Crossing multiple borders
With a growing number of CUs’ purchasing banks and the industry continuing to consolidate, it’s possible that more CUs may find themselves operating with a multi-state footprint. In the map above, Alaska USA FCU (based in Alaska), First Tech FCU and Nuvision (both based in California), United FCU and Lake Michigan CU (both base in Michigan), Security Service CU (based in Texas) and PenFed and Navy FCU (based in Virginia) all operate facilities in states that don’t directly border their home state.
Brandi Stankovic, a credit union consultant and chief strategy officer at CU Solutions Group, said credit unions entering new markets need to be sure to constantly benchmark their progress, including taking note of where strategies need to be refined.
“It is important to keep things in perspective as you move through the process and measure results,” she said. “Do not over inflate top-line synergies, but do anticipate challenges due to member loss and service integration. Estimate costs associated with the expansion conservatively and do not fall into the trap of expecting overnight growth. Just keep an eye on the numbers – tracking is key.”
Separate markets, United FCU
“Since then, Nevada has become a strategic growth market for United, as we have opened five additional branches in the Reno/Sparks and Carson City area since 2009, with more potentially on the way,” said President and CEO Terry O’Rourke.
While one of the dominant themes of 2019 has been credit unions buying banks, that wasn’t the case seven years ago. In 2012, United became the first federally chartered credit union to purchase the assets of a state-chartered, FDIC-insured mutual savings bank when it acquired Griffith Savings Bank in Griffith, Ind.
“Since northwest Indiana is a close neighbor, it made sense to find opportunities to serve more people in this area,” O’Rourke said. “This same strategy has helped us grow in the South Bend and Mishawaka, Ind., areas as well, with two branches opened in 2018 and two more planned to open this year.”
Managing culture and pricing
“We need to make sure everyone understands the vision and the plan, and make sure everyone is pulling in the same direction,” he said. “Every person needs to feel they are part of Team United.”
Due to its wide branch network, United FCU is not able to ever have all of its employees attend the same meeting in person, but all year long staff come to its Michigan headquarters. O’Rourke and his executive team also regularly visit branches to keep in touch, including holding annual town hall meetings at every branch and monthly meeting held via a live video stream.
“We are intentional in our communication, and I believe in over-communication,” he said. “We have it set up so everyone can give anonymous feedback directly to me. We make sure people feel connected. It is my personal mission to make sure every person in the credit union knows where we are going, and more importantly, why, because then they all feel empowered to help get us there.”
On top of that, the credit union must also ensure it meets the needs and preferences of a variety of consumers in different markets, including dealing with regional pricing differences. O’Rourke said the management team must pay attention to rates for both loans and deposits to make sure United is relevant in each market.
“Our competitors in Michigan are very different from our competitors in Nevada, for example,” he said. While consumer lending products – including auto and RV loans and HELOCs – are priced on a regional basis, the credit union also has market-specific competitor sets it utilizes for competitive analysis, which varies depending on the product. While deposits aren’t currently subject to regional pricing, credit union officials are looking into the possibility of doing so in the future.
Eric Schornhorst, a strategic advisor at CU Solutions Group, noted that for any institution operating in multiple states, management must make decisions regarding what gets centralized and what decisions are unique to a particular market.
“Pricing decisions, marketing [and more] may be based on regional needs, or everything may be kept at the headquarters for the sake of efficiency and consistency,” he said. Although I have not done multiple states at a credit union, I have expanded [banks] across a state twice. The concepts are pretty similar.”
First Tech reaches beyond Silicon Valley
“We have a captive member base in our SEGs,” he explained. “If you are a community credit union operating in multiple states that have significant geographic barriers that would be much more difficult than operating as a SEG charter.”
The credit union serves plenty of well-known companies, which has given it a foothold in a variety of locales, including Puerto Rico (HP, Honeywell and other tech firms); Georgia and Texas (HP and its spinoffs); Idaho (Micron, Philips and others; Oregon (Nike and Intel) and California (Levi Strauss, Sales Force and more).
“We have built a reputation as an organization that takes care of its member base,” Mitchell declared. “Our headquarters is Silicon Valley, but we have 900 SEGs, which leads to having people in all 50 states and 21 countries all over the world. We have created a digital footprint that allows members to transact with us wherever, however and whenever they wish.”
Mitchell said First Tech has established a culture of “openness and transparency,” which allows its team members in other markets to feel as if they are part of something – which, in turn, “makes them feel closer than the distance from Silicon Valley to Puerto Rico.”
In 2018, First Tech employees volunteered 35,000 hours in the various communities it serves. Mitchell said this helps their hearts feel “better and more connected.”
“Culture has to exist to successfully run multi-state operations,” he said. “Our employees feel they are making a difference and the organization they work for is succeeding. We have a higher travel budget because we have to handle distant training and remote learning. There are a lot of video calls. We use technology to connect, making the geographic boundaries more illusory and the connection more real.”
More cross-state consolidation coming?
CU Solutions Group’s Stankovic said institutions with sizable market shares should always be willing to explore opportunities to expand into areas where members are underserved or where there is potential to grow membership.
“The credit union must determine if it can safely and soundly withstand the financial and logistical impact following the expansion,” she counseled, adding as part of the decision-making process, it is imperative the potential venture be included in the CU’s strategic plan and to engage in crucial conversations on whether the organization should maintain the status quo, expand or pursue an M&A by itemizing the advantages and drawbacks.
Because there are significant costs attached to expanding a CU’s footprint, Stankovic emphasized performing due diligence is critical to determine if it is a risk worth taking.
“Red tape is another headache,” she said. “When expanding or merging a state-chartered credit union into an out-of-state expansion, there also are bureaucratic complications due to variance in state laws and regulation.”
Stankovic noted one mistake many institutions make when entering new markets.
“The biggest pitfall an organization can do is assume they understand the subcultures of a new community,” she warned. “Once you are fully ready, use a strong marketing strategy to distinguish yourself in the market, build relationships through storytelling to heighten the user experience, and use an omnichannel and multichannel marketing approach, aided by a deep knowledge of your member or potential member.”
“Those people run those markets and they understand their local communities,” he said. “We understand what works in one market might not work in another market, and we are agile enough to make things different in Reno and in Asheville.”
He added that United FCU is growing in its two newest geographical areas, northwest Indiana and the greater Fort Smith, Ark., area. In both of those instances, he said, management is bringing in staff who already know the region.
“The first and most important thing is to hire leaders in the market – we do this before we start a physical presence,” he said. “Those people generate brand awareness and excitement. We have had success in new markets because our teams build relationships.” That includes an extensive presence in the community, including sponsoring the Chicago Cubs' Single-A affiliate, the South Bend Cubs.
First Tech FCU spends most of its marketing dollars on digital messaging to employees of its SEGs or consumers in the markets where the SEGs are located.
First Tech’s membership team also goes out and speaks at SEGs, looking for more opportunities to better serve their employees, Mitchell continued.
“We have grown to 570,000 members, but our employer group employs 3.5 million people, so there is still room for growth,” he said. “Navy and PenFed, which have a SEG focus, also are growing, as is SECU in North Carolina and SchoolsFirst in California. There is a lot of growth happening in SEG-targeted entities.”
For First Tech, whose headquarters is pictured above, that means start developing local community plans earlier, a process it only began in 2016.
“We wanted to understand local organizations that are important, and we partnered with them,” explained O’Rourke. “Rather than one charity nationally, we partner locally. This gets back to appreciating differences in markets.”
First Tech’s Mitchell advised finding ways to reduce friction for members and employees. If the CU loses relevance, he said, it loses everything.
“What makes credit unions special is we have the ability to create an experience that creates lasting relationships and continued growth,” he said. “People bring their family and friends to us. We grow by word of mouth. We believe the best is yet to come. There is a world full of opportunity for those willing to do the work and have the credit union heart of service for others.”