Fewer CUs Could be a Bad Thing; Or Maybe Not
The total number of credit unions in the United States stands at 9,171 at the end of June, but that number continues to decline. Where once there were over 24,000 CUs, the number very soon will dip below the 9,000 mark. So far this year alone over 175 credit unions have disappeared. The average decline over the past number of years has averaged somewhere in excess of 300 each year. Some predict that figure will balloon to over 360 next year. Although mostly smaller credit unions are disappearing via the liquidation or take over route, credit unions of all sizes are ceasing to exist as a result of mergers. There were only 13 mergers in July, 10 of which the credit unions involved had less than $10 million in assets. But there were 46 mergers in June. When all is said and done, the downward trend caused by these liquidations and mergers is irreversible since almost no new credit unions are being chartered. New banks on the other hand are sprouting up all over. So what say some. This is really bad say others. What does having fewer credit unions really mean? It all depends on who you talk to. Take a look at one of the front page articles in this issue which is based on an in-depth CEO interview by Credit Union Times editor Paul Gentile. It is basically a retirement story on Cliff Dias, the 57-year-old Portland Teachers Credit Union CEO who has formally announced his long-planned early departure and return to Hilo, Hawaii. But a closer reading reveals that Dias, a very successful and respected CU CEO, has some pretty specific views on where credit unions have been, are headed, and why. For instance, Dias thinks there needs to be a lot more credit union mergers, not fewer. "Credit unions can't afford the cost of technology and the cost of new products and services without having some mass," he says. "Your size can help you compete more efficiently." Of course not everyone agrees. Some say the loss of even one credit union for whatever reason, but especially the disappearance of small credit unions, is wreaking havoc with the image and political clout "of the credit union movement." As one concerned leader put it recently, "there is strength in numbers and we are rapidly losing that advantage." Not so fast argue those not bothered by the declining number of credit unions. Remember that while the total number of institutions is going down, the number of credit union members keeps going up to the point where 100 million members is no longer a pie-in-the sky achievement in the not too distant future. And, this camp adds, total industry assets are far greater with ever fewer credit unions on the scene. So it comes down to which is better, fewer but much larger credit unions serving more members with more products and services and of a size enabling them to be better equipped to compete against a banking industry that is trying to beat credit unions at their own game? Or, a large number of credit unions including a large share of small CUs that in the minds of some, look and act more like the credit unions back in those 24,000 strong days? There is no doubt how Dias feels about it. "There's always a place for small credit unions to serve a particular market, but that's not the norm. People these days are interested in consolidating their business, not having five or six accounts with other credit unions," says Dias. To further make his point, the soon-to-be retired CU CEO adds, ".a billion dollars in assets is when credit unions really get the economies of scale benefit." And he might have also added, can offer more convenience, a bigger market basket of products, and more high-tech services. While debating the pros and cons of the declining number of credit unions, the industry as a whole continues to make great strides in all other categories. According to figures just released by NCUA, the loan-to-share ratio is up to almost 76%, a nearly five-year high. Total assets are up and getting close to $700 billion. Loans, shares, investments, net worth, and membership? All showing healthy increases. Meanwhile delinquencies are down. Does this support Dias' contentions that fewer but larger and more sophisticated credit unions are better for members? And that this is what it takes now and especially down the road for credit unions to hold their own in an increasingly competitive market place? Maybe, maybe not. For one thing there are still thousands of non-billion dollar credit unions doing a great job for their members. They offer everything the big guys offer and are showing steady if not the somewhat spectacular growth being shown by members of the billionaires club. They see no advantage to their members and potential members in linking up with another credit union and joining the ranks of the over one billion dollar credit unions overnight. One thing CEOs and boards of credit unions of any and all sizes will agree on is that member service must be a top priority to succeed. Where the disagreement kicks in is when the discussion turns to who can serve members better, fewer credit union with size and all the bells and whistles, or a larger number of credit unions that do what they do so well that they won't be liquated or merged out of existence? In the article in this issue, Dias also weighs in on the changing competitive landscape: "Banks used to be so focused on the commercial side until they learned consumer banking can be very profitable. Bank dissatisfaction has tapered off. They have gotten their act together," says Dias, a former banker. Which leads to the final and obvious questions: is the shrinking total number of credit unions a good thing or something to be concerned about? Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail firstname.lastname@example.org.