None of Indiana’s 210 credit unions has flipped its charter yet, but analysts expect that will change in the coming years.
“Credit unions were formed because there weren’t enough convenient banking resources for certain consumers,” said Mike Renninger, principal of Carmelbased Renninger & Associates LLC, a banking consulting firm that specializes in mergers and acquisitions. “Today, it’s a very different mission. There is a tremendous availability of financial services.”
Credit unions that convert lose tax advantages that come with mutual ownership by depositors, but they gain access to capital markets. As credit unions grow larger, conversion can become a more attractive option.
“It is an opportunity for the employees, directors and officers, along with depositors if they get the opportunity, to harvest the value of their organization,” Renninger said.
Nationwide, more than 30 credit unions have converted since 1995, when Charlottesville, Va.-based SNL Financial began tracking the trend. Since 2000, 19 credit unions have switched charters and three more are in the process of switching, said Sebastian Hindman, an SNL analyst. Most of the institutions eventually will de-mutualize, becoming public companies.
The switches so far have affected only a small portion of the 8,500 credit unions in the United States. Depending on where you’re sitting, the small number of switches either disproves the trend or shows there are plenty of candidates for conversion.
“As a credit union, you sort of hit a ceiling,” Hindman said. “If [they] want to continue to grow, a lot of them will flip their charter.”
Indicators that a charter switch could be in the works are large assets and a recent change in name, Hindman said. Another indicator is accepting a broad array of customers instead of focusing on a core group.
“If they’ve gotten away from the credit union mind-set, chances are they’ll eventually want to convert,” Hindman said.
One credit union that seems to fit the bill is Fishers-based Forum Credit Union. It was founded in 1941, as Indiana Telco Credit Union, by the employees of Indiana Bell Telephone Co. The company changed its name to Forum in 2000 and has amassed $1 billion in assets.
At the moment, conversion isn’t on the table for Forum, said Andy Mattingly, the company’s senior vice president of strategy and marketing.
“We’re aware of that option, but it’s not something we discuss or have a plan for,” he said. “Right now, we think the credit union charter is the best for our members.”
If Indiana’s largest credit unions convert, they would instantly become some of the state’s largest banks. Credit unions here have stockpiled impressive assets: In addition to Forum, South Bend-based Teachers Credit Union has $1.7 billion in assets and Indianapolis-based Indiana Members Credit Union has $1.1 billion.
At credit unions, earnings aren’t used to pay stockholder dividends; they’re given back to members in the form of lower fees and better rates. The savings total about $150 million for credit union customers, said John McKenzie, president of the Indiana Credit Union League.
“It’s clearly a huge advantage for a consumer or small-business owner,” he said.
McKenzie downplayed the conversion option. He said “regulatory improvements” under consideration in Congress would help credit unions prosper without switching charters. One change would raise the percentage of credit union assets that can be loaned from 12.25 percent to 20 percent. Such a change would allow credit unions to diversify their portfolios.
The banking lobby is fighting the proposed changes, arguing that credit unions shouldn’t be making commercial loans at all.
Banking organizations, including the Indiana Bankers Association, believe the largest credit unions should convert to banks, said Joe DeHaven, the group’s president.
“There are a number of credit unions that have remained true to their mission of serving a common bond of people who may historically have had difficulty obtaining adequate financial services,” DeHaven said. “To those who have strayed from that mission, we think they should be chartered as a thrift or a bank.”
DeHaven expects more conversions, including in Indiana. Credit unions that act like banks should compete on the same playing field as banks, he said.
“My average member is $150 million in assets, paying a half-million a year in taxes; those guys aren’t paying any,” DeHaven said. “We think that at some point you should become a bank if you’re not really taking care of your common bond.”