Mar 04 '22

Mergers: A Restructuring of the Credit Union System

Taylor C. Nelms
Taylor C. Nelms
Senior Director, Research
Filene Research Institute

Mergers are a reality of the current and future financial services landscape. Credit union leaders are acting proactively, and many are looking for other ways to leverage collaboration to scale. Filene has resources that can help. Over the last two decades, Filene has studied credit union mergers and collaboration from a variety of perspectives. 

Taylor C. Nelms
Taylor C. Nelms
Senior Director, Research
Filene Research Institute

After a slowdown in the frequency of mergers during the pandemic, we’re beginning to see an increase in merger activity again. There is emerging evidence pointing to a continuation (or potentially even an acceleration) of two trends that started to emerge pre-pandemic: credit union acquisitions of commercial banks and “mergers of equals.”

Historically and still today, the vast majority of credit union mergers are between small credit unions and much larger credit unions. Credit unions merge for many strategic reasons, including the desire to expand services, address member growth prospects, and deal with succession planning.

Do credit union mergers create value for members?

Our research shows that credit union mergers can have very positive impacts for members of smaller merging credit union. Members often benefit from enhanced technology, a wider breath of products, and better rates.

Although members of smaller credit union merger partners typically benefit more than members of the larger credit union partners, large credit unions can benefit, too. These benefits might include membership and asset growth, access to established branch offices, and the opportunity to tap into a different group of members and diversify their market and balance sheet.

Credit unions must do their due diligence.

And while many credit unions leverage mergers in their growth strategies, mergers are not guaranteed to be successful. Credit unions must do their due diligence. One of the most important determinants of a merger success that we’ve found is organizational and cultural fit. Both are absolutely critical to ensuring success.

Mergers in the broader ecosystem

Mergers are also not exclusive to credit unions. Consolidation is a theme across financial services, including banks, fintechs, and the broader ecosystem. Suppliers and system partners are also feeling the pressure to realize economies of scale. Mergers and acquisitions in payments and technology providers offer examples; the announcement of the Mountain West Credit Union Association and Northwest Credit Union Association of their intent to merge is another. This merger would create the industry’s first six-state league serving more than 300 credit unions and their 12.3 million members.

Mergers may be one option of many

Lastly, mergers are not the only option to achieve economies of scale and scope. Credit unions have long experimented with unique collaboration formulas and frameworks, including alternatives to traditional mergers such as sharing back-office services, creative shared leadership models, and rethinking fields of membership.

Two examples of unique approaches to mergers:

  • Filene documented a case study on Verve, a merger between three Wisconsin credit unions – Best Advantage, CitizensFirst, and Lakeview – back in 2014. The story of the steps these three credit unions took towards a three-way collaborative merger may inspire other credit unions to explore similar partnerships.
  • Infinity Credit Union in Maine recently merged with Deere Employees Credit Union in Illinois but decided within this merger that the credit unions would retain their brands and local control, while still combining resources and offering more benefits to the members in their respective communities.

Consolidation is, and will likely continue to be, a reality for the credit union system and for credit union leaders. Growing competitive pressures, member expectations about technology, and shrinking margins all mean that it is critical for credit unions to find and leverage opportunities to grow and scale through collaboration.

Below we share our curated list of resources for leaders seeking to learn more about mergers' effects and strategies to ensure success.