There have been many challenges and changes to the credit union environment with new regulations, new challenges, new members, new boards, and new mergers. Many credit unions have wrapped up their yearly reports and are ready to conquer the New Year. So, what’s next? How do you implement staying on track by accomplishing every goal your credit union has set? Oak Tree is always looking at the credit union environment, and this means observing how the actions of banks also come into play. One of the things we’ve seen a lot of is bank mergers.
New Year, New Me… Right?
In today’s age, it is safe to say that many C-Level executives are stepping up their game to ensure their staff is well educated about what their credit union stands for, and what type of driven culture they have attained in their field of work. Being able to provide and train staff on every subject in the workplace can allow for new creative thought processes and feedback on how different departments can improve. We have seen how the many credit union mergers have affected the credit union industry, but when banks merge, it also causes many changes to the credit union landscape.
The Credit Union Journal article, The next frontier for credit union mergers written by Richard Gallagher, CEO of Oak Tree Business Systems, Inc. claims: “Thankfully, recent changes to legislation will offer new growth opportunities for credit unions. As a result, mergers will revert back to being used as more of a growth strategy, and it is a good one. When credit unions merge, several benefits occur. The field of membership can potentially be expanded, resources such as forms can be shared, and some staff responsibilities can be centralized.
Yet, one question must always be answered when any merger takes place: Is this in the best interest of the membership? The usual answer is “yes,” simply because credit unions have like-minded customer service missions and overall industry goals. Therefore, it is rare for merger requests to be denied. And while the number of credit unions nationwide continues to shrink each year, the industry has hit a record of $1.4 trillion in assets. In other words, mergers still have great value for industry growth and stability.”
But what we really want to look at right now is how a bank merger affects the credit unions in their community. When banks merge, it limits the competitive field and gives consumers fewer choices for their banking needs. This is why it is important to see how it can benefit the credit unions and their fields of membership.
So, how would credit union members benefit from a merger of the banks in the community?
The merger of banks will inherently raise the profile of the credit union in the community since there is less competition. The disruption of the banks is where the credit union can seize an opportunity as the banking customers may feel unappreciated, confused, or ready to leave the bank. If they are eligible for your credit union, this is an excellent pool of potential members ready for a better experience with their banking needs.
Many banks have seen a loss of up to 70% of their original clients within the first few years after a merger, and many of those will leave to join competing banks or credit unions. That could be your credit union. This is why it is always important to look at what the banks are doing. There are those of the opinion that any gains a credit union may see after bank mergers are more of a correlation than a causational effect, but it isn’t just the gains in membership that stems from such mergers.
Bank mergers, like many mergers in the world of business, also lead to attrition of brainpower and qualified employees. These employees, with the knowledge and experience of working in the banking environment, are great to help bolster your ranks with qualified and ready staff – especially in a tight job market.
Over the past few years, credit unions have made a dramatic new shift in merging with a bank instead of another credit union. In the Federal Reserve Bank of St. Louis article, it demonstrates the difference of why these changes are occurring, “The average ratio of business loans to total loans for the acquiring credit unions in the quarter before the transaction was 8.6 percent, whereas the average for the acquired banks was 33.8 percent.” Overlooking the numbers is one thing, executives also have to take into account that the faster way to grow is to purchase another financial institute, and to integrate it into their already existing operations. With the two merged, strong community ties will become stronger, and the field of membership will gradually increase. In another survey from Credit Union Times, “…the survey found 54% of credit union executives are considering a bank merger or Fintech partnership/acquisition. Thirty-two percent of the credit union respondents said they plan to merge with banks...” Another reason why this is starting to become more of a trend is due to the amount of time it takes for the merger to be finalized. With a credit union to credit union, it can take up to a year or longer, depending on documentation. Now, with a credit union to a bank, it can take a lot less than that.
When we take a deeper look, it looks like consolidation can be a good or bad thing, depending on who you are talking to and what type of position they are in. Sometimes we see more available branches for a member to visit after such mergers. With the reduction of banks plummeting with the given years, credit unions are at the top of their game.
An example would be Florida, as banks in Florida have been decreasing since 2015, now at a total loss of 60 banks, according to the FDIC. In the article from Credit Union Journal, statistics have shown banks disappearing in the Florida area, “Just as credit unions have seen consolidation, so has the for-profit banking space. Data from the Federal Deposit Insurance Corporation reveals the number of bank branches in the Miami-Fort Lauderdale-West Palm Beach area declined by 7% between June 2013 and June 2018, though deposits at those institutions rose by more than 34% during that same time period, reaching $237 billion.” Some credit unions have seen great benefits from Bank Mergers.