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Credit Union Merger of Equals: A Preliminary Examination

Amid all the backward-looking scholarship on credit union mergers, a weak signal has emerged in the credit union merger landscape: “merger of equals.”

Executive Summary

Over the last two decades, Filene Research Institute has studied credit union mergers from a variety of angles.

In 1999, we examined 1,624 credit unions prior to their merger and their performance for three years after the merger. The resulting report, “How Credit Union Mergers Affect Service to Members,” concluded that in 80 percent of the mergers studied, members of the target credit unions benefitted significantly from the merger.

In 2007, we interviewed 66 credit union executives and board members to determine the boards of directors’ role in credit union mergers. In the resulting report, “The Board’s Role in Credit Union Mergers,” we determined that the CEO and management led the merger, with only a quarter of the boards of directors being fully engaged in the process.

Finally, in 2009 we constructed a complete database of U.S. credit union mergers. The report, “Characteristics of Credit Union Mergers: 1984–2008,” overwhelmingly depicted the typical credit union merger as a large, healthy institution acquiring a small, unhealthy institution.

What is the research about?

Amid all this backward-looking scholarship, a weak signal has emerged in the credit union merger landscape: “merger of equals” (MoE). MoEs occur when two healthy credit unions of similar size combine their assets and capabilities. While relatively few data exist (see callout later in this research brief) to describe or explain this phenomenon, MoEs, while not common, represent a potentially important trend. It is difficult to say what is driving this emerging trend, yet qualitative discussions with credit unions across North America mention the triad of:

  • The need for scale
  • Regulatory pressures
  • Consumer demand for more (expensive) services

Consequently, more and more credit union leaders are finding themselves wanting, or needing, to address the question: How prepared are we for a merger of equals?

On a pilot basis we asked 10 U.S. and Canadian credit unions, ranging in asset size from $150 million to $2.5 billion, to undergo an assessment of their organization’s readiness for an MoE. Participants (CEOs, senior leaders, and board members) responded to two online activities, an opinion survey and a convergence form (see appendix). These activities educated participants on the scope of an MoE and provided them with a quick and safe way to share their personal opinions on the multiple dimensions of MoEs. This document summarizes the 10 credit union leadership teams’ readiness for a merger of equals and presents some general conclusions.

What are the credit union implications?

While Filene’s research indicates an MoE is a valid business tool in certain circumstances, we are not advocating for—or against—one. We are interested in revealing the facts about a trend that will impact many credit unions in the coming years. This research report provides an analysis of the preliminary respondents’ degree of alignment and overall sentiment toward the subject of MoEs. This research report details our interpretations of those participants’ inputs, provides a structure for discussing these results, and pinpoints where discussion is required so credit unions can efficiently converge on next steps around the MoE topic. 

As we acquire more data about credit unions’ readiness (or lack thereof) to engage in an MoE, we will continue to offer the tools necessary to ensure your team is aligned on your future MoE strategy, whatever it may be.