New Rules Merging Credit Unions Need to Know
Anyone in our industry can tell you that more members are being served by fewer credit unions today. While the trend is toward greater consolidation, it's not just larger credit unions merging in troubled ones. This shift is also seen among healthy, equal-sized credit unions, as well as those looking for a competitive edge. Consider the numbers: Through June of this year, the NCUA approved 83 mergers. Of those, half stated their reason for merging was to expand services to their members.
In some situations, mergers are a matter of survival. In others, mergers of choice make good sense. Doing business in today's marketplace is more costly than ever-increased competition, tighter margins and a changing compliance landscape all impact the bottom line. By combining operations, credit unions are able to share resources, expand reach, broaden service offerings and improve member return.
In our work to help credit unions complete merger valuations that comply with Statement of Financial Accounting Standards 141-R, ALM First and our partners, RP Financial and Sacher Consulting, have noted several important considerations.
Establish loan values using separate credit and interest-rate impairments: It's essential that credit unions separate projected loan losses that are based on credit impairments from market rates when valuing loans. That way, loans can be monitored for actual credit losses versus projected losses. It also allows credit unions to evaluate adjustments to the credit portion of the valuation adjustment.