Credit union growth — plan and prepare
As a legal advisor to credit union leadership on a variety of matters, I am often contacted by clients when a perceived crisis of some kind has developed, or there is a high likelihood that one is on the horizon.
Counseling clients through crises — perceived or real — underscores the importance of good planning, preparation and foresight as tools business leaders must possess to navigate the many landmines that exist in the credit union marketplace.
Some of the very same clients that contact me in times of crisis also reach out in times of relative peace to discuss a contemplated strategic business initiative that is in the planning stage. For example, credit unions have become very competitive in the financial marketplace by implementing new products and services traditionally offered by larger financial institutions and by improving delivery of their existing products and services.
Over the past several years, credit unions have generally been growing successfully at a pretty steady pace. Growth has come organically and inorganically. Many credit unions have achieved organic growth as a result of the increase in products and services to current membership bases by partnering with vendors, or by adding to the existing membership bases by attracting new members with those products and services.
For instance, many credit unions have implemented an array of e-banking services and have established business and commercial lending services, investment services and insurance services. Other credit unions have grown inorganically by virtue of mergers and acquisitions. In 2014, the National Credit Union Administration approved well over 200 mergers nationwide. In the first month of this year alone, seven mergers were approved in Michigan by state and federal regulators.
Whichever way successful growth is attained, a common thread is good planning, preparation and foresight. To be sure, successful growth will not come from poor planning, lack of preparation and failing to consider potential future consequences.
Here are a few details that should be followed during planning and preparation.
Benefit to the membership. It goes without saying that growth must benefit the credit union membership. Consider how growth will provide value to your members. Offering products your membership does not want or need or that lack a value proposition will only drain credit union resources. As far as growth through mergers, remember that bigger is not always better. While expanding the credit union's footprint can and usually does provide a credit union with enhanced capabilities from an organizational standpoint that will benefit its membership, growing just for the sake of growing can lead to headaches down the road. Careful, planned growth will lead to successful expansion.
Know your partner. Whether you are seeking to grow the credit union through new services or product offerings or through a merger, know your partner. In the case of services or products, know the vendor partners with whom you will be working. Check references and ask other credit unions that have worked with the vendors before. In the case of mergers, determine if a potential merger partner has similar values and like strategic philosophies. Embrace opportunities to explore potential merger partnerships.
Due diligence. Due diligence is the cornerstone of good planning and preparation. In addition to examining the financial condition and legal status of a partner, careful review of operational and regulatory impact is warranted. For instance, core processor considerations and redundant vendor services should be evaluated, as should cost, time and member impact associated with converting or terminating systems and services. Regulatory requirements must be known and strictly followed.
Documentation. Be sure to adequately document transactions with vendors and/or merger partners. A well-drafted agreement and transactional documents will provide order to transactions, big or small, and establish an excellent foundation not only from a relationship standpoint but from a regulatory standpoint, as well.
Know what you can and cannot live with. Not every partner will be a good fit. Be prepared to walk away if you have to.
The factors noted above do not represent an exhaustive list. Good planning, preparation and foresight is not limited to a checklist of items to consider, but rather a process by which business leaders meaningfully engage to recognize and attain that which is best for the organization.
Steven Buquicchio is a partner at Varnum LLP. He serves as outside general counsel to a variety of businesses and organizations with an emphasis in credit union, financial services and business representations.