By Ray Birch
LAKE TAPPS, Wash.—As CUToday.info’s ongoing coverage of credit union mergers continues to reveal, there has been no slowdown in the pace of the consolidations—and a new report suggests not only will that continue but the size of CUs involved in mergers will grow, as well.
The findings are included as part of a new report from Glenn Christensen of CEO Advisory Group. The analysis found the size of credit unions involved in mergers has been markedly growing, especially in 2020 and 2021.
“The pressures to be a competitive credit union continue to mount as the average asset size of a credit union approaches a half-billion dollars,” stated Christensen. “That is driving the increase in size of credit unions choosing to merge out, or merge as an equal, to achieve the scale to compete.”
The numbers reveal the average asset size of a CU was $413.2 million in 2021, up from $358.5 million in 2020. (CUNA Mutual Trends Report data for year-end 2021 show the median asset size of a U.S. credit union was $46.5 million, up 24% over the 2020, indicating the loss of smaller credit unions.)
By 2030, Christensen’s data forecast the average size of a CU will be $1.274 billion and $4.696 billion in 2040, when there will be 2,567 CUs remaining in the United States, he is predicting.
“A lot of mergers are happening this year, and there are many drivers behind that,” said Christensen. “Part of it is we're finally getting out of COVID. And I think credit unions are reevaluating where they are strategically—if it makes sense for them to continue as an independent, or does it make more sense to partner with someone?”
While many of the CUs on which CUToday.info has reported have said they feel they have no choice but to merge due to their limited asset size, Christensen said some among the 41 mergers that took place in Q1 did not occur due to a financial hardship.
“A number are just strategically looking at the future,” he explained. “Of those 41, interestingly, six of the credit unions merging out had more than $200 million in assets. The average size of credit union mergers just continues to increase.”
A Peach State Example
For example, as CUToday.info reported, in Georgia during Q1 the $242.6-million United 1st Credit Union announced plans to seek a merger into the $3.4-billion Georgia’s Own Credit Union in based in Atlanta. United 1st reported $1.95 million in net income on its year-end 5300 Call Report, with net worth of 9.16%.
Also during the first quarter, Stockton, Calif.-based, $207.5-million Premier Community Credit Union said it plans to merge into the $1.78-billion Self-Help FCU. Self-Help is based in Raleigh, N.C., which also has operations in California. Premier Community has approximately 9,800 members, while Self-Help FCU has approximately 94,400.
In its disclosure to members filed with NCUA, PCCU said the merger is “desirable and in the best interests of members in order to expand access to affordable financial services, products, and branches. Most immediately, this merger will enable Premier members to apply for expanded offerings of residential home loans.”
Premier Community reported a loss of $42,448 at year-end 2021, with net worth of 7.54%. Self-Help FCU reported net income of $21 million and net worth of 15.17%.
Merger Partners Grow in Size
“If you look back only a few years you would not see even close to the number of $200-million credit unions merging out that we are seeing today,” said Christensen. “I just think it’s becoming much more common for the medium-size credit union to say, ‘It's hard to be a $200-million credit union. It's hard to truly make an impact in our markets, and wouldn't make more sense if we were to consolidate with a larger credit union.’ I think more of those strategic questions are getting asked.”
Christensen pointed to three $500-million credit unions that merged out during Q1.
“I just think that further illustrates the emphasis being placed on size and scale in order to provide the growth opportunities that are necessary,” said Christensen. “Especially with membership growth. We see a lot of credit unions that are still struggling with membership growth.”
As CUToday.info has regularly reported, NCUA data show the large credit unions are accounting for the majority of the movement’s membership growth while the smaller ones are losing members.
“I believe at some point the credit union boards begin asking themselves do we have the right business model. Do we have some financial strength to continue?” said Christensen. “I just think more credit unions are recognizing the value that can be brought through greater scale.”
A Fading Stigma
Christensen said an old “stigma” associated with mergers, that the deal indicates a credit union has failed its membership, is fading.
“That stigma that was once associated with mergers is disappearing, and boards are looking favorably on what a merger can do for the members,” he said. “From the conversations that I am hearing, I think we will see an increase in the pace of credit union mergers going forward. And we're going to see more larger mergers.”
Finally, Christensen added the pandemic led to many older credit union CEOs to evaluate their futures and opt for retirement.
“And many of the smaller credit unions have no succession plans in place,” he noted.