Why America’s Second Largest Credit Union Avoided Mergers

Jim Blaine is an iconoclast. CEO at State Employees Credit Union in North Carolina (1979-2016), he rarely followed the conventional business practices of his peers. His credit union model had one north star: improving members’ wellbeing.

His team created a cooperative financial conglomerate that includes multiple CUSOs as well as a large branch and ATM network. Total assets at December 2020 were $47.8 Bn serving 2,550,000 members.

Several examples of contrarian thinking are his responses to the proposed agenda for a collaborative conference on credit union strategy in 2006. Among them:

Merger Benefits: Consolidate what we do, not what we own. Fashionable thinking based on gossamer logic.

Network/Standalone: Niche should be pursed, not “overcome.”

Credit Union Movement: Saints always believe in the church, sinners never do!

An example of  not following conventional practice is his response  to the numerous merger proposals he received as CEO.

The Reasons for SECU’s Not Merging Other Credit Unions-A Proactive Strategy

“At SECU, we never chose to merge unless “requested” by our State regulator (usually a very small CU with a serious problem that needed a quick fix – and one that no other state CU would agree to merge – we required that we be the last resort)…only one or two over 40 years.

If a CU wanted to merge, we always encouraged it to approach other local credit unions. The mergers that resulted strengthened the local community and also strengthened all NC credit unions.

Politically the more CUs we had embedded in local communities, the stronger voice we had in the State Legislature to resist assaults from the banks (and they were a strong, powerful bunch, including the likes of NCNB, First Union, Wachovia ) – as you know since the infamous membership lawsuit (which resulted in -HR 1151) came out of NC.”

(1990 — In conjunction with four North Carolina banks, the American Bankers Association (ABA) files suit against NCUA and the AT&T Family Federal Credit Union over the 1982 interpretation of the Federal Credit Union Act. Bankers are concerned with the authorization to allow select employee groups to join AT&T Family Federal Credit Union who are unrelated to the original credit union sponsor and don’t necessarily share that common bond. The bankers appealed the lower court ruling that favored credit unions.

On April 1, the full House passes HR 1151 by a vote of 411-8.On July 28, the U.S. Senate’s version passes with a vote of 92-6 culminating in a rewrite of the 1934 Federal Credit Union Act. President Clinton signed the Credit Union Membership Access Act on August 7, 1998)

A Political Target

“SECU was a very large potential political target – we wanted all the allies we could get in a multitude of other CUs. Same reason we branched into every county in the State – we wanted a local presence to provide local jobs, pay local taxes, help solve local economic problems, and make grants thru the SECU Foundation, etc. – as the S&Ls evaporated and the big banks pulled back from small towns and rural NC.

Organic vs Merged Growth

Growing “organically” is a more reasonable, measured form of development….mergers require an immense effort to combine, rationalize different systems, products, staff and often “cultures” – inevitably lots of folks are not going to be happy, both internally and among the membership.

Mergers `”force” all merging CU members “to join” an organization not of their own choosing. That’s not an unsubtle difference from the members of SECU, who all chose to join of their own volition – because they wanted to be a part, because they saw some personal benefit to them – no captive audience at SECU. 

Through organic growth and the disavowal of mergers, our smaller peers were less “suspicious” of us and assured we weren’t out to gobble them up – we were more able to cooperate on many things. SECU always shared resources, policies, practices, etc. with other CUs – nationwide.

As you know we “exported” many “well indoctrinated” leaders to other CUs – many, many in NC to smaller CUs. We also did things like not charge other CUs for using the 1,250 Cashpoints ATMs , which gave the smallest CUs an affordable statewide access footprint.

Equally the organic growth of SECU had the effect of “killing off” the “slackers” among CUs – when SECU opened a new branch in a small community, the local CUs had to “raise their game.” We were competition for many small CUs due to the ability of folks to join multiple CUs.

Working With, Not Merging

When Latinos became a demographic factor in NC, we, with other CUs, helped charter Latino CU (and still provide the underlying accounting/IT systems support – it should reach $1 billion shortly). Same for Local Government FCU (Maurice Smith) – – started in 1983, now $ 3 billion and the NC Press Association CU – @ $10 million, and Greater Kinston CU (last existing NC AF-Am CU)@ $15 million.

Not merging was a conscious, rational, and “best interests of SECU” decision in my opinion.

A Story of Innovative Self-Interest

Another enlightened self-interest story about supporting other CUs. As mentioned, the “membership lawsuit” (AT&T v First Nat’l)) which led to HR 1151, came out of NC. That was actually the third lawsuit on membership filed against CUs by NC banks.

The first two were against SECU. Around 1977, at the request of employees in many very small NC towns and counties not served by a CU (and too small to form one), SECU agreed to include local govt folks in small communities not served by existing CUs in its field of membership. The NC bankers sued and won on a split decision in the NC Supreme Court–fought out in state courts since SECU is state-chartered. SECU was required to expel the approximately 9,000 members who had joined.

Well, being a bit cantankerous, SECU (with the help of the Assoc of County Commissioners and the League of Municipalities) decided to charter a federal CU, (which today is Local Government FCU) to expel those members into. Additionally, SECU agreed to provide LGFCU with all support services, use of the branches etc. in exchange for a fee of 25% of its gross income. LGFCU had an independent board but agreed to provide only those services provided by SECU. LGFCU had only one employee, the volunteer manager Jim French, who worked for the League of Municipalities.

Essentially you ended up with a de novo, full-service CU with 35 branches, 1 employee, and a “guaranteed can’t lose money” service contract (LGFCU’s first month gross revenue was $1.60 of which SECU received 40 cents). Of course, the banks sued again but that’s not the point of the story.

In anticipation of being sued, SECU also established the NC Press Assoc CU and contracted for services with the Methodist Ministers CU (assets @ $75,000). The point was so that when we hit the courts again (this time in federal court since LG was federally chartered), we were well prepared to fight. Our supporters now included: NC teachers, state employees, county employees, city employees, state and fed regulators, the press (thru NCPAssociation CU), and even God (thru Methodist Ministers) was on our side. Needless to say, the banks didn’t stand a chance…and lost the case.

The Moral

More is not less with credit unions

SECU Merger Policy

Jim Blaine’s successor, Mike Lord continued SECU’s merger stance.

“Under my watch there have been no changes in thoughts on mergers—they cannibalize the industry and hasten our demise! We continue supporting small credit unions and recently have helped four of them—three of them in dire straits and one with a COVID-19 emergency –decimated staff meant they had to close their branch in a small community and our local branch opened their doors to cash checks and take deposits for a day or two for their members until their staff could return.”

“People Helping People” at its finest! Credit Union Helping Credit Union!