The main office of Four Rivers Federal Credit Union, which has about $15 million in assets and two branches, is located at 1 Burnham St. in Turners Falls.

Just as Fitchburg-based Workers’ Credit Union completes its merger with Chelmsford Credit Union, two more Bay State credit unions are looking to link up. Industry experts say increased costs have forced many smaller credit unions to think about merging with larger institutions.

Indicative of the trend, Springfield-based Freedom Credit Union, with $291 million in assets, and Turners Falls-based Four Rivers Federal Credit Union, with almost $15 million in assets, recently requested permission from the Massachusetts Division of Banks to merge. The application requests that Four Rivers merge “with and into” Freedom Credit Union under the charter, bylaws and name of Freedom Credit Union. The institutions are proposing that the main office of Freedom would remain the main office of the merged entity and both banking offices of Four Rivers would be retained as branch offices of Freedom.

Kathleen Craycraft, president of Four Rivers, said the credit union approached Freedom about a possible merger. Because Four Rivers members were asking for additional services, like free checking and in-house mortgages, and the institution didn’t have the resources to provide them, Craycraft said it made sense to partner with a larger credit union.

The National Credit Union Administration approved the merger and subsequently the credit union members were asked to vote on the consolidation. According to Four Rivers Web site, 407 members cast ballots, with 362 voting in favor and 45 members opposed. Members of the Freedom Credit Union also voted in favor of the merger on June 1. The two institutions hope to consolidate on Oct. 22.

Following the merger, Freedom Credit Union will have more than $300 million in assets and more than 28,000 members. Craycraft said she will stay on with the credit union after the merger, but had no comment on what her position within the institution would be.

Telephone calls to Freedom Credit Union were not returned.

The request by the western Massachusetts institutions comes hard on the heels of another credit union merger in the central part of the state, where the merger of Chelmsford Credit Union into Workers’ Credit Union has just been completed.

Frederick D. Healey, president of Workers’ Credit Union, said credit union merger activity is not a new phenomenon.

“Merging in the credit union industry has not started just recently,” Healey said.

In fact, Workers’ Credit Union has acquired 15 smaller credit unions over the last 20 to 25 years, he said.

Healey said there is one primary reason why smaller credit unions may be more active in seeking mergers today, however.

“Small credit unions have found it more and more difficult to comply with new state and federal regulations,” Healey said.

Check 21, electronic imagery and identity theft are a few of the technology needs and compliance issues have become difficult for small credit unions – generally those with less than $25 million in assets – to stay on top of. Healey said such institutions typically don’t have enough staff to handle member transactions in addition to the regulatory burden.

‘Cooperative in Spirit’

Robert Kimmett, senior vice president of marketing and public relations at the Massachusetts Credit Union League, said mergers happen only under certain circumstances and often are driven by three primary motives. It can happen when a smaller credit union finds itself in a situation where there is a change of leadership and there is difficulty hiring new talent. A second reason is that smaller institutions may have difficulty investing in modern technologies that younger members are seeking. The final factor driving mergers is that the cost to comply with regulations can be hefty.

“The ability to invest in personnel costs and keeping up on regulations is a tremendous burden,” Kimmett said. “It’s a tough world.”

Kimmett said when it comes to mergers, the bottom line is that credit unions are looking for the best way to serve their members.

“There is no economic incentive,” he said. “There is no deal that anyone puts together [to make more money].”

Unlike bank mergers, which occur at a more rapid clip, credit union consolidation is still happening at a relatively slower pace. According to Kimmett, the number of credit unions in Massachusetts declined from 267 to 257 from the end of 2003 to the end of 2004.

“There aren’t very many of these [mergers],” said Kimmett. “They tend to be carefully considered. There’s a sense of stewardship when they [credit union leaders] hand [the institution] over.”

So what should Freedom and Four Rivers expect as the process moves forward? Healey said merging is a “multifaceted” process.

Workers’ Credit Union, with more than $400 million in assets, approached Chelmsford Credit Union about the possibility of a merger a year ago.

“We had aspirations to grow,” said Healey.

With locations already in Groton and Acton, Healey said the next logical step was expansion into Chelmsford. The smaller credit union agreed that pressures, like regulatory burdens, were mounting and accepted Workers’ Credit Union’s offer to merge.

Both credit unions signed a confidentially agreement saying they would not discuss the plans until they were finalized. Workers’ and Chelmsford then entered into discussions about how the merger would work.

Each credit union’s board of directors developed a plan that outlined critical decisions such as who would be president of the merged institution and where the headquarters would be located. Next came the meeting with the credit union members.

“We were able to orchestrate a membership meeting,” Healey said.

In order to move forward, each credit union by statute must receive two-thirds approval of the members voting at the meeting. It was unanimous from both sides.

A formal application was then sent to the Division of Banks and, once approved, Workers’ Credit Union received permission to notify the National Credit Union Administration of the plan. Workers’ and Chelmsford hold state charters while Four Rivers operates under a federal charter, so the merger application process was different in each case.

Around the same time, Healey said his credit union sent a team to review Chelmsford’s financial statements and, as of July 1, the merger was complete.

For other credit unions considering a merger, Healey offers this advice: don’t expect the process to be quick.

“Everything takes longer than you think,” he said.

Being able to clearly outline why the merger is beneficial also is important, Healey said.

“Both credit unions have to have compelling needs and they have to be complimentary,” Healey said. “They have to work together to make this happen.”

Suspecting that leaders of Four Rivers Federal Credit Union wanted to be part of a more “dynamic” team with a greater range of services, Healey said when credit unions merge it must be “highly cooperative in spirit” and the motivation must be compelling.

Daniel J. Forte, president of the Massachusetts Bankers Association, said the credit union industry is similar to the banking world in one way.

“The trends in the credit union industry are mirroring what is happening in the banking industry,” Forte said.

The mergers may be indicative of the pressures that larger credit unions may be putting on smaller credit unions, Forte said. And while maintaining he’s not opposed to credit union consolidation, Forte said the increasing size of some credit unions is of concern in the banking industry.

“The smaller ones [credit unions] can’t compete with the larger ones,” Forte said, adding there is concern about competition between credit unions and community banks as credit unions increase their size because such institutions aren’t required to pay taxes, often allowing them a chance to offer better products and rates than community banks.