When NCUA passed a revised 708b merger disclosure rule, effective October 2018, it also established a member-to-member communication process through its CURE office.
Following are member comments posted in this process. They all point to a common shortcoming summarized by one member: Where was NCUA when these actions were approved?
Brief Summary of Members’ Multiple Concerns
The first comment is from a family of members who question the choice of an out of state merger partner. They note that the manager that has already moved to Florida (from Wyoming) but still receives a “retention bonus” of $240,000. The second commenter asks why no merger benefits were presented. The third points out that the merger discussion via telcon is after the voting deadline. The final set of six comments are members all opposed to the proposed merger because they believe their credit union provides better value.
These voices suggest that the cancellation of these financially sound, long-standing charters are not serving members’ interests. Each merger provides immediate compensation benefits to senior managers far above what they would receive if no combination took place.
There is no indication these member concerns were either followed up by NCUA or answered by the credit union. Every comment demonstrates that members were not involved or consulted when the merger was being considered. Rather, they are expected to ratify a decision made without their knowledge or input.
Merger Comments Follow
1. We Oppose: Manager Has Already Moved to Florida
Greater Wyoming FCU into NuVision
“Me (and three other family members who are also GWFCU members) are opposed to the merger at this time. GWFCU indicates they have looked at Wyoming Credit unions but have only approached one in Casper, which was two years ago, until they looked at NuVision.
“There are five Wyoming Credit Unions with main offices in Cheyenne and as far as I know none of them were approached. I was told it is unprofessional to work with more than one merger possibility at a time. When the wellbeing of the members is at stake management should be looking at all possibilities and when they fail to do that it is a disservice to the members.
“We will lose board representation, all of our assets and our CEO. Ms. Stetz may be working in Florida but will no longer represent our credit union. I think we should take a step back and look at other merger proposals or see if we could hire a new CEO since Ms.Stetz has already moved to Florida. Our Credit Union will be less than one percent of NuVision and local needs will get lost in the needs of other larger markets. Until I have more than one option, I will not vote in favor of this merger.”
In the Member Notice CEO Stetz (apparently in FL) will receive additional compensation of a retention bonus of $240,000 if she remains for two-year transition or $218,000 if she leaves sooner. Loan Officer Brother’s additional compensation is $107,000 bonus over two years or $102,000 if she leaves before then.
2. No description of Specific Benefits-We Should Know Trade-offs Involved
Ball State FCU into Finance Center CU
“I have had accounts with the Ball State Federal Credit Union since 1996. I do have two questions/concerns.
1. In the relevant literature I received from the BSFCU, there is no description of how specific member benefits and applicable policies would change after the proposed merger. Can we get more details about that? It seems that an informed vote would hinge upon knowing the specific consumer trade-offs involved. My letter from the BSFCU stipulates that a detailed member Welcome Kit, indicating all changes to services and member benefits, will be mailed “at least 30 days before the conversion date.” But I’m guessing that is still subsequent to the July 14, 2020 special member meeting for voting on the merger?
2. If the Financial Center First Credit Union is the “continuing credit union,” how is the BSFCU able to “retain the Ball State name and identity”?”
3. When Do Members Get An Open Discussion on the Proposed Merger?
Friendship International Airport FCU (FIAFCU) into Central CU of Maryland
“I understand COVID-19 restrictions on everyone…What I do not understand is why shareholders are not provided a TELCON meeting to discuss the proposed merger. If you have to vote by Feb. 8, 2021 and TELCON is held on Feb. 10. 2021, when do the members get the benefit of an OPEN discussion on the proposed merger?
“Why did the Board of Directors vote NOT to distribute a portion of FIAFE’s net worth in a SPECIAL DIVIDEND? Why did the Board of Directors vote to provide 3 employee members $57,000 + pay their taxes? Not to discount the fantastic job that Delores, Ron and Dorothy did for all of us, and it is much appreciated, but why not split the profit with all of the members.
“If a special dividend of 1% were to be implemented, it would be less than the three board members are to receive. Where was NCUA when these actions were approved? It seems if one were to compare the net worth of the two credit unions, FIAFE appears to be the more efficient and profitable credit union with a Net Worth/Total Asset percentage of 33.43% compared to 10.55% for Central CU.”
Data provided in Member Notice
|Credit Union at 6/30/20||Total Net Worth||Total Assets||Net Worth Ratio|
|Friendship International FCU||$2.1 MN||$6.3 MN||33.20%|
|Central CU of Maryland||$4.5 MN||$43 MN||10.50%|
|Combined Net Worth Ratio||13.40%|
4. I’m absolutely against the merger; This is the first time I have heard of it
Columbus Metro FCU ($260 mn-10.6% net worth) into Telhio CU ($952 MN and 9.6% net worth) ( excerpts from six comments)
- The CMFCU has been a great resource for our members for years. Management wins, members lose Being through this and it’s a mean to the end.
- I am absolutely against the merger. I have enough problems with their last upgrade they did. It will just cause more problems for senior trying to get information from their…
- I am concerned that Telhio Credit Union money market interest rates are much lower than Columbus Metro Credit Union and the deposit requirements to obtain higher rates are more…
- I received an email this morning informing me of this proposed merger between Telhio and Columbus metro federal credit union. This is the first that I have heard of any such talks…
- I just so happen to be a member of both banks. CMFCU has better accounts as far as Christmas and vacation savings, although I never liked that they transfer the money annually out…
- I urge a NO vote. With ongoing pandemic, unsent financial statements and misleading net worth values, it’s no time to consider merging. Columbus Metro began seventy (70) years ago…
Merger Related Financial CEO Disclosures provide:
- Under CEO’s new employment agreement, he will receive salary and benefit increases of $1,600 per month: $19, 200 annually;
- 100% vesting of split dollar policy increases payout by $6,400 per year for 20 years: $128,000
- Payment of unused sick and vacation: $135,539.
Total CEO additional immediate compensation benefit: $282,739.
The Question: Where is NCUA?
In his February 11th virtual stakeholder update, Chairman Harper reiterated his long-stated commitment to consumer protection:
“We must also strengthen the agency’s consumer financial protection program to ensure that all consumers receive the same level of protection regardless of their financial provider of choice.”
Cooperative Self-dealing Contrary to Member Interest
In June 2018 NCUA passed an updated merger rule requiring that additional compensation benefits for senior managers be disclosed. Public reports, especially in CUToday shown below, had documented the regular practice of secret payments to incent managers to merge their credit union.
In NCUA’s analysis the problem was the secrecy of the payments; therefore the rule’s solution was to just publish them. NO. The error was NCUA’s sanctioning these payoffs greasing palms to induce these so-called “voluntary” mergers of sound, long-serving credit unions in the first place.
The payola continues, but now out in the open. Managers act as if they are private owners, negotiating their personal benefits while promising members nothing more than a “brighter future” once new leadership takes over. The conflict of interest in these merger arrangements is unconstrained.
NCUA blesses this cooperative self-dealing even when common sense and member reactions show these mergers are not serving members. The boards fail to exercise any meaningful fiduciary responsibilities required by rule 704.1 and especially Guidance on Director Duties in NCUA letter 11-FCU-02. Management and board unite in their failure of care, duty and loyalty to members. The result is a cancelled cooperative charter that members created and still value.
The Regulatory Abdication
Multiple NCUA offices facilitate these manager-led sellouts. The regional offices approve the transactions with misleading and vague member notices, CURE posts all the notices, ONES approves mergers with credit unions over $10 billion, and the division of consumer access sits idly by as these transactions multiply.
The member harm is now available for the whole world to see. Just because these payments are now public does not make them proper. Why should a manager(s) be paid additional compensation for giving up their leadership responsibility while accelerating benefits and additional compensation for themselves that nothing more than sinecures? The alleged future merger benefits are so vacuous as to be meaningless or laughable: for example how do 20 additional Southern California branches benefit Xceed’s members in Rochester, NY?
If these boards and managers had presented these merger “plans” to support a new charter, they would have been rejected out of hand. Yet CURE and Regional Directors routinely approve these boilerplate submissions sometimes copied word for word from other merger packages.
The credit unions in these so-called voluntary mergers all report sound financial performance with high capital levels. Chairman Harper’s consumer protection efforts should start within his own Agency, at all levels. For the casual corruption now routinely blessed by the agency suggests it has no commitment to either member “rights” or “best interests,” both terms used in the regulatory requirements.
Disclosure does not make these payoffs and asset transfers any less disreputable or deceitful. NCUA’s administrative “benedictions” merely shows unprincipled conduct permeates the entire process.
The members have done their part. Will Chairman Harper now do his?
Background Articles Reporting Merger Self-dealing–Activity Continuing Today
What NCUA Staff Found When Investigating (Secret) Merger Compensation (5/25/18 CUToday)
“During the Q&A with the NCUA board members following a proposal calling for greater disclosures in mergers, agency staff were asked about the types of bonus compensation paid to executives and volunteers at CUs that were acquired that they had uncovered in examining merger agreements.
Staff told the board that in “75% to 80%” of mergers they had found “significant merger-related compensation” being paid to people at the credit union that was being acquired, nearly all of which was kept from members when voting on the merger.
In one case, staff said, it found a total payout in the low-seven figures paid to 18 people at a credit union, with the bulk of that money going to four people. In another case, an acquiring credit union discovered after the fact that the board of the acquired CU had cut a deal in which each of them were to be provided with expensive season tickets to a local football team’s games for a three-year period.
NCUA Board Member Rick Metsger asked staff about how some credit unions have worked to “obfuscate” payments being made to officials at the acquired CU, and staff responded that one common method is that instead of having a clearly articulated dollar amount being paid, benefits are paid out in a different fashion, such as a split-dollar life insurance plan.
At another credit union, staff said it found the merger agreement called for the CEO of the acquired CU to be paid for a guaranteed five years of employment, even if at any point that CEO quit or the acquiring CU terminated him.”
Secret Pay Packages (06/12/2018-CUToday)
“The new NCUA rules came after CUToday reported extensively on lucrative pay packages and other benefits going to senior executives and even board members at credit unions that were being absorbed in mergers. As reported, in most cases these pay packages were not being disclosed to members prior to or at the time members were voting on the merger; instead, members were often told only that the merger was about “improved products and services.”
A number of sources told CUToday.info it was common practice for larger credit unions to approach managers and boards at smaller CUs with offers of paying out incentives well into six figures from the smaller CU’s capital, which in many cases could be substantial. Often, none of that same capital was paid back to members of the disappearing CU.”
Happy Independence Day, CU Members (6/23/18-CUToday)
“Just in time for Independence Day, credit union members have been given more rights in their respective democracies. Too bad so many who came before them didn’t have the same rights and weren’t able to make informed votes. . .
The new rule comes after CUToday has reported earlier on just how much undisclosed compensation has gone to and goes to the management and volunteers of credit unions in some mergers, where the capital that belongs to everyone suddenly goes to a few in management—and the board—to entice them to agree to merging into another CU.”