Constitution Corporate Federal Credit Union Membership Capital Impairment

September 2009

 

 

Dear Members,

 

There is little doubt that the subprime lending crisis compounded by the worst economic conditions since the great depression provoked hardships and even failure on many financial institutions in 2008.  While the economy imposed no meaningful hardship on Hartford Federal Credit Union (HFCU), impairment of a capital investment in a corporate credit union was recognized.  During 2008, Hartford Federal Credit Union had to write-off its capital investment in Constitution Corporate Federal Credit Union (CCFCU).  CCFCU is a cooperative wholesale institution that provides its member credit unions with investment, liquidity, item processing, and other credit union related operational services.  Along with the vast majority of Connecticut credit unions, HFCU had a capital investment/ownership stake in CCFCU.  The write-off of our $745,000 capital investment caused HFCU to sustain a loss for 2008.  Accordingly, unaudited net income of $333,000 reported at the 2008 annual meeting was revised to reflect the write-off and resulted in a net loss of $412,000 for the year, only our second loss in almost five decades.

 

CCFCU invested member credit union deposits in both mortgage-backed securities and collateralized mortgage obligations (CMOs).  At the time of investment, all of the securities were of investment grade and considered to be high quality investments.  Because of the extraordinary turbulent subprime financial markets, CCFCU, like most other corporate credit unions, was compelled to realize substantial losses on various investments.  These losses have impaired our member capital investment and in accordance with Generally Accepted Accounting Principals, we wrote it off.

 

While I recognize the write-off was considerable, HFCU is able to absorb it without any regulatory, operational, or service implications.  In other words it will be seamless to you.  HFCU’s members’ equity (capital), which serves as a cushion against potential losses remains exceptionally strong.  Our members’ equity at December 31, 2008 was $9.8 million or 14.7 percent of assets.  This remains more than double our federal regulator’s measure of 7 percent to be classified a well capitalized credit union. 

 

I would also like to note that, as a result of our strong members’ equity position along with high quality loan and investment portfolios, BauerFinancial awarded HFCU a 5-Star Superior Rating for 2008.  This is the seventeenth consecutive year HFCU has received a superior rating from BauerFinancial, putting us in an elite group of credit unions nationally.

 

Should you have any further questions, kindly contact me at 860.527.6663, extension 200 or edanek@hartfordfcu.com.

 

Thank you for your continued support.

 

Very truly yours,

Edward P. Danek, Jr.

President/CEO