The cost of compliance may be driving merger activity among credit unions today, but acquiring institutions say those deals you see in the headlines are less about acquisitive strategy and more about perpetuating a 100-year-old philosophy.
Webster First Federal Credit Union in Worcester in May joined forces with Boston-based Industrial Credit Union. Its acquisition of ICU gives Webster a solid foothold in the city of Boston and bumps it up to around $821 million in assets.
Or consider the $1.5 billion Metro Credit Union’s acquisition of Malden City Employees Credit Union last month. That deal added $14 million in assets and 1,500 members to Metro’s books.
And these were not the only credit union mergers approved in Massachusetts this year. The state Division of Banks also approved mergers between Align Credit Union and First Choice Credit Union (August) and St. Jean’s Credit Union with Seaport Credit Union (May).
Last year the division approved an additional four mergers: between Luso-American Credit Union and the Salem Italian-American Credit Union; Merrimack Valley Federal Credit Union and Lawrence Postal Employees Credit Union; Southern Massachusetts Credit Union and SJB Federal Credit Union; and Metro Credit Union and Newton Municipal Credit Union.
A quick look at data supplied by The Warren Group, publisher of Banker & Tradesman, would seem to indicate that none of these deals are being made for strictly geographic, strategic or money-making purposes; many of the credit unions acquired are relatively small players in the mortgage scene, if they dabble in that space at all. According to Warren Group data, Industrial Credit Union made just one purchase mortgage loan this year and refinanced two loans, while the Malden City Employees Credit Union refinanced just one loan this year.
Instead, experts say, there’s something else going on.
300 Per Year
Webster First President and CEO Michael Lussier first got into the credit union industry in 1987. When he started advocating for the industry in 1993 with the National Association of Federal Credit Unions, he recalled, credit unions numbered about 14,000 nationwide.
Today, that number has dwindled to 6,159 federally insured credit unions as of June 30, according to the National Credit Union Administration.
Lussier said that broader changes in consumer banking more generally (for instance, the shift toward adjustable-rate mortgages and ATM banking, which many smaller credit unions found burdensome and expensive) drove much of the consolidation that took place in the 1990s. Today it is regulatory burden and the cost of compliance driving merger activity.
“Institutions have become a lot more complex and a lot more costly to run,” he said.
While Lussier said that Webster First is happy to discuss a potential merger with any small credit union that wants to scale up and continue to serve its membership, it pains him to note that credit unions are vanishing (either through failures or mergers) at a clip of about 300 per year.
In recent years, Metro Credit Union has a couple of mergers per year and it’s done upwards of 50 since its first merger in the 1960s, president and CEO Robert M. Cashman said, but that’s borne less out of a desire to grow his institution than to carry on the credit union movement.
“We’re proud as an institution ourselves to say that we’ve been able to assist those credit unions in being able to perpetuate their offerings and services to their membership through our strategic partnerships,” he said.
Credit unions originated as an alternative to banks, as not-for-profit financial institutions that would happily bank those ethnic enclaves, tradesmen or other populations deemed undesirable by more traditional banks. As the cost of doing business drives greater consolidation in the industry, and as credit unions decline in numbers and increase in size, that has prompted some (particularly in the banking industry) to wonder what differentiates a $2 billion credit union from a $2 billion bank.
Credit union advocates counter that the size and number of credit unions today shouldn’t diminish their value proposition.
“I think we really shouldn’t be focusing on the number of credit unions. We should be focusing on the number of members,” Cashman said. “Regardless of how many credit unions there are, what’s most important is that we have consumers taking advantage of the credit union system.”
Paul Gentile, president and CEO of the Cooperative Credit Union Association, more or less agreed with that assessment.
“A credit union is a credit union, whether it’s $20 million in assets or $2 billion. The size doesn’t change the structure,” he said.
Though he lamented what he characterized as federal regulators’ insensitivity to the plight of smaller community financial institutions, reserving special ire for the Consumer Financial Protection Bureau, Gentile said that consolidation in the industry (and with it, the sometimes increasing size of credit unions) should not dilute the credit union philosophy.
“We’re growing membership, we’re growing assets, and a third of Americans now belong to a credit union,” he said. “I think that’s a great story.”
