United Federal Credit Union began as the credit union for Whirlpool Corporation in St. Joseph, MI, in 1949. Since then it has expanded to serve multiple SEGs and members in Arkansas, Indiana, North Carolina, Nevada, and Ohio, the credit union. Through mergers the credit union has embraced underserved area charters and community charters, and it has an affinity charter with the America Consumer Council. United maintains its headquarters in St. Joseph, not far from the northwest Indiana state line. It has $1.5 billion in assets and 117,000 members.
In 2011, Griffith Savings Bank – a mutual savings bank located in Griffith, IN – approached United with the notion of selling its assets to United and becoming a United branch. Griffith is a town of 17,000 people and is located about 70 road miles from St. Joseph. The proposal was a fit for both institutions, and the acquisition was consummated in January, the first instance of a federal credit union taking over the assets of a bank. In July, The Callahan Report talked with United FCU CEO Gary Easterling about the acquisition and the relative merits of the credit union and banking charters as well the effects on the town of Griffith.
What is the history of this acquisition?
Gary Easterling: The Griffith Savings Bank began in 1930 as a traditional state charter savings and loan. In 2011, it had about $80 million in assets and even before the recession was not doing particularly well. The CEO wanted to retire and the institution was running out of steam. Griffith’s board was somewhat enamored of credit unions and began looking into converting to one; it began discussions with Indiana’s examiner. But then the recession hit, the economy soured, and the bank suffered. It wanted an exit strategy, so it hired a consultant, and the consultant came to us. We already had some United members in Indiana. We thought the Griffith community would be a good one for us, and so we pursued the idea. We had an agreement in principle last spring. On January 2 of this year, the Griffith branch (there was just one) opened as a United branch.
Has there been an impact already on the community?
GE: Yes. The customers of Griffith did not have electronic delivery or credit cards. Immediately we were able to give them as members of United a host of electronic services, credit cards, and more. We could bring our economies of scale to former Griffith customers.
How did the Griffith customers become members of the credit union?
GE: As you can imagine there were some regulatory questions to address, but we worked it out. Griffith held an open meeting for all depositor/borrower members. The board had proxies for the depositor/borrower members, although these members could show up at the meeting and cast their own votes as they pleased. Voting was not like at a credit union where it is one-member one-vote. At a mutual you vote in proportion to the size of your account. The vote approved the acquisition.
Do you know if the vote was close?
GE: I was at the meeting to answer any questions. But I was not present when the votes were counted, and I was only told the acquisition was approved.
Next the Griffith members voted to join the American Consumer Council, with which we have an affinity charter. That made Griffith’s old members new members of United. In addition, persons in the town of Griffith who wish to become United members can join the American Consumer Council and become members of United.
Was the Griffith community concerned about the conversion?
GE: No. They have been quite welcoming. I think the Griffith depositors and community members were most concerned that they had a continuing and sustainable financial institution and the employees retained their jobs. I am not so sure they understand or debate the pros and cons of a mutual savings bank versus a credit union charter. Their concerns were more practical.
How have you helped the Griffith community?
GE: We have fulfilled that wish for a sustainable financial institution. Griffith will not need to fear it will lose the advantages of a healthy institution or that persons will lose their jobs. The community is also getting better financial services.
How will the credit union charter help the Griffith community in the future?
GE: The credit union charter allows the board and management to look out on a longer-term horizon. It allows for a certain way of operating and making decisions. It is not so driven by quarterly data, and it is not pressured by remote stockholders. We can look to a longer ROI and make decisions that are right in the long run for the community and the credit union. Here is an example from our own credit union.
Last year our net earnings were lower than normal on account of upgrading our computer systems. The new systems were a costly investment, but in addition, to minimize any transitional impact on our members we increased our staffing levels. In other words, we intentionally increased our operating expenses. That meant our quarterly numbers were not as strong as they traditionally were. We entered into these decisions confident that in the long run our service to members would be better and that during the transition our service would be up to their standards. These were costly decisions, but we did not have to worry – so long as we maintained service and the price points – because these investments were in the best long-term interests of the credit union and its members.
We don’t have the pressure of stockholders demanding quarterly numbers that uphold stock prices. I think that gives us a competitive advantage. We can make decisions that cause short-term drops in earnings but are all right so long as the board understands and supports the strategic intent of the investment.
There’s another advantage to the credit union charter that is sometimes overlooked: Members of the board and management are not tempted with conflicts of interest. Board members are unpaid volunteers and management has no stock options. Every one of them shares the welfare of the common entity, the credit union. There are no incentives to cause anyone to make a decision that could put the credit union at risk for their own gain.
With a bank charter you cannot be sure. The credit crisis of 2008 has revealed that financial institution officers can put their own companies at risk in order to make personal gain. This is an important difference between our charters. In a credit union charter, the ownership structure assures that the board and management are all focused on the welfare of the credit union and its members.
That relates to another way United is helping and will be helping in Griffith: It has the best interest of the Griffith community in mind. It is not there to take out profit. It is there to help the Griffith citizens who join. United will listen to the members and the community and deliver what they want.
Did United need a vote from its members to make this acquisition?
GE: No, none was required. Obviously, there was quite a bit of discussion with our board, and we kept the membership informed of what we wanted to do and why. We discussed the acquisition at our annual meeting. We brought up why we thought the acquisition was a good idea: more diversification, the value of diversification of markets, economies of scale, and so on.
How has the acquisition worked out so far?
GE: Very well so far. We had a grand opening with the local chamber of commerce. We have not seen significant withdrawals. We recently completed converting the old Griffith computer systems to make them compatible with United’s. We expect on account of this, old Griffith customers will be even happier with United.
What happened to the Griffith board and management?
GE: The CEO retired before the acquisition was complete. The holding company that owned Griffith sold the assets to United. Then it unwound itself and the old board dissolved.
Describe the regulatory hurdles.
GE: Naturally, NCUA needed to approve the acquisition. Its major concern had to do with the field of membership, but when we worked this out, we didn’t have trouble. The Indiana Department of Financial Institutions had to approve, and so did the FDIC. Both approved.
Click here to download the entire August edition of The Callahan Report.