Merger Update: 2005 Activity

There were 302 approved mergers in 2005. How did merger activity compare to 2004?


After all of the talk surrounding merger activity given slower growth and tighter margins in credit unions, 2005 turned out to be a year of more of the same as the credit union industry continued to consolidate at about a three percent rate. Although credit unions of all sizes have had merger conversations and/or contemplated the idea, there were 302 approved mergers in 2005 versus 331 in 2004. Total merged assets increased to $3.5 billion from $3.1 billion in 2004, as the average merged credit union had $11.7 million in assets versus $9.3 million in 2004.

Here are the quick stats on the 2005 approved mergers:

  • Largest merged credit union: Citadel FCU (before $681M in PA) merged with Atlantic FCU ($290M in PA). Citadel FCU had $1.0 billion in assets as of the third quarter 2005.
  • Smallest combined merger: Servco FCU (before $817,796 in PA) merged with GTC FCU ($121,351 in PA). Servco FCU had $765,909 in assets as of the third quarter 2005.
  • Merged credit unions over $50M: 16 in 2005 versus 11 in 2004.
  • Merged credit unions between $20M – $50M: 21 in 2005 versus 20 in 2004.
  • Merged credit unions between $10M – $20M: 23 in 2005 versus 39 in 2004.
  • Merged credit unions less than $10M: 241 in 2005 versus 261 in 2004.
  • States with the most mergers: Ohio (27), Pennsylvania (19), and New York (19).
  • Merged credit unions as a percentage of industry: 3.28 percent in 2005 versus 3.46 percent in 2004.

Where Are Mergers Headed?

Are credit union mergers inevitable or can small credit unions survive and continue to provide excellent member services? Economies of scale are a significant factor pushing smaller credit unions to join larger institutions. Members are demanding a wide range of products and services and want easy access to branches and/or ATMs. While smaller credit unions continue to play a significant role in the industry, several are finding it difficult to compete with minimal marketing budgets, margin pressures and historically low growth. Can state leagues, CUSOs and/or networks replace the need for size by leveraging the capability of multiple credit unions, or are economies of scale the trump card?

As credit union executives contemplate potential mergers, there are synergies that can be measured. Areas of evaluation include financial performance, credit union philosophies, balance sheet compositions and product mixes. The ultimate driver of any merger discussion though is how it can enhance the value that members receive.




Feb. 13, 2006


  • Largely in response to the Financial Accounting Standards Board’s plans to adopt the purchase method of accounting for business combinations by non-profits, including credit unions, the rate of mergers may double over the next twenty-two months. Merger-seeking credit unions have an incentive to act now while the current more favorable rules are still in effect. In addition to the pending FASB rule, credit union leaders’ exhibit increased recognition that economies of scale have become strategically compelling. Pressure on earnings margins and the anticipated flood of retiring CEOs are additional factors driving increased mergers between healthy credit unions.
  • While I think it is interesting that over 300 credit union merged, the statistics indicate that credit unions are not doing anything significant to improve their competitive position versus other financial service providers. Most of the mergers are between credit unions that are very small and the resulting institution is still too small to compete effectively. In the the Sacramento area there are 67 financial institutions. The top five have 58% of the deposit market share and the top ten have 75% of the market share. All of the top ten have at least $1 billion in deposits. This is a business of scale and in order to offer competitive financial services you either have to have significant market presence in terms of market share or you have to have alternative strategies. Credit Unions are no longer as competitive in our market as they were when they had strong sponsor relationships. In the last two years credit unions have ceded market share to the banks. I think Credit Unions have to either merge to create larger institutions or they have to aggregate under a common brand and share significant support services in a manner similar to what the hardware stores have done under the ACE cooperative brand name. It is not likely that credit unions will merge on a large scale. The democratic structure of credit unions is an impediment to mergers because members are largely disinfranchised in all but the crisis decisions such as the one faced by Columbia Credit Union. Members instead vote their preference by moving their balances to other institutions. The high capital ratios of credit unions allows management and the Board to hang on even as market share declines. Merger decisions are largely in the hands of the Board and management and they are not likely to give up control unless they are the surviving credit union. That leaves the ACE Hardware model. No one in the credit union world is paying much attention to that either. Its unfortunate that credit unions are willing to give up their signficant place in the financial services marketplace to preserve individual privileges for Board and management.
  • What's happening in the credit union business is just what has happened in so many others before it. Indeed we see it happening with the banks now where small banks are gobbled up by regionals, and regionals become super-regionals or nationals. It's all about consolidation and economies of scale: larger institutions can better weather hard economic times and are able to offer a fuller range of services, and often for less. It's unfortunate that many smaller credit unions lose their individuality during mergers, but in the end, the members are generally better off.