SAN DIEGO — Small corporate credit union leaders are crediting accessibility, better odds at obtaining board seats and efficiency as leading reasons members stick with them, rather than gravitating toward the more diverse product and service offerings of large corporates.
“There's only 12 of us; we don't even have an automated phone attendant,” said Dennis DeGroodt, President/CEO of the $800 million Missouri Corporate Credit Union. “We've been told by our members to keep it simple and cheap, have knowledgeable people, and let us call you when we need something.”
DeGroodt said he thinks personal service is why his corporate gained 17 new members last year and has doubled its membership since 2002, when Missouri Corporate and the $219 million Midwest Corporate Federal Credit Union were discussing a merger that was eventually scrapped.
“Many looked at it as a failed merger, but really, we both did our due diligence and decided there were no significant benefits for either membership,” said Midwest Corporate CEO Doug Wolf, who also credits his shop's high-touch approach for Midwest's ability to resist the urge to merge.
“We haven't lost any deposits or services to any other corporates at this point,” Wolf said. “Mainly we retain our members because we operate under the old corporate model of passing through U.S. Central products. Pricing and competitiveness has kept members with us for decades, and even when they do get solicited for something like a CD special with a significant price difference, it's not enough to lure them away.”
Cory Johnston, senior vice president and chief investment officer for the $1.7 billion Georgia Central Credit Union, said the conservative nature of credit unions contributes to members seeking a voice on corporate boards.
“That's not always possible; every state is different,” Johnston said. “California, for example, has a zillion large credit unions, so naturally their corporate needs to be big and very resourceful.”
Passing through U.S. Central and other corporate CUSO products and relying on the thin mark-up margin didn't allow small corporates to keep up with the expansion of larger corporates; however, saying 'thanks, but no thanks' to leveraging the spread of their own, in-house securities portfolios significantly lowered risk exposure, and has left them in a relatively strong financial position.
Midwest Corporate only maintains a $6.4 million securities portfolio that is collateralized by credit card pools, while Missouri Corporate and Georgia Central have no asset-backed securities on the books.
With a few exceptions, risk is limited to exposure to U.S. Central. Johnston, who along with Georgia Central CEO Greg Moore, is a former U.S. Central employee. He said his executive team's first-hand experience at the aggregate institution helped when reassuring members about safety and soundness last year.
“I worked in market risk, so we are very comfortable with the quality of U.S. Central's research, methodology and purchases,” Johnston said.
He added that U.S. Central not only maintains conservative investment policies because member-owners prefer it, but corporate balance sheets must have the ability to grow or shrink by 20% during any given year to accommodate typical natural person credit union seasonal deposit patterns, regardless of investment gains or losses.
“We've always felt your measure of success isn't how big you can be, but rather, how small,” DeGroodt said. “We have to plan on large asset swings, and what we have not done over the years is build up infrastructure assuming balances would stay high.”
Looking to the future, Johnston said he anticipates 2009 will be a tough year for corporates thanks to an unfriendly rate environment, low net incomes and potentially higher regulatory capital requirements.
“We have no plans to start limiting products and services because we view this situation as ultimately temporary,” he said. “To get through these times when income isn't as high as you want, you don't eliminate infrastructure that took years to build up just because the next 12 months look grim.”
–handerson@cutimes.com

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Influence, Accessibility and Efficiency Keep Small Corporates in Business

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