WASHINGTON - Lusitania Federal Credit Union is on the brink of winning its nine-month battle to become a mutual savings bank.

The National Credit Union Administration on May 24 unanimously approved Lusitania's application to convert its charter.

The approval paves the way for a July 8 membership vote at the Newark, N.J., credit union. The members are expected to approve the transaction, as they did in a March vote that NCUA disqualified.

Officials and lawyers connected with credit union said the new entity, to be called Lusitania Savings Banks, will be operating by the end of the third quarter.

"It's taken a while, but we're glad we made it," said Sandra Teixeira, vice president of finance for $52 million-asset Lusitania.

Lusitania's journey began last August, when it applied to the Office of Thrift Supervision for a mutual savings banks charter. Within days, NCUA examiners poured into the credit union to check its books.

The regulator already had taken a hard line against such conversions. High-ranking agency officials blasted lawyers for discussing the transactions with credit unions and the agency last June seized a credit union that had been contemplating such a move.

Then, in March, the agency rejected Lusitania's application because it lacked a graph detailing the increased operating expenses it would incur as a thrift.

NCUA Chairman Norman E. D'Amours denied in a statement Wednesday that the agency had played the obstructionist.

"It was never NCUA's intention to block the conversion of Lusitania," he said. "We wanted to be sure that the interests of the members were foremost and that they were fully aware of what the proposed transaction meant to them and their credit union."

Ms. Teixeira attributed the slow process to the regulator's inexperience more than anything else.

"They were in uncharted waters," she said.

Richard Fisch, a lawyer who has worked with the credit union, said the regulator had a change of heart after realizing the approval would not spur a flood of conversions.

Lusitania wanted to convert because, unlike most credit unions, the majority of its loans are tied to real estate and it wanted greater mortgage lending powers.

The NCUA "realized they really were not facing a charter exodus," said Mr. Fisch, a partner in the Washington firm of Malizia, Spidi, Sloane & Fisch.

Further, the agency made converting tougher with new standards it issued in March. Under the new regulation - which did not apply to Lusitania - a credit union must get a majority of its membership to approve a charter change.

Because Lusitania had applied before the new rules took effect, only 20% of its members must approve the switch.

"This could be the first and last one," Mr. Fisch said.

The OTS has already approved the conversion contingent on approval from the NCUA; the Federal Deposit Insurance Corp. also is expected to grant the new thrift coverage.

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