If you're a small dog and you want to play with the big dogs, you may need to find a larger buddy.

That appears to be the case in New York where the state led the nation during the first half of the year in the number of credit union mergers, posting 12 of the 132 on record, according to the latest NCUA's Insurance Report of Activity.

While the pace wasn't equal across the entire state, credit unions in the northern region of New York were the most likely to head to consolidation, the data showed. In most cases, it was a struggling, smaller credit union looking for a more secure home with a larger credit union.

The $279 million Hudson Heritage Federal Credit Union in Middletown, N.Y., and the $27 million MPO Federal Credit Union in Middletown, N.Y., started discussing a possible merger in the summer of 2012. The merger became effective on July 1, 2013.

“I knew the MPO CEO (Kelly Bilello) from meetings, and started talking,” said Mike Ciriello, president/CEO of Hudson Heritage. “Her credit union had a certificate of deposit with us. They were a teacher-based credit union and we were once a teacher-based credit union. It was a good fit.”

Members of MPO FCU were being served and the culture was there, Ciriello recalled. However, while the cooperative wasn't struggling with bad loans and other issues that would cause a drain on Hudson Heritage, the credit union wasn't making money, he added.

Despite the cultural fit between Hudson Heritage and MPO FCU, there were challenges, Ciriello acknowledged. Bringing two systems together was similar to going through a conversion. On a positive note, all MPO employees still have jobs. In addition to gaining the ability to market to the members coming over to Hudson Heritage, the surviving credit union added a couple of branch locations.

But the merger process put pressure on time and resources, forcing staff to put other strategic initiatives on hold, Ciriello said. Even with what could be considered a good fit, there was a big learning and cultural curve.

“In my area, there aren't a lot of credit unions left. I have noticed higher than usual merger activity in upstate New York. In my opinion, and I'm not 100% sure, I think we're seeing the lag effect of the economy,” Ciriello said. “Here in the Northeast, it's getting harder and harder for smaller credit unions to continue to make money and be viable in the long term.”

Stuart Levine, chairman and CEO at consulting firm Stuart Levine & Associates in Jericho, N.Y., indicated there are a few reasons behind the merger surge in New York.

“Clearly, in the New York metropolitan area, where you have a high concentration of commercial banks, having competitive product offerings becomes very important for credit unions,” Levine explained. “Smaller credit unions may not have the capital to invest in the development of products and services to compete as effectively as they have to in an aggressive consumer market.”

Next Page: A Second Factor

A second factor that Levine predicts will speed up the merger pace is competitive salaries. The second factor behind New York's merging trend is security for the member. A smaller credit union may not have the capital to invest to ensure a very secure technology platform for the well-being of members and their families, he said.

“It's a global issue, not limited to just major metropolitan areas,” Levine noted. “It doesn't stop at any state or national boundary. The CIO or CTO has to be a strategic hire.”

The goals and dreams of the employees in both credit unions must also be considered, Levine continued. Because careers are involved, those considerations should also be included in a respectful dialog, he added.

For the merger between the $940 million Island Federal Credit Union in Hauppauge, N.Y., and the $17 million CWA Long Island Federal Credit Union in Ronkonkoma, N.Y., probabilities were discussed early on, said Bret Sears, president/CEO of Island FCU.

“Talk to the merging credit union and find out what their expectations are, what their timeframes are, and make sure everything is clear up front,” Sears advised. “Then, stick to your word, and do what you say you're going to do.”

In the end, those discussions made for a smooth transition for both credit unions, Sears said. However, although Island FCU and CWALI FCU used much of the same technology, there were different vendors, he added. Work is still underway to iron out differences.

CWALI FCU was a single sponsor credit union and its parent company was reducing the firm's workforce, according to Sears. As the credit union faced growing costs, the merger meant it could breathe easier about its future and Island FCU gained some 4,500 members.

“We're going to be able to provide our services to a whole new group of people who know what a credit union is, so we didn't have that hurdle,” Sears said. “Some of our longtime members were concerned the branch they used would close. They did have a weak branch we won't be able to keep open, but our nearest branch is only two miles away.”

Sears said overall, the younger members were very excited to have additional services available to them. As a result of the merger, Island FCU brought over four of CWALI FCU's employees, so there will be familiar faces. Prior to the consolidation, the smaller credit union had seven employees and three were looking to retire, Sears said.

While New York as a whole may be the nation's merger alpha dog, Sears said he hasn't seen a lot of mergers in the Long Island area. There have been a few in the past couple years, he indicated, but not an inordinate number.

Next Page: Looking Ahead

Jeff Paille, a partner in the Rochester, N.Y.-based accounting firm The Bonadio Group's Financial Institutions Team, said factors leading to mergers in other states may not have been that important in New York. Credit unions in other areas experienced stress from the slumping housing market, but that was a minor issue in New York. Another thing he's noticed is that as technology advances and regulation increases, it's a challenge for small credit unions.

“Part of what we're seeing now, though, is smaller credit unions struggling with two things,” Paille said. “One is succession planning, as senior management reaches retirement. The small credit unions, say under $30 million, are finding it very difficult to draw in younger, talented people. They're looking to a larger credit union that has the resources that can attract younger talent.”

Looking ahead, Paille expects to see mergers in New York increase somewhat over the next couple years.

“There are some areas in the state where merger activity hasn't really picked up yet,” he said. “I think it will actually increase in the northern part of the state because of the number of smaller credit unions coming to realize these challenges.”

A smaller credit union seeking a merger partner may typically wait too long to make that move, Paille said. In the meantime, their financial condition may deteriorate. However, a few years before then, when their balance sheets were strong, they would have had no problem finding a merger partner, he pointed out.

“Now, a larger credit union isn't as enthusiastic about the merger,” Paille said. “It's a buyer's market, because there are enough credit unions out there seeking merger partners that larger credit unions can be more selective.”

His advice is if there hasn't been discussions about a merger in the past couple years, those talks should be included in a credit union's strategic plan.

The $141.4 million Ukrainian Federal Credit Union in Rochester, N.Y., recently took in the $8.9 million Ukrainian Home Dripro Federal Credit Union in Buffalo, N.Y. Oleg Lebedko, president/CEO of Ukrainian FCU, said the most important thing to emerge from the merger is the fact that members of UHDFCU will have a more viable financial home.

“We did see a few mergers in the past couple years,” Lebedko said. “Most of them were local or in neighboring areas. I think this is a trend and it will continue. Smaller credit unions are limited in the services they can offer.”

For credit unions considering mergers, Lebedko suggested negotiating and researching as much as possible, especially concerning potential fees on credit card services.

“Of course, there are challenges. This is our third merger in the last 10 years. This time, no matter how small the credit union, some debit cards and credit card fees were significant. That was an unexpected and unpleasant surprise.”

Levine stressed a merger must be totally focused on strengthening safety and soundness, expanding capacity for new products and services, and the culture of the two credit unions involved.

“It's important when two entities come together that it be done in as respectful a way,” Levine said. “What are the aspirations of the members? What are the products and services they seek? The board ultimately has the responsibility to affirm the merger.”

Instant Insights /

New York Leads Pack in Small Credit Union Mergers

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