How To Forecast Post-Merger Performance

An examination of the planned merger of Pioneer and Capital credit unions in Wisconsin.


The rate of mergers within the industry has remained robust over the past few years with the number of credit unions falling from 8,215 in 2008 to 6,895 in the first quarter of 2013. A total of 55 credit unions were merged in the first quarter. Although the majority of mergers take place between small and large credit unions, mid-size credit union mergers do happen on occasion.

On June 20, Pioneer Credit Union ($569.2M, Green Bay, WI) and Capital Credit Union ($459.4M, Kimberly, WI) announced their intent to merge. The move will create the eighth credit union with more than $1 billion in assets in Wisconsin. The new institution will be named Capital Pioneer Credit Union, and the merger is expected to take place in the summer of 2014.

Although the merger will not take place for another year, Callahan & Associates’ Peer-to-Peer software enables users to see what this new credit union will look like under the Pooling of Interest Method. New merger accounting rules, which changed at year-end 2008, now require credit unions to use the Acquisition Method rather than the Pooling of Interest Method. The latter is a more simple formula that doesn’trequire fair value adjustments. [To learn about the differences in accounting methods, read Mike Sacher’s two-part article.] Although this metric is not an exact measure of what the merger will create, it gives general guidelines for the performance of these two credit unions as one entity.

Data As of March 31, 2013
© Callahan & Associates |

  Pioneer Capital Capital Pioneer
Assets $569,165,796 $459,369,351 $1,028,535,147
Loans $425,181,524 $294,799,801 $719,981,325
Shares $491,923,273 $392,071,568 $883,994,841
Capital $55,468,089 $64,790,987 $120,259,076
Members 54,018 34,239 88,257
Branches 12 12 24
Delinquency Ratio 0.52% 0.46% 0.50%
Net Worth Ratio 8.99% 13.87% 11.17%
Loans/Shares 86.43% 75.19% 81.45%

Capital Pioneer will have slightly more than $1 billion in assets, $720 million in loans, and $880 million in total deposits. Its 88,000 members will have access to 24 branches throughout eastern Wisconsin. After the merger, Capital Pioneer will be the eighth-largest credit union in Wisconsin and among the top 200 in the nation, according to first quarter data. Its 50 basis point delinquency ratio will be much lower than the national average of 1.02%. Its 81.5% loan-to-share ratio will also well above the national average of 65.9%.The highly capitalized institution will have a net worth ratio of 11.2%. This is significantly higher than the 7% required by NCUA to be considered well-capitalized.

Data As of March 31, 2013
© Callahan & Associates |

  Pioneer Capital Capital Pioneer All CUs Over $1B
12-Month Member Growth 0.39% 2.53% 1.21% 4.40%
Members/Potential Members 7.39% 5.54 6.54% 8.31%
Average Share Balance $9,107 $11,451 $10,016 $11,448
Average Loan Balance $13,491 $16,125 $14,458 $14,286
Average Member Relationship $16,590 $18,976 $17,516 $18,822
Share Draft Penetration 42.88% 55.79% 47.89% 57.69%
Auto Loan Penetration 27.28% 16.60% 23.14% 16.66%
Credit Card Penetration 0.00% 9.78% 3.79% 19.35%
First Mortgage Loan Penetration 3.69% 6.61% 4.99% 2.39%

Member level data shows the strengths these two institutions bring. Capital has a slightly higher average member balance than the industry average and significantly better share draft penetration than Pioneer. Pioneer has a robust auto program. More than 27% of its members use the credit union for an auto loan; that’s almost 10 percentage points higher than the peer group average. Conversely, Capital has a strong mortgage program. Member penetration is more than double the peer group average.  Pioneer sold its credit card program in 2009, so its members will once again have a credit union option after the merger.

Data As of March 31, 2013
© Callahan & Associates |

  Pioneer Capital Capital Pioneer All CUs Over $1B
Full-Time Equivalents (FTEs) 173 144 317 475
Members per FTE 314 238 279 415
Assets per FTE $3,299,512 $3,190,065 $3,249,716 $5,592,236
Loan and Share Accounts per FTE 708 644 679 1,051
Loans Originated per FTE $1,560,419 $727,350 $1,181,392 $1,986,627
Loan Income per FTE $123,362 $92,656 $109,392 $161,587
Net Income per FTE $32,433 $20,573 $27,037 $58,828
Average Salary and Benefits per FTE $51,774 $44,575 $48,499 $73,848
$ Rev. / $ of Sal. & Ben. $3.51 $2.61 $3.14 $3.51

Merging two employee bases can be challenging. Capital and Pioneer have stated the new credit union will retain all employees at both credit unions. This will give Capital Pioneer at least 317 full-time equivalents. Employees at Pioneer appear to have more economies of scale than employees at Capital, originating more than double the loan volume. Loan interest income — $123,362 per full-time equivalent — is also higher at Pioneer. Pioneer employees receive higher compensation than Capital’s employees; however, they bring in more revenue for every dollar they are paid in salary and benefits.

Capital has a slightly higher efficiency ratio, meaning it costs Capital more than Pioneer to earn $1 of income. This is due to lower interest income and non-interest income compared to Pioneer. As of March 31, 2013, income comprised 5.65% of average assets at Pioneer but only 3.68% at Capital. This led to an efficiency ratio five percentage points higher than Pioneer.

Data As of March 31, 2013
© Callahan & Associates |

  Pioneer Capital Capital Pioneer All CUs Over $1B
Operating Expense/Member $368 $331 $354 $352
Efficiency Ratio 69.69% 74.96% 71.51% 65.83%
Operating Expense/Average Assets 3.58% 2.49% 3.09% 2.66%
Revenue per Member $581 $489 $545 $624
Net Income per Member $104 $87 $97 $142

In the loan portfolio, first mortgages at Pioneer comprised 42.7% of the loan portfolio. At Capital, they accounted for 68.1% of loans. Auto loans are more prevalent in Pioneer’s loan portfolio: 30.0% versus 18.0% at Capital. Capital members will have access to student loans when the merger takes place, an option they do not have currently. Nearly 2.5% of Pioneer’s loan portfolio is in student loans; Capital does not offer such loans.

Overall, the data suggests Capital Pioneer will be a strong credit union. The two merging institutions each have its own strengths. Pioneer employees are more productive and the credit union generates greater income per employee and member. Capital has deeper member relationships in the form of average balances and penetration rates. If the new credit union can build on the strengths of Capital and Pioneer, it can serve its expanded member base well.

Use Peer-to-Peer to further analyze this merger or simulate your own merger using the software’s merger tool.