LAKE TAPPS, Wash.—An analysis of credit union mergers in the fourth quarter of 2024 reveals some interesting—and concerning—trends, CEO Advisory Group reports.
The data reveal a decline in both the number of approved transactions and the total asset size of merging institutions. However, on an annual basis, assets acquired are up by 58% compared to 2023, and the number of announced mergers annually grew by 12% to 162 for the year.
The data also show that an increasing number of credit unions are merging because of losses, said CEO Advisory Group’s Glenn Christensen.
The NCUA approved 41 mergers in Q4 2024, a slight decrease from the 49 mergers that occurred in the previous quarter. The combined assets of merged credit unions total $2.7 billion, which compares to $4.9 billion last quarter and $2.1 billion in Q4 2023. The mean and median assets of merged credit unions are $66.2 million and $12.5 million, respectively.
Large Credit Union Acquirers
There were two acquisitions of credit unions with assets exceeding $250 million this quarter. Both of these mergers were among California based credit unions.Pasadena based LA Financial with $556 million in assets merged into $3.4-billion Credit Union of Southern California, which is based in Anaheim. Whereas $510-million SafeAmerica Credit Union merged into $3.5-billion Nuvision FCU, which is based in Huntington Beach.
Glenn Christensen
“Nearly half of the acquiring credit unions have assets exceeding $1 billion,” said Christensen. “On the other side of the spectrum, there are 10 credit union acquirers with assets below $100 million for Q4. Combined, the acquiring credit unions had $60 billion in assets, with an average asset size of $1.5 billion.”
The acquired credit unions on average represent 11.8% of the assets of the acquiring credit unions.
“There are five credit unions with less than $1 million in assets being acquired. The smallest credit union merger partner is St. Paul A.M.E. Zion Church Credit Union, based in Cleveland, with assets of $231,000,” Christensen said.
Reasons For Credit Union Mergers
Christensen reminded that when seeking regulatory approval, credit unions are required to cite the reason for the merger.
“Twenty-five of the Q4 transactions listed (see chart below) expanded services as the reason for the merger. However, one in five cited poor financial condition or poor management,” Christensen said.
The financial performance of the acquired credit unions could be characterized as mixed, Christesen said.
“The median net worth ratio of the merging credit unions is 12.5%, indicating good capitalization. However, there are seven credit unions that have net worth ratios below 7%, which is considered undercapitalized,” he reminded.
Other financial performance indicators present a similarly mixed view, Christensen said.
“The delinquent loans-to-total loans ratio averages 2.4%. The mean return-on-assets (ROA) was negative 0.72% in the last 12 months, and the median was negative 0.34%,” Christensen said. “More concerning was that well over half of the 41 merging credit unions—a total of 25—reported negative earnings in the last 12 months.
“It is concerning when we see increasing numbers of credit unions merging because of losses,” continued Christensen. “Credit unions that experience multiple years of negative net income are one of the driving factors for mergers. The losses can be attributed to a number of factors, including new leadership at the credit union, increased risk taking, changes in the economy, charge-offs, and increased regulatory and cost pressures. It is important to note that a number of credit unions showing negative income have simply loaded expenses into their income statements in advance of a merger.”
Below is a chart of the NCUA merger approvals for Q4 2024:
CU Acquisitions Of Banks
Bank consolidation proceeded at a slightly slower pace than credit union mergers in Q4, with a total of 30 whole bank acquisitions announced in the final period of the year.
“Credit unions are the acquirers in six, or one in five of these announced bank acquisitions,” Christensen said. “In total, the banks being acquired had assets of $3 billion, which is greater than the $2.7 billion acquired in credit union to credit union mergers in the fourth quarter.”
The deal terms were not announced in any of the credit union acquisitions of banks. Among all bank acquisitions reporting deal terms, the price/tangible book was 138%, Christensen said.
For all acquired banks, the average ROAA was 0.70% with only four reporting a negative ROAA the last 12 months before the announced M&A transaction, Christensen said.
Below is a deal summary of the credit union acquisitions of banks and a summary of all bank transactions in Q4: