COLUMBUS, Ohio - Is a three-way merger of backoffice operations the best bet for mid-sized CUs to thrive in the future?
A trio of local credit unions here think so. Western CU, Powerco CU and Members First CU plan to combine certain operations to create an entity with $175 million in assets and about 25,000 members.
Under the deal, each credit union will maintain its own brand, facilities, and staff. Greg Kidwell, treasurer and CEO of Members First will become president of the new entity. Mike Shafer, president of Powerco, will work as CEO. Western's CEO Tom Furrey, who retired Dec. 31, will remain as consultant during the transition and assist with business consolidation activities.
Kidwell and Shafer told Credit Union Journal that the greater scale, combination of talents, and combined product and service offerings will allow the CUs to compete more effectively with larger financial institutions, and increase efficiencies through, among many things, combining backoffice and core system functions, and expanding product offerings. Branches will be not be closed, nor will employees lose their jobs, the CEOs stated.
"A mid-size credit union's job is getting more technically complex," explained Kidwell. "There is more regulatory and earnings pressures and I don't see either of those two things changing. You get to a point where you feel like your credit union is thriving, but the fact is it gets harder and harder on daily basis in the $50- to $60-million asset range to meet that definition of thriving. We want to stay ahead of the curve and do something a little unique and create the scale all three credit unions need to fuel future growth."
While capital at the close of 2011 was strong at all three CUs (Powerco 8.67%, Western 9.03%, Members First 11.6%), all but Members First have struggled with earnings over the last two years. Western lost $339,000 in 2010 and $63,000 in 2011. Powerco lost $154,000 in 2010 and rebounded to make $41,575 in 2011. Powerco's ROA last year stood at .07% after assessments, and Western's ROA was negative .10%. Members First made $30,856 in 2010 and $138,600 in 2011, with ROA last year at .28% post assessments.
The Next Steps
The next step is to complete the due-diligence process and determine which credit union will be the acquiring CU, Kidwell said. A single credit union name will be chosen and all three CU brands will be subsidiaries or divisions of the new credit union. "For example, 'Powerco Credit Union, a division of XYZ credit union' is what members will see," Kidwell said. Boards will be consolidated.
"When you get into the mid-sized credit union space, one of the most valuable things the credit union has is brand loyalty among its members," noted Shafer. "We still want members to identify with their original credit union."
The three CUs have worked closely together on projects over the years. Members First and Powerco own a mortgage lending CUSO together. But Shafer said talks about combining picked up about three years ago, and when Furrey began his own succession planning last year, discussions became more serious. With Furrey moving on, Shafer is performing as Western's CEO under a management agreement. "This new credit union is just an evolution in the collaboration process," said Shafer.
With all three boards signing a letter of intent to merge and due diligence underway, the next step will be to draft a merger agreement and then put the merger to a member vote.
