Strength In Numbers
More and more Georgia credit unions have been merging and consolidating, a trend likely to increase in the face of pressure to grow and be more competitive.
When Ford announced that it would be closing its auto plant in Hapeville in late 2006, the Hapeville Auto Employee Credit Union had a choice to make. It could try to morph into a community credit union and expand its membership; it could shut down; or it could merge with another credit union. A few phone calls later, the Hapeville organization found a partner in Georgia Telco Credit Union, one of the largest credit unions in Georgia with current assets of $1.04 billion.
Finding a partner to merge with is the likely desire of a number of Georgia credit unions, although their choices generally aren’t as stark as Hapeville’s was. “Credit unions aren’t in trouble,” says Linda Carver, president of CMAR Credit Union in Marietta, which has assets of $65 million and has acquired two smaller credit unions in the past five years. “They just have to decide if they want to continue to operate as they have in the past.”
As nonprofit financial institutions owned by members, who have accounts there, credit unions rely on members for their operating capital. Unlike banks, they do not pay taxes; this allows them to offer higher rates for deposits and lower rates for loans.
“For many smaller credit unions, their fortunes are tied to a sponsor company,” says Michael Mercer, president and CEO of Georgia Credit Union Affiliates (GCUA), a trade association for state credit unions. Many single-sponsor or employer-based credit unions such as Hapeville have chosen either to merge or broaden their base through one of two strategies: by adding select-employer groups (SEGs) from other companies or by changing their charters so they can serve members of a geographic community.
But that’s not the only factor driving the merger market for credit unions. “The real driver in the decades ahead will be pressure to offer members competitive, valuable services and rates,” says Mercer, who predicts consolidation will continue. Credit unions aren’t alone; macroeconomic trends are putting pressure on all small, locally controlled financial institutions.
“Technology, competition and consolidation are swirling around in the global economy, and it’s compressing margins on virtually everything credit unions do,” Mercer says. “There are websites that make it possible for people who need money and people who have money to get together without any financial institution in between. It’s easier to put money in the stock market and buy all sorts of investments that weren’t available to the general public 10 years ago. That all makes it tough for small, highly regulated financial institutions with brick-and-mortar locations to compete.”
The numbers bear him out: In 1986, Georgia had 390 credit unions, according to GCUA; in 2005, the number was 200. Mercer predicts that number will drop to around 125 in five years. However, the number of members and the amount of assets will grow. Georgia Telco made the decision to grow by broadening its membership base years before merging with the Hapeville credit union. Indeed, says president Charlotte Ayers, she doesn’t view mergers as growth strategies so much as service opportunities.
Potential For Growth
Georgia Telco, chartered in 1934, began as a single-sponsor credit union, serving employees of Southern Bell. “It’s hard to be a single-sponsor credit union any- more,” Ayers says. “We had to look at alternatives, and now we find ourselves in a good position” – with members from some 300 SEGs as well as residents of Fulton, Cobb, Gwinnett and DeKalb counties, and 17 branches (two in Savannah, one in Augusta and the rest in Metro Atlanta).
“I have never really looked at mergers as a way to grow,” says Ayers, who notes that Georgia Telco has absorbed – or “merged in,” in industry parlance – five other credit unions. “We acquired the Savannah Chatham credit union in 1986, because we saw an opportunity to serve our own members in the Savannah area. When we merged in the Hapeville Auto Employees credit union, we opened a branch on the south side of Atlanta, which allowed them to continue to serve their members and also helped us increase our service, because we already had a lot of members in that location.”
Those mergers made sense, Ayers says, but they didn’t dramatically increase the size of the credit union. “The combined assets of the five credit unions we’ve merged into Georgia Telco was about $38 million,” she says. “And they added about 11,000 members. Now, once we have begun to serve those members, we can grow through adding other family members. But I don’t see that as a big potential for growth. I think the real potential is among people who have never had credit union membership.”
Credit unions operate under the “once a member, always a member” policy, so members can retain their accounts even if they change jobs. But what happens with satisfied members, Ayers says, is that they often become ambassadors, seeking to have their new company become an SEG. Some are truly homegrown: Ayers recalls one member who started with a “cub account” as a child and grew up to start his own company – which he then affiliated with the credit union.
CMAR’s Carver agrees with Mercer that consolidation in the marketplace will continue, but notes that merging isn’t a simple business decision for credit unions – they also have distinct cultures that reflect their membership. Smaller credit unions that just can’t afford “expensive and complicated technology like online bill pay … are at a crossroads: Are they going to be able to broaden their services and offer more, or will they seek a partner to help them provide those services?” she says. “It’s a very tough decision.”
CMAR was formed 42 years ago to serve city of Marietta employees (thus the name) and has since expanded to include city and county governments in Paulding, Cobb, Cherokee and Douglas counties as well as more than 50 SEGs. It has brought in several credit unions, including the smaller organization that served the Red Cross several years ago. “It had about 1,000 members and $2 million in assets,” Carver says. “But it had the potential for growth – it just couldn’t reach and serve those members.”
The big risk in a merger is that the smaller credit union will lose its identity. When Mission Partners Credit Union, which served Georgia Baptist Conven-tion employees, merged with CMAR in 2006, CMAR went to great lengths to preserve that identity for Mission’s members. It even created a “Mission Partners division” of CMAR, and asked the former president of Mission Partners to head up the new division. “The employees stayed the same, the branches stayed the same, but they were able to offer more services,” Carver says.
That’s unusual in a merger, however. “Culture is the number one argument against merging,” Mercer says. A bigger organization can offer more services, specialized staff, and ATM and branch locations – plus perhaps slightly better rates. But those aren’t the first things a member notices. “It takes a while for a member to feel those benefits,” Mercer says. “But the way things are done at the teller window might change immediately, and that’s the first thing they see.”
While some technical aspects of combining operations, such as merging data, can be tricky, it doesn’t compare to the difficulty of blending two cultures, Carver says. “Having some continuity for members is crucial,” she says. “To be successful, you have to let them know what’s going on every step of the way, saying, ‘Hey, your credit union may look a little different but it’s still here.’”
It was inevitable that the Hapeville credit union would lose its identity, Ayers says, but Georgia Telco worked hard to blend the two cultures, retaining all the Hapeville credit union’s employees and moving them to the newly opened Southside branch. In addition, Georgia Telco had its employees call the new 3,700 members individually after the merger, to welcome them and answer any questions. Ayers says she knows such outreach worked, because the membership has actually grown – through recommendations to family members.
It’s likely that neither Georgia Telco nor CMAR has seen its last merger; to a person, Mercer, Ayers and Carver all predict increasing consolidation. Carver’s goal is to increase CMAR’s assets to $100 million in the next five years through developing its fields of membership, increasing outreach to potential members within those fields and being open to merging in additional credit unions. But she also knows that growth has to be managed “so it doesn’t swamp you,” she says. After merging in Mission Partners, CMAR is focusing on reaching out to additional associated communities, including Baptist colleges and retirement communities, something Mission partners didn’t have the resources to do.
“Although the thought of merger is scary for both partners, if it’s done with consideration for both parties, it can benefit the members of both credit unions,” Carver says. “It just has to be done with a tremendous amount of attention to detail and consideration for members and employees. There has to be lots of give and take to make it work.”