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March 20, 2023

Amid consolidation wave, CT has lost 45% of its credit unions in 15 years

HBJ PHOTO | STEVE LASCHEVER Jo-Ann Palladino is the president and CEO of Bethel-based SoundView Financial Credit Union, which is in the process of merging with Western Connecticut Federal Credit Union.

Fifty-seven years after it was founded to provide financial services to Danbury Hospital employees, Western Connecticut Federal Credit Union is seeking to become part of SoundView Financial Credit Union.

The two Bethel-based credit unions — with $34.6 million and $43.8 million in assets, respectively — asked to merge in February. So did Sikorsky Financial Credit Union ($1.1 billion in assets) and McKesson Federal Credit Union ($31.1 million in assets), both based in Stratford.

The state Department of Banking last month also approved the merger of Stamford Postal Employees Federal Credit Union into East Hartford-based America’s First Network Credit Union to form an institution with a combined $74.4 million in assets.

The merger wave is part of a long-term consolidation trend within the industry, which, unlike commercial banks, operates under a not-for-profit model. The number of Connecticut credit unions has been cut nearly in half over the past 15 years, even as the industry’s overall customer base and assets have grown.

Credit union executives cite growing costs of providing existing services and the need to modernize as key factors driving the consolidation.

“The rationale behind the merger is we will be a larger entity, able to provide members and potential members better services,” said SoundView President and CEO Jo-Ann Palladino. “There is strength in numbers.”

Fewer institutions, more customers

At the close of 2007, Connecticut was home to 148 credit unions with a combined $7.1 billion in assets and 884,449 members.

Fifteen years later, at the end of 2022, the number of individual Connecticut credit unions dropped 45% to 82 institutions.

Despite the shrinkage, the state’s credit unions since 2007 have nearly doubled their assets to $14.7 billion and grew membership 6.8% to 944,388.

“One of the things that tells you is that people love their credit unions, or they love being in a credit union and once they are in, they don’t want to leave,” said Bruce Adams, president and CEO of the Credit Union League of Connecticut. “But it also tells me that operating a small financial institution in today’s economy and regulatory environment is so burdensome and so expensive that financial institutions are finding themselves faced with considering a merger in order to keep providing services to their members.”

A typical credit union with $50 million in assets and eight employees might turn a surplus of $20,000 to $30,000 annually, Adams said. That leaves little money left over for long-term investments in areas like technology to sate consumers’ increasing demands for digital banking services.

Credit unions are also facing inflationary and other economic pressures shared by all businesses. Plus, the regulatory burdens that come along with being federally-insured financial institutions have long been a challenge.

“They are lucky to end the year in the black, even though they have plenty of money, they are well capitalized,” Adams said. “They are perfectly successful businesses, but the opportunity for growth and changing to meet the expectations of your membership, that gets squeezed so hard.”

In 2022, the state’s 84 credit unions did experience a strong recovery from the pandemic, posting a combined $125.2-million surplus, up from $71 million in 2021. That was a higher surplus than even the pre-pandemic years of 2019 and 2018.

Gaining scale

Credit unions differ from banks mainly because of their not-for-profit status — they are owned by their members and set up as cooperatives. Credit unions also tend to serve only a specific region or group.

Today, SoundView is open to those who live, work, worship or volunteer in Fairfield or Litchfield counties, as well as all employees of Procter & Gamble, Gillette or Duracell. The credit union is also accessible to employees and family members associated with other greater Danbury employers.

SoundView’s merger with Western must gain approval from the Connecticut Department of Banking and National Credit Union Administration, as well as Western Connecticut FCU members.

The combined organization would operate under the SoundView name, with more than $78 million in assets.

Palladino said there is no plan to lay off staff or close branches.

The merger is anticipated to be approved by July, with operational issues sorted out over the following six to nine months. The blending of the two organizations is expected to go smoothly due to similar member-oriented cultures, she said.

“We have similar philosophies and memberships, so it’s kind of like apples to apples, with a few oranges thrown in,” Palladino joked. “I feel like what we do helps people.”

Credit unions come in two basic flavors, said Hartford Federal Credit Union President and CEO Edward Danek. Some, with just a few employees, offer a limited range of services like car loans and savings accounts.

Then there are full-service credit unions, like Hartford Federal, that offer the typical array of financial services — including mortgages, checking and credit cards and online and mobile banking — used by most consumers.

Only a handful of Connecticut credit unions offer commercial loans, typically the bread and butter of community banks that have larger balance sheets.

Something as simple as losing a manager can force smaller credit unions to seek out a merger, Danek said. The bigger issue is the struggle to keep pace with rising costs.

“In the digital transformation age, you need to get to a critical mass to drive per-transaction costs down,” Danek said. “If you are under $100 million in assets, it’s starting to get real tough to be a full-service institution.”

Hartford Federal, which has about $155 million in assets, has absorbed five credit unions over the past decade, including Newington VA Federal Credit Union, West Hartford-based Wiremold Credit Union, Stafford-based Workers Federal Credit Union, Hartford’s Media 1 Credit Union and Valley Catholic Federal Credit Union in Simsbury.

The merger with Media 1 — which served employees of the Hartford Courant and local radio stations — was prompted by that credit union manager’s pending retirement, Danek said. The Newington VA merger came with good employees who are still with Hartford Federal today, he noted.

Mergers are an efficient way to expand in a state with little to no population or employment growth, Danek said.

For example, Hartford Federal opened a Simsbury branch in 2005 to capture more business in the Farmington Valley. It cost about $35,000 monthly to operate and took nearly five years to reach profitability, Danek said.

By contrast, Hartford Federal’s 2018 merger with Workers Federal came with an established branch in Stafford that was immediately profitable.

“It is a lot easier to acquire somebody in a new market,” Danek said. “You assume their book of business and the overhead, and you are off and running.”

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