Corporate One Shows Power and Benefits of Corporate Model

A diversified business model helped the credit union navigate the worst financial crisis in a generation and turnaround its financial results.

 
 

Corporate One, the $3.9 billion Ohio-based corporate, serves more than 750 members and turned a positive bottom line of more than $8.6 million for the first four months of 2010. This is the first period of positive net income following two years of losses. 

The losses totaled $42.3 million in 2009 and $72.5 million in 2008. In both years losses were caused by the 100% write-down of the corporate’s US Central capital ($70.7 million) and OTTI impairment losses on securities held in portfolio.

This significant turnaround in financial results is due to a diversified business model that helped the credit union navigate the worst financial crisis in a generation. Today, shares are growing, retained earnings are $32 million, and member capital in both PIC and MCS accounts is fully intact and paying dividends. Membership capital has increased from year-end 2009 as new credit unions have joined the corporate.

If NCUA’s proposed capital standards were in place today, Corporate One would be fully compliant with the retained earnings requirement.

Dramatic Reversal in Other Comprehensive Income Estimates
Beyond improving earnings, the other comprehensive adjustment on available for sale securities has declined from $504.2 million at December 2008, to $255.7 million one year later. At the end of April the amount had decreased another 24% to $196.3 million.

Moreover, the prospect of further major OTTI losses is growing increasingly remote. At year-end 2009, the Corporate's third-party expert in private label mortgage analysis showed 74 securities with potential principal losses. Since that point, no additional securities have been identified — the same 74 are potentially impaired. It is becoming more likely that any future write-downs can be absorbed through current earnings. Of the $52 million of OTTI the Corporate has taken so far, less than half that amount has resulted in cash defaults — which means the bonds are still making principal and interest payments.

The credit union’s annual report contains 42 pages of financial tables, auditor’s opinion, and extended footnotes. One footnote on page 62 concerns the securities insured by Ambac Financial Group. The disclosure discusses the Wisconsin Commissioners setting up separate reserves for Ambac’s potential obligations and how the mortgage-backed securities pool would, if required, receive cash at 25 cents and interest–bearing notes that will allow Ambac to pay its obligations over time as its own securities mature. 

Not only is the credit union’s information thorough and up-to-date, the annual report fully explains how it has reached its financial estimates. This transparency is also confirmed by the auditor's “clean” opinion with a field date of April 2, 2010.

More than a Financial Partnership
Corporate One’s success is more than the traditional settlement, liquidity, and investment services.  It has a track record of innovation and business line diversification that has helped its core membership participate in ATM networks and credit and debit card programs that would not have been feasible otherwise. It has automated the check 21 clearing process placing equipment in all its credit union shops and then aggregated volumes to "least cost route" the clearings with major correspondent banks saving credit unions hundreds of thousands in processing costs.

But even more important is its steadfastness as a liquidity backstop. In September 2008 when the  financial markets went into "cardiac arrest," no institution was willing to take another’s unsecured credit risk. Yet, credit unions continued to operate basically unaffected. Lending continued — at record levels.

Corporate One at the end of 2008 had more than $1 billion in advised lines to its members, an amount that was increased by an additional $100 million today. In part, Corporate One can do this by managing its own book of more than $3 billion in investments. This permits the continuous supply of lines and cash should any credit union have a need.

Corporate One’s results are another example of the recovery occurring throughout the credit union system, including within the corporate network. The corporate system’s liquidity backstop is what allowed their credit union members to keep serving members in the darkest days of the Great Recession. Maintaining this capability is essential to the safety and soundness of the system today.

 

 

 

May 31, 2010


Comments

 
 
 
  • .
    Anonymous
     
     
     
  • Chip, I recall that you made similar observations about the quality and transparency of WesCorp's investments before they exploded, which makes your authority and credibility on these matters very suspect. I don't know why you are schilling for Corporate One and its unctuous leaders, but I suggest you reconsider your involvement.
    Merv Umholes