A Merger Slowdown

The 230 CU mergers in 2010 represent the second fewest in 30 years.

May 01, 2011
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Finding ‘franchise value’

Western Federal Credit Union, Manhattan Beach, Calif., takes a different approach. The $1.6 billion credit union examines potential merger partners to find untapped opportunities within their fields of membership and add diversity to its SEG base.

“We almost never try to maximize savings in the short term,” although Western Federal still seeks long-term efficiencies, President/CEO John Bommarito says. “We try to find the franchise value in the opportunity and incorporate it into our existing business model.”

A 2009 merger with $20 million asset Channel Islands Federal Credit Union, Oxnard, Calif., formerly known as Oxnard Municipal Employees Credit Union, highlighted the value of serving municipal employees.

“Channel Islands turned out to have a very stable membership that was growing even in a troubled economy,” Bommarito says. So Western Federal began looking for additional municipal credit union mergers, completing a purchase-and-assumption merger with
$88 million asset Oakland (Calif.) Municipal Credit Union in February 2011.

Serving diverse employee groups enables Western Federal to target services to specific markets across branch operations in 10 states. For example, Western Federal hopes to expand business lending in California’s Ventura County while offering loan and deposit products that will attract members who work for three major manufacturers in Siloam Springs, Ark.

“Growth through mergers hasn’t been our primary objective; we like how our balance sheet stacks up with enough capital to take on risk when the time is right to do so,” Bommarito says. While composite cost savings are appealing, Bommarito places a higher value on finding market opportunities that can be integrated into Western Federal’s list of “priority markets” where it can compete and succeed.

“Meantime, our already diversified book of business—a key element of our business model that we crafted during the industry’s flight to community charters—grows incrementally,” Bommarito says. This model helps protect the credit union from a downturn in any single industry or geographic region. By avoiding a “runaway balance sheet,” it can supply those markets with capital and expense load and watch them grow, steadily and methodically, he says.

Delayed action

Bommarito predicts that even a small improvement in the economic outlook could cause an additional drop in merger activity because it will give hope to struggling credit unions.

An economic rebound is likely to benefit credit unions with a sound business plan,
but experts say it will only delay the inevitable for credit unions with unsustainable business models.

“Even after the pressures of the recession and the financial crisis begin to fade, we’ll probably still see continued consolidations because the economics just favor it,” Mooney adds.  



Small credit unions can thrive by seeking merger alternatives, according to Frank Michael, president/CEO of $18 million asset Allied Credit Union, Stockton, Calif., and chairman of CUNA’s Small Credit Union Committee.

Michael says small credit unions can:

  • Collaborate on compliance. Some leagues hire a compliance officer who then works for small credit unions on a fee basis for a specific number of days per month. Credit unions also can work together informally to tackle compliance requirements.
  • Share leadership and expertise. The need to replace a retiring CEO can prompt a merger, but small credit unions can share a CEO and other expertise. For example, Michael runs a credit union service organization that delivers data processing services to five other small credit unions.
  • Accept help. Assuming large credit unions have ulterior motives causes some small credit unions to reject offers of assistance.
  • Nurture the board. Continually recruit directors and recognize their efforts so they want to remain active. Encourage directors to participate in education and networking programs so they can put critical comments from examiners into perspective.
  • Focus. Concentrate on critical services such as lending, rather than trying to do it all.
  • Explore shared branching. Allied’s branch ranks 10th among participants in the Financial Service Centers Cooperative network based on usage by members from other credit unions. This enables Allied to continue offering highly personal member services.
  • Merge small-to-small. Instead of surrendering control to a large credit union, consider merging with another small credit union. Allied is currently merging with a $2.5 million asset credit union at the request of its board.

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