A recently-announced deal could provide the blueprint for a new version of a strategic credit union merger.
In October, the $1.3 billion-asset Deere Employees Credit Union in Moline, Ill., and the $338 million-asset Infinity FCU in Westbrook, Maine, announced plans to merge. Infinity was motivated to merge because its middling size meant that members had higher expectations for technology options but it didn’t have the resources to provide that experience.
However, Infinity also had certain expectations about retaining some control after a merger was completed. If its deal with Deere Employees is successful, it could provide a new path for mergers — larger institutions joining other credit unions but also keeping some decision making power.
“If all goes well, we will have created a different way to merge,” said Infinity’s President and CEO Elizabeth Hayes.
Hayes said an increasing number of credit unions are looking for partners because the demand for mobile technology has put more pressure on smaller institutions, and they are having trouble keeping up.
“They have expectations like, ‘Why doesn’t your app work like this other app?’” she said of Infinity’s members. “But in order to compete at the highest level, you need to have resources that we don’t currently have.”
Institutions are also contending with the increased cost and complexity of regulatory expectations, the continued margin erosion stemming from intense competition, a flat yield curve and low rates.
“All of this has increased the awareness of boards that economy of scale plays an outsized role in delivering for members,” said Peter Duffy, an analyst for Piper Sandler.
The industry is still dominated by smaller credit unions. More than 1,200 institutions had less than $10 million in assets, or about 24% of credit unions, in the second quarter, according to data from the National Credit Union Administration.
But these factors are driving even bigger institutions to merge. In 2019, there were five deals closed in which the merged credit union had assets greater than $400 million, which had never happened before, Duffy said. About 21% of credit unions had between $100 million to $500 million in assets at June 30, according to NCUA data.
“We expected that to accelerate and were in a few discussions when COVID hit,” Duffy said. “The number of deals during COVID has slowed, but there has been a continuation of larger deals announced. We expect this to accelerate.”
Hayes said that Infinity initially decided to find a merger partner a few years ago but the process proved difficult.
It quickly became clear that merging with a credit union in Infinity's market was not going to work because most of them view mergers as a “bank-style” acquisition in which a stronger institution gains efficiency and reduces costs by simply taking over a weaker company.
“But we wanted to be considered a true partner and not an acquired credit union,” she said.
Infinity wanted a deal that would enable it to retain local control as well as its brand. And Hayes said branding goes much deeper than a logo or color scheme.
“I’m talking about our culture and our reputation,” she said.
Infinity wanted board seats and to retain its name, but it also wanted product pricing authority and the power to make moves with its employees without approval from above. In short, Hayes said, Infinity wanted to see if it could have the best of both worlds by retaining its identity but gaining resources and size.
And it thought it had found the right partner.
In August 2019, Infinity announced plans to merge with the $919 million-asset Vibrant Credit Union in Moline, Ill. But just a month later Infinity walked away from the deal because it would not have allowed Infinity to maintain its identity.
“It just became obvious that we did not have a shared vision about what local control meant,” Hayes said.
So Infinity decided to step back and continue operating independently. But then other potential merger partners started calling. Hayes said about 20 credit unions reached out.
One of those, ironically, was also based in Moline.
Deere Employees President and CEO Kurt Lewin had heard about the Infinity-Vibrant deal and was interested in what Hayes had proposed. Deere is a single-select employer group credit union and had no interest in slapping its name on Infinity’s branches in Maine, but instead wanted to find a way to grow without converting to a community charter.
Dennis Dollar, a credit union consultant and former NCUA board chairman, said that as long as the continuing credit union has the financial ability to serve and a solid business plan, mergers of institutions based in different geographic areas can work.
He said many employer-based credit unions already have a presence in multiple states because the employer groups they serve have locations across the country.
The biggest challenge, he said, is the management oversight over an extended area of service. With advanced technology, it is much easier and less costly to manage staff and operations in a more dispersed geographic area today than it was twenty years ago, Dollar said.
Hayes said that won’t be a problem with Infinity’s deal because Deere Employees has no plans to manage the Maine market from Moline.
“Once the regulator is convinced the credit union is dedicating sufficient resources and has the financial and management capacity to do so...it is democracy in action at a member-owned financial cooperative,” Dollar said.
The combined entity gains diversity because Infinity does a lot of small business lending while Deere Employees is heavily into manufacturing. And — perhaps most importantly to Hayes — Infinity will retain local control, as well as its name, under the Deere deal.
"Their preferred way of doing things is basically to allow the entity to operate and do what they do best," Hayes said of Deere. "
