ALBANY, Ga. - Talk credit-union-to-bank conversion in this southeast Georgia city of 80,000 and you get a mixed bag of opinion about the outcome - from "a ripoff of credit union members" to "a tremendous financial success story." It's been more than two-and-a-half years since members of the old AGE CU, then a $268 million institution, voted to become a mutual savings bank - now called HeritageBank of the South with assets of $334 million. CU critics of the conversion claim AGE members were "duped" into voting for the switch, failed to comprehend its impact and experienced a sharp decline in services, charges strongly denied by architects of the conversion. Local backers of HeritageBank, however, including some ex-CU managers-now with the Albany mutual-say the institution has become a "powerhouse" community bank serving a large business and retail base. "Without a doubt, we're more progressive, able to diversify and have become a leading commercial lender in our community," argued the president of Heritage, Lynn Dorminey, who took over the bank post two years ago after heading up the First National Bank of the South in Albany. Among its accomplishments, said Dorminey, HeritageBank, is now "the largest mortgage lender in southwest Georgia" with a portfolio of $80 million. Nonetheless, CU executives here and elsewhere contend the conversion has not worked all that well, created general "disgruntlement" among the Albany populace and fostered a negative image for CUs since the public now fears other CUs will follow the Heritage lead. "I can say one thing for sure, they did a masterful job in marketing by convincing AGE members that it would be a good deal for them and I don't think it has," argued Barry Heape, president and CEO of the $55 million DOCO School Employees FCU. Moreover, the conversion has brought in new business to DOCO coming at the net rate of 120 new members a month, said Heape. "That's a jump from 60 a month when the conversion first took place." In addition, the conversion has triggered a spurt in new SEG affiliations with his CU, accounted for in the 120-member-a-month blip, said Heape. "We've taken on a regional hospital group of 500, and incidentally they came to us," said Heape, noting also a Proctor & Gamble SEG as well as three or four smaller manufacturing SEGs have been absorbed by DOCO. But Dorminey contends that while the mutual did lose some customers following the conversion, in part, because of a data processing overhaul "when we bought a new computer," the institution with a $100 million growth spurt has thrived on a more profitable retail and commercial base. Dorminey did acknowledge an increase in service fees on savings accounts including a $1 deposit slip charge "since we found members were using the accounts for small transactions to circumvent open checking accounts." Problems have since eased and the fee was dropped several months ago, he said. Heritage, joining other banks in the Albany market, he said, also imposed a $100 auto loan application fee, a practice not employed by CUs. "It used to be a place where it was a pleasure to do business, the tellers knew who you were and now that has all changed," said Alex Fazekas, a former member of AGE's supervisory committee and a Marine Corps lieutenant colonel affiliated with a large Marine supply base in Albany. Apart from closing the CU's lone branch on the base, AGE directors pushing for the conversion "were so enamored with making money and building an empire," Fazekas complained, "they forgot about taking care of their own-the Marines" referring to the military code. But AGE managers as well as Dorminey contend the decision to switch to a mutual was based not on greed or empire building but to provide loans to a growing commercial base-something limited by the CU charter. "I think they would have loved to stay a credit union had the regulators allowed us to continue what we were doing in mortgage lending," said Dorminey, noting AGE was extending a high concentration of long term commercial real estate loans, a practice frowned on by NCUA. "We never got above a CAMEL 2 rating," declared Dorminey recalling the board's decision that "we couldn't do what we were doing" without pursing a different course. By switching to a mutual, the AGE Board also felt it could become, "a major player serving commercial borrowers as well as municipals and nonprofits," as one source put it. Echoing that view was the former president of AGE, Lee Bettis, an ex-banker and retired Marine who said over a two-to three year period, "I brought 30 bankers with me" to the Albany CU after leaving the old NationsBank/Citizens & Southern National Bank in Albany where he had been vice president. "It all made sense to me since I had experience in helping convert Citizens & Southern into NationsBank," said Bettis, noting NationsBank eventually was acquired by BankofAmerica. Earlier this month, Bettis, who had been president of HeritageBank's parent mutual holding company but left in July, was hired as a senior strategic advisor by CU Financial Services, a Portland, Me. CU consulting firm. CU Financial Services, which guided Bettis and the AGE Board on the mutual switch in 2001, is headed by Alan Theriault, and is a firm long active in aiding CU-to-mutual switches across the U.S. and assisting CUs on business lending. CU executives here and with Georgia Credit Union Affiliates charge that Bettis was forced out of Heritage, a fact vigorously denied by the 62-year-old Bettis who maintains he retired from the mutual "to slow down" adding the decision to leave "was related to corporate goals and personal reasons" in connection with his building a new home in Santa Rosa Beach, Fla. But League spokesmen and CU managers here point to the fact that "he resigned rather quickly." Without AGE or Bettis mentioned by name, the issue of his departure came up in a question and answer session with NCUA Chairman Dennis Dollar at CUNA's Future Forum conference in Reno in October. Dollar, responding to the query on NCUA's current conversion policies brought by Michael J. Mercer, Georgia Credit Union Affiliates president, said the agency recognizes "that members have a right to do what they want to do including giving away membership" but that the1998 CU Membership Access Act preempted a former rule that required at least 50% of the members to vote in an election to make sure it wasn't just a small group seeking to convert." Dollar said it was his "hope" that some day Congress will return to a "regulatory determination, not a statutory determination," and he said disclosure provisions need to be strengthened so that members "know what they're voting on." Agreeing with Dollar's view is Connie Mancuso, president/CEO of the $22 million Albany Federal Employees CU, maintaining that AGE members "were really not aware of what they had to lose" two years ago and that the conversion "just left a bad taste" in the community. "They were told there would be no change," a fact that proved in error, she said noting the closing of the Marine branch, shutdown of ATMs and new service charges. Meanwhile, her 4,000-member CU, she said, has witnessed an influx of new members and managed to grow $3 million within the last two years, a fact attributed to the AGE switch. Some of her new members have come from a Merck & Co. plant which had 650 employees doing business at AGE, "but have left because they wanted a credit union." "I think people in our community are simply more aware of what a credit union is and they know that it stands for something a little bit different from a bank," observed Mancuso. HeritageBank "is certainly an aggressive" institution, she said, having put up several new buildings in an Albany complex to house its commercial loan and residential operations and to lease out property to law firms and realtors though construction on one building reportedly had been halted recently. Meanwhile, Heape said his CU is still getting job inquiries from HeritageBank employees adding "we hired five of their employees in six months and they represent 70 years of experience." Theriault of CU Financial argues that the AGE conversion "while it did not make everybody happy" in Albany, represents a model, at least, in structuring a conversion using a "hybrid" non-stock holding company vehicle that preserves coop features while allowing the new savings bank to raise capital. In hiring Bettis to pitch Theriault's conversion theories, CU Financial-and Bettis-gets special treatment this month on the Callahan & Assoc. Web site in a bylined article by the former AGE CEO entitled, "The Mutual Holding Company:a Capital Idea." The article identifies Bettis as former CEO and director of Heritage Financial Group, and also quotes Dorminey. -

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