ESFCU CEO Says $35 Merger Fee Justified
The president/CEO of Educational Systems Federal Credit Union said Friday that charging members a fee in a merger deal may be breaking new ground but that it’s only fair to his existing members.
The $388 million, 39,800-member ESFCU of Greenbelt, Md., is charging members of the $401 million, 57,700-member Montgomery County Teachers FCU of Derwood, Md., a $35 one-time fee as the merger nears conclusion.
“We’ve already gone through quite a bit to put together this merger and so we feel it is only fair that our own members do not get saddled with the expense, which is why we have asked for the extra fee,” said Chris Conway, who was a former executive and longtime member of MCT FCU before taking the top job at ESFCU.
Conway said Friday that there have been extraordinary field of membership and policy circumstances to consider before his board formally decided last month to move ahead with the fee.
“Sure, there are members of Montgomery County who don’t like this fee but I’ve heard from many more that understand our reasoning and the need to be fair to members of Educational Systems,” Conway said Friday.
“You have to realize that we are taking on a credit union larger in size than our own and one that experienced serious financial problems,” he said.
MCT had been under a regulatory watch after it suffered large losses in secondary mortgages racking up a $6 million loss for 2010 and $739,000 last year and has been at 4.4% net worth. It also had recently been hit by an NCUA cease-and-desist order for exam exceptions.
Conway said he and his board were prepared for some criticism of the fee but decided that such a course served the Beltway education community of Maryland in the long run by discouraging outside “mega credit unions which would have little regard for the needs of this area and might end up firing a lot of back office employees” to assume a takeover of MCT.
However, he stressed, “We are not trying to set some kind of trend here because our situation of two like-size credit unions is so different” from such takeovers.
MCT is headquartered in a suburb of Rockville and got into trouble several years ago over secondary mortgages.
Conway said the $2 million raised from the fees would defray costly merger expenses ahead for ESFCU during the remainder of this year and into 2013. He mentioned signage, credit cards and a data processing conversion that involves hardware and software upgrades and leasing charges.
Asked why MCT members were not told about the $35 fee before voting on the merger, Conway said the MCT board had alerted its membership that there would be higher fees resulting from any consolidation given its financial condition.
Thus the issue of how MCT would handle the anticipated cost “was an issue for them, not for us,” Conway said.
As the computer conversion is completed, EFSCU expects the consolidation to go forward smoothly with an expanded branch and service network “as we both continue serving a special heritage,” Conway said.
MCT FCU will be operated as a division of ESFCU, the credit unions have said.