Background on the merger

First Tech’s core focus is, and always been, on helping our members live financially strong. To do that, we’re committed to maintaining the strength and stability of your credit union and adding value to your membership. That’s exactly why our Board of Directors explored this merger.

Our Board has known for some time that our current President and CEO, Tom Sargent, would retire this year. Tom’s retirement presented an opportunity to look for potential CEO candidates who would lead First Tech with the same integrity, passion and commitment to innovation that Tom has shown while simultaneously exploring strategic partnerships that would allow us to grow capital and contain costs more effectively than we could do on our own. We believe a merger with Addison Avenue allows us to do that and more.

Although many financial institution mergers in the past few years have occurred out of necessity, we know our proposed merger with Addison Avenue is an opportunity . . . an opportunity to combine resources and increase earnings so that we can keep fees low, rates competitive and continue to invest in new products and services, our infrastructure and our employees.

Why is growing capital so important?
To understand why growing capital is so important, we have to look at the major difference between banks and credit unions. Banks are owned by stockholders, and credit unions are owned by members. That means stockholders own the equity (also known as “capital”) of the bank. Credit unions can only generate growth through earnings, which primarily come from interest and fee income. Interest income is generated from loans and investments less the interest paid to depositors and less operating costs. That’s an over-simplified explanation, but that’s essentially how it works.

You’ve heard us say many times that First Tech is a strong, well-capitalized institution. That’s very true, and we intend to stay that way. Our regulator, the National Credit Union Administration (NCUA), requires us to maintain certain capital levels. The NCUA considers a credit union well capitalized when it has capital exceeding 7% of its assets. Here’s the equation: capital / assets > 7%. First Tech’s capital ratio is 8.56%. We’ve covered capital and growth; now let’s cover assets. Credit union assets are primarily the loans and investments a credit union makes. When members deposit money, credit unions make loans to other members and they buy investments.

Over the last two years, credit union deposits have grown, significantly. As deposits increased, assets increased as well. Going back to the equation above, if a credit union’s capital stays the same and its assets continue to increase, then its capital ratio decreases. If that continues, then theoretically a perfectly healthy credit union could experience a growth rate that causes its capital ratio to drop to unacceptable levels.

If you’re a bank and this happens, the solution is easy. You simply go back to your shareholders, tell them the bank is doing great, as evidenced by its growth, and generate more capital by selling them more stock. Credit unions can’t do this. We generate capital solely through earnings. We believe that’s a key opportunity of the proposed merger with Addison Avenue.

Merging with Addison Avenue provides us the scale to generate earnings and manage expenses more effectively than we could do on our own. For example, if we could clear a debit card transaction for 4.5 cents versus 5 cents and we clear 3 million transactions monthly, then that savings adds up quickly. As a larger institution, we can also get better pricing from hardware and software vendors. Plus, if we can negotiate insurance coverage for 750+ employees instead of 400, then we can get better pricing. All of those costs savings add up and allows us to grow responsibly over time while containing costs. In turn, that allows us to keep fees low and rates competitive to add more value to your membership.