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VANCOUVER, Wash. – A slim majority of 414 votes out of the almost 10,000 cast was enough to move the $600 million Columbia Credit Union from being a state chartered credit union to being a state chartered mutual thrift bank. The credit union has 59,000 members. Columbia is the 22nd credit union to have switched to a bank charter outright, nationwide, since 1995 and the third to do so in the state of Washington. An additional six credit unions have merged into mutual or stock issuing banks since 1995. The official charter change will take place on January 1, 2004 and the former credit union will open its doors as Columbia First Bank on January 2. The 52% for and 48% against margin is the closest charter conversion vote on record. It was followed by a two-and-a-half hour meeting that one media source described as raucous and a credit union member described as “contentious at best.” David Doss, CEO of Columbia CU, reported that 4,800 of the members who cast votes had voted for the charter change and 4,400 had voted against. Alan Theriault, CEO of CU Financial Services, a firm which helps credit unions make the charter change, said that the narrow vote margin was “probably too close for comfort” but added that it also served as a testimony to the management of the credit union that there were so many people passionately committed to maintaining the status quo in the institution. “Columbia has a strong record of member service and service to the community and I think you saw that in the numbers of people who were resistant to making the change,” he said, adding “and you only need 50% plus one vote to win.” Post-Vote Arguments Columbia’s leadership appeared sensitive to the allegation from some of their members and several other critics that they had inadequately explained why the board had recommended the charter change. Late on the day of the vote the credit union issued a four-page press release which sought to explain why it had encouraged members to approve the charter change. The credit union waited until after the vote to release the argument, Doss explained, because it believed it had been constrained from offering its fuller perspective on the issue during the voting process. “We had been advised, and chose, to remain very careful about following the regulations regarding what we said about the charter change during the voting period,” Doss said. Doss explained that the board had only recommended the change after evaluating Columbia’s prospects for continuing its strong growth as a credit union in Clark County. Columbia is the second largest financial institution in Clark County, Doss said, and its only rival for the top slot is a bank with a three-county service area. The credit union had grown at 18% per year in recent years, but the prospect for keeping up that strong growth would be hampered by the limitations on capital sources and business loans that came with a credit union charter. But there are indications that the credit union’s business lending scenario might not have been as stark as Doss suggested. Linda Jekel, Director of Credit Unions for Washington State’s Department of Financial Institutions reported that Columbia had applied for an increase in the limit for member business lending to 20% of assets on July 28 of this year and that the Department had granted it on August 28. Such increases are allowed, Jekel explained, because the federal law limiting credit union business lending to 12.25% of assets contains an exception for states whose own laws differ. Under Washington’s statute, Jekel added, credit unions are permitted to make member business loans, with the Department’s permission for up to three times their net worth and she said that two other credit unions, the $288 million Global credit union, based in Spokane, and the $8 million WCLA credit union, based in Olympia, currently work under such permissions. Colleen Boccia, Vice President of Marketing for Columbia, acknowledged that the credit union had received the increase to 20% but said that the credit union had deemed that still too low. Doss argued that the Columbia leadership had done its best to evaluate the decisions looming before the institution. Doss pointed out that in March 2003 the credit union had invited credit union experts and executives, including CUNA Chief Economist Bill Hampel and John Annaloro, CEO of the Washington Credit Union League, to address its board with their opinions. Doss’ explanation came on the heels of its press release, wherein the credit union said that meeting with the credit union leaders was part of a “rigorous assessment of national and state trends relative to regulatory and other competitive risks.” But Hampel was disappointed that Columbia cited his input, saying that the press release quote could be inferred as his agreeing with the credit union’s charter change, which he does not. Hampel particularly recalled focusing on what he said would be the imbalance the credit union would face between being able to make more commercial loans on the one hand and facing a higher tax burden from the charter change. “Essentially, they ignored my advice,” Hampel said. Annaloro said that he had not argued against the charter change at the meeting because he believed in the principle that a credit union should be able to decide its own business course. He said his personal view was that communities “did not need one more bank” but that the credit union had a right to make its own business decisions even while he believed Washington’s credit union charter was one of the most progressive in the country. He added that one factor behind the number of recent conversions in Washington may be the number of consultants seeking to make the case for conversion to the state’s credit unions. He also pointed out that Washington was also relatively well served by banks and that the state’s credit unions might feel more competitive pressure in Washington than in other states. In addition to the meeting with credit union authorities, Doss also pointed out that when he participated in CUNA’s Governmental Affairs Conference in Washington he had also met with NCUA Board members about the limitations in the credit union’s charter, particularly on the issues of commercial lending and access to additional sources of capital. “When they really couldn’t offer any hope for change in this situation in the near future,” Doss said, “we really had to question what our best future growth options would be.” Raucous Meeting Debated the Move Members and observers described the meeting at which Columbia members were charged with debating and voting on the proposed change as “raucous,” “a sham,” “an empty proceeding,” and “very contentious.” Columbia reported that 180 members had attended the meeting which, as several critics pointed out, had been scheduled for 10:00 AM on a Monday morning, when most members could not have attended. This is almost 10 times the number of members that had attended annual meetings in the past, according to Michelle Brammer, a spokeswoman for the credit union. Of those members who did attend the meeting, about 20 took the floor to speak, Doss reported. Three of those members stood and argued passionately in favor of the change, he said, while 17 stood up to “vent.” “I had come to the meeting prepared to answer what I thought would be a lot of questions,” Doss said, “but then when the speakers got up to speak they didn’t have a lot of questions, it was mostly venting.” But Larry Hoff, CEO of the $570 million Fibre Federal Credit Union, headquartered in Longview, Washington, disputed Doss’ characterization. “There was more than just venting going on,” Hoff said. “These people were emotional, but they were making logical arguments in favor of keeping their institution,” he said. Hoff added that several attempts to make motions had been ruled out of order “and probably should have been” but he said the rulings might have fed the impression that the meeting’s end had been preordained. That was the impression of Thomas Matica, a retired member of the credit union who described himself as a refugee from bad experiences at banks. “The meeting was a sham,” he said. “They already knew the outcome they wanted and they got it.” Matica said the people making the arguments against the move had pointed out that the credit union’s disclosures had been biased entirely in favor of the change, even as they complied with NCUA’s disclosure regulations. “The message on the disclosures was vote yes from the beginning,” Matica said. “How about someone helping credit union members evaluate the reasons not to change?” Matica said his experience with banks had made him emotionally involved in the issue and that he had already moved his savings to another credit union, the $113 million People’s Community Credit Union, which is also based in Vancouver and is closer to his house. “It’s a nice enough credit union,” he said, “and I like it, but what’s to say they are not going to do the same thing?” There are indications as well that the new bank might face some institutional disinvestment. Lloyd Marbett, a community activist in the Portland, Oregon area was one of the people at the meeting. Marbett said he and the Oregon Conservancy Foundation, of which he is executive director, had both put money in the credit union in June because they were seeking an alternative to banks. Now he planned to take his money out of the credit union and expected that the Foundation Board would take the Foundation’s money out as well. Marbett would not specify how much money was involved, but said that “it was enough to be significant to that bank.” It is unclear whether the close vote at Columbia will have any lasting impact on future conversion votes, according to Theriault and other conversion consultants. Theriault noted that Columbia’s situation and placement in its particular community had some unique elements that other credit union’s contemplating starting the conversion process might not share. But he did admit that the closeness of the vote signaled that credit unions contemplating a charter conversion needed to keep doing “heavy lifting” of keeping their members informed and aware of what the credit union was trying to do and why. He also noted that, contrary to NCUA Board Member Dennis Dollar’s concerns, the close vote suggested that members did read the conversion disclosures and mailings and that further regulation would not be needed. Gary Lax, partner in Jenkens & Gilchrist, a nationwide full service law firm which has helped credit unions make the charter conversion, agreed that communication with members is key and challenged some of the critics’ suggestion that more time was needed in the process. Lax pointed out that in other institutional votes that use proxies a stockholder or other voter could vote their proxy and then revoke their vote and vote differently at a later meeting, giving them in effect two chances to weigh in on an issue. But credit union members whose credit unions are contemplating charter change get three chances to vote by proxy and one additional chance to vote at the meeting. “Credit union members get four bites at the apple already,” he said, “at a great deal of expense to the credit union.” -

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