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TALLAHASSEE, Fla. – Members of the $158 million Sunshine State Credit Union will meet on June 30, 2004 to finalize their vote on changing the credit union’s structure to that of a federally chartered mutual bank, according to the credit union’s disclosure notices to members about the vote. Should the members agree, the credit union will become the 21st in the country to convert its charter to a mutual bank, according to CU Financial Services, a consultant firm which helps credit unions make the switch. There are an additional three CU-to-bank conversions pending. The new bank would be called “Sunshine Savings Bank,” according to disclosure notices which NCUA has approved. If the members approve, the credit union will adopt a mutual holding company structure, under which the former credit union and stock issuing company will be owned in turn by a depositor-owned holding company. Sunshine State will send notifications three times to its roughly 19,000 members, 90 days before the special meeting, 60 days and 30 days. Only the first notification will contain the full disclosure statement and a ballot. The other notifications will be roughly two pages and will address the change in membership entailed in the charter change, the intention to offer stock as part of a mutual holding company, the fact that directors will be paid after the charter change and that the charter change in and of itself does not involve a stock offering. But the disclosures reminded the members that the executive staff will have opportunities to purchase Sunshine Savings stock and those stock options will likely be part of the executives’ pay packages. “Stock options and restricted stock plans are, however, typically adopted following completion of a stock offering and grants made to directors, offices and employees, subject to shareholder approval of the plans,” the credit union wrote. Sunshine State plans to raise approximately $10 million in a stock offering as part of its change. Why Make The Change? Sunshine State’s disclosures blamed a need for capital along with increased competition in auto loan business and deterioration in its consumer loan quality for seeking the charter change. The latter two reasons were significant, the credit union said, because they led the credit union leadership to seek to make more mortgage loans. In 2000, NCUA data show the credit union made 281 first mortgage loans – that jumped to 474 last year. Federal bank regulators, the credit union suggested, were more comfortable with and familiar with mortgage lending than are federal credit union regulators. “The Board of Directors and management believe the Credit Union’s existing members will benefit from, and the future growth of the institution requires, an expanded emphasis on real estate lending which is encouraged by and more familiar to federal savings institution regulators than federal credit union regulators,” the credit union wrote. Clifford Northup, NCUA’s director of public and congressional affairs, said that NCUA did not necessarily agree with the credit union’s assertion but said NCUA would decline to comment formally on it. In terms of capital, the credit union echoed what several other credit unions that have changed charters have observed about their capital situations, that their growth has outstripped their earnings. “As of December 31, 2003, our net worth ratio was 8.33% which is 1.33% above the 7% minimum regulatory net worth ratio require by NCUA to be considered well capitalized,” the credit union wrote. “Without more capital, if we continue to grow at our current rate, the Credit Union will fall below minimum regulatory capital requirements imposed by the NCUA.” NCUA data support that the CU is on a healthy growth curve. It has grown at an average of 18% per year over the last three years, while its net worth has increased by an average of 13% per year. The credit union is obviously doing a lot with what it has as its return on assets stood at 1.30% as of year-end 2003, significantly above its peer group. As for its assertion of deteriorating consumer loan quality, NCUA data support that somewhat. The credit union’s ratio of delinquent loans to assets and delinquent loans to total loans stood at 0.84% and 1.11% in 2003, both significantly above the peer averages, but could just indicate an aggressive lending stance. That’s unknown as the CU would not comment for this story. Sunshine State Credit Union CEO Mark LeCain said he would only answer questions after the June 30 member vote. Though the CU cites increased auto loan competition as a reason to convert, NCUA data show that the credit union has steadily made more new and used car loans every year from 2000 to 2003, with new car loans for example going from 895 in 2000 to 1,151 in 2003. The 1,151 new car loans in 2003 is a very solid number given that the CU has approximately 19,000 members. Used auto loans were up from 1,560 in 2000 to 3,220 in 2003. Reaction from the Florida Credit Union League and the Florida Office of Financial Regulation was generally muted. Mark Ivester, vice president with the League, said the League considered the matter as one between the credit union and its members and said that it hoped, and counted upon, NCUA for making sure that the disclosures to the members were sufficiently complete and clear. “I know after what happened out in Washington state that the NCUA is taking a hard look at these disclosures, so if they are willing to sign off on them we have to count on them to be complete,” Ivester said. Linda Charity, deputy director with the Florida Office of Financial Regulation said her agency also had little to say. “Because this credit union is going from being a state chartered credit union to a federal thrift, we really don’t have much to say about the process other than to make sure they comply with federal laws and regulations,” Charity said. She reported that the credit union had not approached the regulator for any particular regulatory relief, but also noted that most of the credit union’s regulatory complaints had to do with federal requirements and limits. -

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