Ensuring a Merger Will Actually Benefit Your Members

The credit union landscape has evolved rapidly, with credit union mergers playing a pivotal role in the sector’s transformation. Over the past few decades, the number of credit unions has dramatically decreased, shrinking from 23,882 in 1969 to just 4,798 in 2023. This decline is largely due to the diminishing number of new credit union charters and the steady pace of mergers. With these mergers, smaller credit unions often become part of larger, better-performing institutions.

Mergers motivated by financial distress lead to positive changes in earnings, capital ratios, and member benefits. However, mergers aimed at providing expanded services appear to only benefit credit union members about half of the time. So, how can credit unions ensure that their members benefit from voluntary mergers?

Up until now, credit unions have lacked the ability to quantify in detail the impact a merger would have on their member segments, or even on their member base overall. That’s where CUCollaborate’s Merger Member Benefit (MMB) analysis comes into play.

The Importance of Careful Evaluation in Mergers

For many credit unions, merging with a larger institution can offer significant advantages, including better interest rates, broader product offerings, and access to more advanced technology platforms. However, not all mergers are created equal. It’s essential for acquirees to carefully evaluate how a merger will impact their members—both as a whole and across different member segments.

CUCollaborate’s MMB is designed to provide acquirees with a detailed analysis of potential acquirers. The model examines how members would have fared under the pricing policies of each potential acquirer. This isn’t just a surface-level comparison; the MMB digs deep into the specifics, comparing loan and deposit types, terms, credit score ranges, and more. By doing so, it helps credit unions make informed, data-driven merger decisions that align with the best interests of their members.

A Data-Driven Approach to Mergers

The MMB allows credit unions to quantify the benefit of a potential merger down to the individual member account. Utilizing historical data from the Automated Integrated Regulatory Examination System (AIRES) to create a risk-based pricing sheet for each potential acquirer allows acquirees to assess exactly how their members’ financial outcomes would have differed if they had been part of the acquirer. For example, if an acquiree’s members are currently paying higher interest rates on auto loans, the MMB can show how much they would save by merging with an acquirer offering lower rates.

This level of analysis goes beyond just the overall financial impact. It differentiates based on FICO scores and enables credit unions to assess the effects on specific member groups, such as prime versus subprime borrowers, or large versus small depositors. This granularity ensures that credit unions can make decisions that benefit all members, not just a select few.

Understanding Credit Policy Fit

Pricing isn’t the only factor to analyze in determining how beneficial a potential merger might be for an acquiree’s members. Credit policy alignment, which dictates how loans are marketed and approved, is also crucial. The MMB evaluates how well an acquiree’s credit policies align with those of potential acquirers. This is particularly important for credit unions that serve specialized member groups, such as those with weaker credit histories. A good match in credit policies ensures that the acquiring credit union will continue to meet the unique needs of these members.

Conclusion: Making Mergers Work for Members

Credit union mergers are complex, and each one is different. The MMB provides credit unions with the tools they need to navigate these complexities and make informed decisions that serve their members’ best interests. By taking a data-driven approach to mergers and considering both pricing and credit policy alignment, acquirees can ensure that their members benefit from the merger process.

As the credit union industry continues to evolve, tools like the MMB will be essential for helping institutions thrive and grow, all while maintaining a member-centric focus.