From the CEO
Lee Butke, President/ CEO, Corporate One Federal Credit Union
November 30, 2010

Dear Member:

As you are aware, the new regulations for corporate credit unions (NCUA Rules and Regulations, Part 704) were released in September, and have now been officially entered into the Federal Register. While the final product was largely what was expected, and we were pleased to see the NCUA responded to the many comments letters from, and discussions with, credit unions and corporates for the past several months in crafting a long-term map for corporates and their members. We are very positive about the new regulation, and we are moving forward to make the changes needed to ensure compliance with the new regulations’ capital requirements. The great news is that we won’t be asking our existing capitalized members for a single penny of new capital. To meet the new capital requirements, we only need to ask our members to “recommit” their existing capital.

While Corporate One will make it as easy as possible for capitalized members to convert to the NCUA’s new capital structure, I wanted to talk a little this month about our capital position; how we’re going to meet the new capital requirements; and, what we’ll be asking of our members in the near future.

Currently, Corporate One holds the most capital of any corporate credit union in the nation, with $183.2 million in total capital. This number continues to grow, as we continue to experience strong earnings, including $10.7 million in net income through October 2010. This has provided us a strong return on assets (ROA) of 37 basis points year to date, making us one of the most profitable corporates as well. Profitability is important, as it helps us build reserves to protect members from any losses we may sustain. Of course, credit unions across the nation have experienced first-hand the importance of a strong reserve position, and I’m proud to say Corporate One members are in the best position with regards to their corporates’ reserve capital. Further, we are one of only a select few corporates not to have cost our members even one dollar of their membership capital.

But even though Corporate One has such a strong capital position, we will need to make changes to the structure of our capital instruments to comply with the NCUA’s new corporate regulation. Currently, corporates have only one mandatory minimum capital requirement; they must maintain total capital (i.e., retained earnings (RUDE), paid-in capital (PIC) and membership capital shares (MCS)) in an amount greater than 4% of their 12-month moving daily average net assets (MDANA). The new Reg. 704 calls for corporates to meet three capital ratios – the leverage ratio, a tier-one risk-based capital ratio and a total risk-based capital ratio.

Leverage ratio

The leverage ratio includes our RUDE and a new form of capital called Perpetual Contributed Capital (PCC). To be adequately capitalized using this ratio, a corporate should have a minimum ratio of 4%, or to be well capitalized, 5%. Currently, Corporate One’s leverage ratio is 5.18%; however, to maintain this ratio past the first year, we will be required by the NCUA to convert our MCS and PIC to the new capital structures. (Note: We will provide further detail of the new capital structures during our upcoming town hall meetings.) But the great news is that to maintain this ratio, only a conversion of the existing capital is necessary – meaning no additional capital from Partner members.

Tier-one total risk-based capital ratio

The tier-one total risk-based capital ratio, which kicks in beginning on the Reg’s second anniversary, will need to be at 4%, based on total RUDE and PCC divided by the moving daily average net risk-weighted assets (MDANRA). When we successfully convert all existing PIC and MCS to PCC, we should have a tier-one total risk-based capital ratio of more than 5%, and could well exceed the “well capitalized” ratio of 6% or greater.

Total risk-based capital

The third capital ratio is total risk-based capital, which also kicks in at year three. This ratio includes RUDE, PCC and another form of capital called Non-Contributed Capital (NCC), divided by MDANRA. An adequately capitalized corporate is required to have a ratio of 8%, which given our strong capital position and earnings should also not be difficult to attain.

From a capital standpoint Corporate One members are currently in a great position. While many credit unions will have to put up additional capital to replace lost capital held at other corporates, our members will only need to convert from one capital form to another.

An equally important number, and an important component of capital going forward will be our retained earnings (RUDE) ratio. The NCUA had placed benchmarks for corporates to achieve certain levels of earnings. Beginning on the third anniversary of the Reg. being published in the Federal Register (anniversary date is Oct. 20, 2013), corporates will need to have a RUDE ratio of 45 basis points or more. Currently Corporate One has a RUDE ratio of 98 basis points, well over the requirement needed to meet the new Reg.

As you can see, Corporate One has positioned our members to transition easily with us to the new Reg. 704. And we will have much more information for you in the coming months regarding the paperwork needed to convert your capital to the new NCUA-designated structures. Look for information in the mail in December. Corporate One will also begin a series of town hall meetings in January to discuss our plans in more detail. (See current town hall listings at right). To register for any of these sessions, please follow the links in the listing at right or go to our Events Calendar.

Finally, I want to thank the Ohio Credit Union League and the Indiana Credit Union League for hosting a series of regional meetings this fall, where I was able to meet with many of you and discuss Corporate One’s future and our plans for growth. I was humbled by the many in attendance who continue to express their strong support for Corporate One and expressed their desire to be a part of our organization. I look forward to providing excellent products, services and value to our existing members as well as all the new members who are looking to join our family.

Respectfully,

Lee C. Butke
President/CEO