Filene researchers Luis Dopico, Macrometrix, and James Wilcox, UC-Berkeley, took a great deal of care (and time) to analyze the 1984–2008 data on credit union mergers to create the most comprehensive data and analysis on this subject. In Characteristics of Credit Union Mergers: 1984–2008, the researchers found that:
- The National Credit Union Administration (NCUA) has identified 12,485 credit union mergers during 1971–2008 (or 2.3% of credit unions per year), accounting for most of the reduction in the number of credit unions from its peak of 23,866 in 1969 to 8,147 in 2008.
- More than one-third of the credit unions in operation in 2008 had participated in at least one merger during 1979–2008.
- During 1984–2008, credit union mergers transferred members and assets from institutions that, on average, performed less well (the targets) to other institutions that, on average, performed far better (the acquirers)
- The assets of targets totaled $37.3 billion (B) ($46.4B in 2008 dollars) during 1984–2008. Targets held a very small fraction of assets in federally insured credit unions (FICUs), 0.39% per year,and were much smaller than their acquirers, which held 10.27% per year.
- While the overwhelming majority of targets were tiny or very small during 1984–2008 (7,867 targets, or 89.8%, held under $10 million [M] in assets), 20.5% of targets’ assets were concentrated in just 47 medium-sized targets (i.e., with $100M–$1Bin assets).
- Across asset sizes, acquirers have higher noninterest expenses per assets than similarly sized nonmerging FICUs. Some acquirers,smaller ones in particular, seem to use mergers as a key tool to jump-start growth and lower their average cost of operations.
- Voluntary mergers (i.e., mergers that did not receive formal assistance from the NCUA) have been the main mechanism for credit union exits, totaling 8,209 targets, or 2.81% of FICUs annually, and 0.37% of FICU assets annually during 1984–2008.
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While mergers may be listed as ‘voluntary’, very, very few of them are. Having been an NCUA examiner, I have been sent to a CU and TOLD to merge it. (These are always, ‘vountary.’ Even if NCUA requires it. ) Regardless of whether or not it was sustainable. This is simply NCUA’s preferred method of dealing with small problems they consider not worth their time. Too bad, most could have been saved with little or no cost, and not been gobbeled up just to make a minor addition to a megalithic credit union.
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The research team simply reported on NCUA’s database, but you raise a good point. Behind every statistic is a story which is never black or white.
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Researchers only reviewed crime scene. A true CSI team would have interviewed witnesses. Please do follow up and talk to managers and boards of target CU’s. I think you will find that many mergers were result of retirement of loan time manager and a board that was pressured by regulators and sweet talked by acquirer CU’s. Also, look the capital ratio of the target CU’s to see how “unhealthy” they really were. Small CU’s must be perserved. They are not only our poster child of the image we want to project but they are on the front line helping each member by lending on basis of character instead of score. Some “mega” CU’s could have learned from them.
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We are a small credit union that is being pushed into a merger before the Net worth restorage plan can be yea’d or nay’d. We are holding out for NCUA to be the bad guy and are trying to enlist our government officials to look into this trend. I believe it is no more than a way for NCUA of thinning the herd so they don’t have us little credit unions to “deal” with. Once the herd is thinned then the taxing can begin. Remember although NCUA thumps their chest that they are here to “regulate” the credit unions they are still a government entity. By the government and for the governmet. and the government is running out of choices on who to tax. Certainly it will not be the big credit unions with an exemption for the small credit unions. Therefore get rid of the small guys and viola no more worries. EVERY BODY gets taxed. By the way I saw the sub prime lending crash coming months before it happened. I have an insite for disaster and its heading towards taxation of credit uniions.
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Gail…interesting perspectives. I’ve heard similar thoughts from other “small” credit unions. Keep a lookout for more research on the benefits and costs of CU mergers. One thing is for sure…the dynamics of credit union mergers is changing in this complex environment.
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