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WEST PALM BEACH, Fla. – The state credit union scene was abuzz with activity this year and included everything from charter conversions, field-of-membership expansions, and new state credit union statutes. There was no let up in FCU-to-SCCU credit union charter conversions and field-of-membership expansions in 2001. * The Sunshine State ended the year with its third – and largest – federal-to-state-charter conversion. Jax Navy FCU, with more than $2 billion in assets will begin doing business as a state-charter on Jan. 2, making it not only the largest state-chartered credit union in Florida, but the largest state-chartered financial in the entire state. Jax Navy’s charter conversion was preceeded by Tropical Financial CU (formerly Tropical FCU) and Eastern Financial CU (formerly Eastern Financial FCU). * Further up the East coast, Connecticut continued its wave of federal-to-state charter conversions, reversing a state-to-federal trend Connecticut experienced from 1980-1995. In 2001, four federal credit unions in Connecticut converted to state charters – Stamford Municipal Employees FCU (became Stamford CU); Mutual Security FCU (became Mutual Security CU); Fairfield County FCU (became Fairfield County CU); and Greenwich Connecticut Teachers FCU (became Members Credit Union). * Moving West, 3 federal credit unions in Texas converted to state charters. The most recent was Corpus Christi Area Teachers FCU which was originally chartered as an SCCU, then converted to an FCU before converting back to a state charter. At press time, Corpus Christi Area Teachers’ application was still pending in the state’s Credit Union Division. The two other FCU-to-SCCU conversions in Texas were particularly noteworthy because of their size – OmniAmerican FCU and Fort Worth Community FCU, the 10th and 11th largest credit unions in the state by assets. * California showed no let up in charter conversions from what it witnessed the previous year. This year, the Credit Union Division of the state Department of Financial Institutions approved 11 FCU-to-SCCU conversions. While some of the converting credit unions were among the smaller ones in the state, they also featured some larger ones such as America First FCU and Water and Power FCU. As credit unions reached out to expand their fields-of-membership, it seemed the bankers were right behind them ready to file appeals. Nowhere was this more evident than in Missouri. Throughout the year, credit unions’ eyes were focused on the state as the Missouri Bankers Association and area banks, arguing that the FOM expansions violated the state’s CU statute, filed a total of 9 appeals of FOM expansion applications approved by the director of the Missouri Division of Credit Union Unions. * The state Credit Union Commission upheld Director John Smith’s approval of the field-of-membership expansion application for Springfield Telephone Employees CU. The bankers have taken their appeal to the Cole County Circuit Court, and the court will perform a judicial review on Jan. 3 of the appeals material. Springfield Telephone also plans to file a motion before the court at that time for a dismissal of the bankers’ appeal. * The Commission also upheld the director’s approval in the cases of South Community CU and Central Communications CU, but no formal written decision has been issued yet. * The MBA also appealed the director’s approval of a FOM expansion application from Glass Workers CU. The credit union amended its application, rendering the bankers’ appeal moot. * The Commission is expected to make its decision in Jan. 2002 of the bankers’ appeal of the expansion approval for Educational Employees CU. * The Commission has not yet scheduled a date to hear appeals filed by the MBA and local banks of Director Smith’s FOM expansion approvals for City Utilities CU and Gateway Metro CU. * The MBA appealed the FOM expansion application granted Mazuma CU. The credit union withdrew its applications and filed an amended one. The latter application was approved and was not appealed by the MBA. * Alliance CU withdrew its previously approved application to expand its FOM following the MBA’s appeal. Before the year ended, Smith gave preliminary approval to FOM expansion applications from two more credit unions – St. Louis Telephone Employees’ CU to serve 1.6 million residents in St. Louis, St. Charles, Jefferson and Franklin counties; and from Electro Savings CU to serve 1.5 million residents in St. Louis, St. Charles and Jeffferson counties. The MBA already said it plans to challenge both expansion grants with the Credit Union Commission. In the beginning of the year it was everyone’s best guess how the economic slowdown would affect credit unions’ mortgage portfolios. By the end of the year, CU economists had their answer: The national economy may have remained sluggish, but you could have fooled credit unions’ mortgage portfolios. If anything, sliding interest rates kicked real estate lending into super high gear at some credit unions and made 2001 a banner year for mortgage loan originations. In October, first mortgages accounted for 8% of CUs’ loan portfolio (compared to 7.3% in 2000), according to CUNA. Home equity loans made up 6.4% of their portfolios (compared to 5.9% last year). On the auto lending front, auto manufacturers’ 0% financing offers continue to stir up credit unions’ ire. What has CUs and the trade associations so ticked off is the dealers’ practice of misrepresenting to consumers the hidden costs involved with these supposedly good deals. The Fed was supposed to take up in early December the issue of amending Reg Z, Truth in Lending, to include auto financing, but that meeting had to be postponed due to an anthrax scare in the Fed’s headquarters. In the meantime, CUNA and NAFCU are getting encouraging credit unions to educate their members on the real deal behind the 0% financing offers. On the CUSO front, if I had to select the two things that most affected the CUSO scene during 2001 I would have to choose federal credit unions’ expanded incidental powers, and the expansion of CUSOs’ trust services. CUs’ expanded incidental powers mean a new role for CUSOs. As credit unions begin to provide many of the products and services that used to be CUSOs’ domain, that will force CUSOs to explore new business models. CUSOs will not become extinct – just the opposite. Economies of scale will still make CUSOs the most sensible venue for credit unions to provide certain services to members. One of the prime areas where we should expect to see more CUSO activity is trust services. In 2001 we already saw the formation of several credit union-owned trust companies such as Members Trust of Colorado jointly owned by six Colorado CUs and the Colorado Credit Union League, and UniTrust Financial Services owned by seven credit unions in Virginia. -

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