March 21,2009

Dear Members,

You may have heard that the National Credit Union Administration (NCUA) put two corporate credit unions under conservatorship on Friday, March 20.  What does this mean and how will it affect MCU?

Corporate credit unions provide liquidity, investments, a lending vehicle and back office support for transaction processing for credit unions.  In essence, they are the credit union's credit union.  

MCU is a member of Constitution Corporate Federal Credit Union in Wallingford, CT.  In turn, Constitution is a member of US Central Corporate Credit Union along with 27 other corporates across the country.

US Central and Wescorp Credit Union, which serves the state of California, were taken into conservatorship because they have a high concentration in US mortgage backed securities.  When the corporates purchased these securities, they were highly rated investments approved the regulator, the NCUA.  Due to the economy, the subprime market, declining real estate values and GAAP (generally accepted accounting principles) mark to market requirements, the securities have declined so much in value that these corporates are showing a greater loss than they have capital to support.  To date, tmost of the losses are paper losses and not realized losses.  If the securities lose all of their value or the corporates are forced to sell them because they don't have enough liquidity to operate, they will become insolvent and not able to meet their obligations.  As of now they are technically insolvent.

Because of our cooperative structure, the credit union movement has always taken care of our own problems and never asked the US government for a "bailout".  NCUSIF, our insurance fund, has always been stronger than the FDIC Insurance Fund, and a source of pride to credit unions.  As strong as it is, this problem is too large for our current funding. 

Every federally insured credit union will be required to pay a special premium in 2009 that will equal .99% of their insured shares.  For MCU that will equal an additional one time expense of approximately $216,000.  As a result, it is very unlikely that we will have a profitable year in 2009.

Is it fair?  Probably not.  Will it make things more difficult for MCU?  Of course, this is an expense that none of us anticipated.  Will we be able to overcome this financial blow?  YES!  MCU has a strong capital base, and will be able to absorb this loss and survive this difficult economy.  We have a great, committed  Board of Directors who are dedicated to representing you, our members.  We have a caring staff that is proud to work at a credit union - our credit union - a financial cooperative owned by our members.  In our 74 years of operation we have been through difficult times before and I am confident that we will make it through this one as well.

Remember, your deposits are secure in MCU and your accounts are insured to $250,000 by the National Credit Union Share Insurance Fund.  It is also important for you to know that MCU only invests in loans back to our members and 100% insured investments.  We never made or invested in subprime mortgages.

Thank you, as always, for your ongoing loyalty and support.  We exist solely to serve you.

Sincerely,

Kathy L. Chartier
President/CEO