There’s no better way to visit a new place than in the company of a local — they know the right food, the right sights, the right routes, and a hundred other tips you’d never find in a guidebook.
For businesses, expanding into a new location has its own learning curve that is rife with occasional missteps and delays that can limit the value of the endeavor. That’s why when the now $586 million Honor Credit Union (St. Joseph, MI) merged with the $77 million SIR Federal Credit Union (Negaunee, MI) earlier this year, its first post-merger priority was to set up a semi-autonomous leadership team in its new Upper Peninsula (UP) market. The team consisted of former SIR staff members who could run the business as only a local knows how.
Ron Lauren (left), was CEO of SIR and Scott McFarland is CEO of Honor. When the credit unions merged, Lauren became president of Honor's Northern Division.
Below, the two executives discuss how this division of responsibilities helps the credit union tap into local opportunities while keeping the larger organization moving forward.Today, activities in the UP are guided directly by Ron Lauren — former CEO of SIR and current president of Honor’s Northern Division — while the rest of the organization is helmed by Honor’s CEO Scott McFarland.
Talk about your initial decision to join forces? What made this a good fit?
Ron Lauren: SIR initiated these merger discussions between our two organizations roughly three years ago. The regulatory environment is a burden that we thought we could significantly reduce by gaining scale, so we looked for a merger partner who had the same kind of culture and thought patterns as we did.
Both of our organizations were well capitalized, with respective ROAs over 1%. Our membership traits were also similar because we both focus on serving smaller, regional markets rather than big metropolitan areas.
Scott McFarland: SIR’s promise to its membership was nearly identical to our own, which is to provide solutions for financial success. So for Honor, we saw this as a great chance to serve each of our individual members better as well as serve more members.
There is just one bottom line. We don’t want to get into the habit of not taking advantage of one another’s expertise when making key decisions.
Why did you establish an Honor Northern Division in the UP? Why was that important to your success?
SM: When we were initially considering this merger, the only challenge was that our markets were far away from each other. We also didn’t want to interfere with the good things that SIR had been doing, and we definitely didn’t want to remove the local feel that had brought members there in the first place. So it was important to give our leaders there some real autonomy.
People have a true sense of pride about living in the UP. If these members feel the community is being well cared for and well represented, they don’t really care where your headquarters are located.
RL: From a marketing and communications standpoint, we’ve embraced Honor’s style, policies, and other brand components, so the existence of the Northern Division is more of an operational strategy rather than a member-facing one. We don’t have Northern Division written anywhere on our signs or in our communications, we’re just Honor. But because of the way we’re set up from a leadership perspective, members get to retain the benefit of having some local control in place.
How does your division of leadership work?
SM: Our model is similar to a bank-holding company. We have executives in the UP who report directly to Ron and executives in the rest of the footprint who report to me. We are in the process of putting some additional measures in place to make sure we can move forward together as a group, avoid surprises, and not get hung up on sacred cows.
There is just one bottom line. We don’t want to get into the habit of not taking advantage of one another’s expertise when making key decisions. For example, we are going to be leaning heavily on these UP executives regarding regionalization of product structure and pricing. We’ve also set up a regional board for that market that includes former SIR board members.
Another example is that most of our staff with secondary market expertise is located in the UP, but Ron has sent some of those individuals down to our real estate group in St. Joseph to help them be more effective.
Are there any downsides to this approach?
SM: Particularly when we were down in the weeds during the conversion, it was hard to get all the leaders in both markets together in a room, and that is still something we need to see happen more often. We’ve invested in a state of the art video conferencing system that is like sitting in a room together, but we’re also working on creating more opportunities for face-to-face interactions, even if it means meeting somewhere halfway.
Would you implement this type of regional leadership style elsewhere?
SM: Now that we’ve been the guinea pigs for this experiment, additional mergers in different parts of the country are something we’d consider in the future. However, you likely won’t see an Honor Eastern Division or Western Division any time soon because the only way to get the best seat on the bus is to be the first one on.
Ron was the driving force for this partnership, but we built our current process together. It would be much harder to add division presidents to a formula that already works well.
When did you consider your merger completed from a technical standpoint? What about from a cultural standpoint?
RL: You can have a project management-oriented approach during a merger, especially for things like the data processing component, but there are other areas that just aren’t as structured and specific and they require a much longer time frame to accomplish.
SM: It’s taken three years to get the point where the merger is finally complete on paper, butyou need toconstantly re-examine where you came from, how you got to this point, and how you can continue to move forward with it.
In many ways, the hard work is just beginning. But we laid the right groundwork because we chose an organization with staff and leadership who could be active partners and roll up their sleeves to make our transition into this new market successful.
Ron and I still frequently get together for post-merger gap meetings. We’ll try to correct or enhance things that we couldn’t fully address before, like better synching our communication or getting staff to adapt to new processes that are different from what they were used to.
What immediate benefits have you seen from the merger? Where are you projecting long-term value?
RL: Honor has just rolled out a 5% checking account, which was something we would never have been able to offer on our own. We also brought experience with direct sales to Fannie Mae to the table, which helped removed several middlemen from that process for Honor.
From a staffing standpoint, there were very few positions that were redundant.In fact, we’ve hired about six new people since the merger, which is pretty unheard of.
SM: We both did commercial lending, which is pretty rare, but joining forces has sharpened our competencies in this area. SIR had also been proactive in expanding its field of membership in the UP under a federal charter. It came under our state charter when we merged, but because of its initial status, we were able to expand our charter to every county in the state of Michigan.