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WARRENVILLE, Ill. – Members of the $5.6 billion Mid-States Corporate FCU may soon start seeing better certificate and loan rates with the corporate’s new investment authority. Mid-States joins WesCorp and Southwest Corporate as the third corporate in the nation to be granted Part IV investment authority from NCUA which allows it to engage in derivative transactions. For Mid-States a letter dated April 12 from NCUA made official a process that took two and a half years – and a lot of sweat equity. “It was a pretty big celebration here. We put a lot of work and time and effort into this. We’re very excited, it means a huge difference for us,” said Ron Koza, chief investment officer for Mid-States. Part IV authority has varying derivative powers. Corporates must apply for each power they want. Mid-States received interest rate swap powers. “With interest rate swaps you can change the characteristics of the security you buy to meet the needs of the portfolio,” said Koza. For example, it could change a fixed rate to floating, callable options, etc. Mid-States has been gearing up for this by hiring investment professionals with derivative experience. It wanted to avoid hiring a number of new derivative-experienced staffers at one time to gear up for the NCUA application, so in recent years it’s looked for that experience with new hires. Currently all four of its investment professionals on the trading desk have worked with derivatives at some point in their career. Part IV authority is the hardest to get from NCUA, which takes derivatives very seriously. NCUA not only requires investment expertise, but also legal, accounting and risk management systems specifically geared at limiting the risk exposure of derivatives. “Derivative transactions can be complex, and may be highly risky if not properly managed. To be approved for Part IV expanded authorities, the board and senior management must have sufficient knowledge and experience to understand, approve, and provide oversight for all proposed derivative activities,” NCUA states in guidance to corporates on applying for Part IV. Mid-States implemented the accounting and analytical systems it would need before it even applied to NCUA. It ran test transactions in a lab environment and it wasn’t until late last year that it officially applied to NCUA. NCUA came on site twice to evaluate Mid-States in action. Mid-States had to document that it had the correct procedures in place. “We had two binders three or four inches thick, and another box beside that of documentation, plus two binders of our self-assessments,” said Koza, noting the test lab environment did expose a few things that NCUA asked Mid-States to tweak. In today’s ultra-competitive investment market, Koza is hopeful members will start seeing some rate advantages at Mid-States. He expects the corporate to now offer more special certificates since it can dictate terms and yields should be five to 20 basis points higher, said Koza. On the loan side, he said members will see the biggest savings with fixed rate loans greater than two to three years. “We’re the only corporate on the Eastern half of the U.S. with this and we’re the first corporate to be approved in about eight years,” said Koza. The timing of the approval was good. Mid-States CEO Dave Preter was able to share the news at the Minnesota CU League’s annual meeting. Mid-States acquired Minnesota Corporate a few years ago and now counts the state as part of its primary FOM. -

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