CCU Members Get Conversion Pitch; $20,000 Is Offered

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The $1.4-billion Community Credit Union has sent its disclosure materials to members as it seeks to convert to a mutual savings bank. As part of the process it is offering $20,000 in cash prizes to members to get them to vote.

In its disclosure the credit union is telling members, "...your board of directors has concluded that our institution needs a charter that will allow us to increase capital more rapidly than would occur as a credit union."

The letter further explains that Community CU, which had a net worth ratio of 7.38% at Dec. 31, 2004, is unable to raise additional capital under the credit union charter in order to grow further.

If members approve the conversion, Community Credit Union said it will convert to a mutual holding company structure and later seek to sell approximately $100 million in stock, which would require a second vote. That stock would represent a minority (49%) interest. The disclosure adds that the board also intends to establish a charitable foundation to "benefit the community." CCU is projecting the cost of the conversion will be approximately $1.2 million.

"We have been restricting our branching, products and services in order to comply with the 7% minimum regulatory net worth ratio imposed on credit unions by federal regulations to be considered well-capitalized," Community said to members in urging to vote in favor of the proposal.

A charter conversion will allow it to sell stock, the disclosure notes, allowing it to add "branches, products and services" and "make hundreds of millions of dollars in new loans for our members."

The credit union has scheduled a special member meeting for June 21 at the Richardson Civic Center where members may vote if they want to do so in person rather than by mail. Under Texas law, the conversion is dependent upon a majority of those who cast votes, not by a majority of the total membership of 220,000.

Since announcing it planned to convert, the $1.2-billion OmniAmerican Credit Union in nearby Fort Worth, Texas has announced similar plans.

In its disclosure materials, which do not use the word "bank" in any place but refer to the converted financial as a "savings institution," Community Credit Union also noted:

* Board members, who are currently paid $400 per regular meeting and $100 per committee meeting, will continue to receive the same fee.

Voting rights will change from one member, one vote to one vote for each $100 on deposit up to a maximum 1,000 votes.

* If it converts to a mutual holding company, Community CU said that "directors, officers and employees who are members will also have an opportunity to purchase stock in the initial stock offering on the same terms and conditions as other members." The disclosure adds that "directors, officers and employees also usually receive additional stock benefits not available to other members in the form of stock options and restricted stock, subject to required stockholder approval, and, in the case of officers and employees, but not directors, pursuant to qualified retirement plans."

* Community told members as of Dec. 31, 2004 it had $9.7 million in deposit with the National Credit Union Share Insurance Fund, which generated approximately $199,000 to fund NCUA's operations, it said. A conversion to a mutual savings bank and move to FDIC coverage would mean a refund of that money, it said, which will be "invested by us for the benefit of our members."

Disclosure materials estimate the cost of the conversion attempt will be approximately $1.262 million, including $105,000 in consulting and professional fees and $200,000 in legal fees. "Like all other investments, such as advertising our rates and services, building a branch or adding personnel, the board of directors believes the costs will return a greater benefit to members," the disclosure reads.

* Community CU said it may "engage other individuals" to assist in lobbying members to vote in favor of the conversion. "The credit union would compensate these individuals ...for these services," the disclosure states.

Disclosure materials note, "In the event the board of directors and members approve a conversion to a full stock institutions (i.e. a 100% stock issuance), which is not contemplated by the board of directors, members would no longer have any voting rights or ownership interest in future equity of the savings institution except to the extent they purchase stock."

Disclosure materials state that the current employment agreement between CEO Gary Base will be replaced by a new employment agreement that will contain "substantially the same economic terms and conditions" as the present agreement.

Community Credit Union is offering 20 $1,000 prizes as part of a sweepstakes open to any member who casts a vote. It is not the first credit union to do so. In 2004 Lake Michigan Credit Union, Grand Rapids, Mich., offered a lease on a luxury car. That vote attempt failed to get the required two-thirds vote and LMCU remains a credit union.

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