The new normal in mergers

by Off the Cuff

How many credit unions are merging and what does it all mean?

by. Erik Payne

The first quarter 2014 issue of Credit Union Strategy & Performance features an in-depth profile of Maryland-based Municipal Employees Credit Union of Baltimore City (MECU) and includes first person observations from the credit union’s leadership telling the credit union’s story. Part of that story includes a recent purchase and assumption of a local mutual savings bank, Advance Bank. The actions of the small bank provide some insight into our own credit union industry.

“I think there is going to be consolidation because of the cost of regulation and the difficult operating environment that we have been through over the past few years,” says former MECU CEO and current vice president of lending, John Hamilton, “Size and scale do matter, efficiencies do matter. We are going to have to come to that reality. It’s just a matter of time before we see more consolidation.”

When margins are already thin, regulations hurt. They hurt more when they force institutions to alter their business practices, and the costs associated with compliance have risen in the past few years. According to Andy Greenawalt, CEO of compliance software company Continuity Control, the compliance cost-per-quarter has increased significantly. In the third quarter of 2012, the average financial institution spent $26,040. By third quarter 2013, that expenditure was $43,493. And the money spent may not be the largest part of compliance.

A white paper published by Western Independent Bankers, a trade association that works with community banks and credit unions, cited a Continuity Control study of 200 community banks and credit unions that found the average lender spends 10% of its time on compliance-related tasks. How have credit unions responded to the increases in regulatory investments and the inefficiencies they bring?

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