Too Many Credit Unions Lack a Merger Policy

There are two potential approaches that credit unions can take to address merger opportunities: proactive or reactive. A proactive approach entails having a structured policy in place for uncovering and considering potential merger opportunities. A reactive approach often means having no policy at all and likely being unprepared when a merger suitor comes knocking at your door.

As we pointed out in our recent white paper, “When Prospective Partners Coming Knocking,” credit union executives and their boards have a responsibility to consider every merger proposal that comes their way. But can they honestly give a proposal its deserved consideration without having a plan in place? Not developing a policy for responding to merger offers could cause the credit union to miss out on a worthwhile opportunity to secure the organization’s viability for years to come.

Unfortunately, most credit unions are operating without a merger policy. We conducted a survey of credit union executives and directors in conjunction with our white paper, and only 24.2% of respondents said they had a framework in place for considering merger proposals in their board governance policy.

Establishing a merger policy starts with an important first step—a commitment to do it. You can begin by making it an agenda item at an upcoming board meeting, giving everyone an opportunity to weigh on the topic and address how aggressive they want to be in their merger approach. There’s nothing inherently wrong with being proactive or reactive, but boards should periodically take up the topic to assure that directors are on the same page.

Some questions to start the discussion include: Would we consider an offer to merge into another credit union? Could we be an acquirer of another credit union? How do we feel about a potential merger of equals? What are we looking for in a merger partner? What are some potential scenarios (the upcoming retirement of our CEO, the desire to enter a new market, the need to build scale, etc.) that may cause us to change our view of mergers?

Boards should evaluate their merger framework or policy on a regular basis, updating it as needed to reflect changes in the credit union’s goals and financial position. It works well to tie the merger discussion into a broader strategic planning process and to consider the merger policy in conjunction with succession planning.

The possibility of a merger opportunity coming to your credit union isn’t going to vanish merely because you haven’t addressed it. In fact, the pace of credit union mergers continues at over 3% per year. In 2022, the NCUA approved 181 mergers with an average asset size of $62 million.   In the first quarter of 2023 NCUA approved 32 mergers with combined assets of $3.6 billion.  The average asset size growing to $112 million.   If you haven’t already done so, taking action to develop a well-thought-out merger policy is essential to the financial health of your credit union.