WARRENVILLE, Ill. and ALBANY, N.Y. – The industry has never witnessed a merger like this before. In what would be the largest corporate credit union merger ever and a deal that could dramatically change the face of the corporate credit union network, the $4.5 billion Mid-States Corporate FCU and the $3.9 billion Empire Corporate FCU have signed a non-binding letter of intent to merge. Empire Corporate Senior Vice President Vic Vrigian said while Empire Corporate and Mid-States are both very large corporates, they consider themselves tier two corporates, with the tier one corporates being WesCorp and Southwest Corporate. "We don't have the economies of scale they (tier one corporates) have. "What this allows us to do is become a tier one corporate and set our own course, rather than react," said Vrigian. Mid-States Corporate Chief Marketing Officer Mike Lee said the exciting thing about this merger, should it come to fruition, is the two corporates have very little overlap. Mid-States' core markets are Illinois, Indiana and Minnesota, with secondary markets in Wisconsin, Missouri and Ohio. While Empire's core markets are New York, New Jersey, and South Dakota, with secondary markets in Pennsylvania and other Northeast and Mid-Atlantic states. "We're going to have over 2,000 members between the two organizations and virtually no overlap," said Lee. Lee said Mid-States and Empire are clearly at the high-end of the second tier of corporates, but they individually still can not do what the WesCorp's of the world can do. "It's about scale, about being able to serve members better," said Lee. Both corporates are familiar with mergers. Empire merged with the New Jersey corporate years ago, and more recently with South Dakota Corporate. Mid-States of course was part of the largest corporate CU merger ever when it merged with INDICORP. It later merged with Minnesota Corporate, and earlier this year announced a unique partnership agreement with Iowa Corporate Central CU, where Iowa's member CUs will move their deposits and investments to Mid-States, yet will still deal with Iowa member service reps. That deal was just recently given the green light by regulators. If it goes through, the new corporate would have approximately $8.5 billion in assets and serve approximately 25% of the nation's credit unions. It would be neck and neck with Southwest Corporate as the second largest in the nation, behind WesCorp. WesCorp recently announced a merger with VolCorp, which puts it closer to Mid-States' home state of Illinois. Mid-States and Empire are billing this as a merger of equals. History has shown that when mergers of credit unions or corporates of similar size occur, there are often more complexities, than when a larger institution acquires a much smaller institution. Both corporates said it was too early to comment on things like what the board makeup would be, who would be CEO, which systems would stay in place, etc. For years, corporate leaders have speculated about the number of corporates that will be in place in the future. Some say it will be around eight, similar to the Federal Home Loan Bank system or the Federal Reserve. Dennis DeGroodt, CEO of the $615 Missouri Corporate, said his corporate already competes with Mid-States everyday, so he's not concerned about the merger. He is concerned with credit unions being left with too few corporates. "If that happens, we're essentially saying, we'll be more competitive with fewer corporates. I'm not sure at the end of the day, if we end up with a system like that how much advantage we'll have over the current system. The sad thing is you can't recreate what you had. It's very difficult to charter a new corporate, so if we get down to say 10, that's all we'll have," said DeGroodt. He also doesn't think the numbers prove the economies of scale argument, and thinks small to mid-sized corporates can be as competitive as anyone. He noted that Missouri Corporate has added over 50 new credit union members in the last few years. Are larger corporates more efficient? It's hard to say. Looking at one recognized measurement of efficiency, Net Operating Expenses as a percent of Daily Net Average Assets, shows Mid-States and Empire with ratios of 0.26% and 0.22% respectively. They are two of the largest corporates in the network, but these ratios are not at the top. WesCorp for example comes in at 0.11%, fueling the argument that bigger is better. Then again significantly smaller corporates, such as First Carolina and Corporate Central, have ratios of 0.14% and 0.13% respectively. -

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