FOREST GROVE, Ore. -- Smaller credit unions do have a place in the credit union community, but mergers are sometimes necessary or in the best interest of the membership, Merger Solutions Group President David Bartoo, said.
Small credit unions "obviously do have a place in the industry as long as they are able to be sustainable and they are able to provide the best services to their members...A merger can be a good thing as long as they're done with the members in mind." Of the 281 completed mergers last year, 197 (70.1%) were credit unions under $10 million in assets, according to Merger Solutions Group. The completed mergers came to $5.2 billion in assets. However, the group said the total numbers could have reached much higher since NCUA actually approved 313 mergers for $6.7 billion in assets. Six mergers between $30M and $200M approved in 2006 will likely be completed in the first quarter of 2007.
According to Bartoo, the record merger volume can be attributed to the top 35 mergers, which accounted for over $3.9 billion of the total assets transacted. The top 35 also included seven State Farm-associated credit unions that were a part of the 11 approved to merge into the State Farm Great Lakes Credit Union in Illinois. In 2006, the average merger volume for the top 35 was over $110 million. By comparison, the other 246 mergers, averaged just over $5 million per merger. With the exception of Region II, which saw just 14 mergers all year, merger activity and volume was balanced across the country. The decision to merge an institution is more a function of "member and economic trends and not the actions of the institution," Bartoo said, not regulatory burden although that is a factor along with UBIT, identity theft, and other things. "There is a place for every credit union of any size and most credit unions do not want to merge," he added. "Credit unions are making every effort to grow, but the best efforts of some credit unions may not be enough to provide the services and products in any given competitive market. A credit union cannot control sustainability issues like unemployment, the closing of companies or the rates of their competitors."
In the fourth quarter, NCUA approved just 62 mergers, down from 95 during the same time frame in 2005. October 2006 experienced just 16 mergers, which was tied for lowest month of the year. New York had 10 mergers in the last quarter of 2006, the most for a state during that period, including the smallest in Region I, $34,000 Harmony New York Credit Union. Federal charters accounted for 53 of 82 completed mergers in the fourth quarter; just one credit union merger in the fourth quarter was from Region II, the smallest region. Bartoo helped match up some of those merging and surviving credit unions. Through its Active Acquirer program, he explained, he is compiling a database of credit unions--which stood at 194 at press time--seeking credit unions to acquire. On the flip side, the merging institutions are given the different options to choose from once they are matched up with potential merger partners.
"Rather than the one or two local options credit unions tend to go with, we try to find the best possible fit," Bartoo explained. The process does not cost the merging credit union anything as the costs are borne by the surviving institution, and no fee is assessed if there is no merger.
Former Holland Central Credit Union CEO Tom Morley said, "If it wasn't for the assistance, expertise, and professionalism that the Merger Solutions Group provided through the merger process, this event would not have been possible for the benefit of our members and the community." The credit union was given 14 potential merger partners then decided on a merger with $175 million PARDA Federal Credit Union.
Bartoo said, "A number of credit unions throughout the country have an acquisition strategy. I think there are even more credit unions that would like to have that kind of strategy." However, the political ramifications keep many credit unions from actively pursuing mergers, he hypothesized.
Merger Solutions Group is forecasting that merger activity will stagnate in 2007. "We don't think mergers are going to be more active this year. In fact, we think they're going to be flat," Bartoo said, adding 2007 mergers should fall somewhere between 60-65. This is partly because 64.5% of credit unions were able to maintain their return on average assets over the last three quarters, and also because fewer credit unions are showing a loss in membership than a year ago. He highlighted the impact consolidation has had on banks with less than 2% of banks under $10 million in assets compared to credit unions 43%.
The smaller credit unions still face competition, but are better positioned to serve a niche market. "The trend is, [members] are going to go where the resources are," he said, adding that lack of succession planning is also a problem for smaller credit unions.
However, Bartoo does not feel mergers are closing in on a saturation point. "Given the number of small credit unions that are still trying to compete with scale issues, I don't believe they're going to decline," he concluded. --email@example.com