With the recent announcements of several mergers, the trend of consolidation among Canadian credit unions remains a dominant theme within that industry.

Hamilton-based Hamilton Community Credit Union Ltd. and Oakville-based Twin Oak Credit Union Ltd. announced their amalgamation in mid-August after they negotiated an agreement to create Momentum Credit Union, which will be based in Hamilton. And this past September, Toronto-based DUCA Financial Services Credit Union announced its plans to merge with Mississauga, Ont.-based Virtual One Credit Union. (For more mergers, see story below.)

The number of credit unions in Canada declined to 410 at the end of the first quarter of 2010 from 434 a year earlier, according to a recent report by Credit Union Central of Canada, with many credit unions seeking merger partners in order to remain strong players in the sector.

DUCA, which recently announced its assets under administration had surpassed $1 billion, had entered into discussions to purchase Virtual One’s assets and combine the operations after Virtual One ran into financial difficulties. The merger will add five branches to the 12 existing DUCA branches.

The DUCA brand will now be expanded into areas in which Jack Vanderkooy, DUCA’s president and CEO, has always wanted to grow, including Mississauga, downtown Toronto, Brampton, Ont., and Guelph, Ont. The merger also brings an additional $160 million in AUA and 8,700 members to DUCA, growth that is difficult to accomplish organically, says Vanderkooy.

“It is very difficult to [expand] grow a membership,” he says. “Our membership growth in the past five to six years has been approximately 1%-2%. Our asset growth has been strong, but our membership has been tough. So, this merger gives us 25% more members instantly.”

Vanderkooy and David Bird, CEO of Virtual One, have been friends for years. They have worked on various committees together and have attended a number of the same credit union executive courses. When Virtual One began to run into financial difficulties three years ago, Bird realized that he would eventually need to find a merger partner; Vanderkooy was the logical choice.

“We looked at different credit unions, and when you look at the [Duca and Virtual One] branches, there is no overlap,” Bird says. “We are in a lot of places that [DUCA] wants to be. And when we sat down over a beer and started to chat, it just made a lot of sense.”

Virtual One started up in 1946 as the Camera Heights Credit Union, which serviced the employees of the Kodak Canada plant in Toronto. With the demise of the Kodak plant, the credit union realized it had to expand its business model and continued to grow through a number of acquisitions. Today, Virtual One has grown out of the amalgamation of more than 10 credit unions.
@page_break@“When Kodak disappeared, we managed to survive,” says Bird, “and that is unusual for a credit union to still be around after the main sponsor goes. But we managed to grow along the way by purchasing smaller ones. It gets to a point at which you are looking at economies of scale, and we want to continue to enhance value for our members.”

Bird says another concern for credit unions is an aging board of directors, which can impose problems when its members start to retire: “Most credit unions were formed in the 1940s and 1950s, so a lot of their directors are getting up there in age, especially if there are not any younger people joining the board, which is the case for us. The average age of our directors is 68.”

Older membership is another issue for many credit unions — and one that Virtual One attempted to tackle when it rebranded to the Virtual One name in 2000. In addition, the credit union began to offer online services to try to attract a younger demographic. But in the end, the credit union needed to find a merger partner or risk going under.

“[DUCA] is a great fit, both geographically and culturally,” says Bird, “as the two credit unions seek to enhance value for their respective members through additional service locations.”

Bird has no plans to retire just yet and, after the merger, will continue to be active in the credit union industry as a consultant. The merger, which is still subject to regulatory and membership approval, is expected to be completed by January 2011.

For Malcolm Stoffman, president and CEO of Hamilton Community Credit Union, the merger with Twin Oaks was one that just made sense to both parties — especially since a third of Twin Oak’s membership resides in the Hamilton area.

“The industry has changed in the past number of years, and size and scale is really becoming more important now,” says Stoffman. “With increased costs and complexity, in terms of compliance, and ever intensifying competition, it just makes sense to grow and gain efficiency through amalgamation.”

The new Momentum Credit Union will have AUA of about $160 million, 11,000 members and four branches in the Hamilton-Wentworth, Halton and Peel regions. Similar to the DUCA merger, there will be no job losses or branch closures as a result of the Hamilton Community/Twin Oaks amalgamation. Stoffman says he hopes to attract new membership in the area after the merger is completed in December, pending regulatory and membership approvals.

The Momentum name was selected to recall the history of the two credit unions. They have both long been associated with people “on the move,” with their branches servicing members who were associated with Ford Motor Co. of Canada Ltd., Chrysler Canada Inc., Hamilton Street Railway Co. and Otis Elevator Co.

Stoffman will continue on as president and CEO of Momentum Credit Union while Linda Flemington, CEO of Twin Oak, will remain in an integration role for one year before retiring. IE