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From the CEO
August 30, 2013

Dear members:

When credit unions think of their corporate today, they may think of it as a check processor, a provider of electronic payment services, or a place to invest their excess funds, all of which is true, of course. And, while corporate credit unions have grown into their roles as providers of these services, it’s being providers of liquidity that gave us our start, and being a reliable liquidity provider today is still our most important role. As such, it’s essential for you to know how we’ll meet your liquidity needs when you have them. This knowledge is even more important for you to know as recent changes to the NCUA’s 5300 call report now requires credit unions to provide additional data on their available sources of liquidity, including whether or not their lines of credit are committed or uncommitted. As a result, we’ve received several inquiries regarding this issue. Therefore, let me take this opportunity to discuss lines of credit, readdress our liquidity position and provide an update on industry liquidity.

Is your line committed or uncommitted?

Committed, or guaranteed, lines of credit are fee-based and require the lender to provide funds to the borrower when requested. Of course, the borrower has to maintain all the conditions, or covenants, of the legal agreement to obtain funding. These lines were popular going into Y2K and remain useful for credit unions that require guaranteed funding.

Uncommitted lines of credit, also referred to as advised lines of credit, represent the vast majority of credit outstanding to credit unions. Under an advised line, lenders are not required to provide funds when requested by the borrower.

Due Diligence

Corporate One is serious about fulfilling our mission as a liquidity provider to our members. And, while our advised lines are “uncommitted,” we still take them very seriously. For example, when you consider that we maintain access to approximately $1.4 billion of external sources of liquidity and, in addition, have Primary Credit status with the Federal Reserve Bank, our members can feel confident that we should have the liquidity to fulfill their request should the need arise. With Primary Credit status, we do not have to exhaust all other borrowing sources before accessing the Discount Window. We test all of our credit lines quarterly, and maintain appropriate collateral to back-up our lines.

In addition to maintaining a maximum level of external liquidity sources, we have allocated our loan line limits responsibly to our members to insure we can meet our promises to you, our members. Our total lines of credit outstanding total $2.7 billion, which represents 63% of our total assets. This ratio is among the lowest in the corporate network where the industry average is currently in excess of 100%! In the end, it is not about the size of the line, or even the cost, but an institutions capability to support the line.

The tides of liquidity

Since the financial crisis in 2008, credit unions, and this corporate, have experienced a rising tide of liquidity. During this period, total deposits in the industry have increased 31% while total loans have risen by less than 7%. This has resulted in a recent record low loan-to-share ratio of slightly less than 66% (See Figure 1). However, I believe the tide is starting to shift. Total industry loans are up 4.4% year over year, which is the highest pace of growth since 2008 (See Figure 2), and the growth of deposits has tempered as well. In addition, our member loan activity is picking up due to the traditional seasonal summer outflow of funds and the aforementioned higher loan demand from consumers. As always, we stand ready to meet your liquidity needs.

It’s an exciting time in the network and with these recent activity shifts, there is a new set of opportunities and challenges. If we can help you evaluate your sources of liquidity or you have questions about liquidity offerings through Corporate One, please contact our VP, portfolio manager, Perry Jones at 800/432-0203, ext. 4030.

Loans to Shares Total Loans

Lee C. Butke