Supplemental Information to CUNA Response

1. Supplemental Informationto CUNA Response To: At This Rate By: Peter Duffy CUES Management Magazine. November 9, 2006 Prepared by: CUNA Policy Analysis

2. CUES article claims: Credit unions have “gone from providing members a 15 basis point advantage on money market accounts vs. banks to a 250 basis point disadvantage.” The facts: This false claim reflects the author’s lack of understanding of depository institution pricing practices and a strange disconnect with marketplace realities. In fact, according to Datatrac, the nation’s leading interest rate survey firm, credit unions currently provide a 65 basis point advantage on money market deposit accounts compared to banks. The credit union advantage averaged about one-half of a percentage point since the beginning of 2004 and averaged nearly two-thirds of a percentage point in the eleven months ending November 2006. Credit union consumer-friendly interest rates (in the form of higher deposit yields and lower loan rates) are obvious and have existed over long periods of time. The recently-released Government Accountability Office report on credit unions confirms this fact. CUNA Policy Analysis estimates that consumer-friendly pricing at credit unions resulted in an approximate $8 billion credit union member benefit in 2006.

3. 51 bp average difference since 2004; 65 bp average difference in 2006 (through November)

4. Large CU Pricing Advantages Source: Datatrac. 2006 averages are for the 11 months ending November. Advantage is calculated as CU rate – Bank rate.

5. CUES article claims: Bank deposits grew faster than credit union deposits in 2005. The facts: Credit union deposit growth has outpaced bank deposit growth in 16 of the last 23 years and in three of the past five years. Oddly, the author of the CUES article is not known to have encouraged bank conversions to credit union charters in any of those 16 years. In 2005 (the year that the article claims fast bank deposit growth) the credit union deposit growth rate was nearly two-thirds higher than the deposit growth rate in the nation’s 600 mutual savings associations. Since 1992, credit unions have maintained their share of an increasingly competitive marketplace. In contrast, smaller banking institutions have lost about one-half of their market share to fast growing mega-banks.

6. Sources: FDIC, NCUA, CUNA. Matched samples.

7. Largest 100 Banking Institutions (1992 share = 41%; 2005 share = 68%) Smaller Banking Institutions (1992 share = 53%; 2005 share = 26%) Credit Unions (1992 share = 6%; 2005 share = 6%) Source: FDIC, NCUA, and CUNA.

8. CUES article claims: Credit unions operate with a regulatory disadvantage which has a major influence on earnings. The facts: While credit unions face restrictive regulations and these restrictions sometimes influence earnings, conversion would increase rather than reduce earnings pressures. For example, the CUES article conveniently neglects to discuss the post-conversion earnings-related influence of tax payments – these payments have averaged 63 basis points on average assets since 1993. Of course, credit unions do not pay income taxes. The CUES article likewise omits discussion of stockholder dividends. Since 1993 bank stockholder dividend payments have averaged 82 basis points on average assets. Credit unions have no stockholders. Bank bottom-line earnings are nearly identical to credit union bottom-line earnings after accounting for bank tax payments and stockholder dividends.

9. 63 basis point average difference

10. 82 basis point average difference

11. Sources: FDIC, NCUA, CUNA. Basis points of average assets.

12. Bank Earnings Trends While the CUES article focuses on credit union earnings pressures it sheds little light on bank earnings pressures, including the large declines in net income after taxes and dividneds shown on the preceding graph. Other banking industry analysts, who don’t make their money by converting credit unions to banks, are less shy about telling the whole story -- cautionary tales for those who are tempted to follow the author of the CUES article to his financial promised land of fast deposit growth and high earnings. For example: “Bank net interest spreads have been on a ten-year secular decline.  Steady improvements in productivity have enabled banks to maintain profitability, but further gains will be more difficult to achieve.”  -James M. McCormick President First Manhattan Consulting Group The Relentless Margin Squeeze: Implications for Maintaining Profitability

13. Sources: FDIC, CUNA. Basis points of average assets.

14. CUES article claims: Credit union fee income as a percentage of gross income has doubled since 1998 while banks have stayed virtually the same. In addition, the article claims that banks rely less on fee income than credit unions. The facts: The article’s analysis of bank and credit union fee income trends is fundamentally flawed – total bank fee income cannot be determined from call report data because bank loan fees are included in loan interest income. Credit union fee income rose in recent years as massive mortgage refinancings increased credit union mortgage origination fees. A similar increase undoubtedly occurred at banks but the increase in bank fee income and the total level of bank fee income is impossible to measure. The author’s statements reflect a lack of understanding of depository institution pricing practices and marketplace realities. Surveys consistently show that credit unions charge fewer and lower fees than do banking institutions. For example, on average: • Bank NSF fees are 50% higher than CU NSF fees • Bank credit card late payment fees are 56% higher than CU late fees; • Bank mortgage origination costs are almost three times higher than comparable CU costs.

15. Low CU Fees Source: Datatrac and CUNA.

16. CUES article claims: “Banks are branching more than credit unions.” The facts: The nation’s largest banks are adding branches quickly but, on average, excluding the smallest and largest institutions, credit unions tend to have more branches than banking institutions. Sources: FDIC, NCUA, CUNA E&S.

17. CUES article claims: Converted credit unions grow slowly before conversion but very quickly after conversion. The facts: Prior to converting, institutions may attempt to deliver sub-par operating and financial results (including slow growth and depressed earnings). This helps management convince members that conversion is needed. In addition, those who convert to stock ownership seek the lowest valuation possible going into the initial public offering of shares – this ensures that the first option grants occur at the lowest possible strike price (ensuring maximum personal gain for insiders). Thrift regulators have long recognized this behavior, and have attempted to discourage it (for example, by requiring different investment banks to do the IPO and the appraisal and by requiring the 1st option grant to take place one year after the IPO). Sub-par growth results also can arise prior to conversion as dissatisfied members opt to take business elsewhere. The author makes no analytical adjustments for variation in timing of conversion or in performance relative to market. For example, the flight to safety that occurred in the wake of the stock market crash and terrorist attacks, caused monthly average savings growth at all US credit unions to increase by 225% in the period 1999-2000 vs 2001-2003. Importantly nine of the 19 recently-converted credit unions the author studied converted immediately prior to the stock market crash and subsequent terrorist attacks. The author does not examine differences in growth between converted single-sponsor and community credit unions.