The effect of credit union mergers on members

MADISON, Wis. - Many in the industry believe the economies-of-scale bug will bite the credit union industry and mergers will increase in a similar way to the merger mania that has swept the banking and technology industries. There's evidence it's already happening. In 1999 there were 346 credit union mergers, up moderately from 1998. In February of 2000 alone there were 29 credit union mergers. Industry economists and analysts are quick to point out the falling number of CUs and the rising assets in the industry, but what about the effects of mergers on members? A just-released Filene study, "How Credit Union Mergers Affect Service to Members" attempts to gauge merger impacts on members. "It's so easy to just look at the basic performance benchmarks to see how a credit union is performing after a merger. We wanted to see the impact on the members. This very complex study tried to do that," said Bob Hoel, executive director of the Filene Research Institute. The comprehensive study looked at the performance of 1,624 credit unions before a merger, and then for the three years following the merger. "Our purpose was not to encourage mergers, but to measure `member service efficiency' of acquired and acquiring institutions. This measurement revealed that some members benefit greatly from a merger, while others see little if any improvement," said Hal Fried, one of the primary researchers for the study. The study clearly showed that members of the acquired credit union are helped by mergers. In 80% of the mergers studied members of the acquired credit union experienced immediate substantial post-merger benefits, including a broader offering of products and services, better rates, and more efficient member service. The study found that the acquired credit union is typically smaller than the acquiring credit union. The acquired credit union also has high delinquencies and charge-offs; a high ROA and a small number of accounts per members. Interestingly, the acquired credit union usually has prior merger history and one, but usually not both of the merging CUs, has a community charter. And though many of the merged credit unions were small, small credit unions shouldn't necessarily rush to merge said Hoel, who noted that a prior Filene study of 400 small thriving credit unions found those CUs outperformed the industry average in asset growth, loan growth, membership growth, and net income to average assets. The study also shows that the service levels for members of acquiring CUs usually were not positively or negatively impacted by the merger. But in the mergers that did benefit the members of the acquiring credit union, the CU was large; had many SEGs; and had prior merger experience. When mergers benefited members of both credit unions involved in the merger, the merger is typically small, with member assets of around just $80 million; a capital asset ratio under 9.6% and a loan-to-savings ratio greater than 71%. -pgentile@cutimes.com