By most accounts, 2010 should have been a barn burner in thenumber of credit union mergers, based on rising assessments, thecorporate crisis and a bad economy hitting a large part of thecountry.

The fact is the actual number of mergers-about 150 as of Nov. 1and slated to hit 175 to 200 by year end, is well below the 238mark hit last year.

Still, at least one consultant, former NCUA Chair Dennis Dollar,envisions an explosion of mergers in 2011 since “it looks likemergers are becoming a way of life in credit union land and I'llhave you know 80% of our consultation calls today are mergerrelated.”

Indeed, Dollar, who heads up his own Birmingham, Ala. firm,contends that when one combines voluntary mergers now beingseriously discussed along with forced supervisory mergers, “I wouldnot be surprised to see 750 mergers in 2011, almost triple theaverage number over the past few years.”

While outsiders claim the decrease in the number of creditunions “is a sign of a dying industry,” Dollar said he recalls atime when there were 24,000 credit unions, only 34 million membersand a capital ratio in the 2% range, and when the share insurancefund was having to be recapitalized because of the large number offailing CUs.

Today “there are about 7,700 credit unions with over 90 millionmembers and, even after two years of unanticipated NCUSIFassessments, a capital ratio in the 10% range. I would submit thatthe credit union industry is a stronger industry today with 7,700units than it was with 24,000 units,” said Dollar.

One troubling merger statistic as uncovered by Merger SolutionsGroup of Forest Grove, Ore., is the sharp drop off in the assetvolume of mergers, down by 24% from a year ago, noted J. DavidBartoo, head of the firm. The decline in average size ratio “isdown year over year, and this is the first time that has occurredin a decade.”

At the same time, distressed and liquidated merger activity hastaken off, he said, noting that less than 1% of all mergers wereconsidered “distressed” five years ago. But in 2010, the distressedfigure stands at 33.5% of mergers.

“In 2005, over 370 mergers were considered 'healthy,' but yearto date in 2010 that number has dwindled to under 130,” saidBartoo, whose firm draws its statistics from NCUA Call Reportcompilations.

While mergers look to be on a certain upswing in 2011, therewere CU groups everywhere pushing for collaboration to forestallconsolidation. That is particularly the case among small CUs, whichthrough CUSOs and other vehicles, have worked on joint back-officecooperation and sharing operations as a way to cut costs andimprove margins.

The two most prominent examples of “survival strategy” have beenthe CURoots CUSO program being put together by theCalifornia-Nevada Credit Union Leagues for formal launch in Januaryand a similar co-op effort underway in Houston led by Beacon FCU ofLa Porte, Texas.

“There is a growing desire in the industry to form truecooperative CUSOs that can share the escalating costs ofback-office tasks,” noted Tom Glatt Jr., head of Glatt ConsultingLLC of Wilmington, N.C. “What I have seen are not efforts to createyet another CUSO profit-center solution but a not-for-profitcooperative with the dual mandate of providing efficientback-office management support and maintaining a break-even coststructure.”

In other words, this is an approach to back-office cooperation“as a means of reducing operating expenses and/or eliminating theneed to merge as a survival strategy.”

One reason touted for the number drop off in CU mergers during2010 is an eased stance by regulators who are bending over backwardin keeping struggling CUs afloat.

“Watching a board tackle its problems, I think examiners are alot more lenient and flexible in allowing a credit union tocontinue even with 4% net worth if they have a legitimate, workablebusiness plan,” observed another consultant, Robin D. Hoag,director of the Financial Institutions Group for Doeren Mayhew ofTroy, Mich.

Regulators “are less aggressive in some cases when they see astrong executive team at work,” suggested Hoag.

Nonetheless, the new NCUA budget for 2011 with added personnelstill shows the need for added supervision. “There remain troubledcredit unions working through their problems,” noted JohnWorthington, senior vice president of Security Service FCU of SanAntonio, a prominent player in merging small CUs.

And after a merger of equals, just how much savings accrues?Benson Porter, the new president/CEO of the soon to be combined$4.7 billion First Tech CU, joining First Tech of Beaverton, Ore.and Addison Avenue FCU of Palo Alto, claims he is alreadywitnessing a positive impact even though that deal does not becomeeffective until Jan. 1.

But Ben Rogers, research director at the Filene ResearchInstitute in Madison has his doubts.

“We just got a draft report of our latest merger study and theresults are interesting,” said Rogers. “Using data from 1984 to2009, they show that merger partners, especially the largerpartners, struggle to push down noninterest expense after a merger,and that's mostly because the majority of mergers have beenabsorptions of tiny credit unions by larger credit unions.”

But even among the relatively rare mergers of equals, saidRogers. “we're not seeing impressive economies of scalematerialize.”

Overall, concluded Rogers, amid “all the talk of crisis andhavoc, the recession was more like a harsh winter for most creditunions” when it comes to mergers.

“A harsh winter forces you to go into hibernation, live off theaccumulated fat of your capital and wait until spring for themerger season to come back around,” observed Rogers. “So a handfulof credit unions had to seek out shelter together to survive, andthat's the rationale behind many mergers of the past three years.Today, even though the harshest part of the winter seems past, allthe other credit unions are still a little sluggish. They're justnow thinking about coming out of their dens.”