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PenFed set to grow through merger with Long Island credit union

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I thought they were not-for-profit.  
 

Oh, well, at least they pay taxes on it.

 

That makes Sperry's move a bit of an outlier. The Long Island-based credit union holds about $278 million in assets. However, the credit union's earnings dropped by more than half over the past year: Sperry earned $256,200 in the first half of 2020, compared with $553,300 in the first half of the previous year.

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It looks like the credit union is buying member votes. Eligible members will be paid $350 after the merger. I wonder if it's too late to join, along with everyone in your family, to collect the $350.

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On 9/3/2020 at 7:14 PM, cv91915 said:

I thought they were not-for-profit.  
 

Oh, well, at least they pay taxes on it.

 

That makes Sperry's move a bit of an outlier. The Long Island-based credit union holds about $278 million in assets. However, the credit union's earnings dropped by more than half over the past year: Sperry earned $256,200 in the first half of 2020, compared with $553,300 in the first half of the previous year.

 

So, your comment prompted me to "bone up" a bit (get your head out of the gutter ;) )

 

Credit unions are considered "not for profit" because they're not funded with capital stock (i.e., they don't have investors/stockholders).  Instead, credit unions are mutual companies, with profits ultimately re-distributed to it's members.  Historically, services provided to low-to-moderate income members, who otherwise may not be well served by traditional banks, are cited as a rationale for a exemption from corporate income taxes on their profits.

 

Credit unions are expected to retain income, in the form of loss reserves and "undivided earnings" as a reserve against various operating risks.  A retention (members' equity) equal to 7% of liabilities is stipulated as a minimum threshold to be considered "well capitalized" under amendment to the Federal Credit Union Act.  Credit unions typically maintain an equity/liability ratio of 10%-11%..

 

Member's equity that rises above such ratios would be deemed available for return to members, typically in the form of higher savings dividends or lower loan rates.

 

Rationalization for a continued exemption from corporate income tax is this these days, as CU's such as PenFed strip away at any discernible distinction between themselves and a traditional bank.  However, the exemption appears to have "sacred cow" status politically, for the time being.

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7 hours ago, hdporter said:

 

So, your comment prompted me to "bone up" a bit (get your head out of the gutter ;) )

 

Credit unions are considered "not for profit" because they're not funded with capital stock (i.e., they don't have investors/stockholders).  Instead, credit unions are mutual companies, with profits ultimately re-distributed to it's members.  Historically, services provided to low-to-moderate income members, who otherwise may not be well served by traditional banks, are cited as a rationale for a exemption from corporate income taxes on their profits.

 

Credit unions are expected to retain income, in the form of loss reserves and "undivided earnings" as a reserve against various operating risks.  A retention (members' equity) equal to 7% of liabilities is stipulated as a minimum threshold to be considered "well capitalized" under amendment to the Federal Credit Union Act.  Credit unions typically maintain an equity/liability ratio of 10%-11%..

 

Member's equity that rises above such ratios would be deemed available for return to members, typically in the form of higher savings dividends or lower loan rates.

 

Rationalization for a continued exemption from corporate income tax is this these days, as CU's such as PenFed strip away at any discernible distinction between themselves and a traditional bank.  However, the exemption appears to have "sacred cow" status politically, for the time being.

If the CU members want higher savings rates, they can always vote out the current CU board and elect new ones who will do that, subject to the minimum capitalization ratio for expected losses. Customers are members who are, essentially, in control. But remember, it's what's best for the group of members, not necessarily the individual member. And this leads to the memberlicious difference. But the CU board serves the members.

 

Bank customers do not have this board option. Bank boards are responsible only to bank stockholders' votes, who may not be customers. The Board's goal is to extract profit from the customers and pass it on to the stockholders in the bank.

 

Bank customers are subject to the whims of the Board and who the Board chooses to run the bank. CU members control the board. It's a fundamental organizational difference.

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13 hours ago, swimmingwithsharks said:

If the CU members want higher savings rates, they can always vote out the current CU board and elect new ones who will do that, subject to the minimum capitalization ratio for expected losses. Customers are members who are, essentially, in control. But remember, it's what's best for the group of members, not necessarily the individual member. And this leads to the memberlicious difference. But the CU board serves the members.

 

Bank customers do not have this board option. Bank boards are responsible only to bank stockholders' votes, who may not be customers. The Board's goal is to extract profit from the customers and pass it on to the stockholders in the bank.

 

Bank customers are subject to the whims of the Board and who the Board chooses to run the bank. CU members control the board. It's a fundamental organizational difference.

 

Bank customers have an option.  They can withdraw all their money and put it into a bank that offers better rates.  

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10 hours ago, PotO said:

 

Bank customers have an option.  They can withdraw all their money and put it into a bank that offers better rates.  

True. And that other bank can always shut you down (a la Chase), when the bank decides that customer isn't profitable. CUs get vindictive, too. It's the same motivation with different beneficiaries. 

 

As long as individuals have choices, there will be different decisions that each person may come to. I'm not advocating one versus the other. I'm helping CBers understand the legal and organizational difference.

 

The difference between a CU and a bank is real. Even if they look similar. Much like an FDIC-insured money market savings account and a brokerage money market mutual fund  look and act similarly, but are totally different. Understanding the difference is part of a consumer's necessary financial education to know what we're getting into.

 

Naturally it's not an either/or choice - I can and do have both CU and bank relationships. Which underlines your point, doing what's best for you.

 

The tax exemption depends on your perspective. It's best for the banks to squeeze the CUs out of their tax exemption if possible, to drive up costs and reduce competition. It's best for CUs to keep their tax exemption to have a competitive advantage over banks. 

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