The Benefit Of Boots On The Ground

Collaboration, local leadership, and a little autonomy help one credit union overcome cultural differences after a merger.


Keith Reynolds has worked with CEFCU ($4.79B, Peoria, IL) since 1975. The vice president helped expand the credit union’s market share in central Illinois, where two out of every three homes has a CEFCU member today. But for the past four years, Reynolds has been meeting with other CEFCU executives through teleconferencing, and instead of braving five-degree winters, he enjoys balmy 55-degree days. Reynolds is the community president of CEFCU West, the credit union’s West Coast operation based in San Jose, CA.

CEFCU acquired Valley Credit Union in 2008 from National Credit Union Administration (NCUA) after the regulator took the San Francisco Bay Area credit union under conservatorship. Santa Clara County, which is home to San Jose, is just one of three counties CEFCU gained in the deal, but Santa Clara has a larger population alone than all 14 counties combined in CEFCU’s home territory in Illinois.

“Our motivation was that we had 14 counties in our field of membership in central Illinois and that the market share we had was very high,” Reynolds says. “We just felt in terms of diversification that the ability to continue to grow was important, and it was a good time to look at opportunities like this."

About a million people live in the 14 Illinois counties CEFCU serves. The NCUA approached the credit union about acquisition opportunities resulting from the 2007 financial crisis. Valley Credit Union made the most sense to CEFCU because it offered a three-county field of membership with roughly four million residents. Also, all of Valley’s branches are in the San Jose metropolitan area, which has been a job creation factory for nearly 70 years. The city’s population grew from 68,000 to 1 million during that time. San Jose is also a center for global trade and is less sensitive to national economic trends, offering a potential buffer in a slow domestic economy.

Although the expansion made sense financially, establishing a brand more than 2,000 miles from headquarters presented its own set of challenges. In Peoria, IL, CEFCU has an established and well-respected name.

“As a 38-year CEFCU veteran you take for granted the power of that brand. Everyone knows who CEFCU is in central Illinois,” Reynolds says. “Out here, people didn’t know if CEFCU was a plumbing contractor or a grocery store."

A Region With Its Own Leadership

CEFCU tried to implement its community-focused brand in San Jose, where it lacks the name recognition it has in Peoria. But CEFCU didn’t have the same reputation on the West Coast. Because of this, CEFCU team members had to be especially active and visible in the San Jose neighborhoods they serve.

NCUA had appointed a transitional leader to run the newly acquired Valley Credit Union branches. CEFCU executives kept that individual in charge of West Coast operations for the first few months of 2009 to ease friction during the transition to new ownership. For the first six months of that year, a number of vice presidents flew back and forth between San Jose and Peoria. A vice president might stay in San Jose for six weeks, come back to Peoria for two, and then return to California.

“Central Illinois is very different from the San Francisco Bay Area and so it was a learning process for us,” Reynolds says. “We felt that if we were going to be successful integrating our culture out here, it would have to be with leadership on the ground.”

In mid-2009 CEFCU decided to install its West Coast leadership full time.

As community president, Reynolds runs the West Coast branches the way a CEO runs a small credit union. If he wants to try something different in California, Reynolds discusses the strategy with CEFCU’s senior executives, just as a credit union CEO would do with a board of directors.

Communication is critical to ensure there are no surprises,” Reynolds says. “That dialogue builds the kind of credibility necessary to make decisions that won’t be second-guessed by leadership at headquarters.”

Collaboration Bridges the Geographical Gap

Integratiing the two territories was a big concern for CEFCU. Key staff from one office would fly out to the other to introduce themselves and gain a new perspective on the CEFCU business model.

Most important was the collaboration between similar departments. The Midwest mortgage department would meet or teleconference with the West Coast mortgage department to share best practices and establish a system that fit both regions, leveraging the strengths of each location.

Because central Illinois is a larger operation, its staff fills more specific roles than in California, where CEFCU’s rapid growth demands more versatile employees who can perform multiple roles simultaneously. During meetings and conference calls, team members from each location can share the benefits of their strategies.

“We are trying to implement a similar brand focused on the communities we serve,” Reynolds says. “We’ve spent a lot of resources trying to build our brand through those avenues. Obviously, advertising is a lot more expensive in the San Francisco Bay Area than it is Peoria, so that represented some challenges in and of itself. Coming from central Illinois, you had no idea how strong that brand was until you didn’t have it.”

To ensure similar values in San Jose, Reynolds spends a lot of time answering questions from West Coast staff, and he emphasizes the reasoning behind CEFCU’s business model.

“It takes more time, but we are trying to teach California staff how to be increasingly self-directed,” he says. “The greatest satisfaction I’ve had has been watching key leaders emerge in our California operation who thrive in CEFCU’s culture and have become well respected as CEFCU leaders for the future. Not just in California.”

Reynolds compares taking over Valley Credit Union to what happens in athletics when a new coach is introduced. The coach must identify players that fit the new culture he is trying to create. That is what CEFCU has done with the Valley employees that remained after conservatorship.

“We identified employees that are going to thrive in our culture and put them in positions of responsibility,” Reynolds says. “We pride ourselves on maximizing productivity; having a pretty good expense ratio is a major focus, so we tried to identify employees who can do that.”

CEFCU retained about 90% of the Valley Credit Union staff during conversion.

New Markets Lead the Way for Growth

CEFCU has had consistent growth over its history—12-month share growth is 4.23% and 12-month loan growth is 1.34%—but the real growth is happening in the new territory around San Jose. CEFCU’s growth in the West Coast market was about two times the growth in central Illinois for 2012. In 2013, the executives anticipate  that for the first time growth in new markets in both Illinois and California will actually exceed CEFCU’s core market.

“That speaks to the success of our diversification strategy,” Reynolds says.

For other large credit unions that have expanded and are interested in setting up local leadership at remote outposts, Reynolds recommends patience.

“It takes a while to integrate the cultures, and there are certainly challenges that you encounter relative to the difference in cultures of those locations,” he says. “Our staff out here really embraced what we were trying to do in terms of reaching out to communities that we didn’t have experience with. They’ve really assisted us in taking the lead.”




March 20, 2013


  • I am very skeptical. On paper the expansion to San Jose makes sense. But the reality on the ground is much different. The article implies that the new acquisition is a roaring success with twice the business growth of the core area. But no where in the article are specific member, share or loan growth data for the Valley acquistion. That says alot. Those are the statistics that would prove the point. Why are they not in the story. CEFCU is not a household name in San Jose. I'm surprised it is a household name anywhere. It harkens back to the old aphabet soup days when credit unions had names like CEFCU that make it difficult to tell if they sell cement or prescription drugs--but not financial servcies. The odd thing about touting this kind of expansion is that it flies in the face of what I think makes credit union's special. Credit Union's are best when they are community credit unions and when they bond with their community. There were plenty of contigous credit unions in the area that would have been far better merger partners. They did not take the deal because Valley Credit Union's franchise was weak or non existant. The high cost of expanding out of state is obvious in the experience you cite with CEFCU. Lets hope credit unions consolidate in more rational ways than this example.
    Henry Wirz
  • Henry - Typically those who are least trustworthy themselves are the most likely to question the veracity of others. And, relative to your gratuitous slap at CEFCU's name, I'm sure IBM, USAA and GEICO would welcome your brilliant insights to improve their brand image.
    Mark Spenny