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PLANO, Texas. – The $1.4 billion Community Credit Union’s possible shift to a mutual bank charter has entered a quiet period. The NCUA has not yet approved the credit union’s disclosure statements and the credit union has pledged to remain mum until that happens. But just because Community has decided not to talk about its possible charter change, that doesn’t mean it hasn’t cropped up in a lot of other Texas credit union conversations and strained many of the industry’s long standing relationships. “I think Gary Base is looking to get rich off of this,” said Hank Klein, CEO of the $397 million Arkansas FCU, headquartered in Jacksonville, Arkansas. “Gary Base is a fellow Arkansan and we go back a long ways,” Klein said. “But I believe he has seen an opportunity to cash in and is trying to take it,” Klein added. Klein pointed out that “rarely if ever” do credit union members start the moves to become mutual banks themselves, but the efforts start with credit union management many of whose members, if not all, stand to do very well if the credit union becomes a mutual bank and then decides to issue stock. To forestall such a move at Arkansas Federal, Klein and the board have sought to adopt a so-called “poison pill” amendment into the credit union’s bylaws that would make it difficult for the CU to become a bank in the future. Modeled on a previous move by the Washington State Employees Credit Union, headquartered in Olympia, the amendment would require a high percentage of credit union members to vote in favor of a charter change to a mutual bank in order for the proposal to pass. It would also state that Arkansas FCU intends to remain a credit union “in perpetuity.” A bylaws amendment would put the current credit union on the record about its intent but still leave future boards free to take a different course, albeit with more difficulty to change the amendment said Klein, who retires on June 30 of this year. “We also wanted to maybe make a future CEO pause when they got these come-on letters from lawyers about coming to this seminar or that meeting about how they can get rich from cashing in,” he added. “The CEO can say, `hey, it’s in our bylaws.’” The amendment needs the approval of NCUA and Klein said he has sent it on to the agency’s Region III office, which is evaluating it. In the past NCUA has been doubtful about approving any amendment that would seem to restrict credit union members’ ability to vote on an issue. But Klein pointed out that the Arkansas amendment would actually require more credit union members to vote, and not block any. What Will The League Do? Community’s possible move also caused conversations at the League level last week. Texas Credit Union League President Dick Ensweiler, who also serves as CUNA’s current chairman, acknowledged hearing from both League members who want the League to help Community members understand the stakes in the coming charter balloting and from League members who believe the should stay out of the decision. Ensweiler likened the controversy to other charter innovations in the past, such as when NCUA began to grant large community charters. “People called the League then asking that we do something about it,” he said. “Mostly because the change was new.” The League has formed a nine-member task force which is charged with making a recommendation about the League’s course of action. The task force met for the first time on February 2 and Ensweiler reported that it went well, with task force members laying out the issues and absorbing a lot of information. The task force also set a schedule which should see it produce a recommendation in time for the League’s next board meeting in March, Ensweiler said. Many suggest that the League follow the example of the Michigan Credit Union League which published a Web site to inform members of the sides of the charter change question that it believed the $1 billion Lake Michigan Credit Union had overlooked in its bid to change charters in 2004. The League then took out advertisements in the local press to inform members about the site. The relative size and expense of the media markets might prove a disincentive to this approach. Advertising space in Dallas would be a good deal more expensive than in Grand Rapids Michigan, where the Michigan League took out ads. Ensweiler, who acknowledged that he has been a member of Community for nine years, reiterated his disappointment with the credit union’s decision not to remain with the credit union charter and will bring up his opposition at the special meeting called to decide the matter. Shared Branching Dilemma Some credit unions have also begun to express consternation with the notion that, should it become a bank, Community could potentially remain in the League’s shared branching network, as it has already expressed interest in doing so. The Texas Credit Union Service Center network, wholly owned by the League and as a member of the national Credit Union Service Center network, would represent the first of CUSC’s credit unions to make the jump. “Our position is that we will respect whatever the local credit union shared branching members want to do,” said Craig Beach, vice president for marketing for the Atlanta based network. “If they want a former credit union that has become a bank to remain a member, they will remain a member.” Community has been a member of the Texas Credit Union Service Center network for about three years and has 31 of its branches participating, explained Mark Chatfield, chief business officer for the TCUL. The credit union has a significant presence in the network bringing in, by one estimate, more than $170,000. Chatfield said that the network is aware of the possible conversion but has decided to make no decision about Community’s future participation until after it becomes clear that the credit union has changed its charter. He also pointed out that other credit unions, particularly on the West Coast, had become banks and remained part of their shared branching networks without ill effects. But one Texas credit union CEO who declined to speak for the record, snorted when he heard of Chatfield’s response. “It’s just wrong,” the CEO said, “there really isn’t any other word for it, it’s just flat out wrong.” The CEO pointed out that, unlike the other credit unions that had remained linked to the shared branching network when they became banks, Community is part of a network that is wholly-owned by a League. “It was our money that went into that network and now they want a bank to keep using a resource which was built by credit unions for credit unions. They spend thousands of dollars trying to drive us out of business and now, just because this guy used to be a credit union, they want to leave him in? A bank is a bank is a bank.” The CEO suggested that the estimated $170,000 plus that Community brings in had blinded the network’s leadership to the obvious conflict of interest that such a membership would represent, a point echoed by a Texas banking official as well. “We really don’t have any position on the shared branching question,” said Stephen Scurlock, an executive vice president with the Independent Bankers Association of Texas, though he acknowledged that such an arrangement would give Community a significant competitive advantage over other local banks. “I just find it hard to believe that the credit union shared branching network would be interested in this,” he noted. “I can imagine there would be all sorts of anti-trust issues. I mean if you let one bank in, why not let others in as well?” -

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