Illinois CU Merger Trend Triggers Fallout; Single Sponsor CUs Have Felt The Effects of Tough Economic Times

OTTAWA, Ill. – The demise of small Illinois credit unions – and its political and financial repercussions – emerged last week as a prime topic of CU discussion following comments about the industry’s economic health by the state’s new Director of the Division of Financial Institutions Michele Latz. “Some of these credit unions under $10 million operate on very tight margins and now find it hard to offer the kind of technology and basic services demanded by members so their choice is to find a merger partner,” observed John Fiore, president/CEO of the $485 million Motorola Employees CU of Schaumburg. The merger trend in Illinois, which five years ago had nearly 500 state-charters and now is down to 380, is a scenario probably repeated in other states, Fiore speculated. The Schaumburg CEO suggested that Illinois has long had a large number of single sponsor CUs which, as the economy turned sour, found themselves unable to compete and soon were on the lookout for mergers. “The unfortunate fallout we’ve been facing is that we’re losing the voices of those small credit unions to present to Congress when all lawmakers hear about are the CEFCUs and the billion dollar credit unions,” lamented Jack Teasuant, chairman of the Illinois Credit Union System and president/CEO of the $107 million Financial Plus CU here. Teausant was making reference to the $2.7 billion Citizens Equity First CU of nearby Peoria as well as the large CUs in the U.S. often targeted by the banking lobby in CU attacks over tax exemption, field of membership and business lending. Like Fiore and other Illinois CEOs, the Financial Plus executive blamed CU declines on continued balance sheet struggles faced by managers combined with the lack of “succession planning” at many institutions. The problem of less than stellar performance at some state-chartered CUs was highlighted late last month with an interview in an ICUS publication with Michele Latz, the state regulator, who said she found “a fifth of Illinois credit unions at a break-even or less than profitable situation.” Latz traced the problems to a poor economy, layoffs and plant closings observing that it is a “tough environment” for single sponsors. Motorola’s Fiore agreed that many small Illinois CUs are in a “shrinking” mode as they find themselves without loan revenue and unable to offer sophisticated Internet services like home banking with the result being an inability “to attract younger members.” Also, so many older managers are ready to retire and “nobody is emerging to take their place” at competitive salaries, he said. Likewise, Teausant said “succession planning” remains a make-or-break issue for the industry in the years ahead which is why he is glad to see so many of the large CUs as well as the major trade groups trying to address the problem. Small CUs, said Teausant, get themselves into a box where they “are stymied” by an inability to find a local individual with the motivation and experience to take over manager duties. In addition, small CUs, he said, suffer from a lack of “diversity’ in their product mix and hence the merger trend appears to continue unchecked. From a national perspective, CUs “are getting clobbered” because the large CUs have such a high profile and become such prime targets in state legislatures and in the Congress, observed Teausant. Regarding the merger trend, Latz, a former bank vice president who took over the DFI job in March, reported there were 24 mergers of Illinois state-chartered CUs in 2003 and through August there have been 13. While those figures don’t appear alarming, it was noted that at yearend 2000 there were 456 Illinois state chartered credit unions dropping to the current 380. Latz, in comments prepared for Credit Union Times, also said the new organization of her division into a larger Department of Professional and Financial Regulation as part of a budget-cutting agreement with the state legislature in July has been working well. . “We believe this consolidation will provide the opportunity to improve efficiency,” she said with “IDPFR a `one-stop’ agency offering regulation, investigation, and enforcement for various industries and nearly one million licensed professionals. “This consolidation will save $14 million a year by eliminating duplicate administrative functions and consolidating office space,” she said. Some Illinois CU executives have expressed concern the consolidation of Latz’s division into the DPFR will give short-shrift to CU regulation, but the director insisted that would not be the case. “At no time will a real estate examiner be sent to examine a credit union,” Latz wrote. “The credit union section currently has 17 experienced examiners. The agency is currently examining the critical hiring needs of the whole agency.” Under the Illinois DPFR, an array of industries including banks, mortgage firms, real estate and consumer loan agencies among others are under one roof. Latz’s Division is devoted primarily devoted to CUs, currency exchanges, consumer finance companies, title insurance companies and “money transmitters.” -