Is NCUA Blocking CDCU's Attempt to Pick Up Business of Departing Bank?

MARKS, Miss. – NCUA staff have been discouraging a relatively strong community development credit union from opening a branch in a community nearby that is about to lose its only bank, the CDCU believes. AmSouth bank, based in Birmingham, Alabama, has written Jonestown’s 1,701 citizens that its branch will close as of 3:00 p.m. on January 16, 2003. But, even though the bank has offered to donate its Jonestown facility to the CDCU and has provided significant financial support to help it set up shop in the community, NCUA staff members have still signaled that the agency’s Region III would not look favorably on the move, according to Robert Jackson, Treasurer of the $5.4 million, $3,500 member Quitman Tri-County FCU. “Sometimes I think there may be a disconnect between what the NCUA Board says in Washington and what actually goes on down here in the field,” Jackson said. Jackson acknowledged that NCUA staff have been right to note that Quitman Tri County FCU has expanded fairly rapidly, but challenged their suggestion that it may not be adequately serving the FOM it already has. In 2000 the credit union changed its name from Quitman Federal Credit Union to Quitman Tri Country Federal Credit Union to reflect the opening of new branches in nearby Tallahatchie and Panola counties, and in 2001 the credit union merged with the smaller Panola County Teachers CU. Further, Jackson also acknowledged that in NCUA’s records, Quitman Tri County shows a ratio of members to potential members of only 14.42, compared to a peer average 56.62. But Jackson explained those numbers don’t tell the whole story, pointing out that the peer groupings that NCUA uses are based on asset size, not on FOM or mission. At $5.4 million, Quitman is in peer group two, whose members are between $2 and $10 million in assets. This puts Quitman towards the lower edge of that peer group, he noted. Further, he also argued that Quitman faces challenges that other credit unions might not face. “First of all, not everyone is going to want to join a credit union, which is a common problem most everywhere,” he said. “But then we have the dubious distinction of being a community development credit union which is generally associated with people of low income and can be seen as a stigma in some places. And then we are definitely a credit union with our roots in the black community,” he said. NCUA numbers don’t reflect the fact that 65% of black households in Quitman county, which is the CU’s original FOM, belong to the credit union, Jackson complained. And he maintained that if NCUA’s numbers were to be truly useful they would also reflect how his credit union was doing when compared with other low income and community development institutions, against which Quitman’s penetration stacks up quite well, he said. For its part NCUA would only say that if Quitman Tri County wants to open a branch in Jonestown, it will have to apply to add the community to its FOM and, since the credit union has not applied to do so, the NCUA has not said yes or no on the matter. However, Cliff Northup, NCUA’s Director of Public and Congressional Affairs, acknowledged that some NCUA staff might have expressed their own opinions about the expansion that did not reflect the agency’s position. Upon hearing Northup’s response, Jackson laughed and said that the credit union would have to go ahead and make a formal request to see what the agency really thought. Broader CDCU Issues “If that [penetration] issue is the stated reason for not supporting the credit union moving forward, then we have a real problem with that,” said Cliff Rosenthal, executive director of the National Federation of Community Development Credit Unions (NFCDCU). “This is where there sometimes seems to be a real bias against CDCUs on the part of NCUA,” Rosenthal observed, “in the lack of recognition that CDCU are different types of institutions with different sorts of missions,” he said. “Here we have a CDCU wanting to serve a community that a bank is leaving,” he said. “The community wants it, the bank wants to help them do it, but the credit union regulator, who has been talking a lot about credit unions serving the underserved, can’t seem to find a way to help make it happen,” he added. Rosenthal acknowledged that there could be real issues preventing a CDCU from taking one action or another, but he said that NCUA should be looking to help CDCUs meet and overcome those obstacles rather than pointing out reasons why something should or could not be done. “I mean it’s not like this credit union is undercapitalized,” he said. According to the NCUA’s records, as of September 2002 Quitman Tri County had a ratio of net long-term assets to total assets of 13.60, almost double the peer group’s average of 7.33. But Jackson claimed the NCUA Region III staff tended to downplay that high capitalization too, noting that some of those long-term assets are actually held by the credit union’s non-profit sponsor, the Quitman County Development Corporation (QCDC) and not the credit union. This includes the $50,000 grant that AmSouth gave the QCDC specifically to help the credit union move into Jonestown, but not the $100,000 that the bank has invested with the credit union to boost its asset ratios. In addition, the bank has given Quitman technical and in-kind assistance to help make the transfer happen, all investments the bank says it is waiting to see come to fruition. “We’re more or less waiting on the sidelines and hoping the credit union can work this out with the regulator,” said one AmSouth officer who did not want to speak for the record, preferring to “let the bank stand” on the two letters it had recently sent, one to its Jonestown customers and one to the town’s aldermen. In the letter to the customers, dated October 18, the bank wrote “AmSouth has worked hard to ensure Jonestown will still have a financial institution, and should you prefer to bank in Jonestown, Quitman Tri-County Federal Credit Union will be there to serve you.” In the letter to the aldermen, dated November 4, Jeff Gish, AmSouth’s corporate community reinvestment manager wrote that the credit union “is a fine organization with a good reputation in the Community Development Financial Institution industry. They are well suited to meet the financial needs of the Jonestown area and we are confident they will do so.” Gish added that the credit union still needed NCUA’s approval and told the aldermen “your support of their application for expansion to the National Credit Union Administration would be appreciated to ensure the gap in providing financial services to Jonestown is minimal.” A spokesman for the bank said that there were no CRA considerations underlying the bank’s actions and that the institution had wanted “to do the right thing” by the people of Jonestown. Some of the support Gish recommended resulted in a meeting on November 18 between Jackson, NCUA staff, Jonestown officials and Bennie Thompson (D-MS), the U.S. representative for the region to talk about the issue. Thompson will be a six term Democrat in the next Congress and sat on the Agriculture and Budget committees in the last Congress. He listened during the meeting but didn’t commit to action, according to Jackson. Jackson said the meeting had gone as well as could be reasonably expected and that he remained dedicated to trying to overcome whatever concerns the agency still had. “Right now we have a couple more questions to try to answer, a couple of more hurdles, but we expect we will do it eventually. It’s just that we won’t be able to get to Jonestown as soon after the bank left as we hoped.” [email protected]