MANHATTAN BEACH, Calif.–A merger in California that would create a $6-billion CU is getting closer to completion, while two other California credit unions have announced plans to merge.
The $5-billion, Manhattan Beach, Calif.-based Kinecta FCU and the $900-million El Segundo, Calif.-based Xceed Financial said their merger continues to move forward and has been approved by NCUA. Documents filed with NCUA also reveal the potential terms of severance packages for senior executives at Kinecta, as reported below.
When completed on April 1, the combined CU, which will operate under the Kinecta brand, will have approximately $6 billion in assets, nearly 300,000 members and 32 locations, making it the 35th largest credit union in the country.
Xceed Financial, which said 83% of the member votes cast were in support of the merger, began its life in 1964 as Xerox FCU before changing its name in 2008. Kinecta was chartered in 1940 as Hughes Aircraft Employees FCU.
“Figuratively-speaking, our teams have worked shoulder-to-shoulder throughout the due diligence process and the many activities leading up to the vote of Xceed’s members,” said Kinecta President and CEO Keith Sultemeier. “All of that has validated our earlier judgements that joining forces is going to be great news for the members of both credit unions. I’m humbled by the tremendous confidence in Kinecta that Xceed’s members have demonstrated with this vote, and delighted to welcome Xceed’s associates on board.”
As part of the merger agreement, Xceed’s President and Chief Executive Teresa Freeborn will stay on as president of Kinecta, and the Kinecta board will expand from seven to nine members to accommodate two board members from Xceed. “This merger is a huge win for our members and a tribute to the board volunteers who had the vision to see the possibilities a strategic merger could present,” said Freeborn. “The economies of scale we achieve open up a whole new world of benefits for members that Xceed simply could not have delivered had we continued to go it alone.” This is also great news for our Xceed associates. Most of our people will be staying on to serve members after the merger, and I’m thrilled they’re as enthusiastic about the merger as our members are.”
Severance Packages
According to disclosure documents related to the merger filed with NCUA, Xceed Financial said it will not distribute a portion of its net worth to its members in the merger, saying such a distribution is “unnecessary because once all one-time merger costs (including early contract termination fees, integration costs for core banking and other data systems and write-downs of fixed and other assets to be retired) are accounted for, the continuing credit union’s extensive infrastructure and beneficial services and product offerings that will be available to Xceed Financial members are taken into consideration, and the need for maintaining current net worth position due to the uncertainty of potential loan losses resulting from the current COVID-19 pandemic, the differences in the Credit Union’s probable asset share ratios will not result in a material increase to the continuing credit union’s net worth ratio.”
According to those same disclosure documents, Freeborn is to be employed as Kinecta’s president for three years after the merger date with a projected total increase in compensation over the three years of $71,403 (gross) ($35,702) after taxes at an assumed 50% tax rate), which is “commensurate for an institution of Kinecta’s size and sophistication.”
“If Kinecta terminates Ms. Freeborn’s employment during the three-year term or if Ms. Freeborn terminates employment for ‘good reason,’ Ms. Freeborn will be eligible to receive a prorated severance in a maximum potential amount of $1,500,000 (gross) ($750,000 after taxes at an assumed 50% tax rate),” the disclosure forms say.
The disclosure forms said other senior executives at Xceed Financial also eligible for severance packages due to termination of employment, including voluntarily, are EVP/CRO Michael Sacher and Chief Risk Officer Fabiana Burkett.
Another Merger Announced
Separately, in Fairfield, Calif., the $175.5-million Solano First FCU said it plans to merge into the $2.2-billion Valley Strong Credit Union in Bakersfield, Calif. The combined institution will have 21 branches and approximately 160,000 members.
At year-end 2020 Solano First reported just 4.64% net worth on its 5300 and total net income of just $9,890. Valley Strong reported $19.5 million in net income and net worth of 9.21%.
In a statement, the credit unions said the partnership will allow Solano First to provide several enhancements to its members in the form of access to more branch locations, and the ability to offer more products and services, at competitive rates, with enhanced technology offerings that would provide greater round-the-clock convenience.
“This merger represents a true member- and people-first approach,” said Nick Ambrosini, who, starting July 1, will be the incoming CEO at Valley Strong. “After several months of working side by side to analyze the value of partnering with Solano First, the Valley Strong board of directors and I feel that combining our two organizations allows us to further our mission of helping people and communities prosper.”