A Tool To Woo Potential Merger Partners

How Abbey Credit Union wowed a fellow local financial cooperative with forward-looking performance analysis.

 
 

CU QUICK FACTS

Abbey Credit Union
Data as of 03.31.17

HQ: Vandalia, OH
ASSETS: $91.3M
MEMBERS: 10,201
BRANCHES: 26
12-MO SHARE GROWTH: 3.9%
12-MO LOAN GROWTH: 4.4%
ROA: 0.43%

Dean Pielemeier has been the CEO of Abbey Credit Union ($91.3M, Vandalia, OH) for more than three years. In that time, he’s instituted a strategy to spur growth via extending the credit union’s reach.

In February, the credit union expanded its field of membership from one county to five in the Dayton, OH, area. The larger physical field of membership understandably underpinned a major increase in the credit union’s potential membership, which jumped from 20,000 before the county expansion to 900,000 after, according to data from Callahan & Associates.

In addition to expanding opportunities for organic growth, another part of the credit union’s strategic focus includes actively searching for merger opportunities.

“Mergers create economies of scale,” Pielemeier says. “We’re picking up brick-and-mortar locations, members, territory, and capital. That’s big for us.”

How To Find The Right Merger Partner

As of first quarter 2017, Abbey’s capital ratio of 8.46% was more than three percentage points below the 11.48% average of credit unions with assets from $50 million to $100 million. To ensure potential merger partners will contribute positively to its capital ratio, Abbey considers only credit unions with higher than average capital ratios and ROA.

“We don’t want to merge unless it’s beneficial,” Pielemeier says. “We are not in it to grow for growth’s sake.” Abbey maintains a list of Dayton area credit unions that fit these criteria — a list that is currently eight strong — and uses Callahan’s Peer-to-Peer analytics to evaluate their performance.

Abbey combines its own call report and the call report of a target credit union to create a merged institution Abbey can analyze to determine fit.

The tool helped me get the other credit union to agree to the merger because of the depth of the data I was able to produce.

Dean Pielemeier, CEO, Abbey Credit Union

“I can get financial data and build a merger within an hour,” Pielemeier says. “Before Peer-to-Peer, I was putting together spreadsheets and manually merging everything. That took hours.”

Once he has the merged credit union call report, Pielemeier looks at the capital ratio and ROA. For him to more seriously consider a merger, he wants to see Abbey’s capital ratio surpass 9%.

How can users merge institutions in Callahan's Peer-to-Peer? Check out Callahan's Support Site to learn how. Don't have access to Peer-to-Peer? Click here to request a demo.

“We’re not interested in a credit union that would drain capital year after year,” Pielemeier says. “We’re not looking to be a savior. We can’t do that with 8% capital or $90 million in assets and go on like it’s just another day.”

Abbey has agreed in principal to merge with a credit union that Abbey is not yet publicizing because the two institutions have not finalized the details. However, according to Pielemeier, the credit union has 17% capital, which would push Abbey above its 9% threshold. That’s good for Abbey; however, the credit union wants the merger to be a good deal for both credit union memberships.

“We’re going to pay a bonus payout to its membership for however much we go above 9%,” Pielemeier says.

Analyze A Merger

Interested in seeing the impact of a potential merger or finding a good potential merger partner? Peer-to-Peer can help.

request a demo

Getting To Yes

The credit union Abbey has identified as a potential merger partner had interest from two other institutions, so the credit union asked all three interested parties to present on the benefits of a merger with their credit union.

Pielemeier created a 28-page document that included demographic and historical information provided by the other credit union as well as a financial analysis from Callahan’s Peer-to-Peer analytics.

Using the software’s merger functionality, Pielemeier put together a retrospective of the past five years of performance. He then exported the merged institution’s current financial profile and ran a three-year projection.

“I showed them what we would look like three years from now,” Pielemeier says.

Abbey’s CPA firm is conducting its final due diligence, and its vice presidents of lending and finance still need to complete their reviews before the merger goes up for a vote, but both parties have signed letters of intent and Pielemeier expects to make a merger announcement in the fourth quarter of 2017.

Pielemeier credits the capabilities of Callahan’s Peer-to-Peer analytics for the fact Abbey was able to clearly present the benefits of this merger

“The tool helped me get the other credit union to agree to the merger because of the depth of the data I was able to produce,” the CEO says.

 

 

 


 

May 15, 2017


Comments

 
 
 
  • I truly believe that structured mergers which are beneficial to the membership first and foremost are essential for future success.
    Nick
     
     
     
  • I truly believe that structured mergers which are beneficial to the membership first and foremost are the way credit unions are going to continue their
    Nick