Have Branches, Will Travel

A Florida credit union works with other local credit unions to spin off far-flung branches gained through a merger.


In an age of increasing consolidation, the market footprint of individual credit unions is expanding farther than ever before. But as Florida-based Space Coast Credit Union demonstrates, growing credit unions that are willing to enlist the help of the cooperative industry can play to regional strengths while helping others do the same.

Even before the economic downturn stated wreaking havoc in Florida, Omni Community Credit Union — a $48 million, three-branch institution based in Jacksonville — was running into significant financial troubles. So in the summer of 2007, it merged into Miramar-based Eastern Financial Credit Union. Eastern Financial had $1.6 billion in assets, and, with the merger, served more than 225,000 members through a 32-branch network. Despite its size, it too soon faced financial difficulties. Under regulatory oversight, Eastern merged into Melbourne-based Space Coast Credit Union, which at the time had $1.6 billion in assets. The two credit unions completed the merger on June 30, 2009.

“One of our biggest recent successes has been getting the Eastern Financial merger squared away and integrating that operation into our own,” says Space Coast CEO Doug Samuels.

Space Coast now has $3.1 billion in assets and in the second quarter of 2013 posted 7.23% loan growth, according to Callahan & Associates’ Peer-to-Peer analytics. The credit union has bucked the trend of its merger forbearers by overcoming early hurdles, tightening down on key performance issues, and embracing its larger footprint.

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The Eastern Financial merger benefitted Space Coast in many ways; however, it also strapped the credit union with a presence in areas — including western Tampa and Jacksonville — that were market outliers. These far-flung locations ran counter to the institution’s expansion vision, which favored infilling the existing footprint through more aggressive land grabs.

“These markets were concerns from day one in regard to how much it would cost to be there for those members the way we would like,” Samuels says. “These were well-performing locations, but we feared they would eventually dilute some of the other things we were doing.”

As Space Coast settled into its post-merger operations, it began looking for cooperatives based in outlier markets that had the regional resources to help its new locations reach their full potential.

“We closed some branches, but we wanted to make sure we didn’t damage members by shutting down the entire marketplace and leaving them high and dry,” Samuels says. “We wanted to find someone who could take care of these folks.”

In 2011, the credit union sold six branches — including employees, members, and assets — located in the Lakeland market to MidFlorida Credit Union ($1.9B, Lakeland, FL). It repeated the process in 2012 when it sold two Jacksonville locations to Alive Credit Union ($129.5M, Jacksonville, FL).

Enter Alive

For nearly 60 years, Alive has predominantly served employees of the healthcare industry and remains one of the few financial institutions in the region with a closed charter. To keep its operational costs in check, Alive relied on a branch footprint that included eight locations staffed by one or two employees in a hospital or healthcare facility and three stand-alone sites.

This conservative nature and a history of low delinquencies and charge-offs helped the credit union reach a capital level of more than 17% prior to the purchase of the Space Coast branches, and its financial positioning allowed Alive to move quickly and comfortably when the right expansion opportunity arose.

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After Space Coast made clear its intentions for its outlying locations, Alive secured an exclusivity agreement that insured the larger institution would not sell its branches and assets to another credit union while Alive was conducting initial due diligence. Space Coast also agreed to a non-solicitation clause.

“If we didn’t jump on this deal right away, one of our competitors would have,” says Alive CEO Rose Gunter.

Alive has a history of merging with small hospital and emergency services credit unions, but it does not want growth to compromise its quality of service or its focus on the healthcare market. As Alive inspected the Space Coast locations, it became clear the additional branches in Jacksonville would support, not hinder, Alive’s membership goals.

“Before we agreed to the spinoff, we surveyed where people in the Florida healthcare industry lived, where the homeowners were, and their income levels,” Gunter says. “The healthcare industry has been and continues to be strong in Jacksonville.”

Finding A Home

“Both Eastern and Space Coast were larger, out-of-town institutions,” Gunter says. “But we knew Omni and its people very well.”

Having cycled through three cooperative institutions in less than five years, the remaining members and employees acquired in the purchase were some of the most loyal and engaged individuals available in that marketplace.

“These were die-hard members,” Gunter says. “And the majority had excellent credit, so it wasn’t like they couldn’t have gone elsewhere.”

Because Space Coast had not belonged to a fee-free shared branching network, the addition of Alive’s local access points was a welcome benefit for members. Likewise, Alive’s mobile banking was also an attractive added value.

“Everyone involved in these spinoffs won in one way or another, including the branch employees because they no longer had to worry about job security,” Samuels says.

The merger history at the Jacksonville branches had required employees — many of whom originally held back-office roles at Omni — to take on more member-facing positions. But the move to Alive opened up scheduling options and role reassignments according to employee interests.

“In the end, we were able to retain all of these individuals, and they helped us secure member buy in,” Gunter says.

On The Clock And In The Books

The MidFlorida purchase took approximately one year from initial discussions through completion, and Space Coast learned from the experience, according to Samuels. By comparison, the Alive purchase took roughly nine months; the actual conversion process took place in one day.

 “A spinoff can be much easier in the back office than a merger and usually ends up being cleaner,” says Gunter, citing the lack of contracts, decisions about the elimination or continuation of third-party services, and discussions about board seats.  “However, it is more work on the front end.”

In terms of regulatory obligations, a transaction like this requires the credit unions to submit to NCUA and state regulators a purchase and assumption application and a certification of the membership vote, says Gunter.

There is also a human cost. Both credit unions had to create dedicated communications, financial, training, and IT teams to manage these processes, just like it were an actual merger, Samuels says.

Alive didn’t acquire the account numbers, direct deposits, or other banking information and processes from Space Coast, which created challenges for both parties. For example, Alive had to reissue checks and payments cards, and entice members to use them, while Space Coast had to field calls from spun-off members without having access to their financial information.

Alive also spent roughly 90 days stripping new members’ daily activity from Space Coast’s processor, sending that information to its own partner, and then posting it to members’ accounts in a timely manner.

In all, the book of business acquired from Space Coast was well seasoned, Gunter says, with the extra emphasis in unsecured lending and HELOCs creating a welcome counterbalance to Alive’s predominantly auto and mortgage portfolio. And Space Coast gave Alive a guarantee on the associated mortgage portfolio, which safeguarded the credit union in the chance it could not collect on a loan because of documentation issues.

In addition to the loans and other assets purchased, Alive paid approximately $30 for each of the roughly 4,000 members acquired from Space Coast. Going forward, Alive plans to renovate unused space in one of the branches to lease out as an additional source of income.




Aug. 5, 2013


  • Great article! I recently completed a merger of New York Metro FCU into US Alliance FCU.I am the former CEO of New York Metro and currently employed by US Alliance to seek other merger partners.We are looking to merge with or acquire credit unions in Fl.,N.Y., Conn., Pa. and New Jersey. Can you provide any insight on looking for merger partners? Thank you.
    Denis RFeilly