Fitch Places Mid-States On Rtg Watch Negative; MCFCU On Watch Evolving.

Business Editors

CHICAGO--(BUSINESS WIRE)--Oct. 31, 2002

Fitch Ratings has placed the 'AA-' long-term and 'A/B' individual ratings for Mid-States Corporate Federal Credit Union (Mid-States) on Rating Watch Negative. Fitch has also placed Minnesota Corporate Federal Credit Union's (MCFCU) 'A+' long-term rating on Rating Watch Evolving following the announcement of a proposed merger. The short-term ratings are affirmed at 'F1+'. A complete list of ratings is included at the conclusion of this press release.

The merger will result in the third largest corporate credit union, which will have combined total assets in excess of $5 billion and will retain Mid-States Corporate FCU name. The merger is subject to NCUA Board of Directors' approval and a special membership vote by MCFCU's members.

The transaction should provide strategic benefits through expanded membership and consequential dominance in the regional market. At the same time, Fitch recognizes the prospects for capital ratio declines at the merged entity relative to Mid-States, as well as heightened uncertainty with the introduction of integration risk, particularly as the size of MCFCU represents nearly 20% of proforma assets. Both entities possess strong asset quality and liquidity, and are well-capitalized from a regulatory perspective with reserves and undivided earnings (RUDE) ratios of 2.02% and 3.04% for MCFCU and Mid-States, respectively. However, management's expectations are for a decline in the capital ratio to a RUDE ratio of 2.87% for the combined entity. Additionally, the consolidated membership share component of capital still needs to be addressed. With respect to integration, while the formal process is expected to transpire over a 1-3 year time frame, in an effort to minimize disruptions to operations, Fitch remains c ognizant of standard integration risk that will arise from the acquisition. These factors drive Fitch's Negative Rating Watch.

The Rating Watch Evolving for MCFCU reflects the possible outcomes resulting from various potential scenarios. Following the completion of the merger and resolution of Mid-States' Rating Watch, a rating upgrade will result with the affirmation of Mid-States' ratings, while MCFCU's ratings will be maintained should Fitch lower Mid-States' ratings. These ratings would reflect the ratings of the combined entity. If the merger were not completed, pressure on MCFCU's ratings could result, leading to a possible downgrade, though Fitch views this as a less likely scenario.

Rating resolution will come following the completion of due diligence and close of acquisition.

The following ratings are placed on Rating Watch Negative:

Mid-States Corporate Federal Credit Union

--Long-term issuer 'AA-';

--Individual 'A/B'.

The following ratings are placed on Rating Watch Evolving:

Minnesota Corporate Federal Credit Union

--Long-term issuer 'A+'.

The following ratings are affirmed:

Mid-States Corporate Federal Credit Union

--Short-term issuer 'F1+';

--Support '4'.

Minnesota Corporate Federal Credit Union

--Short-term issuer 'F1+';

--Individual 'B';

--Support '4'.