LMCU Awaits Regulators Approval

June 11, 2004
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GRAND RAPIDS — Lake Michigan Credit Union has grown like a fiscal weed over the past two years and that is the bottom-line reason officials are trying to transform the credit union into a federal mutual savings bank.

“Because of our success, we are at a point where regulations on credit union capital will require us to stop growing, turn away new members, lower deposit rates, raise borrowing rates and reduce services,” said Sandra Jelinski, LMCU president and CEO.

“This means we need more regulatory capital to continue our growth, a common problem for many successful credit unions,” Jelinski added.

The numbers back that claim of growth.

Just since June 2002, LMCU has seen its assets leap by nearly 83 percent and its loans jump by almost 73 percent.

In fact, LMCU was tops in earnings nationwide in a field of 9,500 credit unions last year.

Since Jelinski took over the helm in 2001, assets have grown by more than 300 percent and recently topped the $1 billion mark.

But the charter conversion is taking longer than expected.

The switch requires approval from a majority of members, and credit union officials initially thought members would have had their ballots in April.

Instead, officials are waiting for regulatory approval.

LMCU filed its disclosure materials in April with the Michigan Office of Financial and Insurance Services, the National Credit Union Administration, the Office of Thrift Supervision, and the Federal Deposit Insurance Corp.

Once the credit union gets positive notices from those agencies — approvals that officials hope will arrive within weeks — the ballots will be mailed to members and a date for a special membership meeting to explain all the details of the conversion will be released.

Members will have 90 days to vote on the change.

Jelinski said the charter change would give members competitive rates on deposits and loans, fewer fees, more branch and ATM locations, and more product and service options.

She added that the new entity would fall under the Community Reinvestment Act, which requires banks to serve the needs of low- and-moderate-income individuals.

Gaining a bank charter would allow LMCU to make loans to whomever qualifies, offer membership to any individual or business, have branch offices through the state and even across the country, and offer compensation to its board of directors.

A holding company will be formed if members approve the charter change and 49 percent of the new company’s stock will be made available for purchase — first to members, then to the public. The holding company would keep 51 percent of the shares.

One of the biggest changes a bank charter would bring is the loss of the credit union’s tax-exempt status.

But Richard Austin, LMCU marketing and public relations director, said the credit union has a successful automobile leasing business. He said he firm sustains depreciation charges that it can’t write off because the credit union doesn’t file a tax return.

Austin said those depreciation charges are likely to cover any taxes the new entity will accrue, and that means the new bank will inherit the credit union’s business practices.

“We will probably pay very little tax,” Austin told the Business Journal earlier this year.

“We don’t plan on changing any of the ways we do business.”

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