More Calif. Groups Abandoning State Charters

To escape state taxes, California credit unions are switching to federal charters.

Five California groups have given up state charters for federal ones during the first nine months of 1995, and more are expected to convert, industry officials and observers said. Five institutions switched in 1994.

The largest credit union to jump charters so far this year is $296 million-asset Los Angeles Police Federal Credit Union, which switched in September. The five converts in 1995 represent 5% of the $14.2 billion of assets held by Golden State-chartered credit unions, according to Janet Nozaki, chief examiner for financial services division of the Department of Corporations.

California's 200 credit unions must pay sales tax, a franchise tax, and a tax on investments not held by Western Corporate Federal Credit Union. Federal credit unions are exempt from all of those, so a conversion can translate into big savings, according to industry officials.

Fresno County Employees Federal Credit Union, which has $141 million in assets, converted in September. The switch will save the institution $265,000 in franchise and sales tax per year, said Luann Smith, internal audit manager for the credit union.

Based on last year's profitability, the saving would translate into a 13% boost to net income. Last year the credit union earned $2.1 million, according to Sheshunoff Information Services.

California Bear Federal Credit Union, Los Angeles, switched charters in July to save on taxes.

Charles Reinhardt, chief executive of the $72 million-asset institution, said he didn't have an estimate of total savings, but suggested they would be substantial.

"Buying those cartons of photocopy paper and envelopes does add up," Mr. Reinhardt said. "Any saving is significant.

Stan Hollen, chief executive of $1.6 billion-asset Golden 1 Credit Union, estimated that the Sacramento institution could save up to $400,000 a year on taxes alone if it took a federal charter.

If the NCUA were to relax its membership rules, Golden 1 probably would jump, he said.

"In the past we've been weighted toward staying with a state charter," Mr. Hollen said. "Right now I'd say we're running fifty-fifty, that's how close it is."

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