I have opted to offer an opinion on the recent announcement of impending conversion of First Technology from a credit union into a mutual. I offer the unique perspective of having gone through such a conversion in 2000. I am the chief operating officer of Atlantic Coast Bank and the former president/CEO of Atlantic Coast Federal Credit Union. I will retire from Atlantic Coast Bank in early 2012, having spent approximately 11 years in banking and 21 years in the credit union world.
Every institution has the right to determine its own destiny. Simply put, I would like to try and address my experience with the conversion process.
Similar to statements that I have read from First Technology, we converted charters for valid business reasons. In our case, we were a rural railroad credit union that had grown from approximately $34 million to $330 million via mergers with failing credit unions in different geographical areas. In our opinion, to make those mergers successful we needed to grow in those new markets. In most cases the sponsor had gone out of business and a community charter seemed like a logical step.
However, because of the fact that we were in different geographical locations, the NCUA repeatedly denied us a community charter. Thus, a charter change seemed like a solid business decision. I remember making the statement that a charter was no more than a license to operate. It was just a business license. Or was it more than that?
My goal was to run a banking institution like a credit union. We had every intention to remain member centric. I had never even worked in a bank. Wasn’t treating the members and employees like family the logical way to run the business?
When you first convert, your new regulator treats you as a new charter. So, the first thing we noticed was, even though we had been in business since 1939, we were under a much higher level of scrutiny from our new regulator. Significantly growing a new product line even in the go-go days of 2000 was not something our new regulator would allow. Whatever regulatory advantage we thought rationalized our decision to convert from a credit union was quickly lost. In other words we gave up more than we gained.
The manner in which a true mutual and a credit union operate is not that significantly different. But soon, the capital market guys will be at your door. The next step is a mutual holding company in which you form a holding company and can offer minority shares to the public. The justification of course is that it added capital to the balance sheet and you can grow. In our particular case, we were asked by the new regulator to diversify our board of directors prior to our conversion into a mutual holding company. Eventually, this diversification became more pronounced and fewer and fewer directors had a credit union background.
As we grew into new product lines, we added more sophisticated employees. These new employees did not have the linkage to the credit union world that many of us had. They were good people, smart people. They just entered the financial services arena from a different place. Over time, we employed more and more people who had never worked for the company when it was a credit union. Looking back, some of these new employees with no credit union background questioned why we treated the customer, irrespective of their individual financial situation, with such regard.
I think both bankers and credit union people can agree that there will always be regulators who make regulations. At different junctures, one regulator may appear, and may, in fact, be preferable to the other. The inequities will eventually balance out. In fact, I would argue, because credit union members respond to the need for political action in support of their credit union much better than do bank customers, credit unions are much more likely to be able to influence positive regulatory change.
Banks are not inherently bad. However, there is something inherently good in credit unions. Maybe it is their simplicity in that the goal of the member is so closely aligned with that of the organization. Maybe it is the absence of outside stakeholders. Maybe it has something to do with the type of employee who is drawn to work in a credit union. In all honestly, it is a combination of these things.
One can discuss and perhaps correctly assess the justifiable business reasons to convert from a credit union to a banking institution. However, something very real will happen to the converted institution over time. It will cease to be a credit union and as obvious as that sounds. It bears repeating. It will cease to be a credit union.
Robert J. Larison Jr.
Chief Operating Officer
Atlantic Coast Bank