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As credit unions consolidate, leagues ‘have no choice but to adapt’

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Two state credit union league mergers this year could be a sign of things to come.

The Pennsylvania and New Jersey leagues already announced their plans to join forces and on Thursday the League of Southeastern Credit Unions – which serves CUs in Florida and Alabama – voted to approve a merger of Georgia Credit Union Affiliates into LSCU. The combined league will serve 343 institutions across three states, with nearly 10 million members and about $111 billion in assets.

The addition of the GCUA to the LSCU is the continuation of a long-running trend in the credit union movement – consolidation of natural person credit unions, corporate CUs and credit union leagues/associations. Along with the Pennsylvania-New Jersey merger, other recent league mergers include the Idaho CU League joining the Northwest CU Association and Delaware joining the Cooperative CU Association.

“Consolidations of state leagues are more than a trend at this point, it is the established way of doing business,” observed John McKechnie, a credit union consultant and a former staffer at both the National Credit Union Administration and the Credit Union National Association, adding, “I think it has proven to be an overwhelmingly positive development for credit unions. For proof, look at the capabilities of the leagues that have resulted from mergers, and look at their capacity for doing even more.”

McKechnie has in the past done consulting work for leagues that have undergone mergers.

Steve Williams, president and partner of the Scottsdale, Ariz.-based consultancy Cornerstone Advisors, said it is “very likely” the consolidation trend will continue as individual leagues still find “struggles” in building revenue sources in which member credit unions will participate.

“The mergers are providing more rational scale, just like the industry,” Williams assessed. “The biggest risk is that lobbying efforts don’t stay as crisp at the state level. However, with specialized resources, that risk can be avoided.”

Williams declined to speculate on any future candidates for league mergers, but suggested, “Anything can happen in the next decade. There will be intense industry consolidation because of digitization and the leagues will have no choice but to adapt.”

LSCU aims to create ‘repeatable’ merger model

The LSCU-Georgia merger is expected to take effect Jan. 1, 2020, though Mike Mercer, president and CEO of GCUA, noted a host of numerous legal hurdles must be cleared over the next six months, including folding both leagues’ foundations and two credit union service organizations: Cooperative Services, Inc., and CUSC of Alabama.

Mercer and LSCU CEO Patrick La Pine said the shareholders of CSI have approved its sale, while shareholders of CUSC of Alabama are expected to vote on their proposed sale to LSCU & Affiliates on July 11.

League officials declined to go into any details on the cost of the deal, but said the transaction is expected to result in about $800,000 in annual cost savings.

“We did not approach this by the need to cut costs,” said La Pine. “We wanted to leverage the two organizations to be better together than apart. It is not like the for-profit sector where people look for ROI in a consolidation.”

One difference between this many many other league deals, noted La Pine, is a dual CEO structure. La Pine will serve as the CEO of a new holding company known as Affiliated Consolidated Services, while Mercer will become CEO of association service activities. ACS will be a wholly owned subsidiary of the LSCU, and will, in turn, own the various business services companies currently owned and operated by LSCU.

No staff will be let go, and the new LSCU will maintain separate offices in each of the three states.

“In all three states there will be a presence for state level advocacy,” Mercer explained. “That is probably the one thing that cannot be consolidated for efficiency. Federal advocacy can be done collectively by all three states, but state leagues are the only place credit unions can go for state-level advocacy.”

The LSCU currently has a 12-person board, with six members each from Alabama and Florida. With the addition of GCUA, the LSCU board will expand to 18 members, with six from Georgia. La Pine said Mercer will report to the LSCU board, while he will report to a new board overseeing the ACS.

“We will have to coordinate a lot in the middle,” La Pine said during a press conference Thursday. “We stole the holding company idea from the Iowa league. They don’t have two CEOs, but they have operated under a holding company for 10 years, which gave us a road map.”

La Pine said the hope is the new model will be “repeatable” for the future if there are other leagues that want to join LSCU, but he quickly noted the league is not looking for additional merger partners at the moment.

“People are very interested in the architecture we are putting together,” said Mercer.

‘Stronger together’

The merged-league model appears to work for credit unions, if a pair of institutions in the Carolinas are to be believed.

The formerly separate North Carolina and South Carolina CU Leagues merged in 2014, and in the wake of the LSCU-GCUA merger, Credit Union Journal asked CEOs in those states to assess their experience.

“I consider the merger to be an extremely positive decision,” said Cathy Pace, president and CEO of Allegacy FCU in Winston-Salem, N.C. “Since [the merger], we have experienced increased networking opportunities, along with more collaboration and camaraderie than ever before. The collaboration and innovative ideas create a stronger voice regionally and nationally, empowering policy advancement, public awareness about credit unions, and collective action for all advocacy efforts.”

Pace said her CU also appreciates the “enhanced communication” from the league, along with the “increased quality of educational opportunities and premier speakers at league conferences which benefit credit unions of all sizes.”

Tim Carlisle, CEO of $248 million Carolina Trust FCU, Myrtle Beach, S.C., said he felt the two leagues were “very similar” prior to their merger, and CUs in South Carolina already had close ties with the credit unions in North Carolina.

“Bringing the two together seems to make sense,” Carlisle said. “The process from my perspective has been very seamless. I feel we are stronger with the two leagues together. There are a lot more networking opportunities, and the league does a really good job with advocacy and makes sure resources are devoted to each state. A lot has been accomplished in both states.”

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