Some of you may have heard the news over the weekend about the National Credit Union Association (NCUA) move to place US Central CU and Wescorp CU in conservatorship.

I’d like to give you an overview of what happened and what it means to us.

  1. NCUA’s recently completed review of all of the investments in the corporate system (28 corporate CUs) indicated that the mortgage backed securities (MBS) of both US Central and Wescorp had deteriorated compared to previous valuations. Since the assets of both of these institutions consist of 90% investments, any sizable decrease in value would have a great impact on capital, probably bringing capital down to below regulatory levels. NCUA felt that the best way to manage the situation was to replace the Board and management at these two credit unions and place them under direct NCUA control.
  2. The liquidity of these two corporates has improved over the past two months and both should be able to hold their MBS until maturity.
  3. NCUA has reiterated that all deposits in all corporates remain fully insured and that both will continue operations as before.
  4. The new valuation done by NCUA has changed the calculation of the total impairment to the share insurance fund. Previously, NCUA calculated that an impairment of 51% of our NCUSIF deposit was necessary. They have now revised that to 69%.

What does this mean for Verity?

  • We will need to recalculate the amount we need to record for the impairment of the NCUSIF. As permitted by NCUA, the state regulators and our auditors, we will record this in 2008.
  • While we do not have to worry about any deposits we have at Wescorp, we have invested some capital. We learned on Monday that we will need to write this off on our balance sheet.
  • We do not have any relationship with US Central.
  • Wescorp’s MBS portfolio contained some sub-prime loans which may have deteriorated significantly. Our MBS portfolio does not contain any subprime loans.

The best way for us to weather this setback is to build capital. That is what we intend to do – through smart pricing and strategic growth.

Verity remains a financially safe and secure financial institution.

William R. Hayes

No biography available for this author.

14 Responses

  1. Jon Soine says:

    For in excess of 30 years, I have appreaciated the tranpareancy and conern of the staff and officers of NW FEDERAL now VERITY C/U and the sincerity and service that they have offered. We all will come out of these tough times working together. YOUR best ASSETS are your CUSTOMERS and their ability to refer friends that can bring deposits and further stability to OUR CREDIT UNION. .

  2. James Vibbert says:

    Be even more conservative with investments in the future. Everything in California is a mess.

  3. S Sands says:

    I see on BECU’s website, this statement: “BECU does have investments at WesCorp, however, these investments are fully insured and backed by the full faith of the U.S. Government.” I’m curious why Verity has to write off its WesCorp investments—were they not insured as BECU’s are?

  4. Randy Gunderson says:

    Verity (and all other Credit Unions that do business with Wescorp) have 2 types of investments with Wescorp.

    1) Deposits. This is similar to the deposits that you keep with Verity. Verity has share and certificate accounts with Wescorp and those investments, regardless of amount are insured and guaranteed by the full faith of the U.S. Government.

    2) Membership Capital. All Credit Unions that do business with Wescorp are required to purchase membership capital. This is similar to purchasing stock in a company. While Wescorp is still functioning under the Conservator, all Credit Unions have been told that their stock in Wescorp is fully impaired and that they must write it off.

    Randy Gunderson Chief Financial Officer Verity Credit Union

  5. Marge says:

    I have some questions: Why did Verity invest capital in WESCORP? Is it a Washington state business? How much was lost? What is the damage to Verity CU?

    Translate, please:

    “The best way for us to weather this setback is to build capital. That is what we intend to do – through smart pricing and strategic growth.”

    If you need capital, why was the max deposit for Velocity Checking lowered?

    Please post an FAQ. Thanks

    • Randy Gunderson says:

      Corporate Credit Unions provide a vital function for the Credit Union Industry. They act as a deposit facility when Credit Unions have excess funds, they provide loans to Credit Unions in need of liquidity and perform other functions such as check clearing, ACH clearing, wire transfers and other operational functions for Credit Unions big and small. Credit Unions who wish to access the services provided by a Corporate Credit Union are required to provide a capital investment based on the extent of the relationship. Verity had $486,000 of Wescorp capital on its books, which was the minimum that we could have based on the level of business that we did with them. The effect of this writedown amounts to -.11% to Verity’s Capital Ratio. Corporate Credit Unions are required by the NCUA to carry a minimum level of capital to be considered “well capitalized” and Wescorp was well capitalized, however its outlook based on the securities that it holds is what the NCUA used as its basis to take Wescorp into Conservatorship. If Wescorp weathers this storm, there is a chance that Verity will be able to recover its capital investment. Verity is also well capitalized and will continue to make prudent decisions so that we can remain strong through these tough times.

      Randy Gunderson Chief Financial Officer

  6. Liz says:

    The membership should be kept abreast of each and every update as progression occurs. I am extremely disappointed that Wescorp is involved with Verity as I was skeptical with Verity when reorganization occurred after NWFECU.

  7. Cathy Roth says:

    Thank you for your responsive answers to the questions posed by members. I appreciate your thoughtful and clear responses. Keep up the good work!

  8. Gary Boots says:

    Thanks for being upfront with all of this. Like most folks, I don’t have an in-depth understanding of what goes on in the financial world, but I have been a member of this credit union since 1975, and I am still here because I trust in the management of this credit union. Please continue to keep us informed.

  9. phil says:

    I am also wondering why BECU’s investment was covered and Verity’s needs to be written down (Randy’s question)? I also want to know why the velocity has been getting lowered (interest rate) and also the max amount paid on has been sustantially lowered? I have found “other” places to park $ that are paying more. Should’nt the philosophy to pay more and and higher amounts to keep/get other new $$ in Verity’s system?

    • Randy Gunderson says:

      Phil’s comment is actually 2 questions, which I will reply to in order.

      1. BECU’s investment at Wescorp versus Verity’s?

      If BECU had membership capital at Wescorp, they will be required to write it off just like every other credit union. This is a requirement of our regulator, NCUA and not an individual credit union’s choice.

      2. The rates that Verity pays, specifically Velocity Checking?

      We are committed to keeping the rate for Velocity accounts competitive with other institutions. With the Fed’s decision to lower rates we explored ways that we could continue to offer an attractive rate with this account. Through lowering the cap to $25,000 we are in a better position to offer the competitive rate that Velocity members expect.

      Randy Gunderson, Chief Financal Officer

  10. Thelma Jones says:

    I can maybe lowering the cap on the velocity account,but why does one have to use the atm card 12 times a month to qualify for the higher interest rate? You could be forcing people to spend money in order to get the higher interest.

  11. Shari Storm says:

    Thelma, the answer to your questions has a couple of parts.

    Philosophically, we were looking for a way to reward those members who do a lot of business with us. Members who do a lot of business with us and view Verity as their primary financial institution tend to generate more revenue, refer more people, default on their loans less, and a bunch of other good stuff that we like. It’s hard to quantify “active member”. So we came to the conclusion that someone who uses their Verity debit card at least 12 times a month probably sees Verity as their primary financial institution. In addition, we want to attract members who prefer getting their statements online rather than through the mail and members who use debit cards over checks. Both of these characteristics are money saving activities for the credit union.

    Financially speaking, we get a small interchange fee when a member uses their debit card. This helps off-set the cost of the high dividend rate we pay on the account.

    We certainly don’t want to force people to spend money on frivolous items, but we feel that a 12 debit transaction requirement is reasonable, considering groceries, gas, and other necessary purchases people make each month. From a prudent budgeting perspective, it’s probably better for members to be using their debit cards to pay for these things rather than their credit cards and risking interest rate charges.

  12. Jack Nixon says:

    I have been a member for over 20 years and am very concerned that Verity may under.

    If you only had $486,000 at risk at Westcorp why was the loss over $2 million for the quarter? Please explain where the other losses came from.

    If the Westcorp loss has been written off should Verity expect a profit next quarter?

    I would rather receive less interest than have Verity invest in high risk stuff in the future.

    Jack Nixon

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