Members shoot down another credit union merger
The membership of Partners Financial Federal Credit Union has shot down a proposal to merge with Peoples Advantage FCU.
The deal is notable for being the second merger to be rejected in less than a month – a highly unusual occurrence in an industry known for its merger appetite.
Only about 6% of the credit union’s roughly 8,400 members voted for the merger. The proposal received 152 votes in favor of merging and 378 votes against, according to Partners Financial CEO Bob Nagel. Both institutions are based near Richmond, Va. and similar in size, averaging about $75 million in assets.
The outcome has also exposed some frayed relations between management and the board at Partners Financial.
"I don't think the board was able to articulate the benefits or provide a compelling reason for the members to approve it,” said Nagel. “Members kept asking why we weren't the continuing credit union.”
The process began in October 2018, when Patsy Smith, president and CEO of People’s Advantage, approached the credit union about possibly joining forces. At the time Partners Financial was coming off a string of losses dating back to at least 2013, along with fluctuating membership and net worth.
Net income at Partners Financial went back into positive territory by year-end 2018 and has been there since. Call report data from the National Credit Union Administration shows earnings of more than $62,000 through the first quarter of this year.
Smith’s approach also coincided with a leadership change at Partners Financial. Michael Coleman left his position as president and CEO in October 2018 to take the helm at NMA Federal Credit Union, after which Nagel was named interim CEO.
Smith said she worked with Christopher Franklin, at the time the chairman of the Partners Financial board, to set the deal in motion. At the time she approached Franklin, she said, Nagel had not yet been appointed interim CEO.
Franklin resigned from the board following the member vote. He could not be reached for comment.
Steve Reider, president of the consultancy Bancography, noted that credit union merger deals are typically initiated by both CEOs, though sometimes they can be suggested by NCUA or others.
In presenting the plan, Smith noted that despite PFFCU’s losses, it had a larger footprint than Peoples Advantage. Given the latter’s strong revenue and membership growth, she believed both shops had something to gain from the deal.
“A partnership between Peoples Advantage and Partners Financial would have increased footprint and economies of scale for both credit unions, thereby strengthening our ability to compete more assertively in the future," Smith said.
Members didn’t share that opinion. In public comments on the merger, one member argued that the combination would have “no benefit for us and a great deal of inconvenience.” Another contested the credit union’s claims that the transaction would provide increased convenience for members through additional branch locations, suggesting that if PFFCU wanted to merge into another institution, there were other credit unions that would be more beneficial for the membership.
‘This was not a hostile takeover’
In the aftermath of the vote, Partners Financial staff and board are reevaluating the process. For Nagel, that dates all the way back to his start as CEO nearly two years ago. He previously served as CEO of Reymet Community FCU from 2002 until 2009, when that credit union merged into Partners Financial.
Nagel alleged he was not informed of the merger until it was already in motion, and only found out via a phone call with Franklin during the fall of 2018, shortly after taking reins at the credit union.
"It was certainly a big surprise because there had been zero discussion about any mergers or anything of that nature in any of our planning sessions or board meetings," Nagel said.
Nagel said he believes former CEO Coleman was unaware of the deal. Coleman was unavailable to be interviewed for this story.
Members of the PFFCU board defended the proposal.
“This was not a hostile takeover,” said one board member, speaking on background, adding that the board has a fiduciary duty to consider mergers that are believed to be in members’ interest.
"I think it was a pretty open discussion," said Lacy Whittaker, the board’s treasurer. "I think we [the board] were made aware of decisions and I don't think it was anything vicious or [there was] any malice."
Many are also still in the dark about how the process moved forward in the first place.
"The board not including the CEO is such an egregious violation of good-governance prospects," said Bancography’s Reider. "The board's role was to set broad strategic policy and to ensure fiduciary good behavior. The board should have no role in the day-to-day operations.”
"It's a staggering violation of trust to the CEO,” he added.