<p>WEST PALM BEACH, Fla. – Corporate credit unions seem to be doing more these days, but leaders say corporates have been serving their members' needs for years with top-quality products. What is different today is the needs of credit unions have changed so dramatically corporates have had to adjust their offerings. Corporates are meeting member needs in a much more competitive environment as FOM lines have blurred and technology minimizes the importance of physical presences in states where a corporate has member credit unions. Credit Union Times asked seven corporate credit union CEOs to give their take on some of the most important issues facing the corporate network. CU Times: More and more credit unions are joining Federal Home Loan Banks. Explain the competitive threat they pose to corporates? WALBY: The FHLBs compete with corporates to some degree in most services. Overall, I believe corporates compare favorably in terms of quality/depth of service, particularly after the introduction of a longer term lending program from U.S. Central in 2001. The FHLBs pay out substantially all of their earnings in the form of dividends, whereas corporates typically retain a portion. I believe this will be more of an issue in the future. MELCHIONDA: We view the Federal Home Loan Bank system as a partnership opportunity, rather than as a competitive threat, for credit unions and for EasCorp. JOHNSON: The FHLB has some advantages that credit unions, including corporates, don't have. It's hard to compete with some of their products because of the legislative advantage. Still, some of their products are good for the consumer. We should not complain if these products are good for the consumer. Neither should we throw in the towel. Competition is good. BUTKE: When your goal is to help credit unions succeed, you don't look at competitors as a threat. That said, FHLB services vary from region to region, so it's difficult, if not impossible, to make blanket statements regarding competitiveness versus corporates. The FHLB, which was originally charged with the public responsibility to ensure availability of funds for home financing, has branched into other service offerings, and, in some locations, they offer similar products and services. However, we look at these situations as a challenge to improve our own offerings, and opportunities to better serve our members. KENEALY: The FHLB does a good job providing competitive term loans. Because of their status as a government-sponsored agency, they can raise funds at low rates to loan to their members. Credit unions might do well to consider the FHLB as a secondary lender, but I would caution a credit union against making the FHLB the primary source of liquidity. Since corporate credit unions are responsible for paying for the daily clearings of our member credit unions' share drafts, credit/debit transactions, etc. – it is critical that the credit union maintain its primary lending relationship with the corporate. On the investment side, corporates offer term and structured investments at better dividend rates than FHLB products – and our investment offerings have better liquidity, don't require safekeeping, and don't require mark-to-market accounting. Credit unions who do their homework find corporate credit unions have a better package. And when push comes to shove in a liquidity crunch – our members can rest assured that we will devote all of our efforts to bring liquidity into the credit union system. Our record of accomplishment in this regard speaks for itself. DeGROODT: Because of their GSE status, Federal Home Loan Banks can borrow at rates that are less than even U.S. Central can borrow despite their (U.S. Central's) AAA credit rating. Consequently, from a lending perspective, most corporates cannot compete with the FHLB on term lending products. In my opinion, the major role corporates play in the marketplace is that of a liquidity provider to credit unions. Federal Home Loan Banks could pre-empt that role given their competitive advantage in the marketplace. In addition, I doubt the FHLB's have the same interest in credit union members that corporates have. HERBST: I believe the competitive threat with regard to the Federal Home Loan Bank lies more within the medium to long-term lending arena. As a GSE, the Federal Home Loan Bank has access to more competitive funding than corporates. Therefore, at times, their GSE status may allow them to be the more affordable lending alternative to credit unions than their corporate. However, corporates have recently begun working with the FHLB both on the regional and national level to see if the corporate network can add value by delivering FHLB loans to member credit unions through the corporate. As a side note, this is another prime example of corporates working together cooperatively for the betterment of credit unions. CU Times: Corporates continue to merge. Can you envision the day when the corporate network consists of six or so large regional corporates? Would that be good/bad for industry? JOHNSON: This is an age old question. Certainly, there is an easily recognized business case for fewer corporates that would make sense. But that same business case is not as good for the smaller credit unions scattered throughout the nation. We must look out for their interests, too. I believe a study by an outside vendor needs to be made to recommend what is best for the credit unions, not the corporates. BUTKE: Like other credit union service providers, corporates operate in an industry that is market-driven, based on members' needs. In the future, I see a smaller number of larger corporates, each with a greater concentration of credit union investment dollars. However, I believe consolidation will occur slowly as there is a tremendous amount of loyalty from credit unions toward their corporate. Also, I believe there will continue to be a need for some type of local corporate service. MELCHIONDA: In my opinion the prospect of the corporate network combining in the future to form six corporates is very slim. Corporates are no longer exclusively about commodity products and services that compete primarily on the basis of price; e.g., investment products. For instance, many corporates have gravitated to payment system products where the competition is less often with other corporate credit unions, and price may be subordinate to value-added service and technology. In products where scale economies have less importance, smaller corporate credit unions are not disadvantaged vis-?-vis their larger counterparts. As more corporate credit unions establish specialty businesses, their interest in mergers or partnerships with each other, if any, will be a matter of diversification rather than a matter of survival. WALBY: Like any financial institution, there are certain economies of scale to be gained by being a larger corporate. These economies will be constantly weighed against the value of "local" control. I see further consolidation occurring. However, with the presence of a strong U.S. Central, I believe corporates can make their own choice. I don't see a few regional corporates any time soon. Larger corporates would not necessarily be good or bad. It would depend on the quality of service delivered and the competitiveness of the products offered. KENEALY: We believe that economies of scale in corporate credit unions are important, but not at the expense of service. Our corporate has gone through two successful mergers, and in both cases, it was good for all of the members. We gained economies of scale while maintaining a high level of service. The larger economies have allowed us to offer higher dividend rates and more investment products, while expanding product offerings. I believe that a successful merger is one where the corporates involved take full advantage of the resources available to serve the entire membership. There is a danger that a corporate can become too big – and lose touch with its members. Credit unions want high dividend rates, good service, and products that help them do a better job serving their members. They don't care if a corporate's assets are $500 million, or $5 billion, as long as the job is done right. DeGROODT: No, I can't envision that day. As mergers and consolidations among banks occurred in Missouri, several displaced bankers formed their own local banks and those banks have done quite well. The reason? As mergers occurred, service levels went down and fees went up. The new, small, local banks provide personalized service and modest fees and they've been drawing customers away from the mega-banks. I think the same thing will happen with corporates. Consolidation will continue but at the expense of service levels and probably fees. No one has convinced me the Federal Reserve system is a model of efficiency or that they provide exemplary service. That's what we'd have if we ended up with six or so large regional corporates. I'm convinced that a corporate that provides outstanding personal service, low fees and competitive investment and loan rates will thrive. I'm not convinced that mergers are necessarily good for the system. You can make a wonderful case for mergers on a piece of paper. But mergers generally disrupt service, reduce employee morale and create headaches for customers. How is that good? I remember reading an article in the Wall Street Journal about the problems that occurred with the Daimler-Chrysler merger. The CEO of Daimler-Chrysler said they knew going into the merger that about 75% of mergers fail. If the failure rate is that high, corporates need to be very careful when they venture down that road. I'm not against mergers – they just have to be well thought out and well executed. If you really want to know how well a merger worked, ask the members – they'll tell you. HERBST: We are in the people business, people helping people. Many of the products and services corporates offer can only be delivered on the local/regional level. There are many economies-of-scale opportunities that can be realized and passed onto credit union members by combining resources. Our members experienced this benefit after our merger with Rhode Island Corporate and then with Garden State Corporate Central Credit Union. However, we believe there is a need to maintain a local presence hence we maintain branch locations in both Rhode Island and New Jersey. Furthermore, I believe the marketplace the credit unions themselves will ultimately determine the shape of the corporate system. All corporates exists by and for the express purpose of serving the needs of credit unions. Those needs will dictate how we serve them.as it should. To answer the second part of the question, the open marketplace and the competition afforded by the market, is good for our industry. To take even a wider brush stroke, in reality, competition is good for most industries. The corporate network may lend itself to additional mergers; however, I view this as positive because it makes each of us (corporates) do a better job. This is a win for all our members and perspective members. CU Times: The ACCU and corporate leaders are opposed to the proposed 2% RUDE requirement. Why in your words is this proposal a problem? MELCHIONDA: NCUA's proposed 2% RUDE requirement discounts the value of Paid-In Capital and imposes an artificial and unnecessary limit on how corporates may serve their member credit unions. WALBY: Corporates currently have the highest amount of total capital in their history and are well capitalized. The 2% RUDE requirement looks at a single component of capital and establishes a sub-requirement. For regulatory and share insurance purposes, all capital should be counted. A sub-requirement is not necessary from a safety and soundness perspective. Further, corporates are subject to dramatic fluctuations in assets. This provision could prevent corporates from serving members in periods of high liquidity. JOHNSON: The 2% RUDE ratio requirement is a problem because, while the proposed ratio is designed to recognize core or primary capital, it does not take into account Paid-in-Capital. WesCorp, and several other corporates, spent time and money developing and offering PIC to our members, at the behest of NCUA I might add. PIC is a long-term capital source for corporates and should be recognized as such in the regulation. NCUA is looking to provide incentive for corporates to build RUDE, which I agree is an important component of corporate capital. However, of the three sources of capital available to corporates – member capital accounts, PIC and RUDE – PIC is the most expensive for corporates. It's quite an endeavor to create a PIC offering for credit unions (WesCorp actually has issued PIC twice) and then not have the value of it recognized by NCUA. In our most recent comment letter to NCUA on Part 704, WesCorp supported a risk-based approach to capital for corporates. BUTKE: Our position, and the position of other corporates that object to this new regulation, is that most corporates are adequately, if not overly, capitalized as compared to other financial institutions. A regulation that places 100% of capital requirements on RUDE, and discounts Membership Capital and Paid-In Capital shares does not take into account the unique structure and mission of corporates – to be financial services partners to the natural-person credit union. Should the 2% RUDE requirement go into effect, financially secure corporates (even based on the NCUA's current analysis) would appear to be undercapitalized. This may have the effect of forcing many natural-person credit unions to look outside the credit union network for products and services once provided to them by their corporate. The NCUA wants to protect the natural-person credit union by doing their best to ensure the integrity of the corporate network. However, the RUDE Ratio requirement fails to take into account the limited ways corporates can raise capital, the level of risk corporates assume, and the mission of the corporate network. KENEALY: Corporate credit unions were created to be the primary provider of liquidity to the credit union movement. One of our roles is to absorb excess liquidity in credit unions, and pay a good dividend on that liquidity until it is needed. The 2% RUDE requirement sets an artificial limitation on the amount of liquidity that the corporate network can absorb. DeGROODT: We have a real concern with the proposal because we issued Paid-In Capital (PIC) that conforms to GAAP. The proposed regulation does not allow us to treat PIC as Reserves and Undivided Earnings (RUDE), yet GAAP allows us to treat PIC as RUDE. Obviously, the proposed regulation is not in conformance with GAAP when it comes to GAAP qualifying PIC. Secondly, we issued PIC to help us manage large fluctuations in assets (and corresponding reductions in the reserve ratio). Not allowing us to count PIC in the reserve ratio removes an important tool from our toolbox. Thirdly, it will force us once again to tell our members that the capital rules have changed. The current regulation permits the issuance of PIC, both GAAP qualifying PIC and non-qualifying PIC. If the NCUA doesn't allow us to use PIC in the reserve ratio calculation, it puts us in a position of having to tell our members that PIC no longer counts in the reserve calculation. We've had to do that twice before with Membership Shares when the maturity of Membership Shares was required to be first one year, then three years in order to qualify as capital. It's not a pleasant position to be in and it makes the agency appear to be indecisive. HERBST: The proposed 2% RUDE requirement is an issue that restricts corporate growth. It does not measure risk; it inhibits the corporate's ability to grow so it can better serve its member credit unions. CU Times: Corporate assets surged along with increased CU deposits last year. Does your corporate have a game plan going in for a liquidity surge? Is there anything special you do during a time like that? (investment changes, product changes, etc.) MELCHIONDA: For years, EasCorp has prepared itself for the whipsaw liquidity conditions that characterized the period of 1999 through 2001. Our working capital products and services were rigorously tested during the liquidity trough, earning high praise from credit unions, credit rating agencies and regulators. Currently, credit union executives are challenged to optimize the performance of their excess liquidity within acceptable risk exposure limits, a circumstance that favors our investment advisory CUSO, ALM First Financial Advisors LLC of Dallas, Texas. ALM First presently has more than $4 billion of credit union investments under management and is the fastest growing segment of EasCorp's business. WALBY: Like other Corporates, CenCorp plans for and has multiple options available in the event that members have excess liquidity (as was the case in 2001). Internal operations do not change very much. JOHNSON: It seems that having PIC is a safety net. If, for whatever reason, the deposits increase rapidly, PIC is an immediate solution to stay within the required safe and sound capital ratio required by NCUA. If assets surge, WesCorp could issue more PIC. If there is a liquidity crunch, we could issue additional notes from our Medium Term Note Program, and/or issue commercial paper. BUTKE: Whether liquidity is high or low, or rates go up or down, we have contingency plans and the ability to manage these economic scenarios. In the case of liquidity, which was tight in 2000, we offered our members ample sources of funding. Those sources included warehouse loans, advised lines of credit, loan participation through the NLAC, and other lending options. With the increase in liquidity that we saw in 2001, Corporate One developed additional investment products to help our members increase their ROA. One of the most popular products has certainly been our Fed Funds Plus Account, an overnight account based on the fed funds target rate. This account has been popular with current members, and is primarily responsible for the addition of 70 new credit union members in 2001. SimpliCD is another product we began offering a few years ago through our CUSO, Primary Financial Company LLC. SimpliCD helps credit unions maximize their yield by giving credit unions the opportunity to simply purchase blocks of federally insured jumbo CDs, with excellent rates, from a pool of nationwide issuers. Given last year's increase in liquidity, coupled with a declining rate environment, SimpliCD was an excellent investment vehicle for credit unions paying a considerable premium over comparable government, and yes, even corporate credit union term rates. SimpliCD is so popular, 15 other corporate credit unions now offer it to their members as well. KENEALY: We maintain extensive liquidity preparedness plans to deal with a variety of environments. In periods of excess liquidity, we offer credit unions a variety of investment products to put that liquidity to work until it is needed. Our objective is to get the excess funds into a position where they can generate the highest possible earnings, so that we can pass those rates on to our members. We also work with our members to recommend investment products that will allow their credit union to maximize earnings on the excess liquidity. DeGROODT: We essentially run a matched-book. We continue that strategy regardless of the liquidity outlook. That's because we view our primary mission as that of a liquidity provider. In late 2000, our members borrowed more from us than anytime in our history. Because of our strict matching policy, we funded all those loans and did not have to borrow to meet the loan demand. That strict matching policy has served us well. We won't try to guess the market. HERBST: Yes, Empire takes its role as a liquidity provider very seriously and we have plans in place to serve members' needs in all liquidity environments. In anticipation of increased liquidity and growth, Empire grew its Membership Capital Shares Deposit account by $50 million in 2001 a 44% increase from 2000. This important member support provides us with the ability to grow our balance sheet as we take on additional credit union deposits, and as our members continue to grow. Empire's plan is to continue to increase its Capital Shares Deposits. Referencing my previous answer, this is another reason why the 2% RUDE requirement does not work. A corporate's capital shares investments become worthless and inhibits potential growth. To address the second part of your question, Empire has taken great care in designing a multitude of investment products and services to help credit unions manage all types of liquidity cycles. Through our wholly-owned CUSOs, we are able to offer investment advisory services through MemberTrade Advisory Services, LLC, and we are able to offer investment alternatives through MemberTrade Financial Services, LLC, our broker/dealer. CU Times: Since corporates' success is a direct result of natural-person CU success, is there anything corporates can do above and beyond their product line to assist CUs in succeeding? MELCHIONDA: A corporate credit union's mission is to assist CU's in succeeding. Your question should read, "Is there anything corporates will not do above and beyond their product line to assist CU's in succeeding?" And, the answer is no. WALBY: Corporates act as a resource to members. Members can count on corporates to provide objective advice on a variety of payment system or investment topics. JOHNSON: Corporates need to develop a more dynamic loan purchase and sale system for credit unions that will assist their ALM needs on a dependable rapid system. We also need to provide a system to assist CUs with providing support for their SEGs – a real opportunity there. BUTKE: The primary role of any corporate is to help its members succeed. We work hard everyday to offer the right mix of products and services for our members, offering them great rates, low fees and exceptional service. But, it's the extra things we do that set corporates apart from other vendors. An excellent example of going beyond our product line to help members succeed is our selective-surcharging ATM group, Alliance One. Our members needed to grow the number of available ATMs available to their members, so Alliance One was developed to create an open network that is not vendor specific, allowing credit unions to place their machines in the group and receive thousand of surcharge-free ATMs in return. Alliance One now boasts over 1100 financial institutions and 3000 ATMs. We offer periodic seminars on asset and liability management, in-house and regional training sessions; we arrange for speakers at various credit union functions; and, we set up networking opportunities for our members to meet and learn from one another-all to help our members succeed. But we bring the most value to our members just by being there when they need us. Our senior management team and field representatives are constantly on the road at our member credit unions, asking what we can do for them. Whether it's helping them set up member business accounts, work with other third-party vendors, or even evaluate a business proposal from a competitor, our sole purpose is to help our members succeed. DeGROODT: Yes. We plan to devote a lot of time and attention to listening to our members tell us what they need to make their operations run smoother. Our focus will be on helping them safely improve the efficiency of their day-to-day transactions. We'll listen, then improve our operations and quality that will in turn help them improve their operations and quality. HERBST: Absolutely. We believe our products and services provide credit unions with the ability to effectively compete in the financial marketplace, remain successful in serving their members' needs, and be in the forefront of consumers' emerging needs. Empire also understands that our members' success in selling and cross-selling these products is paramount to our success. Multiple times in the past, Empire offered a "soup-to-nuts" at-cost marketing campaign to assist members in selling their share draft product. The campaign consisted of sample newsletter articles and press releases, lobby posters, T-shirts, balloons, statement stuffers, tent cards, and the like. In the end, it was a "win-win" for our credit unions and for Empire. This type of assistance goes "above and beyond," especially for credit unions that may not have a dedicated marketing staff. Empire is planning to do more of these types of marketing assistance efforts in the future. CU Times: In your eyes, has U.S. Central's role changed much in the last decade? What if anything does your corporate most rely on U.S. Central for? HERBST: Yes.I believe U.S. Central's role has changed. As corporates have grown in varying size and complexity over the last decade or so, the reliance on U.S. Central has varied as well. As a result, a dichotomy of needs have evolved. Some corporates continue to need U.S. Central to provide services in the traditional wholesale format, while others look to U.S. Central to be a front-end provider. Empire looks to U.S. Central as a wholesale provider. We feel its strength is as an aggregator and we continue to rely on them to fulfill that role. As a system, we must continue to aggregate in order to remain competitive given our size in the global financial marketplace. Over the past ten years the role of many system providers has become blurred. We have worked diligently with our system partners (leagues, CUNA Mutual, U.S. Central, etc.) in an attempt to best utilize system resources. WALBY: U.S. Central's overall role has not changed much in the last 10 years. The products and services have evolved, but their role in meeting the needs of members has been consistent. CenCorp primarily uses U.S. Central's investment products. JOHNSON: There will always be a need for U.S. Central. Certainly, they have changed, as all of us still around have changed. That will continue. I just wish we were able to communicate the tremendous value of the system we have built. Last year, U.S. Central moved and settled trillions of dollars of credit union money. WesCorp alone moved $1.9 trillion in 2001. MELCHIONDA: U.S. Central's role has not changed significantly during the past decade. In fact, U.S. Central has been able to maintain the highest senior debt rating in the network. They continue to provide us economies of scale to effectively manage funds/assets, providing benefit to the corporate, and ultimately to its members. BUTKE: In the past few years, U.S. Central has begun to expand their product and service menu to include more offerings for the natural-person credit union. We continue to use them as a source of liquidity, and as an investments provider; however our portfolio managers look at all investment options to get the best rates to pass on to our members. As for non-investment type services, we value U.S. Central as a national settlement provider, but we have become less dependent on them for other services such as CCUN. In 2000, we dropped CCUN and developed our own in-house processing system, adding functionality, while saving our members more than $30,000 per month. This has allowed us to increase value to our members, and reduce fees. KENEALY: U.S. Central is and always has been a trusted provider of wholesale services to corporates. U.S. Central plays a key role in focusing the economies of corporate credit unions in the capital markets. They also play a key role in providing liquidity services to the corporate credit union network. U.S. Central provides viable investment and liquidity options to our corporate. DeGROODT: From our perspective, U.S. Central's role has not changed. We view U.S. Central as our primary business partner and look to them first for most everything we do. We've built our infrastructure around our relationship with U.S. Central. We don't have the expertise, time or the money to create new products and services. We rely on U.S. Central to do that. We can then run "lean" and pass the savings on to our members. Looking at September 2001 data, Missouri Corporate had the highest dividend payout ratio among all corporates, the second highest reserve ratio, the second lowest fee income as a percentage of total income (for non-item processing corporates) and the seventh lowest average monthly operating expenses to net assets (for non-item processing corporates). We couldn't achieve that kind of performance without our strong reliance on U.S. Central. CU Times: With FOM lines blurring, and corporates being more aggressive marketing to CUs outside their primary region, be honest, do corporates cooperate as much today as in the past? WALBY: The level of cooperation amongst corporates has declined in certain regions of the country. Competitive forces are partially responsible. At the same time, corporates are currently involved in a number of joint ventures or marketing agreements with other corporates, contact each other on a regular basis and support the Association of Corporate Credit Unions. Corporates recognize that cooperation is important. JOHNSON: We don't share as much as we once did, but there is still much cooperation and sharing – particularly in certain regions. BUTKE: Corporates cooperate every day, but perhaps not in the same ways as in the past. While we may not share our business plans with one another, we are certainly willing to work together anytime it helps our members. There are many examples of corporate cooperation when it comes to lobbying on behalf of credit union issues, and we continue to push for regulations and legislation that help all credit unions operate effectively. Additionally corporates work together to offer great products and services to all credit unions, not just their own. I'm proud to say that SimpliCD, offered through our CUSO, Primary Financial Company LLC, is a good, if not the best, example of this type of cooperation benefiting all credit union members. SimpliCD, our jumbo certificate of deposit program has been so successful for our members, that now 15 other corporate credit unions offer it to their members. This is the type of cooperation that makes the corporate network unique, and keeps us all relevant to our members. KENEALY: Corporate credit unions cooperate and partner with each other more than ever before – however it is also true that corporates compete with each other more than ever before. Corporates each have strengths and weaknesses, and by cooperating, we are able to offer products to our members that another corporate or partner has strengths in. Examples of successful partnerships among corporates include Corporate Network Brokerage Services (CNBS) and the Network Liquidity Acceptance Corporation (NLAC) – through these partnerships; corporates have been able to deliver high quality brokerage and loan purchase services to our members. The competition issue is a tough one, but I feel that competition is good for our members – it gives them a choice and forces us all to work harder to provide better rates and services. MELCHIONDA: The best example of corporate credit union cooperative efforts is U. S. Central Credit Union. Today U. S. Central Credit Union is bigger, healthier and more vital than ever before. I would say that cooperation among corporate credit unions is alive and well. DeGROODT: No. The question then becomes, "Is that good or bad?" I'd have to say it's bad. It becomes more difficult for us to agree on a common position on new regulations. It becomes more difficult for us to agree on a common position on legislative matters. It puts U.S. Central and the Association of Corporate Credit Unions in a difficult position because they have to try to please members that have competing interests. And, not unlike a poker game, it potentially raises the level of risk in the system. In order to "win the hand" corporates might be tempted to take on more risk to pay higher rates. HERBST: I believe corporates actually cooperate more today than in the past. In general terms, cooperation is alive and well.it may very well be different from the past, but in many ways I believe it's stronger. There are several joint corporate endeavors that illustrate this. For example, Empire teamed with three other corporates (Southwest Corporate, SunCorp, and CenCorp) to develop and launch our e-commerce suite of products. And, there are several other examples out there. Ten years ago these joint strategic endeavors did not exist to the degree we see today. It just makes good sense in large part for economies-of-scale opportunities to combine efforts with other corporates so we can individually offer our respective credit union members the most innovative, quality-driven products at the best possible prices. Yes, corporates do compete. But I believe competition is a good thing within the financial landscape. There is still a strong sense of cooperation among the corporates that is not overshadowed by competition. There is a balance between competition and cooperation. If there is something we can deliver more affordably, and better fulfill our members' needs by joining forces, we will continue to ban together with our members' best interest in mind. CU Times: Does your corporate have a person or committee that is dedicated to looking at what the other corporates are marketing in your market? MELCHIONDA: EasCorp has several individuals whose job responsibilities include monitoring competition, including corporate credit unions and other service providers. WALBY: No JOHNSON: We have for the last few years kept track of how we fit in the overall scheme of things. We need to continue to compare ourselves with others to make sure we are really as good as we think we are. BUTKE: The focus at Corporate One is not just on other corporates, but on the entire financial marketplace. To be a leader in your market, you must be knowledgeable of all of the providers seeking to do business with your members. To do this effectively, market analysis is critical. To make sure we are offering the best mix of products and services to our members, at the most competitive prices, we do have staff resources dedicated to continually analyzing the market. KENEALY: No. DeGROODT: No. We look at other corporate's rates, but we don't try to pay the highest rate in town. We also look at their service offerings and have found that, for the most part, we all offer the same basic services. We are sensitive about our fees and pay attention to the fees other corporates charge. HERBST: Yes. We wouldn't be doing our jobs if we didn't keep track of what is going on in the market with all types of competitors corporates as well as other financial service providers. I believe to serve credit unions effectively, a corporate needs to continually stay on top of what is available to credit unions in the marketplace. CU Times: Why should a CU use their corporate, or corporate's investment CUSO(s) as opposed to a third-party not part of the CU industry? KENEALY: I believe that credit unions should always do what is in the best interest of their members. If a third-party provider provides better service at a better price – shame on us for not being able to compete. Corporate credit unions and their CUSOs are member/owner cooperatives, and by our nature, we should always operate to provide a better service to our members. If we are true to our mission, we will be able to attract our members' business cause we will earn it. WALBY: Corporates offer a competitive array of services that are convenient to use Higher usage results in better returns (higher investment rates or lower fees) to members as a whole. It also often results in patronage dividends and/or higher returns on capital accounts. We saw this in 2001 as several corporates, including CenCorp, paid patronage dividends. JOHNSON: Do what is best for your members. We believe large, sophisticated credit unions are leaving $100 million of investment income on the table by not investing in corporates. We are opposed, however, to the $100,000 investments, which were designed for individuals and not financial institutions. BUTKE: Credit unions have a fiscal responsibility to their members to operate in an efficient and effective way to benefit their members, and I am confident that corporates, and corporate CUSOs, have a place in every credit union's investment portfolios. The business partners you choose for providing investment services should meet several criteria. The investment provider should be safe and sound; provide fair and honest assessments of the opportunity, as well as the risk; be committed to your success; and, be committed not just to the sale but to a long term relationship. What better organization to meet these requirements than your corporate credit union? MELCHIONDA: Credit unions typically favor corporates or CUSO's over a third party not part of the CU industry because we offer contemporary products, superior service, better pricing, and most important of all, an ownership interest in the business. DeGROODT: They own the corporate. If I were a shareholder in a bank or public corporation wouldn't it be to my benefit to purchase products and services from that entity? In addition, we are not solely motivated by profit. Our interest is in the member's well being. Regardless of where they invest their money, I would encourage credit unions to do their due diligence on any corporate or any investment whether they are purchasing the investment through the corporate or some third-party. HERBST: To answer this question, I'd like to draw an analogy: Why would you rent a car to drive to work everyday when you already own a safe, reliable, solid car? What I mean by this is simple.member credit unions own us..they direct us..they control us..it does not make sense when you already own an entity to use one that is outside of this ownership as long as it provides what you need. All corporates are 100% owned by our member credit unions. We always have their best interests in mind in everything we do every day. A third-party firm not part of the industry may very well have stockholders and other stakeholders as their primary interests. Corporates always have the credit unions' best interest in mind.as it should be.</p>