Credit Union Mergers Are Complicated Relationships

Some credit unions seem to have been destined to be partners for life, while others found they just couldn’t take the plunge.


Was it love at first sight, destined to last for all eternity? A thoughtful courtship by partners that complement one another and have similar future goals? Or a tormented affair that was broken off before it was cemented? I’m talking, of course, about credit union mergers. While it’s true that one credit union cannot divorce the other, there are some mergers that appear to be perfect unions. Combined, that one institution successfully supports multiple headquarters, staffs, and product sets.

Mergers can be opportunistic when two institutions decide they would be greater as one. Or mergers can be solely for legal purposes. For example, several credit union groups, including Affinity Group and Self-Help Federal Credit Union, operate structurally as a single entity for compliance and reporting processes, yet the individual institutions within these models maintain separate credit union branding.

A credit union undergoes a merger to improve its standing and, more importantly, its members’ standings. Without improved member value, there is little that is sustainable or beneficial about a merger. Given this sentiment, is it possible to objectively measure the success of a merger or classify the intent of the partners?

Rate Of Credit Union Mergers
Data as of December 31, 2011
Callahan & Associates' Rate of Credit Union Mergers
Source: Callahan & Associates' FirstLook.

After several years of declining merger rates, 2.5% of credit unions were merged into other institutions in 2011. With the financial turmoil of 2007 – 2010, many mergers that may have been executed voluntarily were put on hold or not explored. Executives focused on internal operations to manage expenses, balance sheets, and member needs.

Mergers Completed By Quarter
Data as of December 31, 2011
Callahan & Associates' Mergers Completed By Quarter
Source: Callahan & Associates' FirstLook.

With the crisis abated and promising economic data, credit union merger activity picked up in the second half of 2011. While the overall rate of mergers for the year was unchanged, charter cancellations in the second half of the year totaled 98, up from the 79 cancellations during the same period of 2010. Assets of merged institutions increased over 2010 levels to $4.87 billion from $4.04 billion. However, one merger, the First Tech/Addison Avenue combination, represented nearly 50% of the total.

Merged Credit Union Assets
Data as of December 31, 2011
Callahan & Associates' Merged Credit Union Assets
Source: Callahan & Associates' FirstLook.





Feb. 13, 2012


  • As the members own the credit union, I don't see why you think their vote should be eliminated? If the members believe the merger will lead to better services, synergies, and cost savings then they will probably approve it.

    And again, as credit unions are member owned, using their capital for incentives could be problematic.
  • Mergers should be simplified and accelerated. Member voting on a merger should be eliminated as long as the net worth is combined – and very limited additional safeguards considered. Regulators also need to allow mergers to provide for greater incentives to the management of the target institution. Incentives would speed up the number of inevitable mergers, ultimately reduce risk to the NCUSIF, and acknowledge the hard work of the people who really built the target institution. Mergers also lead to better services to members and the communities because of simple synergies and cost savings which can be captured.
  • The merger process would be enhanced if there were less restrictions on Charters. If a CU finds a good partner and it benefits the membership then what difference does the Charter of the merging CU have to do with anything?
    Michael Stremme
  • Chris - You apparently believe the myth that members “own” the institution. Another viewpoint from a recent Filene study “Power and Governance: Who Really Owns Credit Unions?” puts it quite differently:

    “Given the power of boards, CEOs, and regulators over capital, it is not possible to view members as the credit union’s owners in the classic sense. Member ownership rights are modest; some might even argue that they are trivial. Members cannot sell or otherwise transfer their theoretical share of ownership to others. They cannot withdraw their share of the credit union’s capital when they move or when they terminate their membership. Their heirs do not have an equity claim upon their death. The only times that credit union members receive capital distributions are when the credit union is liquidated or when regulators conclude that the credit union is grossly overcapitalized and permit the credit union to make a special capital distribution. In most non-credit-union cooperatives, member owners have far greater power to transfer and redeem their ownership shares…Four actors – CEOs, boards, regulators, and members – all have some power to control and deploy capital. One conclusion from this multi-power arrangement is that the four are joint owners. An alternative view is that the true ownership is so vague and convoluted that no one owns the credit union. The credit union, in essence, owns itself, and it is a self perpetuating entity.”

  • The above findings are not to be lauded, but rather need to be digested and confronted in order to deal with the "democratic deficit." The conversation we *should* be having is about how to *empower*, not *disempower*, credit union members. Some recent thoughts on the topic:
  • The "democratic deficit" is because of the "ownership deficit" - the two need to be linked by reality. "(CU) Member ownership" is a fiction. That being said, some "marketing" implications exist for promoting the (CU) fiction as discussed in the blog, but is it honest? At least a food co-op (blog example) can be structured to link the democratic and the ownership. The emerging dynamic of depositories enhances the reality discussed in the Filene study. Credit unions need to put member’s names on the net worth (stock ownership) or quit promoting the charade that a credit union is “owned”. Promote it like Sam’s Club – or even AAA.
  • Lydia, great article, really appreciate the research you presented.

    One of the most critical factors in any merger is planning for the cultural integration. In the context of Credit Unions, that encompasses both the culture that employees share internally, as well as the culture that members experience externally.

    As merger activity picks up, I hope that this area is one that credit unions spend more time on upfront.

    Steven Ramirez, CEO

    Beyond the Arc, Inc.
    Steven Ramirez