The $1.4 billion Alloya Corporate FCU's net income of nearly $6 million as of Dec. 31, 2012 is more than twice what the Warrenville, Ill.-based institution projected. How did President/CEO Chuck Furbee and his team do it in an era of low investment rates and little loan demand?
"We adjusted things on the fly," Furbee told Credit Union Times. "Some parts of the operation weren't very efficient, and weren't contributing to income so we changed that."
Alloya's reduction in members during 2011, as it rose from the ashes of Members United Bridge FCU and was left only with members willing to recapitalize, make comparisons of 2012 and 2011 difficult. The corporate once counted 1,800 members, and now has around 1,000, Furbee said.
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The difference is apparent in the balance sheet, especially in interest expense: 2012 required only $4.5 million worth of dividends payouts, compared to $28 million in 2011.
"We maintained our dividend rates, but we had fewer people to pay out," Furbee said.
That successfully balanced a big reduction in investment income, which fell drastically to $6.5 million as of year-end 2012, down from nearly $40 million the year before. Furbee said the decrease was caused by legacy asset investments and their higher earning yields being removed from the books as Alloya emerged from conservatorship.
Another key strategy was outsourcing to vendors. Alloya tapped VSoft to take over its item processing and WorkNet to provide IT services to the corporate and its members. Outsourcing helped reduced Alloya's salary and benefit costs from $24.7 million in 2011 to a little less than $17 million in 2012. Twenty-one employees were transferred from Alloya to VSoft, Furbee said. Additionally, Alloya reduced its workforce through attrition and eliminated a couple of positions.
Much of the income windfall went into capital. Alloya reported a 1.7% retained earnings ratio, far higher than NCUA requirements. Nearly $26 million worth of retained earnings combined with nearly $70 million in perpetual contributed capital and some nonperpetual capital leaves Alloya with nearly $103 million in total capital to cushion $1.5 billion in moving daily average net assets. Alloya's capital ratio of 6.8% exceeds the NCUA's 4.0% requirement, and its 28.7% total risk-based capital ratio blows the NCUA's 8.0% requirement out of the water.
Furbee said Alloya's merger with the $1.5 billion Central Corporate CU of Southfield, Mich., is still proceeding as planned despite being announced 10 months ago. Furbee said he expects the the NCUA will approve it, possibly in this quarter. Upon approval and a successful vote by CenCorp members, Furbee said he will return to retirement, and CenCorp President/CEO Bill Walby will lead the merged entity.
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