Two Credit Unions Issue $40 Million in Subordinated Debt

Credit unions from Minneapolis and Wyoming filed the New Year’s first credit union subordinated debt issues with the SEC this week, bolstering their capital by $40 million and expanding their ability to serve members.

A filing with the SEC Wednesday showed Blue Federal Credit Union of Cheyenne, Wyo., sold all of a $15 million offering.

A filing Tuesday by TruStone Financial Credit Union of Plymouth, Minn., 12 miles west of Minneapolis, showed it sold $25 million of a $30 million offering. Both credit unions began selling their notes Dec. 21.

SEC documents showed nine other credit unions filed offering documents in 2023, selling $338.5 million in subordinated debt out of offerings of $380 million. Sales commissions were estimated at $3.8 million.

The Luse Gorman law firm of Washington, D.C., served as legal counsel to Blue in the offering, and has represented several other credit unions in similar deals. It has said NCUA rules that went into effect in January 2022 have expanded credit union access to regulatory capital by permitting credit unions with at least $500 million in assets and new credit unions to issue subordinated debt.

The NCUA had already allowed low-income designated credit unions, regardless of their asset size, to issue subordinated debt.

That was the case with Blu, Wyoming’s largest credit union with $1.9 billion in assets and 120,472 members as of Sept. 30.

CFO Neal Weber said the credit union received approval for its first subordinated debt issue about a year ago so that it could improve its branch network, upgrade its technologies and invest in the research and development needed to serve members better with new types of loans and other products.

“Those are always big investments, but they’re also big for the communities that we’re in and big for the members that we’re trying to serve,” Weber said.

“Capital is really important to that, of course,” he said. “In the credit union industry, it’s always been a little bit more challenging” because credit unions had to rely exclusively on earnings before they were allowed to tap secondary capital.

TruStone’s notes were sold to 13 investors in minimum allotments of $100,000. The filing said no dealers were involved. Estimated sales commissions were $375,000.

NCUA data showed TruStone Financial ($4.8 billion, 213,000 members) had had a net worth-to-assets ratio of 10.18% on Sept. 30, 2023. If the subordinated debt had been on the books as of Sept. 30, its net worth ratio would have risen to 10.70%.

NCUA data showed Blue had a net worth ratio of 8.09% on Sept. 30, 2023. If the subordinated debt had been on the books as of Sept. 30, its net worth ratio would have risen to 8.88%.

Blue’s notes were sold to seven investors in minimum allotments of $100,000 in in Colorado, Idaho, Illinois, Indiana, Massachusetts, Michigan, New York, Ohio and Wyoming.

Alloya Corporate Federal Credit Union of Naperville, Ill., and its CUSO, CU Investment Solutions LLC, were broker-dealers for Blue’s issue. Estimated commissions were $150.000.

Blue filed its deal the same day that it announced that the NCUA had approved its acquisition of Aventa Credit Union of Colorado Springs, Colo. ($291.2 million, 35,353 members) through a merger, which it hopes to complete later this year. Aventa members vote on the proposal in February.

Weber said plans for the subordinated debt issue preceded the possibility of a merger with Aventa.

NCUA data showed Blue earned $4.6 million in the nine months ending Sept. 30, or an annualized 0.33% of its average assets, down from 0.69% ROA a year earlier.

Aventa lost $551,989 in the first nine months of 2023, or -0.25% ROA, down from a positive 0.29% ROA a year earlier.

Had Blue acquired Aventa on Sept. 30, the combined ROA would have been 0.25%, down from 0.60% a year earlier.

Weber said the past year has been difficult for many credit unions, but the conditions seem to be improving.

“We’re starting to see a little bit of core deposit growth, which hasn’t really been the case for some time,” he said. “It’s mostly been growth in term shares, so that’s a really positive indication.”

Meanwhile, the Fed has indicated it plans to begin cutting rates this year.

“That will be a good thing for members because they potentially won’t have to pay as much for loans,” he said. “And I think that’s going to open some things up for many members.”

CU Times has reported previously on only two of last year’s subordinated deals. The following nine deals were filed with the SEC in 2023, although sales began earlier for one:

• Credit Union 1 of Rantoul, Ill., 123 miles south of Chicago and 16 miles north of Champaign ($1.6 billion, 101,654 members) sold $10.5 million of a $30 million offering with sales beginning Jan. 30, 2023. Estimated commissions were $900,000.
• Encurage Financial Network Credit Union of Chicago ($221.6 million, 11,321 members) sold $3 million of a $6 million offering with sales beginning June 30, 2023. Estimated commissions were $42,500.
• Georgia United Credit Union of Duluth, Ga. ($2.1 billion, 149,872 members) sold $8 million of a $20 million offering with sales beginning Dec. 29, 2022. Estimated commissions were $80,000.
• Global Federal Credit Union (formerly Alaska USA) of Anchorage ($11.8 billion, 753,791 members) sold all of a $110 million offering with sales beginning March 23, 2023. Estimated commissions were $1.4 million.
• GreenState Credit Union of North Liberty, Iowa ($11.2 billion, 447,703 members) sold all of a $100 million offering with sales beginning Feb. 2, 2023. It listed no estimated commissions.
• Idaho Central Credit Union of Chubbuck, Idaho ($10.7 billion, 597,973 members) sold all of an $80 million offering with sales beginning Nov. 7, 2023. Estimated commissions were $1 million.
• Notre Dame Federal Credit Union of Notre Dame, Ind. ($1.1 billion, 63,835 members) sold $16.5 million of an $18 million offering with sales beginning Feb. 28, 2023. Estimated commissions were $360,000.
• University of Illinois Community Credit Union of Champaign ($651.4 million, 61,588 members) sold $3 million of a $6 million offering with sales beginning Dec. 27, 2022. Estimated commissions were $95,000.
• Water & Power Community Credit Union of Los Angeles ($951.1 million, 44,583 members) sold $7.5 million of a $10 million offering with sales beginning Nov. 29, 2023. It listed no estimated commissions.