Former Wisconsin credit union thrives after converting to a bank

Northwestern Financial Review, Feb 1-Feb 14, 2003 by Dullum, Justin

Citizens Community Federal of Altoona, Wis., converted from a credit union to a mutual savings bank in December of 2001. Plans to convert were being considered as far back as 1993. For Jim Cooley, the bank's president, the conversion was a logical business move.

The goal was to create long-term growth for the future while being able to offer customers the best services. Under the restrictions of the community credit union charter, Cooley and the credit union's membership decided that remaining a credit union would not facilitate growth beyond 2000.

"As a credit union, we were allowed to do business only in two counties," said Cooley. "We needed to branch out in order to stay competitive and grow."

Cooley believed the reasons for converting were compelling, but getting the membership to agree would be challenging. Members would need to vote on the question and under the rules at the time, unreturned ballots from members counted as 'no' votes. "We had 12,000 members and I looked at it as if we were starting with that many no votes," Cooley said. After several tries, members warmed to the plan. "Over 60 percent of our membership voted twice for the charter conversion," Cooley said. "They could see why our strategy was important for us to be able to maintain quality services."

The credit union couldn't grow under the geographical constraints of its charter. No growth meant the institutions would have trouble generating the revenue necessary to offer attractive rates and keep up with technology. Since the conversion, the bank's growth has exploded. In the six months prior to the switch, Citizens made $333,000 in new loans and gained $177,000 in new deposits. Six months after the conversion, it made $3.9 million in new loans and took in $5.4 million new deposits. Other numbers were equally favorable. At year-end, it had $122 million in assets. "Credit quality was very good. Delinquencies were at 70 basis points and charge offs were at 25 basis points," Cooley said.

Cooley said the tax advantage credit unions hold over banks was not sufficient reason for Citizens Community to remain a credit union. Even paying taxes, Cooley figured the institution would be much better off. "There was a case where we had to turn away a real estate loan with a good customer that wouldn't work under the old charter," Cooley explained. "By not being able to make that one loan as a credit union, we lost enough income to offset 30 percent of our tax projections."

The damage from converting, if you can call it that, was minimal. The bank lost 11 accounts totaling $4,318. "But we gained 3,124 new accounts in the first eight months," Keith Legget, senior economist at the American Bankers Association, said there is a segment of the credit union industry that could do better with a bank charter. "One of the problems you run into if you're a credit union is you're automatically limited in who you can serve," Legget said. "That imposes a lot of costs. People are being turned away and told they don't qualify. Credit unions that will convert to a bank charter are the sort that are already being aggressive and looking to serve those outside of their sphere. They are the ones already essentially acting like banks."

Citizens Community Federal is a good example of this. Cooley said in researching the conversion, the credit union recognized that its loan portfolio was looking increasingly like that of a bank. In order to grow, it needed to operate freely in larger markets outside of its sphere. It converted to a bank charter because, in this specific case, that was the path of least resistance to growth.

"There are many different kinds of credit unions," said Cooley. "If we had been a credit union of manufacturing employees, we probably could have kept our charter and moved into these markets and found good pockets of business."

Not that Cooley is looking back. "I don't really follow what's occurring with the credit unions because there really is no point now," said Cooley. And bankers, surely, have no problem welcoming a new and successful bank into the fray of fair competition.