The latest proposed credit union merger in Michigan involves two growing institutions that come into the deal from positions of financial strength.
The combination of First Community Federal Credit Union in Parchment, north of Kalamazoo, and E&A Credit Union in Port Huron would create a credit union with more than 100,000 members and nearly $1 billion in assets.
“Both of our credit unions already operate strongly individually. Our combining forces will make us one of the strongest credit unions nationally, allowing us to be able to operate with greater efficiency to be able to give back to our member-owners in the form of better technology, innovative services and with great deposit and loan rates,” states information about the deal posted on the websites of both credit unions.
Creating greater operating efficiency through a larger operation is one of the key drivers of credit union mergers nationally, said Kenley Penner, a partner at Plante Moran’s St. Joseph office and head of the firm’s credit union practice.
Federal regulations are expected only to toughen in the years ahead, pushing compliance costs up and potentially forcing even healthy but smaller credit unions to look at partnering to generate economies of scale. There’s no clear consensus within the industry on whether $500 million or $1 billion in assets, or even higher, is the “magic point” to achieve economies of scale needed to carry the added fixed costs of regulatory compliance, Penner said.
Penner sees consolidation continuing, resulting in larger institutions that are better able to navigate a costlier regulatory environment, he said.
“We’re going to see a lot more mergers in the next half-dozen to a dozen years,” he said. “It’s going to be tough for the $50 million, $60 million and $70 million institutions to survive.”
Since the end of 2009, the number of state- and federally-chartered credit unions in Michigan declined from 333 to 303 at the end of the first quarter, according to the National Credit Union Administration (NCUA).
In instances where larger institutions combine, such as the First Community-E&A deal, credit unions simply decide that larger is better, Penner said.
“There are a lot of credit unions that say, ‘We want to stretch our boundaries a little bit,’” he said. “This is just two pretty healthy credit unions deciding, ‘It’s going to better for our members if we combine.’”
First Community Federal Credit Union has 17 branches in Michigan, Illinois and Wisconsin. The credit union’s first quarter report filed with the NCUA listed assets of $704.6 million, 71,831 members and quarterly net income of $1.1 million for the first three months of 2013.
E&A Credit Union listed assets of $278.3 million, 35,370 members and net income of $1.1 million, according to its quarterly NCUA report.
“This partnership will allow our credit union to compete with even greater success in the financial services industry, continue to attract new members, offer enhanced services to members and provide employees opportunities for career growth,” said First Community President and CEO Cheryl DeBoer, who will become chief executive of the new credit union. “The collaboration will provide the capital and human resources, expertise and product range of a much larger organization, while enhancing our outstanding credit union model as a state-chartered not-for-profit financial institution.”
The merger is pending regulatory approval and a vote by First Community members. The two credit unions hope to close the deal later this year. If approved, the merged credit union will operate under a new name.
The deal continues the steady stream of credit union mergers over the past several years. Many of those deals often included one that was in distress, or an institution absorbing a much-smaller credit union.
That was the case in Kent County where North Kent Catholic Credit Union in Grand Rapids, with one location and just $1.7 million in assets, this spring sought regulatory approval to merge into the $84.0 million AAC Credit Union, which has offices in Grand Rapids, Spring Lake, Holland and Zeeland.
SIDEBAR: Rise in credit union membership, loans continues
Credit union membership and loans in Michigan hit all-time highs during the first quarter of 2013.
Membership increased by 15,776 from January to March to 4.56 million, according to data compiled by the National Credit Union Administration. Forty-six percent of Michigan residents are now credit union customers, versus 30 percent nationally.
The period represented seven straight quarters for membership growth, a stretch that saw credit unions add more than 125,000 members, according to the Michigan Credit Union League.
In other highlights from the quarterly credit union profile for Michigan:
- Business loans to credit union members grew 6.9 percent from the fourth quarter of 2012 to $1.08 billion.
- Deposits increased 4.1 percent to $39.76 billion at the end of March, from $38.19 billion at the end of December.
- Total assets among the state’s 303 credit unions increased 3.6 percent to $45.98 billion as of March 31, from $44.35 billion at the end of December.