Leveraging Consolidation for the Future

For the CEOs of the Pennsylvania Credit Union Association and the New Jersey Credit Union League, the decision to merge the two organizations was driven by the next step in their evolution, leveraging the trade groups’ combined capital and other resources to help credit unions successfully compete well into the future.

Last month, the PCUA and NJCUL announced the proposed consolidation that was expected and required to be approved by two-thirds of the member credit unions from both states. The results of the vote were not available before CU Times’ press time.

The likely vote of approval means the PA/NJ Credit Union Association will be open for business on Jan. 1, 2020, which will mark the 12th league consolidation since 2007.

“Certainly, the consolidation that’s occurring among credit unions is one of the factors that we

considered when we talked about whether it makes sense to combine our forces, but I think that’s only one factor,” Patrick Conway, PCUA president/CEO, reflected. “I think what was more fundamental goes to how the league landscape has changed, and how the expectations of credit unions are different in terms of what they see as valuable coming from their league. I think the old familiar league playbook that served us well for many years is just not as relevant today in the areas of choice, and the internet and technology. So I think what this [merger] is also part of is the process of reinvention – thinking about our business model in a very creative way and understanding how we can do better together than what we can do apart.”

For David Frankil, the NJCUL’s president/CEO, the proposed consolidation is to truly change the way the combined organization can provide value and deliver greater opportunities for credit unions to grow and to meet their challenges.

“Our job is to provide a compelling ROI for the investments of our members’ dues,” Frankil said. “There’s the soft ROI of advocacy, awareness and other things. Then you have the hard ROI from the solutions side that provide opportunities for our members to grow through lending programs, more favorably-priced solutions and more favorably-priced compliance services. The combination of those two has to be a compelling ROI for our members, and I think that’s a somewhat different positioning than what the leagues have had historically in serving their members.”

In addition to becoming one of the largest two-state leagues that will serve more than 520 credit unions, the new organization will have a strong capital position of nearly $21 million.

“I think part of what we’re excited about is with our combined capital, and with our additional resources as a combined organization, we’ll potentially have the ability to set aside some venture dollars, and to really look at either acquiring things, or building things, or finding new products and services that will meet the future needs of credit unions,” Conway said. “So we want to be more agile, more nimble, and looking ahead to determine what those products and services are.”

Because credit unions are competing with banks and fintechs, Frankil noted the venture funds

would enable the combined league either to develop technology solutions, buy technology solutions or partner with technology providers, and then roll those solutions out to credit unions that have an important advantage over fintechs.

“I think the beauty of the credit union business model is that we have something most fintechs of the world would kill for, and that is a solid trusted relationship with our members,” he noted.

To achieve the goals of delivering new products and services for credit union members, the new association will be consolidating its for-profit subsidiaries. For the long-term success of the PA/NJ Credit Union Association, the subsidiaries will play a vital role in replacing revenues that will be lost in membership affiliation, which will continue to shrink because of the industry’s consolidation.

“Just five and a half short years ago, we had 495 credit unions in Pennsylvania. Today we’re at under 370,” Conway said. “So you can see, obviously, the positive upsides are that the credit unions’ assets are growing, credit union membership is growing and the movement is very strong, but there are fewer and fewer credit unions and they are getting larger. We feel that the credit union trade associations need to evolve and change with the movement that it represents. So, we’re trying to be proactive in doing what some other state organizations have done successfully in other parts of the country, and really create larger scale to better serve members in both states and enhance value.”

It’s estimated that the industry will continue to lose about 200 credit unions nationwide annually via consolidations.

While the combined league will be positioned to serve the credit unions that are growing larger through consolidations, small credit unions under $100 million in assets will also benefit from the economies of scale. There are about 305 small credit unions in Pennsylvania out of 368 cooperatives. In New Jersey, there are 131 small credit unions out of 159 cooperatives.

“There’ll be some, certainly, economies of scale over time, but it’s not only about saving costs, it’s more about creating that scale to become even better at what we do,” Conway said. “The small credit unions are going to be certainly an important part of what we’re doing moving forward.”

Conway noted that the combined trade associations will have seven certified compliance experts and a strong team of certified audit specialists, including two former credit union CEOs, two CPAs and an attorney to meet credit union compliance needs. On the advocacy side, the combined associations will have three top-flight registered lobbyists on staff, supplemented by contract lobbyists in both state capitols and Washington, D.C.

“This synergy that will exist between advocacy and compliance is just one of the many examples of how our combined entity will be better than the sum of its parts,” Conway said.

After years of collaborating on a variety of projects, Conway and Frankil decided to begin working out the merger details in January of last year. At the end of May, they brought in the board chairs from both state organizations and then appointed a subcommittee made up of three board members from each state that met to discuss the merger agreement throughout the summer. The full boards of directors met twice and then entered into a non-binding letter of intent in December. The boards also approved the new bylaws and a definitive merger agreement.

While both boards will also combine and all board members will continue to serve, the size of the board will be reduced over time to six board members from Pennsylvania and six board members from New Jersey with even representation from both states and across all asset sizes.

Conway will become the president/CEO of the new trade association while Frankil will serve as president of the for-profit corporations from each league.

There will be no staff layoffs.

While the trade organizations plan to align the membership dues structure over a two-year period, there will be no increase in dues and some credit unions may see a decrease in membership dues.

Initially, the foundations from each league will operate separately, but over time, it is anticipated the foundations will consolidate as well.