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7 steps to help your credit union when considering a merger

Feb 24, 2021

COVID-19 had slowed merger activity while credit union executives and boards of directors prioritize the impact of the pandemic, record high mortgage volumes and PPP loans.  

Despite the uncertain environment, now might be the ideal time to consider merging with a compatible credit union. 

With the speed of change in technology, credit unions need to continuously be looking forward to meeting the needs of members.  A merger can provide significant benefits in these efforts.

A moderate-sized credit union can increase its asset size, allowing for the ability to benefit from economies of scale. The member experience could be enhanced by expanding digital access and product offerings through investing additional resources in technology.

Internally, human capital gained could fill or enhance talent gaps and ensure proper succession planning, and increased capital and reserves could assist in weathering the impact of increased risk associated with loan portfolios.

During a time when organic growth may be difficult, mergers offer an opportunity to continue to increase the member base and assets, ultimately driving enhanced member benefits. 

Smaller credit unions may need to consider a merger as on option to ensure sufficient resources are available to address compliance challenges, remain competitive and relevant, and address management succession issues. Unfortunately, the uncertainty related to credit risk may create financial distress, where a merger is the best option.

If your credit union is considering a merger, having a strong policy and experienced partners to provide guidance through the seven steps below will help smooth the process and provide your management team and board of directors with confidence in their process and decision making.

1. Understanding of purpose and strategic planning

Making sure the board of directors, executives, and members are on the same page is the key to a successful credit union combination. The first step is understanding what a merger entails from financial and human capital perspectives. The following should be clear to all stakeholders:

  • How a merger fits into the current strategic plan
  • The purpose and objectives of a merger
  • The financial resources required to facilitate a merger
  • The potential impact on employees during and after a merger
  • What a compatible merger partner looks like from financial and cultural perspectives

2. Identification of opportunities

The process of identifying potential merger opportunities can be as simple as calling a credit union that has been identified internally, or it may require the assistance of consultants who specialize in mergers and acquisitions. While there is no listing service that can be searched to find credit unions that are interested in merger opportunities, third-party consultants maintain informal lists of contacts who have expressed interest or appear to be a good merger candidate.  

3. Introductions

The board of directors and executive management typically participate in meetings to “get to know” each other. The primary purpose is to determine compatibility. This should include strategic focus, financial characteristics, membership characteristics, values and culture. Many credit unions prefer to have an experienced M&A consultant facilitate these meetings to guide the questions and keep the conversation on track.  

4. Negotiations

When the board of directors and executive management determine there is a good fit, the negotiation process begins. While the negotiations start at this point, they continue throughout a merger process until a definitive merger agreement outlining the exact terms of a merger is executed. Attorneys and experienced M&A consultants are engaged to assist in determining the best structure and navigate potentially contentious decisions.

5. Pro forma, fair value analysis and due diligence

To obtain NCUA approval, organizational and loan due diligence, valuation of the balance sheet and pro forma financial projections should be completed. Organizational and loan due diligence determines the accuracy of the financial statements and typically includes review of credit files and vendor contracts. To determine the current value of the credit union being merged, the fair value of the balance sheet and net assets “acquired” are calculated. Finally, a merger will create synergies and efficiencies through the combining of operations. Pro forma financial projections are calculated to determine the estimated financial impact to earnings and capital. These processes are typically completed by consultants or CPAs experienced in mergers and acquisitions.

6. Approval and closing

Once organizational and loan due diligence is completed, a definitive merger agreement is executed, and pro forma financial statements are prepared, the NCUA Merger Package is submitted to the NCUA and governing state regulatory authority, if applicable, for approval. To complete the process, the membership of the merging credit union must vote to formally approve a merger. 

7. Integration

Have an integration plan that includes the following:

  • Detailed timelines
  • Clear roles and responsibilities
  • Communication with existing and newly merged members
  • Processing and verification of merger transactions on the financial statements and regulatory reports
  • Change management for employees of both entities

How Wipfli can help

Having a well-thought-out merger strategy can mitigate the inherent stress and complexity in a merger decision and process. Wipfli’s experienced team of credit union merger experts can guide you through the process. Considering every step of the changes we have been experiencing, as well as changing the expectations process, helps drive an exceptional outcome for credit unions members, employees and management.

Learn more  on our M&A web page.    


Danielle M. Heidemann, CIA
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