Merger Vs. No Merger: Proponents, Opponents of PA Deal Square Off

Cornerstone

Cornerstone Credit Union



CARLISLE, Penn.–The proposed merger with Harrisburg, Penn.-based Belco Community Credit Union and Cornerstone FCU here is simply an example of a big credit union trying to buy its way into a market, according to Dave Keffer.

But the leaders of the two credit unions disagree, saying the merger is beneficial for each organization.

Keffer, who was CEO of Cornerstone for 33 years before retiring two years ago, spoke with kb-studio.ru about the merger that is coming up for member vote March 2. As kb-studio.ru was first to report here, Keffer is leading an effort to stop the merger, heading the Committee for Cornerstone FCU Independence. The effort incudes radio commercials appearing on three stations that are urging CFCU members to vote no on the planned combination.

Keffer insists that the merger is not a good deal for the $105-million Cornerstone members and staff, stating that many claims being made in support of the merger cannot be substantiated. He told kb-studio.ru that Cornerstone is outperforming the much-larger Belco across several metrics, does not need scale to survive, and provides members with better rates. He also emphasized that while CFCU staff won’t be let go in the deal, according to a statement published by Cornerstone, they will lose some of their existing benefits and many will have to travel at least an hour one way to work if the merger is completed.

Board Turned Down Merger

The two credit unions have said plans call for the merger to be finalized by the fall of 2017, pending the member vote. Ballots have been sent to Cornerstone members.

Keffer said that a few months before he retired in November of 2014 he was approached by Belco about a merger, which Keffer said Cornerstone’s board turned down.

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“At that meeting they told me their number-one priority was to be a billion-dollar credit union in five years,” said Keffer. “So they have set their sights on being big to survive, and so I assume they are reaching out to other credit unions as well. But at their 1.29% growth rate, they are not going to get to a billion in assets in that time when they are currently at about $450 million.”

Belco CEO Amey Sgrignoli and Cornerstone leader Sam Glesner dispute that account, however, and contend that Belco never formally proposed a merger in 2014.

Sgrignoli said that in 2010 many Pennsylvania CUs began working together to share ideas and resources. She said that led to Belco and Cornerstone partnering on some efforts, such as member business lending.

“There have been a lot of back-and-forth conversations,” said Sgrignoli. “But there was never any bid made by Belco in 2014.”

Informal Merger Talks

Glesner, who was chairman of the Cornerstone board before he took over as CEO when Keffer retired, said that in 2014 a merger with Belco was mentioned, but informally.

“It was presented to the board at a strategic planning session, asking for the board’s opinion,” Glesner told kb-studio.ru. “At the time we said we can make it on our own. But again, this was not a formal merger proposal and was simply part of our discussions about growth.”

The two credit unions announced plans to merge in late 2016. In an FAQ on the Cornerstone CU website, it states the merger is an “opportunity to combine operational resources and talent (that) will enable these strong regional credit unions to expand their branch and ATM network…and take advantage of back-office economies of scale, including technology. A combined asset and capital base will keep rates on financial products and services low, position the credit union for continued growth, and deepen community involvement.”

In his own examination of the deal, however, Keffer said he does not believe there will be any economies of scale for Cornerstone from the combination.

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“We have a lower expense-to-asset ratio than they do (3.23% compared to 4.29%). We have a stronger net worth position (10.24%) than they do (9.88%), and our loan, deposit and fee structure is better for members,” said Keffer, who noted the Committee for Cornerstone FCU Independence has released an information sheet that compares many of the CUs’ offerings and performance statistics (see image). “We also match them on mobile and Internet banking. So having to merge does not make sense to me. This is not a better deal for Cornerstone and its members.”

Both Glesner and Sgrignoli disagree, saying the combination will be beneficial for CFCU.

What's Behind The Numbers?

Sgrignoli said she reviewed the fact sheet and said the data is accurate. However, she says what’s behind the numbers not shown on the sheet is more telling.

“I don’t think that sheet is an objective and representative sample of what is going on,” she said. “Every credit union has certain things they do really well, and those things will be different from credit union to credit union. So in looking at the ratios, you don’t necessarily get the story behind them.”

Glesner said the merger will prevent Cornerstone from having to buy a new core system when its current contract expires in 2018. He said not only will that save the CU the hardware expense, “but the ongoing monthly charges, with our old contract expired, will likely be three or four times higher. And that will affect our return on assets."

What troubles Keffer most about the merger is that he believes Cornerstone members are not receiving all the information they need from their credit union about the deal to make an informed decision.

Informed Decisions

“All I have been saying is give the members all the facts and then let them make an informed decision,” he said. “I feel members are being left in the dark about a lot with this merger. Look at the Cornerstone site; you won’t see one thing in there that relates to what is the other side of this deal, what members are giving up.”

But Sgrignoli said the merger has been “clearly” communicated to members over the last 90 days via Cornerstone’s website, emails, mailings and the information sessions.

The Committee for Cornerstone FCU Independence has been urging members of Cornerstone to turn out for two events being hosted by the credit union to ensure their voices are heard. The first was an information meeting held at Cornerstone’s main office Feb. 24, where members were told they should ask if the merger is in “the best interests of Cornerstone FCU members and Cumberland County?” The second is the member meeting being held at the Comfort Suites in Carlisle on March 2, where the member vote will also be held.

Keffer said he attended two information sessions in February related to the merger and was handing out flyers with a long list of questions he felt members should be asking about the deal, including, “What were the issues that led the Cornerstone board to rush to a merger decision? and “Why has a comparison of rates, fees and services etc., not been shared with CFCU members?”

Keffer Asked To Stop Handing Out Info

“The credit union approached me during the second meeting when they saw me again handing out information that was different from the information the credit union was handing out,” said Keffer. “I explained to the CU staff that it was an open meeting for members to have their questions addressed and that I wanted to make sure they were aware of some important questions to ask. The credit union did not ask me to leave, but they did ask me to stop handing out my literature.”

Keffer declined.

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“So then they told me that if I didn’t stop they would get police involved. I told them I’d be happy to have the publicity, because I felt their information was one-sided.”

But Glesner said it was Keffer who suggested that police be called, and added that Keffer was breaking a CU policy by handing out the flyers.

“We do have a no solicitation policy at Cornerstone, and I did present (Keffer) with that policy, which he is very familiar with,” said Glesner. “Then I asked him nicely not to hand out his information.”

'Win Win' For Belco

What Keffer emphasized is also not being shared with Cornerstone members is that the merger is a “win win” for Belco.

“Belco does not have a presence here and they won’t build in our area because there is a much bigger credit union than Belco already here,” said Keffer. “So they are kind of boxed in and don’t want to put the effort and capital into it. With the merger they will get 11,000 ready-made accounts with full loan and share balances.”

With the vote Thursday, does Keffer feel he and his team have had enough time to impact the outcome with their radio ads, flyers and information sharing campaign?

“Personally—just me and not the Committee—I have just recently made about 40 calls to network and get the word out and tell our side of the story,” said Keffer late last week. “One person I called said he had already voted yes on the merger but then wanted to change his vote after he received more information. I have been calling the CPA firm that handles the voting to see if we can get that ballot back. That is how hard we are working, and we know every vote will make a difference.”

Not Much Time

But what Keffer fears is the short amount of time the Committee has had to inform members.

“You control the communications and you control the vote,” he said. “This deal was done without any sunshine on it, no open air.”

Many of the Cornerstone staff are not happy about the merger, alleges Keffer.

“I hear about a lot of discontent and uncertainty about this merger among the staff,” said Keffer, who alleges that staff retirement benefits and healthcare plans will be weaker under Belco. He also said that since the main office will now be in Harrisburg, many Cornerstone workers will have to drive 90 minutes roundtrip each day.”

“I have not heard anything from Cornerstone about raises being given to adjust for the additional travel,” Keffer said.

Glesner said the additional travel won’t be a big burden on many, since branch staff will remain in place and those that travel face a 45-50 mile roundtrip, when measuring distance between Cornerstone’s headquarters and Belco’s main office.

Sgrignoli contends that Cornerstone staff will receive better benefits, citing Belco’s matching 401(k) program and the availability of healthcare coverage for the entire family.

Staff Benefits

Currently Cornerstone covers 100% of the healthcare costs for staff only, charging employees no premium deductible, according to Keffer, who added that staff will face a healthcare premium under Belco.

Keffer last week said he is quite uncertain how the vote will turn out, but is hopeful enough members understand that the merger is not a good deal for them and for the community.

“Cornerstone knows what the local community needs, and we do things like have a high school branch and financial literacy classes for students,” said Keffer. “If Cornerstone merges, the decisions won’t be local anymore—we are giving up local control, and all that we have worked hard to build for 40 years is going across the river where decisions will be made.”

Keffer believes that the Cornerstone merger is one example of a trend occurring nationwide.

“A trend where credit union mergers seem more like a sell-out or sell-off of CUs—where larger credit unions approach smaller ones and try to encourage them to merge, convince them it is in their best interest to merge with a large organization,” said Keffer. “They are equating, almost automatically, that being big is better—better economies of scale. But I can tell you, if you look at the performance information on Belco and Cornerstone, being bigger is not better. We don’t need to be bigger. We will be fine for a long time on our own.”

Sgrignoli stressed that the deal is “not a hostile takeover,” and that the combination will improve Belco’s economies of scale and operating efficiency. “This is a strategic partnership.”

Glesner said the Cornerstone board sees the deal as a “perfect fit.”

Keffer, who is a Cornerstone member, acknowledges that if the credit union were to ever run into trouble, that a merger is certainly an option.

“But at this point in time there is no reason to proactively say we need to merge to survive,” said Keffer. “We perform better than Belco and we have better service. Our brand, in fact, is ‘value-added service with informed choices.’ That is the irony of all this. That is our frickin brand.”

Radio Spots

Below is one of the three radio scripts running on local radio:

ANNOUNCER: FOR 43 YEARS, CORNERSTONE FEDERAL CREDIT UNION HAS PROVIDED YOUR FRIENDS, NEIGHBORS AND BUSINESSES RIGHT HERE IN CUMBERLAND COUNTY WITH TRUSTED PERSONAL SERVICE. THEY’VE BEEN LOCALLY OWNED, MANAGED AND CONTROLLED. AND YOU’VE ENJOYED BETTER LOAN RATES, LOWER FEES AND NEIGHBORLY HELP. BUT ON THURSDAY, MARCH 2ND AT 5 AT CARLISLE COMFORT SUITES, A MEETING WILL BE HELD ASKING YOUR PERMISSION TO MERGE CORNERTONE WITH A HARRISBURG-BASED CREDIT UNION, TRANSFERRING CONTROL ACROSS THE RIVER. AND EITHER AT THE MEETING OR BY MAILED BALLOT, YOU’LL HAVE A DECISION TO MAKE.

(INSERT MEMBER TESTIMONIAL)

IN YOUR OWN INTEREST, ATTEND THE MEETING OR MAIL IN YOUR BALLOT AND ASK TO KEEP CORNERSTONE’S LOCAL MANAGEMENT. KEEP BETTER SERVICE. KEEP BETTER RATES, HIGHER

RETURNS AND FEWER FEES, AND KEEP CUMBERLAND COUNTY’S INTERESTS AND NEEDS AT THE HEART OF CORNERSTONE. ON MARCH 5TH, VOTE NO ON THE MERGER PROPOSAL. CORNERSTONE FEDERAL CREDIT UNION. VOTE TO KEEP IT LOCAL.

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