SAN DIEGO - Two mergers of large credit unions have rocked the Southern California market with the general conclusion that size, apparently, does matter.
Jim McPheters, the retiring CEO of $907 million in assets Cal Coast, and Marla Shepard, CEO of $944 million First Future, shared with CU Journal why two credit unions that were both just hovering below the billion-dollar mark felt the urge to merge.
The combined credit union will carry the California Coast CU name, and will have a total of 26 branches and 54 owned ATMs in two Southern California counties. Shepard, who will be CEO of the new California Coast CU, said she called McPheters to propose the deal.
“My thinking was: at the last three or four board planning meetings we talked about merging and the need to be bigger,” she recalled. “To be competitive in San Diego, a very competitive market, we needed economies of scale to make a difference. For the health of my credit union and my members, a large merger is necessary.”
McPheters previously had announced his pending retirement from Cal Coast. He said he expects to remain until the regulatory requirements of the merger are completed. The anticipated finalization date is June 30.
Imminent Departure Played A Role
McPheters said his imminent departure played a role in the decision to accept First Future’s overtures. “Our credit union was looking for a CEO, and a new data processing system, they had both,” he pointed out. “They were looking for a new headquarters as they had outgrown theirs, and we had excess space in our building. Research showed we had more recognition, so they were willing to carry on our name.”
Other elements dovetailed nicely between the two CUs, Shepard explained. First Future offers business lending, while McPheters and the members at Cal Coast wanted that option, she said. On the other hand, Cal Coast brought to the table a fully staffed real estate department, while First Future had a relationship with CU Members Mortgage. “We had made the decision late last year we wanted to keep more of our loans, which would have meant staffing up that department significantly,” said Shepard. “We could continue to outsource, but you pay a premium for that.
“When First Future took a look around at credit unions in the San Diego area, Cal Coast made the most sense for all these reasons,” Shepard continued. “The employee culture and the quality service for member philosophy are very strong at Cal Coast, as they are at First Future, so we thought blending the two would work well. Both credit unions have the same philosophy on low fee income, so that worked well.”
According to McPheters, between attrition and improved economies of scale, the merger is expected to be completed with no staff layoffs.
“Some economies will be created by First Future not having a headquarters anymore,” he said. “And the combination of the data processing systems will create economies, along with savings from enhanced technology for our members.”
Added Shepard: “There will be cost savings by having one audit, rather than two. Also, there will be only one home banking provider–and having one instead of two will save $700,000 per year. That’s a significant example.”
Asked if the fact two large CUs felt compelled to merge for competitive reasons was a flashing red light for small- and medium-sized credit unions, both McPheters and Shepard disagreed. They said such a decision depends on an individual credit union’s particular circumstances.
No Need For Others To Merge
“I don’t think there is a need for any credit unions to merge,” declared McPheters. “A lot of the institutions that are out there have created their own niches. There are some challenges in today’s market that make it more difficult to earn money, but once we get past this economic downturn–because credit unions are well capitalized–we will get through in good shape.”
“I agree with Jim,” Shepard chimed in. “Other credit unions should not be concerned. It just depends on your niche and how you want to manage that.”
Shepard said she is “excited about the future of the new Cal Coast.” She cited the economies of scale the combined CU will have as a reason to expect, “we will be able to provide great branch locations and great products and services to our members. We will be a great combination.”
McPheters said size will help in San Diego. “We are still trying to get the consumer to recognize the benefits of credit union membership, and we feel we can do that better with a little bit larger shop.”
Both CEOs said the merger plan was well received by their respective staffs. According to Shepard, employees were “very energized and excited” by the announcement. She said there is “a lot of respect for the other credit union and what they are doing on both sides.” Member response also has been very positive, she added.
Said McPheters: “Our employees clearly recognize there is a greater chance for upward mobility in a shop that is twice the size of what we had. Member feedback has been very positive, especially the increased convenience they will have from a total of 26 branches and 54 owned ATMs around San Diego and Riverside Counties.”
