A National Trust

A National Trust

By Francis X. Gilpin

Associate Editor

Members Trust Co. isn't what it appears.

Despite the name, it is not a trust company. Technically speaking, Members Trust is a federally chartered savings bank.

But it is no ordinary thrift. Members Trust's founding majority shareholder was Suncoast Schools Federal Credit Union, the Gulf Coast's biggest with $4.8 billion in assets.

Unlike a credit union, though, Members Trust pays federal income tax. At least, President and Chief Executive Tom E. Walker says that is the plan - once Members Trust starts to make money.

"I run a trust company," says Walker. "We pay taxes."

Still, the Tampa thrift's ties to Suncoast and other credit unions give Members Trust an unusual corporate mandate.

Suncoast CEO Tom R. Dorety argues that the tax exemption helps credit unions to be more efficient than banks. "Our goal is not to maximize profit," says Dorety, who also chairs the Members Trust board. "Our goal is to maximize service to our members."

That talk from a credit union paying no tax on millions in annual earnings makes a banker's blood boil.

"The corporate welfare needs to be stopped," says Alejandro M. "Alex" Sanchez, CEO of the Florida Bankers Association.

If the tax exemption wasn't galling enough, credit unions are starting to provide services that used to be associated mostly with banks. That includes trust services, the specialty of Members Trust.

"We don't put a limitation or constraint on our company because a family doesn't have a million dollars," says Walker. "We serve what we call the 'mass affluent.'"

Early trust fan

Walker, a 54-year-old former Alabama estate-planning attorney who came to Members Trust through the credit union industry, says banks and other trust companies typically require a minimum of between $500,000 and $1 million to open a trust account.

Members Trust's minimum is $100,000. If a member doesn't have that, Walker's firm will try to make other arrangements. "That may be the primary difference between us and the very, very large trust companies," he says.

Besides his old law practice, Walker has personal experience with the advantages of a trust arrangement.

Growing up in a small Alabama town, he admired his father's stewardship of a trust set up for Walker's disabled aunt, who lived a few doors down. "I saw how that relationship developed, how he cared for her, managed her affairs," says Walker. "She died. But she didn't die without a roof over her head and food on the table. It worked. That always kind of left an impression."

With a finance degree from Samford University and a master's degree in business administration from the University of Alabama, Walker worked at a credit union while attending night classes for his law degree at the Birmingham School of Law.

Walker gave up practicing law when he came to Tampa to become assistant manager - the No. 2 executive - at Suncoast in 1983. "I saw that it was a much-diversified financial institution and saw that trust was a niche that could really help members," says Walker. "I see then and I see now the general trust industry focuses primarily on the top 5% of affluent families in this country. There was a void in the industry for the small trust accounts."

Going national

Suncoast founded Members Trust as a trust company four years later. "I felt that trust services was very compatible with the overall mission of a credit union," Walker says.

In 2003, Suncoast decided to go national. The credit union received regulatory approval to exchange $3.5 million in cash and its entire ownership interest in the old trust company for a 52% stake in the new savings bank, retaining the Members Trust name. A Wisconsin insurer that provides financial services to credit unions paid $5 million in cash for the other 48%.

Suncoast's stake has since been reduced to 22.5%, according to Walker, as other credit unions forming alliances with Members Trust are invited to invest. Dorety says Suncoast deliberately will shrink its ownership further as the national expansion rolls out.

If leaving trust affairs to credit unions is becoming popular, it is not yet profitable for Members Trust. The operating losses since 2003 have totaled almost $3 million.

That happens when a thrift opens 14 trust offices, from New York to California, in two years. "We've had good growth," says Walker.

Dorety expects Members Trust to be profitable next year or in 2008.

Members Trust is on the lookout for more affiliates, which already include the GTE and Achieva credit unions in the Tampa Bay area. The credit unions supply their own trust officer to work with Members Trust, which shares the trust management fees with the affiliates.

Funding a Lexus

Mark Ivester, vice president for communications and public relations with the Florida Credit Union League, says Members Trust is part of a movement within the credit union industry toward more sophisticated offerings.

"There are a lot of vendors out there in the financial world that are providing these kinds of services to members through the credit union," says Ivester. Third parties selling insurance or credit cards don't compromise the historic mission of credit unions, Ivester adds.

Bank lobbyist Sanchez begs to differ.

"When credit unions were originally chartered in the late 1800s, early 1900s, they were there to serve low-income people, not to finance a Lexus," says Sanchez.

Sanchez points to a 2004 U.S. Government Accountability Office report that found credit unions serve a slightly smaller proportion of households with low or moderate income than banks.

The banking industry is pressuring federal lawmakers to withdraw big credit unions from the list of tax-exempt organizations.

"Congress is beginning to ask some questions, not about the 90% of credit unions that are doing it right," says Sanchez. "But they want to know why the GTE credit union can build a new $25 million headquarters near downtown Tampa, and it doesn't pay anything to help our seniors or our military."

Members Trust's Walker isn't interested in engaging credit union critics. "I focus my career on the operations and running a trust company," he says. "I really did not delve into the disagreements between the banking and credit union industries."

Gulf Coast credit unions

Credit union Headqtrs Chartered Total Assets Net Income Members

Suncoast Schools Tampa 1978 $4,806,504,844 $33,417,850 377,891

GTE Tampa 1935 $2,050,169,791 $8,825,357 239,978

MacDill Tampa 1955 $1,595,655,142 $6,026,271 173,172

Achieva Largo 1937 $480,156,164 $3,205,030 56,828

Tampa Bay Tampa 1935 $295,536,802 $1,126,862 38,712

USF Tampa 1985 $232,948,862 $1,714,750 27,069

Florida Central Tampa 1991 $218,821,529 $1,142,460 43,008

Sarasota Coastal Sarasota 1953 $197,831,126 $878,068 24,259

Bay Gulf Tampa 1991 $175,377,300 $733,479 23,496

Railroad & Industrial Tampa 1935 $157,844,993 $612,705 17,570

Tampa Postal Tampa 1941 $71,761,939 $170,527 9,835

Pinellas Largo 1956 $62,839,721 $712,305 10,486

Powernet Tampa 1991 $55,435,143 $78,644 4,676

Eckerd Clearwater 1991 $47,096,373 $96,601 8,534

Florida West Coast Brandon 1991 $46,103,227 $333,095 8,783

Bay Pines Bay Pines 1935 $43,708,385 $111,715 8,684

W. Coast Fed. Employees Sarasota 1991 $40,838,685 $220,062 4,589

St. Pete. Muni. Employees St. Pete 1991 $36,343,529 $235,336 5,451

Tropicana Bradenton 1958 $26,351,498 $180,163 4,034

Gulf Shores Clearwater 1991 $22,607,234 $160,050 4,150

Coast to Coast Tampa 1991 $20,726,614 $133,007 4,867

Sarasota Muni. Employees Sarasota 1991 $18,355,843 $58,678 2,315

City-County Employees Clearwater 1941 $15,792,996 $74,435 2,505

St. Joseph's Hospital Tampa 1960 $14,643,263 $122,760 2,550

West Coast Clearwater 1969 $11,465,456 $4,312 2,294

Florida Customs Tampa 1935 $9,153,293 $25,529 1,257

Times Staffers St. Petersburg 1955 $8,459,499 $31,471 1,862

Lee Co. Postal Employees Fort Myers 1956 $4,797,936 $64,537 1,118

SWC Tampa 1941 $3,575,207 $2,019 606

Dunedin Municipal Employees Dunedin 1966 $2,759,286 $10,172 652

City of Naples Naples 1964 $1,859,477 -$9,765 377

Tampa Longshoremen's Tampa 1975 $633,669 -$10,455 290

POC St. Petersburg 1978 $467,801 $752 570

Lee Co. Mosquito Control Fort Myers 1964 $420,633 $2,054 200

Bible Based Fellowship Tampa 1998 $413,835 $2,656 440

Source: National Credit Union Administration, June 30 quarterly data