Old-school opposition effort sinks credit union merger

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The members of NW Iowa Credit Union in Le Mars have voted down a merger with Siouxland Federal Credit Union in South Sioux City, Neb., a rarity in the industry and possibly the only time in memory such an event has occurred.

“I’ve never heard of a merger going to a vote and being defeated,” said Chip Filson, a 40-year veteran of the industry and cofounder of the consultancy Callahan & Associates. “There have been a number of mergers that have been announced and then pulled back…but I’ve never heard of a merger that went down by a vote, particularly with all of the factors that favor the board and management and the very short time frame that members with concerns might have to create an alternative scenario.”

The collapse of the deal is remarkable not just for its rarity but because it reflects yet another way the pandemic has upended credit union operations.

NW Iowa and the $206 million-asset Siouxland announced their plans to merge earlier this spring, but a group of energized members spoke out against the deal during the voting process. Members ended up rejecting the deal with 66% of ballots against the merger and 34% of the votes cast for it. About 1,100 votes were cast.

The two credit unions are approximately 25 miles from one another.

“There’s a faction of the membership that wanted to remain independent and they organized and got the word out,” said NWICU President and CEO Steve De Boer.

De Boer did not go into details but indicated the ringleader for the opposition was a former board member from the credit union’s days as Blue Bunny Employees Credit Union. That institution ceased to exist as the result of a 1994 merger that created NW Iowa CU.

The opposition utilized a variety of old-school tactics to get the word out about the merger. While some limited social media campaigning was done, there was no dedicated Facebook presence devoted to the issue. Rather, some members used public posts on their personal profiles to outline their reasons against it. Flyers were also posted around La Mars and an anti-merger ad was placed in a local newspaper.

Some reasons against the deal included taking money out of the local La Mars economy in favor of Sioux City, loss of local managerial positions and higher interest rates on loans.

De Boer suggested that while some rates at Siouxland would have been higher, others would have been lower, and the overall difference would have been negligible. One point against the deal also noted that the institution would be managed from Sioux City rather than keeping the board in La Mars, but De Boer noted that the merger agreement included adding two NW Iowa directors to the Siouxland board.

Dissenters also objected to “excessive retirement packages” totaling more than $300,000, according to merger documents, that would have gone to some NW Iowa Credit Union employees after the merger was completed.

The merger also would have solved a succession-planning issue at the $57 million-asset NW Iowa. De Boer is currently 62 and said he plans to retire by the end of 2022. It is not uncommon for small credit unions to merge when a CEO retires in order to deal with succession planning.

The National Credit Union Administration maintains an online portal for public comment on mergers as part of a 2017 rule change to provide increased transparency throughout the process. However the site does not show any comments for the NW Iowa-Siouxland merger. At the time NCUA proposed that rule, some observers suggested it could allow a vocal minority of members to hijack the process and shut down what would generally be considered an advantageous deal.

Filson pushed back against the idea that members hijacked the process in Iowa, saying instead, “democracy stood up and was heard.” This was an instance, he added, in which members used the democratic process to show that management and the board are out of touch.

De Boer reported that the deal seemed set to go through until roughly one week before the deadline, but “the online votes [against the merger] were huge the last week.” He added that while he and the board are disappointed by the outcome, “it was a fair and democratic process and the ultimate decision was, ‘We want to remain an independent unit.’”

Two individuals involved in the opposition effort at NW Iowa did not respond to a request for comment.

More to come?

With credit union earnings squeezed as a result of the coronavirus and recession — and in particular at small credit unions — could more deals fall through?

The pandemic and the related recession have scuttled a number of bank mergers.

Joel Steenhoven, president and CEO of Siouxland FCU, pinned much of the blame on the coronavirus.

“I think COVID really hurt us in that we weren’t able to have town hall meetings and explain the facts better,” he said. Steenhoven said he believes the defeat is likely a fluke and said the outcome hasn’t dulled his credit union’s interest in growth via mergers.

There are a variety of reasons credit union mergers so rarely fail. In some cases, smaller institutions are struggling to be profitable or even losing money, and joining a larger CU is clearly in the members’ best interest. In other instances votes are structured so that unless a member specifically votes against the merger they are considered to be in favor of it, even if they abstain from voting. And often times any opposition struggles to gain enough traction to sway the vote.

“Sad to say, but I think members just aren’t super engaged, and that means they are not generally an obstacle to mergers,” said Sam Brownell, CEO of the consultancy CU Collaborate, adding that in the wake of the coronavirus pandemic and recession, a wave of new merger activity “is almost inevitable.”

That could lead to more challenges, said Matt Cropp, a Vermont-based cooperative activist and credit union historian, suggested that in the current environment “there’s definitely the space for more of these things to spark up, but that depends on does the credit union still have some level of institutional or community capacity and trust and social capital to mobilize members?”

Rising unemployment could also further energize members against mergers. “If we’re going to be sitting with 10% to 15% unemployment for the next year or two, what are people going to do with that time?” he added.

Brownell said it’s unlikely that there will be a dramatic increase in the number of members blocking mergers, but “for the rare instances of people who are interested in blocking a merger, I think their success rate could be higher. Even with unemployment and people having more time on their hands, I just don’t think there are that many people who are interested in blocking these things.”

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