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Bull-oney, Running of the Bulls, And Bulls & Bears

On television and in the movies, bankers have always been labeled as, if nothing else, consistent. Consistent about following policies. Consistent about three-piece suits. Consistent about raising fees. Consistently, well, dull.

That may be an entertainment stereotype, but you really have to admire the consistency of the bankers who, even while standing in the long shadow of massive bailout packages rivaling some countries' GDPs, and with a failure rate in recent years nearly five times higher than that of credit unions, have, along with their straw men, continued to keep beating the drum on the credit union tax exemption.

Just like Donald Trump came along to give CPR to the birther issue, the federal and state budget deficits have breathed new life into the old argument over taxing credit unions.

In a recent letter to the editor of The Daily Collegian, which is for students of Penn State, a letter-writer complained that the $3.6-billion Pennsylvania State Employees CU did not pay taxes on its net income, while FDIC data for five local banks that the letter-writer just happened to review indicate that the latter paid their "fair share." (Not that the letter isn't worthy of note, but apparently things have gotten pretty dull on college campuses these days.)

Similarly, in recent weeks the Baltimore Business Journal had a story on the topic, the Sioux City Journal had a letter, and a North Carolina CU CEO had to come to the defense of his own CU's tax exemption (and that of all CUs) in his own letter to a local newspaper.

All of this comes at the same time new data shows that Bank of America reported net revenue during 2010 of $111 billion (that alone is about 13% of total U.S. CU assets), but also suffered a pre-tax loss of $1.3 billion. As a result, Bank of America paid no current taxes to the U.S., and received a deferred tax benefit of $287-million (larger than most CUs). One analysis found that BofA paid $158 million of current local taxes and deferred $201 million, and paid $815 million in current international taxes and deferred $694 million. According to the analysis, the company had a 2010 tax rate of negative 69%.

Still, according to the bankers and their trade groups, the real issue remains that credit union tax exemption. What would be interesting to investigate would be what kind of deferred tax benefits would credit unions have accrued in recent years following NCUA assessments were the industry not tax exempt?

As any credit union marketing director knows, send out any marketing piece or create a new TV spot and someone, somewhere, will be offended. Such was the case recently for USF FCU, which serves the University of South Florida in Tampa.

The university's athletic teams are known as the Bulls, and USF FCU rolled out an "Are You the Best Bull?" contest online in which members were asked to produce videos of 60 seconds or less to demonstrate how they made financially smart decisions managing their money during the economic downturn. The videos were posted on YouTube, and then judged on a number of factors, including how the message integrated with USF FCU's brand.

The winner was offered an all-expenses-paid trip to Pamplona, Spain, where the annual running of the bulls takes place, although the winner did not have to visit at that time. The winner could also choose a cash prize.

Naturally, someone had a beef-in this case, the People for the Ethical Treatment of Animals (PETA), which sent a critical letter suggesting the credit union was endorsing the race, and the killing of the bulls that follows.

USF FCU has responded by dropping references to the running of the bulls, and PETA now says it is satisfied with the CU's "kind and compassionate" decision.

The lesson here for CEOs: You just never know what kind of bull you're going to deal with when you arrive at work.

Data released recently by CUNA Mutual shows the credit union community has lost 228 CUs over the past year, and 35 so far in 2011. A data revision also found some 226 CUs disappeared in 2010, which was 19 higher than previous estimates. As of the end of Q1, the U.S. had 7,570 credit unions, down from the 24,000 of the 1970s.

The data support what any CFO or ALM committee already knows too well, that savings remain strong and is 4.2% over the past year, including a 1.7% surge in February, while at the same time lending has now declined for six straight months and is down 1.1% over the past year. "Weak member demand for short-term credit and CUs not wanting to hold 30-year fixed-rate assets, are key factors driving this trend," CUNA Mutual said in its analysis.

Total assets are getting closer to the $1-trillion threshold at $948 billion, up 4.0% since February 2010. All those deposits helped push the capital-to-asset ratio down just a bit to 9.9%, while the loan-to-share ratio declined to 70.4%.

As Credit Union Journal reported March 14, membership has actually declined. CUNA Mutual said the number of members was revised lower by 323,000 in 2010, and at the end of February 2011 the number of people who are helping other people was at at 92.7 million. "Annual gains will remain well below trend for the foreseeable future as the importance of relationship pricing increases," said the company in its Trends report.

There is some good news: delinquencies are down a bit across the CU community to 1.681%.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.

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