Conventional wisdom about mergers is that they reduce operational costs. And why wouldn’t they? After all, they assume advances...
Aug 12 2009
Characteristics of Credit Union Mergers: 1984-2008
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.
Report Number 193