An industry white paper asked why there is so much gloom and doom about credit union mergers.

“So what if less than 10% of credit unions will have less than $100 million in assets 20 years from now?” the white paper's authors wrote. “The industry is experiencing the biggest boom in its history in terms of assets and members, but to hear some individuals within the industry talk about it, you would think that we were two decades from suffering the same fate as the savings and loan industry.”

The authors argue the industry can shed the merger negativity once and for all by finding the right merger partners, doing things differently, getting employee buy in and communicating with members.

The 67-page white paper, “An Old Foundation Anchors a Renovated Structure: Perceptions and Realities Surround Credit Union Mergers,” was released earlier this year by a team of third-year students at the Southeast CUNA Management School program. They are Nathan Clough of the $248 million WinSouth Credit Union in Gadsden, Ala., Kim Gunter of the $146 million Bowater Employees Credit Union in Calhoun, Tenn., Ryan Hawk of the $311 million Peach State Federal Credit Union in Lawrenceville, Ga., and Billy Joiner of the $146 million Centric Federal Credit Union in West Monroe, La.

Though the rhetoric about the industry's consolidation is negative, the quantitative data among members is quite the opposite.

For example, the white paper contained groundbreaking research conducted by CUNA, which found members had positive views of their credit union merger.

For example, 89% of members said they were very satisfied or somewhat satisfied with their credit union since a merger. Fifty-six percent of members also agreed or somewhat agreed that their access to products and services increased post-merger and 65% agreed or somewhat agreed that their access to modern features such as mobile banking, remote deposit capture, online banking and shared branching also increased after the merger.

After reviewing reams of industry research, media articles and conducting interviews with CEOs and other credit union professionals, the white paper authors offered four recommendations they think could help the industry change its perceptions of mergers from negative to a positive.

The Right Merger Partner Matters

While this may seem to be an obvious recommendation, finding the right merger partner is particularly important for consolidations that involve both credit unions with assets of more than $100 million.

“There are times when an institution merges a credit union that is so small that the potential impact of any unforeseen challenges is negligible,” the authors wrote. “In these cases, it obviously doesn't make sense to invest vast amounts of money into rigid analysis. However, any merger that involves one or more institutions that collectively account for more than approximately 10% of an institution's current assets should be given an appropriate level of consideration.”

For example, when two credit unions are exploring a merger they shouldn't share the same weaknesses.

“Finding an institution that possesses a dissimilar set of strengths and weakness is important, but this is not always easy to identify as both institutions may have weaknesses that don't show up on a balance,” the authors wrote. “This is another reason that acquiring institutions should procure the aid of an unbiased group to conduct third-party organizational evaluations of all involved parties. There are no mulligans when it comes to consolidations. They either get done effectively or they don't and the implications are momentous either way.”

Glenn Christensen, owner of the CEO Advisory Group in Kent, Wash., said too often credit unions assume it's acceptable to merge with the credit union down the street or because the two CEOs are golfing buddies and assume a consolidation would naturally work.

“Often times you want to look for similarities in some of the softer parts of the organization such as the values, the culture and the strategy to make sure they're aligned,” Christensen said. “Then on the hard stuff, the financials, the products, the services, the technologies, the branching and other operations you would want to look for the differences that can lead to improvements as a result of the consolidation. It's critical that you look to shore up in those areas that you're not strong in.”

In Christensen's experience, however, many mergers fall through because credit unions are simply not prepared to merge when approached or miss an opportunity to execute a strategic merger.

He thinks a critical piece that is missing for many credit unions is a merger readiness plan, which requires the management team and the board to have honest talks in their strategic planning sessions about what kind of credit unions they would like to merge into when approached.

While it may be somewhat easier to develop a merger readiness plan for credit unions that aims to grow through consolidations, the discussions about being the acquired credit union can be more challenging.

“To think about and discuss what happens to us in the event your credit union is acquired, what happens to the board, the managers, other leaders and employees in the organization – that's not a fun discussion to have,” he explained.Nevertheless, Christensen said it's a very important discussion to have because more credit unions are looking at mergers as a strategic way to grow.

Doing Things Differently

To counter the negative perceptions of mergers, credit unions must be willing to try things that haven't been done on a large scale previously.

For example, in some cases, credit unions should consider maintaining the name and brand of the credit union that is being merged, the white paper authors suggested.

When the $55 million White House Federal Credit Union merged into the $408 million Department of Commerce Federal Credit Union last year, Evan Clark, president/CEO of the DOCFCU, said he would essentially keep the White House Federal Credit Union name with a slight name change, and its brand.

“We're going to change the name from White House Federal Credit Union to White House Credit Union, but we're going to keep the brand because it is a very sexy brand,” he said. “People who work at the White House like to use the White House Credit Union credit card and checking account.”

Though this model would not make sense when a large credit union absorbs a very small cooperative, keeping the name and brand could work when the credit union being merged accounts for 10% or more of the surviving credit union or when the merged credit union has a very strong name and brand recognition within the communities it serves.

“Changes to the merged credit union's branding could be as subtle as adding 'a division of AB Credit Union to its logo and marketing efforts,'” the white paper's authors wrote. “Any necessary changes to the merged credit union's core or peripheral systems could be framed as an internal change rather than a product of the takeover.”

Getting Employee Buy In

Research showed employees who were updated early and often during the merger process were 9% less stressed, 6% more likely to remain with the company, 14% more satisfied and 22% less uncertain about the future, according to the white paper.

What Christensen has seen work at some credit unions is that in addition to top executives, board members from both credit unions should be involved when the announcement of the merger is announced to employees.

Employee response from the acquired credit union is typically favorable because they feel it's more of a partnership than a takeover.

“This is certainly one of the things that I've seen work very, very well in just setting the stage for communications,” he said. “Employees are very appreciative for it.”

What's more, employees innately want to feel like they are part of something bigger than themselves, and they want to feel as if they had a hand in achieving a corporate goal.

In relation to mergers, the credit unions should form a merger team that includes an employee from every level of the credit union that is involved in the merger process.

In addition to being a touchpoint for other employees, team members can also communicate updates on the merger progress. Team employees can also inform executives of merger-related issues that may have been overlooked.

Communicating With Members

Members are why credit unions exist. Research also shows regularly communicating with members through all channels (letters, emails, social media, text blasts, mobile alerts, branch flyers, etc.) about a merger is essential to maximize member retention, according to the white paper's authors.

At a minimum, merger communication should include information about any potential changes that will take place to member accounts. Mergers often involve core processing changes for the merged credit union that usually involve at least some variations in account processing in addition to changes to platforms such as online, mobile and audio banking.

“These changes must be communicated effectively in order to save off frustrations stemming from members' confusion,” the white paper authors wrote. “Providing members with informative material allows them to pre-plan for the coming changes and serves to make the modifications less impactful. These changes should be as often as possible framed as upgrades and enhancements in order to gain the buy in of the merged members.”

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Turning Credit Union Merger Perceptions From Negative to Positive

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