Members and the Community Are the Ones to Gain from Conversion to a Bank

 
  Community / Member Benefit Illustration
    A B C
  Financial Data (Dollars in thousands) Credit Union Mutual Savings Bank
Mutual Holding Company
1 Capital / Assets ratio to manage to
7%
5%
5%
2 Assets
$ 714,285
$1,000,000
$ 2,500,000
3 Capital
$ 50,000
$ 50,000
$ 125,000
4 Investments
$ 171,428
$ 240,000
$ 600,000
5 Loans
$ 501,142
$ 710,000
$1,775,000
6 Additional capacity for new community loan origination
NA
$ 202,858
$1,267,858
7 Increased loan revenue NIM (3% estimate)
NA
$ 6,086
$ 38,036
8 Increased Yield on Investments (2% estimate)
NA
$ 4,057
$ 12,000
9 Additional earnings available for taxes, member benefits, incidental costs, and stock dividends
NA
$ 10,143
$ 50,036
10 After Tax ROA @ 1.0%
$ 7,143
$ 10,000
$ 25,000
11 Additional earnings (line 9) available for taxes, member benefits, incidental costs, and stock dividends plus regular ROA (Line 10)
$ 7,143
$ 20,143
$ 75,036
12 Performance difference between a mutual and a credit union (Column "B") and between a MHC and a credit union (Column "C"). These earnings are available above and beyond current activity to increase retained earnings and to expand member benefits; like branches / technology / yields
NA
$ 13,000
$ 67,893


Economic Conditions Require a Progressive Response
Taxation is Managed like Every Other Business Expense
Converting Allows Growth and Member Benefits to Continue
Proposed Legislation: A Risky Accounting Gimmick - Secondary Capital Unlikely

Footnotes:
  • The table illustrates the huge differences possible by converting to a mutual savings bank. Column "A" illustrates a hypothetical credit union with $50 million in regulatory capital. Column "B" indicates that with the same level of capital a non-stock mutual savings bank can outgrow credit union assets by almost $300 million because bank regulations support higher levels of growth per dollar of capital; Column "C" illustrates $1.5 billion more growth possible by utilizing the mutual holding company structure (MHC) and a $75 million minority member stock offering. Members continue to control the non-stock mutual holding company. The MHC structure preserves the ownership and control of the institution. A MHC cannot be sold or taken over. It can, however, merge with another mutual or MHC and it may acquire banks or merge credit unions. This opportunity is not available to a credit union.

  • Row 6 illustrates the much higher bank lending capacity in the amount of $203 million and $1.3 billion respectively. Invested in the community infrastructure, these loans would have a powerful impact on job creation and related community benefits, like home ownership and small business development.

  • Row 7 & 8 illustrates the additional revenues from higher loan volumes per dollar of net worth (capital); and the impact of a bank's historical investment portfolio yield advantage. Added together (line 9) they illustrates that substantial revenues become available for paying taxes, adding member benefits, managing incidental costs and contingencies (like conversion cost), and to pay stock dividends. Row 7 does not consider the more profitable loan mix possible as a bank, which would result in higher revenues.

  • Row 10 illustrates managing an institution to a 1.0% after-tax ROA.

  • Row 11 illustrates the $20.1 million annual additional member benefit as a mutual and an additional $75 million annual benefit as a MHC. These additional benefits are available to pay taxes, incidental costs, stock dividends, increase retained earnings, and expand and improve branches, technology, and delivery systems or for member distribution in the form of higher yields or lower loan rates. Row 12 illustrates the net financial benefit from a conversion to a mutual or a MHC.

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