the major challenges facing the new institution is retaining a line of business previously offered by Southwest Corporate: item processing. Catalyst has created a "Resource Analyzer," available for free to interested CUs, that allows them to conduct due diligence on third-party item processing providers. "After conducting 130 analyses for credit unions across all asset sizes, Catalyst Corporate can clearly demonstrate the value proposition it provides its owners using this service," said Addington.
The chief executive noted that many CUs-either their officers or their boards-still have emotional reservations about capitalizing a corporate, especially former members of Southwest Corporate, which was placed into conservatorship by NCUA. Catalyst's strategy, therefore, is both to focus on CUs that have not yet made their final decisions about corporates, while also working to inform CUs about Catalyst's business case. The Catalyst Councils play into that, she added.
Additionally, keeping or exceeding commitments that Catalyst made to CUs during the recapitalization period will be key to retaining business, as well as open and transparent communication and competitively priced products and services, said Addington. All of that, she said, "will provide a return on investment far beyond the dividend paid on their perpetual contributed capital."
