British Columbia’s CU Member Deposits Now Fully Insured (CUDIC)

By Christian Mullins

Wow.

The title pretty much says it all, doesn’t it?  If your credit union is located in British Columbia, your money is insured, whether you have $300 or $300 million in your account.

Premier Gordon Campbell announced today that the Credit Union Deposit Insurance Corporation (CUDIC) has expanded the insurance cap in B.C. from $100,000 to, well, however much you’ve got in the province’s 49 credit unions.

Alberta, Saskatchewan, Manitoba, PEI, and New Brunswick credit unions also fully insure their member’s deposits.

Kennebec Savings Bank Trustees Approve CU Merger Proposal (Merger)

By Christian Mullins

It may have come one week later than expected, but the next hurdle has been cleared regarding KV FCU’s (Augusta, Maine) attempt to convert to a mutual savings bank, then merge into Kennebec Savings Bank (Augusta, Maine).  In a unanimous vote, the bank’s trustees voted to accept an amended proposal (the changes have not been disclosed) handed to them by KV FCU’s Board of Directors last week.

KV FCU’s members will vote in late April or early May 2009 on whether to join KSB or remain autonomous.

One question that has yet to be explored (at least in this blog) is why would a bank try to merge with a credit union?  Bank to bank and CU to CU mergers are common, but a CU to bank merger is rare, and I don’t think I’ve ever heard of a bank to CU merger.

The answer lies within Kennebec County, Maine, home of the two financial institutions.  Kennebec Savings Bank (KSB) remains committed to the local community, which is admirable but also presents them with a serious problem: There aren’t many merger options available.

Warning: Statistics Ahead!

According to iBanknet, Kennebec County headquarters 12 credit unions and 4 banks.  KSB is the second largest of those banks with $650 million in assets, and the smallest two banks have assets ranging from $78-$93 million.  After Maine State CU (the largest CU in Maine), KV FCU is the 2nd largest CU based in the county. If KSB felt the need to expand while maintaining their desire to remain local, KV FCU represented their 3rd option (after the two banks).  This is assuming the largest credit union in the state of Maine wouldn’t consider becoming part of a bank that is not even the largest in their county. (End Statistics)

What is becoming likely, however, is that this is KSB’s last foray into the world of credit union mergers, whether the conversion/merger is successful or not.  The other Kennebec County CUs are watching this play out, and it’s likely that they don’t want to subject themselves to what KV FCU has faced, or will face, in the coming months.

This leaves KSB with several options for growth in the next several years, each less palatable to them than the last:  grow organically, attempt to merge one (or both) of the <$100M banks into them, expand beyond their local community, or merge into a larger entity.

A Director for a CU I previously worked for once said, “You grow, or you die”.  While the phrase was only part of a more in depth discussion, sandwiched between talk of liquidity, capital ratios, asset projections, and year to year growth, the simplicity of it has stayed with me, and I’ve turned to it to help explain actions taken by both banks and credit unions that would otherwise leave me scratching my head.  KSB needs to grow (at the very least they feel they need to grow) and the makeup of their community’s financial institutions (and their Mission Statement) necessitated a merger attempt with a credit union.

I’m left to wonder how many other bank and credit union communities have merged themselves down to the point where they believe the only way to survive is to merge with each other.  With a CU to bank merger already moving forward in Massachusetts (thanks to Ginny Brady for pointing this out in the EverythingCU blog), we should expect to see more mergers like these in the future.  How many more is ultimately up to the credit unions and, more importantly, their membership.

Misery Loves Company – A.B. Singles Out CUs with Net Losses (Bottom Line)

By Christian Mullins

The 3rd quarter financial data reports are beginning to avail themselves at the NCUA website, and American Banker, presumably upset over the mud that the banking industry is being dragged through while many media outlets (and their mother?) are touting the security and safety of credit unions, is going to make sure they highlight the poor performance of any CU they can find (that was one long sentence).

Specifically highlighted are losses suffered by credit unions in Florida, California, Arizona, Nevada, Texas, New York, and Alabama.  And that sums up the entire article.  I’ve only left out the CU Name, city, and loss.  It reads like a fact sheet without tables.

This article seemed to serve two specific purposes.  First, they’re letting bankers know that CUs (some of them anyway) are having a tough time too.  Second, by cherry picking CUs that are performing below expectations (using red ink instead of the black stuff) they’re taking aim at the notion that credit unions are safer than banks, which is a popular belief these days.

While not all of the NCUA’s 3rd quarter data was available at the time this was posted, we do know that since the beginning of 2008, a total of 29 financial institutions, 13 of them credit unions, have failed.  The largest credit union to fail was Valley CU in California ($256 million in assets) with the assets of failing credit unions totaling $726 million.  As it turns out, 8 of the 16 failing banks had assets exceeding that amount (This report considered Washington Mutual and Washington Mutual, FSB as separate entities).  So, while the both sides have institutions with declining assets (some to the point of failure), the sheer size of the banking failures dwarf those at credit unions.

To be clear, a failure is a failure, and whether it’s 100 members or 5 million customers, they have equal rights to feel disenfranchised.  But the banking industry should realize that their struggle (by the very nature of their size) will receive more attention.

Someday, when credit unions are the dominant banking vehicle in the world (CUs currently hold around a 6% market share), banks can take heart in the fact that they won’t have to bear the brunt of public scrutiny, though that may be a few years away.

Note: American Banker is a subscription service and, while the link is currently valid, may remain so for only a short while.

CU Conversion/Merger Passes KV FCU Board Vote (Merger)

By Christian Mullins

The Board of Directors from KV FCU in Augusta, Maine voted unanimously to move forward with their plan to convert to a mutual savings bank, then immediately merge with Kennebec Savings Bank, also in Augusta.  They did not, however, pass the plan verbally agreed upon with Kennebec Savings.  KV FCU President & CEO Beverly Beaucage said after the vote, “As we reviewed all of the issues again, it was the desire of the Board to make yet another few changes”.  Beaucage declined to elaborate on what those changes were, but the Kennebec Savings’ Board of Directors will vote on the amended proposal on October 21.

Worth noting from last night’s meeting is that the membership vote, necessary to approve or deny the conversion/merger, will be held later than anticipated.  Both Kennebec Savings and KV had hoped to it would take place shortly after the mandatory 90 day waiting period required by federal law.  Beaucage stated the vote will likely be held at the end of April or early May 2009.

Beaucage’s slightly frustrated quote notwithstanding, the unanimous vote doesn’t seem to be as solid as one would expect from, well, a unanimous vote.  Given the changes outlined, one or more CU Directors are probably on the fence, and demanded their provisions included in the proposal.

The three month delay in the final vote is stunning.  Activists that would normally involve themselves in this kind of debate are currently entrenched in the national election process.  A January vote would have made it difficult for them to finish their volunteer duties for their respective campaigns, then build a pro-credit union (or anti-bank) effort from the ground up.  A spring 2009 vote allows them to recharge, revitalize, and carry out a concise plan of action.

So what’s next in the conversion/merger playbook?

Expect the Kennebec Savings Board of Directors to overlook the amendments to the proposal and pass the measure, as long as it isn’t grossly disadvantageous to their interests.

During the waiting period, Kennebec Savings and KV will continue to support their assertion that this is in the best interest of the community and their respective accountholders, perhaps even suggesting that inaction will eventually lead to their takeover by a regional or national bank.  They’ll likely be advised to deflect any and all attacks by reiterating the long local history of each financial institution and how together they’ll stay strong (and local) in the years to come.

Those opposed to the conversion/merger will take their opposition to the next level by forming a website specifically designed to counter each argument made in favor of amalgamation.  Because all of this is taking place in a smaller population area, expect quite a few Op-Eds as well.  Assuming the two sides can’t achieve a level of understanding, credit union members (backed by credit union advocacy groups) may try to take advantage of any provision in the CU bylaws allowing for the immediate recall of the Board of Directors.  This will all be done, as they’ll say, with the credit union member’s best interests in mind.

That’s right, each side will act in the best interests of the CU members.

If any of this sounds familiar, it’s because a scenario similar to this played out with Dearborn FCU (now DFCU) in Dearborn, MI several years ago.  The then $1.7 billion dollar CU attempted to convert to a mutual savings bank, but the credit union members were well organized (and financed), eventually forcing that Board of Directors to withdraw the application for conversion.  While a lot has changed since then, the playbook for both sides is still the same.

Both proponents and opponents have a lot at stake, but the pressure will be placed squarely on KV FCU’s Board of Directors and CEO.  Failure to convert could result in a nearly 100% turnover of the Board over the next several years and, when there’s a majority of anti-merger Directors, a turnover of the CEO.

FDIC Acts to Stifle Hemorrhaging Customers (FDIC)

By Christian Mullins

Banks have had a rough run over the past year.  Some of the largest U.S. banks have merged into others, and smaller but otherwise healthy banks have been losing business accounts to larger banks over concerns that, by exceeding the insurance maximums on some accounts, their margin for error in a volatile market were too slim to trust to community and regional banks.

Enter the FDIC.  As you probably already know, they (along with the NCUA) have increased the maximum insurance limit from $100,000 to $250,000, a necessary (albeit temporary, for now) step to calm consumer fears.  But until now, nothing had been done to address the large number of non-interest bearing accounts, typically used to process payroll payments, exceeding $250,000.

The NAFCU Compliance Blog has reported that the FDIC will now insure those accounts without limit through the end of next year, coinciding with the $250,000 insurance maximum.  This has two immediate effects: First, business owners no longer need to worry about asset loss in the event their bank closes, negating the perceived need to move their accounts and further stabilizing the banking industry.  Second, until the NCUA follows suit, this is an extremely attractive marketing opportunity for the banking industry.  Promoting the fact that they’re able to protect payroll accounts, regardless of size, and that credit unions cannot is a strong marketing position.

While the NCUA should follow suit in the coming days or weeks, expect the banking industry (and the FDIC) to take full advantage of their brief window of insurance superiority.

A CU Executive takes aim at KV FCU conversion/merger (Merger)

By Christian Mullins

Another salvo has been fired in the proposed conversion of KV FCU in Augusta, Maine to a mutual savings bank, then merger into Kennebec Savings Bank.  Last week, Kennebec Savings Bank President and CEO Mark Johnston made his case for KV FCU to join the KSB team.  On Wednesday, Alliance of Maine FCU Vice President (and former KV FCU member) Paul Guerrette penned a response, stating the merger was one sided, and not favoring the KV FCU members.

Guerrette’s editorial began as so many of them do, by discussing the nuts and bolts of financial ramifications for credit union members.  And rightly so, even if the material is a little dry.  Guerrette must have thought so too, because the tone of the article shifted, going from member equity concerns to an all out attack aimed at KV FCU.  While I’ve highlighted several passages below, I encourage everyone who has not already done so to read the entire article so each portion, and the overall message, can be taken into its proper context.

The credit union management says a merger will help the (sic) credit union remain competitive and allow it to provide the level of service its members expect, but that can be true only if the credit union is still around after the merger.

A slow economy, increased competition and the need for new products and services are the most commonly used excuses for lower-than-expected performance.

As a long-time member of St. Augustine FCU, which was KV’s original charter, I’ve watched as the policies and practices at the credit union have changed over time to the point where KV now charges higher fees than the for-profit bank they plan to merge with…It’s precisely these policies and that kind of reasoning that has driven so many of us away from an institution that was built by our family and friends.

While I successfully stayed away from ending each zinger with an old Batman TV show special effect, I feel comfortable saying that the gloves have come off, the popcorn is ready, and we can expect another three months of criticism against KV FCU’s President and Board of Directors, which they can try to justify to their members or ignore to their peril.

Technorati Tags: bank, credit union, KV FCU, Kennebec Savings Bank, merger, Augusta, Maine, Paul Guerrette

A nation facing bankruptcy (International)

By Christian Mullins

What if I told you the most developed society on Earth (according to the United Nations) was in trouble?

As a nation, the United States is having a tough time economically, with the collapse of the mortgage market, Fannie Mae and Freddie Mac, AIG, several large banks and even a few credit unions, not to mention a net job loss for the year and an ever shrinking (in value anyway) stock market, and the ripple effect is far from through.  Except this isn’t about the United States.

There’s an old expression, told in many different ways, stating that no matter how bad off your situation is, someone else is going through something far worse.

Iceland, an affluent island nation of 320,000, is facing problems the United States couldn’t fathom.  Their Prime Minister, Geir Haarde, warned on Monday that their nation faced bankruptcy.  The cause is much like that of every other country facing financial problems:  The banks are struggling, creating a ripple effect throughout the economy.  The difference is that in Iceland, the assets of the nation’s banks totaled 10 times that of the country’s GDP last year, and now their debts total several times that of the nation’s economy.

Their third largest bank has been nationalized (their second largest is in receivership), the krona (their currency) has plummeted in value, and inflation is running at a robust 14%.  Many retail stores are even afraid to reorder stock until everything on the shelves has been sold for fear of inflationary losses.

The only shining light (if you could call it that) in all of this is, because of the weak krona, more tourists are expected to visit a more affordable Iceland than in previous years.

While it’s irresponsible to suggest that the problems within the United States are irrelevant because the situation in Iceland is worse, it’s prudent to remember that this is not merely a national concern, but a global one.  Doom and gloom sells, and America has their fair share of it right now, but perspective goes a long way to realizing that as bad as it is for many individuals and businesses here, it’s much worse elsewhere.

Kennebec Savings Bank CEO States Their Case For CU Conversion/Merger (Merger)

By Christian Mullins

Lost (to me anyway) amid the news that KV FCU representatives would field questions from their members regarding their proposed conversion and merger was a September 30 editorial that appeared in the Morning Sentinel written by Kennebec Savings Bank President & CEO Mark L. Johnston.  The Op-Ed lists reasons why the possible merger would be in the best interest of both financial institutions.

Credit Johnston for being able to state his case for merger before any pro credit union organizations were able to come out against it.   He seems to understand that this proposal is likely to get a little (ok, really) ugly over the next few months, and bringing his views (ASAP) to those that will ultimately decide on its fate is important.

He spoke of KSBs long standing ties to the community and how alike the two institutions are.  Johnston also made sure to emphasize that, other than increased benefits for the KV FCU staff, none of them will be rewarded financially. Perhaps most importantly, he declined to discuss the fact that this type of conversion/merger is almost unheard of over the last decade, which may place doubt in the minds of some KV FCU members.

Interestingly, he chose to use the word ‘profitable’ to describe both financial institutions.  It’s no secret that any successful non-profit has a positive net income, but it’s what they do with that net income that defines a non-profit from a for-profit organization.  Given the tone and quality of the editorial, it’s reasonable to assume the word was used to further break down the barriers between credit unions and community banks, raising KV FCU members comfort level regarding the proposal.