Last week the New England Federal Credit Union announced that its board of directors and the board of directors of Vermont State Employees Credit Union (VSECU) had agreed to file a merger application with the NCUA. The approval was unanimous and the two credit unions expect the regulatory review to take three to five months to complete. The merger is also contingent on a majority vote in favor of the transaction by members of both credit unions. After the deal is consummated – which the credit unions expect to be later this year or early 2023 – the two entities will merge under the legal identity “New England Federal Credit Union”. Finally, the credit unions expect to remain Vermont-based after the merger.
Transaction Financial Overview
We think this transaction makes a lot of sense and is consistent with the consolidation trend we have seen among both credit unions and banks. Looking at the financial statistics New England is clearly much larger than VSECU and so it isn’t surprising that they will be the surviving entity and that their Chief Executive Officer John J. Dwyer Jr. will be the Chief Executive of the merged entity.
What does stand out however is the net worth and net worth ratio of VSECU which is $96 million and 9%, respectively for 2021. VSECU had a net worth per member of $1,360, which is below the national average. By comparison New England FCU has a net worth, net worth ratio and net worth per member of $232 million, 12% and $2,419 respectively, well above the national average. Looking at our ranking criteria, New England FCU scores a 3.6 out of 5.0 (a very good rating) while VSECU scores a 2.3 out of 5.0 (below average). So this transaction is clearly a case of a strong well positioned credit union acquiring a weaker performing credit union in the same market.
Significant Synergy Potential – Perhaps Over Time?
Easily the most surprising aspect of this transaction is management’s statement that they expect to retain all employees. The reason why this is surprising is that employee expense is often an area companies can find efficiencies during mergers. For example, while New England FCU has 79% more assets than VSECU, it only has 33% more employees and only spends 45% more on its employee base. There is bound is be duplicative responsibilities among employees as the integration of the credit unions progress. We think over time this is an area of potential cost savings for the merged entity which can result in an improved financial position.
We expect more consolidation across credit unions and will be keeping an eye out on other credit unions in the northeast including Homefield Credit Union, HFDCU and Tewksbury Federal Credit Union, all of which are based in Massachusetts.