What We Have Learned From the Industry's Largest Merger of Equals

Western is serving its members well and delivering on expecations arising from the merger four years ago.


Except for corporates and the State Farm credit union aggregation, the largest merger of equals in credit union history was in 2003 between the TRW Systems FCU and the former Western FCU. I had been the President and CEO of the TRW Systems Federal credit union since 1994, and can report that the merger did what we said it would do: benefit the members of both credit unions while making the new Western FCU a stronger and more competitive financial service provider.

In many ways TRWSFCU and the former Western were twin credit unions, operating in many of the same markets around the country while headquartered less than five miles apart. Each was approximately $500 million in assets, was well capitalized and served over 50,000 members. Our respective performances were about the same, as were the competitive challenges facing us.

The former Western FCU had served Western Airlines, which was acquired by Delta Airlines in 1987. By the time of the TRWSFCU merger it had 350 SEGs. TRWSFCU had its roots in TRW Incorporated, which was sold in 2002 to Northrop Grumman Inc. By the time of the Western merger, it had 150 SEGs.

In late 2002, the two credit unions began to talk about combining. We believed that a merger could double our delivery channels overnight and create many economies of scale to benefit our members. We agreed that TRWSFCU would be the surviving credit union, but would change its name to Western FCU. A newly constituted Board would reflect a balancing of governance, and the staffs would be integrated into a single unit, enjoying the same benefits and compensation schemes.

Enhancing Member Value

One of the first things we did in analyzing the proposed merger was estimate how much scale could be gained by combining balance sheets and operations. We could see that combining platform systems, facilities and real estate, and renegotiating redundant contracts from our service providers would provide a solid base for cost reductions. With no need to further enhance capital, we decided to immediately turn the savings back to our members so they could begin to experience the benefits of the merger right away.

In addition, we applied a best-of-breed approach when combining our products, services, rates and fees. The product, fee or pricing scheme used by either pre-merger credit union that was the better deal for the member continued or was improved. As a result, members of both credit unions enjoyed more favorable product features, rates and pricing.

At the same time, members from each pre-merger credit union quickly began frequenting the branches of the other.


At the time, many people believed that a merger of equals, particularly inside the Board room, was not possible, that one group would control or Boards should combine into a “super sized” Board, to decide afterward how to reduce the Board into a smaller and more efficient governing body.

Instead, we set out to create a new governance model as part of the merger plan. The two nine-member Boards would be re-constituted into a combined Board of 11 members. WFCU, the merging credit union, would have a six-person majority and appoint a Vice-Chair, while TRWSFCU, the surviving credit union, would have a minority of five seats yet appoint the Chair (see sidebar).

The “New” Western FCU and its Long-Term Vision and Strategies

With integration underway, the most important task of the newly constituted Board and management team was to craft long-term strategies. The Board chose to continue as a multi-sponsor/SEG, multi-market credit union with expanding markets across the country. Western’s sponsors and SEGs provided ample opportunities to evolve from what was primarily an onsite branch strategy to a community presence in our markets, anchored by our corporate sponsors and SEGs. Associational membership groups would complement our public presence. And we intend to seek out like-minded, progressive credit unions as future merger partners.

Here are a few examples of this anchor strategy at work. The former TRWSFCU had a sleepy on-premise branch in Rogers, Arkansas. Before the merger, resource limitations precluded the credit union from expanding into a full retail presence. But post-merger, resources were made available allowing not only for opening a public office in Rogers, but also a second office in neighboring Bentonville, home of Wal-Mart. Plans are in place to open two more nearby branches. And just recently, Western announced the opening of a Midwest regional call center to better support members there. By 2009, we expect that as much as 40% of our call center teammates will be located outside California.

In addition, both pre-merger credit unions had a moderate presence around Los Angeles. Post-merger, we were able to combine resources and reposition ourselves. We sold the former Western’s airport headquarters building and branch office, using the funds to move to a better retail location, open a new office in Irvine and lay the plans for more offices in the region.

We’ve been able to expand elsewhere as well. Western was in Salt Lake City to support Skywest Airlines. Post-merger we have been able to plan for two offices in St. George, where Skywest is headquartered.

Lessons Learned

The first lesson we learned was that to succeed your partner credit union has to share the same progressive values and entrepreneurial spirit. This entrepreneurial spirit should begin with the volunteer leaders, who must possess a passion to serve the members through expanding markets by using economies of scale.

We also believe it can be a challenge where a culture of amassing capital through high ROA, or confining growth opportunities to the same membership, or both, exists. Mergers should be done by like-visioned credits unions; if one seeks to improve ROA and play in the same field while the other seeks to use scale to continue expanding and enhancing delivery channels, cultural problems can arise. These differences should be worked out well in advance.

The second lesson we learned was that no matter how close you think you are in culture and philosophy, it’s hard to get everyone working together — there are going to be pain points. Take processes and internal control philosophies. Every credit union thinks its way of managing them is best. But put in a merger you will find some processes and controls passed down by custom more than by formal written documents. Leaving egos behind in favor of best of breed processes is the path to a successful integration.

We also learned that the work really only begins once a Letter of Intent is signed. Critical issues such as governance, name, leadership, and operations should be agreed upon and a contract executed before press releases are issued. The credit unions had all material items resolved by both Boards approved by both Boards before issuing a press release.




July 16, 2007



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