Utah's Deseret First Credit Union Follows Other SCCUs' Lead, Converts to Fed Charter

SALT LAKE CITY – Add Deseret First Credit Union to the growing list of state-chartered credit unions in Utah that are converting to a federal charter. The $266 million Salt Lake CU, the sixth largest credit union in the state and whose international membership includes the Mormon church, said it hopes to complete the conversion “by mid-October,” said Kris J. Mecham, president and CEO. The Deseret First move represents one of the biggest charter switches since May when three other Utah state charters converted-the $2.6 billion America First, the state’s largest, of Ogden; the $1 billion Mountain America, of Salt Lake City and the $280 million Goldenwest, also of Ogden. Deseret First said under a federal charter, the CU can reach a broader membership base of the Mormon church and its business entities across the U.S. and around the globe. In addition, Mecham noted, the federal charter will permit the CU to restart business lending operations, an area effectively curtailed since 1999 under a restrictive law impacting Utah state charters. Mecham said the federal charter will also allow the CU to open “perhaps by yearend” its first out-of-state branch in Mesa, Ariz. in an area with one of the largest concentrations of Mormon members outside Utah. The Arizona branch, he said, would be opened jointly with two separate Mormon corporations that have facilities in the Phoenix suburb. Eventually, Mecham said, Deseret may expand with a branch in San Diego, also with a large Mormon population. Mecham said passage of the anti-CU tax bill by the state legislature last March was a factor “but not the deciding one” in making the charter switch. Outside of America First, Mountain America, and Goldenwest, a handful of other state-chartered CUs in Utah have also converted, suggesting the anti-CU environment and the prospect of future taxation were motivating factors. For its part, Deseret First, in a “talking points” primer distributed to CU employees said it had been “investigating a conversion for more than five years.” “Last year’s legislative battle between the banks and credit unions did not itself trigger Deseret First to pursue a federal charter, but the continual battle with banks had certainly added to the many advantages to switching,” said the CU employee flier. The primer noted that Deseret First, with a membership of 45,000, will now become exempt from both an income tax and the state sales tax, “but this is not the reason that we are switching to a federal charter.” Some of the funds from the sales tax are earmarked to go toward schools and education, “and since we will no longer pay this tax, Deseret First will donate money to schools on our own.” In acquiring a federal charter, Mecham said Deseret First will retain its “closed field of membership” as a religious-based institution with concentration on members, employees and their families of the Mormon church. However, the charter offers flexibility in reaching out to Mormon-affiliated firms, their employees and families outside of Utah, he said. Such a connection, he noted, will help in soliciting members affiliated with two printing and supply firms with headquarters in Mesa. Noting that 21% of Deseret First’s members live outside Utah, Mecham said the federal charter will make it easier for the CU to offer ATM and related Internet services through Credit Union Service Corp., the Atlanta-based shared branch network, which Mecham is chairman of. With a federal charter, Mecham said Deseret First can actively pursue business loans which will be done on a conservative basis with a goal of 3% of the loan portfolio or about $7 million. That figure would have been reached by now except for the state law which has a $250,000 borrower restriction. The three CUs directly impacted in the tax fight with the banking lobby-and which converted following enactment of the March law-were barred from making business loans altogether. That was a major factor in their decision to convert to fed charter. Mecham admitted that his CU “hadn’t really followed that issue closely” for those institutions since Deseret First had issues more paramount, mainly how to reach out to a broader membership base. A Deseret First spokesman said the federal charter will also ease or eliminate bureaucratic delays on future in-state branching. Branch expansion will be considered, he said, beyond the nine existing facilities which stretch from Logan on the northern border to St. George in the south. Deseret First’s application was submitted to NCUA’s Concord, Calif. office which sent official notice of its receipt on July 22. Orla Beth Peck, state CU supervisor with the Department of Financial Institutions, acknowledged there continue to be “rumors” of other planned state-to-federal charter conversions, but she declined to name applying institutions. In the meantime, she said the department has no plans to lay off any examiners as a result of the loss of income to the state which she estimates at $200,000 following already announced conversions. “As you know in addition to credit unions, this department also supervises banks, industrial loan companies and payday lenders,” Peck reminded a Credit Union Times reporter, suggesting there is still plenty of examination work with the existing force. -