Successful Merger Strategies - Part I

The number of credit unions declines every quarter, primarily due to industry consolidation via mergers. There seems to be two different scenarios that act as catalyst for a merger. Often, a smaller credit union is constricted in its ability to offer a full range of services and products to its members, and seeks out a larger credit union with which a merger would develop more complete service for

 
 

The number of credit unions declines every quarter, primarily due to industry consolidation via mergers. There seems to be two different scenarios that act as catalyst for a merger. Often, a smaller credit union is constricted in its ability to offer a full range of services and products to its members, and seeks out a larger credit union with which a merger would develop more complete service for the smaller credit union's members. In other instances, two credit unions of approximately equal size merge as a means of improving member value with improved efficiency and productivity economies of scale afford you.

On January 28th, Rich Helber, CFO of GTE Federal Credit Union, and John Bommarito, CEO of Western Federal Credit Union, shared their merger stories with interested credit union executives at a Callahan & Associates' webinar event. Rich and John brought different experience to the table, as the merger scenarios they have encountered reflect the different catalyst scenarios described above.

Rich Helber explained that GTE's growth strategy is focused on branch expansion, indirect lending and a deeper penetration of wallet share - mergers are viewed as a windfall. However, they have completed four mergers in the last eighteen months, all with credit unions considerably smaller than the $1.6 billion institution.

GTE views a merger as a means of growing total membership and evaluates the opportunity in terms of member acquisition cost. If they can acquire members through a merger for less than the $100 per member rate they have determined it costs to acquire a member through marketing, then the merger has its merits and generally outweighs potential capital dilution problems.

While Rich recognizes that every situation is unique, GTE still has policies in place that have helped them become a viable option for so many credit unions in search of a merger partner. Some of these policies include:

  • Retain all employees one year
  • Employees keep salary but may be reassigned duties
  • Employees keep seniority (except in pension)
  • Keep existing facilities open as long as members support them

This approach has attracted GTE to many credit unions in search of a merger, and in the process as led to extremely high retention rates among those members acquired through this process.

In coming weeks look for Part II, summarizing Western Federal Credit Union's success in merging two credit unions of equal size.


Would you like to hear these credit unions' stories in their own words? It's not too late. Pick up a copy of this webinar on CD-ROM at http://www.creditunions.com/store/webcast/Operations/merger.asp

 

 

 

Feb. 2, 2004


Comments

 
 
 
  • I am part of a credit union that maybe looking at a merger with a credit union of equal size. I am looking for any and all info that I can get my hands on. Could you please help me with this issue. Please make contact with me at sgudelsky@tds.net or momg5445@wi.rr.com. Thank you so much. I have learned so much from your articles. Saundra
    Anonymous
     
     
     
  • In many markets, credit unions under $100 million in assets will be forced to merge because the larger more efficient credit unions are luring their members over with more convenient services and aggressive marketing; earnings problems then surface until NCUA comes along and sells the credit union out. A government assisted hostile takeover. A few large credit unions are not even interested in mergers with the small fry because Madison Avenue style marketing departments can easily capture the hearts of the smaller credit union's membership thus eliminating the politics of a merger. The elimination of overlap protection and the expansionist policies of the current NCUA reads like a death sentence for smaller credit unions, although they are currently helpful as a tool for lobbying to maintain the larger's tax exemption. The drop in investment yields is also hurting. Chasing loan yields with relaxed underwriting or getting into unfamiliar territory, like business lending, may slow the demise, but it increases the risk to the NCUSIF. We'll be at 5,000 credit unions in less than 5 years. This is not your father's credit union movement. It has changed forever, thanks to economics and big credit union control over NCUA, CUNA, and NAFCU.
    Anonymous
     
     
     
  • like this article. To the point and not alot of filler. Thank you.
    Anonymous
     
     
     
  • Good to hear.
    Anonymous
     
     
     
  • We are a FCU that has consistently been rate a code 1 for the last 10 years. Well capitalized, very low delinquency and charge off rate but this is not going to be enough to save us. At 40 million in assets we find it very hard to compete with the big boys and this article is definately food for thought. V. Smith President Key FCU Texas
    Anonymous