Over the last two decades, Filene Research Institute has studied credit union mergers from a variety of angles.
- In 1999, we examined 1,624 credit unions prior to their merger and their performance for three years after the merger. The resulting report, How Credit Union Mergers Affect Service to Members, concluded that in 80% of the mergers studied, members of the target credit unions benefited significantly from the merger.
- In 2007, we interviewed 66 credit union executives and board members to determine the boards of directors’ role in credit union mergers. In the resulting report, The Board’s Role in Credit Union Mergers, we determined that the CEO and management mostly led the merger, with only a quarter of the boards of directors being fully engaged in the process.
- Finally, in 2009 we constructed a complete database of U.S. credit union mergers. The report, Characteristics of Credit Union Mergers: 1984–2008, overwhelmingly depicted the typical credit union merger as a large, healthy institution acquiring a small, unhealthy institution.
Amid all this backward-looking scholarship, a weak signal has recently emerged in the credit union merger landscape – the merger of equals.
These mergers occur when two healthy credit unions of similar size combine their assets and capabilities. You can probably identify a few high profile examples including First Technology Credit Union and Addison Avenue Federal Credit Union; Summit Credit Union and Great Wisconsin Credit Union; and NuUnion Credit Union and Detroit Edison Credit Union, which resulted in Lake Trust Credit Union.
While relatively few data exist to describe or explain this phenomenon, MoEs, while not common, represent a potentially important trend. It is difficult to say what is driving this emerging trend, yet qualitative discussions with credit unions across North America mention the triad of the need for scale, regulatory pressures and consumer demand for more and expensive services
Consequently, more and more credit union leaders are finding themselves wanting, or needing, to address the question of “how prepared are we for a merger of equals?”
In 2012, Filene and SchellingPoint, a management consulting firm, developed an approach that enabled credit union leadership teams to efficiently and effectively answer this question. On a pilot basis we asked 10 U.S. and Canadian credit unions, ranging in asset size from $150 million to $2.5 billion, to undergo an assessment of their organization’s readiness for a MoE.
The participants, which included CEOs, senior leaders, and board member, responded to two online activities, an opinion survey and a convergence form. These activities educated participants on the scope of a MoE and provided them with a quick and safe way to share their personal opinions on the multiple dimensions of these types of mergers. Filene’s study entitled Credit Union Merger of Equals: A Preliminary Investigation, summarizes the 10 credit union leadership teams’ readiness for a merger of equals and presents some general conclusions.
These conclusions include:
Executives and board members tend to align positively around the following MoE topics:
- We must be confident our merger candidate shares a similar vision.
- The merger candidate must provide us access to certain geographies and markets.
- A merger of equals should improve our resulting internal efficiency.
- A merger with an equal should provide us both with market advantages we cannot attain individually.
- Our members must be the most important stakeholder in a merger of equals.
Directors and executives also tend to share certain concerns around the following MoE topics:
- I can’t imagine our culture meshing well with another credit union’s culture.
- A merger would be taken by our members as an indication of failure.
- We have too many people (members, employees) who will strongly resist a merger.
- A merger offers no meaningful personal career opportunities.
- We can thrive independently; a merger is unnecessary.
While Filene’s research indicates a MoE is a valid business tool in certain circumstances, we do not advocate for or against one. We are interested in revealing the facts about a trend that will impact many credit unions in the coming years. The research report provides an analysis of the preliminary respondents’ degree of alignment and overall sentiment toward the subject of MoEs and provides a structure for discussing these results, and pinpoints where discussion is required so credit unions can efficiently converge on next steps around the MoE topic.
George Hofheimer is the chief research and innovation officer at the Filene Research Institute.
608-852-4632 or firstname.lastname@example.org.