Glendale Area Schools CU CEO Stuart Perlitsh has often been a vocal critic of the National Credit Union Administration, so it should come as no surprise the outspoken executive cited far more than simple math as reasons for converting from a federal charter to a privately insured state charter.
The vote to convert, which is required by NCUA to be made by at least 20% of a CU's members, had a 32% turnout; with 72% voting in favor of the conversion. "Some members were very inquisitive," Perlitsh said. "Once we shared with them that the Insurance Fund at [Dublin, Ohio-based American Share Insurance] ASI is better capitalized " than the National Credit Union Share Insurance Fund, "they decided it was the best move for the institution." ASI's equity ratio is 1.68% while NCUSIF's is at 1.29%.
Dennis Adams, CEO at the private share insurance provider, said ASI has worked with GASCU for a number of years providing excess share insurance to their deposits not covered by NCUSIF. "The CU did a very good job of due diligence of evaluating the value of a state charter," Adams said. "NCUA is trying really hard to bring down regulatory fees on the federal charter – they have found the state fees to be significantly lower."
Adams also cited flexibility in field of membership and coverage benefits as to why credit unions make the dual-conversion.
Compounding Issues
The CEO of the $348 million CU said one of the primary driving factors behind the dual-conversion was $22 million in uninsured deposits that the CEO described as "important" to the overall success of the CU.
After the conversion, Perlitsh notes that 100% of their deposits are insured by ASI, without the need for additional excess insurance to cover a member's multiple accounts. "By law, we cover every account of the consumer," ASI's CEO said.
This was not the sole reason behind the change.
"NCUA is too inefficient," Perlitsh said, "We are going to get better regulatory service because now we will have a local regulator from the state of California who understands business in the state."
Perlitsh said GASCU felt that the federal regulator was not looking out for the CU's best interests.
As an example, he cited a situation where NCUA flew in an examiner from Montana, who was unfamiliar with the local real estate market in which GASCU operates.
"They were unhinged that we would finance a three-bedroom, one-bathroom house to the tune of a $500,000 real estate loan," Perlitsch explained. "Why? Because the examiner from NCUA said, 'for that kind of money, he could buy a ranch on 15 acres,' therefore something was suspect with that appraisal."
Perlitsh also gave another example of when he felt the regulator was out-of-touch with the CU's needs, relating a situation where NCUA flew in a capital market specialist from Hawaii. "They could not grasp and comprehend our huge diverse investment portfolio," the CEO explained, saying GASCU operates at a loan-to-share ratio of 24%, which warrants a complex investment portfolio.
In 2014, GASCU was recommended by the specialist to sell $15 million in investments because the NCUA claimed rates were going up. "We sold those bonds at a loss of around $100,000, and I can document that those bonds would have been paid in full by today," Perlitsh said.
Operations and Inefficiencies
GASCU was slated to pay $62,500 in operating fees to the NCUA this year. Now, under regulation by the California Department of Business Oversight (DBO), the 11,000-member CU will pay $39,600 in operating fees.
Perlitsh noted that from 2009 to 2013, GASCU paid $2.1 million into the Corporate Resolution Program put in place following the failure of five corporate credit unions. "If we had the foresight to have been privately insured during that time – our hit would have been 25% less," he said.
"There is so much to be said about the operating inefficiencies of the NCUA," Perlitsh added, saying the agency has increased its staff by 20% since 2011—a claim NCUA was quick to debunk. The agency cited employment records showing 1,197 employees as of Dec. 31, 2011 and 1,216 as of July 9, 2016, an increase of 1.5%.
"During this entire process they never attempted to court us to stay – you think somebody would have done a reach out to say, 'can we reconcile?' there never was that conversation," Perlitsh told Credit Union Journal. "The only regret at the credit union is that we didn't convert sooner, that is our only regret, we should have done this 20 years ago."
GASCU's conversion comes on the heels of news that two privately insured credit unions have been granted access to the Federal Home Loan Bank system—something privately insured credit unions couldn't even apply for up until recently. ASI's Adams has suggested more federally insured credit unions will strongly consider converting to private insurance now that they could gain or retain access to the FHLBs.
