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Credit Unions Credit unions plan to cut costs as merger unfolds

San Diego is witnessing one of the biggest credit union mergers ever seen in California.

The marriage of Santel Federal Credit Union and Kearny Mesa Financial Credit Union will result in the fourth largest credit union in San Diego County with assets of around $550 million.

Effective July 1, First Future Credit Union will have a combined membership of more than 60,000, a network of 19 branches plus around 35 ATMs, and 190 employees.

Santel’s President and CEO Marla Shepard said the merger proposal was overwhelmingly approved by members of the two credit unions when they voted in early March.

Shepard, who will head the freshly minted credit union, said the merger has been given the green light by the California Department of Financial Institutions, which is also expected to announce approval of the new name soon.

She said the merger partners searched carefully to make sure the name First Future Credit Union was not being used by anyone else and so she is confident this final stamp of approval will be just a formality.


– Benefits In Sight For Members, Staff

Shepard, a veteran of more than 30 years in the credit union business, 29 of them with Santel, is excited and enthusiastic about the merger which she describes as a “definite win-win” for all involved.

“Because both partners are so strong, this opens up wonderful opportunities for members to benefit, through the offer of new services and products, and for our employees.”

Shepard said there were a number of specific reasons behind the merger, one of which was to take full advantage of increasingly expensive technology to help deliver cost-effective financial services to members.

With an eye to economies of scale, Santel’s strategic plan had aimed to achieve $500 million in assets within five years. Now that goal would be reached in about 2 & #733; years, she said.

Already, significant potential savings have been identified, for example, in the monthly costs of processing debit cards. More savings are anticipated in areas such as administration, telecommunications, network systems and marketing.

Shepard also sees advantages flowing from the expanded branch network. She said locations of the separate credit union branches have proved very complementary, which means greater convenience for members while enabling First Future to be more competitive with banks.


– Partnership Opens Loan Opportunities

A broader asset base is also expected to result in the new credit union offering more loans to San Diegans, particularly in the area of real estate.

Last year, Santel loaned 97 percent of its deposits , a large proportion of that on auto finance , whereas the corresponding figure for Kearny Mesa was around 70 percent.

“We’re excited about taking their liquidity and making more real estate loans,” Shepard said.

Jim Goulet, Kearny Mesa Financial’s president and CEO, will serve as executive vice president of First Future and president of a new credit union service organization, or CUSO.

About half of all credit unions have CUSOs, wholly owned subsidiaries that sell insurance and offer members a range of other financial planning and investment products and services.

Goulet said credit unions are not allowed to provide some of these services, while some choose not to be involved in because it might distract from their core business.

Exactly what this CUSO will provide is still under consideration. Initial thoughts include financial services such as planning for retirement or entering a nursing home, helping people invest in mutual funds, funding for college, rolling over 401(k) plans and estate planning.


– Loan Services May Expand

Goulet said the CUSO might look to expand into the area of providing auto loans to people directly from the dealerships, a service which could be extended to other credit union members and even non-members.

The CUSO is also likely to become involved in the insurance business, providing life insurance initially and, in the future, possibly home and auto insurance.

Other options which will be looked at include offering travel and real estate services, the latter an area Goulet is especially familiar with since he holds a real estate brokers license.

“There’s no real limit on what we could do,” Goulet said. “Our objective and primary consideration is to bring value to the membership.”

Shepard said Santel has had a CUSO for about 15 years, but it is mostly focused on financial investments and she hopes it will be significantly broadened and realize its potential for growth under Goulet’s leadership.


– Large Mergers Called ‘Unusual’

According to Shepard, there have been three or four other credit union mergers in San Diego but they were much smaller ones; a deal of this size was “very unusual.”

She said this is because credit unions are frequently set up to serve a small group or a single sponsor and generally do not consider merging unless there is really a driving reason or they have some immediate fear or concern.

She estimates there are between 25 and 30 credit unions in San Diego, around a dozen of them with assets of over $100 million, and most right now are very sound and healthy.

However, Shepard suspects attitudes towards possible mergers could change as the cost of technology and the competitive nature of financial institutions leads more credit unions to at least consider the prospect.

She also thinks the creation of First Future will cause some other credit unions to pause and think about the issue. “We’re hoping if we do a great job other credit unions might want to join us when they feel the need,” she said.

Goulet, who has been with Kearny Mesa Financial for 17 years, said the credit union had reached the point where it needed to expand , primarily in terms of the Internet and physical locations , if it was to continue providing the same level of cost-effective services.

He predicted significant economies of scale resulting from this merger which brings together two of the oldest credit unions in San Diego with well over 100 years of community financial service between them.

Kearny Mesa Financial began in 1939 as the Solar Employees Federal Credit Union and today has 15,000 members. Santel, which has 45,000 members, was founded in 1947 to serve telecommunications workers of Pacific Bell, AT & T; and Western Electric.

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