Wisconsin Merger: Three Into One
Mergers happen, and three veteran Wisconsin credit unions have decided that there is strength in numbers when it comes to facing the challenges of an increasingly competitive financial market.
As of April 30, the $396 million CitizensFirst Credit Union in Oshkosh will merge with the $109 million Lakeview Credit Union in Neenah and the $68 million Best Advantage Credit Union in Brillion.
As Wisconsin’s first three-way credit union merger, arrangements among the state-chartered institutions await final regulatory approval from the NCUA and the state’s Department of Financial Institutions, as well as the votes of both Lakeview and Best Advantage credit unions’ members.
Dubbed Credit Union 2.0 by its merger team, the new entity will operate under the CitizensFirst flag until a new name is chosen later this year. The newly merged credit union will have combined assets of $600 million and serve an aggregate 47,000 members in 15 counties from 10 branch and 13 ATM locations in and around the Fox River Valley, one of the Badger State’s most competitive financial services regions.
The merger was neither one of necessity nor convenience, but rather a strategic decision, according to Kevin Ralofsky, the CitizensFirst president/CEO who will continue in that role for the newly merged institution.
“We knew we could go it alone and do well, but we felt that with greater scale and size we’d have the ability to be more relevant in the marketplace,” he said.
Tammy Williams, president/CEO of Best Advantage, will be executive vice president of training, cultural development and product introduction for the newly merged institution.
“Part of our jobs as CEOs is taking a visionary perspective,” she said. “I believe that we are at the ‘inflection point’ where we had to decide if we’re going to stay the same or move on to new heights.” Drawn from calculus, in terms of business, industry or geo-political situations, an inflection point is the point at which dramatic change, with either positive or negative results, is expected.
Increasing regulatory burden and growing competition led the three CEOs to look for a new way to serve their members. The Fox River Valley, which stretches south from Green Bay to the city of Fond du Lac, is currently home to 37 banks and 28 credit unions.
“We didn’t need to do this, but it was going to be a continuing struggle in the years to come,” said Pat Lowney, president/CEO of Lakeview Credit Union and executive vice president of government relations and merger transition for the newly merged credit unions. “We knew we could do this better together than we could do it alone.”
One of the most compelling features of the new institution will be its ability to expand CitizensFirst’s member business loan model to all three credit union memberships.
CitizensFirst, which turns 75 years old this year, was offering business loans prior to NCUA’s imposition of the 12.25% of assets cap. Consequently, the credit union’s program was grandfathered in and is not subject to the cap, instead operating under a self-imposed policy of limiting business loans to 300% of reserves.
The opportunity immediately appealed to Lowney, whose business loan program at Lakeview, now 80 years old, had “capped out” four years earlier. Best Advantage, also 75 years old, did not have the capacity to offer business loans, Williams said.
CitizensFirst currently has a business loan portfolio worth $102.2 million, according to Ralofsky. The credit union’s 2013 net income of $3.9 million increases that number to $134.7 million for CitizensFirst alone. Following the merger and assuming the addition of $14.9 million in equity from Lakeview and Best Advantage, the newly merged credit union will be able to lend up to 300% of reserves, which totals $161.24 million in potential business loans.
Merger steps began with the proverbial “napkin sketch” developed by the three CEOs at B.J. Clancy’s Grill & Bar in the Fox Valley community of Menasha this past March. “What if” scenarios were discussed and a plan drawn out on a handy cocktail napkin.
The discussions ultimately led to the creation of Credit Union 2.0, “a collaborative merger model by which all merger models will be judged and all future models will be emulated,” according to “A Tale of Three Credit Unions,” a white paper describing the process by consultant Sarah Robertson, who was hired to coordinate the merger.
The newly merged – or perhaps emerging – credit union took its credo from the U.S. Declaration of Independence and operating philosophy from the International Co-operative Alliance’s Seven Cooperative Principles, the white paper said.
In addition to the white paper, other pieces of marketing collateral, including a YouTube video, were created to explain the collaborative merger to board and staff. After various developmental steps, the merger model was unanimously approved by the boards of all three credit unions. Staff was alerted to pending structural change Jan. 20.
A single board of 11 members, including eight from CitizensFirst, two from Lakeview and one from Best Advantage, will oversee the new credit union. All staff are expected to be retained as the organization settles into its new form and begins what the three eventually say will be expansion plans within the state.
The trio of CEOs is optimistic that the newly merged credit union will be able to compete well in what Williams described as the burgeoning “engagement economy,” one in which the institutions interact more frequently through social media as well as reach out as good community citizens and become involved with their constituencies. Success will also come from the nature of the leadership team and their willingness to embrace the new collaborative model, they say.
“In order to lead you have to have a fair amount of ego,” said Downey. “To truly collaborate you have to lower that ego and operate in the best interest of the whole, not in the best interest of yourself.”
Williams agreed. “This type of collaboration is not common in the credit union movement, and the difference comes down to execution.
“That’s how we’re going to differentiate and why we’re going to thrive,” she added.