The New Normal In Mergers

How many credit unions are merging and what does it all mean?

The first quarter 2014 issue of Credit Union Strategy & Performance features an in-depth profile of Maryland-based Municipal Employees Credit Union of Baltimore City (MECU) and includes first person observations from the credit union’s leadership telling the credit union’s story. Part of that story includes a recent purchase and assumption of a local mutual savings bank, Advance Bank. The actions of the small bank provide some insight into our own credit union industry.

I think there is going to be consolidation because of the cost of regulation and the difficult operating environment that we have been through over the past few years, says former Advance CEO and current MECU vice president of lending, John Hamilton, Size and scale do matter, efficiencies do matter. We are going to have to come to that reality. It’s just a matter of time before we see more consolidation.

When margins are already thin, regulations hurt. They hurt more when they force institutions to alter their business practices, and the costs associated with compliance have risen in the past few years. According to Andy Greenawalt, CEO of compliance software company Continuity Control, the compliance cost-per-quarter has increased significantly. In the third quarter of 2012, the average financial institution spent $26,040. By third quarter 2013, that expenditure was $43,493. And the money spent may not be the largest part of compliance.

Awhite paper published by Western Independent Bankers, a trade association that works with community banks and credit unions, cited a Continuity Control study of 200 community banks and credit unions that found the average lender spends 10% of its time on compliance-related tasks. How have credit unions responded to the increases in regulatory investments and the inefficienciesthey bring?

For All U.S. Credit Unions | Data As of June 30, 2013
Callahan & Associates |


Source: Callahan & Associates’Peer-to-Peer Analytics

According to data from Callahan’s Peer-to-Peer analytics, on average, 245.2 credit unions have merged annually over the past five years. Nearly 90% 89.2% of those 1,226 total credit unions had $50 million or less in assets. The average yearly asset size for merged credit unions during this time frame has fluctuated slightly. For example, 2011 had the fewest mergers but the largest average asset size, $37.3 million. The next year, 2012, had the largest number of mergers but the smallest average asset size, $19.4 million.

Number of credit Union Mergers plus average asset size of merged credit unions over time
For All U.S. Credit Unions | Data As of June 30, 2013
Callahan & Associates |


Source: Callahan & Associates’Peer-to-Peer Analytics

It appears that more, smaller credit unions are merging. However, the data also suggests credit unions are merging less often with big institutions. Over the past two years, there are just 19 instances of a merger involving a $100 million or larger institution. It’s possible that, as John Hamilton said, these credit unions are merging to alleviate some pressures from the regulatory tsunami, but they are also looking for a merger partner who shares or compliments their business processes and core member mission. Credit unions want to not only stay afloat but also make sure their members don’t drown.

May 8, 2014

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