WASHINGTON -- With all of the uproar that Wings FinancialFederal Credit Union's unorthodox merger campaign created, if anything, it sparked new dialogues on the core of the credit unionmodel and what's really at stake to stay relevant.

The "Courtship Structures for a New Era" was the title of a May16 Webinar hosted by Callahan & Associates, Inc. More than 50credit unions tuned in to hear from three credit unions on theirmerger experiences and how one industry veteran continues to urgeleaders that any alliance should keep the members priority No.1.

For starters, credit unions are not chartering new institutionsas fast as their bank counterparts, which is one of the reasons forthe consolidation that is occurring, according to Callahan. Morethan 200 of the 300 mergers that took place in 2006 were amongsmaller credit unions with many in the under $1 million to $5million range.

"Paul Parish and the Wings Financial controversy worked up thecredit union system," said Chip Filson, president/CEO of Callahan."One of the dynamics that has occurred is people are now steppingback because so much noise was raised. A number of people areasking themselves questions and looking at things that may not havebeen looked at before."

Filson said now that the Wings Financial scenario has passed,"everyone will do a better job" of knowing what their needs arewhen it comes to mergers, how smaller opportunities can beleveraged into bigger ones and whether there are other ways besidesthe "extended courtship" that can help restructure or createopportunities that were not possible years ago.
The $168 million Gateway Metro Credit Union had several strongreasons for bringing Guadalupan Credit Union into its foldincluding NCUA's request to save the struggling outfit. Deemed "thecredit union no one wanted," the small financial institution servedprimarily Hispanics and an "aging" Caucasian membership living in alow-income area of St. Louis, said David Barton, president/CEO. Thecredit union was also not very profitable.

"In our market, credit unions are saying 'we're not going tomerge with a credit union that's under $1 million or $25 million'because they think it's too much work," Barton said. "We thinkthat's shortsighted. Why did we agree to take them over? Legacyreasons, which is credit unions being founded to challenge thestatus quo and improve the financial lives of those shut out ofreasonable services."

Barton said NCUA provided some financial assistance to aid inthe merger and the consolidation has also helped to createadditional income streams for Gateway. The credit union justlaunched a new payday loan product and "Safe" accounts for thosemembers who do not have tax identification numbers. Other newservices include "Directo a Mexico" ACH service, stored-value Visacards and Accel advisory services in Spanish. Gateway has alsoopened a branch in a nearby school where 30% of the students aremembers. The merger is less than a year old, but membership hasgrown by 20%, Barton said.

Meanwhile, in 2003, one of the largest credit union mergers evertook place between Western Federal Credit Union and TRW SystemsFederal Credit Union. The combined credit union created a $1.1billion financial institution serving more than 125,000 members.Nearly four years later, the alliance has spawned a massive branchnetwork in eight states, increased product options, adopted a"lowest fee" strategy and an expanded call center with plans toopen an additional call center in northwest Arkansas. The mergeralso blew loans through the roof, increasing them by 53% said JohnBommarito, CEO of Western FCU.

"It was like Coke and Pepsi, we were so identical," Bommaritosaid. "Clearly, we broke the mold. Instead of being a jack of alltrades and a master of a few, we now have specialized functions runby people who are better trained with new management above themthat didn't exist before."

For Western's employees, the merger also brought in TRW Systems'defined benefit pension program and a "pay it forward" return onassets strategy, which resulted in "immediate returns to membersand employees", Bommarito said.
"When you talk about a merger of equals, be objective, be openminded and let best practices prevail," Bommarito said. "Ourpriorities are clear. Members govern everything."

What helped $711 million United Federal Credit Union through itsmerger with First Resource Federal Credit Union during itsnine-month timeline that started in July 2006 was constantcommunication with staff and daily and weekly updates along theway, said Shawn Birch project manager. Before the merger, Unitedhad $215 million in assets and served 22,000 members while FirstResource had $480 million in assets and served 50,000 members.

"The staff needs to know [what's going on] before the membersdo," Birch said. "We came up with 'mission communication' and amember reference guide. The bulk of the questions [from employees]were on data conversions."
Birch said team leaders helped to keep the number one priority ontrack: integration of all operations. In the end, the merger,although an arduous process, solidified despite some lessons thatwere learned along the way. Birch said if they had to do it allover again, a converted database would have been created rightaway, a sufficient branch communication network would have beencreated earlier and the "whats and the whys" of systems, productknowledge and policies and procedures to aid training would havebeen implemented.

Even though the Wings Financial controversy ended a little overa month ago, some of the executives speaking at the Webinar didn'tmince words about the fallout from the unprecedented mergercampaign.

"We had a situation where a larger credit union tried to takeover a smaller credit union, then the larger one offers $5 millionnet worth to bribe members at $200 per member," Barton said.

If hostility is felt from either side, then it might be worth itto the merger seeker to just walk away, Bommarito said.
"In the friendliest of environments it can be difficult to merge. Iwouldn't dare try to integrate in a hostile environment with peoplewho view us worse than Darth Vader," Bommarito said. "I wouldn'teven want to try and convince staff [on merging]."

Bruce Jolly, a partner with law firm Venable, LLP, who helpedNationwide Federal Credit Union negotiate its merger withNationwide Bank, joined the Webinar at the end to talk about theroad mergers may now take in the industry.
"How do you reach a board of directors that is simply not ready toconsider merging," Jolly asked. "There are a variety of techniquesyou can use but not one guarantees success. There's no clearpath."

Jolly said it's quite different with banks, which can simply gostraight to the stockholders, an option "that doesn't exist forcredit unions."

"I do think it's all about the members," Jolly said. "[WithNationwide], we were able to convince [bank] regulators and membersof the credit union that indeed, one of the key distinguishingaspects is members own the credit union and the equity in thecredit union. There's a lot of disagreement in that statement.Nationwide presented an excellent opportunity to establishvalue."
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