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Sunday, 03 August 2014 22:00

Credit union consolidation continues across Michigan

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Credit union consolidation continues across Michigan SOURCE: MICHIGAN CREDIT UNION LEAGUE

The proposed combination of two Southwest Michigan credit unions furthers a steady consolidation trend in the industry that’s been occurring for several years.

Kalamazoo-based Southwest Michigan Federal Credit Union proposes to merge into Advia Credit Union in Parchment, which itself was created through the January combination of the former First Community Federal Credit Union and E&A Credit Union in Port Huron.

In its latest deal, the 107,000-member Advia Credit Union would absorb the smaller Southwest Michigan Federal Credit Union, which has one office in Kalamazoo and two in the Battle Creek area.

“There is strength in numbers, and this partnership allows us to provide additional return to our member-owners through operational efficiencies experienced in combining our operations,” said Advia Credit Union CEO Cheryl DeBoer.

As of March 31, Southwest Michigan Federal had about 4,467 members and $69.7 million in assets, according to a quarterly report filed with federal regulators. The credit union reported net income of $341,773 for 2013 and $85,045 for the first quarter of 2014.

Advia Credit Union, by comparison, had $1.02 billion in assets and 107,748 members at the end of the first quarter, the most recent period for which reports were available. The credit union, with 21 offices in Southwest Michigan, the Port Huron area, and Wisconsin and Illinois, recorded first quarter net income of $964,281.

The deal is targeted to close later this year, pending membership votes in the fall as well as regulatory approval from the Michigan Department of Insurance and Financial Services, which this year has given final or tentative approval to seven mergers involving credit unions in the state.

Minus the deals that are still pending final approval, the number of state-chartered credit unions has declined to 181 as of June 30 as industry-wide consolidation continued. That compares to 186 just six months earlier, 192 at the end of 2012 and 271 a decade ago, according to the Department of Insurance and Financial Services.

As with the Southwest Michigan/Advia merger proposal, many of the deals over the years involved smaller credit unions merging into larger counterparts, often to generate economies of scale or to access new products for members. The larger credit union in turn gets an expanded footprint or extends its presence into a new market.

David Fernstrum, an attorney with Mika Meyers Beckett & Jones PLC in Grand Rapids who works with credit unions and banks, sees no let up in the consolidation trend that’s largely driven by the high costs of regulatory compliance and needed technology investments to develop and offer services such as mobile banking.

“As long as the regulatory burdens continue, and as long as the demands of the marketplace continue, I don’t see much of an end to it,” Fernstrum said. “If anything, I would expect to see it increase until all of the credit unions have attained a sufficient size that they can provide the services their members want.”

For a credit union of $60 million or so in assets and with perhaps a dozen employees, developing, offering and sustaining a mobile banking product is “completely impossible for such a small organization,” he said.

Among the mergers completed so far in 2014 was Muskegon Consumers Power Employees Credit Union’s consolidation into the Best Financial Credit Union in Muskegon, which received final approval in late June, and Negaunee-based SIR Federal Credit Union’s merger into Honor Credit Union in St. Joseph that took effect June 1.

The merger trend, combined with organic growth, has resulted in larger institutions in Michigan in terms of asset size.

At the end of 2013, 20 credit unions in Michigan had assets of more than $400 million, versus 18 in 2012 and 14 at the end of 2010, according to annual reports by the state Department of Insurance and Financial Services.

The number of smaller state-chartered credit unions ranging from $20 million to $50 million in assets declined from 40 at the end of 2010 to 35 at the end of 2013.

There were just 15 state-chartered credit unions of $5 million or less at the end of last year, compared to 18 three years earlier.

Fernstrum believes the regulatory burdens alone make it only a matter of time before the smallest credit unions can no longer continue operating independently.

“Complying with a phone book’s worth of regulations for an organization of that size is virtually impossible,” he said. “Certainly, we’re not going to see any streamlining of the regulations.”

Read 3491 times Last modified on Sunday, 03 August 2014 15:30

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