Portland Teachers and Oregon Community Find Merger of Equals Isn't an Easy Road

PORTLAND, Ore. – The Portland Teachers CU and Oregon Community CU merger – which would have been the largest ever – is dead, for now. Last year the $1.6 billion Portland Teachers CU and the $700 million Oregon Community CU announced that they were exploring the possibility of a merger. The merger talks were initiated by Portland Teachers CU President/CEO Cliff Dias. Dias was very cautious about overselling the merger publicly. He stressed that the two sides had decided nothing, but were just looking into the issue. However a few months later the credit unions announced that they agreed to merge. And just recently the merger was given regulatory approval from NCUA, the state regulator, and the Federal Trade Commission. One thing both sides made crystal clear was that despite the size difference (Portland Teachers has almost double the amount of assets and number of members), the merger would truly be a merger of equals. Dias said that sounds great in philosophy, but practically it’s very difficult to pull off. “In most mergers you have one institution that is doing the acquiring and can make the call on things one way or the other. In this approach it takes a lot more time and discussion to decide basic things,” said Dias. Dias said things like which CU’s 401k to go with, which DP system, or even whose board bylaws to implement, started bogging down and really extending the timeframe of the merger which the two CUs originally planned on closing by November. “The decisions kept compounding. We looked five months out and thought there was no way we can accomplish this,” said Dias, who described the process as very expensive and time consuming. The credit unions certainly made the effort said Dias. They hired a number of consultants, including well-known CU consultant D.Hilton & Associates, to help facilitate the process. “We hired William M.Mercer, a national benefits and compensation firm, and while they have been through this type of merger activity before, they found that it’s very different for for-profit companies. It was a learning process for them,” he said. Dias said having two of everything, especially when both sides are so proud of their systems, really makes the process of deciding which to use more difficult. “It turns into counting. We have this, they have that. You spend way more time counting who has what and what stays that it stalls decisions,” said Dias. Dias said he has the highest respect for Oregon Community CU and doesn’t think any bridges have been burned. “There are no hard feelings. There’s no tension or conflict, and I think that’s because we worked so closely together and both experienced the same problems, the same delays and frustrations,” he said. “I really hope that we can fire up discussions in the near future, where we maybe need to start choosing systems, than negotiate everything.” He noted that because of how off schedule the process was if the two would have kept on the path, they likely would have asked regulators for extensions for the merger. Hoerauf had a little different take than Dias. Hoerauf believes the problems were more philosophical than operational. “We’re centralized lending, they’re decentralized lending. We’re risk based and they aren’t. Those are philosophical things. I’m disappointed it didn’t happen. So we need to move forward. We continue to have a good relationship,” said Hoerauf. “I’m sorry to see it not gel, but these things happen.” He noted that he and his management team now need to sit down and figure out a strategy to increase its branch presence in Portland, one of the main reasons for the merger from Oregon Community CU’s point of view. Hoerauf said he is not even considering another merger at this point. “My board has been through a lot. It would be inappropriate to start anything now,” he said. He did note that he too would be open to revisiting the Portland Teachers merger again in the future. Dias said the two CUs, which have overlapping FOMs, didn’t stop competing even during the merger talks. Some in the credit union industry were surprised by the pairing of these two credit unions, especially since Oregon Community CU had spent so much effort rebranding itself from U-Lane-O CU to Oregon Community CU and was just starting to begin penetrating its community charter. The CU went from a potential FOM of about 150,000 to 2.5 million with its community charter approval. Both CUs were very clear on their reasons however. For Oregon Community it was all about branches. The CU wanted to reach what it estimated to be some 40,000 potential members in Portland using Portland Teachers’ extensive branch network in the city. Hoerauf consistently said that this merger would have given it a branch presence much faster and cheaper than if it pursued it on its own. The CU serves the University of Oregon, but the problem said Hoerauf, is that upon graduation many students move to Portland for their careers and thus stop using the CU. Dias’ take on the merger from the beginning has been that the increased size would help the CU compete with the 15 large banks that have a presence in Oregon. “Six of the 10 biggest banks are here. There are probably 150 bank branches here. The Portland market is getting more competitive,” he said. For his part, Dias said despite the failed merger he plans on staying at Portland Teachers CU, but hopes to work with the board over the next few months on a succession plan. [email protected]