Two Years In, CUSO Partners LLC Ready to Help More CUs Participate in Bond Market

LITTLE ROCK, Ark. – More than two years ago, Henry Blevins’ discussions with several colleagues on why some credit unions were, in his words, choosing to “throw money away” by not participating in the bond market triggered, a template to fill that void. Those discussions led to the formation of CUSO Partners, LLC, (CPLLC) a credit union-owned securities broker/dealer, in October 2001, said Blevins. CPLLC aligns with credit unions to provide pre-approved securities brokerage services and offers them an opportunity to purchase a stake in the company with the aim of generating revenues from security transactions. “It creates a level playing field. The long range picture of any credit union is to improve the bottom line,” Blevins said. “Any measure that will give a credit union a sizeable advantage to their portfolio will be appreciated by the board members.” The founding members of the company are Langley Federal Credit Union, ABNB Federal Credit Union, Newport News Shipbuilding Federal Credit Union, APCO Employees Credit Union, America’s First Federal Credit Union, Andrews Federal Credit Union and Virginia Credit Union, Inc. Last year, CPLLC paid out more than $525,000 in dividends to its members. At its annual meeting in October, the founders reported that the company had garnered 55% and 100% returns on invested capital, respectively over the past two years. The company has $27 billion in assets under management. Company officials deliberately chose to keep their operations secretive the first year to iron out the kinks and test a model that regulators had not seen before and convince them that such an operation would be legal for the credit union industry, said Greg Manweiler, chairman of CPLLC and senior vice president/CFO of Langley Federal Credit Union in Hampton, Va. “The most complex part of starting was going through the legal ramifications,” Manweiler said. “The regulators wanted to make sure that this type of operation would work in house. There isn’t a model to compare to so I would say the legal aspects of it all was the biggest hurdle.” CPLLC has developed an M class category for credit unions with assets between $50 million to $250 million and an L class category for those with more than $250 million in assets. Manweiler said the biggest difference between the two classes is that the L class shares more of the company’s overhead expenses including trade shows and marketing materials and thus, receive a higher payout. The M class receives a 35% payout. VyStar Credit Union in Jacksonville, Fla. did its due diligence before partnering with CPLLC in March, including talking with other credit unions that had existing relationships, said Scott Mainwaring, VyStar’s executive vice president/CFO. “We had a lot of questions on the legal front,” Mainwaring said. “We wanted to be sure that we had an understanding of their resources and the executions for various trades.” Mainwaring said credit union executives were not too crazy about the idea of someone else reaping the benefits of VyStar’s bond purchases and that was part of the motivation for moving forward with CPLLC. VyStar’s own certified public accounting firm and NCUA regulators reviewed the credit union’s alliance with CUSO Partners, including partnership documents, clearing statements, trade confirmations and accounting entries and “no deficiencies were noted,” Mainwaring said. In addition to VyStar, Navy Federal Credit Union, First Entertainment Credit Union and Peoples Advantage Federal Credit Union are also managing members. A bull market for bonds and calls coming due could make for another banner year for return on capital and higher dividends for the two-year old company, said Bob Warren, CFO of Virginia Credit Union Inc, one of CPLLC’s founding members. “The first year we wanted to get comfortable with secondary and market trades,” Warren said. “We’ve accomplished that and are prepared for the abundance of bond business to be had.” Warren projects a $1 million dividend payout in 2004 by keeping its expenses low and relying on word of mouth particularly in the CFO community rather than an over-the-top marketing blitz, he said, adding that CPLLC will explore more extensive advertising down the road. [email protected]