Merger Activity through the 3rd Quarter of 2006

The number of credit union mergers is increasing every year. Find out how merger activity fared in the first nine months of 2006.

 
 

The NCUA approved 242 credit union mergers through the first nine months of 2006 versus 208 mergers through the same period in 2005. Total merged assets increased to $5.3 billion from $2.8 billion through the first three quarters in 2005, as the average merged credit union had $21.7 million in assets versus $13.7 million the year before. In 2006, there have been on average 26.9 approved mergers each month, with June reporting the highest activity with 38 mergers and April reporting the lowest activity with 15 mergers. If the current pace is maintained, the NCUA will approve another 80 mergers this calendar year to reach a total of 322.

However, the State Farm merger deal approved by the NCUA in June 2006 inflates the overall merger data trends. The 12 State Farm credit unions decided to undergo a corporate restructuring and consolidate under the State Farm Great Lakes name to form an institution that will have approximately $2.9 billion in assets. Once the merger is finalized, the State Farm Great Lakes Credit Union will break into the top 25 credit unions by asset size. The 11 State Farm credit unions that are being merged away reported having on average $208.2 million in assets, thereby significantly increasing the total and average merged assets in the first nine months of the year.

Here are the quick stats on the approved mergers through the first three quarters of 2006:

Which states had the most mergers?

  • Eight states had 10 or more mergers: New York (22), Ohio (22), Pennsylvania (18), Michigan (15), California (14), Illinois (10), Massachusetts (10), and Texas (10).

Which credit unions are being merged?

  • Merged credit unions over $50M: 26 so far in 2006 versus 16 in all of 2005.
  • Merged credit unions between $20M – $50M: 14 so far in 2006 versus 21 in all of 2005.
  • Merged credit unions between $10M – $20M: 34 so far in 2006 versus 23 in all of 2005.
  • Merged credit unions less than $10M: 168 so far in 2006 versus 241 in all of 2005.

Which credit unions are acquiring others?

  • Continuing credit unions over $1B: 11 so far in 2006
  • Continuing credit unions between $250M – $1B: 66 so far in 2006
  • Continuing credit unions between $100M – $250M: 58 so far in 2006
  • Continuing credit unions between $50M – $100M: 26 so far in 2006
  • Continuing credit unions less than $50M: 81 so far in 2006

Merged credit unions as a percentage of the industry?

  • 3.65 percent (projected) in 2006 versus 3.28 percent in CY 2005.

While expanded services, the inability to obtain executives, a declining field of membership, and poor financial condition are the primary reasons reported to the NCUA when credit unions file for a merger, there are also strategic benefits to seek a merger of equals. New synergies may be measured in terms of product mixes, balance sheet compositions, corporate philosophies, and overall financial performance. Also, a combined institution would enjoy an economy of scale advantage that could make it more competitive in its newly created field of membership. Several institutions are finding it difficult to compete with margin pressures, a rising cost of funds, and low member growth. If the new synergies result in a better member experience, a merger may be an option to consider.

To read more about recent mergers and find out more about the state of the credit union industry, turn to Callahan & Associates just released 2007 Credit Union Directory.

 

 

 

Nov. 27, 2006


Comments

 
 
 
  • I also disagree that we are giving no thought to why we exist. Funny how the article or the comments neglect to cite increased regulatory burden as a contributing factor to mergers in addition to the inability of our lndustry to effect change to allow credit unions, especially smaller undersized credit unions to raise secondary captal. As an ex-banker and CEO of a small credit union that inherited a credit union with marginal capital, it is definately a challenge to have to increase capital solely through earnings while remaining true to the credit union mantra of offering better rates and fees and balance growth and earnings without a proper mechanism within the regulatory framework to allo for this.
    Stephen Bentley
     
     
     
  • I would disagree that we are giving no thought to why Credit Unions exist. Credit Unions are looking for ways to be able to continue to serve their members changing financial needs. Smaller credit unions are being pressured from all sides, therefore merging with someone else becomes a viable option to serving their members and providing more options to compete..
    Anonymous
     
     
     
  • We're on track to a record breaking year for mergers. While the intent behind mergers are often sold to members as being beneficial, it seems we're just repeating the gobbling up nature of bank world. Are we a few short years away from a nationwide credit union a la Bank of America? Again, it just seems like we're copying the business models of banks without thought back to the reasons credit unions were founded -- to serve as an alternative to banks!
    Anonymous
     
     
     
  • To my friend the ex-banker - one of reasons for our tax exemption is because credit unions must raise all capital via earnings. Regulatory burden - huh? Go low-income and get free money from grants, raise secondary capital, non-member deposits, and opportunity to grow FOM. NCUA Rules and Regualtions are our friend on this one. Mergers happen because of the lack of strategic planning.
    Anonymous
     
     
     
  • This discussion is very interesting and timely, becuase when a group of us CEO do a roundtable on a quarterly basis, the merger question is the first thng that comes up. If it's about serving the member, it continues to be more challenging al all levels to do this and meet the regulatory issues, increaseing expenses, margin squeeze, etc., etc. Are the members being truly served by small credit unions that can't "afford" to raise saving/CD rates because expenses are too highor or they lack the sophistication to provide the products and services their members need? What are we providing to the members with many of us over 10% net worth? I am in a smaller CU and its a challenge every day, but I look forward to it.
    NOT READY TO MERGE