Here's one reason Why becoming a bank means worse rates and fees

Banks have higher costs. As a non-profit credit union, First Basin does not pay income taxes—but as a bank, First Basin will need to pay 34.575% if its income to the government. Where will the money to pay that tax come from? From increasing profits, which likely means charging more on loans and fees and paying less for savings. After all, that's what has happened at the other credit unions that have converted to banks, according to the studies.

This analysis shows that to pay a bank's taxes and simply maintain current income, a bank charter would need to cause First Basin to grow by $42 million dollars in assets--more than it has grown in the last 4 years combined. Until First Basin grows by this amount, it will likely lose income, charge members more on loans and fees, and/or pay less on savings.

Becoming a Bank = Higher Costs.  Where will the money come from?
A	Tax Rate, if First Basin becomes a bank	34.575%		34% Federal Income (335k-10MM bracket) + .575% TX state tax
B	Current Net Income	$1,602,665		Sept '07 financial statement, annualized
C	Current Assets	$113,645,636		Sept '07 financial statement
D	Current Return on Assets	1.57%		Sept '07 financial statement
E	Tax Burden, as a bank	$554,121		Tax Rate x Current Net Income
F	Return on Assets, post-tax	1.03%		Current Return on Assets x (1 - Tax Rate)
G	Req'd Assets to avoid losing $ on tax	$156,026,860		line B / line F. First Basin must reach $156 million to break even.
H	Req'd New Assets	$42,381,224		line G - line C.  Must grow by $42 million to break even.
I	Previous 4yr Asset Growth	$38,555,637		Sept '07 report less Sept '03 "5300" report
J	Current Net Worth	$10,959,206		Sept '07 financial statement
K	Current Net Worth Ratio	9.64%		Current Net Worth / Current Assets
L	Post Tax Net Worth Ratio	7.02%		Required Net Worth / Current Assets
M	Current annual asset growth	8.80%		Sept '07 financial statement
N	Req'd asset growth to break even	37.29%		Required new Assets / Current Assets

 

This analysis assumes that First Basin attempts to pay the tax cost by increasing assets.  It may be possible for First Basin to cover the tax cost with fewer assets if it increases its Return on Assets (profitability) instead.  Increasing profitability generally comes in the form of higher prices or worse services, or both.

If you have questions, comments, or would like to help protect our credit union, please email savefirstbasin@gmail.com. 

Let's keep our good rates! Vote AGAINST the conversion!

Return to Worse Rates and Fees.