HAWTHORNE, Calif. – In the world of business acquisitions and takeovers, with the large more often than not swallowing the small, the merger of TRW Systems Federal Credit Union and Western Federal Credit Union is being described as a “merger of equals.” Not only did the two credit unions serve members in the same geographic areas, but their balance sheets practically mirrored each other in terms of asset size and capital. They shared the same corporate philosophy and the same basic style of management. Western was in the process of building a new headquarters facility while TRW Systems had moved into a new facility about five years ago. “This is a true merger of equals with organizations that are well-matched, safe and sound, and that share common cultures as well as membership bases in many geographic regions,” noted John A. Bommarito, who will serve as chief executive officer of the merged credit unions. “The skills and expertise of each credit union enhance the other, making the combined credit union stronger than the sums of its parts.” The new institution, which will retain the Western FCU name, will join the exclusive list of credit unions with $1 billion or more in assets – before the merger, TRW Systems FCU had nearly $500 million in assets, and Western FCU had almost the same. It will serve some 125,000 members in eight states. TRW Systems’ field of membership included defense contractor Northrop Grumman; it is one of several credit unions that serves the various business units of the company. While the merger catapults Western into the top 100 largest credit unions in the United States, both Bommarito, who served since 1994 as president and CEO of TRW Systems, and Thomas J. Stewart, president and CEO of Western since 1988 and who was named president of the merged institutions, insisted that improving member services – not growth – was the impetus for combining forces. “I think the key distinction to draw is how this benefits the member instead of how it improves the credit union’s profile,” said Bommarito, a 20-year veteran with TRW Systems. “Size is of no consequence. It’s all about the members. What a clich, but it’s true.” “I think it’s about the members and how you serve those members, small, large or otherwise,” added Stewart, who has spent 26-years in the credit union movement. “Going back, we both were small and we grew because of superior service and the trust that we developed with our membership.” The merger brings major economies of scale to the resulting credit union, with those savings being promised to be passed along to members. At least $5 million in savings in operating expenses is predicted over the next five years. “We’re already in the process of applying those savings directly back to members in the form of lower fees, improved dividend rates, more free services or through improvements to credit union delivery systems or technologies,” Bommarito said. Some $3.5 million of that savings will come from reduced data processing expenses. Another $700,000 to $800,000 will be generated from rental income. As of Wednesday (May 21), board members were given a “unique scorecard” in their monthly agenda packets that identifies the cost savings as a result of the merger and where those funds are going. “When you talk about a merger of this size, I think you have to cross the bridge from theory to reality and the reality is following the savings and seeing where it ends,” Bommarito said. No employees were laid off as a result of the merger, Stewart said. Bommarito added that one challenge faced in the merger was combining the management teams to avoid duplication. “You have to realize that we both had organizational structures that were designed to manage $500 million credit unions,” he said. “When you double that, it creates a lot more responsibility, a lot more volume and a lot more effort.” To address that additional responsibility, management was shifted and new positions were created. For instance, the job of chief financial officer was split into two positions, with the merged credit union now having both a CFO and a chief investment officer. “We now have a chief investment officer that we never had a need for because at $500 million (in assets) the CFO typically takes the reins on the financial side, the accounting side, the pricing side, the investment and cash management side,” Bommarito explained. “Here we were able to split it all out. We have a CFO in charge of finance, forecasting, budgeting, pricing and the more traditional areas of responsibility. The other half of the balance sheet – investments, cash management – is being run by a CIO. “It’s a good example of how we’re able to recognize the needs of an organization twice our size and try to fit square pegs into square holes,” he said. “When we took an objective look at the skills, abilities, credentials, depth of experience and educational background of our respective management team, I think we did fairly well.” Equally challenging, he noted, was the need to revisit such things as policies, products and procedures. “You’ve got to open up everything from products, pricing, packaging, delivery systems to employee benefit packs to travel expenses,” he said. “Everything has to be looked at. There is no one set of surviving principles from which we operate. Everything pretty much has to be reopened, re-looked at . . . kind of reconstructed so it fits the new organization which is not necessarily one or the other or a compromise of the two.” Board members of both credit unions had been talking about a possible merger for years but it wasn’t until last August that the discussions became serious. By early November, the boards had prepared letters of intent to merge. Bommarito said one of the major hurdles the boards had to overcome was coming up with a plan for governing the merged institutions. “Our two chairmen showed extraordinary leadership working with their respective colleagues in coming up with a governance model that was not only acceptable for a merger but acceptable for a merger of equals,” he said. The resulting board structure was trimmed from 18 to 11 members. It is headed by Rodrick H. Chatt of TRW Systems with Jack A. Dell of Western serving as vice chairman. “It didn’t require an extensive amount of negotiation,” Bommarito recalled. “Everything was collegial, very positive, very professional. They disposed of the governance issue in one evening.” The National Credit Union Administration, which approved the merger request April 30, less than two months after it was submitted, received high praise from both Stewart and Bommarito. “Tom and I were both very very impressed with the professionalism and the cooperation that were afforded us by NCUA,” Bommarito said. “We found them to be very helpful. We found that their actions were very consistent with the underlying philosophies of Chairman (Dennis) Dollar to assist credit unions and their boards in executing their business plans so long as it doesn’t threaten the safety and soundness of either institution. I think they really really shined through the process. “It took 54 days from the time we submitted our formal application to merge to the time that we got formal approval and instructions (from NCUA) on closing the merger,” he reported. Integration of the two credit unions is scheduled to be completed in the fourth quarter of this year. In the meantime, both Stewart and Bommarito said they would consider additional mergers if they benefited the membership. “I don’t think Tom or I would ever look away from a good merger opportunity if it would serve the respective members,” Bommarito said. “I wouldn’t say we would do it to simply grow. We didn’t do this to simply grow. We did this because we felt that the coverage for our members in the delivery systems that we provide would be enhanced and improved and we could improve the convenience in our members reaching us and touching us . . . We would probably apply those same principles on a go-forward basis if anything was to arise.” -

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