By Ray Birch
CARLISLE, Penn.—A group that has been fighting the merger of Cornerstone FCU here and Belco Community CU still believes it has a chance to delay or prevent the combination.
But that chance now lies in the hands of the NCUA board, as the Committee for Cornerstone Independence has now appealed directly to the leaders of the agency in a letter sent May 23. That letter followed a decision by NCUA’s Region II earlier in May that rejected the group’s initial appeal to the agency.
If the merger proceeds, the $105-million Cornerstone FCU will be absorbed via merger by the $450-million Belco Community CU, which is based in Harrisburg, Penn.
The Committee’s latest appeal, as well, may represent a trial of NCUA’s new appeals process, which was proposed at the May 25 open board meeting. Among several changes to the appeals process, the proposal calls for credit unions to have new opportunities to appeal issues directly to the NCUA board.
The Committee, which is led by the credit union’s former CEO, Dave Keffer, has been hoping to obtain a 90-day delay in the merger, or possibly to even stop it. The group has alleged that members of Cornerstone FCU were given insufficient information about the merger and that the combination is disadvantageous to them. The Committee first appealed for a 90-day delay at the credit union’s March 2 special member meeting; however that appeal was rejected as well.
Member Vote
As CUToday.info reported here, on March 2 CFCU members voted 1,100 to 630 in favor of the merger at a special meeting at the Comfort Suites in downtown Carlisle. The merger is expected to be finalized by the fall of 2017 if the NCUA does not act.
Keffer and the Committee’s latest request to stop or delay the merger went directly to NCUA Acting Chairman Mark McWatters, appealing the decision made by the Region II director.
“We request that our appeal be heard by the full board, preferably in an open, public session. We believe all parties (credit unions and NCUA staff) should be invited to present their information and conclusions for the board’s final determination,” the letter states.
“We also ask for an immediate stay, that is communicated to both credit unions, while this request is considered. Lack of a stay has irretrievable consequences and is tantamount to approval. Also, there is no harm in delay as any member of Cornerstone can join Belco right now during a pause for reconsideration,” the letter continues.
Keffer told CUToday.info that the Committee has yet to hear back from NCUA, and a week after sending the appeal to the NCUA board, Keffer followed up with an email to McWatters.
“A week had passed since we sent the first letter to the board and they did not get back, acknowledge they got the letter, state they are considering what we are asking or note that they had made a decision. We have heard nothing back from NCUA,” Keffer said. “So we sent the email.”
The second correspondence not only asked if NCUA was considering the Committee’s appeal, but also pointed to the new merger rules proposed at the agency’s May 25 board meeting.
Merger Rule Proposed
As CUToday.info reported, the NCUA board has put out for comment a proposed rule aimed at providing greater transparency to members of federal credit unions that are seeking a voluntary merger when it comes to benefits and compensation that may be paid to executives and board members of the CU that is being acquired.
The proposal also provides for better opportunities for members of a CU considering a merger to communicate with each other. The rule would require disclosure to members of any substantive compensation and benefits changes that would be paid to the five highest-paid employees, as well as members of the board and supervisory committee, that are the result of the merger agreement.
The proposed rule follows a developing story that has been closely followed by CUToday.info, which is attractive pay packages and other payouts that have gone to the leadership teams and even boards of directors at credit unions—often smaller CUs—that are disappearing as the result of a merger. These pay packages are typically not disclosed to members when they are voting on the merger.
At the May board meeting, NCUA disclosed details of bonus compensation paid to executives and volunteers at CUs that the agency’s staff said it uncovered as it reviewed prior merger agreements. Staff at the meeting 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 Had Cornerstone In Mind?
In Keffer’s opinion, the new merger proposal was developed with the Cornerstone merger in mind.
“We sent a great deal of information along in our appeals to NCUA,” said Keffer. “Some of the details in the merger rule appear to be taken verbatim from our situation. I believe Cornerstone was in NCUA’s mind when they were developing this new regulation.”
Keffer reiterated that the proposed rule was addressed in the follow-up email to McWatters.
The e-mail states: “We believe the following areas in the proposed rule are relevant to the circumstances of this Cornerstone-Belco application in that none of these protections were available to Cornerstone members in this specific case:
- No record date for voter eligibility was published;
- No disclosure of changes in compensation and benefits were provided;
- Too limited a time frame for members to review and learn about the proposal following the Notice of special meeting; this time frame contrasts with the 45-90 day period now proposed;
- No opportunity for member-to-member communication;
- No specific data was presented members as to why this was in their "best interest;"
- No comparison of commonly used fees and services was given to members nor how the merger will affect products they currently receive;
- There were no disclosures or discussions of the board's deliberations in the 24 months prior to the announcement of November 2016.
Keffer Hopeful
Despite the agency’s silence following the Region II rejection of the Committee’s appeal, Keffer remains hopeful.
“Through the tone of the letter we received from Region II, NCUA seemed to say that the agency had no reason not to approve the merger,” said Keffer. “But nowhere did it say the merger had been approved.”
However, NCUA spokesperson John Fairbanks told CUToday.info that the merger was approved in January.
Keffer noted that a precedent has been set in the past, where a credit union in 1994 appealed a merger to the board, an open hearing was held, and the merger was eventually denied.
“So we are not the first to do this,” Keffer said. “And there is plenty of time to take another look at this merger, and even go back and redo the vote. What we are asking is that Cornerstone not be denied the benefit of rules that will eventually be put in place for all federally insured credit unions. Yes, it’s good that maybe we have had an impact on the future of credit union mergers, but what about Cornerstone now?”
NCUA told CUToday.info the Committee's latest request is under review by the agency. Asked if NCUA might apply the proposed merger rule, if approved, to the Belco/Cornerstone merger, and Fairbanks said: "Activities such as mergers are conducted under the rules that exist at the time."