Instant Gratification Through Mergers

Small credit union managers can be forgiven for feeling a little stressed. They regularly face one of the most challenging jobs in the financial industry: trying to operate a small, community credit union in the same field as well established credit unions as well as national chain banks and savings institutions. And with Internet banking well-established as additional competition, it’s a bit amazing that there are as many small credit unions still in play and operating as there are today. Signs of operational struggle often include:

• Membership stagnation – if a credit union is struggling to keep membership growing, that’s a red flag that its market position needs to change going forward or risk market loss in the future.
• Financial size limitations – economies of scale have become a key ingredient to success for credit unions.  The scale enables the ability to reinvest in growth initiatives, and provide superior returns to members.
• Limited loan growth – lending is clearly where a credit union makes its revenue, yet the majority of smaller credit unions struggle to maintain strong loan-to-share ratios.

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See Video: Is Now the Right Time for a Merger?

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With today’s financial competition coming from multiple fronts and different economic capabilities, it’s well worth the time for the leadership of small credit unions to think and consider out of the box solutions for moving forward the next five or ten years. And a merger with another credit union can leverage greater capability in that regard very quickly. Some of the ways possible include:

• Account growth – With a merger, both credit unions benefit from the combined membership.  The greater resources enable the credit unions to generate higher balances and greater account penetration.
• Increased labor expertise – As a larger entity, a merged credit union can attract better talent with greater career opportunities and benefits. That in turn increase the credit union’s talent pool for improved operations.
• Increased organizational investment – A larger operation can pull together the resources to acquire and install better technology in the credit union and apply scales of economies for improved pricing and lower operational margins.
• Additional branches and market reach – A small credit union is often limited by its physical footprint. With a merger a credit union can leap forward with additional branches and greater regional presence than it had before or would have been possible alone in the next five years.
• Increased market awareness – A larger credit union gets noticed better in a wider market. And that eventually leads to more accounts being opened, larger partnerships with companies and organizations to offer financial services, and faster membership growth.

The possibility of a credit union merger should not be automatically looked at as a negative alternative. Clearly, there are some significant benefits that allow a small credit union to mature to the next level of its business growth, more specifically at an exponential rate of development. And that’s the kind of market development a credit union needs to stay viable and strong in today’s financial market. The ValleyTrust Case Study provides a great example of a credit union benefiting from a merger.  Mergers are not always the best approach, but they should be seriously considered as one of a number of tools small credit unions can use to take their enterprise to its next stage.