When it comes to credit union mergers, the practice of “slash and burn” often fails, according to Atlanta’s $1.1 billion Associated Credit Union. That's why its CEO is making a strong case this week for the business model allowing individual “divisions” or independent CU units.
“We’ve seen too many of these mergers in which member loyalty is diminished, the key asset— employees---are let go and money gets wasted for brand awareness with poor results,” observed Lin Hodges, CEO of ACU, headquartered in Norcross, an Atlanta suburb.
As an alternative, ACU has successfully pursued the “division” approach for its first major merger of an Augusta CU a year and a half ago and the result has been increased profits and members, contends Hodges.
The ACU head said ACU’s experience in the November 2009 merger of the $59 million CSRA FCU of Augusta demonstrated clearly that success lies in CSRA remaining a division.
In detailing his rationale, Hodges said the 12,000-member CSRA with four branches has operated as an autonomous unit “having its own identity” protecting the brand without a needless and costly awareness campaign to be conducted by ACU.
When CSRA was merged, it “was projected to lose money in the first year, break even in the second and become profitable by the third and the actual results show profitability in the first year and 13% loan growth in the past year,” said Hodges.
The Norcross CU “absorbed CSRA CU’s compliance, IT and support expenses, reducing its operating cost by 21%,” he said.
Hodges stressed that not every merger can succeed using the division model “but the metrics were just right with CSRA because it was well managed.” Future ACU mergers if they surface may not work the same, he said. Regardless, CU managers need to be cautious about “getting that instant payoff” from a merger, he concluded.