The Rundown

Two institutions, one bank, one CU, contemplated charter change late in 2011.
Technology CU, based in San Jose, Calif., advised members about potential charter change.
Thrivent Financial Bank may become credit union.

Two potential charter conversions, one from a state-chartered CU to a federal thrift and one from state-chartered bank back to a federal CU, drew some attention in the final quarter of 2011.

The potential CU-to-bank charter change came when the board of directors of the $1.5 billion Technology Credit Union wrote the CU's 74,000 members that they may be better served by converting the credit union to a bank.

In a letter posted Oct. 3 on the CU's website, the board of the San Jose, Calif.-based credit union laid out its reasons for considering the option and invited member comments before making a final decision at a meeting slated for Nov. 2. Under current NCUA regulations, the letter and the invitation for member comments are considered the first step in the agency's charter change process.

“Tech CU's board of directors believes that, as a mutual savings bank, Tech CU will be able to significantly expand its commercial lending business,” the credit union board wrote in the letter. “While we will continue to be primarily a residential and consumer lender, we will seek to diversify our loan portfolio by increasing secured commercial and industrial lending to small and mid-size businesses in our market area.”

Tech CU's board believes that this would improve earnings because commercial loans generally carry higher interest rates and origination fees than typical residential mortgage and consumer loans. The additional revenues that Tech CU's board believes will be generated by this type of lending would be used to support and enhance existing products and services and provide new products and services and cutting edge technology, the board added.

The CU's board also cited expanded capital opportunities as a reason for considering charter change as well as the ability to serve the broader community without field of membership restrictions.

But economic analysis by CUNA Chief Economist Bill Hampel pointed out that the CU would actually pay more for its federal deposit insurance as a bank than if it remained a CU, even with the additional cost of NCUA's corporate stabilization fund. Additionally, shared branching data indicated that more CU members would have to stop using shared branching if the CU became a bank.

The CU never formally announced the Nov. 2 decision of its board of directors about the potential conversion and has not returned calls or emails seeking comment on it, but observers assume the decision was in favor and that the CU is working with NCUA on its disclosure documents and ballot, the next step in the charter change process.

The other potential charter change, from a bank back to a CU, is a little bit more complicated because of its relative rarity.

The $550 million Thrivent Financial Bank is a subsidiary of Thrivent Financial for Lutherans, the largest mutual insurance company in the country since 2001, when the insurer formed it out of two existing credit unions.

In November, documents came to light indicating the corporation wanted to take the bank back to a credit union charter.

“In today's environment, a member-owned and member-governed credit union is a natural fit for Thrivent,” Jim Thomsen, senior vice president of member services for the insurer, wrote to TFL members in a company newsletter.

“Through this credit union, we will be able to offer even more competitive products and services, build value for our membership and reinforce the benefits that come from being a Thrivent Financial member.”

The bank has declined a request for an interview until it gets more into the charter change's regulatory process. But a long message to members laid out some of the parameters for what the insurer has planned for the bank and the new CU.

Essentially, what is being planned is less of a charter change than a charter launch. In a charter change, the entire entity changes with the charter. Aspects of the institution that might not fit the new charter model are either sold or dissolved.

But in this circumstance, TFL plans to continue to have the bank as a subsidiary, reserving to itself. Regular banking products and services, the checking, savings and lending that make up retail banking, will move to a newly chartered and launched credit union. Current bank depositors will be grandfathered in as members of the new credit union, but most new depositors would have to become members of TFL in order to participate in the CU, the insurer said.

TFL cited three reasons for making the move now. First, members will benefit from having a CU, and a credit union will be consistent with Thrivent's focus on member ownership, the CU said in its message to customers.

Secondly, the insurer cited advantages of being a credit union – but did not lay out what they were – that it said would allow the CU to offer more competitive products and services to Thrivent members.

Instant Insights /

Online Only: CU-to-Bank and Bank-to-CU Conversions Drew Attention

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