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There's gold in credit union conversions-at least after the subsequent sale of the institution in an initial public stock offering.

That's what managers and directors have learned at at least seven credit unions that have made the switch first to a mutual savings bank, then to publicly traded company.

Insiders of mutual savings banks going public can profit handsomely, with upper level managers often able to increase their compensation several times over, according to Robert Clark, an analyst with SNL Financial, a Charlottesville, Va., firm specializing in the savings and loan market. "These companies are interested in raising money for two reasons: one is to expand the value of the company and two is to benefit the insiders," he said.

From fast profits on IPOs, to employee stock options plans (ESOPs), to management stock options, and to perhaps the most lucrative stock-tied plan of all-the "management recognition plan"-credit union-turned-bank executives and directors are reaping millions in windfall profits from the conversion of their institutions.

The conversion of Rainier Pacific Bank, known as Rainier Pacific CU until December 2000, is the most recent example.

The six executive officers and nine directors of the $500-million credit union-convert subscribed to 600,000 shares in last November's IPO at $10 a share, earning them a quick profit, on paper at least, of $3.6 million (The stock was trading on the Nasdaq last week at $16.09), according to documents filed with the Securities and Exchange Commission.

John Hall, the president and CEO of Rainier Pacific, was able to buy 50,000 shares (the maximum 25,000 for himself and another 25,000 for his wife's account), earning him profits of more than $300,000 just since November. Three other senior Rainier Pacific executives were able to buy 50,000 shares at the $10 initial offering price: Joel Edwards, chief financial officer; Victor Troy, senior vice president; and Sandra Steffeney, vice president.

But Hall and the rest of his management team stand to earn a lot more from shares to be granted them through the ESOP, and both a management stock option plan and a restricted stock award plan, which is expected to be approved at the company's first annual stockholders meeting later this spring.

And the nine directors, all of whom served on the credit union board, didn't make out too poorly, either. They bought up 360,000 of the IPO shares and are sitting on $2.16 million of profits. Six of the directors were also able to buy the maximum allowable 50,000 shares, earning them a quick $300,000 profit on their stock.

And that's not all they'll get. Those directors, who used to serve for free on the credit union board, now receive a monthly retainer of $500 each, $300 for every monthly board meeting, and $250 for the eight or so committee meetings they attend each year-a total of $11,600 a year, SEC documents show.

Other executives of credit union-converts have reaped the benefits, as well. For example, Hans Ganz, the president and CEO of First PacTrust Bancorp, the parent of Covina, Calif.-based Pacific Trust Savings Bank, known until 2001 as Pacific Trust FCU, received options to buy 100,000 shares of the bank holding company last April at an exercise price of $17.19 each, SEC documents show. With the stock trading at $22.67 last week, Ganz stood to gain a profit of $548,000 on those shares.

John Fiore, president and CEO of Synergy Financial Group Inc., the Crawford, N.J., bank holding company known until 1999 as Synergy FCU, obtained ownership rights to 155,628 shares with a market valuation of almost $1.7 million through his 401(k) retirement plan, the company's ESOP, and the restricted stock program.

Perhaps the most lucrative stock acquisition option for the executives is the restricted stock program, also known as the management recognition program, an initiative used to reward a handful of the company's top managers, usually four or five executives. Federal regulations restrict such programs to no more than 4% of a company's outstanding shares. Often, that means millions of dollars in free stock. "In some cases that can increase compensation by 10 to 20 times," said Clark of SNL Financial.

According to Richard Garabedian, a Washington attorney who has represented several credit unions in the IPO process, the compensation plans are strictly regulated by the Office of Thrift Supervision, the federal regulator for savings and loans. Under OTS rules mutual thrifts converting to stock must wait for six months after converting before offering stock options or management recognition programs, and the amount of stock individuals are eligible to obtain through the plans is limited, as well.

"It's all highly regulated by the OTS," said Garabedian, who represents two credit union-converts (Kaiser Employees FCU, now Kaiser Federal Savings Bank, and Citizens Community FCU, now Citizens Community Federal Savings Bank), that are preparing to go public. Both former credit unions will also offer the various stock plans to their managers, upon the approval of their shareholders after the six-month waiting period.

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