ALEXANDRIA, Va.–More than 30 credit unions have recently filed paperwork with NCUA announcing plans to merge, according to the latest review by CUToday.info, which again found wide disparities in CUs returning net worth to members (not that many), several CUs seeking to merge in multiple other CUs at once, combo’s in which the merging and acquiring CUs are both losing money, and several examples of credit unions reaching across state lines and even the country with merger partners.
In one case, a credit union that launched with great fanfare just three years ago said it can no longer make a go of it.
Given the number of credit unions seeking to merge, CUToday.inf—which has been providing the only ongoing, comprehensive review of CU mergers--has broken its analysis and review into three parts. Throughout this series readers will find varying messages in the disclosures to members that are required by NCUA. In some cases there are lengthy explanations and details provided, but in most cases there are not. A common theme among smaller CUs is they can’t compete, especially in technology, and once again a number of credit unions say they have been struggling to find new leaders and board members (one CU told members a new CEO hire had “failed to perform as expected”).
Another credit union told its members there would be no net worth distribution, even though it had higher net worth than the acquiring CU, because “ownership will transfer.” Another CU with 32% capital told members there would be no distribution of those funds because the acquiring CU had “already paid for” services the new members would be getting.
And in one case the former CEO and several former board members of one credit union continue to publicly object to that CU’s plan to merge, and are calling on members to vote no.
Additional Findings
The review further found:
- Long-Distance Mergers: One Illinois CU is seeking to reach into Georgia with a merger, while a California-based CU is separately seeking to merge in a credit union in North Carolina.
- Unique Names Disappearing. Among the names that will disappear if mergers are approved are The Hub Co. CU and Bear Paw CU.
- Red Numbers, Black Numbers. One credit union that posted negative net income at mid-year is proposing payouts of more than $500,000 to three members of the management team as part of the merger.
- Under the Weather. Weather Bureau FCU said it is seeking to merge not only to provide more products and services to members, but also because its board and management team plans to retire.
Here is a look at the first cohort of credit unions looking to merge:
Prayers From One Saint Aren’t Answered
Merging Credit Union: St. Dominic’s FCU, Swansea, Mass.
Assets: $31.7-million
Members: 2,171
Year Chartered: 1962
Date of Member Vote:
Acquiring Credit Union: Somerset FCU, Somerset, Mass.
Assets: $203.8 million
Members: 11,100
St. Dominic’s told its members the proposed merger is desirable and in the best interest of the members because the merger would “allow us to better serve the financial needs of the membership and strengthen the financial position of the continuing credit union to ensure long-term sustainability, improving our ability to compete with larger financial institutions. The combined resources will provide a wider branch network and expanded products and services to meet the evolving technological needs of our members.”
St. Dominic’s CU said it will not distribute any capital to members and did not indicate any merger-related payouts would be made to members or board.
St. Dominic’s reported a loss of $68,054 for the first half of the year, with capital of 14.02%. Somerset FCU posted $336,766 in net income over the first two quarters, with capital of 11.32%.
In Alabama, End to a Legacy
Merging Credit Union: 1st Resource Credit Union, Birmingham, Ala.
Assets: $49.4 million
Members:2,474
Year Chartered: 1940
Acquiring Credit Union: Legacy Community FCU, Birmingham, Ala.
Assets: $600.7 million
Members: 38,129
1st Resource CU told its members the merger was desirable because Legacy Community CU offers “increased and expanded ranges of products and services” and has “substantially greater resources” to serve members and support staff needs. That includes making eight additional branches available, 1st Resource said.
1st Resource said there will be no distribution of net worth because Legacy Community will have to absorb the cost of vendor obligations related to contract terminations.
The credit union said there will be no merger-related compensation paid to management or the board.
1st resource CU reported $225,482 in net income for the first six months of the year with capital of 10.48%. Legacy Community CU reported $1.659 million in net income with net worth of 11.98%.
Vermont CUs Seek to Merge (Over Objections of One Former CEO)
Merging Credit Union: Vermont State Employees CU, Montpelier
Assets: $1.092 billion
Members: 71,028
Year Chartered: 1947
Date of Member Vote: Nov. 8
Acquiring Credit Union: New England FCU, Williston, Vt.
Assets: $1.968 billion
Members: 96,661
In its disclosure statement to members filed with NCUA, VSECU—whose former CEO and several former board members have raised high-profile objections to the proposed merger--said in listing its reasons for seeking to merge, “The Board of Directors has a legal and fiduciary duty to act in good faith and in the best interests of VSECU's membership. In carrying out these duties, our Board of Directors has concluded that the proposed merger is beneficial and in the long-term best interest of members today and for future generations. Although both credit unions are financially strong, they face many of the same obstacles and challenges, including an aging Vermont population with slow to no growth; rapid and accelerated technology challenges; environmental, economic, and social change; and increased competition from out-of-state financial institutions.
“By combining VSECU and NEFCU’s collective 135+ year experience in servicing Vermonters and shared mission of empowering and improving the lives of members, the combined institution will continue to offer a local alternative to big banks more in-touch with the financial needs of its membership while being better equipped to tackle the challenges facing financial institutions in a rural state,” the statement continued.
Additional Benefits Cited
VSECU said the merger will also provide expanded branch and ATM access; improved homeownership and financing initiatives to reduce energy consumption and environmental impact; increased investment in business intelligence and digital and app development; improved information technology and data infrastructure; improved financial initiatives and assistance for early-stage and small businesses, including merchant and payroll services; expanded and improved financial education; more efficient operating costs, and favorable rates and lower fees to members.
VSECU said that if approved, five of its board members would join an 11-member board. NEFCU CEO John Dwyer would be CEO of the merged CU; VSECU CEO Robert Miller would be president/COO.
Financial Performance
As of June 30, VSECU reported $4.523 million in net income, with capital of 9.22%. Although it is nearly twice the size of VSECU, New England FCU posted net income of $2.821 million, with capital of 11.89%.
Merged CU Would Retain Its Brand
Merging Credit Union: Borger FCU, Borger, Texas
Assets: $19.8 million
Members: 2,097
Year Chartered: 1950
Date of Member Vote: Nov. 10
Acquiring Credit Union: Santa Fe CU, Amarillo, Texas
Assets: $158 million
Members: 10,531
Borger FCU told its members the merger is in their best interests because it will provide “strength and stability in leadership,” and that Santa Fe FCU will allow Borger FCU to maintain its name and identify. The result will be economies of scale, more locations and services, BFCU said.
Borger FCU said it will not distribute any of its net worth as part of the merger and that there are no merger-related financial arrangements for board or management.
At midyear, BFCU reported $16,787 in net income, with capital of 11.38%. Santa Fe CU posted $371,266 in net income, with capital of 12.75%.
Lack of Sponsor Support, Retiring CEO Cited
Merging Credit Union: Warren CU, Waterloo, Iowa
Assets: $5.1 million
Members: 830
Year Chartered: 1959
Date of Member Vote: Nov. 14
Acquiring Credit Union: Veridian CU, Waterloo, Iowa
Assets: $6.3 billion
Members: 299,529
The board of Warren Credit Union told its members the merger is necessary as there has been a lack of support from the sponsor, its CEO is retiring and it has been unsuccessful in finding a successor, and there has also been “little interest” from individuals in running for board seats.
While the WCU office will close, it said members will find Veridian’s office 1.3 miles away, and then will have access to eight standalone branches plus three more inside Hy-Vee’s stores. There will also be improved digital access, it said.
Warren CU said it does plan to pay out a portion of its capital in excess of that of Veridian CU’s capital in two steps: Interest paid on loans in 2021 will be returned to members, and then remaining excess capital will be distributed on a pro rata basis according to dividends earned in 2021.
Warren Credit Union reported $13,311 in net income over the first two quarters of the year, with capital of 20.30%. Veridian CU showed $31.44 million in net income (five times the acquired CU’s assets), with capital of 10.67%.
In Wyoming, ‘Better Products & Services’ Are Offered
Merging Credit Union: Sweetwater FCU, Rock Springs, Wyo.
Assets: $22.4 million
Members: 1,517
Year Chartered: 1960
Date of Member Vote: Nov. 16
Acquiring Credit Union: WyHy FCU, Cheyenne, Wyo.
Assets: $349.1 million
Members: 20,546
In its message to members, the board of Sweetwater FCU said the merger will offer better pricing and services, additional products, enhanced convenience and access, and lower operating costs. It said its one branch will remain open after the merger.
Sweetwater said there will be no share adjustment as its net worth ratio is lower than that of WyHy FCU, and it is going to incur costs as a result of the merger.
Sweetwater FCU reported a net loss of $68,259 through mid-year, with capital at 8.54%.
CU Sees Chance to Engineer Its Future
Merging Credit Union: Engineers FCU, Little Rock, Ark.
Assets: $1.9 million
Members: 365
Year Chartered: 1992
Date of Member Vote: Nov. 16
Acquiring Credit Union: Telcoe FCU, Little, Rock, Ark.
Assets: $443.6 million
Members: 22,887
“Our credit union has been successful, but faces continual challenges to grow,” EFCU told its members. “The credit union’s size makes it difficult to keep up with new regulations and compliance needs. The size also limits our ability to offer services that will reach our members wherever they live or work. Providing the products and services that members want and deserve is expensive and a challenge at our size and scale. By acting while the credit union is successful, we maintain control of the decision about who we want to merge with.”
The disclosure docs outlined numerous new services members will get as part of the merger.
Although it has capital of 18.63%, Engineers FCU indicated there would be no special dividend paid to members because Telcoe FCU’s capital is even higher. It said no one would receive merger-related compensation.
At mid-year, EFCU reported $647 in net income. Telcoe FCU posted $1.724 million in net income with capital of 21.48%.
Merger Would Provide Checking, ATMs
Merging Credit Union: Clarke Community FCU, Grove Hill, Ala.
Assets: $3.096 million
Members: 707
Year Chartered: 1959
Date of Member Vote: Nov. 17
Acquiring Credit Union: Azalea City CU, Mobile, Ala.
Assets: $435.6 million
Members: 3,872
The board of Clarke Community FCU told the membership the merger is desirable because Azalea City CU offers a “wide array” of services that it does not, including checking accounts, ATMs and the ability to conduct cash withdrawals.
Despite capital of 21.07%, CCFCU said it will not be paying out any of the net worth due to the fees related to cancelling IT contracts, “merger costs and adjustments for fair value.”
Clarke Community reported a loss of $4,495 at mid-year. Azalea City CU posted $200,280 in net income, with capital of 13.26% as of the same date.
In Iowa, a Merger into a Smaller CU
Editor's Note: The report below has been upddated to correct the original report, which incorrectly stated CENT Credit Union was merging with North Iowa Community Credit Union. It is merging with N.W. Iowa CU.
Merging Credit Union: N.W. Iowa Credit Union, Le Mars, Iowa
Assets: $87.6-million
Members: 5,193
Year Chartered: 1956
Date of Member Vote: Nov. 19
Acquiring Credit Union: CENT CU, Mason City, Iowa
Assets: $72.2-million
Members: 5,988
The merger between N.W. Iowa Credit Union and CENT CU is unusual in that the surviving institution is smaller than the CU it is acquiring, and has half the members.
NWICU told its members the merger is in their best interests because both CUs are well-operated, financially sound and share a common service culture. “By merging, both eliminate double expenses and fees on regulatory, bond, trade association, insurance, vendor and core operating systems,” NWICU stated.
It said there are no plans to distribute capital, as the net worth of the two CUs is roughly equal.
N.W. Iowa CU posted $430,450 in net income at mid-year, with capital at 9.9%. CENT Credit Union reported $275,000 in net income at mid-year with capital of 11.93%.
CEO ‘Failed to Perform as Expected’
Merging Credit Union: Potomac FCU, Cumberland, Md.
Assets: $34.7 million
Members: 3,826
Year Chartered: 1954
Date of Member Vote: Nov. 21
Acquiring Credit Union: WEPCO FCU, Bloomington, Md.
Assets: $330.4 million
Members: 34,056
In explaining why it needs to merge, Potomac FCU said its having trouble finding a leader.
“As with many business(es), we have experienced difficulty in hiring a new, competent chief executive officer upon the retirement of our long-time CEO in 2020,” the credit union said. “After an exhaustive employment search, we hired a new CEO who failed to perform as we expected; therefore, her employment was not renewed. Our long-time, extremely competent number-two person, Sue McMahon, wanted to retire when our long-time CEO retired, but agreed to stay on to ensure a smooth transition. When the new CEO’s employment contract was not renewed, Sue agreed, once again, to delay her retirement until a merger with another credit union could be consummated.”
Potomac Federal said the board interviewed credit unions across its market that were larger and which would meet its needs and provide the same level of service. It concluded WEPCO was the best partner, it said.
“WEPCO is large enough to offer six additional member service branches and a full menu of additional products and services, many of which are conveniently delivered electronically, and yet they are small enough to know their members and give quality financial services,” the CU said.
PFCU said there will be no share adjustment related to the merger. It will pay McMahon, whom it noted has more than 51 years of experience, $204,000 as part of an additional two-year term of employment.
Potomac FCU reported a net loss of $306,342 at mid-year, with capital at 9.82%. WEPCO reported $2.117 million in net income, with capital of 10.85%.
Prior Reporting
CUToday.info has the most extensive reporting available on credit union mergers. Here are links to earlier reports:
Jan. 12
March 16
April 26
https://www.cutoday.info/Fresh-Today/What-Review-of-Latest-CU-Merger-Proposals-Reveals-Part-I
April 27
https://www.cutoday.info/Fresh-Today/What-Review-of-Latest-CU-Merger-Proposals-Reveals-Part-II
May 17
May 18
June 8
https://www.cutoday.info/Fresh-Today/Here-s-What-Latest-Disclosure-Forms-on-Proposed-CU-Mergers-Reveal
June 28
https://www.cutoday.info/Fresh-Today/A-Deceased-CEO-A-Big-Staff-Departure-No-Payout-Despite-High-Capital-A-We-Like-Them-Partner-Here-s-the-Latest-on-8-Proposed-CU-Mergers
Aug. 11
Aug. 10
https://www.cutoday.info/Fresh-Today/Challenges-Very-Difficult-to-Overcome-on-Our-Own-What-CUs-are-Saying-About-Mergers-Part-II
Aug. 9
https://www.cutoday.info/site/Fresh-Today/Missing-Documents-No-Payout-to-Members-due-to-Payout-to-Employees-More-What-Latest-CU-Merger-Disclosures-Reveal-Part-I-in-a-Series
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