Two Georgia CUs in Process of Defecting from Federal Charter

Marshland Community Federal Credit Union (Brunswick, GA) and Interstate Unlimited Federal Credit Union (Jesup, GA) are seeking to convert to state charters.

Marshland Community FCU primary objective in seeking a state charter is to enhance the credit union’s potential for growth. As a state charter, the credit union will be able to extend membership to more people beyond the current areas served by the credit union. Also the change in charter will position the credit union to offer new products and services, improve convenience and potentially open new branches in the future.

The Georgia Department of Banking and Finance approved the charter conversion on May 28.

The credit union is encouraging members to turn in their ballots on the charter conversion no later than July 16.

Marshland Community FCU has $154 million in assets, as of its most recent call report.

Interstate Unlimited FCU stated that the change in charter would better position the credit union to grow and to serve people that they currently could not.

The credit union stated that the conversion would cost approximately $20,000.

The credit union will hold a virtual special meeting on July 27.

Interstate Unlimited FCU has almost $196 million in assets, as of the end of March 2020.

Read more about Marshland's conversion.

Read more about Interstate Unlimited's conversion.

Members Approve Cobalt CU's Switch to Federal Charter

Earlier this year, I wrote that Cobalt Credit Union was seeking to convert from an Iowa state chartered credit union to a federal credit union.

On May 1, the membership of the credit union voted to approve the switch to a federal charter.

According to information obtained from the National Credit Union Administration thru a Freedom of Information Act (FOIA) request seeking Cobalt's charter conversion application, the credit union has applied for a community charter serving the Omaha-Council Bluffs Metropolitan Statistical Area plus additional Iowa counties.

The proposed service area includes the Iowa counties of Pottawattamie, Mills, Harrison, Crawford, Carroll, Shelby, Ida, Monona, and Sac and the Nebraska counties of Sarpy, Douglas, Cass, Saunders, and Washington (counties in italics are part of the Omaha-Council Bluffs Metropolitan Statistical Area).

In response to the FOIA request, NCUA provided 30 pages of information and withheld 190 pages based upon one or more of the exemptions at 5 U.S.C. § 552(b)(4), (5), (6), (7)(C), and (8).

United 1st FCU to Convert to State Charter

United 1st Federal Credit Union (Kingsland, GA) is seeking to switch from a federal to a state charter.

Management at the $172 million credit union has been meeting with the Georgia Department of Banking and Finance over the last two years exploring the conversion to a state charter.

The credit union submitted its application to the National Credit Union Administration in early 2020 and received approval to move forward with the vote of the membership.

The credit union cited several reasons for converting to a state charter, including:

• the credit union would have increased field of membership opportunities that would allow for further growth;
• non-member deposits would be permissible regardless of a low-income designation; and
• under the state's parity provisions, the credit union would be granted the same rights as all Georgia corporations and state chartered banks.

The ballots from members of United 1st need to be received by May 28, 2020.

Read the Q&A.

CP FCU to Seek State Charter

CP Federal Credit Union (Jackson, MI) has started the process of converting to a state charter.

According to the credit union's winter newsletter, the credit union filed an application with the state regulator to switch from a federal to state charter.

The credit union stated that as a state charter the credit union will be able to serve all persons who live, work, worship, or attend school in the State of Michigan. The credit union noted that as a federal credit union it could not serve such a broad field of membership.

The credit union wrote that this decision to become a state charter was to ensure the long-term viability of the credit union.

The Michigan Department of Insurance and Financial Services tentatively approved the credit union's application on March 12, 2020.

The next step is to have the membership vote on this conversion.

CP Federal Credit Union has $468 million in assets.

Two FCUs to Switch to NY State Charters, Then Merge with Sunmark

Two federal credit unions have filed applications with the New York Department of Financial Services to convert to state charters. Upon converting to New York state-chartered credit unions, both credit unions will subsequently merge with Sunmark Credit Union (Latham, NY).

Hudson River Financial Federal Credit Union (Mohegan Lake, NY) on April 21 applied to convert to a New York state-chartered credit union under the name of Hudson River Financial Credit Union.

Columbia-Greene Federal Credit Union (Hudson, NY) also on April 21 applied to switch to a New York state-chartered credit union under the name of Columbia-Greene Credit Union.

Hudson River Financial FCU has $64.3 million in assets and Columbia-Greene FCU had $31.2 million in assets at the end of 2019.

The mergers would create an almost $840 million institution.

Read the Weekly Banking Bulletin.

After Converting to a State Charter in 2018, Cobalt CU to Switch to Federal Charter

Cobalt Credit Union (Council Bluffs, IA) is seeking to switch from an Iowa state chartered credit union to a federal credit union charter.

The credit union will hold a vote on the proposed charter change on May 1.

In 2018, the credit union had converted from a federal credit union to a state chartered credit union.

The credit union stated several factors have influenced its decision to pursue a federal charter:

The credit union pointed out that federal credit unions do not pay state income taxes, but Iowa state chartered credit unions do. The credit union noted that the Iowa legislature has considered bills in recent years that would impose a higher taxes on Iowa state chartered credit unions.

As a federal credit union, Cobalt would be able to offer small dollar loans thru the Payday Alternative Loan program. Iowa law limits the fees that the credit union can charge on these small dollar loans, as a result the credit union loses money when it makes such loans.

Cobalt further stated that by becoming a federal charter it can offer its membership more competitive rates and fees. The credit union noted that it costs the credit union $708,440 more annually to be an Iowa state chartered credit union compared to a federal credit union.

The credit union estimated that the proposed cost of converting from a state charter to a federal charter would be $48,760. When the credit union converted to a state charter in 2018, the cost was $38,678.03.

The credit union pledged that at the time of the conversion to a federal charter and for a period of five year thereafter, it will not convert to a mutual savings bank or savings association or a stock institution.

In Op-Ed ABA Chair Stewart Highlights CUs Acquiring Banks

In an American Banker op-ed On January 23, ABA Chair Laurie Stewart called attention to the “disturbing trend” of large, tax-exempt credit unions purchasing taxpaying community banks. “Taxpayers didn’t get a say in these deals, but they unknowingly helped subsidize them,” Stewart wrote. “And the credit unions buying those banks will be able to grow well beyond their legitimate membership boundaries, while not paying taxes that would otherwise fund the nation’s schools, roads and infrastructure.”‌

Stewart shared her story as a former credit union CEO who converted her institution to a taxpaying bank when it became necessary to extend beyond the “common bond” of its membership base in order to grow. As the current president and CEO of Sound Community Bank, she reflected that “I still believe we made the right call, in both the letter and the spirit of the law. I wish today’s credit union CEOs felt the same need to play by the rules.”‌

Stewart added that a current push by the National Credit Union Administration to allow credit unions to put outside capital on their balance sheets could give credit unions even more buying power to purchase community banks without paying federal income taxes. “Should the NCUA approve this proposal . . . then Congress should intervene."

Read the op-ed.

Several Large CUs Switch to State Charters

in the new year, several large credit unions switched from a federal to state charter.

Dort Federal Credit Union (Grand Blanc, MI) converted to a state charter and changed its name to Dort Financial Credit Union. As a result of the charter conversion, membership at the $978 million credit union is open to anyone who lives, works, worships, or attends school in the State of Michigan.

The New York Department of Financial Services in December approved the conversion of Hudson Heritage Federal Credit Union (Middletown, NY) and Sunmark Federal Credit Union (Latham, NY) from a federal charter to a New York State-chartered credit union.

A state charter will give Hudson Heritage Credit Union more flexibility related to its field of membership and the ability to expand in the future. The $425 million credit union will now serve a community-based field of membership of Orange, Dutchess, Ulster, Rockland and Sullivan Counties in New York; Pike County in Pennsylvania; and Sussex County, New Jersey.

Sunmark Credit Union's field of membership will include the communities of Fulton, Warren, Saratoga, Schoharie, Albany, Greene, Montgomery, Schenectady, Rensselaer, Dutchess, Westchester, Putnam, Columbia, and Rockland Counties; certain occupational groups and associations of Onondaga County; and 307 select employer groups. Sunmark has $730 million in assets.

Kern School FCU Applies to Switch to State Charter

Another large credit union has applied with a state regulator to flee the federal charter.

Kern Schools Federal Credit Union (Bakersfield, CA) applied on August 15 to convert to a state charter, according to the California Department of Business Oversight.

Kern Schools FCU has almost $1.7 billion in assets, according to its most recent call report.

Iowa Lawmakers Discuss Taxing CUs at State Level

State lawmakers highlighted the challenges of taxing credit unions at the state level at a banker convention.

According to BankBeat, a panel of lawmakers at the recent Iowa Bankers Association Annual Convention pointed out that state chartered credit unions could switch to a federal charter, if taxed at the state level.

The Federal Credit Union Act exempts federal credit unions from all state and local taxes, except property taxes.

Lee Hein, chairman of the House Ways and Means Committee, stated: "Credit unions have options. They can move to a federal charter, so that makes taxing credit unions not such an obvious solution."

Gary Carlson, chairman of the House Commerce Committee, commented: "If they all go to a federal charter, we do not achieve our goal of leveling the competitive playing field."

While I think the threat of switching charters for Iowa credit unions are overblown because the state charter is more liberal than the federal charter, this perceived threat shows that Congress needs to solve this issue.

Read more.

Sunmark Federal Credit Union to Defect from Federal Charter

Sunmark Federal Credit Union (latham, NY) has applied to federal and state regulators to convert from a federal to a state-chartered credit union and for an expansion in its geographic footprint.

According to the $678 million credit union, the National Credit Union Administration has already approved the conversion, but still needs the approval of the New York Department of Financial Services and the credit union's members.

The credit union stated that the New York state charter is more flexible than the federal charter.

Currently, Sunmark is limited to serving people who live, work, worship, attend school, volunteer, or regularly conduct business in Schenectady, Albany, Rensselaer, Saratoga, Montgomery and Schoharie Counties. As a state chartered credit union, Sunnmark will be able to add the counties of Columbia, Greene, Onondaga, Putnam, Rockland and Westchester.

In addition, the credit union will be able to serve persons that belongs to a business or association that has signed up with the Sunmark to make membership available to its employees or association members outside of New York State.

Members of Sunmark will vote on the proposed charter conversion on July 31.

This would be the second large federal credit union headquartered in New York to defect from the federal charter. Earlier this year, Hudson Valley Federal Credit Union voted to switch from a federal to a state charter.

Read more.

Hudson Valley FCU to Defect to State Charter

Another large federal credit union is defecting from the federal charter.

Hudson Valley Federal Credit Union (Poughkeepsie, NY) is seeking to convert to a New York State charter.

In a notice to members, the $5 billion credit union stated that field of membership limitations were restricting its future growth opportunity.

As a federal credit union, the credit union can only serve its four-county footprint of Dutchess, Ulster, Orange and Putnam.

If members vote yes, the credit union will expand its community field of membership to include Westchester, Rockland, Columbia, Greene, Albany, Rensselaer, Schenectady, and Saratoga Counties.

The credit union will change its name to Hudson Valley Credit Union.

Members must approve the switch of charter.

Two Large CUs Seek to Defect from Federal Charter

Two billion-dollar plus credit unions are in the process of defecting from the federal charter to state charters.

$1.9 billion Central Florida Educators Federal Credit Union (Lake Mary, FL) and $1.1 billion Potlatch No. 1 Federal Credit Union (Lewiston, ID) are in the process of converting to state charters.

Both credit unions stated that switching to a state charter will give them a greater ability to expand.

The Orlando Business Journal is reporting the Central Florida Educators wrote its members that by switching to a state charter would allow it to expand beyond central Florida. The credit union will also change its name to Addition Financial on May 1.

Potlatch No. 1 Federal Credit Union in its conversion notice stated that "a state charter will allow us to serve persons in geographic areas we desire, which are not currently permissible as a federal charter."

Potlatch No. 1 FCU estimates after switching from a federal charter to a state charter it will save almost $100,000 on regulatory fees. However, the credit union would be subject to state income taxes.

Potlatch No.1 FCU has already received preliminary approval from the Idaho Department of Finance. Members of Potlatch No. 1 FCU voted on the conversion at the end of January, but the results of the vote have not been disclosed. The National Credit Union Administration (NCUA) also needs to approve the charter change.

These defections are likely to set off alarm bells at NCUA.

Read the Orlando Business Journal.

Read The Lewiston Tribune.

Cobalt FCU to Switch to State Charter and Add Additional Counties

The Omaha World-Herald is reporting that Cobalt Federal Credit Union, headquartered in Papillion, NE, plans to switch from a federal to a state charter.

The former SAC Federal Credit Union will become an Iowa chartered credit union.

As an Iowa state charter, the credit union will add Lancaster and Dodge Counties in Nebraska to its field of membership (FOM).

The State of Iowa and the National Credit Union Administration have approved the proposed charter change.

The $1 billion credit union had tried twice to add the two counties to its existing FOM as a federal credit union, but was denied by the National Credit Union Administration.

Read the story.

Bill Would Allow Banks to Merge or Convert into Credit Unions

A bill (H. 2980) has been introduced in the Massachusetts legislature that would permit state chartered banks to convert or merge into a credit union, according to Banker & Tradesman.

A hearing on the bill was held on October 24 by the Joint Committee on Financial Services.

The Massachusetts Bankers Association stated that it was not opposed to a two-way street allowing a bank to convert to a credit union. However, the association noted that a bank to credit union conversion is complex and could result in less tax revenue for the state.

Read the story.

Chartered for the Purpose of Making Member Business Loans

The National Credit Union Administration's Office of Consumer Financial Protection and Access is providing guidance to insured credit unions on the eligibility and qualifications for being chartered for the purpose of making member business loans.

The Federal Credit Union Act provides an exemption from the member business loan (MBL) aggregate cap of 12.25 percent of assets to an insured credit union chartered for the purpose of making member business loans to its members, as determined by the NCUA Board.

According to the document, new federal credit unions, new federally insured state credit unions (FISCUs), FISCUs converting to a federal charter, federal charters converting to a FISCU, and all credit unions considering a spin-off of their field of membership may be eligible for this exemption of being chartered for the purpose of making business loans to its members.

To qualify, the insured credit union must

• submit plans showing one or more discrete groups within its field of membership with unique commercial or business financing needs;
• demonstrate a commitment to investing in the infrastructure to safely originate, service, and administer the anticipated business loan volume; and
• ensure that management meets the experience and governance requirements currently outlined in NCUA's regulations.

Finally, the NCUA states that financial projections must reflect sufficient loan originations to support the exemption. However, the document notes that "a credit union seeking the exception is not required to demonstrate or propose that its MBL portfolio will be its only lending component, or even an overwhelming majority of total loans or new loan volume."

While I understand how a de novo could be chartered for the purpose of making business loans, I find it troubling that a credit union, which flips its charter from a state to federal charter or vice-a-versa, could all of a sudden become chartered for the purpose of making member business loans. These credit unions are ongoing institutions. Their purpose has not changed.

It seems to me that the National Credit Union Administration is allowing existing credit unions to game the system so as to evade the member business loan cap of 12.25 percent of assets.

Read the document.

United Texas CU Abandons Federal Charter and Becomes Privately Insured

United Texas Credit Union (San Antonio, TX) has switched from a federal to state charter and converted from federal to private share insurance.

The $254 million credit union will now be insured by American Share Insurance.

The credit union's CEO stated that one of the main reasons for the charter conversion is Texas' flexible Field of Membership (FOM) rules.

Also, local supervision and lower regulatory fees played a role in the credit union's decision to change charters and insurers.

Read the press release.

Firefighters First Switches to Federal Charter and Federal Insurance, Exempted from MBL Cap

The National Credit Union Administration (NCUA) has granted a federal charter and federal share insurance coverage to Firefighters First Federal Credit Union of Los Angeles, which became effective on April 18.

NCUA granted Firefighters First a Trade-, Industry-, Profession-wide (TIP) field of membership to serve the 510,000 employees and independent contractors who work in the fire protection industry in the United States.

NCUA also approved the credit union’s request for the designation of being chartered for the purpose of granting member business loans. This means the credit union is not subject to the member business loan (MBL) cap of 12.25 percent of assets.

However, the historical evidence indicates Firefighters First was not an active business lender. In 2004, the credit union had only $1 million in outstanding member business loans. The credit union had a MBL to asset ratio of 0.15 percent. If you add in purchased business loans or participation interests to nonmembers, the ratio of business loans to assets increases to 2.1 percent. It was only in the last four years that the credit union reported a business loans to asset ratio above 10 percent.

I wonder what tortured reasoning NCUA used to come to the conclusion that the credit union was chartered for the purpose of making member business loans.

Furthermore, the conversion to a federal charter means that Firefighters First will no longer be subject to the requirement to disclose the compensation of the highest paid individuals at the credit union.

Firefighters First was originally chartered in 1935 by the state of California as the Los Angeles Firemen’s Credit Union. The credit union obtained federal insurance in 1975 but converted to private insurance in 1984 and changed its name to Firefighters First Credit Union in 2014.

Prior to its conversion to a federal charter, Firefighters First had $1.18 billion in assets, making it one of the largest single-common-bond federal credit unions in the United States.

Alliance FCU Changes to State Charter and Private Share Insurance

Alliance Federal Credit Union (Lubbock, TX) switched from a federal charter to a state charter and changed from federal share insurance to private share insurance provided by American Share Insurance.

According to Scott Rose, President and CEO of the $245 million Alliance FCU, one of the main reasons he and his board of directors chose to convert to American Share was the simple fact that the role of the regulator and insurer needs to be differentiated.

Another key factor in the credit union's decision to move to a state charter, and to partner with American Share Insurance, was that they wanted to be regulated by local government officials that better understand the needs of Texas residents.

This is the third Texas-based credit union to join American Share Insurance in the last 18 months.

Read the press release.

Latah FCU Converts to Privately-Insured, State Chartered CU

Effective September 15, 2016, Latah Federal Credit Union (Moscow, ID) will become a privately-insured, state-chartered credit union.

Accounts will be insured by American Mutual Share Insurance.

The National Credit Union Administration approved the conversion vote.

Up to the date the conversion becomes effective, the credit union will allow all members who have share certificates and other term accounts to close the federally-insured portion without an early withdrawal penalty.

Read the notice.