Billion Dollar Georgia CU Merger Seeks to Leverage Brand Loyalty
So when the $1.2 billion Associated Credit Union completed a merger of CSRA in November, it made good marketing and financial sense to continue that legacy, said ACU President/CEO C. Lin Hodges. Rather than completely absorb the $53 million CSRA, ACU made the small credit union a new division. Gone was the federal charter and in its place a new name: CSRA Credit Union, a division of Associated Credit Union.
"It was important to us that CSRA would retain our presence in Augusta with the same smiling faces and experienced staff and locations while adding new and improved products and service centers for our members," said Charm McCall, who served as president/CEO of CSRA and is now its area president.
Serving Augusta since 1954, CSRA and its four offices and its 12,300 members in metro Augusta joins ACU, which has 28 branches in metro Atlanta. The merger boosted ACU's membership base to more than 150,000 members and branches to 28. Chartered in 1930, the Norcross, Ga.-based ACU is the second largest cooperative in the Peach State and the fifth largest in assets there.
The expenses of keeping up with regulatory compliance and information technology have crippled some small credit unions and forced them to seek out merger partners for survival. If the trend continues, most of them will be merged out of existence. However, signs are pointing to a revived move to keep smaller cooperatives around as divisions. According to a Filene Research Institute paper, "Characteristics of Credit Union Mergers 1984-2008," nearly 7,870, or 89.8%, of acquired CUs held under $10 million in assets. Roughly 20% were concentrated in 47% of CUs between $100 million and $1 billion in assets.
Hodges said merging for the sake of merging has never been ACU's strategy under his watch. The financials have to be clean, of course, but quality of management and culture and values are just as important.
"The No. 1 thing we look at when considering a merger is the management of the credit union," Hodges explained. "You can make all the numbers work, but if you don't have similar culture and values, you're going to be dealing with that for a long time."
Hodges said Georgia has a strong communication network among its credit unions with many alliances among executives and board members going back several decades. In informal talks with some of his colleagues and peers, conversations would come up about potential mergers. Associated left the door open for those considerations, Hodges noted.
That's how the discussion about a possible merger started after talking with McCall at a spring 2009 meeting. The talk eventually led to the required review of CSRA's financials, including its capital level, which was 6% at the time, Hodges said. Then, ACU discovered that CSRA had a very well-known brand in Augusta, a city 140 miles of east of Atlanta and home to the Masters Golf Tournament and "The Godfather of Soul," singer James Brown, who died in 2006. With a few thousands members there, ACU also saw the merger as an opportunity to expand its footprint.
"So often in mergers you see one organization simply absorb the other. It is usually justified by retaining the revenue streams while reducing the expenses, primarily the payroll expenses. This will be a different kind of merger," Hodges said.
None of CSRA's 40 employees will be laid off, Hodges said. However, a three-year plan will call for some expense reduction through economies of scale. One of the biggest relievers will be ACU's muscle in providing CSRA with regulatory compliance and IT cost controls. Hodges admitted he is baffled on how smaller credit unions are able to keep up with hefty costs often needed to stay in compliance. A few years ago, ACU did a review and discovered that it had spent $250,000 on compliance costs. With things like BSA and Red Flag requirements, those costs have since jumped.
"It's very expensive to comply, and we take it very serious," Hodges said. "Many of the compliance issues are the same cost regardless of the size of the credit union. I just don't know how a smaller credit union can do it."
Keeping CSRA as a division means its members now have access to services such as mobile banking and FinanceWorks, a free budgeting tool for online banking users. ACU was introduced to Safari Club accounts for children up to 15-years-old, which earn 7% APY on the first $500.
CSRA marked ACU's 20th merger. Hodges, who has been with ACU for 30 years with the bulk of his tenure as CFO, said the merger proposition approach has evolved. For the most part, CUs sought out ACU as a potential partner. With the growth of community charters and an increasingly competitive environment, the process has become more of a bidding process.
"We have a very broad membership and that was part of the reason some were attracted to us. In the old days, there would be a credit union locked into a couple of SEGs. Nowadays, there are more community charters and more competition."