Finding an Ideal Merger Candidate

There were 326 mergers in 2004 but how do credit unions evaluate merger partners? Credit union executives highlight three key issues they consider when planning a merger.


There were 326 mergers in 2004 that represented $3.07 billion in assets. How do credit unions pick a merger partner? Sampled credit union executives highlighted three key issues they consider when researching and evaluating a merger.

Field of Membership

Several credit unions pursue merger candidates to expand their field of membership. A credit union on the East Coast merged with two credit unions in 2004 to expand its manufacturer SEG to include a healthcare SEG. The manufacturer SEG group had experienced several plant closing and layoffs and the original credit union thought it could create growth opportunities by expanding outside of its original field of membership.

Credit union executives consider whether the potential merger credit union has the same type of membership. “We would consider as a bargaining point what the credit union’s field of membership is and how it fits in with our objectives and strategies,” said a credit union chief financial officer from Michigan. “It may not be a good fit if they are a community credit union and we only serve a specific SEG.” However, several community credit unions have acquired specific SEG credit unions for financial reasons and/or to add members to their organization.

Due Diligence Process

Credit union executives commented that they scour the balance sheet and income statement of the potential merger credit union to check for financial stability and complementary line items. There are a few examples that demonstrate this process:

  • Analyzing the loans currently on the books to determine their risk levels. It will examine the maturities and types of loans on the books, delinquency and charge-off rates as well as the loan portfolio composition.
  • Electing to sell parts of the other credit union’s loan portfolio to the secondary market after the merger to maintain ALM objectives.
  • Examining the other credit union’s internal policies such as HR and lending guidelines.
  • Checking for complementary product offerings. For example, Credit Union A has a large adjustable rate mortgage portfolio while Credit Union B has a significant fixed mortgage portfolio. The credit union should check for synergies to determine if there are appropriate cross-selling opportunities between these products.

Decision-makers also examine several financial ratios and portfolio compositions to measure the financial stability of the credit union and complementary product offerings. Some of the financial information that executives analyze includes:

  • Capital ratio
  • Liquidity
  • Return on Assets
  • Investment portfolio composition
Member Services

Smaller credit unions often seek out larger credit unions for mergers to expand their member services offerings. While the smaller credit unions would like to offer additional services, they do not have the existing resources. Services they are lacking may include offering debit cards, Internet home banking and various mortgage products to their membership.