SYLVANIA, Ohio-For small to medium-size credit unions, whether to pursue a merger is an ongoing discussion. One person with a lot of experience in that arena reports that mergers have certainly made easier the job of driving growth.
Barry Shaner, CEO of the $562-million Directions CU, certainly knows mergers. Directions was formed from the merger of the $180-million Toledo Area Community CU with $125-million Empire Affiliates CU in 2005-2006. In early 2008, the CU then merged with the $130-million Erie Shores CU.
Thanks to the unions, Directions is more profitable, more efficient, and is a bigger presence in its markets today, said Shaner. Comparing combined business results from the three credit unions in 2004-the last full year the three CUs operated separately-to today, earnings increased to $3.4 million from $1.3 million, ROA doubled-even in a difficult economy-to 60 basis points from 31, and operating expenses-to-assets fell to 3.49% from 3.78%.
Discovery Credit Union's efforts were recognized recently with a CUNA Operations, Sales & Service Council Excellence Award.
"There are some very good and well-run $100-million credit unions in our markets," noted Shaner. "But it is a lot more difficult to be successful at that size, I know. Once you get to a certain size the positive effects snowball. You don't have to pull on the wheel as often to get momentum going. Size buys a lot of benefits."
The benefits cited by Shaner include better contract deals, ability to focus on operations and regulatory complexity, and greater product offerings and reach into the marketplace, insisted Shaner.
Not All Handshakes & Smiles
But Shaner explained that successful mergers require a lot of hard work once the deal is sealed.
"I get a kick out of seeing pictures of CEOs shaking hands and smiling once a merger deal is signed, saying, 'mission accomplished,' when there is a long way to go," Shaner said. "Sometimes I think credit unions believe that because you are now bigger, that the efficiencies, the additional business and the growth simply take care of themselves."
Managing new staff and differing business philosophies and cultures are tasks that lie ahead post-merger, according to Shaner. "You have to begin working through all of the employee and management teams to make sure you have the right people in the right places. It's hard work and not a lot of fun. In some cases it means telling someone the things they have done for the last ten years are not the right fit for them."
As important as getting people in the right places, is getting them all moving in the same direction, said Kathy Martin, SVP of development and support. Directions accomplished that by focusing on one key message that all staff, no matter which credit union they came from, relate to and believe in.
"It's the singular passion to serve the member," said Martin. "That's what we focused on, and all of the changes we made were explained as being done to better serve the membership. That message we drove home again and again. I believe that is what kept our teams focused during the transitions and moving ahead, rather than questioning what we were doing and not getting on board."
Narrowing Down The Board
Shaner emphasized the importance of building trust throughout all levels of the credit union-especially with the board-that the CU is making the right decisions for the entire membership. He said that eliminating board positions immediately won't do that.
"It can be unwieldy at first. I think after the first merger we had 18 board members," said Shaner. "You want to be as inclusive as possible. No board members who are there for the right reasons will walk away from their members until they are convinced their members will be taken care of. You have to give them a role in the new credit union. In our case, in not a lengthy period of time, directors became comfortable with each other and with the decisions the credit union was making, realized they could let go and voluntarily left. The board will come down to the right size (now there are 11 directors); you just can't force that up front."
A credit union also can't force together two separate business philosophies, said Martin. Directions chose to emphasize relationship building over individual product offerings, a strategy employed by Erie Shores. "Both strategies can work, but you can't have both at the same time. That won't work."
What Works
What always works well, said Shaner, is leveraging the credit union's bigger size to negotiate contracts, all the way from parking lot snow removal to data processing.
"They all add up," said Shaner, who emphasized the two biggest contract savings are data processing and card processing. "I think we were able to negotiate a two- to three-cent savings per debit transaction, based on 30,000 cards as opposed to 10,000. Over the course of a year that adds up to a lot of money."
Not only savings come from size, but more business-and from not a lot more effort and resources, added Shaner. "For our current expenses, we drive much more business through the organization. For example, about half the current membership, before our mergers, did not have access to first mortgages. The same thing with business lending and business services, for example."
Shaner acknowledged there has been consolidation, closing four branches where there was overlap, and absorbing the staff into the remaining 18 locations.
"But the net effect of the mergers is that we are bigger. We have a bigger branch network, a bigger presence, and people see that. Smaller credit unions can succeed, it's just a lot harder. Now we have the presence, the marketing power and the economies of scale to run the business more easily and effectively, something we did not have when we were littler."
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