6 FOCUSREPORT/Mergers: What’s Next?
Although credit unions have contin- ued to consolidate throughout thisyear’s health and economic crisis,the pace of mergers has sloweddown considerably – and thenumber of credit union bank acquisition deals have substantiallydeclined compared to last year aswell.
The pandemic has also sloweddown the pace of the merger process, according to some creditunion CEOs who shared theirinsights into how they have beenmanaging consolidation challenges created by the COVID- 19pandemic.
Nevertheless, credit union leaders and consultants said they believe mergers and bank acquisitiondeals will pick up in 2021 as long assome semblance of certainty returns to the marketplace.
During this year’s secondquarter, when the coronavirusbegan rapidly spreading in manystates, leading to stay-at-homemandates, the NCUA approved25 mergers – down from 34 consolidations at the end of thisyear’s first quarter and 32 mergers from the second quarter of2019. The NCUA’s third-quarterMerger Activity & Insurance Report had not been posted as ofOct. 30. And the number of creditunion bank purchases has substantially slowed down from 14deals in 2019 to just six deals as ofthe end of October 2020.
In October 2019, the $47.5million Gulf Power CompanyEmployees Credit Union in Pensacola, Fla., agreed to mergewith the $246 million FloridaState University Credit Union inTallahassee.
Because of COVID- 19, the consolidation wasn’t officially completed until a year later on Oct. 1.
“It [COVID- 19] definitely cre-
ated a tremendous slowdown in
the momentum of both due dili-
gence and the integration of the
two cultures and the two orga-
nizations,” Chuck Adcock, presi-
dent/CEO of Flori-
da State University
Being onsite at
Gulf Power Com-
was a critical part
of the transition
process, but when
“There’s three hours of geog-
raphy between our headquarters
and theirs, so staying onsite was
obviously very limited,” he said.
“We had to be really strategic
about who was going and when,
and of course, trying to be safe.
With social distancing we couldn’t
pile in a bunch of folks into our
corporate car and just send them
for an overnight stay. We lost
some momentum in terms of be-
ing able to be onsite both for the
due diligence side and then also
just getting to know the folks in a
Florida State University CU em-
ployees involved in the merger
due diligence process pivoted to
leveraging technology, including
video conferences, which wasn’t
easy at first, but the teams man-
aged to adapt to syncing the vol-
umes of documents that needed
to be carefully reviewed.
“From a workload perspective,
there wasn’t anything we couldn’t
get done. But it created a pretty
significant workload on two parts,”
Adcock said. “One, when their staff
had to pull out information, you
had the potential for a communi-
cation breakdown, when you ask
for reports A and B and person on
the other end is thinking you’re
looking for reports C and D.”
And second, completing due
diligence online can cause delays
in accessing information.
“That was delayed because nowwe were waiting for emails andscheduling more calls. It was cumbersome, but I think everyone figured it out pretty quickly and usedthe same rhythm and cadence thatwe were using internally, and particularly leveraged the technologyto make sure we were as effectiveas we could be,” Adcock said.
The merger of the $203 millionNorthStar Credit Union in War-rensville, Ill., with the $318 millionNuMark Credit Union in Joliet, Ill.,will take effect on Jan. 1, 2021. Although the due diligence processwas completed in 2019, COVID- 19slowed down the integration ofteams from both credit unions.
“What really impacted us onthe integration of our teams wasthe ebb and flow of being ableto meet in person and not beingable to meet in person,” NorthStarPresident/CEOLloyd Fredendall,who will remainas president/CEOwhen the creditunions officiallyconsolidate, said.
“It was a little more
difficult, I think for
us, because we’ve
been trying to take the best of
the best from both organizations,
which is a lot harder when a small
credit union merges with a larger
one. We’ve been very fortunate,
however, because we have a great
staff that has been working to-
gether diligently when they have
gotten together in person or when
they have met over a Zoom call.”
While many credit union staff-
ers learned to become even more
adept at leveraging technologies
to help them manage through the
many steps of consolidation, what
helped Rogue Cred-
it Union President/
CEO Gene Pelham
was increasing his
focus on the merger
In early June,
the due diligence
process was well
underway for the
merger of the $180 million Malheur
Federal Credit Union in Ontario,
Ore., with the $2.1 billion Rogue in
Medford, Ore. The rural coopera-
tives are separated by 400 miles.
During an interview in earlyOctober with CU Times, Pelhamsaid the due diligence process hadbeen completed, the NCUA gavethe consolidation the green light,
and the voting process was takingplace and is expected to concludeon Nov. 16.
Pelham said focusing on themerger process is important forany merger, but it was even moreimportant to keep sharpening thatfocus during the pandemic.
“Probably increasing that focus
and doing it more is even more
important when you’re not able to
connect in the way that you nor-
mally do during the merger pro-
cess,” he said. “The most impor-
tant part is making sure that we
keep the purpose of the merger
clear. It’s really easy, when you’re
not able to communicate and
connect, to forget why you agreed
to do this in the first place.”
Additionally, the project man-
agement teams for both credit
unions, as well as the involve-
ment of the senior management
teams during the regulatory and
member voting process, kept
the merger process on track and
“That was really valuable in
keeping up to date, not getting
things lost and being fully trans-
parent on the progress of the
merger, transparent on the ob-
stacles and transparent on just the
feelings people are having as they
go through the merger,” he said.
Looking ahead to 2021, execu-
tives and consultants alike said
they expect the pace of credit
union consolidations will in-
crease, as well as the number of
credit union bank purchase deals.
“At the end of last quarter, there
were I believe 171 credit unions
with net worth ratios below 7%,”
said Glenn Chris-
of CEO Advisory
Group in Kent,
Wash., who special-
izes in credit union
mergers and credit
union bank acqui-
sitions. “I think in
the coming year if
we see more credit unions falling
into continued negative earnings
or poor capital positions, that’s go-
ing to cause more credit unions to
consider their alternatives.”
He also said he believes credit
union bank buys will restart in
“We were working with several
Credit Union Merger Momentum Falls Victim to COVID- 19
credit unions on bank acquisi-
tions, but once COVID hit, they
just pulled out of the market, in
part because there was a lot of
uncertainty regarding who they
were buying and what was going
to happen to the risk in their port-
folios of the target banks,” he said.
“There also was lot of uncertainty
about the pricing for the bank
What’s more, because there are
still many uncertainties around
how and to what extent COVID
may impact their own revenue,
earnings and loan losses, credit
unions decided it’s just not a good
time to make a bank acquisition,
Christensen said. n
Y CU mergers are continuing through COVID,but the pace of consolidation agreements hasslowed considerably, as have the number ofCU bank purchase deals.
Y Logistical challenges created by thecoronavirus have also slowed down the paceof internal merger processes.
Y The pandemic’s negative impact on earningsand capital positions may compel a greaternumber of CUs to consolidate in 2021.
‘It’s really easy, when
you’re not able to
connect, to forget why
you agreed to do this in
the first place.’ ‘I think in the coming
year if we see more
credit unions falling
into continued negative
earnings or poor capital
positions, that’s going
to cause more credit
unions to consider their