A quiet change has taken place in the Montana financial food chain that most credit union officers tend to believe will benefit and increase the reach of already stable institutions. Just before Christmas Treasure State Corporate Credit Union announced a merger with Kansas Corporate Credit Union of Wichita. The merger will be effective on January 1, 2012. Several readers asked about the merger and if and how it would affect institutions in eastern Montana.
The bottom line is that end user credit union members will see no difference in the services they are provided. The Examiner spoke with Kevin Mayer who has played the dual role of head of the Helena-based Treasure State Corporate Credit Union as well as the president and CEO of the Richland Credit Union in Sidney, Montana. Mayer said “We as the board of directors believe as a board that the Kansas business plan and their well capitalized position puts virtually no risk to our member credit unions.” Mayer added that while the Montana institution is folding into the Kansas Corporate Credit Union, Montana credit union members will still be represented via a Montana seat on the Kansas board.
Montana Credit Unions are, in general, in good financial shape, so the question arises as to why a merger with an out of state company was necessary. The answer goes back to the 2008 national financial meltdown and how small, local, member-based credit unions hold their financial power. The answer is essentially a food chain which moves from direct services to consumers to increasingly larger credit unions for credit unions. The direct service credit unions such as Badlands Federal Credit Union in Glendive and Richland Credit Union are called “natural person credit unions.” Natural person credit unions rely on larger corporate credit unions to supply enough liquidity to operate. Corporate credit unions in turn have even larger member based institutions they rely on. Eventually the food chain ends at the US Central, which some liken to a Federal Reserve for credit unions. Treasure State is a corporate credit union. When the 2008 crisis occurred, like top level banking institutions, corporate credit unions were scrutinized and new regulations were put into place. Four top level corporate credit unions were put into receivership including the one that Treasure State fed into. In addition to losing their partner, the regulations which will soon be effective, called Part 704, were not ones that Treasure State felt they had the best capacity to meet. Mayer explained that “Kansas Corporate can provide all the services plus enhanced services, investment services, sound asset liability, and lines of credit. Our regulator requires us to have supplementary lines of credit and Kansas is able to do that for us.”
After a search process, Treasure State, which has been an entity since 1977, took a vote of its members and 100% voted that the corporation should be absorbed into Kansas Corporate Credit Union. Once that occurred, each credit union needed to determine if they would follow and feed into Kansas Corporate as well or look for a different option. All the credit unions in eastern Montana with the exception of Froid chose to go with Kansas Corporate.
For very small community, it is challenging to for a minute credit union like Froid to meet all the complex new safety net regulations and those required even to feed into an institution like Kansas Corporate can be confusing. Froid is a small credit union with less than 300 members. Unlike other financial institutions in the Mondak region, they have not grown with the boom. In fact, Froid Credit Union manager Elaine Clark said that new people in the area are not interested in becoming members because they only offer two products, banking shares and loans and “that doesn’t appeal to out of towners who want checking and internet banking.” Froid has been in business since 1939, just five years after the Federal Credit Union Act was passed in 1935. It has been at least a decade since the bank has seen a write off. Clark said that new regulations do not fit well with tiny town banking. They understand the examiner’s concerns but find it difficult to relate because they know their members personally. Generally the hardest thing is when they lose a member. Members are older and hold life savings which grow in their credit union. When they lose a member, it can take awhile to build back the $50,000-$100,000 hole that is left, but with time and patience they do it. Instead of going with another large corporate credit union, their board chose to feed into a smaller Montana credit union. Clark declined to name the credit union they will feed into but she did explain why she personally voted against going with Kansas corporate, citing Kansas’s mandatory agreements which would not allow them to reclaim shares should their institution significantly change.
Glendive BN Federal Credit Union CEO Jenifer Knutson said her credit union chose to follow along with the Treasure State merger and join Kansas Corporate for two reasons. One, her institution stands to gain three times the borrowing power for their credit union. Secondly the transition will be seamless. Cindy Scheetz, CEO and manager at Badlands Federal Credit Union agreed. Badlands is the only community charter credit union in Dawson, Wibaux, and Prairie counties. Through the current population boom they have seen a surge in members and while the members will not see any difference in services, Kansas will provide an engine for the increasing capacity need.
Mayer cited three reasons why Richland Credit Union chose to go with Kansas Corporate including line of credit, asset liability assistance, and investment services.
In the post-2008 years in the financial industry bank and credit union members are concerned about the safety of their funds sitting in institutions. Mayer said that member’s money in local credit unions are as safe as banks. Banks have FDIC insurance for up to given amounts per customer in an institution. Credit Unions have similar, mandatory insurance also through a federal agency, the National Credit Union Administration, or NCUA. Like the FDIC, the National Credit Union Share Insurance Fund (NCUSIF) is the federal fund created by Congress in 1970 to insure member’s deposits in federally insured credit unions. On July 22, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law and included permanently establishing NCUA’s standard maximum share insurance amount at $250,000.
The NCUSIF maintains at or near 1.30 percent of federally insured credit union deposits. By law, federally insured credit unions maintain one percent of their deposits in the NCUSIF and the NCUA Board can levy a premium if necessary. Credit unions voluntarily capitalized the Fund in 1985 by depositing one percent of their deposits into the Fund.
No federal tax dollars have ever been placed in the Fund, and no member has ever lost money insured by the NCUSIF.
Mayer said he has confidence in his credit union. He is not just the CEO, he himself is a member who has trusted his own funds to the credit union.
To learn more about how credit unions work, visit http://www.mycreditunions.gov .