DENVER -- Against a backdrop of economic troubles and long-term sustainability, management and boards of credit unions, both big and small, are now more open than ever about discussing consolidations, according to a top merger consultant.
"For industry decision-makers, market realities and economies of scale have changed the dynamics," declared Ron Nice, who heads up his own Denver firm that advises U.S. CUs on consolidation strategies and is a co-producer with Westerra CU of a new merger kit.
In Nice's view, the merger trend among both high-profile large credit unions and among smaller ones is definitely on the increase with the topic no longer limited to private boardroom discussion.
"When you look at some of the credit union operating expense data from NCUA by size of organization, and then link it to the lack of membership growth in all but the largest 1,000 credit unions, you can see that long-term sustainability is a real question to a majority of them," observed Nice.
This is due, he said, to the clear economies of scale that size brings and real membership growth at the larger organizations, main-
The merger environment, he said, has changed in such a way that frank "merger talk is now a part of every strategic planning retreat" whereas it
previously tended to be hush-hush, observed
Nice whose firm, Nice Enterprises, together with Denver - based Westerra CU have been promoting a merger kit (www.mergerkit.com).
The merger package debuted last November and is being phased in this month with a final implementation section, designed to lead CUs through the entire process, providing counsel, direction and cost savings on merger strategy and execution expense.
Westerra has said it is sharing its own historical experience in consolidating a group of large Denver CUs into its organization over the last few years and, since the merger kit launch, has been fielding calls and e-mails from as far away as Australia and New Zealand over program applications.
"Credit unions," said Nice, "are being hit by the perfect storm of lower margins, reduced loan demand, economic uncertainty, increased costs and fierce competition. As a result, profits from traditional core functions have been declining over time in most credit unions."
The marketplace, he argued, is separating the stronger organizations from the weaker, while at the same time all CUs are looking to grow to enlarge their economic profile.
"NCUA's year-end statistics," he noted, "show an average return on assets of 0.65%, and as of the end of the first quarter, 0.60%." However, he continued, "when you combine this lower than normal profitability with a credit union's desire to grow, an organization's range of options becomes limited. This, combined with the fact that as of the end of last year, credit unions under $100 million in assets had negative membership growth" creates an environment that spurs merger talk.
A perfect example of both the altered landscape for merger negotiations as well as the merger of equals trend by nondistressed CUs occurred within the last month in both southern California and Detroit, he said.
Nice pointed to the planned $1.2 billion Michigan merger of T&C FCU of Bloomfield Hills and USA CU of Troy to form Genisys CU as one example, which incidentally are clients of the merger kit.
Still another example, not serviced by Nice-Westerra, he said is Visterra CU of Moreno Valley combining Credit Union of Southern California, Whittier, to form a $1 billion institution. The Michigan and California consolidations represent a sample of what is to come for CUs in the future, Nice forecast.
In both the Michigan and California cases, the two CUs apparently see important advantages "in branch penetration and a new depth of leadership that they couldn't achieve on their own," said Nice.
C. Alan Peppers, president/CEO of Westerra, said his Colorado experiences also merging healthy CUs--including the former Gateway CU of Aurora and Safeway Rocky Mountain CU--demonstrate that mergers can be successfully effected with a minimum of disruption.
"I've lived through the problems and survived," said Peppers citing the difficulties of "consolidating core processing systems, cultural alignments and employee benefits" of three Colorado CUs.
Both Peppers and Nice have said they hope to engage in dialogue further with CU boards on the merger trends as session speakers at the annual directors convention in Las Vegas Aug. 5-8.