WASHINGTON-Banking trade associations do their fair share of griping about the credit union community, but they appear to be taking their lead from the community bankers they represent. Eddie Dunklebarger, CEO of $2 billion Community Bank in Millersburg, Pa., ticked off a list of numerous complaints he has about credit unions, one of the main ones being field of membership. He noted that he recently heard a credit union advertisement on the radio claiming, “Our doors are wide open.” “We're unified on this issue,” he said of community bankers. “I don't know of any banker that's not outraged by the community charter (for credit unions).” However, Dunklebarger explained, “The only effort at the state level was a [Pennsylvania Bankers Association] challenge to a state community charter application. Other than that, it really is an issue at the federal level.” Pennsylvania has a law on the books providing parity for state chartered credit unions with federal credit unions. “There are pockets in communities where credit unions aren't an influence. However, it's becoming less so,” he admitted, depending upon the market area. “I assure them if they are not seeing it now, they will be soon.” “With these credit unions (community charters), the membership base has gone way beyond what originally was intended as well as the services they can provide,” agreed Glacier Bank EVP and CFO Jim Strosahl. Unity Bank President Jim Hughes in New Jersey noted that community charters are becoming nearly open to the public and quipped that a credit union could be founded for left-handed people. “It's really ironically a problem as much for small credit unions as it is for small community banks,” Dunklebarger concluded. If small credit unions are not concerned, “they should be,” he warned. Member business lending seemed to be Glacier's key beef with credit unions. Whitefish Credit Union (Montana), with $591 million in assets, is possibly the largest financial institution in the market, Strosahl said. “Overall, we have a pretty good relationship,” Strosahl said, but on the other hand they are competitors for deposits and particularly commercial lending. He complained that because of their tax advantage, Whitefish is often able to beat Glacier on pricing. He also made the point that it is “a little out of whack” for credit unions to have access to Small Business Administration programs while not paying into the taxes that support them. (SBA programs are being taken out of the Congressional appropriations process for fiscal year 2005.) Despite Whitefish's distinct tax advantage and other issues, Glacier Bank in Montana has learned to make things work. “They do have an account with one of our banks,” Strosahl explained. He added that Glacier has completed at least one loan participation with Whitefish. “We have a good relationship, but we have to be realistic. They do have a competitive advantage,” he stated. Of course it all comes back to the tax-exemption issue. “As a taxpayer, I don't see the value in credit unions,” Unity Bank's Hughes said. He highlighted that $1.1 billion Merck Employees Federal Credit Union in New Jersey probably avoided $9-10 million in taxes last year. Credit unions are able to leverage their tax treatment to grow deposits faster and their “income significantly faster,” according to Hughes. “You and I pay more taxes than all of the $600 billion credit union industry,” Dunklebarger, who is also chairman of the Pennsylvania Bankers Association's (PBA's) Credit Union Strategies Task Force, added. The task force's mission is to seek equality between tax-paying financial institutions and credit unions. “We're taking the lead of the ABA,” he said and working “to differentiate the new breed of credit union.” He said the divide and conquer method should be most effective, and, he emphasized, “I think that there is a valid purpose for those credit unions that.stick to their knitting.” The community bankers were mixed about the progress they're making in the credit union arena. Strosahl admitted the banks are at a bit of a disadvantage politically because credit unions have an “excellent program of rallying members,” whereas most bank customers “could care less.” Typically, the bank's staff and officials don't do any of the lobbying. He added, to his knowledge, “We haven't had any activity legislative or otherwise to try to do anything to change what we believe needs to be changed.” Glacier Bank is a member of the Montana Bankers Association. Hughes also said the matter is exasperating to him. “It's frustrating because it's become a political argument. Credit unions have a very strong lobby,” he said. “In all honesty, I don't know how successful the banks will be in restricting credit union growth.” Hughes just hopes lawmakers will open their eyes one day. Hughes said he has written his congressman on the credit union issue. Unity is also a member of the American Institute of Banking. However, Hughes said, he is “starting to see the light at the end of the tunnel.” Each community banker said credit unions were near the top of the priority list for them. “From a competitive standpoint, the credit union issue is becoming higher and higher on the list,” Strosahl said. Another credit union item the PBA plans to attack this year, Dunklebarger added, is co-sponsorship of H.R. 3579, the Credit Union Regulatory Improvements Act, currently before the U.S. House of Representatives. “We feel that this experiment is not in the best interest of the public,” he stated. It brings credit unions “one step closer to a banking franchise. Dunklebarger questioned, “If there is no practical difference between credit unions and other financial services providers, should they still have their tax exemption?” -

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