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NAPERVILLE, Ill. – In what’s becoming a familiar story in the credit union industry, another credit union has converted to a mutual savings bank. This time it’s the $82 million Allied Pilots Association FCU. This marks the 19th CU to convert to a thrift, with the total amount of converting assets at $2.6 billion. Allied Pilots becomes the first credit union in Illinois to convert. When it’s all said and done this may be one of the most unique conversions yet. In its initial notice to members informing them of the mutual conversion the board states its intention to then convert to a stock bank. The former APA FCU is now known as Allied First Bank, SB. So far just three of the now 19 credit unions that have converted to mutual savings banks – BUCS FCU, IGA FCU, and Affiliated FCU – have converted to stock banks. The difference in those three cases is the process took much longer because they converted to federal thrifts where the OTS wants converting CUs to wait at least one examination, basically one year, before converting to a stock savings bank. As a state-chartered savings bank in Illinois, which is regulated by the Illinois Office of Banks and Real Estate, a converting CU does not have to wait that one-year period to convert to a stock-owned savings bank. The CU outlined its intentions to go stock-owned in an April 27, 2001 letter to its members. “As a member of Avatar Bank, you will….receive materials requesting approval for Avatar Bank to convert to a stock form savings bank as the final step of this conversion process….There is no obligation for any member to purchase stock in the conversion. The net proceeds from the stock sale will be used to significantly increase the capital of Avatar Bank,” stated APA FCU. It later stated that the conversion to a stock bank should be completed by this fall. Initially the CU planned to utilize the name Avatar Bank as the notice stated, but it eventually decided on Allied First Bank. While the conversion from a CU to a mutual savings bank is complete at press time, the application to convert to a stock bank had not yet been been received by the Illinois Office of Banks and Real Estate. However, sources close to this story said it was imminent. “They have converted to a mutual savings bank. I don’t know for sure if they’re converting to a stock bank. There’s no waiting period other than the amount of time it takes to submit and have the application approved. We haven’t received an application,” said Roger Copley, manager of supervision of the Illinois OBRE. Copley said conversions to the Illinois’ state mutual charter are pretty common, with about 50 occurring in recent years, yet this is the first by a credit union in the state. “This case is a bit more unusual,” said Copley. A stock-owned savings bank would mean the one-member, one-vote credit union policy is out, because at that point only the stockholders can vote. It also means the possibility of stock options for employees and the board, though the bank would not comment on that. Allied Pilots Association FCU held its special meeting to vote on the conversion in late July. In a departure from most conversion votes where the vote is overwhelmingly in favor of the conversion, this vote was much closer at 59% for and 41% against. Ken Bertrand, president/CEO of what is now Allied First Bank and who has led the CU since it was formed in 1994, was tight-lipped about the conversion, but he did say that capital and FOM were key reasons for the move. The CU’s capital was just over 5% at the time of the conversion, said Bertrand. The CU’s FOM had limited it to serving pilots of the Allied Pilots Association union, the union for American Airlines pilots. Bertrand said a savings bank charter will allow it to open up to flight attendants, and other airline employees as well as people in the Naperville area. The story behind Allied Pilots Association FCU’s beginnings is intriguing. The CU was reportedly started because pilots of American Airlines, who were served by American Airlines FCU, felt they weren’t getting basic products such as credit cards from American Airlines FCU. They wanted another option. AAFCU President/CEO John Tippets declined to comment on the formation of Allied Pilots. To this day, a number of these pilots belong to both CUs. Bertrand said simply, “This is the credit union I started in 1994. It had nothing to do with American Airlines FCU. It was started by the pilots of American Airlines and the Allied Pilots Association,” said Bertrand. APA FCU grew from $100,000 to $82 million in only seven years with roughly 6,600 members. It serves its members through remote channels, and doesn’t even dispense cash at its main office. Deposits are made through direct deposit or ATMs. Alan Theriault, president of CU Financial Services, a firm that helps CUs convert to thrifts, consulted on this deal. “They hit the capital wall. Although these guys are excellent managers, probably some of the best in the country, they are seeing diminishing returns. The only way you can grow capital as a credit union is retained earnings,” said Theriault. He said the CU was set to be hit with PCA because of its 5% capital, and with the more relaxed capital standards of a thrift, they can now get more aggressive in deepening their relationship with existing members and bringing on new members. “With their delivery systems they could serve pilots from any of the airlines. They are completely remote. To grow their franchise they have to go outside their core group,” said Theriault. Theriault said the bank is large enough that if it does move to a stock bank it will be listed on the NASDAQ. The bank’s customers benefit, said Theriault, because they get first crack at buying shares at the initial offering price. [email protected]

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