Illinois-based Credit Union 1, one of the leaders among privately insured CUs in the merger market, is ready to take over its third, small struggling CU in a year.
The $650 million Rantoul CU said this week it has agreed to take over the $14 million Elgin City Employees CU, which since June has been under a state cease and desist order following large recession-related loan losses.
"We read the financial statements, saw what was happening and we approached them about a merger and their board agreed," said Paul Simons, president/CEO of Credit Union 1, which in 2009 merged the failing $185 million Cumorah CU of Las Vegas. Since then, the downstate Illinois CU has merged two other small CUs, the $1.5 million ICG CU of Champaign and the $1.3 million IAM CU of Chicago.
"This is simply a tragedy what is happening to small credit unions when you know they represent the grassroots of our system," said Simons, whose CU as well as Elgin City are both insured by American Share Insurance Inc. of Columbus, Ohio.
Simons said he hopes conditions might improve in 2011 though "we still have plenty to do with" the Nevada property, which like other CUs in that state continues to struggle with a still-poor economy and the nation's highest unemployment.
Credit Union 1 has no immediate plans to seek out other merger partners among small CUs and is not on any NCUA list, Simons said, though it has merged NCUA-insured CUs which approached Credit Union 1.
On Elgin City, Simons said the suburban Chicago CU had been under the cease and desist on certain lending practices following rising bankruptcies and foreclosures. The order had been issued by the Illinois Department of Professional and Financial Regulation and was followed by the October resignation of the former president/CEO, Christine Brown.
Among the DFI findings were that the CU had been disbursing new funds on existing loans without prudent update of borrower or collateral analyses, increased credit lines without prudent analyses, made numerous unsecured loans exceeding a $20,000 limit and business loans to a self-employed member. In addition the agency said Elgin City had "accepted more than $3 million in deposits from one entity and offered significantly above-market interest rates on those deposits."