ROCHESTER, Minn. — The $1.2 billion Think Federal Credit Union, formerly IBM Mid America Credit Union, has notified members that its board has voted to apply to convert to a mutual bank.

The notice of the board's Sept. 20 vote came in a Sept. 27 letter to the CU's 97,000 members. Think FCU is headquartered in Rochester, Minn.

“We have modified our charter in the past, always within a credit union framework,” CEO Paul Horgen and Chairman Karen Koelsch wrote in the letter. “We've moved from a state charter to a federal charter…and from a single sponsor to a multiple-sponsor charter…This new proposal takes us from a credit union charter to a federal mutual savings association charter.”

The credit union cited increased products and services, including business services, as a reason for the conversion as well as increased convenience in the placement of more branches. But the CU acknowledged that most current CU members have not been seeking business services.

“While demand for business services exists among our members, the demand is currently not great enough to justify the cost of expanding into this line of business,” the CU said.

Similar to claims made by Lafayette, another FCU that is currently seeking to convert its charter, Think suggested that it needed to make the change in order to be able to open more branches and thus offer its members more convenience.

“In the past, we have had to close branches because demand in certain locations was not great enough to maintain those branches,” the letter said. “Placement of branches is more effective when anyone living or working near a branch is eligible to use the facility. Our present charter contains membership restrictions that limit our ability to position branches effectively. A mutual savings association charter eliminates these hurdles.”

The CU also told members that it would retain the one member, one vote governance structure which credit unions have and which other CU-to-bank converts have generally dropped. It also said that it currently did not have plans to adopt a mutual holding company structure.

In a faxed response to some questions posed by Credit Union Times, Tom Floyd, chief administrative officer for the credit union, said that the CU had sent the letter “because we wanted them to know initial details about the proposal as soon as possible after the board vote.”

The move appears to resemble the NCUA's most current proposed regulations of the charter change process. The agency has not yet finalized the regulations, which, in the proposed form, will require CUs to start the conversion process with a letter to members about considering it. The letter does not mimic the regulated process, however, because it didn't offer any opportunity for feedback from members, which is a significant part of the agency's proposed regulations.

“I think it is just PR, just window dressing,” said Jim Blaine, a noted conversion critic. “This just puts the credit union out in front on one of the issues where they take a lot of heat.”

The letter included the boxed statements required by NCUA and responses from the credit union to them on the back of the sheet of paper.

In NCUA's disclosures, the CU told members that the conversion would cost $726,400, broken down as follows: regulatory processing fees, $5,400; printing, $100,000; postage, $120,000; mailing assembly, $40,000; inspector of elections, $25,000; membership awareness campaign, $58,000; consulting and professional fees and expenses, $90,000; legal fees and expenses, $250,000; special meeting, $3,000; signage and stationary changes, $20,000; and $15,000 for cash prizes. In its responses to the NCUA disclosures, the credit union did not mention the return of its deposit to the share insurance fund. Instead, the CU wrote that federal regulations mandate the costly process. “While it is expensive, it is also part of the democratic process of allowing members control over their institution, which we wholeheartedly support,” the CU wrote.

Reaction to the announcement from other Minnesota credit unions and the Minnesota Credit Union Network has been either muted or off the record. Some executives with some Minnesota credit unions said that they were not surprised by the announcement and added that the credit union CEO is not particularly well liked among the Minnesota CU community. Peter Skaalen, interim president of the Minnesota Credit Union Network said that Think has not been a member of the network for several years and that the network's chief concern was for Think's members. “We support the position that CUNA has adopted relating to the issue of charter conversions. Specifically, we support the right of member/owners to exercise democratic control of their credit unions. But we also strongly believe that the credit union charter provides the best vehicle for serving the financial needs of people,” MnCUN said in a prepared statement.

“It is not easy for credit union members to fully understand the ramifications involved in a charter conversion. For this reason, we believe that full and complete disclosure is essential to furthering the democratic process and ensuring that objective information is available. We also believe that the net worth of the credit union belongs to the members and should remain with them,” the league stated.

One of the executives to speak up publicly about the conversion proposal was Paul Kundert, a former CEO of the institution when it was IBM Mid America Credit Union. Kundert has urged his former CU's members to consider the management's proposal to convert their credit union to a mutual bank very carefully.

“My advice to the members that I served in my previous capacity is to take the time to understand the long-term implications for the decision,” stated Kundert, the current CEO of the $870 million University of Wisconsin Credit Union.

“When I left the credit union in 2003, the retained earnings of the organization were $123 million, or an estimated $1,400 per member, which is a meaningful amount to most families. Most importantly, I would encourage people to vote, as the decision will ultimately be made by a simple majority of those who take the time to vote.”

Kundert was with IBM Mid America from 1990 to 2003. During his tenure with the institution he served as president/CEO among other positions. During that time the CU grew by 33,000 members and from $800 million to over $1 billion in assets as retained earnings grew by $100 million, according to Kundert.

Meanwhile it's unclear when Think might take the step of formally applying to convert its charter. As of press time, the Office of Thrift Supervision has no record of the CU filing an application to convert its charter. –dmorrison@cutimes.com

Instant Insights /

$1.2 Billion Think FCU Proposes Charter Change, Sends Letter to Members

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