The landscape of the financial industry is shifting, and for many institutions, the path to long-term viability now runs through strategic partnerships. As credit union mergers continue to accelerate, understanding the nuances of consolidation—from internal acquisitions to the acquisition of community banks—is essential for any leadership team looking to expand its footprint. This consolidated playbook brings together our deep-dive analysis into the current M&A surge, offering a strategic framework for achieving meaningful scale and operational efficiency. By exploring the mechanics of how bank mergers can actually benefit the credit union movement, we provide executives with the insights needed to navigate these complex transitions while staying true to the mission of member service.
Mergers & Acquisitions in the CU Space
A Strategic Playbook for Growth and Scale
In the dynamic financial services industry, credit union executives face a relentless pursuit of growth, efficiency, and enhanced member value. While organic growth remains a core strategy, the accelerating pace of mergers and acquisitions (M&A) among credit unions, and increasingly, between credit unions and banks, presents a compelling avenue for achieving rapid scale and market leadership. This trend, driven by economic pressures, regulatory demands, technological shifts, and the critical need for succession planning, requires a sophisticated understanding of both opportunity and execution. For the astute credit union executive, M&A is no longer a last resort for struggling institutions; it’s a proactive, strategic playbook for charting a formidable future. What does it take to be a part of the mergers & acquisitions in the CU Space?
Current M&A trends underscore a clear strategic intent. Many credit unions are seeking mergers primarily to expand their services, diversify their loan portfolios, and enter new geographic markets, rather than solely as a response to financial distress. We’re observing a landscape where larger, well-capitalized credit unions are predominantly the acquirers, leveraging their robust financial health to integrate smaller institutions and achieve greater economies of scale. While the overall volume of assets being acquired has seen some fluctuation, the underlying momentum for consolidation remains strong as institutions recognize that merging can significantly reduce overhead, strengthen financial resilience, and share the escalating costs of regulatory compliance and technological investment.
Assessing the right M&A opportunities goes far beyond scrutinizing balance sheets. While financial health, asset quality, and profitability are foundational, successful credit union mergers hinge equally on strategic alignment and cultural compatibility. Executives must diligently evaluate a potential partner’s vision for member service, their approach to community engagement, and the values that define their workplace. A misaligned culture can derail even the most financially sound deal, leading to employee turnover, member dissatisfaction, and a failure to realize projected synergies. Therefore, initial discussions should focus not just on numbers but on shared missions and philosophies to ensure a harmonious integration and a combined entity that truly serves its expanded membership.
Once a potential partner is identified, robust due diligence becomes paramount. This phase transcends a superficial review, requiring a deep dive into every facet of the target institution. Beyond audited financial statements and loan portfolios, thorough due diligence encompasses operational readiness, cybersecurity protocols, existing technology infrastructure, vendor contracts, human resources policies, and pending legal matters. The goal is to uncover any hidden liabilities, system incompatibilities, or operational inefficiencies that could complicate the merger post-closing. Investing adequately in this phase, often with the support of external experts, mitigates significant risks and ensures that the strategic benefits envisioned are genuinely attainable.
The ultimate success of any merger lies in its integration. This is where two entities truly become one, a complex process that demands meticulous planning, transparent communication, and adaptable leadership. Integration involves harmonizing core banking systems, migrating vast amounts of data, standardizing products and services, and, crucially, unifying two distinct employee cultures. A well-defined integration plan should address everything from technology cutovers and physical branch consolidation to employee training and consistent member messaging. Proactive, consistent communication with employees, members, and regulators throughout this journey is vital to manage expectations, build trust, and ensure a smooth transition that retains loyalty and minimizes disruption.
For credit union executives, strategically approaching mergers and acquisitions offers a powerful pathway to accelerated growth, expanded market share, and the achievement of critical economies of scale. It allows institutions to invest more effectively in new technologies, diversify service offerings, and navigate an increasingly competitive and regulated landscape with greater resilience. By meticulously assessing opportunities, conducting rigorous due diligence, and prioritizing seamless integration, credit unions can leverage M&A to not only survive but thrive, continuing their mission of empowering members with superior financial services.
Is Your Credit Union Positioned for Strategic Growth?
As you explore M&A opportunities and strengthen your operational foundation, ensuring you have compliant and efficient documentation is critical. At Oak Tree Business Systems, we specialize in providing meticulously crafted credit union membership forms and comprehensive consumer lending documents tailored to meet regulatory requirements and streamline your processes.
Credit Union Mergers Are Ramping Up
What Does It Mean?
In the midst of economic uncertainty, the credit union industry seems to be trending back to pre-pandemic levels of merger activity. In 2020, acquisitions and mergers declined for the first time in ten years – primarily due to temporary and permanent pandemic-driven closures. However, the number of merger approvals has rallied sharply this year and is predicted to continue along that trajectory. The National Credit Union Administration’s Merger Activity and Insurance Report for the first quarter of 2022 announced approval for 41 credit union mergers (outpacing 2021, when 33 mergers were approved in the same time frame). According to Forbes, as of June 21, 2022, there were 5,041 credit unions in the U.S. This number has decreased exponentially since 2013 when there were between 6,700 and 7,000 credit unions doing business. However, during that same period, the total assets of credit unions increased each year. All this brings up the question of why credit union mergers are ramping up, and what that means for your credit union.
WHAT IS A CU MERGER?
When one credit union absorbs another and the surviving entity retains the name and brand – or the new consolidation is renamed and rebranded as one different credit union – a mutually beneficial merge of businesses is created. Depending on the particular arrangement, the merging entity’s assets and liabilities are entirely transferred to the “surviving” credit union, or it undergoes a restructuring and retains some of its branches. The result is a larger financial institution with upgraded resources and services.
WHY DO CREDIT UNIONS MERGE?
There are several reasons why a credit union would seek to consolidate. The most typical ones are:
- growth and branch expansion
- improved member benefits
- access to better technology
- financial and/or membership erosion concerns
- lack of succession planning by former leadership
Growth and expansion: It has been traditionally common to see small credit unions absorb even smaller institutions in pursuit of a growth phase. Now, it appears that more similarly sized credit unions (small and large) are seeking mergers with each other. Quoting an article from early 2022 in CUToday, merger expert Glenn Christensen states that “…the industry is growing at 9% to 10% per year on an annualized basis, …so, for a credit union to be able to at least sustain itself from the industry average for growth they’re going to need to grow at about 10%, and that equates to about an annualized ROA of 1%.”
Better benefits for members: In most cases, merging members will benefit from a wider branch network, a more extensive product selection, competitive rates, higher dividends, and better technological efficiency. Add those benefits to the personalized service that credit unions are known for, and the attraction is clear.
Access to higher technologies: As those in our industry already know, credit unions boast a more member-focused experience as opposed to what big banks can offer. With FinTech advancements in digital banking becoming increasingly more accessible, credit unions can compete on a higher level. Nowadays, cryptocurrency transactions are widely accepted, adding value to the member experience. Account features such as ultra-user-friendly apps for electronic devices, mobile deposits, and 24-hour access are now considered standard offerings. Small credit unions have a much harder time vying for members without meeting these expectations.
Financial and membership decline: With the push toward eliminating NSF fees among credit unions, smaller institutions stand to suffer from the resulting income erosion. To many, a merger will be seen as the only solution to this problem. Oftentimes, a foreclosure precedes an acquisition.
Bad planning and mismanagement: There are times when the Board and Executive Leadership age out or otherwise departs with a failure to plan for succession. Perhaps there was a plan in place that for one reason or another was not successful. Occasionally a deal falls through, and sometimes financial misconduct by key personnel is why a credit union can no longer stand on its own.
THE LANDSCAPE IS CHANGING
New rules have resulted from a need for financial ethics transparency, among other things. These new rules increase the transparency of mergers for members and block proposed mergers that don’t seem to provide enough worthwhile benefits.
In 2018, NCUA updated its Merger Rule Provisions for federally insured credit unions with a new process to allow for more time between when the meeting notice is sent to members and the date of the merger vote. The new merger process requires the board officer and CEO of both credit unions to certify that there are no non-disclosed merger-related financial arrangements and allows members of the merging FICU to submit comments on the merger proposal for posting on the NCUA website.
WHO WILL BENEFIT?
Provided the merger has cultural and organizational compatibility, it should ideally create value for everyone involved. But first and foremost, a merger should serve to benefit the members. Credit unions were established on a not-for-profit cooperative model to give people a member-centric option for saving, borrowing, and managing money, as opposed to a bank with the primary benefit going to shareholders. Founded on a principle of “members as owners,” it stands to reason that a merger should only be considered when it strongly benefits existing members. For example, the integration of two workforces will not impact just the employee experience. It may be disconcerting to members when they find themselves suddenly interacting with unfamiliar staff. What steps will be taken to assure members are comfortable with the changes?
ALTERNATE MERGERS
Some smaller credit unions are taking a new avenue in seeking partnerships with FinTech companies and banks. In a NAFCU-sponsored podcast, LendKey’s David Mark says, “A FinTech partnership allows credit unions to expand into new markets, reach new members, and provide new products/services to the existing member base with greater efficiency and at a lower cost. These partnerships can be leveraged for success while staying compliant if the right processes are in place.”
Likewise, bank acquisitions by credit unions have been more frequent. In spite of facing an inevitable culture shock, the advantages sought are enhancements in commercial lending services, advanced digital capabilities, and more diverse expertise. However, there have been some CRA (Community Reinvestment Act) regulatory implications regarding the impact on lower-income communities, and tax exemption status challenges.
WHAT DOES THIS MEAN FOR THE FUTURE OF CREDIT UNIONS?
Data is showing that the credit union industry is growing at 9–10 percent a year. This signifies a “restructuring” of the credit union system as a whole. Smaller credit unions will have trouble maintaining growth as FinTech becomes more sophisticated and members demand the latest high-tech services. Some will find that the only option for maintaining member growth is to merge.
The “merger of equals” pattern indicates that mid-to-large-sized credit unions will continue to form “super credit unions,” which will ultimately change how consumers view the friendly neighborhood credit union. In combining the cooperative value proposition with the big-box concept of technology and services, we can only hope for the best of both worlds.
Credit Unions and Bank Mergers
How Do Bank Mergers Benefit My Credit Union?
The credit union landscape constantly changes, with new regulations, challenges, members, boards, and mergers. As credit unions prepare for the new year, it is important to be aware of the potential benefits for your credit unions and bank mergers. This is a hot topic, and even as we write this it is on the heels of Scott Hodge, president of the Tax Foundation, writing an opinion piece for the WSJ about how he feels that credit unions should not be buying up the banks that fail to help their community, this sparked a response by Jim Nussle, President and CEO of CUNA, that showed how the credit union movement is continuing in their mission to help their community when they purchase these failing banks.
How Bank Mergers Affect Credit Unions
Bank mergers can affect credit unions in a number of ways. First, they can reduce the competitive field and give consumers fewer choices for their banking needs. This can benefit credit unions by increasing their visibility and market share.
Second, bank mergers can lead to attrition of brainpower and qualified employees. These employees can be a valuable asset to credit unions, especially in a tight job market.
Third, bank mergers can allow credit unions to expand their membership field and offer new products and services. This can be done by acquiring branches or merging with banks that have complementary strengths.
Benefits of Bank Mergers for Credit Unions
Here are some of the specific benefits that credit unions can experience as a result of bank mergers:
- Increased membership: Bank mergers often lead to losing members for the banks involved. Credit unions can capitalize on this by targeting these potential members with marketing and outreach efforts.
- Expanded field of membership: By merging with banks, credit unions can expand their field of membership to include new groups of people, such as employees of the acquired bank or residents of new geographic areas.
- New products and services: Credit unions can also gain access to new products and services by merging with banks. For example, a credit union that does not offer commercial lending may be able to start offering this service after merging with a bank that does.
- Qualified employees: Bank mergers can also lead to the loss of jobs. Credit unions can take advantage of this by hiring qualified employees from merging banks.
- Stronger community ties: By merging with banks, credit unions can strengthen their ties to the community. This can be done by maintaining branches in the communities that the banks serve and by supporting local businesses and organizations.
Bank mergers can provide a number of benefits for credit unions. By being aware of these potential benefits and taking steps to capitalize on them, credit unions can position themselves for success in the ever-changing credit union landscape. When your credit union is looking to expand it will need the best forms on the market and that is where Oak Tree comes in.
Credit Union Merger? Oak Tree Is the Answer.
Credit union mergers can bring about a time of uncertainty during the transition. Everything can seem upended. There are new systems to integrate, policies to be revised, and location branding to be changed. Your staff needs to be up to speed on various system integrations, and also in the loop concerning how to deal with customers during the merger. Members need to feel secure and comfortable during the transition. It’s good to know that Oak Tree works for you during these challenging times. Keeping Oak Tree onboard during your merger remains the best idea. Credit Union Merger? Oak Tree Is the Answer.
Two Reasons to Outsource Forms with Oak Tree
1. We work to keep you compliant. Think of us as one of your full-time staff members, keeping you compliant and up to date. That’s right, all of our forms packages, from membership to consumer lending agreements and disclosures, comply with state and federal regulations. This means a compliance officer can walk through your doors during the merger and find you in forms compliance It’s not an easy task, but it is one we’re all too familiar with. Oak Tree Business Systems has been providing quality, compliant forms for 40 years.
2. Easy forms integration and full-time support. Even better, all of our forms easily integrate with your core processor and delivery system so there should be very few changes on your end. You can rest assured that whatever difficulties may occur, forms integration will not be one of them. Our team is always ready to address any challenges or concerns that may arise. It’s our commitment to you, and how we feel customer service should be. So, if you find yourself in front of an upcoming merger, we would love to hear from you. We have the experience and insight to answer any questions. If you are not yet an Oak Tree customer, we would love the opportunity to earn your business. It’s time to put Oak Tree on staff and make us work for you, don’t you think? So do we. Let’s have a conversation. We can’t wait to show you what a difference our forms make.
For credit union merger questions email us at sales@OakTreeBiz.com. For over 40 years we have helped credit unions with the best forms solutions regardless of merger status. Credit Union Merger? Oak Tree Is the Answer.
