KENNEBEC, Maine - In a new permutation of a credit union conversion to bank, officials of KV FCU have tentatively agreed to merge into nearby Kennebec Savings Bank, a venerable thrift that traces its roots back to 1870.
The conversion to bank through merger is emerging as a new business strategy, with Northeast Community CU in Haverhill, Mass., in the process of merging into Haverhill Savings Bank, in a stagnant market marred by low growth and slim profitability. The merger into bank was also tried before when Beacon Federal Savings Bank, one of the first credit unions to convert to a bank, merged separately with four small credit unions. But in those deals, the acquiring bank had formerly been a CU.
New Deal Slightly Different
But the new deal is slightly different, requiring that first KV FCU convert into a federally chartered savings bank, then Kennebec Savings from a state to federal chartered bank, before the two institutions are combined.
Alan Theriault, the president of Portland, Maine-based CU Financial Services, who pioneered the credit union conversion to bank, said he expects the Kennebec deal to serve as a model for more credit unions to combine with banks. "They're bringing together one institution that is strong in consumer lending (KV FCU) with another that is strong in real estate lending to have a much stronger institution," he said.
Mark Johnston, president of Kennebec Savings, noted that both institutions are healthy, with ROA of more than 0.70% and both have strong growth. Both institutions, he added, are already the product of mergers, the Kennebec Savings of one recent combination, and KV FCU of a three-way merger in 2005.
Kennebec Savings reported net income of $2.7 million on $640 million in assets for the first six months of the year, an ROA of about 0.72. KV FCU, which was chartered in 1962, reported net income of $207,000 on $51 million in assets for the same period, an ROA of just under 0.73%.
But the continuing consolidation in the financial services market, especially in small towns like Kennebec, will continue to put pressure on locally owned institutions, according to Johnston. "It's difficult to compete in today's competitive environment," he said. "It's not necessary to combine with another organization, but it's better to combine with another organization. I look at this as two local financial institutions that would be stronger combined."
Executives of KV FCU did not return several telephone calls seeking comment.
Under the plans, KV FCU notified its members of the proposed merger last week in order to give them an opportunity to submit comments and review the deal. The advanced notice is required under NCUA's new regulations governing conversions to banks.
Boards Scheduled To Vote
The boards of both institutions are scheduled to vote to approve the merger in October, the credit union board on Oct. 14, and the bank board the following week. After that, KV FCU is expected to begin balloting on the conversion. "Ultimately, it is the KV membership who will decide whether or not to proceed," said Johnston.
Officials with the Maine CU League indicated they will try to dissuade KV FCU from the merger. "The league believes that the credit union charter is still the best option for consumers," said John Murphy, League president. "We would like to see the credit union remain a credit union. There have been many generations that have helped build it."
But in the end, the decision is in the members' hands, Murphy noted.
"They have all the facts," he said. "The whole issue is what is the benefit for the members. If they want to be a customer of a bank, they can walk down to the bank. I'm not sure where the benefit comes from this merger. The issue to us is what is best for the members, and that is KV FCU remaining a credit union."(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
