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I admit it. I am probably one of the most skeptical and suspicious persons out there when it comes to a credit union converting to a bank. It’s probably not a good thing, but every time I hear of one of these conversions, the first thing that pops in my mind is dollar signs – big dollars for the board and management. I don’t know, but the idea of a small, select group benefiting far more than the credit union’s membership bothers me. Yes, members can buy shares at the best price if the credit union-turned bank goes public, but that usually winds up benefiting those who can afford it -another small, select group. Maybe I’m too judgmental on this topic. Former Community Credit Union CEO (now ViewPoint Bank CEO) Gary Base added to my guilt on this character flaw of mine. He recently scolded me on my views on his CU’s charter change, telling me I shouldn’t pass judgment on his CU’s actions as I don’t know all the facts surrounding it. How dare I offer my opinion on a major news story in the credit union industry? Sorry Gary, I want to apologize. This is clearly a column where I voice my opinion, but yes your former credit union should be off limits. Your outfit should not be held up for any public scrutiny, how dare I? It won’t happen again. I do have a sneaking suspicion however a stock conversion will come and it will be good for a small, select group. And oh by the way, you have an open invitation to provide your side of things in a letter to the editor that I will gladly leave unedited so what you described as our “biased” publication leaves your views untainted. Biased? Isn’t this the same publication that runs letters from conversion proponents Marvin Umholtz and Alan Theriault. You should see the e-mails I get on that Gary, calling us “biased” on the other side of the fence. Let’s move away from that very off-limits story, and on to DFCU Financial in Michigan, a $1.8 billion credit union that has announced plans to convert. Let’s take any bias out of this and look at some numbers, as well as the reasons the CU itself cites for converting. With 12% capital and very low delinquency (0.14%) and charge-off (0.29%) ratios, we’re clearly talking about a healthy, well-capitalized credit union. It’s a credit union that is making money. Its Return on Average Assets is 1.93%, very nice thank you. It’s an efficient credit union. Its Net Operating Expenses to Average Assets ratio is 1.65%, a solid number compared to the 2.20% of its peer group. DFCU Financial is an efficient credit union even though it employs about 60 people more than its peer group and pays them roughly $7,500 more on average than its peers. Kudos to them. They are a solid employer, providing employees with above-average wages. America needs more of that. So far this looks like a pretty healthy, happy credit union, but it’s not all good. This credit union is not a high-flier when it comes to lending. Its loan growth is just over 5%, compared to nearly 12% for its peer group, and its asset growth is approximately 5.5%, compared to almost 9% for its peer group. While it is clearly a solid, well-run credit union, it’s certainly not the fastest growing. We have some statistical basis for a conversion if you want to talk growth, though I think there are many options other than conversion. Expand the charter to serve more consumers through a community charter. Explore business lending, an area many credit unions are getting into to stave off what they see as shrinking consumer business in coming years. DFCU Financial is not in business lending at all at this point. There are many others. Is the new litmus test for conversion going to be when a credit union isn’t at the top of its peer group in all areas? I hope not. In its application for FDIC insurance, the CU cited the following reasons for conversion: lower capital requirements it would enjoy as a bank, ability to serve the broader public, the potential for taxation (as a large credit union), and concern about its ability to meet the future needs of its members in the “economically challenged and low growth Metropolitan Detroit market.” Hold the phone. Here’s where you throw some of the statistics out. Potential for being taxed? That’s not a reason or even an excuse, that’s something from the land of make believe. The taxation issue has been around forever and while bankers have made strides politically, this is certainly not an imminent threat. DFCU Financial needs to check out the power of the credit union lobby. As for lower capital requirements, that’s whacky. The CU could drop its capital by about 4% and still be out of reach of PCA. That’s room for a few new branches and some investment in business lending. Its desire to serve the “broader pubic” could be wiped away with a charter change or mergers with other credit unions. Maybe the worst one is its complaint about the economically challenged Metropolitan Detroit market. Again, it can clearly add more areas if it wanted, but is having to serve an economically challenged a reason to change charters? That sounds like a bank talking. Credit unions can’t walk away from economically challenged areas, they should be there to help serve those in that market. You tell me, do the numbers and DFCU’s stated reasons tell the whole story? Comments? E-mail [email protected]

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