ARLINGTON, Va. — Even though it started with a bang, credit unions converting to bank charters ended 2008 with a whimper.
The year got underway with a report from the Aite Group that 33% of credit unions it surveyed said they planned to convert to a mutual bank charter.
The group only asked one question related to conversions: whether their CUs planned to convert to mutual banks. Fully 33% responded in the affirmative, a number significantly higher than any previously published estimate of the actual interest in charter change among CUs.
Christine Barry, research director for Aite, conducted the surveys and a spokesman for Aite said the question was specifically about whether the CUs were planning a charter change. Patrick Kilhaney, spokesman for Aite, further explained that the study results were gathered through interviews and that there may have been dialogue about the question.
But if one-third of credit unions surveyed expressed an interest to move to a bank charter eventually, the number that actually started or finished the process dropped to a mere trickle over the course of the year.
As of press time only two credit unions-the $190 million Beehive Credit Union, headquartered in Salt Lake City and the $107 million First Priority Credit Union, headquartered in East Boston, Mass.-are currently working toward converting to a federal thrift charter, according to the Office of Thrift Supervision. Additionally, the $279 million Coastway Credit Union, headquartered in Cranston, R.I., is in the process of converting to state mutual bank charter.
A fourth CU, the $51 million KV Federal Credit Union, has also initiated a process to change charters via merger with Kennebec Savings Bank.
The only credit union to complete a conversion this year was the $95 million Northeast Community Credit Union, headquartered in Haverhill, Mass. Like KV, Northeast Community sought to convert its charter in order to merge with a mutual bank, the CU said, to make sure that Haverhill would continue to have local financial services options.
Northeast members approved the conversion and merger, as did the NCUA and Massachusetts Division of Banks. The CU has said that the merger will be completed by the end of the December, and the new bank will begin offering services in January.
The year was not without its failed conversion attempts as well. The $139 million First Basin Credit Union, headquartered in Odessa, Texas, announced that it was seeking to convert its charter at roughly the same time Beehive did, but the credit union withdrew its application citing a campaign of misinformation by conversion opponents.
In a growing trend following the failed Lafayette FCU conversion in 2007, First Basin sued some of the members who opposed the conversion and some of those members countersued. The matter is still before the courts though each side has deposed the other.
The First Basin lawsuits came only a few months after a state court finally decided another landmark conversion related decision. In March, a Michigan court ruled in favor of three members of a federal credit union who took their CU to court to force it to hold a special meeting, as provided for under the bylaws, and to allow them to examine the credit union's records related to the conversion attempt.
The three members of the $1.8 billion DFCU Financial Federal Credit Union privately negotiated an agreement with the CU since so much time had passed since the initial complaint in 2006 that started the fight.
Activists who oppose credit union-to-bank conversions and executives in support of them generally agree that a mixture of the economy, uncertainty about the future of the bank charter and the NCUA's latest round of regulations overseeing the charter conversion process have been responsible for the charter change slow down. However, their interpretations varied.
Alan Theriault, CEO of CU Financial Services, a consultancy that assists in credit union-to-mutual savings bank conversions, attributed the slow pace of applications to uncertain economic times and what he called unauthorized interference from the NCUA in the credit union conversion process.
"Face it. NCUA has been acting as little more than a cheerleader for the industry as has not been authorized by the Congress to put so many obstacles in the way of a process that Congress wanted to be no more difficult than any other charter change by any financial institution," Theriault previously commented.
Those opposed to conversions countered by reiterating the NCUA's position that its regulations were designed to allow credit union members play an active role in a key decision affecting the future of their credit unions.
Whereas prior to the latest round of regulations credit union members would generally only find out about a proposed conversion to a mutual bank when the credit union mailed the disclosure notices and ballots for a vote, under current regulations credit unions have to notify members-and solicit their comments-significantly earlier in the process.
–[email protected]