Another Texas Billion- Dollar CU Seeking to Convert to Bank

Register now

A second Texas credit union giant joined those seeking exodus from the credit union charter last week-OmniAmerican CU.

The $1.4-billion credit union, the state's fifth largest, filed with state and federal regulators to convert to a mutual savings bank.

Officials with the credit union did not return phone calls from The Credit Union Journal last week, but individuals familiar with their decision said OmniAmerican wants to raise new capital in the wake of the credit union's searing growth, which has tripled the assets of OmniAmerican in just seven years. The CU plans to do so by selling stock through an initial public offering after the conversion to mutual.

Ironically, through those seven years, as OmniAmerican's assets grew from less than $500 million to almost $1.5 billion, its capital ratio remained relatively stable, 7.8% in 1997 and 8.2% in 2004.

The move comes just six weeks after Community CU, Plano, the state's fourth-largest credit union with $1.7 billion in assets, initiated its own plans to convert to a bank, then raise capital through a stock sale.

Dick Ensweiler, president of the Texas CU League and chairman of CUNA, said he was disappointed in potentially losing the two credit union giants-the conversions are still subject to regulatory and member approval-but it will probably accelerate efforts by both the league and CUNA to find a solution to the exodus from the credit union charter. A total of 33 credit unions have applied to convert so far-three of them billion-dollar institutions-with another six having done so through mergers with banks or S&Ls.

"This just goes to show the need for some of the capital issues addressed in CURIA, to ease some of the burdens on these credit unions," Ensweiler said, referring to the CU Regulatory Improvements Act, a bill expected to be introduced in Congress that would, among other things impose a risk-based capital system on credit unions to lessen some of the burdens on the new minimum capital rules, known as prompt corrective action.

Gary Base, president of Community CU, was reluctant to talk about his credit union's conversions plans because the proposed member disclosures had yet to be approved by NCUA. "I think the credit union charter has been a terrific charter for this credit union for 52 years, but we just feel for the future of this credit union (the mutual savings bank charter) is right, as far as the direction of this credit union," Base said.

Base, who is intentionally avoiding this week's grand credit union gathering surrounding CUNA's GAC, said he was disturbed by the delay in getting NCUA approval for the necessary disclosures. Community CU submitted the disclosures to NCUA on Dec. 30 and still had not received clearance last week-almost two months later. He said he was also troubled that NCUA has become the chief monitor of the conversion process for his credit union, even though Community CU is a state charter and ostensibly regulated by the Texas CU Department.

In addition, NCUA notified Community CU that the conversion will come under the agency's newly passed disclosure rules, even though the application was submitted prior to last month's passage of the rules. Those rules will require more comprehensive disclosures to members, including plans, if any, to sell stock to the public and the effects the conversion will have on both ownership and voting rights of existing members.

The credit union CEO said he was cognizant of the problems that occurred surrounding the failed attempt by Columbia CU, in Vancouver, Wash., to convert to a mutual savings bank. That included a successful vote to convert that NCUA overturned because of voting improprieties, and the eventual ouster of several board members who supported the conversion. "We want to make sure that everything is handled in an absolute pristine manner, so that no one can say this hasn't been done properly," said Base.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER