PORTLAND, Ore. – Regulatory pressure, the need to offer better products and services to members, and a lack of a succession plan following a CEO's retirement are all common reasons behind a small credit union's decision to merge into a larger cooperative.
But these days, even healthy, mid-sized credit unions are considering mergers, simply because they must compete with the country's largest financial institutions, according to Roger A. Jones, managing partner for the Redmond, Wash.-based CPA firm Jones & Sas, LLC.
Jones, who has worked as a bank and credit union merger consultant for the past 21 years, offered advice to credit union executives and board members during a breakout session at NWCUA's Amplify Thursday.
Since bigger credit unions tend to tout better financials, smaller credit unions should certainly consider merging, Jones said. Citing the NCUA's Financial Trends Report from June 2014, he said credit unions with more than $500 million in assets achieved higher growth and loan to share ratios. For example, credit unions with $500 million in assets or higher had an average asset growth rate of 9.17% compared to 6.63% for credit unions with $100 million to $500 million in assets.
“There are significant, immediate and persistent benefits,” he said of mergers. “These are not just short-term benefits, they kind of go on and on.”
He urged credit unions to be practical during every step of the merger process. When shopping around for a potential partner, he recommended focusing on the institution's organizational fit, mission statement, membership composition, products and services, and experience. Then, he said, the credit union should focus on maximizing the accounting side by focusing on three aspects of accounting: Pre-merger GAP capital, fair value adjustments and post-merger trailing costs.
Merging credit unions also need to focus on managing their board members' expectations, Jones said. While achieving the right cultural fit is a huge concern for board members, so is the financial impact of a merger.
“What I hear a lot from board members is: Are we going to make money on this? Should we be concerned about losing? What are the financial outcomes? But boards need to understand that mergers can often benefit the surviving organization,” he said.
He also offered the following practical tips: Have a merger response plan in place that accounts for succession planning and vendor contracts, don't fixate on minor details in the exact value of the portfolio, and be concerned about your credit union's overall health and its ability to recover from a temporary downturn.
Jones also noted mergers of equals as an emerging trend, but pointed out that they are the most complex types of mergers because there is no dominant partner involved and they result in the highest noninterest expense reductions.
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Natasha Chilingerian
Natasha Chilingerian has been immersed in the credit union industry for over a decade. She first joined CU Times in 2011 as a freelance writer, and following a two-year hiatus from 2013-2015, during which time she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union), she re-joined the CU Times team full-time as managing editor. She was promoted to executive editor in 2019. In the earlier days of her career, Chilingerian focused on news and lifestyle journalism, serving as a writer and editor for numerous regional publications in Oregon, Louisiana, South Carolina and the San Francisco Bay Area. In addition, she holds experience in marketing copywriting for companies in the finance and technology space. At CU Times, she covers People and Community news, cybersecurity, fintech partnerships, marketing, workplace culture, leadership, DEI, branch strategies, digital banking and more. She currently works remotely and splits her time between Southern California and Portland, Ore.
