FOLSOM, Calif.–California’s state regulator has declined to comment to the CU Daily on whether a plan by SAFE Credit Union to appeal the outcome of a merger vote that is currently underway passes muster with state law. Instead, following inquiries from the CU Daily about the unique plan, it pointed to how the state’s financial code reads.
As the CU Daily has reported, voting is now underway on a proposed merger between Washington-based BECU and California-based SAFE Credit Union, which would create a combined institution of approximately $34 billion in assets, 1.8 million members and 80 locations.
SAFE has nearly 700 employees and about 244,000 members, while BECU employs roughly 3,200 people and serves more than 1.5 million members. Under the proposed agreement, SAFE CU CEO Faye Nabhani would become BECU’s Sacramento region market president.
The proposed merger includes nearly $15 million in payouts to five members of SAFE CU’s management. A microsite related to the merger can be found here.
SAFE CU has seen some pushback from at least one member over the proposed merger, as the CU Daily has reported here. Nabhani has defended the proposed combination, saying it is not an “efficiency plan.”
The Plan
SAFE CU has said it intends to sidestep California law, which requires state-chartered CUs seeking to merge to get an affirmative vote by a majority of members, of which SAFE CU has nearly 250,000.
Under California Financial Code Section 15201(b), a credit union’s board may apply to the California Commissioner of Financial Institutions “for approval of a merger inaccordance with a plan of merger approved by a majority of the board ofdirectors of each credit union that is a party to the merger, even thoughless than a majority of the outstanding members of a disappearing credit union has voted to approve the merger.”
In the disclosures it provided to members and to NCUA, SAFE CU said it intends to pursue that path.
“…This is to advise you that the Board of Directors will make an application under California Financial Code Section 15201(b) for approval of the Merger in the event that a majority of all members of SAFE do not vote to approve the Merger, in person at the meeting, or by mail-in or online ballot,” SAFE said in its statement to members.
Declines to Comment
The state regulator has declined to provide comment to the CU Daily on whether SAFE’s plan is appropriate, instead pointing the CU Daily toward a section of the financial code that has to do with mergers, dissolutions and conversions.
The CU Daily submitted six questions related to what state law says and whether SAFE Credit Union’s plan falls within the law. After a month of repeated requests, the Department of Financial Protection and Innovation issued a statement to the CU Daily saying, “The DFPI cannot comment on the legislature’s intent when the statute was created. You asked how often the Department has seen a credit union seeking to exercise this exception. Credit unions have used this section, but the Department does not track this statistic. You should also note that the Department does not comment on hypothetical scenarios involving applications.”
It should be noted, however, that the CU Daily’s questions were not about a hypothetical but instead about what SAFE CU has told its members it plans to do.
What State Law Says
Below, in its entirety, is the section of the Financial Code cited by the DFPI.
15200.
Any credit union may, with the approval of the commissioner, merge with another credit union or with a central credit union.
(Amended by Stats. 1984, Ch. 452, Sec. 5.)
15201.
(a) The merger shall be made pursuant to any plan agreed upon by the majority of the board of directors of each credit union joining in the merger, and approved by the affirmative vote of at least a majority of the members of the disappearing credit union, in person or by proxy, at a meeting of the members called for that purpose or by written consent of a majority of the members of the disappearing credit union. Notice of the meeting shall be given to the members, either personally or by first-class mail, not less than 30 nor more than 90 days prior to the date of the meeting.
(b) The commissioner may approve a merger according to the plan agreed upon by the majority of the board of directors of each credit union, as set forth in subdivision (a), if the plan of merger is approved by less than a majority of the membership as provided in subdivision (a) if the commissioner finds, upon the written and verified application filed by the board of directors, that (1) notice of the meeting called to consider the merger or the ballot for written vote on the merger was mailed to each member entitled to vote upon the question, (2) the notice or ballot disclosed the purpose of the meeting or the written vote, (3) the notice or ballot informed the membership that approval of the merger might be sought pursuant to this section, and (4) a majority of the votes cast upon the question were in favor of the merger.
(c) Notwithstanding subdivisions (a) and (b), the commissioner may approve a merger without a vote of the membership of the disappearing credit union if a majority of the members of the board of directors of the surviving credit union approves the merger, the disappearing credit union is in danger of insolvency and the merger would reduce the risk or avoid a threatened loss to the National Credit Union Share Insurance Fund or other form of share guaranty or insurance that is acceptable to the commissioner. For purposes of this chapter, a credit union is insolvent when, from the most recent available financial statements, it can be shown that the total amount of its shares exceeds the present cash value of its assets after providing for liabilities unless the commissioner finds all of the following:
(1) The facts that caused the deficient share-asset ratio no longer exist.
(2) Further decline in the share-asset ratio is not probable.
(3) The return of the share-asset ratio to its normal limits within a reasonable time for the credit union concerned is probable.
(4) The probability of a further potential loss is negligible to the National Credit Union Share Insurance Fund or other form of share guaranty or insurance that is acceptable to the commissioner.
(Amended by Stats. 1998, Ch. 539, Sec. 41. Effective January 1, 1999.)
15202.
(a) After the requirement of approval as provided in Section 15201 is satisfied, each credit union shall execute a certificate of merger as an officers’ certificate pursuant to Section 5062 of the Corporations Code that shall set forth:
(1) That the plan of merger has been approved by the board of directors.
(2) That the plan of merger has been duly approved by any required vote of the members pursuant to Section 15201.
(3) The total number of members of the credit union.
(b) A copy of the plan of merger and of the written approval thereof by the commissioner shall be annexed to the certificate of merger.
(c) Nothing in this section requires a federal credit union to execute or file the certificate of merger called for in subdivision (a).
(Amended by Stats. 1998, Ch. 539, Sec. 41.3. Effective January 1, 1999.)
15203.
Each certificate of merger called for in Section 15202 shall be filed in the office of the Secretary of State. After the filing in the office of the Secretary of State, a copy of each certificate of merger, certified by the Secretary of State, shall be filed with the commissioner, and at that time the merger shall become effective for all purposes.
(Amended by Stats. 1998, Ch. 539, Sec. 42. Effective January 1, 1999.)
15204.
(a) Upon any merger effectuated as provided in this article, all property, property rights, and interests of the merged credit union shall vest in the surviving credit union, without deed, endorsement or other instruments of transfer, and all debts, obligations and liabilities of the merged credit union are assumed by the surviving credit union under whose charter the merger has been affected. Thereafter the charter of the merged credit union is void, and the existence of the merged credit union as a legal entity separate from the surviving credit union terminates.
(b) Whenever a credit union having any real property in this state merges with another credit union and vests that real property in the surviving credit union, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the disappearing credit union is located of the certificates of merger and requisite attachments, as required by Section 15202, shall evidence record ownership in the surviving credit union of all interest of the disappearing credit union in and to the real property located in that county.
(Amended by Stats. 1997, Ch. 187, Sec. 13. Effective January 1, 1998.)
