Many credit unions become interested in mergers as part of the strategic planning process. They see mergers as a way to gain economies of scale that are essential to their survival, give a boost to membership numbers, help support expanded products and services, or fill gaps in the scope of their field of membership.
The strategic planning process often spurs the decision to pursue mergers because it’s based on asking--and answering--difficult questions about the credit union’s future. When mergers are the topic, the biggest question is often, “What are you hoping to achieve?” While it’s tempting to answer that question with a few words--growth, a community charter, and better member services are three examples--it’s essential to probe for details to make sure your merger partners truly fit your criteria.
Asking questions can help clarify your goals, both in general terms and when you begin to examine potential partners. Questions to ask include:
- Number of members:What is your current membership potential? What is your membership target? Ideally, how many members should a merger partner bring to the table?
- Assets: What is your current asset potential? What is your asset target?
- Size of merger partners: Will you accept partners of any size, or do you want to target credit unions within a particular size range, based on membership or assets?
- Market penetration: What are your goals for market penetration, which may be based on criteria such as SEG or community penetration, or products per household? How will a specific merger partner enhance or detract from your ability to meet these goals? An example might be adding a branch in a neighborhood that contains some existing members but has a low penetration or a low level of products per household.
- Average age of members: What is the average age of your members? Are you actively seeking to lower it? How will a specific merger partner enhance or detract from your ability to meet these goals?
- Other demographic factors: What demographic factors distinguish your membership base? How would you like to influence these demographics to strengthen your credit union? Again, how will a merger partner impact these demographics?
- Charter or SEG limitations: How is your ability to grow limited by your charter and your current SEGs? How could a merger change the boundaries of your charter or field of membership?
- Deposit composition: What deposit products are drawing members? Do you see a need to expand your deposit line-up? Do you offer deposit products that would appeal to members of the merging credit union?
- Loan composition/loan-to-share ratio: Where are your lending strengths? Where is your portfolio lacking? How does the loan portfolio of the merger partner mesh with your strengths and needs? Is there potential to increase loans offered to members of the potential partner, based on loan-to-share ratio and other factors?
- Products and services: Is your current lineup of products and services sufficient to meet member needs? How does it compare to the products and services offered by the potential merger partner?