OmniAmerican Seeks Bank Charter; Second Billion Dollar CU in Less Than Two Months

FORT WORTH, Texas. – A second Texas credit union with assets of more than one billion dollars has filed to become a mutual bank in less than two months. The $1.2 billion OmniAmerican Credit Union, based in Fort Worth applied to make the charter change on February 18, according to the Office of Thrift Supervision which has acknowledged receiving the application. The credit union was founded in 1956 as the Carswell Federal Credit Union to serve the armed forces personnel working at the nearby Carswell Air Force Base. When it began the 247,000 member credit union had seven founders who had a combined savings of $35. OmniAmerican is the third CU of over a billion dollars to have applied for charter change nationwide and the 32nd CU overall to have applied since the late 1990s, according to CU Financial Services, the advisory firm which advises credit unions seeking to make the charter change. This figure includes both credit unions that applied for charter change and failed at the attempt and credit unions which merged with mutual banks and did not initiate charter changes independently. The $1.4 billion Community Credit Union, headquartered in Plano, Texas, announced its application quietly, over New Year’s weekend. The first billion dollar credit union to try to make the charter change, the $1.2 billion Lake Michigan Credit Union, applied on April 26, 2004 but the application failed when the credit union couldn’t convince two-thirds of its members who voted in a special ballot to support it. OmniAmerican is the eighth largest credit union in Texas in terms of assets and its attempt to move to a mutual bank charter, so soon after Community, suggests there might be a domino effect at work – at least among credit unions in the Dallas area. “I won’t predict how many credit unions might make the jump, but I am not surprised that Omni is seeking to do it,” said Richard Howdeshell, CEO of the Fort Worth Community Credit Union, a $611 million credit union also headquartered in Fort Worth. “This is a tough, very competitive market and not just for credit unions. We have a lot of the major bank players down here in the Metroplex as well,” Howdeshell said, referring to the Dallas- Fort Worth metropolitan area. “They have been getting more involved in commercial lending and I think they just wanted to go a lot more in that direction.” While stressing that he did not speak for the credit union Alan, Theriault, a consultant with CU Financial Services, said that the credit union’s balance sheet could provide some clues about the pressures Omni faced that would make conversion attractive. He also confirmed that, should the members approve the conversion, the credit union would seek to adopt a mutual holding company structure that would allow the former credit union to issue a minority portion of its stock to raise capital and retain depositor control. Omni CEO Larry Duckworth and other credit union staff failed to return repeated phone calls from Credit Union Times and so there is still no word from the CU on why they decided to seek the charter change. According to NCUA’s records, Omni’s net worth ratio lags its peers by 2.48% and hit 7.33% in December of 2002. But the key ratio has also been rising steadily and sits at 8.00% as of the end of 2004. The credit union also has a return on assets that only lags its peers by 0.03%. Omni has certainly been a relatively active business lender. According to NCUA’s records, the credit union had 110 business loans outstanding as of the end of 2004, worth about $72 million, 42 of which, worth $41 million, it originated in the last year. These numbers, advocates of charter change suggested, would be the sorts of things that would make a charter change tempting for a credit union, particularly one in a very competitive market. But Randy Smith, CEO of the $2.2 billion Randolph-Brooks FCU, headquartered in the San Antonio area, pointed out that the change is still not a done deal. “The members still have to vote on this thing and I would not want to start calling it a done deal until I hear how they have voted,” Smith said. “But I hope they decide to stay. I think it’s a bad thing for credit unions in Texas to see talented men like these two [Gary Base, CEO of Community and Larry Duckworth, CEO of Omni] leave.” According to Harold Feeney, Commissioner of the state’s Credit Union Department, under Texas law, a state chartered credit union which seeks to change its charter to that of a mutual bank must only obtain the agreement of a majority of members attending a meeting called to vote on the proposed change and must obtain the permission of the state or federal regulator which will regulate the institution. Under NCUA rules the credit union must use a mailed ballot to conduct its vote, but if, say, 8% of credit union members vote in the election, as few as 10,000 members could decide to change the charter of a $1.2 billion credit union. “I think they could make it,” Howdeshell said. “People are apathetic. We see it in the election turnouts for other decisions down here and it’s not clear to me that other credit union members really understand what is at stake in the decision.” Smith agreed. “Down here we had a bond issue for the schools that we really needed to pass because the schools down here really need the money. Only 3% of voters turned out to vote on it and it failed, so I know all about how a very little tail can wag a big dog.” In the wake of the Omni announcement, much of the attention has turned to the Texas Credit Union League to see what its reaction might be. When Lake Michigan tried to convert the Michigan Credit Union League took out advertisements in the local press that pointed credit union members to a Web site which, the League believed, made clear some of the things it said the credit had neglected to include in its pre-balloting disclosures. Now many wonder if the Texas Credit Union League will do something similar. Maybe, or maybe not, said Dick Ensweiler, CEO of the Texas League and chairman of CUNA. Ensweiler maintained his stance of disappointment at Omni’s decision even as he professed indecision about what the League should do about it, if anything. Ensweiler said the League will wait until its board meeting of March 11 to formulate a response to the two credit union applications, and he urged patience on the part of many who were anxious for swift action. “It’s very easy to get emotional about this topic and say someone should do something, but it’s harder to figure out whose job that is and what they would do,” Ensweiler said. “Is it the League’s job to oppose a credit union’s leadership on a business decision?” Ensweiler stressed that his personal feeling were against the move, saying that changing to a bank charter represented the antithesis of what credit unions are about as institutions, but he noted that feelings do not represent a course of action. “We are evaluating all options,” he said, “We just haven’t made a decision yet.” Ensweiler noted that the Texas League faced a different set of circumstances than faced the Michigan League. First, the two Texas credit unions will have to issue disclosures to their members according to NCUA’s new disclosure regulations. These regulations were not in place when Lake Michigan applied and they will have a black box that contains information in clear language that the previous disclosures did not, Ensweiler pointed out. This may make an action from the League unnecessary, he said. Second, there are the challenges of the Metroplex region, where advertising is very expensive and members’ connections to their institutions can be very tenuous indeed. “How many members have connections with their credit union that are predominantly through their auto loans,” Ensweiler asked. “How many of those folks are going to understand the issues we would raise in billboard or on the Internet? How many are even going to know who the Texas Credit Union League is?” -