The $1.5 billion corporate's April 5310 call report reflects a $33.8 million write-down that represents 100% of its U.S. Central paid-in capital and member capital shares. Constitution also recorded a $51.5 million other-than-temporary impairment against its own investment portfolio as of March 31, deciding to early-adopt FASB rules after accumulating almost $400 million in unrealized losses.
The combination of losses exhausted Constitution Corporate's $51 million in retained earnings and left the line item with a negative balance, which will eventually impact member capital shares as much as 50%.
Although the NCUA suspended capital ratios as of November 30, 2008, the regulator, management and volunteers must still address the institution's resulting negative 2.09% core capital ratio and 2.19% capital ratio as of April 30.
"The capital plan acknowledges the corporate is currently undercapitalized from a regulatory perspective for the amount of risk on its balance sheet," President/CEO Robert Nealon wrote to members July 1. He said the plan quantifies interest rate, credit, liquidity and operational risk in detail.
He said, "even if moderate investment losses continue through 2009," Constitution Corporate does not expect to completely exhaust member capital, and in a number of scenarios, projected positive earnings and adequate liquidity.
Cost containment plans aim to cut $900,000 from expenses this year thanks to initiatives that have been implemented since February. A board-appointed Cost Containment Committee comprises three board members, as well as Nealon and Chief Financial Officer Michael Kinne. The team will review the corporate's business model and current and future operating parameters, in an attempt to increase net earnings and replenish capital, and make "difficult but necessary decisions."
Corporate Central Members PIC Capital
By HEATHER ANDERSON
Corporate Central Credit Union has raised nearly $25 million in paid-in capital from members as of July 3, representing commitments made by 77 members of the $2.1 billion cooperative. The offering was approved and announced to members in April, and will close July 31.
The PIC 50 offering is so named because it asks members to voluntarily convert 50% of membership capital shares to paid-in capital. Participation of all members would result in $60 million worth of PIC, which would ensure the Muskego, Wis.-based corporate's core capital ratio remains above regulatory minimums.
Corporate Central reported an 11.47% capital ratio on its April 2009 5310 call report, but only a 4.35% core capital ratio. It reported $80 million in retained earnings, but also reported $73 million invested in U.S. Central, including $19.6 million worth of PIC and $53.4 million in MCS, which have yet to be written down.
Daniel Ige, CEO of the $22 million "Golden Rule" Credit Union, chairs Corporate Central's board. He said even though the corporate is only halfway to its $60 million goal, he's not concerned because there is quite a bit left of MCS that has been approved by member credit union boards to convert, but hasn't yet processed.
"We're aiming for $60 million, but we're really striving to be above regulatory capital minimums, and I think we're pretty much there," Ige said.
Corporate Central's Web site (www.corpcu.com) includes a long list of PIC 50-related member testimonials.
"We opted to participate in the PIC offering because Corporate Central has proved time and time again that they are good stewards of our money, they have earned our trust, and doing so gives us control over Corporate Central's future," wrote Kenneth Beine, president/CEO of the $97 million Shoreline Credit Union of Two Rivers, Wis.
"The board is very much behind ensuring we have a strong capital position so we can continue to serve our members," he said. "We want the opportunity to control our own destiny."
Rural CU CEOs Bend Lawmakers' Ears
The CEOs of two rural credit unions told Congress last week that credit unions have done a lot to help members deal with the effects of the recession but could do more if they received some help.
"Small credit union operators believe the regulatory scrutiny they face is consistent with both their exemplary behavior in the marketplace and with the nearly imperceptible financial exposure they represent," Frank Michael, president/CEO of Allied Credit Union in Stockton, Calif. told the Senate Banking Committee's Subcommittee on Financial Institutions.
Michael, who testified on behalf of CUNA, told the panel that there are about 1,500 credit unions with $60 billion in assets headquartered in rural areas and more than half of them have five or fewer employees. He advocated that they should be allowed to make more business loans and that as Congress revamps financial regulations, they should provide small credit unions relief from some regulations.
Ed Templeton, president/CEO of SRP Federal Credit Union in North Augusta, S.C., also urged lawmakers to lift the cap on member business loans, which is now 12.25% of total assets.
"Many credit unions have the capital that other lenders do not in this environment, but are hamstrung by such an arbitrary limitation," he said.
Templeton also asked Congress to change the law to allow community and single-sponsor FCUs to add underserved areas to their FOMs. The NCUA banned it following a successful American Bankers Association lawsuit.
He also urged lawmakers not to extend the Community Reinvestment Act to credit unions because data show that credit unions outperform banks in terms of lending to low-income and minority populations.