Reasons for current credit union mergers vary, industry officials say

Wichita is the center of credit union merger activity in the state right now.

Leading that merger activity is Mid American Credit Union, which in one week’s time in early August announced it was in merger talks with Veterans Administration Credit Union in Wichita and New Century Credit Union in Topeka.

And those disclosures came about 1 1/2 months after Wichita-based Central Star Credit Union said it was planning to merge with Golden Plains Credit Union in Garden City.

Officials from the credit unions have said a number of factors were driving each deal. The one factor present in each deal was smaller credit unions seeking a larger partner to grow their membership or to offer more services that they couldn’t afford to offer on their own.

Jim Holt, CEO of Mid American, said his $230 million credit union had made mergers part of its strategic growth plan before the latest recession hit.

“I think in our case … we have come through the recession stronger than we went in,” he said. In both of Mid American’s merger deals, it will be the surviving institution. Those deals are progressing as planned, he said, with members of all three credit unions set to vote on approving the two mergers on Oct. 23. Holt expects the VA Credit Union merger to be completed this year and the New Century deal next year.

Lee Williams, CEO of Central Star, said it’s getting harder for smaller credit unions to operate because they don’t have the economy of scale to as easily absorb the cost of new regulation and fraud. That’s why the $74 million credit union looks to join with Golden Plains, a $449 million credit union based in Garden City.

That merger is expected to be completed in mid-December, Williams said.

She said that with data breaches at big retailers – such as Target and Home Depot – on the rise, so are the costs to financial institutions. She said when Central Star members’ account information is compromised in those breaches, it has to re-issue debit cards from the affected accounts – at a cost of $5 to $7 for each affected account. And, she said, Central Star has to absorb members’ monetary losses with each breach.

“They just cannot operate day-to-day on thin margins, low interest rates … and with the risk associated with data breaches,” Williams said. “All of us sitting here, one breach, if you are a small organization, can take your earnings away for the year or put you under.”

For those reasons, she said, she thinks there will be more small credit unions seeking to merge with larger ones.

“There are probably going to be a few more,” she said.

Officials from the Kansas Credit Union Association, the trade group representing the state’s credit unions, said merger activity is about normal and they don’t expect that to change.

Mergers between credit unions are generally driven by two things, said Haley DaVee, KCUA vice president of governmental affairs and association services.

“Recent activity generally falls in line with historical merger trends for Kansas credit unions,” DaVee said. “We anticipate that merger activity will likely remain steady going forward. Over the past 10 years, there have been an average of three mergers a year.”

This story was originally published October 9, 2014 at 2:13 PM with the headline "Reasons for current credit union mergers vary, industry officials say."