Flashback: A CEO Explains the Urge to Merge

In his own words, Dennis Pierce, CEO of Community America, describes the rationale and strategy behind a credit union merger.

 
 

In 1998, a unique merger took place between two large credit unions. Today, the surviving institution, CommunityAmerica Credit Union (Lenexa, MO) is a $1.35 billion institution. Since the merger, the credit union has grown an additional $526 million in assets, crossing the $1 billion mark in November 2000; launched a unique media campaign that includes a minor league baseball stadium sponsorship; and expanded its reach into the community through a branch partnership with Hy-Vee, a local supermarket chain.

Although much has changed in the financial services marketplace, the core values for this merger are valid today. Below, Dennis Pierce, CEO of CommunityAmerica, explains the rationale and the strategy behind the merger in his own words. This article is reprinted from the May 1998 issue of The Callahan Report. On March 8th, Dennis will discuss his merger strategy from a 5-year perspective in From Courtship to Kinship: Successful Credit Union Merger Strategies. This webinar is the first in a 3-part series in March focused on credit union mergers.

A Credit Union Merger: Not a Bank Merger
By Dennis Pierce, President

Why should two “large” successful credit unions combine? Many people would tell you they should not. I believe there are valid member-based reasons to support a consolidation and I have personal involvement to back up this statement.

Members America Credit Union (MACU), of which I am CEO, and Community America Credit Union (CACU), both in the Kansas City area but with members in all 50 states, recently announced plans to combine operations. Both credit unions are well capitalized—in excess of 13%—with strong growth potential. Market growth has been very positive and has excellent future prospects.

Members Best Interest
You read a lot about bank mergers, and how bigger, stronger, more profitable banks are the result. That is not what our merger is about. Rather it is about providing member services and developing service potential. Both credit unions traditionally view community-based expansion as priority. This requires a physical presence, which is a factor of both capital and size.

The combined credit union will have over $800 million in assets with $100 million in capital. That kind of size provides the opportunity to expand community presence and serve potential membership of 750,000 people in the Kansas City metropolitan area.

Our existing membership will benefit from this combination. In fact, the boards of both MACU and CACU stipulated from the beginning that the merger should only occur if it was in the members’ best interests. Imagine if the boards of merging banks said a merger could not proceed unless it was in the best interests of the customers.

Improved Services & Expanded Products
There are several ways this merger will benefit the members. The merger will better position and focus staff resources, which will bring about improved service and expanded products. The merger will allow us to focus on adding value by means of strong pricing and a continued commitment to quality member service. And the expanded resources of the combined credit union will support technology improvements and a well-positioned branch network.

Both credit unions had identified membership diversification as a future goal. The combination delivers an immediate success in achieving that goal. The new credit union will service two strong sponsor groups: CACU began in 1957 serving long-haul transportation workers; MACU began in 1940 serving TWA employees. Neither group will exceed 18% of the total membership. However, this diversification allows the credit union to be aggressive in providing products and services to their original groups without undue risk to the total membership.

The Ultimate Judges
The new organization will be able to aggressively pursue new opportunities but with the luxury of taking risks. Credit unions can become so risk averse that they miss potential member product and service growth. Our future will depend on our ability to develop new service options for our members and to add value to their credit union relationship. Our credit union will be aggressive and view calculated mistakes as important to providing quality member service.

This focus on the benefits to the member demarks a clear line of distinction between our kind of merger and those of the banks who merge for the benefit of stockholders.

In addition, we are being very sensitive to the needs and cares of the employees. All current employees will be offered jobs in the new credit union. The merger in no way is looking to save any money by reducing staff. Let merging banks say that without having their noses grow long.

Our members will be the ultimate judge of the success of the consolidation. If they view the credit as responsive and effective in meeting their financial needs then this venture will have been a success.