Navigating the Merger Lending Due Diligence Seas
Few things spark as much excitement and anxiety within credit unions as the word “merger”. There are plenty of merger tales that resulted in loan servicing issues, technology challenges or resource under commitment. However, as merger activity continues to be a key growth strategy in the industry, a little foresight into early due diligence, merger planning and a post-merger activities can insure a successful integration for members and staff. With this article and the upcoming Merger Lending Due Diligence White Paper, you can equip your organization with the tools needed to successfully navigate the merger waters.
As the merger process begins there are several loan challenges that should be addressed immediately. First, the credit union must “know what it doesn’t know” then understand it. It is essential to recognize the make-up and nuances of the merged loan portfolio. Failure to realize the portfolio composition opens the surviving credit union to undue financial and reputation risk. Nothing is worse than discovering a pool of bad loans or the inability to properly service loans due to poor due diligence and fact finding early on in the merger process. To assist with this process, Chris Oldag EVP/COO at City County CU of Fort Lauderdale shares a few due diligence factors to help identify what the credit union doesn’t know.
Once the risks are identified and the loan integration is ready to begin, establish an integration plan to guide the credit union through the process. The focal point should be to establish the lending tasks, assign those tasks, set completion dates and regularly review the plan progress. As Chris Oldag once again states, “the scope is never as small as it appears”. Merging an organization’s loan portfolio of any size is a monumental event. The variety of loan products, loan documents, system parameters, mapping intricacies and member expectations make this one of the most critical events a credit union can undertake. A well-defined plan with proper resource allocation can be the difference between a successful or failed merger.
Lastly, there are a couple post merger steps to take to insure the successful transition into the new organization. While the experience is fresh in everyone’s mind, create a lessons learned document. This exercise will identify the lending challenges experienced by the credit union. Furthermore, it will identify what was done well, what could have been done better and what would have been done differently. In the end, the next merger will run more efficiently resulting in a better member experience. Next, focus on the member needs. Chris Oldag points out the need to “embrace the business development needs of the acquired loans”. The new members need to be understood and contacted after the merger, so the relationships can be developed to meet their lending needs.
In the end, a sound lending due diligence plan is the critical first step in a merger project. By understanding the risk and quality of the incoming portfolio, steps can be taken to mitigate the risks for the credit union. In addition, what is uncovered during the fact-finding activities can be easily included in the loan integration plan for tracking and completion. This will allow for a member-focused approach post-merger and a successful navigation of the merger lending seas.
Michael Peters is the Consumer Loan Product Manager at United Federal Credit Union, St. Joseph, MI.
Special thanks to Chris Oldag EVP/COO City County CU of Fort Lauderdale for contributions to the article.
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