President/CEO Pete Pritts announced some major changes at the $2.2 billionCorporate America Credit Union in a July 18 letter to membersobtained by Credit Union Times. Since taking the helm ofthe Irondale, Ala.-based corporate in November 2012, Pritts has put together an almost entirely newsenior and middle management team, revamped the balance sheet, andin October will implement a new fee structure. The changes will netthe corporate more than $4.4 million in annual operating expensereductions.

“We were structured for a different economy and differentregulatory environment,” Pritts said in an interview. “Today'sincome opportunities are very different.”

Despite these changes, the corporate has only lost 30 members,leaving it with 550. Pritts said that's likely because of one thingthat didn't change: Corporate America still does not require member credit unions to contribute capital inorder to access services.

“We haven't seen much of a drain on deposits,” he said. “Nobodywants [fees], but we're getting lots of praise for leaving thecapital requirement in place, and the credit for that goes to ourboard.”

Board Chairman Monte J. Hill, president/CEO of the $326 millionFamilySavings Credit Union of Gadsden, Ala., said Corporate Americais positioned well for the NCUA's new capital requirementseffective in October, with $107 million in perpetual contributedcapital.  Additionally, the board decided to not requiremember capital as a condition of membership because the volunteersbelieve capitalization should be a choice.

But despite the fact that Corporate America already exceedsregulatory requirements, the corporate is making the changes tobecome an even stronger institution.

“Like any credit union we want to be poised for growth,financially stable, in a position to advance technology, and employthe best,” he said.

Member credit unions that have not subscribed to PCC will pay aline-of-credit underwriting fee of five basis points and mustmaintain a minimum credit line of two-and-a-half times their debitsettlement amount. Members with PCC will not be assessed theunderwriting fee.

“We're not pretending it costs that much to underwrite thecredit line, but we are changing the business model,” he said. “Itprovides flexibility for the member credit union and flexibilityfor us. If they want a larger credit line they can have it. And, ifa member wants to use select services that don't requiresettlement, they can still remain a member in good standing withvoting rights.”

Pritts said he's been pleasantly surprised with the reactionfrom members, with comments ranging from those who are pleased withthe structure because they've already contributed capital, to thosewhose boards refuse to ever capitalize another corporate and willpay the fees, and others who will test drive the new fee structureand consider converting to a capital-contributing membership in thefuture.

PCC accounts will continue to pay 1%, which Pritts said iscompetitive. Additional capital accounts will pay 0.5% or lowerrates. Corporate America will also raise dividends on its Super 30share account to 20 basis points the week of July 29, and Prittssaid he plans to simplify the deposit account menu pending boardapproval.

Ten of the corporate's 55 employees were dismissed: three seniormanagers, five middle managers, and two information technologystaffers, the corporate said. The IT staff positions were refilled,but instead of hiring new management, Pritts said, he “justleveraged the talents we had internally.”No member-facing employees were laid off, he said.

The reduction in staff will save the corporate $1.55 millionannually, but Pritts added that severance packages were offered tothose who were let go. In particular, he said the corporate did theright thing for those who had worked at Corporate America for manyyears by offering a generous  package. The reduced countis now 55 employees.

Additionally, the credit union's employee defined benefit planwas frozen indefinitely.

“Hopefully, we can bring that back, but our top priority isadding value to membership,” he said. “We love our employees, butwe will take care of them after our members.”

Pritts also achieved operating expense savings by modifying aFederal Home Loan Bank credit line and redeploying some $750million in cash that was only earning 25 basis points. The $750million is now earning 75 basis points.

“At our peak, we had $1.6 billion in cash,” he said. “We have tobe prepared for liquidity needs, but we didn't need $1.6 billion incash. That was not a good business decision.”

The savings offset lower yields on Corporate America's CMOportfolio, which has suffered from reduced yields due to the lowinterest rate environment and prepayments through governmentprograms like HARP. At one point, the CMOs were earning a negativeyield, but Pritts said it's been increased to 40 basis points.

In addition to reducing operating expenses and increasingincome, Pritts also plans to upgrade operations to automate checkprocessing systems and will consolidate billing to members.

Pritts said despite turning a slight profit in June, he doesn'tthink he can recover the corporate's  $1.8 millionyear-to-date net loss by year-end. However, he does predict turninga profit in 2014.

“We will return to profitability,” he said.