If you’re a recent member of Cascade Federal Credit Union in Seattle and the credit union merges, you’ll have a little more money in your account, thanks to a no merger guarantee.
The credit union has put it in writing on its Web site saying if, as the result of combining with another financial institution, one of three things happens within two years of the original membership, Cascade Federal will pay members $100. The guarantee applies if the credit union changes its name, alters a member’s account number or closes a primary branch.
This is not a gimmicky, new trend. Dale Kerslake, president/CEO of Cascade Federal, said the guarantee actually dates back to 1997 when members complained about mergers at other financial institutions they belonged to. At the time, several community banks had merged and members were frustrated. To reassure them that a merger wouldn’t happen at Cascade Federal, the no merger promise was made.
Kerslake noted that since the credit union doesn’t plan on taking any of those three steps, it’s really a non-issue. The credit union adds about 100 new members each month, so if the guarantee were ever paid it would cost the credit union about $250,000. With assets of $258 million and $27 million in net worth, the payout wouldn’t be significant.
“I was accused by one of my fellow CEOs of offering the guarantee as kind of a poison pill. It would be a pretty small pill,” Kerslake quipped.
While he doesn’t condemn all mergers, he acknowledged some skepticism towards them.
“In general, I think some mergers are a good idea,” Kerslake said. “But probably too many of them are cases of management looking to make things better for themselves and putting themselves ahead of the credit union.”
Would Kerslake reconsider if a small, struggling credit union approached Cascade Federal seeking a merger?
“I’ve been here for 30 years,” Kerslake answered. “I have actually had several offers to merge with smaller credit unions. I guess I was naïve in thinking we could help the smaller credit union. In every case, those credit unions ended up merging with another credit union, so I really didn’t accomplish anything.”
He added “I think small credit unions are very important to the overall health of the industry. Each time we lose a credit union, we lose 10 volunteers. In the last five or six years, we’ve lost 3,000 credit unions, so that’s about 30,000 volunteers who are no longer in our grass roots ranks.”
Although the guarantee is for people who joined Cascade Federal, Kerslake said if he were to take in a smaller credit union, he would probably apply it to members of that credit union.
While he doesn’t think the pledge has drawn a lot of members who wouldn’t have joined Cascade Federal, it does offer a little reassurance that members won’t experience frustration that will cause them to look for another financial institution.
Kerslake said he hasn’t seen other credit unions adopting a similar guarantee but if it sounds worthwhile, simply do it, he suggested. As far as he’s concerned, it’s pretty straightforward.
Denny Graham, president/CEO of FI Strategies LLC, a strategic planning firm in St. Louis, has offered advice on encouraging members to approve mergers. He thinks Cascade Federal has made a wise move.
“There are a lot of good reasons for credit unions to merge, but there are also a lot of good reasons for healthy credit unions – and Cascade is one – to stay independent,” Graham noted “So if that’s their policy, why not say so?”
Graham said “I haven’t heard of it as a trend, but clearly there are a lot of credit unions that have no intention of being acquired. If that’s the case, why not make it public? It’s a great PR move. The public is certainly tired of seeing signs changed on their financial institution.”
He agrees with Kerslake that even if Cascade Federal had to pay off on its promise, it wouldn’t be a major blow. Looking closely at the guarantee, he figures that even if a merger did occur, it really wouldn’t affect that many members.
While other credit unions may not have a written policy, some have taken a no-merger stance but have simply not publicized that decision, said Tom Glatt Jr., founder of Glatt Consulting in Wilmington, N.C.
“If I were on the board or a member of the management team, I wouldn’t want to restrict my flexibility,” Glatt explained. “You never know when a merger possibility may present itself, and certainly if it makes sense and is truly beneficial to the members, you’re adding another cost you have to account for in evaluating the merger decision.”
Glatt said “at the end of the day, if they’re inclined to pay that kind of dividend to facilitate a merger, they’re just stating publicly the strategy they’ve decided on. I don’t know that I’d advocate it, but it’s certainly interesting.”