KV FCU to meet with members on proposed bank conversion/merger (Merger)

By Christian Mullins

On Tuesday, September 30 and Wednesday, October 1, members of KV Federal Credit Union (Augusta, Maine) will have an opportunity to ask CU representatives questions regarding the CUs proposed conversion to a mutual savings bank, immediately followed by a merger into Kennebec Savings Bank.

The conversion/merger has been discussed before, both here and in The Loop, so there’s no need to rehash the details.  There are, however, several (ok, 11) questions I’d ask KV FCU if I were a member of the CU.  KV FCU’s answers would help bring their decision and philosophy into focus and alleviate (or justify) some of the fears members may have.

KV FCU’s members:

1. Historically, a credit union’s savings and lending rates, as well as fees charged, are favorable compared to those of a bank, even a mutual savings bank.  How could this merger specifically benefit the majority of members of KV FCU? (If additional locations are mentioned: Why not invest in shared branching, giving your members an additional 80+ branches in Maine and 3,400+ branches nationwide without losing the CUs identity?)

2. What is the estimated percentage of membership (and deposits) expected to be lost to other financial institutions if the conversion/merger is approved?

Financial Information:

3. In 2007, KV FCU had record net income, and may exceed that number in 2008.  If the initial talks to merge into another financial institution was discussed several years ago (when KV FCU had much lower net income), should the reasons behind the conversion/merger proposal be reevaluated?

4. How much KV FCU money, if any, is currently invested in Kennebec Savings Bank?

Conversion/Merger:

5. If the proposed conversion/merger is approved by the Board of Directors then denied by your membership, has consideration been given to the possibility that they will seek to remove those Directors in favor of the proposal and, by correlation, potentially remove President/CEO Beverly Beaucage?

6. Which credit union(s) were approached regarding a merger, and what factors led to KV FCU’s decision to seek out a bank over a credit union?

Employees/Compensation:

7. It has been stated that President/CEO Beverly Beaucage’s salary will not increase, but will her overall compensation increase if she becomes Executive Vice President of Kennebec Savings Bank?  If so, how?

8. Does Kennebec Savings Bank’s compensation plan include a bonus structure that includes Executive Management?  If so, is that bonus plan determined by KSB’s profit margin?

9. Are the Board of Directors for KSB given compensation?  If so, will KV FCU Chair Richard Tardiff receive compensation on their expanded Board?

10. Are the overall compensation packages for the credit union employees comparable, superior, or inferior to similar positions at Kennebec Savings Bank?

11. While no jobs are expected to be lost, how many KV FCU employees with similar positions to those at KSB will be reassigned and/or demoted (or will there be two heads of accounting, IT, etc) if the conversion/merger is approved?

If KV FCU can answer all of these questions to the satisfaction of their members, there shouldn’t be much of a problem approving their proposal.  If their answers only raise more questions, it looks to be a long three months between October 14 (KV FCU Board of Director vote to approve the conversion/merger) and January (KV FCU membership vote to approve).

If anyone else can think of any good questions (I’m sure there are a lot I missed), let us know!

Friday Diversions (TGIF)

By Christian Mullins

It can be difficult to stay motivated on a Friday.  Projects that can only be finished with hard work will be pushed aside, the lunch hour morphs into 72 minutes, and, let’s face it, more time is spent watching the clock than at any other point in the week.  The upside to your slide into the weekend is that you won’t realize how hard you should have been working until Monday afternoon.

Rather than launch into a credit union topic that may read like blah-blah-blah (though some of you may think that all my articles read that way) I thought that you could look busy and focused at your desk while wasting a few minutes with some websites that are, in all likelihood, a little more fun than your typical end of the week drudgery:

The Sarah Palin Baby Name Generator:

Love her or hate her (there doesn’t seem to be much middle ground on the Alaskan Governor), there’s no doubt that she took the Hollywood route on naming her children (you know, giving them names that seem important, or different, but will likely cost irreparable emotional damage in high school).  If you had ever wondered what you would’ve been named if you called Palin ‘Mom’ (and who hadn’t), this age old (ok, 14 day old) question can be answered here.  For the record, I would’ve been Timber Challenger Palin.  Somehow, I don’t feel cheated.

Internet speedtest:

Are you justified when you gripe about the internet speed (or lack thereof) at work?  Test your connection (then complain as needed to the powers that be) at speed.io.  Not only do they run upload speed, download speed, connections per minute, and a ping test, but they use a goofy speedometer display to keep you interested (I don’t get out much) while the test is running.  Besides, 11 million people can’t be wrong (that’s right, they have a hit counter… and they’re going to party like it’s 1999).

h/t to Lifehacker for the speed.io link.

The Lunchtime Quiz:

The Lunchtime Quiz, provided by mentalfloss.com, does not have to be taken between the hours of 11am-1pm.  In fact, 2pm is a perfectly legitimate time to spend a few minutes taking one of their many quizzes.  Presumably, with titles like Real Law or Product of My Imagination, Pro Wrestling Finishing Moves, and Milhouse: The Quiz, there’s something for everyone out there who would click on a quiz link to begin with!

Enjoy your countdown to the weekend!

Promoting Credit Unions Through Gasoline Subsidies (Marketing)

By Christian Mullins

This summer, at least three credit unions nationwide have held a gasoline giveaway event, during which the credit union subsidizes the cost of gasoline at a local gas station for anyone looking to ease their pain at the pump.

For those looking for tangible marketing results, subsidizing gasoline is not a good idea.  There is no definable Return On Investment, because it’s impossible to tell whether or not the individuals at the pump are current members, potential members, or ineligible to join the credit union.  However, some promotions are devised purely to increase positive exposure to the credit union, so when individuals are faced with the real possibility of changing financial institutions, the favorable feeling towards the credit union, whether experienced firsthand or not, may tip the scales in the credit union’s favor.

Here’s a look at each credit union’s promotion:

Digital FCU, Worcester, Massachusetts (July 22, 2008) – Offered regular gasoline at one station for $1.99/gallon from 7am-1pm (regular price: $4.059/gallon).  In those six hours, 800 motorists took advantage, waiting in line for up to two hours, pumping a total of 7,429 gallons of gasoline.  The Gulf station sells, on average, 5,000 gallons in a typical day.  Estimated cost to Digital FCU: $15,000.

Billings FCU, Billings, Montana (August 29, 2008) – From 6am-10am, offered regular gasoline at one station for $1.81/gallon (regular price: $3.88/gallon) with an 18 gallon maximum.  Over 100 vehicles were able to take advantage of the sale at the Kwik Way station, with a waiting period of 90-120 minutes during its peak.  Estimated cost to Billings FCU: $3,500.

Co-op Services CU, Livonia, Michigan (September 11, 2008) – Six stations (beginning September 11 and continuing throughout the month) in SE Michigan offer a $0.25/gallon discount on the first 4,000 gallons of gasoline sold that day, with a 30 gallon maximum per vehicle.  CSCU hopes several communities in which they currently have branches take advantage.  Estimated cost to Co-op Services CU: $6,000.

In each instance (with one promotion ongoing), the credit union received a positive article in the local newspaper(s), with happy motorists willing to share their happiness over their newfound good fortune, even if they had to wait up to two hours.  In a market where every institution has the same basic product package, these credit unions found a way to not only differentiate themselves from the rest of the market, but leave a lasting positive impression on their communities.

(photo by wbz)

Credit Union plans to merge into bank

By Christian Mullins

On September 9, KV Federal Credit Union ($50M in assets) announced their intention to merge into Kennebec Savings Bank ($650M), with a tentative date of June 30, 2009 set for the merger’s completion.  With both financial institutions located in Augusta, Maine, the merger, if approved by federal regulators and the credit union membership, would be the first of its kind in the state of Maine.

Since the announcement, the Maine Credit Union League (MCUL) and KVFCU have been jockeying for public support through local newspapers, and while those quotes underlie the newly found bad blood between the two organizations, two important questions remain insufficiently unanswered.

Why is the MCUL opposed to a merger of this type?

Credit Unions have been merging for years, recently at rates equal to one per day nationally, and the overwhelming majority have gone through without so much as a peep from credit union leagues.  Maine is no exception, and the MCUL has historically not been opposed to a credit union merging with or into another.  But instances of credit unions merging into banks is extremely rare.  Since 1995, CU Financial Services in Portland, Maine states that 39 credit unions have converted to banks.  Of those 39, Jon Paradise of the MCUL estimates that fewer than five of those converted credit unions immediately merged with banks.

KVFCU Board Chair Richard Tardiff suggested that the MCUL was opposed to the merger as they stood to lose $200,000 annually in fees paid to the league, and while money is an issue for both sides, it isn’t the primary reason for opposition.

The reality is that the MCUL doesn’t want this merger on its track record.  Similar to Not In My Back Yard, this is probably closer to Not On My Watch.  Each credit union conversion/merger sets the stage for making the following conversion/merger a little easier.  Credit Unions, like banks, are declining in overall numbers through mergers, and Credit Union Leagues across the nation are working to ensure their CUs maintain the 6% market share they currently have.  The loss of a $50M credit union won’t cut into that market share at all, but it may cause a $1B credit union to ask themselves “If this little credit union converted, why shouldn’t we?”

Why would KVFCU want to merge with Kennebec Savings Bank?

By KVFCU President and CEO Beverly Beaucage’s own admission, “We are a very strong, very healthy credit union”, but believes “We would be stronger if we were to merge with another financial institution.  We just know we can do more for our members”.

It’s the answer given straight from the Credit Union Merger Handbook (a non-existant book, but the explanation of mergers are so uniform nationwide I’d swear it exists), so it shouldn’t be given much consideration.  Instead, someone should ask why a credit union would go through the effort of converting to a mutual savings bank, then merging into a bank.  Each process is a regulatory quagmire in itself, not to mention the inevitable backlash that will be felt primarily by KVFCU’s front line staff.

So, what’s the carrot at the end of the stick?

It was reported that Beaucage would join the bank as Executive Vice President and Board Chair Tardiff would be given a seat on an expanded Kennebec Savings Board of Directors.  I don’t presume to know what Beaucage earns as CEO of a $50M asset credit union, but I feel confident in saying she stands to earn substantially more as EVP of a $700M asset bank while having fewer executive responsibilities (the buck no longer stops with her).  Tardiff may be in the same situation, though I am unsure whether a serving member of the Kennebec Savings Bank Board is paid or not.

Take a deep breath and prepare the microwave

Pulling back and taking a wider perspective of the situation, it should be made clear that there is nothing wrong with KVFCUs proposal to merge with Kennebec Savings Bank.  There also isn’t anything wrong with Kennebec Savings Bank’s acceptance of KVFCU, or the MCULs opposition to the merger itself.  The merger is perfectly legal and, political season notwithstanding, earning more income has never been criminal (unless, of course, you’re a criminal).

The KVFCU Board of Directors will vote on October 14, 2008 on the merger proposal and, if approved, will be voted on by the membership sometime in early 2009.  In the months between the Board and membership votes, expect lobbying interests on both sides to make camp in Augusta.  This has the potential to be a national story (in the CU world, anyway) that’s followed weekly, or even daily (as in the proposed conversion of Dearborn FCU to a bank several years ago).  And like the Dearborn FCU conversion proposal that was ultimately recinded, expect to see several members mount a surprisingly well financed effort to remove the KVFCU Board and, consequently, Beaucage herself.  While Beaucage would likely contend that this is one conversion, then one merger, the credit union industry should consider this a battle that cannot be lost.  If the KVFCU Board of Directors votes to move forward, get your popcorn ready, because it’s going to be one wild ride.