Third CU Files To Convert To Bank

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Marcy Federal Credit Union here has applied to the Office of Thrift Supervision for a mutual bank charter, making it the third credit union to do so in as many weeks, following the applications of Lafayette FCU in Kensington, Md., and Sunshine State CU in Tallahassee, Fla.

With $24 million in assets and fewer than 4,000 members, Marcy's field of membership includes residents of Marcy and Rome, employees at the Central New York Psychiatric Center, the Marcy Correctional Facility, the Mid State Correctional Facility, the Mohawk Valley Psychiatric Center and the local Wal-Mart Distribution Center.

CEO Walt Kapinos told The Credit Union Journal, "The only comment I have at this time is the fact that it rests with the OTS-it's not official yet-but when and if it is then we'll take it to the membership." He noted that the process may take anywhere from 30 to 60 days.

Kapinos added that unlike other CU officials whose CUs have applied for a bank charter, he had no problem with commenting on it-in due time. "It's just that my membership has the right to hear it first. They will make the decision, and after I hear back from the OTS and the NCUA we will have an informational meeting for the membership. They are the bottom line."

Marcy CU posted a negative ROA (-24%) and had capital of just over $4-million with a 12-month share growth rate of 5.73% and loan growth rate 1.78% at the end of March 2006.

Kapinos wanted to stress one last thing for the record. "I will say this-unlike any of the other conversions, there is no stock involved in this. This has nothing to do with stock."

Michael Hearne, CEO of Lafayette FCU and Ramona Moret, CEO of Sunshine State CU, have not responded to calls and e-mails for comment.

While Marcy CU is not affiliated with the New York State CU League, Michael Lanotte, the senior VP and general counsel said, "It is disappointing to hear the news. Our policy on conversions is in strict support of the members' rights. We fully support their right to exercise democratic control of their credit union. We only ask that the management and board present a fair and full view to the membership so that they can make an informed choice. It also references the fact that there not be a personal financial gain involved."

Meanwhile, some analysts believe it is the conversion attempt by Lafayette FCU that may present the biggest challenge to credit unions, given its proximity to Washington and likelihood of attracting Congress' attention.

The $331-million Lafayette's has capital of more than $30 million and its most recent ROA was .69%. As of March 2006 its 12-month loan growth rate was 8.59% and its share growth rate was 1.37%. It has just over 16,000 members, but it's field of membership is far reaching, especially the varied select employee groups, which include, the Small Business Administration, the Export-Import Bank of the United States, the Federal Retirement Thrift Investment Board, GE Capital Markets Services, Inc., Goodwill Industries International, Inc., AMEX International, Inc., the International Development Cooperation Agency and the U.S. Peace Corps, among many other prominent organizations and companies.

Mike Beall, president of the Maryland/DC CU League said, "Our board took a long look at it to determine what our role would be, and we've always had a good relationship with them." Referring to one typical reason offered by CUs seeking to convert-that the 12.25% cap on business lending for FCUs presents an insurmountable constraint, Beall said, "We get their frustration. That's why we're working so hard to address it. That, and the Prompt Correction Action (PCA) triggers. Our state has four co-sponsors out of eight in our Congressional delegation on board to help remedy the situation."

Beall stated that the league's primary interest lies with making sure that Lafayette's members be fully informed of the larger effects of a conversion and be given every opportunity to participate in the process of deciding the CU's fate.

At least one observer commented to The Credit Union Journal that should Lafayette cite the business lending cap as a driver in its decision, questions should be raised about why it hasn't sought to participate the loans with other credit unions. LFCU also has an MBL CUSO. LFCU CEO Hearne came to the credit union from a bank.

At press time, no member or group of members was known to have organized in protest to the relatively new conversion plan by LFCU.

Bucky Sebastian, chairman of the National Center for Member Trust, which has provided assistance to other groups opposing conversions, told The Credit Union Journal that they had not been contacted by anyone yet. "We won't do anything on our own because we don't want to be seen as outsiders trying to interfere. But if a group arises (from the membership or the CU employees) that seeks our help we will definitely give it."

The $147-million Sunshine State CU, which has 17,000 members, posted a fairly healthy ROA of .89% at the end of March, but had negative loan growth (-6.04%) and share growth (-12.37%) on capital of more than $18 million.

Its FOM includes city, county, state or federal government employees in the state of Florida, commercial or industrial firms that do not have a sponsored credit union and members of associational groups. Sunshine State attempted to convert two years ago but withdrew its application.

Florida has no state mutual savings bank charter option.

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