RID Federal Credit Union had 600 members, $4 million in assets, and a dim future when it sought a suitable merger partner in the Quad Cities.
CU QUICK FACTS
Gas & Electric Credit Union
HQ: Rock Isand, IL
Data as of 12.31.16
12-MO SHARE GROWTH: 0.02%
12-MO LOAN GROWTH: 3.1%
That was in 2013. In 2015, the credit union, which served the local Army Corps of Engineers, merged into Gas & Electric Credit Union ($71.3M, Rock Island, IL), culminating a process that could serve as a template for how to merge a credit union in a way that benefits both organizations and their members.
After years of considering a merger, loan defaults and investment returns that couldn’t keep up with operational costs forced the board’s hand at RIDFCU.
Karen Hagerty, a biologist and project manager with the Corps who was an RIDFCU board member at the time, says the board delayed merging mainly because it didn’t want members to lose an institution that had been around for a long time, and it didn’t want the credit union to lose its identity.
But independence was not in the future.
“After serious strategizing and belt-tightening, it became obvious our credit union was not sustainable,” Hagerty says. “We began looking at merger options.”
RIDFCU had experienced staff but could not offer internet banking, debit cards, or other basics members expected. The credit union had just stopped growing.
Karen Hagerty is a project manager with the Rock Island District of the U.S. Army Corps of Engineers and a board member of the former RID Federal Credit Union.
“It had been losing money for several years and its net worth had declined as a result,” says Daryl Empen, president and CEO of Gas & Electric. “It also had an engaged board of directors and experienced staff. I think they truly tried to turn things around, but they were simply unable.”
The RIDFCU embarked on the merger process with some specific goals.
“We wanted to keep our local office open and were looking for a well-developed network of locations as well as online banking, credit and debit cards, and ATMs,” Hagerty says. “We originally thought a credit union with many locations would be a better fit for our dispersed workforce. Technology allows remote access but nothing takes the place of someone who cares enough to know your name.”
The board sent eight requests for proposals (RFPs) and interviewed five credit unions. That original group did not include Gas & Electric. It was an RIDFCU board member, who was also a member of Gas & Electric, who suggested the credit union talk with Empen about his credit union and its two mergers more than a decade ago.
“The board was so impressed with Daryl’s leadership and philosophy that we also extended an RFP to Gas & Electric Credit Union,” Hagerty says.
Click here to see the completed request for proposal (RFP) that RID FCU sent to Gas and Electric Credit Union as part of the small credit union’s search for a merger partner.
Insights From Vetting
The RFP and interview process was eye-opening.
“We learned everyone wanted to merge with us and most of them were interested in using our locations to expand their operations,” Hagerty says.
RIDFCU’s assets were in decent shape because it had started the merger process relatively early, Hagerty says. And all but one of the credit unions were responsive and eager to share information.
Gas & Electric Credit Union President and CEO Daryl Empen poses for a holiday party photo with his staff behind him.
“We were shocked by the lackadaisical attitude of one credit union that had been pursuing us for many years,” she says. “I guess it took for granted we would want to merge with it.”
Darron Niles, an RIDFCU board member who now fills the board seat Gas & Electric reserved for the merged credit union, attended meetings with prospective merger partners and says he learned some were just looking to gobble up RIDFCU. That wasn’t the case with Gas & Electric.
“Gas & Electric, with its closed charter, looked at us like an additional member group,” he says. “The numbers worked financially, but our members became part of something bigger and better without losing RIDFCU’s identity completely.”
Read more about credit union mergers from the perspective of Callahan co-founder and chairman Chip Filson.
RIDFCU members agreed to merge with Gas & Electric by a vote of 145-6 on Dec. 16, 2014.
The completed merger in 2015 was the culmination of a process that began with that initial meeting with RIDFCU’s board where Empen says he answered questions such as: What questions should RIDFCU be asking? Could it make it on its own? If so, how?
“The board members engaged in a deliberative, thoughtful process to make the best decision for their members,” Empen says. “That’s what impressed me the most. It was clear this was what was best for the members, not just the board of directors.”
There is nothing wrong with growth. We all need to grow, but it should be based on member benefit.
For its part, Gas & Electric tried to be transparent.
“We were required to have a membership meeting to approve the merger,” Empen says. “We could have done the bare minimum for notifications, but we advertised it heavily. We wrote a detailed article in our newsletter about the proposed merger and the reasons behind it. We invited members to the meeting to vote.”
That transparency also helped ease the fears of RIDFCU’s membership, Hagerty says.
“We struggled to keep the rumor mill under control,” she says. “Members appreciated the clear communication of why we were pursuing the merger and what would happen if we didn’t.”
Gas & Electric kept the RIDFCU office open and its longtime manager, Bev Rice, stayed on, providing a sense of familiarity and a cheerleader.
“When you have the support of the staff, it makes the process smoother,” Empen says. “She’s been a fantastic promoter of the credit union and the new services.”
The main office of Gas & Electric Credit Union, one of two branches, is located in Rock Island, IL.
Those new services include debit cards, a checking option that returns 2.25% in rewards, internet and mobile banking, bill pay, and mobile deposits. Gas & Electric also offers better rates on saving and loan rates than RIDFCU did, and a $250,000 bonus dividend paid out in 2015 didn’t hurt relationships.
“That was a nice feeling to be able to reward all our members, including the new members from RIDFCU,” Empen says.
Merger On The Mind?
Callahan’s Peer-to-Peer makes it easy to find merger opportunities that benefit organizations and members. Analyze a merger’s impact on performance, find out whether technologies fit, and more.
Empen is aware of the debate surrounding credit union merger strategies and of the argument that scale is needed to compete and survive. But the CEO says Gas & Electric’s absorption of RIDFCU was not growth for growth’s sake.
“There is nothing wrong with growth,” Empen says. “We all need to grow, but it should be based on member benefit. We were offering a true merger. It wasn’t just about adding to our membership. It was about how we could add services for RIDFCU members and RIDFCU members could help us grow.”
Contrast that with the situation several years ago when Gas & Electric as well as several small credit unions in the Quad Cities received the same generic letter from a much larger credit union inviting recipients to explore a strategic partnership. The impersonal outreach leads Empen to believe there was no strategy involved, no independent research into the individual credit unions to determine fit. Instead, the letters were a fishing expedition looking for any bite.
“It’s not my role to second-guess another credit union’s strategy or mission,” Empen says. “But I think this is a good example of growth for growth’s sake.”