The LGFCU Merger Proposal: The Smoking Gun - Exhibit 2

 From: Maurice Smith
Sent: Thursday, May 12, 2022 7:07 AM
 

To: HAYES, JIM
Subject: Shared Branch Model
Attachments: Shared Branch Model
 

Good Morning Jim,
I hope you are well and enjoying these fine Carolina Spring days.

I have been giving additional thoughts to our conversation about the potential combination of SECU and LGFCU. We have had exhaustive dialog with and among our Board about the prospects. The lens through with which we have weighed this discussion continues to be what’s in the best interest of North Carolina local governments and our members.

To be frank, there is hesitation among our Board about a merger. The Board does not readily imagine local government can be better served by anyone other than a credit union 100% focused on municipal and county government. Management has been tasked with thinking imaginatively about options. Our directors do not prefer to make decisions based on binary choices. They count on our Staff to think outside the box when it comes to strategy. So, it is with this question.
 

I’ve heard you imply that LGFCU is a bigger weight to SECU than you would have expected. This is the first time I’ve heard this from SECU management. Nevertheless, we recognize SECU has a new strategy horizon for itself. We prefer to work collaboratively with you to achieve both our goals. With that in mind, we have ideas on an alternative future.
 

Attached is a Shared Branch Model illustration that potentially gives both our credit unions what we want. In a nutshell, LGFCU will purchase a separate core, extracts its member data from SECU and build its own back‐office operations. LGFCU and SECU would enter a new arrangement for shared branch services only. The shared branch approach would operate much the same as it has for other credit unions. LGFCU will pay a transaction fee for actual work done for LGFCU members.
To be sure there are lots of details to work out here, not the least of which is the software to manage a private shared branch system. I think we can ease this lift by getting assistance from others who have done this. We both have friends in this space.
 

Just in case you are scratching your head and wondering what’s in this for SECU, here’s how we see it.
1. In this arrangement, SECU gains immediate access to CIVIC’s commercial services platform. Collaboration goes both ways. You’ve mentioned the preparation needed to up-fit SECU for business services. Civic can get you there overnight. SECU begins to build a working book of business at the outset.
2. You stated that SECU staff spend 15% of their time on LGFCU members and operations. With this model, this opportunity cost can be remedied right away. This is a net gain to SECU by allowing you to propel your strategy at a more efficient pace.
3. This is a model that works for SECU and its neighbors…. namely LGFCU. Our near four‐decade history of collaboration is no accident. Our credit unions forged a relationship built on mutual trust and partnership. I see no reason this can’t continue in a newly re-imagined future. This approach cements our credit unions’ reputations as the innovative leaders we are.

Lots to chew on here. How about giving this proposal some thought and let’s continue the conversation.

Best regards,  Maurice

From: Maurice Smith
Maurice R Smith | CEO
Local Government Federal Credit Union

The LGFCU Merger Proposal: Smoking Gun - Exhibit 1

 From: Maurice Smith

Meeting on Merger with SECU Jim Hayes - January 11, 2022

[Notes to LGFCU's Leadership Team]

Good morning, all,

Had breakfast with Jim Hayes this morning. Delightful conversation, though a bit more assertive than our earlier dialog. Here is the gist:

Jim made it clear that LGFCU on the other side of a core conversion is unworkable. The core providers are saying as much. They don’t want to build a system for SECU to make money serving what would have been core providers’ customers. Jim said the merger question needs to be answered before core providers give a proposal. I asked for the time frame… months not years.
 

Jim mentions twice wants Civic to remain separate and brand Civic along side all SECU branches. SECU will pour capital into Civic to scale it up to $1+ billion in assets. SECU will devote back-office resources to support CIVIC’s expansion. SECU will rebrand all ATMs as “SECU” and remove the “Cash Points” label. SECU will add Civic to the ATM network branding.
 

SECU will absorb all our staff at current salaries, perks, and benefits. SECU has 700 vacancies currently.
Jim asked about several of our executives and your roles with us…  

Jim said no less than 4 times that SECU already serves our members and have our members’ data.
 

Jim noted that “many” of our staff are applying for jobs at SECU now. I asked Jim about the other credit unions. Latino Credit Union is looking for a core and will be leaving SECU. Not sure about Greater Kinston and Press Association yet.

Jim is emphatic about retaining our staff. He believes our staff can help change his culture.
Jim asked about our “Presidents”. He feels he can find a role for them… just don’t know what yet.
 

Jim wants to meet with Jeanne and Ken [LGFCU board officers] before talking with the full Boards. It is his custom to frame up issues with the Chairs or Executive Committees before speaking with the rest of the Board. Jim was surprised that I had already mentioned this with the whole Boards. He notes if Ken and Jeanne shut him down, no need going to the rest of the Board. I will reach out to Ken and Jeanne to get their thoughts.

Jim asked me how I felt about this. I confessed I am struggling personally. LGFCU is not a bank model where we build a book of business to sell out later for a large payout. Merger feels like failure to me. 

Nevertheless, I will not let my personal feelings sabotage the Board’s responsibility of making the right call.
 

  Maurice

Maurice R Smith | CEO
Local Government Federal Credit Union