The CU listed the ability to offer a broader array of products and services to members, including member business lending and commercial loans as reasons to make the conversion. "The credit union has indications of strong demand from the current membership for these types of products," the CU wrote.

The notice solicited member opinions about the conversion idea prior to the May 30 meeting and said that all comments must be submitted by May 28.

A report in the Boston Globe quoted CU CEO Nicholas Sarantopolous as blaming the CU's desire to convert on the need to make more member business loans and the credit union's filings with the NCUA appear to bear this out. According to NCUA's records, as of the end of 2006 the then $128 million CU had just over $19 million in member business loans and $620,000 in commercial real estate loans. That put the CU significantly over the legislatively mandated 12.25% cap for member business loans.

NCUA's numbers also indicated that the credit union may have significant problems. According to NCUA's numbers, the credit union has seen its return on average assets drop from 0.11 in March 2006 to -0.1 in March 2007. In an e-mail exchange Sarantopolous blamed the declining ROA on the recent opening of a new branch which had yet to really start paying for itself and reiterated that the only reason the CU was considering conversion was because of the MBL rules.
"The only reason our credit union is considering to convert to a Massachusetts chartered co-operative bank per M.G.L. 392 is the fact that the aggregate MBL statutory limits are not deemed sufficient for the specific loan needs of our credit union's membership," Sarantopolous wrote, adding: "We believe that added MBL powers would also help increase low-cost core deposits from our membership."

If the CU goes through with the charter change attempt, it will be the first credit union to have made a change to a state chartered mutual bank since Columbia Community Credit Union tried in late 2003. Converting to a state chartered bank means that the Federal Deposit Insurance Corporation will be the only federal agency, outside of NCUA, which is involved in the process. This also means the CU will not have a regulatory advocate for its charter change.

"FDIC is generally seen looking more closely at these conversions than OTS might," observed Alan Theriault, president of CU Financial Services, one of the consulting firms, which helps CUs navigate the charter conversion process. Theriault noted that since FDIC does not necessarily benefit from a credit union changing into a bank, it often takes a bit more to convince it that the converting CU would remain financially sound. "After all, who is in a hurry to adopt someone else's headache?" Theriault asked.

Also interestingly, the CU said that it had not chosen to use either of the two main Washington, D.C.-based law firms that have generally taken and specialized in this sort of charter change.

Community is 52 years old this year and, ironically, has a notice thanking its members for their support over that time. The credit union was founded to serve the Greek immigrant community in Lynn and over time grew to have community charter that serves all the residents of Essex County.
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