PEORIA, Ill.-Nearly 2,100 miles separates Citizens Equity First CU's headquarters from its newest branches after the $3.6-billion institution took over operations at Valley CU, but CEFCU is undaunted by the distance - or the troubles that led NCUA to seek an acquirer for the ailing Valley CU.
Immediately after becoming receiver of the San Jose, Calif.-based credit union on Dec. 31, NCUA sold the $216-million institution at what CEFCU CEO Mark Spenny called "a discount of its book value." Terms of the agreement were not disclosed, but Spenny did note CEFCU did not receive financial assistance from NCUA to make the deal.
When it was more closely tied with heavy equipment manufacturer Caterpillar, CEFCU had branches in neighboring Iowa and Ohio, but those branches were closed several decades ago. Though its community charter extends only to communities in central Illinois, the credit union's ties with Caterpillar and other SEGs give CEFCU a very broad reach.
"In the past 30 years we have sought greater geographic and economic diversity," Spenny noted. "We've accomplished most of that in central Illinois but we do serve members across the country."
NCUA also contacted CEFCU earlier in 2008 to inquire about its interest in taking over operations at another credit union that would soon enter receivership, but Spenny took a pass on that offer after deciding it was not in CEFCU's best interests. Valley CU's location in the technological heart of the country, its potential field of membership encompassing all workers and residents in Santa Clara, Alameda and Contra Costa counties, as well as its business culture similarities made the 25,000 member strong credit union an attractive acquisition.
"What we saw there was a credit union that for the most part had a solid loan portfolio," Spenny said. "The majority of their loans were vanilla for cars and homes that any credit union would typically make. This is a credit union that looks like, to us, got into trouble because of poor business strategy and poor execution. We think the economy in Silicon Valley, in the long run, is going to be very good."
A business model change should be good for Valley, which reported a net loss of nearly $9 million in Sept. 2008. CEFCU, on the other hand, reported net income of over $31 million in the same 5300 report. "Our business model works pretty much everywhere we go and that model focuses on providing outstanding member services whenever they do business with us," said Spenny, adding that special attention will be paid to becoming more efficient and maintaining a solid cost structure.
Members at Valley CU should not expect any changes in the near future as CEFCU plans to continue operating Valley's branches as they are for now. Spenny hopes some of Valley's strengths will rub off on CEFCU, lauding Valley's ability to work with an ethnically and economically diverse membership.
"We think the growth opportunities (at Valley) will give us greater diversity, greater scale and give even more back to members," he added. "We think (the merger) is going to mean that they are going to get a better value than they were getting before."
