NEWARK, N.J. - After 13 months of sparring with examiners and jumping regulatory hurdles, Lusitania Federal Credit Union on Sept. 1 became Lusitania Savings Bank.

But so far the first credit union ever to convert to a mutual savings bank hasn't had a chance to catch its breath, let alone relish its victory.

Besides switching charters for greater freedom in mortgage lending, the $56 million-asset Newark, N.J., institution has moved into new headquarters and is in the throes of a computer conversion. And next month, Office of Thrift Supervision examiners will be paying a visit.

Officials hope the pace will slow down soon so they can craft a strategic plan, change their checks, replace a sign on their branch that still reads "Lusitania Federal Credit Union," and tackle other details.

"We've moved, changed our charter, and had a computer conversion," said Sandra Teixeira, vice president of finance and human resources for the savings bank. "Any one of those three would kill you. Some time in January we hope we will have time to get back to ordinary business."

Prior to the conversion, Lusitania catered solely to Newark's Portuguese community. Business has boomed since it opened its doors to the public.

"We've seen a terrific increase in new deposits," said Augusto Gomes, chief executive and founder of Lusitania. In September the institution attracted $1.6 million in deposits, compared to $333,000 the previous month.

These new deposits have flowed in without any advertising, Ms. Teixeira said.

"In the past we were always accused of being discriminatory in this neighborhood" for turning away people who weren't Portuguese, Ms. Teixeira said. "People we turned away before are coming in now to ask if they can open accounts."

Lusitania also has started to liberalize its mortgage lending by extending the terms of fixed-rate and variable-rate loans for residences for five or more families.

Now the savings bank is bracing for its first examination by a different agency and under a different set of rules.

The biggest regulatory adjustment has been beefing up policies and procedures, Ms. Teixeira said. "The OTS is really big on those," she said.

Complying with the Community Reinvestment Act could be a headache.

"Our loans and deposits are all concentrated in one area, so it shouldn't be too much of a problem," Ms. Teixeira said. "But it will be a little difficult in that our members are mostly Portuguese. We'll have to put all of our efforts into attracting loans and deposits from throughout the community."

Although Lusitania has officially been a thrift for almost two months, it has behaved like one for the past 10 years. In fact, its decision to switch charters was prompted by the strains that developed in its relationship with the NCUA over its penchant for real estate lending.

Lusitania was chartered in 1980 in Newark's old Ironbound neighborhood, a melting pot of different ethnic groups. Starting in 1985 the credit union focused on financing buyers of the multifamily residences that line Ironbound's streets.

"That's what our members want," said Mr. Gomes, a Portuguese immigrant who has worked at credit unions serving his community since the 1970s. "The Portuguese and other ethnic groups are savers, and the only thing they borrow for is real estate."

But Lusitania's concentration in real estate - virtually all of its loans were mortgages or home equities - unsettled the regulator. The NCUA, mindful of the savings-and-loan meltdown, cracked down on mortgage-heavy credit unions in the Northeast after the regional economy tanked in the early 1990s.

The agency was particularly concerned about Lusitania's portfolio because almost half the loans were for "mixed use" properties, those combining multifamily residences with a ground-floor business - a kind of commercial loan that regulators feared could expose the insurance fund to losses.

For many years, the Lusitania had been sheltered from criticism because its delinquency ratio was below 1%, Mr. Gomes said.

But when the local economy soured in the early 1990s, delinquency shot up, eventually hitting 10.1% in December 1994 - about 10 times the industry average. Currently it is about 6%, compared to the thrift industry's average of 2.2%, according to Veribanc Inc., the Wakefield, Mass., rating firm.

The NCUA put the heat on Lusitania. In December 1993, it told the credit union to draft a plan explaining how it would survive if it abandoned mortgage lending, Ms. Teixeira said. The NCUA intensified scrutiny in January 1994 and examiners suggested that Lusitania sell off some of its home loans. In April the credit union was told to put a moratorium on mortgage lending.

Lusitania decided it needed to change its regulator and its charter - only it didn't know how.

That changed in July 1994, when it learned about an attempt by OneOk Employees Credit Union to convert to a thrift. The Tulsa, Okla., institution was seized before its plans got off the ground, but it inspired Lusitania.

"The decision to go to a thrift charter was never debated," Mr. Gomes said. "We just wanted to know how to do it."

"We started calling some attorneys to find out how it was done, and the rest is history," Ms. Teixeira said. The credit union retained the Washington firm Malizia, Spidi, Sloane & Fisch to handle the transaction.

The credit union also sought advice from Dawn Causey, regulatory counsel for the thrift trade group America's Community Bankers. Lusitania's goal made sense to her.

"It was a regulatory mismatch," Ms. Causey said. "They were a real- estate lender criticized for lending."

Lusitania filed a conversion application with the OTS on Aug. 3, 1994. Five days later, the credit union learned what real regulatory pressure was, as NCUA examiners poured in to comb through the credit union's books. For the next several weeks, examiners from around the country crammed into the institution's headquarters.

Mr. Gomes charged that the regulator was trying to intimidate Lusitania. At the time, the NCUA was alarmed that attorneys were discussing charter conversions with credit unions. The agency feared some industry officials might convert solely for their financial gain.

"They spent hundreds of thousands of dollars so they could find something to shut us down," Mr. Gomes said. "But they couldn't find anything."

Bob Loftus, director of public and congressional affairs for the agency, disputed this claim.

"There was never any such effort," Mr. Loftus said. He added that the agency had legitimate concerns about rising delinquency and the downturn in the Newark real estate market.

Lusitania didn't give up. Mr. Gomes took his case to NCUA Chairman Norman E. D'Amours, and eventually the regulator backed off.

"We still haven't figured out" why the regulator relented, Mr. Gomes cracked. "How a government agency was able to come to its senses - I don't know."

But Lusitania's trials were far from over. It had to hack through a jungle of red tape as it and the regulator worked out an unprecedented transaction. The NCUA rejected several conversion proxy statements, and in March 1995 it disqualified a membership vote based on one of those statements.

The institution's pens and datebooks from this time indicate management's anxiety about its future identity. The items read simply "Lusitania."

"We didn't know exactly how this was going to end," Mr. Gomes said.

A proxy was approved in May, and the membership voted overwhelmingly to endorse the conversion.

Mr. Loftus said the NCUA wasn't trying to strong-arm Lusitania.

"There were some bumps along the road, but overall it was an appropriate process," Mr. Loftus said.

Life as a mutual savings bank will be more expensive than as a credit union. According to Lusitania's proxy statement, annual regulatory fees and insurance premiums total $120,725 as a savings bank, compared to $13,000 as a credit union.

Also, Lusitania will owe $347,838 in taxes, according to the proxy.

But these costs will be offset by greater revenues from increased mortgage lending, Mr. Gomes said. Moreover, Lusitania had little choice but to convert.

"We were convinced we would not be able to survive under the NCUA," he said.

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