Go Big Or Stay Home?

The advantages of mergers and acquisitions extend beyond balance sheet growth, and United is diligent about identifying opportunities that offer the best fit.

United Federal Credit Union ($1.3B, St. Joseph, MI) makes no apologies for being a big credit union. As a cooperative, though, the motives behind its expansion are not sheer market domination. The driving factor, leadership explains, is to better meet the needs of all members, current and future alike.

United knows it must focus on organic growth to achieve long-term vibrancy, but the credit union also has a history of growth through mergers. Some of the markets United has expanded into have been hit harder economically than most, but its merger strategy is something CEO Gary Easterling expects to see in the credit union for a long time to come, as having a presence in many markets brings value to the credit union.

We have many different markets but not all our markets are cycling the same pattern, says Easterling. Were not tied to a single sponsor group and not all our eggs are in the same basket.

The credit union can stay in struggling areas to secure its position for when things turn around. Such diversity is a strength for a cooperative of any size, whether it is in the branch network or the balance sheet.

Its no secret Michigan is not growing, says Duane Nelson, chief operating officer. The state has actually reduced in population, so we need to be able to move where our members our moving.

The Opportunity To Expand

Through the course of its history, United has experienced nearly every type of so-called inorganic growth. These opportunities took different forms and each came to the credit union in different ways.

Although not exact matches in asset sizes, the 2006 merger of $215 million United Federal Credit Union and $480 million First Resource Federal Credit Union was a melding of institutional equals and was the largest voluntary credit union merger of its time. The merger of the two institutions created economies of scale in a localized region without adding redundancies or overlapping services.

We didnt duplicate our footprint or our infrastructure, Nelson says. That move was the stepping stone for much of our continued success.

In 2009, United acquired Clearstar Financial Credit Union ($150M, Reno, NV) through a purchase and assumption in which the NCUA functioned as the liquidating agent. The P&A opened new market share opportunities for United. In return, United offered Clearstar members not only continued financial services but also expanded products and services.


A business intelligence team helps determine if merger opportunities meet specific institutional goals. Where can your organization dedicate resources and expertise to accomplish your own cooperative mission?

The planned purchase and assumption of Indianas Griffith Savings Bank, which has struggled to raise capital levels, will present new challenges and opportunities as members from the banking world are onboarded into the cooperative one.

Both merger and acquisition models give you a revenue stream from day one, because youve already got a book of business thats in place, says Tim Gray, vice president of finance and accounting. That helps us hit the ground running and quickly offset some of those upfront costs.

The difference between a merger and acquisition really comes down to how the transaction is put into place, Gray says. But given the cooperative nature of the institution, the credit union steers clear of hostile takeovers, whatever the financials gains might be.

United is looking for a merger of cultures, Gray says. The credit unions growth strategy is not about buying up businesses, its about examining how different institutions line up with Uniteds philosophy, services, and products.

To guarantee a smooth merger of cultures, United brings on not only members and employees but also senior leadership and Board members from acquired institutions. For example, in Uniteds 2006 merger, the credit union expanded its Board roster to keep the directors from both institutions.

One board member took emeritus status, but the remaining 15 helped soften the blow from succession issues the institution would face in the years ahead, says Mike Hildebrand, vice chairman of the Board.

Qualifications And Risk Assessment

Verifying an opportunity is a three-step process that evaluates geography, the institution, and the benefit to members. It has to provide a net value increase for the credit union, because its the members money were talking about, Easterling says.

To identify the best fits, Uniteds Business Intelligence (BI) team analyzes and score various opportunities and cross-references them with the scores of Uniteds existing branch networks.

The BI group scored every county in the country using our own model, Easterling says. Weve found we do best in markets that are somewhat rural or suburban; big cities, not so much.

Such data and insight has greatly simplified the scouting process. The credit unions proficiency with its own merger criteria means the assessment team can make frequent, low-impact flyovers in a variety of regions. And despite the credit unions active history, United underscores the importance of being able to walk away from opportunities that are not ideal.

A business intelligence team helps determine if merger opportunities meet specific institutional goals. Where can your organization dedicate resources and expertise to accomplish your own cooperative mission?

Within just a few days we can determine if we want to go forward with additional due diligence, without spending a lot of money, Easterling says.

Even with such capabilities, theres no guarantee a beauty wont turn into a beast after the papers have been signed. Thats where due diligence comes in.

Probably the biggest challenge is making sure the entity is valued properly, Easterling says. Another issue is credit risk.

Dealing with loans it did not originate means United is playing by guidelines that are not its own. To combat this risk, it conducts a thorough assessment of the loan portfolio, including the institutional and individual factors that were in place when the loan was issued. It also examines the creditworthiness of each loan entity compared to the credit unions standards.

For example, when United expanded into Nevada, it did not expose itself to vulnerable mortgages there because Clearstar held only a handful of loans on its balance sheet.

This helped us mitigate substantial risk from exotic products and overbuilt markets, says Jeff Leep, director of sales strategy and development for mortgage.

In other cases, the credit union brought aboard a number of products and relationships that complemented its existing goals.

In previous instances, weve acquired good portfolios, says Nada Kramp, electronic delivery systems manager. The 2006 merger by itself increased the existing card portfolio by roughly 50% with very little fallout, she says.

Organization And Communication

Not unlike credit union service organizations (CUSOs), mergers with a larger institution are one way for small credit unions to provide new or lower-cost services through the cooperative system.

Prior to some of our own mergers, we had smaller departments and knew we werent as efficient as we could be, Nelson says. Some credit unions address this need to improve operations through CUSOs, but some like the ability to do it on a closer scale and proximity in their own office.

The operations piece of United is, for the most part, centrally located to increase efficiency. But as the cooperative grows, it is addressing how to best preserve and strengthen its connections to its satellite locations.


Be out of site but never out of mind. Every expansion or new direction the credit union undertakes requires dedicated efforts and resources to keep the ship on course.

Although were big, we need to act small, Hildebrand reminds. This eliminates the bottom-up pressure from members and employees who feel like the institution is changing without keeping their interests in mind, he says.

In my prior career, I worked in a small office with my regional manager 300 miles away and my big boss 1,000 miles away, Easterling says. Sometimes I felt like they forgot who I was. Ive never forgot that lesson.

Be out of site but never out of mind. Every expansion or new direction the credit union undertakes requires dedicated efforts and resources to keep the ship on course.

Today, United works to preserve institutional connections regardless of whether a new acquisition is in the next state or down the street. For example, to preserve localized perspectives, members and otherwise, the credit union has implemented entrepreneurial, regional leaders.

Each of Uniteds regions has a vice president who is semi-autonomous and can provide a boots-on-the-ground perspective to help identify market opportunities and challenges. These VPs not only keep communication flowing across multiple time zones, they also help relieve the pressure of managing remote operations for centralized staff.

To convey the trust the institution places in its regional directors, United is considering ways to implement a fire and forget method, where senior staff can green light a project a regional vice president wants to develop and implement. Senior staff later receives an assessment of the project but it doesnt have to be directly involved with it.

Were making these organizational and leadership changes so we can have the same type of agility we had when we were a $200 million institution, Easterling says.

Preserving Culture and Member Value

Despite all its best practices, there is more to a merger than operations.

Its policy, its procedural, its cultural, says Shawn Birch, director of innovation. We spend a lot of time learning about the other organization and try to assess best practices going forward.

Just because you acquire another institution doesnt mean your way of doing things is better, she says. Mergers present many opportunities to take lessons and best practices from other institutions and combine them for the betterment of the continuing institution.

Bringing on a new institution of any size means changes to your operation, and a good merger team will seek out and preserve best practices, agrees Easterling.

If youre not careful, you can go in too heavy-handed and totally eradicate the value that was there, he says. Then youve only acquired a building and some accounts that are not very vibrant.

Our goal is to make it feel like the credit union our members have always known, but balance it with the need for growth that’s driven by a competitive environment.

For existing members, they want to know their credit union is protecting its value and identity. If things change too much, too quickly, the original membership might feel left out of the institutions vision.

Our goal [with mergers and acquisitions] is to make it feel like the credit union theyve always known but balance it with the need for growth thats driven by a competitive environment, says Tim Bennett, vice president of marketing. If competitors continue to grow and drive down costs, ultimately we have to do the same to provide the kind of value a credit union member recognizes.

Understanding what must change while protecting what cant are among the stepping stones that move the brand from point A to point B while keeping it intact for membership. Balance is the key, even as changes roll through.

Youve got to have a culture that survives, Easterling says. You cant stay two separate institutions.

He quotes the sentiments of his predecessor during the 2006 merger: We will take the best of both credit unions and make a better credit union.

This is Uniteds attitude as the cooperative expands its branch network into 2012 and beyond.

October 10, 2011

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