As the financial landscape continues to change, many credit unions have looked to mergers as a way to grow and provide greater services to their existing members. This can be a great decision for the right credit unions, but is not always the best decision. Mergers come in many forms and have met with several challenges over the past year.
The basics of a merger
Credit unions can merge for any number of different reasons. Mergers are fairly common events and the National Credit Union Administration (NCUA) approves about 40 to 50 mergers each year.
Typically, a merger is one credit union absorbing another, with the larger organization’s name and brand surviving (though some mergers result in an entirely new name/brand). Depending on the agreement, an acquired (or “dissolving”) credit union may transfer its entire business and balance sheet to the surviving credit union. Alternatively, one credit union may split or restructure its business and transfer some of its branches to the absorbing credit union.
As with most business mergers, credit unions must get approval from their Boards of Directors. As financial institutions, the NCUA must also assess the financial stability of the merging businesses and provide its own approval.
In most industries, mergers between medium-sized companies are often the result of one (or both) of the businesses having financial trouble or declining business. For credit unions, mergers must instead focus on the benefits they bring to members above all else. Credit unions are built on the idea of a cooperative model, and the members are at the heart of that system.
A merger that provides no benefits for existing members is not a merger worth pursuing. If a merger cannot improve the services members enjoy, the members will simply use the change as an opportunity to move their accounts elsewhere.
Ultimately, the decision to merge has to be driven by both big picture goals and visible, detailed improvements (which the credit unions must be able to communicate to members). Will a merger make it easier for members to visit branches or access their accounts? Will it improve borrowing or savings rates? Are there new technologies the two credit unions can make better use of when combined?
Concerns about financial ethics has led the NCUA to propose new rules for mergers. These changes are intended to increase the transparency of mergers for members and block “mergers” that are little more than purchases of an existing credit union.
As with most businesses, the COVID-19 pandemic has disrupted long-term planning for many credit unions—including mergers. By Q3 of 2020, credit union mergers had fallen significantly from where they were at the same time in 2019 (34 mergers, compared to 50). Since mergers usually take over a year to complete (and these mergers all began before COVID-19), we may continue to see a below-average number of mergers in 2021 as well.
COVID-19 and its economic impacts have made credit union executives and managers more open to discussions on mergers.
Larger institutions have become more willing to merge with small credit unions that are doing poorly; prior to COVID-19, larger credit unions would not typically consider small institutions as merger targets.
Credit unions (as well as most financial institutions) were well-capitalized at the start of 2020; declines in capital were not a primary motive for mergers in 2020.
Smaller institutions (<$200 million in assets) shifted their focus from acquiring the smallest credit unions to doing mergers with ones of a similar size.
Like the smaller institutions, large institutions (>$1 billion in assets) have also shown a preference for merging with equals. (This is also a trend that’s been seen in the community bank space in recent years, and it is likely to continue for a while.)
The Credit Union Times also reported that this new focus on mergers in 2020 has led many credit unions to proactively prepare merger strategies in case an opportunity emerges or they themselves become the target of a merger.
Assuming credit unions have good goals and a solid strategy behind their merger, the challenge becomes the logistics of combining two businesses. Two separate groups of staff, facilities, accounts, processes, equipment, software, and marketing all need to be integrated. This takes incredible planning, coordination, and cooperation between key managers.
The challenges of mergers can be huge and, if handled poorly, disastrous for membership at one (or both) of the credit unions.
However, of all the challenges a merger creates, handling the branch equipment inventory and support does not need to be one of them. The Equips platform can help credit unions streamline processes and simplify support, and our Solutions Team can help advise decisions about which equipment to use and how it will continue to be supported going forward.
Contact our experts today to get the most out of future equipment planning at your credit union.
Equips is revolutionizing how Banks and Credit Unions manage, maintain, and protect critical branch equipment. Leveraging a network of 500+ vendors, experts at Equips help Financial Institutions respond to equipment problems quickly in one place: Equips. Active management allows Financial Institutions of all sizes to improve operational efficiency, cut costs, and streamline equipment inventory and vendor management. Our groundbreaking solution provides clients across 45 states with better insight and transparency into their critical equipment and enables employees to do their best work. To learn more visit equips.com.