BEAVERTON, Ore. - People inside and outside First Technology CU say that tough Prompt Corrective Action capital requirements may cause one of the fastest growing credit unions to look at changing its charter. During the week of Jan. 31, First Tech board members and executive staff were at what one First Tech executive called "a typical planning session" in California. The executive said the charter issue is sure to arise again, since talk of a charter conversion has come up every year for the past five years. The $700 million credit union is already "managing our balance sheet in a way that allows us to grow our capital" without coming under scrutiny from NCUA regulators, the executive said. The credit union's capital-to-net worth ratio is currently right at or above the limit of 7%. "Heavy hitters will be in the meeting, as well as state regulators, and people from CUNA and NCUA," said another person familiar with the credit union prior to the meeting. Oregon state regulator Richard Nockleby was one of the expected speakers. No decisions have been made yet, and none are in the offing, First Tech's CEO Tom Sargent told Credit Union Times. That's not to say he's not plenty unhappy with early versions of regulations implementing the PCA capital requirements, however. And it's not to say a charter change won't happen in the future. The credit union's management team already has the necessary experience, since they engineered a smooth and quiet conversion from a federal charter to a state charter in 1997. "I said, a year ago, this (PCA capital requirements) will be the biggest credit union issue in the next five years," Sargent said. "For anyone who has sustained heavy growth, the credit union charter is not the most friendly." First Tech certainly fits in the heavy growth category. The credit union's assets have grown more than 20% a year for the past five years, and it has had very good earnings for a long time. The slowest growth rate was 18%, and one big year saw assets increase 34%. In 1994 the credit union had $200 million in assets, today they are more than triple that. Its net worth ratio is 7%, whereas 15 years ago it was 3%. First Tech is just one of many CUs these days with strong opinions on the NCUA's proposed regulation (CU Times, Feb. 16), Sargent noted. There are many technical items in the regulations that could be changed that could impact capital ratios: what is included in the definition, for example, like allowance of loan losses, he said. As Sargent sees it, there aren't many options. "You can slow down growth or try to change the regulation. The question is, how do you best serve your members?" he asked. There is another option, though neither Sargent nor anyone else at First Tech has mentioned it in public. PCA is linked to the idea of protection of the National Credit Union Share Insurance Fund, but a privately-insured, state chartered credit union might not be subject to the NCUA's PCA regulations. So converting from a federal to a state charter, and subsequently from federal to private share insurance would allow First Tech to remain a credit union. In Oct. 1999, CEOs of Oregon's state chartered credit unions listened closely to a presentation by C. Nickolous Damopoulos, vice president of marketing for American Share Insurance of Ohio. At that time, 21 credit unions in the U.S. had converted to private share insurance in the past 18 months, Damopoulos told them (CU Times, Nov. 3, 1999). ASI currently is in discussions with Oregon state regulators about obtaining regulatory approval for offering primary share deposit insurance in Oregon, as well. An ASI subsidiary, Excess Share Insurance has been in Oregon since 1997 supplying share insurance for deposits higher than NCUSIF limits. "We do believe in planning. We constantly evaluate. We have looked at different charters on a regular basis for the past five to seven years," Sargent said. He said he thinks he can work within the proposed regulation. After 33 years in financial services, he is used to regulators and regulations. They don't regulate on a whim, but "I don't care for this regulation," Sargent admitted, referring to PCA. "We're trying to work through the details. I hate to see these very restrictive capital ratios. In the credit union industry, the only way we have to raise capital is through earnings. Most have a one percent return on assets, so it takes seven years to get up there. The logic of this regulation is: stop growing." Credit unions must work with regulators to develop new types of capital, Sargent offered. There will be a time when they won't be growing. He'd like to see more emphasis put on earnings rather than ratios. Of course, if a credit union has bad ratios and bad earnings, then it is clear it has real problems, he noted. Whatever the results in this year's planning session, it's clear First Tech is keeping its options open. -
mcintyre@viclink.com
