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TALLAHASSEE, Fla. – The $170 million Sunshine State credit union has become the third Credit Union in the United States to have tried to become a mutual bank and failed – at least for now. The credit announced that it was withdrawing its application to the Office of Thrift Supervision and Federal Deposit Insurance Corporation to become a mutual bank on March 14, but reaffirmed its intention to press forward with its charter change effort in a letter to its members and in the local press. “We are fully committed to the charter change and to our bright new future as a mutual bank,” said Michelle Clark, vice president of the credit union. “We intend to reapply.” Although observers familiar with the charter change process had begun to comment on the length of time the OTS and the FDIC were spending with Sunshine State’s application, the first clear sign of a troubled effort came when the credit union announced that Mark LeCain, the CEO of the credit union who had led it through the conversion effort to this point, had left the institution. “The board of directors decided on the eve of this [charter] change that the credit union needed a shift of leadership,” Clark said, indicating that she was conveying the same message to the public that the credit union board had conveyed to the staff at a meeting earlier that day. “The board indicated its full support of us as senior staff and that we were moving forward,” Clark said, but had not really conveyed any additional details of the departure, although the letter to members and in the local press the credit union indicated that LeCain had “retired.” LeCain has not been available for comment since leaving the credit union. Sources close to the credit union board cited ongoing board disputes that had resulted in LeCain being forced to resign. It’s unclear that LeCain’s departure had anything to do with the charter change effort and at least one insider flatly denied that it did. But LeCain’s departure came roughly one month after Board Chairman Thomas Napier announced his resignation because of stress related health reasons in mid-February. Rumors have circulated that Napier did so because of some inappropriate activity related to the conversion, a suggestion LeCain firmly rejected in his last interview with Credit Union Times. The departure of the two leaders, combined with the federal regulator’s desire for the credit union to hire a chief lending officer, led to the application withdrawal according to the credit union and other sources. “A leadership departure in the middle of an application is a very bad thing from the federal regulators’ point of view,” said Richard Garabedian, a lawyer with the Washington D.C. law firm of Luse Gorman Pomerenk & Schick who advises credit unions on charter change. “A charter change of this type is really a statement of trust on the part of the OTS and they need to see a steady leadership in place,” he added. “One really sad thing is that the credit union was very close to getting approval from the Office of Thrift Supervision,” Alan Theriault, a consultant with C.U. Financial Services said. “Now I would expect it will take significantly more time.” Going Forward? Despite Sunshine’s insistence that it will re-apply, both Garibedian and Theriault agree that, should it decide to do so, it will face a significantly more complicated and perhaps difficult path toward getting approval. The first hurdle may be finding a CEO, given that federal regulators will now have a say in approving anyone who takes the job. “They will want to check the new CEO out pretty thoroughly,” Garabedian said. “Both his background but also his skills and leadership qualities will be up for examination. The FDIC will want to be confident that whoever is coming in has what it takes to do the job.” The second hurdle may be whatever concerns that the regulators had which were slowing down the application in the first place. Clark, who serves as compliance officer for the credit union, denied that the federal regulators had any single specific concern that made them reluctant to approve the application, but acknowledged that they wanted to be confident that the credit union would function well as a bank. Those concerns, to the extent they were there previously, will likely remain if not be more serious, sources said. Then there is the NCUA. The agency has said it is studying whether Sunshine State will have to submit disclosure statements again to its members and conduct a re-vote should it re-apply. The NCUA’s regulations do not specifically address a reapplication for charter change after an initial member vote and it is unclear where the agency may come down. A lot may hinge on whether the changes in leadership in the office of the CEO, combined with a new chairman of the board and possibly other changes amount to a material change to the credit union’s status, according to one source. Garabedian agreed, noting that members had voted on the conversion under one set of criteria and the agency will have to determine whether the same criteria exist. It seems likely the NCUA will at least want to review Sunshine State’s reapplication if the credit union submits one, he said. Should Sunshine State leave the application withdrawn, it will join the $687 million Columbia Credit Union, headquartered in Vancouver, Washington and the $1.1 billion Lake Michigan Credit Union, headquartered in Grand Rapids, Michigan, among credit unions whose conversion efforts have failed in the last two years. -

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