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