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

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

While the pace wasn't equal across the entire state, creditunions 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 creditunion looking for a more secure home with a larger creditunion.

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

“I knew the MPO CEO (Kelly Bilello) from meetings, and startedtalking,” said Mike Ciriello, president/CEO of Hudson Heritage.“Her credit union had a certificate of deposit with us. They were ateacher-based credit union and we were once a teacher-based creditunion. 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 strugglingwith bad loans and other issues that would cause a drain on HudsonHeritage, 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 systemstogether was similar to going through a conversion. On a positivenote, all MPO employees still have jobs. In addition to gaining theability 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, Ciriellosaid. Even with what could be considered a good fit, there was abig learning and cultural curve.

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

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

“Clearly, in the New York metropolitan area, where you have ahigh concentration of commercial banks, having competitive productofferings becomes very important for credit unions,” Levineexplained. “Smallercredit unions may not have the capital to invest in thedevelopment of products and services to compete as effectively asthey have to in an aggressive consumer market.”

Next Page: A Second Factor

A second factor that Levine predicts will speed up the mergerpace is competitive salaries. The second factor behind New York'smerging trend is security for the member. A smaller credit unionmay not have the capital to invest to ensure a very securetechnology platform for the well-being of members and theirfamilies, he said.

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

The goals and dreams of the employees in both credit unions mustalso be considered, Levine continued. Because careers are involved,those considerations should also be included in a respectfuldialog, 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 theirexpectations are, what their timeframes are, and make sureeverything is clear up front,” Sears advised. “Then, stick to yourword, and do what you say you're going to do.”

In the end, those discussions made for a smooth transition forboth credit unions, Sears said. However, although Island FCU andCWALI FCU used much of the same technology, there were differentvendors, he added. Work is still underway to iron outdifferences.

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

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

Sears said overall, the younger members were very excited tohave additional services available to them. As a result of themerger, Island FCU brought over four of CWALI FCU's employees, sothere will be familiar faces. Prior to the consolidation, thesmaller credit union had seven employees and three were looking toretire, 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, butnot an inordinate number.

Next Page: Looking Ahead

Jeff Paille, a partner in the Rochester, N.Y.-basedaccounting firm The Bonadio Group's Financial Institutions Team,said factors leading to mergers in other states may not have beenthat important in New York. Credit unions in other areasexperienced stress from the slumping housing market, but that was aminor issue in New York. Another thing he's noticed is that astechnology advances and regulation increases, it's a challenge forsmall credit unions.

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

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

“There are some areas in the state where merger activity hasn'treally picked up yet,” he said. “I think it will actually increasein the northern part of the state because of the number of smallercredit unions coming to realize these challenges.”

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

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

His advice is if there hasn't been discussions about a merger inthe past couple years, those talks should be included in a creditunion'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 FederalCredit Union in Buffalo, N.Y. Oleg Lebedko, president/CEO ofUkrainian FCU, said the most important thing to emerge from themerger is the fact that members of UHDFCU will have a more viablefinancial home.

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

For credit unions considering mergers, Lebedko suggestednegotiating and researching as much as possible, especiallyconcerning potential fees on credit card services.

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

Levine stressed a merger must be totally focused onstrengthening safety and soundness, expanding capacity for newproducts and services, and the culture of the two credit unionsinvolved.

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