Corporate CD Rate Disparities Reflect Liquidity and Other Factors
Despite a $5 billion retained members' deficit, Western Corporate FCU posted the corporate system's second highest term deposit rates Aug. 9, offering 0.74% for a two-year certificate. That's 20 to 30 basis points higher than competitors Members United Corporate FCU and Southwest Corporate FCU, which are paying 0.53% and 0.42% respectively for the same term deposit.
NCUA spokesman John McKechnie said normal seasonal outflows are being experienced at WesCorp, and the dividends encourage members to keep their shares on deposit. WesCorp remains mindful of its need to build retained earnings, he said, but despite profitability, no amount of earnings can reasonably restore the deficit incurred by credit losses.
WesCorp earned an $80 million profit as of June 30, but according to financial reports posted online, had to apply most of it toward $75 million in new OTTI charges.
As of June 30, WesCorp reported $10.3 billion worth of share certificates, representing about half of its total member shares. Member deposits of $20 billion and another $7.25 billion in borrowed funds and other liabilities offset a $5 billion retained earnings deficit and another $3 billion in "total other comprehensive losses," producing $19.3 billion worth of liabilities.
On the assets side, WesCorp has $4.5 billion in cash, $13.5 billion worth of investments, $1 billion in loans and $350 million in other assets. Investments considered legacy assets include asset-backed securities with a fair value of $2.6 billion, private-label mortgage-backed securities worth $3.1 billion, and $4.2 billion in commercial mortgage-backed securities.
With only $4.5 billion in cash, a significant loss of term deposits could force WesCorp to borrow additional funds or sell investments. Currently, WesCorp has a zero loan balance at the Federal Home Loan Bank but did not disclose its available credit line with the cooperative institution in its June financial statements. Of $6.5 billion in borrowed funds, WesCorp counts $1.5 billion in corporate notes issued last October and nearly $5 billion on loan from NCUSIF.
On the other end of the term deposit rate scale, the $3.25 billion Corporate One FCU is paying just 0.18% for a two-year certificate and is 20 or more basis points lower across the board on term deposits compared to its competitors. The $3 billion Southeast Corporate FCU is paying 0.49% for the same term, and the $3.2 billion Corporate America CU is paying 0.96%.
Tammy Cantrell, senior vice president, asset-liability management, said Corporate One is focusing on providing competitive rates on overnight accounts and growing off-balance sheet assets like those invested through Primary Financial's SimpliCD program.
Additionally, Cantrell said Corporate One doesn't need to raise cash, as cash already represents one-third of its balance sheet.