Culepper Letter to OA suggests he may try to convert FBCU to a bank again (4-19-08)

5/12/2008 1:40:12 PM

In the letter below, FBCU CEO, President, and now Chairman of the Board Shem Culpepper brings up why FBCU needs to convert to a bank... again. Here's what we think: We voted on this once. The members have spoken, and it appears we want to keep our credit union. Mr. Culpepper should get back to running our credit union as the member-owners have asked, or go find a bank of his own.

Mr. Culpepper's letter:
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Restrictions hamper credit unions

Comments 1 | Recommend 10
April 19, 2008 - 10:21PM
BY: Shem E. Culpepper - President and CEO - First Basin Credit Union

The Odessa American ran an editorial in the April 9 edition regarding restrictions that preclude credit unions from fully participating in the business lending arena.


Thank you for recognizing this regrettable obstacle as one that prevents a community-focused institution from doing all it can to serve the local economy.

Those who observed the recent attempt of First Basin to convert from a credit union to a mutual savings bank will remember we cited harsh business lending restrictions as one of the key reasons for the need to convert.

How could First Basin find relief as a mutual savings bank? Unlike credit unions, mutual savings banks have significantly higher business lending caps.

If properly structured, as a savings bank, First Basin's business loan portfolio could expand from its current $16 million cap to $72 million ($26 million secured or unsecured business purpose and $46 million nonresidential real estate). Yes, you read correctly. The credit union limit is $16 million while the mutual savings bank limit is $72 million.

The OA reported that recently introduced legislation in the form of HR 1537, the Credit Union Regulatory Improvement Act (CURIA), if passed, would increase the current 12.25 percent limit to 20 percent, thus providing much needed relief.

It is important to know that this is not CURIA's first attempt. CURIA has been introduced twice before, as HR 3579 in 2003 and HR 2317 in 2005, each time dying on the House floor.

In fact, credit unions were promised their business lending restrictions would be remedied in the first congressional session following the 1998 Credit Union Membership Access Act, when the industry grudgingly accepted the lending restrictions in order to preserve membership expansion provisions. The industry has unsuccessfully sought relief for the last 10 years, and there is simply no reason to believe that this year will be any different.

CURIA has been portrayed as a magic bullet. However, the problem goes beyond the 12.25 percent limit. Along with the total commercial loan cap of 12.25 percent, credit unions are further limited to total construction and development loans of only 15 percent of capital (net worth).

Readers of the OA are well aware of the extent of construction and development activity in the Permian Basin, thus know well that there is tremendous demand for commercial real estate financing. With a limitation of 15 percent of net worth, First Basin continually pushes against the cap.

In fact, because of the size of most commercial construction projects, First Basin's commercial construction and development portfolio growth has effectively stalled at around $400,000 below the regulatory limit. We have been forced to turn away attractive commercial construction projects, sending them to competing banks that have no such arbitrary limit.

Even if CURIA became law, it is not an adequate solution to credit union's business lending restrictions. For one, CURIA does not address the construction and development limit of 15 percent of capital, which, as reported earlier, is a severe restriction.
Secondly, increasing the cap from 12.25 percent to 20 percent is nothing more than a Band-Aid, only prolonging the root of the problem.

For example, it would allow First Basin to expand business loans from the current $16 million limit to only $26 million. Based on our current growth trends and estimates, the increase would simply permit First Basin to postpone the problem for about one to two additional years. Then, we would be right back to where we are today, an institution unable to fully participate in business lending.
The credit union industry faces problems even CURIA cannot address. Recently, its national regulator was forced to take three credit unions under conservatorship, and set aside reserves of $180 million, because of a business lending fiasco in Florida. Is it reasonable to expect Congress to grant expanded powers when the industry can't regulate the authority it has now?

Furthermore, recent recommendations from the U.S. Treasury Department to consolidate all financial services regulation under the Federal Reserve would see the elimination of the credit union charter and its separate deposit insurance fund. This leads to wonder what the future has in store for credit unions at the most fundamental level.

Innovative banking institutions are often ahead of trends. Through its attempted conversion, First Basin showed a pioneering spirit - that it would do what it takes to survive and thrive. Those who spoke against the conversion fail to understand the bigger issues behind our strategy.

Shem E. Culpepper
President and CEO
First Basin Credit Union

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Reader Comments:


dtanner wrote:
Mr. Culpepper is insisting that those who opposed his attempt to convert the credit union to a Mutual bank "fail to understand their strategy".( exact quote: Those who spoke against the conversion fail to understand the bigger issues behind our strategy.)

I have spent over 30 years in banking and managing credit unions much larger than First Basin and I'm worried that I might indeed understand part of their strategy.

In many cases where credit unions have converted to mutual banks (even in Texas), it was only a matter of time until the leadership again converted them from mutual ownership to stock ownership with the credit union's management and Board of Directors gaining the biggest share of the new stock through granting themselves options to buy it at very low prices. These former credit union leaders have made themselves a great of money at the expense of the former credit union's membership.

Given the state of the Real Estate industry today, Mr. Culpepper should thank his lucky stars he wasn't loading up on Real Estate loans for the past 12 months.

http://www.cutimes.com/article.php?article=37936
4/23/2008 9:03:32 AM
Recommended (2)

Read it here on the Odessa American website