Looking for change

Since laws making it easier for a credit union to become a bank passed in 1998, a little more than 30 financial institutions have made that switch in the United States.

With 9,000 credit unions nationally, the conversion rate may seem small, but it’s not deterring Shem Culpepper, chief executive officer of First Basin Credit Union.

First Basin is in the process of setting up a vote with its 20,000 members, which Culpepper hopes to have as soon as January. If the vote passes, First Basin would make the conversion to a savings bank.

Culpepper said he’s looking for the change primarily because federal law allows for banks to make home and small business loans easier than credit unions can. He said most area banks handle such transactions out of town.

“We believe that homeowners in the Permian Basin should have an option to better deal with a local company,” he said.

With a housing shortage in the area, a local lender would allow loans to be handled faster and, therefore, allow activity to increase, Culpepper said.

“Since our headquarters is here, instead of some other area, that’s a pretty good assurance,” he said.

PROS AND CONS

While Culpepper has reasons to seek the conversion, the general prospect of credit unions converting into banks isn’t universally popular.

Dick Ensweiler, chief executive officer of the Texas Credit Union League, points out that First Basin now does less than 2 percent of its business in business loans, well below the legal limit for credit unions.

Currently, he said credit unions could do up to 12 1/4 percent of its business in member business loans. A bill currently in Congress would push that limit to 20 percent.

Ensweiler said credit unions have no limit on what they can lend on home loans, as long as they borrow from other institutions.

“Credit unions are cooperatives,” he said. “They exist only to help members help themselves.

“I have yet to hear a reason that would stand up to a good spotlight, as to why a credit union should convert to a bank,” he said.

WHY CHANGE?

Culpepper said one good reason is that a bank is allowed to have more branches. First Basin now has three locations in Odessa — with a fourth under construction on North Grandview Avenue — along with locations in Andrews and Midland.

“There are many areas of the Permian Basin that need better service,” he said. “With a bank charter, we’re able to put branches and ATMs in locations we cannot currently go for.”

First Basin is limited because credit unions are allowed to have no more than 6 percent of total assets in fixed assets, like bank branches and automated teller machines, Culpepper said.

Culpepper said converting to a bank wouldn’t change First Basin’s operating model, even though banks are for-profit and credit unions are nonprofit.

“We strive very hard to make money (now),” he said. “We are not nonprofit. We do not intend to change our operating model at all. We will have the same earnings goals as we do now.”

First Basin customers should expect no higher banking fees if it becomes a bank, Culpepper said. Any change in interest rates charged to customers and rates paid on accounts would be market driven through competitive surveys.

“That’s the exact same process we use now,” he said. “Conversion has no impact on the interest rates we charge.”

As of its Sept. 30 statement, First Basin has $77 million in total deposits and $113 million in assets, Culpepper said. It has $86 million in total loans.

WHY STAY THE SAME?

Ensweiler said bank officers often benefit from converting to mutual savings banks. This comes as a result of stock options they can collect upon.

“Credit unions earn their compensation,” he said. “They do not get compensation from outside sources.”

Culpepper said receiving stock options would require becoming a stock-issuing institution. He said that’s not planned at this time, though it could be in the future depending on “how well the business model grows.

“We haven’t even discussed that opportunity,” he said.

He also pointed out that banks are required to take 34 percent of their earnings and pay taxes, which is passed on to the customer.

“Banks typically charge higher fees, higher loan rates and lower savings rates,” Ensweiler said.

Dean Dalycq, senior vice president for operations at Complex Community Federal Credit Union, said her institution won’t pursue conversion and will stay a credit union.

“The whole purpose of a credit union is not-for-profit,” she said. “All revenue is returned to members in the form of dividends or low rates on loans.”

Ensweiler said while credit unions offer each member one vote, mutual savings banks vote on a vote per $1,000 invested. After two years, banks become eligible to sell stock, and while, members are offered the chance to buy stock, he said that might not be what they want.

“Most people who join a credit union are not looking to become investors,” Ensweiler said. “Only those people that buy stock will own the bank. Suddenly (stockholders) own the organization those people have built up over the years.”

THE STATUS QUO

Members using First Basin’s Music City Mall branch Wednesday seemed happy with the present organization.

“It works fine for me as a credit union,” Rodney Garrison of Odessa said. Garrison, who hadn’t heard of the upcoming vote, said he would review whether to stay with First Basin if it became a bank.

“I’d have to look and see what new terms and things they had,” he said.

Jack Fierro of Odessa said he prefers a credit union.

“You get a better annual percentage rate,” he said. “You can get better deals on car and home loans and stuff like that.”

Culpepper said there are no drawbacks to becoming a bank.

“The only difference (customers) will see is more branches,” he said.

So why hasn’t First Basin, which was chartered in 1965, converted to a bank sooner?

Culpepper said it’s a difficult, costly process.

“It does take a long time,” he said. “And the opportunity hasn’t really been there in the past.”