The consolidation trend among Michigan credit unions remained strong in 2017, leading to a further reduction in the number of institutions in the state.
Many of the deals that closed last year involved some of the state’s smallest credit unions merging into a larger organization.
Given the high cost of regulatory compliance, the increasing demands of consumers, and the growing need to invest in cybersecurity and digital banking technology, attorney Michael Bell of law firm Howard & Howard PLLC sees the steady consolidation of credit unions continuing, if not accelerating.
“There’s only so much you can do with a certain size,” said Bell, who specializes in credit union transactions. “To do your job properly, you have to be bigger, and I think more consolidation needs to take place.”
Across Michigan, 11 separate mergers involving state- and federally-chartered credit unions took effect in 2017, according to data from the Michigan Department of Insurance and Financial Services.
The consolidation trend reduced the number of state-chartered credit unions alone to 146 as of Dec. 31, down from 155 at the start of the year. Three more credit union deals took effect Jan. 1 and more mergers are pending.
There were 162 state-chartered credit unions in Michigan at the beginning of 2016 and 175 as of January 2015.
As pressure builds and drives some small credit unions to look for a partner, their larger peers are capitalizing on opportunities to add members, assets and office locations.
That was the case for BlueOx Credit Union in Battle Creek, which closed Jan. 1 on a merger with Jackson Community Federal Credit Union and expects to close April 1 on a deal for Tower Family Credit Union in Kalamazoo. Adding Jackson Community and Tower Family extends BlueOx’s footprint with additional locations along the I-94 corridor in Southern Michigan and pushes its membership to more than 20,000 people.
“It works well for us,” CEO Frances Godfrey said. “That’s what you kind of look at when you’re looking at mergers. Combined we’re going to be stronger.”
BlueOx, with assets of $141.4 million and more than 14,000 members, has five offices in the southern Lower Peninsula.
Tower Family Credit Union has a single location and ended 2017 with $8.5 million in assets and 1,042 members in the Kalamazoo area. Jackson had one office and $28.8 million in assets as of Dec. 31 with 4,823 members.
Battle Creek-based Omni Community Credit Union had a similar situation with the merger of Eddy Paper Employees Credit Union in White Pigeon that took effect Jan. 1. Omni Community — with 11 offices in the region, $391.1 million in assets and more than 38,000 members — was contacted by the retiring CEO of Eddy Paper Employees about a potential deal.
Omni Community, which opened a White Pigeon office about a year ago, saw the deal as a quick way to pick up incremental membership locally.
“It was a pretty easy deal,” said CEO Ted Parson. “They didn’t have a lot of options and we wanted to help them out.”
Eddy Paper Employees was one of the smallest credit unions in the state with just 150 members and $522,693 in assets as of Dec. 31, according to a quarterly financial report filed with the National Credit Union Administration.
MORE DEALS AHEAD?
Consolidation among credit unions has been occurring for years. Overall, the number of credit unions in Michigan — both state and federally chartered — declined to 237 as of the third quarter of 2017, down from 274 at the end of 2014, according to data from the Michigan Credit Union League.
Even with years of steady consolidation, Bell of Howard & Howard believes many more mergers are yet to come, especially for smaller institutions. Plenty of pent-up demand remains and Bell estimates that 40 or so small credit unions in Michigan are “ripe” for a merger.
“I don’t see it ebbing and I think it actually needs to increase in speed,” Bell said. “I certainly think this pace will continue, if not grow.”
If a small credit union does decide to seek a partner, it should find plenty of potential acquirers, Bell said. He estimates that a healthy credit union could easily find six or more potential suitors “that would bend over backward to partner with them today.”
That gives credit unions looking for a partner the advantage in working out a deal and enables them to get selective in weighing their options.
“They have more power than they realize in a transaction. If you are a small credit union, I believe you have almost all of the negotiating power and can choose your partner,” Bell said. “There are enough credit unions out there — and Michigan is a state where we have a lot of great, strong credit unions — and they want to grow this way.”