Acquired Credit Unions: Drivers of Takeover


  • R. Raymond Sant Associate Professor Department of Finance St. Edward's University, Austin TX
  • Stephen Bryce Carter Austin, TX



ALM, asset liability management, charge-offs, credit unions, mergers.


In this paper we study acquired credit unions and analyze their financial performance up to six years prior to merger, on a quarterly basis. The primary focus is on balance sheet (asset liability management) and profitability variables (return on assets). We find that acquired credit unions during the period 2008 (third quarter) to 2014 (first quarter) experienced negative return on assets for several quarters prior to their takeover. This was the result of a declining loan portfolio and increasing charge offs. In spite of decreasing lending activity, such credit unions continued to increase their deposits, i.e., adding to their cost base. Due to declining loans, their net interest margin as a proportion of deposits was also in decline. We argue that this is an indicator of poor management ability. Furthermore, our analysis finds that operating expenses were increasing over time, something that has been documented in previous literature also for smaller credit unions and is attributable to lack of economies of scale. The average asset size of the acquired credit unions in our sample is about $22 million just before acquisition. We attribute our findings to poor business strategy followed by such credit unions. We also conclude that signs of trouble are evident up to two years before merger on average and regulatory policy may have to become more proactive to manage the consolidation challenge faced by the credit union industry in general.


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