NAFCU Services Blog

Dec 02, 2021

Growth: Not a One-Size-Fits-All Solution

By Deedee Myers, Founder & CEO, DDJ Myers, Ltd.

There is one important question that every credit union needs to consider when navigating through a complex and competitive landscape, and that is this: How best can I grow?

There is no one-size-fits-all answer to this question. Some credit unions may find their best pathway is to achieve growth organically—by introducing new products and services, reaching out to new members via online advertising and social media, expanding their existing community field of membership, and so on.

Mergers, of course, are another pathway to growth. If you decide to pursue a merger, size will likely determine on which side of the merger equation you’ll find yourself. A small credit union may find growth a tough proposition, and the best venue for survival may be to find a larger merger partner. Mid- to large-sized credit unions also may be looking to grow via merger, seeking out partners that will bolster asset and membership size while also providing such benefits as economies of scale, expanded geographic market area, and a pool of employees who already know the financial services industry.

However, mergers may or may not be the best strategy for some credit unions to achieve growth. The cost components involved—i.e., regulatory approvals, systems and accounts conversations, employee retraining, and more—may make the acquisition of a small-sized credit union less efficient than achieving asset size growth from within the organization itself.

Take, for instance, the case of $2 billion USAlliance Federal Credit Union, Rye, New York, as described in the three-part white paper from DDJ Myers, “More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies.” Over the past decade, USAlliance nearly tripled its asset size by completing a series of nine mergers. Those credit unions ranged in asset size from $15 million to $40 million.

At the time, those mergers proved to be a great source of growth. However, since exceeding the $1 billion asset mark, President/CEO Kris VanBeek reports that the credit union has become more discerning about the threshold for proceeding with a credit union merger.

“As a $700 million credit union, moving forward with the merger of a $40 million credit union made sense,” VanBeek says. “At $2 billion, it makes less sense. If we’re originating $50 million or more in new loans every month, is a $20 million merger really worth it?”

In some cases, the answer might turn out to be yes—for instance, if an opportunity came along to merge with a small credit union that provides growth potential via an expanded field of membership. If such potential doesn’t exist, however, VanBeek sees investing in new products and services as a better path forward for achieving growth.

Sometimes the best merger decisions are those that don’t happen. In fact, VanBeek estimates that for every merger opportunity that USAlliance has completed over the past 10 years, it’s taken a pass on five or six more. “If the board or culture or any other aspect of the organization doesn’t align with us, it’s okay to say, ‘No, it’s not a good fit,’” he says.

Click the link to download the three-part white paper, More for Members: Credit Union Leaders Plan Post-Pandemic Merger & Acquisition Strategies.”

About the Author