Moreno Valley-based Visterra Credit Union and Brea-based Credit Union of Southern California have suspended their previously announced merger negotiations by mutual agreement.

The combined credit union would have had about 86,000 members, 11 branches, 260 employees, and more than $1 billion in assets.

The merger would have ranked the resulting organization among the largest 150 of the state's 548 credit unions.

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Photo By William Wilson Lewis III / The Press-Enterprise

Military personnel walk out of Visterra Credit Union in Moreno Valley.

Officials of both credit unions said the merger would not be as beneficial for its customers as originally anticipated.

"That was one of the upfront additions we wanted to have," said Robert Cameron, resident and chief executive officer of Visterra. "Even though both firms did initial due diligence, we just couldn't come up with the economies of scale to make sense on either side."

"As we went through the process of due diligence, we looked at the benefit proposition to our members and mutually recognized the value wouldn't be as significant or as immediate as when we first entered into the agreement," said Edward Fox, chief operating officer of Credit Union of Southern California.

The merger was set to be completed 45 to 90 days after the initial agreement in late April.

Despite dropping the merger, Visterra remains "well capitalized" according to Cameron.

Visterra has approximately $470 million in assets, a customer base of 43,000 members, five branches and approximately 120 employees.

Executives noted that the decision not to merge was not due to financial problems and said they might reopen negotiations in the future.

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Photo By William Wilson Lewis III / The Press-Enterprise

Robert Cameron, president and CEO of Visterra Credit Union.

But the struggles of the banking industry and the downturn in the housing market have trickled down into credit union endeavors.

"We are affected indirectly," said Robert Cameron, president and chief executive officer of Moreno Valley-based Visterra Credit Union. "If you have a member who has a troubled subprime or mortgage loan with a bank but has a credit card or car loan with the credit union, it affects their ability to pay."

The current economy coupled with rising unemployment has put a strain on credit unions.

"Unemployment is starting to settle in at 9% in Riverside County and 8.5% in San Bernardino County," said Larry Sharp, president and chief executive officer of San Bernardino-based Arrowhead Credit Union. "Our losses will be a little higher but we're well-positioned as a credit union to weather the storm."

Sharp expects to see an increase in losses, primarily in auto loans and possibly home equity loans.

Credit union mergers can offer benefits for the firms as well as their employees, said Daniel Penrod, an industry analyst with the California Credit Union League in Rancho Cucamonga.

"When credit unions do combine, the membership receives a benefit," he added. "If a smaller union joins a medium or larger union, the larger one may bring on additional branches while the smaller unions gain greater access for their members."

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Smaller credit unions may not have the technological advancements of a larger credit union, such as online banking.

Penrod noted that even if credit unions don't merge, it's possible for small and medium-sized credit unions to survive, noting that 348 out of the state's 548 credit unions have fewer than $100 million in assets. "In general, credit unions are faring very well," Penrod said."Their growth numbers have stayed within the norms of three, four, five percent."

Credit unions benefit from more conservative lending than their banking counterparts, which limits their exposure in poor economic times, he said.

"We've been very conservative lendersin real estate," said Sharp. "We focused on loans that are not subprime but very conventional.

"If you look at default rates on conventional loans versus subprime, it's really very low," he said.

"We've seen in current news, these large banks saying they're going to raise $12 billion in capital," Penrod added. "I think, 'Good night! They say it as if they're going to the store to buy milk.'"

But credit unions can only build capital through retained earnings, operating profits and deposits.

"If a credit union goes into a fairly risky proposition and it doesn't succeed, that pool of money has just shrunk," Penrod said.

"That's their members' money they're spending, not a faceless shareholder."