WASHINGTON—A number of credit unions that were merger targets in recent years reported a material increase in year-over-year quarterly salaries and benefits before their mergers were completed, according to one analysis.
Looking at mergers completed between the third quarter of 2014 and third quarter of 2017, 189 credit unions reported at least a 15% year-over-year increase in quarterly salaries and benefits. The salary and benefit information is from the quarter or two quarters before the mergers were completed, reported Keith Leggett, the former senior vice president and senior economist at the ABA, on his Credit Union Watch blog.
Fifty-nine credit unions reported at least a doubling in salaries and benefits, he said.
Leggett’s report follows extensive reporting from CUToday.info on the alleged practice of large CUs enticing small credit unions to merge out with generous compensation packages for senior leadership.
Leggett said his research uncovered the following examples of material increases in compensation prior to the completion of the merger:
- American Federal Credit Union (Mission Hills, Calif.), which was merged into NuVision on April 1, 2017, reported an 845% increase in salaries and benefits at the end of the first quarter of 2017 compared to a year earlier. This material increase in compensation caused the credit union to post a loss of $735,526, Leggett reported.
- Newport Beach City Employees (Newport Beach, Calif.), which was acquired by the Credit Union of Southern California on Aug. 7, 2015, reported an 815% increase in quarterly salaries and benefits at the end of 2014 compared to the year earlier. The quarterly payment of almost $1.2 million wiped out the credit union's net worth. The last call report filed by the credit union reported a net worth ratio of minus 8.68%, Leggett said.
- Star Harbor (Rancho Dominique, Calif.) reported a year-over-year quarterly jump in salaries and benefits of 747%. The credit union merged with Financial Partners Credit Union on Aug. 1, 2017. Due to the material increase in salaries and benefits, the credit union on its last call report posted a mid-year loss of $530,552, Leggett reported.
- Focal Point Federal Credit Union (Syracuse, N.Y.) merged with Empower Federal Credit Union on Jan. 1, 2016. The credit union reported a 424% increase in quarterly compensation in the fourth quarter of 2015 compared to the fourth quarter of 2014. The increase in compensation contributed to a loss of approximately $2 million for the fourth quarter of 2015, Leggett said.
Leggett told CUToday.info that it’s time members receive more transparent information from credit unions regarding merger activities.
"If NCUA truly believes that the net worth of a credit union belongs to its members, then the agency needs to finalize its rule on disclosing merger-related compensation arrangements to members. Sunlight is the best disinfectant."
As CUToday.info has also reported, the NCUA board has put out for comment a proposed rule aimed at providing greater transparency to members of federal credit unions that are seeking a voluntary merger when it comes to benefits and compensation that may be paid to executives and board members of the CU that is being acquired.