business

Como Northtown Community Credit Union, a St. Paul credit union that long touted itself as a friendlier alternative to big banks, is preparing to merge with a much larger rival after suffering big losses on home loans.

The board of Como Northtown last week approved plans to pursue a merger with St. Paul's Affinity Plus Federal Credit Union, the state's second-largest credit union with $1.3 billion in assets. A formal merger has not been finalized, but the chief executive of Como Northtown said a deal could be reached by year's end.

Founded 70 years ago by railroad workers, Como Northtown would be the seventh Minnesota credit union to merge itself out of existence within the past three years, as loan losses and declining memberships force many smaller credit unions to reconsider whether they can go it alone. The rash of deals could result in reduced service and access to credit for thousands of people who once relied on neighborhood credit unions for basic loans.

Other financially troubled credit unions that have sought mergers in recent months include City-County Federal Credit Union in Brooklyn Center and Highgrove Community Credit Union in St. Paul.

"It's a shame," said Kevin Chandler, a former state senator and former head of the Minnesota Credit Union Network, a trade association in St. Paul. "There's a fundamentally different way of doing business at the street level that neighborhood credit unions have always done well. That personal touch, that community service, gets lost each time one of them goes away."

Though tiny in size with just $37 million in assets, Como Northtown had 8,000 members and deep ties in the Como Park, Frogtown, Midway and University Avenue neighborhoods of northwest St. Paul.

A colorful history

The credit union offered a variety of perks that couldn't be found at big banks. If someone was looking to buy a used car, Como Northtown had a used-car salesman on staff to help negotiate with car lots. Up until the early 1990s, the credit union served free beer and had big bands perform at its annual membership meetings.

When Carol Aegerter's five children opened accounts at Como Northtown in the late 1970s and 1980s, the credit union matched their first $5 deposits. At the credit union's annual kid's day event outside its branch on N. Lexington Parkway, there were pony rides, clowns, and a dunk tank with the credit union president as the dunkee.

"It makes me sad, because the only reason I had an account there was because of that history," said Aegerter, vice president of finance and administration at the Minnesota Children's Museum and former chair of Como Northtown's board. "I'm not sure I'll feel that same loyalty that I feel now."

Others expressed similar disappointment.

Frank Viggiano, a real estate manager and former Como Northtown board member, said he got his first business loan from Como Northtown in 1988. He went to the credit union's annual meeting at a VFW hall in Columbia Heights and was surprised to see hundreds of people dancing and drinking. There were about a dozen kegs of free beer, he said.

"It was what a credit union was supposed to be, people interacting and working to improve their communities," said Viggiano, who estimates he's borrowed close to $1 million from Como Northtown over the years to renovate properties in St. Paul.

But Como Northtown's membership base began to age in the early 1980s, after the railroads consolidated and slowed their hiring. In 1986, the credit union got a community charter from the state that let it serve a group of neighborhoods in northwest St. Paul, but it wasn't enough to maintain growth. Membership peaked at more than 9,000 a decade ago.

Problem loans were another issue. In recent years the credit union relied heavily on home equity loans to generate growth, which left it particularly vulnerable to the collapse in housing prices.

It was also among more than a half-dozen credit unions that lost big on a troubled resort project in Ottertail, Minn., known as Thumper Pond. Como Northtown lost $250,000 on the project, which features an indoor water park, hotel, spa and upscale houses on a golf course. Thumper Pond, named after the pet rabbit of one of the project's developers, fell into foreclosure in 2008.

By June of this year, Como Northtown's capital, as a percentage of its assets, had fallen to 4.8 percent from a peak of 11.8 percent in May 2007. Federal regulators consider a credit union undercapitalized if its capital-to-assets ratio falls below 6 percent.

Questions from regulators

Brian Roegge, president and chief executive of Como Northtown, said the credit union began receiving phone calls from other credit unions interested in merging about six months ago. In addition, regulators from the National Credit Union Administration began asking tough questions about the credit union's future growth plans.

"The NCUA didn't come out and say, 'You have to merge,'" he said. "But reading between the lines, at the questions they were asking, you could tell that [a merger] was their desire."

Roegge said Como Northtown and Affinity Plus still need approval from regulators. Also, a deal can't go ahead unless the board of Como Northtown and a majority of its members approve it.

Chris Serres • 612-673-4308