In a move designed to both better position it for long-term growth and address current circumstances, the National Credit Union Foundation has found another investment partner.
Starting immediately, credit unions wanting to invest in the Community Investment Fund can do so with a deposit with the National Cooperative Bank FSB, a subsidiary of the National Consumer Cooperative Bank. CIF's relationship and investment opportunities with corporate credit unions will continue.
In an unusually frank announcement, the NCUF painted a dire picture of its investments with the corporates.
"Over the past two years, the value of all CIF investments has declined to approximately $250 million, down from a peak of $370 million," the NCUF explained. "During these past two years there have been a significant number of investments withdrawn for a variety of reasons. Several large certificates were withdrawn even though they carried a penalty and a stated rate of over 5%. Several withdrawals occurred because the investment return had dropped significantly. And unfortunately, some credit unions have withdrawn their CIF investments because they do not want to invest in corporate credit unions."
The foundation stressed it is grateful for its long-standing relationship with the corporates that allowed it to inaugurate many of its grant programs like REAL Solutions. But a side-by-side comparison of investments in the two institutions shows the NCB investments have greater flexibility and liquidity. For example, while corporate certificates of deposit have terms of two, three or five years, NCB CD's have terms of six, 12 and 18 months.
Both investments will continue to treat the CIF's operations the same way. Half of the investment income from the investments is returned to the investing credit union and half is kept by the NCUF to fund its own grant programs and for distribution to the credit union foundations in the investing credit union's state.
Tom Candell, interim executive director of the National Credit Union Foundation, said the foundation's new investment relationship is not meant to compete with corporate credit unions but to expand the number of investment opportunities for CUs.
Candell said the NCUF had been studying making such a move in order to help broaden the CIF's investment appeal for some time but that there was no connection between the corporate credit unions current financial impasse.
"We are definitely not seeking to compete with the corporate credit unions," Candell said. "This is a strategic move to broaden our investment base that has been a goal for some time."
Candell pointed out that out of between 7,500 and 8,000 credit unions, only 600 are currently investors in the CIF and that the foundation hoped that the addition of other investment options will help draw additional investors.
As part of that attraction without necessary competition, Candell said the foundation had worked with NCB to craft products that would complement the corporate credit unions offerings more than compete with them. The shorter terms are one example of that, Candell said, since the corporates do not offer CDs in those terms for CIF investments.
Yet, Candell also acknowledged that the shorter terms and other factors might make the NCB investment vehicle more attractive than the corporates.
In addition, deposits of up to $250,000 in the NCB will be covered by the FDIC until Jan. 1 2014, while its unclear how long the NCUSIF will continue fully covering deposits in the corporates. After Jan. 1, 2014, the limit on FDIC insurance on NCB investments will fall to $100,000.
"We're looking forward to helping the credit union community have an even greater impact on those most in need," wrote Rebecca Coder, senior vice president with the bank. "It's pretty exciting to be part of such an innovative philanthropic initiative. Personally, I think that the broader cooperative community will also want to participate so we hope to help NCUF expand who invests in CIF as well."
Credit unions thinking of NCB should also know that the bank and its parent, National Consumer Cooperative Bank, have recently signed supervisory agreements with the Office of Thrift Supervision. The agreements did not require any additional capital or to stop doing any particular activities but did require both to file more updated and thorough strategic plans with the regulator.
"The institution has been proactive and has largely completed the plans required under the agreement. The supervisory agreement does not require the institution to raise additional capital nor does it restrict the manner in which the bank serves its customers," according to Steven Brookner, president/CEO of NCB.