People are beginning to demand more personalized service and attention from their financial institutions. They are no longer willing to exist simply as account balances in their bankers' eyes. Due to this change in attitude, more and more people are seeking memberships with credit unions, where the philosophy of people helping people was never set aside for the corporate rat-race that swept through the rest of the industry.

Faced with these emerging trends, more and more credit unions are recognizing the need to maintain friendly and personalized service while, at the same time, progressing with the industry as a whole to remain competitive.

Consequently, many credit union CEOs and board members are considering mergers and acquisitions as ways to strengthen and stabilize the assets of their credit unions and to protect the interests of, and better serve the needs of credit union members.

With this in mind, there can be several motivating factors for credit unions to look at the possibility of a merger.

The first deals primarily with the opportunity to increase capital or to decrease expenses by joining two separate credit unions which may have an overlapping membership base. Often by combining resources the two financial institutions can better serve their members as one unified entity with greater stability while providing a wider range of services.

Often times, however, credit unions will merge in order to diversify their membership base. Some credit unions have decided that having all your eggs in one basket can hurt if the basket becomes unstable. For this reason credit unions will look to merge in order to have a stable base of membership throughout the rapidly changing economic times.

These reasons for credit union mergers will continue to increase, because credit unions are constantly looking for ways to better serve their members.

If this trend is to continue, what then should credit unions look for while approaching a potential merger? During this "courting" period, the institutions should be aware of such things as cultural fit, organizational compatibility, technological compatibility, and financial stability.

Cultural fit is extremely important in credit unions. It is essential that their membership base have some commonality. For example, if a credit union's base membership were all white-collar workers, would a merger with a credit union made up of primarily blue-collar workers be a good fit? The answer could be yes or no, but the two institutions must discuss this cultural aspect before jumping in too quickly. Unforeseen problems here could result in operational difficulties such as policies as well as marketing obstacles.

Organizational compatibility can also be another large stumbling block if not considered early in the process. If the two credit unions are vastly different with regards to their organizational structure, the results can be devastating.

The ideal situation is that both partners have similar structures as it relates to policies, lending philosophies, administrative functions, as well as overall management styles. If these areas are overlooked the-greatest post-merger problems can occur from dissatisfied employees, resulting in poor morale and employee turnover, as well as dissatisfied members.

Technological compatibility is vital for any financial institution's overall success.

Complications while attempting to integrate systems can be a costly mistake and once again affect service to members. If not discovered early these types of problems could result in large losses to the newly formed institution.

Financial stability (or lack thereof) of a merger partner can have a lasting effect.

The acquiring institution must attempt to estimate projections of items such as cash flows, income statements, balance sheets, working capital, and depreciation schedules, projected as far as is realistically possible (anywhere between three to five years). Ratios such as loans to assets, allowance for loan loss, investments to assets, shares to assets, fixed assets to assets, and others will be helpful in determining the financial condition of both financial institutions.

Our last bit of advice is that both the merger as well as the mergee conduct a full due diligence each other. Our firm has seen several examples of the mergee assuming that the merger must be doing a better job of things because it is larger, only to find out later that it had problems.

This can cause a great division between management, employees, board members, and credit union members themselves. Some areas to look at in the due diligence process include loan portfolio analysis, financial analysis, and human resources.

Mergers are not something to be taken lightly. When approached in the right manner they can benefit all involved; when mismanaged they can be damaging.

Black Ink, based in Idaho Falls, is a consulting firm for financial institutions.

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