MARCY, N.Y. — If the roughly 3,800 members of the $24 million Marcy Federal Credit Union approve their credit union's conversion to a mutual bank, the credit union appears headed for an immediate merger. According to records with the Office of Thrift Supervision, Beacon Federal Savings Bank, a former credit union that changed its charter to a mutual bank in 1999, has applied to merge with the mutual thrift that Marcy FCU would become. If this happens, it would make Marcy the fourth, and largest, credit union to have merged with Beacon since it became a bank.
The NCUA has yet to approve or disapprove Marcy's disclosure documents linked to the proposed charter change and Marcy has declined comment until the disclosures are approved. The OTS has set Oct. 22 as the date by which it plans to make a decision on the merger application.
The phenomenon of credit unions converting to mutual banks in order to merge with other banks, often former CUs themselves, is not common, nor is it unknown. According to CU Financial Services, the consulting firm that specializes in helping credit unions convert to mutual banks, six of the 29 CUs that have changed their charters to mutual banks have done so to facilitate a merger with another mutual.
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In fact, the last such conversion merger on record at CU Financial Services was the Salt City Hospital FCU merger with Beacon Federal in 2003.
The roughly $500 million Beacon Federal was founded as a credit union in 1953 to serve the employees of the Carrier Corporation, a nationwide manufacturer of air conditioners and air conditioning equipment.
The credit union converted to a mutual bank in 1999 and its legacy as a credit union left it with branches in five states, where Carrier had manufacturing and service facilities, as well as enduring relationships with 200 firms working in related industries, according to the bank's Web site.
It also left it with an avenue for expansion through mergers with credit unions. Beginning in 1980 and running until 1995, Beacon Federal absorbed six other credit unions and then picked up the pattern after the conversion. The three other credit unions Beacon Federal has swallowed as a bank include Caney Fork Cooperative Credit Union in McMinnville, Tenn. (2000); the $937,000 Professional Teachers Credit Union, also of McMinnville (2001); and the $8.4 million Salt City Hospital FCU of Syracuse, N.Y. (2003). NCUA had no record of the size of Caney Cooperative.
Darren Crossett, senior vice president with Beacon Federal said that the bank did not have a strategy to grow through merging with other former credit unions, but contended that Beacon took advantage of different opportunities as they arose. He explained that the first two of the bank's conversion mergers took place in Tennessee because credit unions in the area had approached the bank, which had a presence in the state.
"You know how much talk there is in the credit union industry," Crossett said. "There were credit unions in the area which believed they could better their situation with regard to the members by approaching us about a merger. We only consider mergers which appear a good fit to us and so they went forward."
He was reticent to discuss the entire situation, however, until after the OTS acts on the Marcy merger. Then, he said, the bank will almost certainly issue a press release and be more open to questions.
While Marcy has declined to answer questions about its proposed conversion and merger, there are signs from its records with NCUA of why it might find a merger with Beacon an attractive option.
First, despite having members who use its products and services, Marcy has had trouble lately making any money. According to its 5300 reports, the credit union lost money consistently in 2004 before returning to the black in 2005 and slipping once again into the red in 2006.
Analysis of the CU's 5300 reports do not definitively identify the source of the problem, but do show the CU has operating expenses significantly higher than its peers and average loan balances significantly lower.
"This is a small credit union that is actually doing fairly well in regards to the numbers of account connections it has with its members," noted Tony Ward-Smith, a consultant who works with credit unions to help them improve their member service and bottom lines. "This should be a strong sign of success, but balances in most accounts are average which is to say the relationships with their members don't appear to be really serious and that contributes to losing money," he added.
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