Credit Union Growth: Organic and M&A Strategies

What strategies have you found to be effective in growing your member numbers?

Hosting tabletops, being involved in community activities, and giving back through non-profits work well to get our name out in the community, which is vital. It is slow growth, but it works.

What do employees think about participating in tabletops and community events?

It is an expectation of everyone from tellers to leadership. Whether we pull from a branch or leadership, we ensure we are present at events in our communities. Most employees like getting out, meeting people, and telling them about what we do. Our goals are high-level. When the credit union grows, we all grow, and we celebrate our achievements over time. The importance of the employees being involved in the community goes hand in hand with our growth goals.

From a business development standpoint, what are you focused on these days?

Our primary focus since the merger in July has been working to grow local markets. We are currently in the Gainesville and Tampa markets. We’ve been meeting with healthcare groups and offering the credit union as a no-cost employee benefit rather than picking up individual members. I’ve reached out to several healthcare businesses, and they have all welcomed me with open arms and introduced me to a wide range of people. They are always looking for someone to sponsor an event, be a guest speaker, or bring a door prize. This is an opportunity to get our name out there and have people become aware of us or remind them we’re here.

A credit union membership seems like a great employee benefit to offer.

It is. We ask partner companies to incorporate our credit union into their new hire orientations or benefits/business fairs. We also like to have someone on-site as our liaison. The time commitment for them is minimal compared to the benefit for their employees. It separates them from other employers. It doesn’t really matter how big we get: we are still going to run this like a small credit union operation. Our goal is not to be the largest credit union, it’s to keep that small-town feel.

At what point should a credit union consider a merger?

Rising costs in technology are still a fear for us as regulations increase and technology changes. We also must consider succession planning and how we prepare for various circumstances. A lot of CEOs are retiring. Larger credit unions have the tech to run all their systems. For us, it is looking for opportunities to partner in different regions and spread the word faster, but keep the small-town feel.
Both of our credit unions were SEG-based (select employee group). A TIP charter allowed us to serve a broader group in the healthcare field. We are focusing on business partners, the ones who brought us to the dance. We don’t want to lose the vision and our base while we are out there looking for opportunities in the future.

Can you touch on what a TIP charter is?

Trades, Industry and Practices specific for particular fields. In our case, it's healthcare. What it does is broaden who you can serve. If you continue to seek SEGs, you are going to be limited. You will run out of people to talk to you. You can’t convince everyone everywhere to join your credit union. So, you need to access a broader field. The TIP charter has allowed us to plan for future growth. We are going to take the time, assess who we are, and then reach out after the dust settles from our merger.

Who regulates that change in segments?

It varies from state to federally chartered credit unions.

How do you balance your focus between organic growth and the consideration of M&A when determining your growth plans?

Balancing organic growth and M&A options is all strategic. For the last ten years, we have had large goals and plans for each year forward. Not one year have we sat back to celebrate the prior year's achievements, and we have looked forward to what’s next. When hiring individuals, we look for those who are comfortable with change because we realign and change often to continue our growth strategies. We have a lot to catch up with!

Market analysis is important. Where are the hospitals? Where are the healthcare workers? Where is it that members need us? Unlike most credit unions, although members state they NEED branches, our goal is to prove to them that they don’t. They can bank with us without needing to come to a location.
Organic growth is very slow, but it is possible. Will we ever be the largest credit union in Florida? Probably not. But we would love to be the largest Healthcare credit union. Albert Einstein once said the person with big dreams is more powerful than the one with all the facts!

What resources and elements do you need to have in place before considering a merger or acquisition?

We completed the merger completely internally. The resources we reached out to were our PEO (professional employer organization) and NCUA because we needed more people to help guide us. There are advisory services you can reach out to for mergers. But you can do them internally, too. With larger credit unions, they have the staff to help. I’ve learned from the lesson of my first merger. It is not done completely on your own. All vendors have their different SEG groups that have the extra hands to work on those pieces externally.
Credit Union League is a great place to be. Both of our credit unions used LandrumHR as well. Trying to handle the HR piece would have been a nightmare. A merger is turbulent waters, so you need to have someone jump in and lead.
I had a board with our who, what, when, where, and why laid out. I learned you don’t want to do a merger on the last month of a quarter or the last month of the year. We planned this merger on July 1. You must keep everyone involved because it is stressful, and you need to keep the employees levelheaded.
Being transparent with the employees is key. They don’t want to feel blindsided. There is a lot of assurance needed from a leadership perspective. We were both solid credit unions. Now, we have opportunities that allow us to grow. It is important to have employees who can help complement what you would like to have at your credit unions. We both complimented each other very well.

What led to seeking a merger, and how did you decide on a partner?

Initially, due to our very strong TIP Charter, we were searching for other credit unions to merge into our credit union. The biggest challenge to that was our asset size. There aren’t many healthcare credit unions that were smaller than our credit union was and trying to convince a larger credit union to be the “merging” credit union proved challenging.
After careful review, we chose FiCare, which we deemed a better fit for our staff and members. We were both on the same Data Processor, had many of the same vendors, and were committed to maintaining the feel of being a “small credit union.” We felt that choice would provide our members a more seamless transition.

How did you find each other?

We’ve known each other for a few years. We met at a small credit union roundtable in Tampa. Our relationship went back long before the idea of a merger. All the healthcare credit unions in Florida help each other. We are all friends. We inquire about policies and procedures.
It can be challenging to differentiate yourself out there on your own. You get a boost when two strong entities combine. You really get the opportunity to reinvent the wheel when you can find a partner that has offerings that you’ve always wanted to offer. Now that you’re bigger, that’s a win. It takes a lot of time to generate sales, so I think that the increase in the company's competitiveness is a big benefit to a merger. You’re getting a whole new set of employees and skills that you don’t have to go out and recruit. It enhances your internal culture even more, as well as what you can offer to your members. There are a lot of pluses to mergers.

Who regulates the mergers for Credit Union acquisitions?

NCUA. If it is across states, it makes it a bit more challenging because you have two sets of regulators. Sometimes they can get a little competitive with each other. The NCUA was a great merger partner for us. Usually, talk of NCUA can turn in a negative direction. What we found with our merger partner was that she was incredibly communicative. She would let us know well in advance when something was due. They were very good and very helpful with this merger process.

What resources, consultants, or advisory services are available to support credit unions throughout the M&A process?

So many! I don’t even know where to begin.
I don’t have recommendations because we did most everything internally. There are certainly plenty of options for credit unions that have never been through a merger before or ones that have limited staff to handle the various steps that must be taken during and after the approval process. Having a strong accounting team and very knowledgeable operations staff are a definite plus.

What are the potential risks and challenges associated with a merger?

Competition. It is much easier for a larger Credit Union to come in and swipe up a small credit union because they have the money, and it is easy for them. It is a struggle as we continue to look for other partners as we expand our markets. One challenge for us as a small credit union is the data processing system contract buyout. It is hundreds of thousands of dollars and the biggest expense. In the first merger we did in 2016, we used different processing systems. So, we had to buy out our contract and merge the credit unions. We knew we would have to do things the same way on this merger. We used the same data processing system. So, you would think we wouldn’t have to buy our contract, but we did. We knew it was going to happen, so it was okay. But you should be on high alert when it comes to data processing fees.

Another one is member disruption. When members hear of a merger, they obviously vote on it. But they all don’t show up to vote and don’t put their opinions out there until the vote is over. So, you must maintain the morale of the members and make sure they are happy throughout the process. Keeping the members happy is something that you must consider leading up to the day of the merger and throughout. We still have members who haven’t signed up for e-statements, and they’re getting fees and are upset. Of course, we’re waiving the fees and helping them through the process. But we must train the staff on how to deal with those members and be sure they remain happy throughout the process.

For us, being on the same data processing system was a blessing and a curse. It was a blessing for those of us who use the system because there wasn’t a huge learning curve. But then you use what the initial bill is for merging. It was insane. I’ll give Denelle an incredible amount of credit. She was working so hard to make it work. It was still expensive, and it hurt. But when you consider what the benefit is in the long run, it’s a small expense, and it will take care of itself within a year. It's nothing that lingers on. The NCUA understands that it is not a cheap thing to go through a merger, so they are forgiving when they look at your finances. They just want to see that you’re taking the move in the right direction.

How do you handle the dissatisfied members? Are there usually add-on services that your members benefit from when credit unions merge? Is that a part of the consideration of who to part with?

I have spoken with several other credit unions who have been through mergers and unanimously, some members are going to be dissatisfied with the merger - and it probably doesn’t matter what you do as the merging credit union.

Ensure that your communications to the members are timely, frequent, and uncomplicated. Using bullet points in your communications can assist them with finding the answers to the questions they may have. Include your employees in the FAQ list, especially those on the front line, as they are the ones who are most likely to know what questions your members will have.

Being completely transparent with members throughout the entire process is key to minimizing account losses. Emphasize all the benefits (better technology, more locations, new types of accounts and loans, lower or fewer fees, etc.) that will come through the merger. Empathize with the pain the members are feeling and be patient.

When members come in to close their accounts, don’t just acquiesce. Ask them why they’re closing the account and do what you can to save it. If they still want to close the account, ask them to keep the membership with a small balance and to check back with you in several months to see how things are going. They may find that after the initial turbulence, they really like the new products and the direction the credit union is headed.

How do M&A transactions affect members, and what steps can be taken to ensure that member interests are protected and served during the process?

Communication, communication, communication. Some still won’t read it, but some do!
There is a fine line to walk between overcommunicating and communicating the right amount. Most members won’t read much of anything you send. It’s not personal. We’re all inundated with communications and just don’t have the time to read everything that hits our inbox or mailbox. For those that do read most of what you send out, if you overdo it, they’re likely to stop reading your emails thinking that they’ve already learned what they need to know.

How does working with a PEO set you up for success if you’re planning for a merger or acquisition?

A PEO is an incredible resource and truly was a few sets of extra hands for us. The onboarding of the merging credit union employees can be tough. Insurance and benefits are a big change and challenge for groups of employees. LandrumHR was there to take the lead, talk directly to the employees, answer questions, explain our policies, etc.

I couldn’t agree more with what Denelle said. We were both fortunate to use LandrumHR as our pre-merger PEO, so we were both very familiar with the benefits they could provide.

In previous credit unions, I was responsible for the HR and Benefits functions. With the support provided by LandrumHR, I am no longer concerned about whether I am up to date on regulations, and I have been able to add many hours each month back into my workday.