By Christian Mullins
It may have come one week later than expected, but the next hurdle has been cleared regarding KV FCU’s (Augusta, Maine) attempt to convert to a mutual savings bank, then merge into Kennebec Savings Bank (Augusta, Maine). In a unanimous vote, the bank’s trustees voted to accept an amended proposal (the changes have not been disclosed) handed to them by KV FCU’s Board of Directors last week.
KV FCU’s members will vote in late April or early May 2009 on whether to join KSB or remain autonomous.
One question that has yet to be explored (at least in this blog) is why would a bank try to merge with a credit union? Bank to bank and CU to CU mergers are common, but a CU to bank merger is rare, and I don’t think I’ve ever heard of a bank to CU merger.
The answer lies within Kennebec County, Maine, home of the two financial institutions. Kennebec Savings Bank (KSB) remains committed to the local community, which is admirable but also presents them with a serious problem: There aren’t many merger options available.
Warning: Statistics Ahead!
According to iBanknet, Kennebec County headquarters 12 credit unions and 4 banks. KSB is the second largest of those banks with $650 million in assets, and the smallest two banks have assets ranging from $78-$93 million. After Maine State CU (the largest CU in Maine), KV FCU is the 2nd largest CU based in the county. If KSB felt the need to expand while maintaining their desire to remain local, KV FCU represented their 3rd option (after the two banks). This is assuming the largest credit union in the state of Maine wouldn’t consider becoming part of a bank that is not even the largest in their county. (End Statistics)
What is becoming likely, however, is that this is KSB’s last foray into the world of credit union mergers, whether the conversion/merger is successful or not. The other Kennebec County CUs are watching this play out, and it’s likely that they don’t want to subject themselves to what KV FCU has faced, or will face, in the coming months.
This leaves KSB with several options for growth in the next several years, each less palatable to them than the last: grow organically, attempt to merge one (or both) of the <$100M banks into them, expand beyond their local community, or merge into a larger entity.
A Director for a CU I previously worked for once said, “You grow, or you die”. While the phrase was only part of a more in depth discussion, sandwiched between talk of liquidity, capital ratios, asset projections, and year to year growth, the simplicity of it has stayed with me, and I’ve turned to it to help explain actions taken by both banks and credit unions that would otherwise leave me scratching my head. KSB needs to grow (at the very least they feel they need to grow) and the makeup of their community’s financial institutions (and their Mission Statement) necessitated a merger attempt with a credit union.
I’m left to wonder how many other bank and credit union communities have merged themselves down to the point where they believe the only way to survive is to merge with each other. With a CU to bank merger already moving forward in Massachusetts (thanks to Ginny Brady for pointing this out in the EverythingCU blog), we should expect to see more mergers like these in the future. How many more is ultimately up to the credit unions and, more importantly, their membership.
October 23, 2008 at 11:12 pm |
Grow or die, grow or die, grow or die. I think this “truism” needs to be examined. Where has this ever been proven? While I am all for healthy growth, I think there is such thing as unhealthy growth. In fact, I think an apt comparison is healthy versus cancerous cells. Healthy cells are born, grow, and eventually die to be replaced by new healthy cells. Cancer cells are those where the normal signal to grow old and die have been short-circuited, resulting in perpetual and unnatural growth.
October 24, 2008 at 7:46 am |
I agree with you Morriss and, as it turns out, so did that Director (though I didn’t do a very good job of explaining it). It was his belief that growth, regardless of percentage, should fit the specific circumstances of the credit union.
An example of that would be the desire of some institutions to grow their deposits (because it looks good on paper and in annual reports) when they have a 50% loan to deposit ratio. In that specific case, zero (or minuscule) growth would be preferable until that number were a bit higher. Conversely, a CU with a 90% ratio would likely need to add deposits at a faster pace (or jack up the lending rates).
Of course, not all negative growth is bad. Sometimes, some short term negative growth can be beneficial, and an occasional decline should be expected in any economic cycle, but a long term decline (years) typically benefits no one.
Hope that explains it a bit better.
January 12, 2009 at 12:06 pm |
[...] late October 2008, the Trustees of Kennebec Savings Bank (Augusta, Maine) voted to merge with KVFCU (Augusta, Maine), with a CU member vote coming sometime in the first half of 2009. [...]