7.6.10- Revised 2010 Fee Schedule

Below is a link to view VACORP's revised 2010 Fee Schedule, effective August 2, 2010 as well as a copy of the accompanying letter that was mailed to all member credit unions at the end of June: 

• Member Letter -dated 6/30/10
• 2010 Fee Schedule-revised/effective 8/2/10

6.24.10 MFA Upgrade Coming Soon...

The Member$MART Multi-Factor Authentication upgrade will take place between July 12-31, 2010. Each member credit union Manager/CEO was mailed a notice, as well as a temporary password for each Member$MART user at the credit union. The passwords are to be distributed to those individuals in order to be used when the upgrade window opens. Though the upgrade process is simple, we have assembled the following materials to aid in this transition. As always, please give us a call at 888.482.2677 if you have any questions.

     Notice to Members on MFA Upgrade-dated June 24, 2010

     MFA Upgrade Frequently Asked Questions

     MFA Quick Reference Guide

     Password Best Practices

6.18.10 June Newsletter Now Available!

Click here to view June's edition of the VACORP Vision.

5.13.10 Town Hall Meeting Series Complete

VACORP held a series of Town Hall Meetings from May 11-13, 2010 to discuss the work we have been doing over the last several months, as well as the new business model we are working towards. See below for the presentation materials, as well as to hear a streaming audio recording link of the meeting.

• Town Hall Meeting Presentation (pdf)
• Non-Binding Letter of Intent (pdf) - due back by June 4, 2010
• Streaming Audio Recording Link:

  https://vacorp.webex.com/vacorp/ldr.php?AT=pb&SP=MC&rID=40818322&rKey=cbdd1f74b2637b8f

5.12.10 VACORP's 2009 Annual Report

Click to view VACORP's 2009 Annual Report.

4.16.10 ACH & National Settlement Transactions

ACH & National Settlement Transaction Processing

Effective April 19, 2010, ACH credit origination transactions (forward credit items) and National Settlement Service transactions will be debited from VACORP’s Federal Reserve Bank account at the time the ACH credit items are processed (originated) by the FRB instead of the effective date of the transaction.  Credit unions that process these types of transactions will see them posting earlier than in the past.  As has always been the case, these transactions will be posted down to the corresponding credit union at the time they are incurred.  If you have any questions at all, please contact Emily Allen in the Accounting Department at 888.482.2677 ext. 812.

4.2.10 Communication to Members

April 2, 2010

VACORP FCU Progress Report

3.12.10 Timeline of Events

Sent on behalf of Don Chapman, President/CEO of VACORP…

March 11, 2010

Dear Member Credit Union:

Below is a summary of the events which have occurred over the last several years leading up to and including the conservatorship of U. S. Central Federal Credit Union (USC) by the National Credit Union Administration (NCUA) and the subsequent write down of all USC retained earnings and paid-in capital.  We have prepared this document to assist you in informing your members and volunteer officials why your Membership Capital Account with VACORP has been reduced in value by approximately 66%.  Every effort was made to provide the facts as we know them without inserting our opinion into the discussion.

VACORP always has been and continues to be a conservatively run corporate credit union.  We believe you, our members, have wanted us to provide you with low-cost cash management and settlement services, competitively priced liquidity products, and high quality, low risk investment products.  Thus, our business model evolved over the years as a low-cost provider of high quality products and services by cooperatively using strategic partners, such as USC and select corporate credit unions, to help us offer best of breed products and services to our members.  We believed, as did our strategic partners, that the risk in these products and services was relatively low and manageable.  As we have all discovered during the last few years, there was considerably more risk in USC’s investment portfolio than was apparent.

When USC was required to write down its retained earnings and capital as the value of its investment portfolio declined, VACORP was required to write down its own capital investment in USC, as well as reduce the value of its members’ capital investment in VACORP.  The past year has been a devastating experience for all of us and our members have suffered unprecedented losses.  Moving forward, VACORP will continue to be fully committed to serving  our members with a new viable business model, enabling you to do what you do best - successfully meeting the needs of your members every day.

Don Chapman

President/CEO

VACORP Federal Credit Union

******************************

A SUMMARY OF U. S. CENTRAL FCU FINANCIAL ISSUES AND THE IMPACT ON VACORP AND ITS MEMBERS

Pre 2009 Background 
 
During the period 2003 to 2007, many financial institutions, including U.S. Central (USC), increased its investment in mortgage-backed securities (MBS). This change in investment strategy enabled USC to pay higher, more competitive dividend yields on savings products to its corporate credit union members.  Those corporates, including VACORP, which invested in USC savings products were able to share those increased dividend yields with its natural person credit union members by offering higher rates on its savings products. Presumably, USC purchased these MBS investments without significantly increasing risk since all the securities at the time of purchase were rated investment grade with 98 percent rated AA or higher.  This strategy proved profitable during the housing boom when home prices continued to rise and mortgage delinquency rates were stable.   
 
Beginning mid-year 2007, real estate values declined across many markets in the U.S. and greater numbers of mortgages became delinquent leading to higher foreclosures.  The higher number of foreclosures further eroded housing prices, resulting in lower recovery of principal and even higher losses when the foreclosed properties were liquidated. The housing bubble burst as a result of:  the inability of some homeowners to make their mortgage payments due to adjustable-rate mortgages resetting to higher rates; many borrowers were over-extended making it difficult to meet their mortgage payments; predatory and fraudulent lending practices of mortgage lenders; the offering of risky mortgage products to uneducated consumers; and speculation and overbuilding during the boom period.  The end result was the beginning of a sharp price decline for MBS as the markets realized that credit losses on the mortgages collateralizing the MBS investments would be far in excess of earlier estimates.  As MBS prices and marketability declined significantly, even bonds that held AA ratings or higher were unable to be sold at prices close to par.  In hindsight, it became very apparent that the ratings agencies (Moody's, Standard and Poors, and Fitch) had grossly underestimated the credit risk of many of these MBS investments prior to their sale.  Accounting rules required USC to recognize the decline in the value of its investments, causing a dramatic increase in unrealized losses on available-for-sale securities.

USC was not the only financial intermediary to be negatively impacted by the decline in value of MBS.  In the latter part of 2008,  the much publicized problems with Fannie Mae, Freddie Mac, Bear Stearns, Countrywide and other financial intermediaries created an environment in which credit was extremely difficult, if not impossible, to obtain for financing business activities.  This generated questions and concerns not only about USC viability, but the entire financial services industry.  In fact by the end of 2008, while USC continued to see the value of its investment portfolio plunge, Fannie Mae and Freddie Mac were both taken over by the government. Lehman Brothers had declared bankruptcy. J.P. Morgan agreed to purchase the assets of Washington Mutual in what was the biggest bank failure in history.  Bank of America purchased Merrill Lynch and American International Group (AIG) was saved by an $85 billion capital injection by the federal government.

2009 Timeline

January               

  7-  Moody’s lowers USC ratings.

14-   Fitch says “USC portfolio has majority of AAA rated securities, but credit quality      

has deteriorated.”

28- USC tells members it expects to take a $1 billion write-off charge for 2008.

28- NCUA extends the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP), insuring all credit union shares and deposits, except membership capital, through the National Credit Union Share Insurance Fund (NCUSIF).

30- S & P downgrades USC to AA-/A1+ with an outlook of “ Negative”

February            

  3-  Fitch lowers USC’s individual rating to “ F”
10-  S & P places USC’s credit rating at “AA-“/Watch Negative/”A1+”
27-  USC posts $1.1 billion loss in 2008, wiping out over $700 million in retained

earnings.

March                                  

20-  USC makes public February financials, showing a $1.1 million loss and an unrealized loss of $6.6 billion compared with $5.9 billion for January.

20-   NCUA places USC into conservatorship.

April             

14-  NCUA informs corporates that USC capital is “extinguished” – permanently impaired and unrecoverable.

May                     

22-  NCUA Letter 09-CU-10 to federally insured credit unions explains regulatory mandate requiring paid-in-capital (PIC) and membership capital shares (MCS) be used to cover losses that exceed retained earnings.

August                     

31-  Per NCUA mandate, VACORP writes down all PIC  I & II  and approximately 63.2% of its MCS at USC.

September    

               24-  NCUA announces the first NCUSIF premium assessment in the multi-year process of recapitalizing the insurance fund.           

30-  In accordance with NCUA Letter 09-CU-10, VACORP  depletes approximately 27.6 % of our members’ capital to cover losses at USC.

October               

31-  VACORP  is required to write down an additional 25.5% of MCS at USC (cumulative total of approximately 89%).

November

30-  In accordance with NCUA Letter 09-CU-10, VACORP  depletes an additional  26.1% of our members’ capital ( cumulative total of approximately 54%) to cover losses at USC.

December        

30-  VACORP writes down all remaining capital at USC and, as mandated by NCUA regulation,  makes the final write down of members’ capital in relation to USC losses, bringing the cumulative depletion to approximately 66% of members original Membership Capital Account (MCA) balance. With this action, the MCA of VACORP members will no longer be exposed to any future losses at USC.

3.9.10 VACORP's Comment Letter

Click here to view VACORP's comment letter on NCUA's proposed changes to Regulation 704.

3.4.10- Town Hall Meeting Recap

Town Hall Meeting Recap - February 17, 2010

VACORP's Town Hall Meeting was held on February 17, 2010, at the DoubleTree Hotel Richmond Airport. Below is a summary of key points that were discussed.

VACORP Key Concerns of Proposed Rule 704:

NCUA’s full proposed ruling is over 250 pages long. There is a lot of technical information, but we narrowed it down to what we believe are the major challenges and would like you to comment on. The deadline to respond to NCUA is March 9, 2010. 

·      Missing Critical Information- What role will legacy assets play? This critical issue should be resolved before revamping the regulation and the entire corporate network. The comment period should be suspended until after the NCUA discloses legacy asset plans for the corporate system.

·      NCUA's proposed business model- Along with several other issues, the new NEV tests, two-year weighted average life investment limitation and cash flow mismatch constraints need to be amended. NCUA’s pro forma analysis ignores the costs of raising capital, adjustments for inflation, and assumes historically high yield spreads on a portfolio that is over-weighted with student loan assets. Credit unions should know the outcome of the consultant’s analysis before final comments are made to the NCUA.

·      Board Governance- We recommend the corporate's nominating committee establish qualifications for corporate board members. It takes time for board members to truly understand a corporate's operations. Term limits of 12 years are more appropriate than 6 years. Term limits that are too short will disrupt the balance between board and management.

·      Penalty for early withdrawal- Prohibits a corporate from redeeming credit union certificates at a premium. This places corporates at a significant funding disadvantage and would likely eliminate the possibility of issuing certificates. This proposal should be removed in its entirety.

·      Corporate CUSO restrictions- No restrictions should be placed on CUSOs where the corporate does not have a controlling interest.  A restriction on examination rights to third party enterprises is also needed.

Action taken by VACORP Board:
 
While the VACORP Board desires to move forward operating as an independent corporate, they are open to exploring any option which is in the best interest of its members. To that end, the Board has contracted with IMPEL Consulting Group to complete a needs and opportunities assessment and for development of a new business plan. Results from IMPEL’s work could result in:

·      A business model that allows VACORP to continue as an independent corporate. To function under the current proposed rule, VACORP would need to make significant changes in the way we do business, including reduction of assets, fee structure changes with a possible tier fee system, conversion of membership capital, etc. The ultimate goal will be to succeed and grow, not just to survive.

·      A business model that requires VACORP entering into alliances (partnerships) with other corporate (s) and/or CUSO’s to provide services to members such as currently exist with First Carolina Corporate, Mid-Atlantic Corporate and Palmetto Cooperative Services.

·      A recommendation that VACORP seeks a merger partner(s)

·      A determination that no business plan is sustainable and the corporate should liquidate

·      Or a business plan/model yet to be developed through their assessments at VACORP

Current plans are to provide members with an update on IMPEL’s proposal(s) at the Annual meeting in May. Then as soon as possible afterwards, hold a Town Hall Meeting to present the new business model in its entirety.

Any plan allowing VACORP to operate as an independent corporate will probably require members to convert current MCA shares into the new perpetual capital outlined in the proposed rule. It is also possible that members could be asked to invest new capital. No action along these lines will be taken until VACORP has a viable business plan to present to members. Members will always have the opportunity to voice their acceptance or rejection of any new business plan/model. Our members will be the determiners of the viability of the corporate.
 
As far as the search for a permanent new CEO for VACORP, the Board has decided to delay the search until they have the opportunity to review the results of IMPEL's consulting engagement and determine what they believe to be the best course of action for our members. We want to ensure that the new CEO has the skill set needed to initiate the plan.

Actions taken by VACORP:

VACORP has written off 100% of membership capital at US Central. There will be no additional depletion of membership capital shares due to any future losses incurred by US Central. All shares invested in VACORP are fully insured under the NCUA Share Guarantee Program until 3/31/2012 (this may be extended on a quarterly basis by the NCUA).

The NCUA currently controls US Central. They have not put forth a new business plan, but the proposed rule would remove their wholesale corporate status.  They could function as a partner and/or competitor of VACORP. As this could occur, VACORP is in the process of finding alternative liquidity sources, as well as seeking out providers for other core services we make available to members.

In advance of NCUA’s final ruling, we have taken these initial steps toward meeting the new capital requirements: restriction of on-balance sheet VACORP certificate offerings to 90 days or less; placing investment emphasis on off-balance sheet investments through ISI and SimpliCD programs; operating under a budget with very stringent expense controls. 
 

We don’t believe that NCUA is on a fast-track to reduce the number corporates. About 99% of credit unions have a relationship with a corporate. Changes have to be made, but NCUA will not want to disrupt the settlement activity that occurs daily for 8,000 credit unions and over 90 million people. We don’t know what the long-term will look like, but the day-to-day activity will go on for a long time.  

Membership Capital Account (MCA) Q/A:

During the meeting, several members raised questions on specifics of the Membership Capital Account.  For clarification, the following points were shared with members. Membership capital shares have a 3-year notice of withdrawal. VACORP must receive a request in writing from the credit union denoting that they wish to activate the 3-year notice for withdrawal of membership capital. The notice may be rescinded at any time up until the final day of the 3-year notice requirement. Shares are still eligible for any dividends that may be paid.  Shares are still at risk for any future losses incurred internally by the corporate; however, VACORP only holds agency floating rate mortgage-backed securities, which were bought at a discount or close to par. We do not believe we are at risk of any write-downs on these securities. No shares are paid out until the 3-year notice is met. MCA shares will not be automatically converted to either of the new capital options under the NCUA proposed rule. The individual credit union will determine if they wish to convert or not when the rule is finalized.

As the new business model is being developed over the next several months, it would be very beneficial to VACORP if members would put aside or table any plan to submit a withdrawal notice on membership shares. Then as the new business model is presented, each member will have all the necessary information they will need to make an informed decision on whether to remain a member or initiate the withdrawal process.

Pure and simple, we need you. We are hopeful and focused on creating a viable and compelling business model that you will be able to support going forward.  In the interim, we will continue to strive to provide those services you want and need from us. As always, we thank you for your continued support and encouragement.

**To listen to the streaming audio recording of VACORP's Town Hall Meeting, please click the following link:

 https://vacorp.webex.com/vacorp/ldr.php?AT=pb&SP=MC&rID=37435242&rKey=410258e6f9ddd1a6

2.18.10 VACORP's Town Hall Meeting Audio

To listen to the streaming audio recording of VACORP's Town Hall Meeting on Wednesday, February 17, 2010, please click the following link:

 https://vacorp.webex.com/vacorp/ldr.php?AT=pb&SP=MC&rID=37435242&rKey=410258e6f9ddd1a6

2.16.10 Memo to members regarding inaccuracies in CU Journal Article

An article in this week’s Credit Union Journal contains a number of inaccuracies concerning VACORP.  The most egregious of which is the statement VACORP has more than $1 billion of unrealized losses in its investment portfolio.  In actuality, VACORP’s unrealized losses are less than $1 million and, as stated previously, the corporate has every expectation of holding the affected securities until they mature.  

VACORP was not contacted to confirm any of the information that was contained in the article.  It is unfortunate that the CU Journal did not exercise more care in their research.  We apologize for any undue concern this misinformation may have caused.  If you have any questions, please don’t hesitate to contact us.

Don Chapman

Interim President/CEO of VACORP

Reminder:

IMPORTANT REMINDER:

Please make sure that your signed SECURITY AND CONTROL PROCEDURES Schedule I is returned to VACORP to ensure completion of any funds transfer after February 15, 2010.  If you have any questions, please feel free to call Michael Read, SVP Risk Management, at 888.482.2677 ext. 809.

2.2.10 Message to members regarding NCUA proposed changes to Regulation 704

Click here for an important message regarding NCUA proposed changes to Regulation 704 from Jim Hansen, President/CEO and Don Chapman, Chairman.

1.26.10 Important Message to VACORP Members

Click here for a letter to members from Don Chapman, Chairman of VACORP's Board of Directors.

1.08.10 Membership Capital Account

Click here for an important letter regarding Membership Capital Accounts, as well as an announcement of VACORP's Town Hall Meeting scheduled for February 17th.

11.20.09 Important Message Concerning Membership Capital Accounts

Click here for a letter to members from Jim Hansen, President/CEO of VACORP.

11.10.09 VACORP's 2008 Financial Statements

Click here for VACORP's 2008 Financial Statements.

11.02.09-NCUA Depletes Additional Capital at US Central

Click here for a letter to members from Jim Hansen, President/CEO of VACORP.

9.28.09 Membership Capital Account

Click here for an important letter to VACORP's members, dated 9.28.09 from President/CEO, Jim Hansen, regarding Membership Capital Accounts.

9.14.09 U.S. Central Audit Release

The National Credit Union Administration (NCUA) has released U.S. Central Federal Credit Union’s (USC) 2008 Audited Financial Statements.  Despite what has been reported in the news media, the audited financials did not reveal any material changes.

VACORP's Comment Letter to the NCUA's ANPR

March 18, 2009