Most recent credit union mergers have involved smaller institutions seeking scale. But that trend could be about to change, as the long-term effects of the pandemic make deals between larger credit unions more likely.
The $748 million-asset Align Credit Union in Lowell, Massachusetts, announced late Wednesday it had agreed to merge with the $300 million-asset Alltrust Credit Union in Fairhaven, Massachusetts. Another recent example is the $10.3 billion-asset Alaska USA Federal Credit Union and $571 million-asset Global Credit Union, which
The COVID-19 pandemic led many credit unions to hold off on deals as they waited to assess the economic fallout. But two years on, it's getting harder and harder to wait out the pandemic's effects. Some credit unions are struggling to generate the levels of income they did before the virus began its global spread.
Alltrust earned $1.6 million in 2021, a 47% decrease from a year earlier, according to call report data from the National Credit Union Administration. Align earned $410,000 in 2021, a 76% decrease compared with a year earlier.
Credit union boards continue to show an uptick in interest in discussing how to achieve scale, according to Peter Duffy, a managing director at Piper Sandler. And while only a couple large deals have been announced in recent months, merger candidates are talking to one another behind the scenes. Piper Sandler is now in five separate discussions — some early, some late-stage — with credit unions whose assets are greater than $1 billion that are seeking a merger with an equal or larger partner, Duffy said.
At Sept. 30, 2021, there were 4,990 federally insured credit unions in the U.S. Only 685 had at least $500 million of assets.
“Increasingly, our research and also the discussions we have with large credit unions implies that $5 billion in assets isn’t even table stakes anymore in most markets,” Duffy said.
Of the 40 deals approved by the National Credit Union Administration in the fourth quarter of 2021, there was only one where both institutions had more than $250 million of assets. By comparison, there were three such deals approved in the final quarter of 2020.
The yearslong impact of the pandemic has also made it easier for some credit union CEOs to accept a change in their roles, according to Geoff Bacino, a consultant and former NCUA board member.
“There is also the ego factor, wherein neither CEO wants to step aside,” Bacino said. “But as COVID fades away, it might make it easier for the due diligence aspect and some CEOs might come to realize that they like spending time away from the office.”
Larger credit unions still face several hurdles if they want to merge with one another. As the number of large credit unions goes down, the opportunities to merge will decrease. And those with the means to make deals are also interested in making
Larger credit union mergers also take more time due to the level of diligence required, according to Vincent Hui, managing director at Cornerstone Advisors, which served as an advisor for the Alltrust-Align merger.
“The pandemic has had an impact as credit unions waited a little to see what the member and economic fallout is. But despite omicron, discussions have picked up,” Hui said. There are several other larger credit union mergers in the pipeline, he said.
In the Align-Alltrust deal, the due diligence process will begin shortly, and the credit unions will then proceed to the application process with the regulatory agencies.
Under the merger proposal, each credit union would continue to operate under its current name. Both Align and Alltrust were formed in 1922 as telephone worker credit unions and both are celebrating their centennial anniversary in 2022.
Alltrust President and CEO Carmen Sylvester would become the CEO as part of the succession plan for both institutions. Align President and CEO Ken Del Rossi and Sylvester would work together through the merger and transition process for several years.
“Both credit unions have spent countless hours researching and discussing this possibility, always keeping in mind the impact to our members, employees, and the community. Joining with Align would allow our members to enjoy expanded products and services, additional locations, and provide us with resources to remain competitive in the marketplace,” Sylvester said in a press release.
The recent lack of larger mergers was likely a “pause” more than a long stop, said Michael Fryzel, an attorney and former chairman of the NCUA. There still is a lot of “shopping” going on, and it is just a matter of time until more are announced, Fryzel said.
“Mergers among smaller credit unions will continue and the number of sponsored, community and church-affiliated will continue to decline,” Fryzel said.
