Membership Growth, Not Mergers, Could Fluctuate on NCUSIF Assessments
That's according to CUNA Mutual Group's new "Credit Union Trends Report." At the end of February, there were 8,021 credit unions, as estimated by CUNA Economics and Statistics. Through the first two months of 2009, the net decline was 67 institutions.
Over the past year, the credit union count decreased by 322 institutions, which is in line with CUNA Mutual's early 2009 forecast of 350 credit unions.
"We haven't seen the full impact of the assessment. That will alter the path of consolidation," said Dave Colby, chief economist at CUNA Mutual. "The stuff we're seeing now has been in the process for awhile. There are usually one or two troubled mergers a month. But most are executed over time."
The need for additional economies of scale and scope are not surprisingly linked to how the nation's economy shakes out, Colby added.
Although the industry lost 361 credit unions in the under-$20 million asset class in 2008, the remaining 4,576 small credit unions, which represent 57% of all credit unions, had a collective capital-to-asset ratio of 15.6%, according to the report. Colby offered this up as more proof that reasons other than capital challenges will drive mergers of these smaller institutions. Some of the trials include succession planning for retiring CEOs.
"The average age of leadership is getting up there," Colby said. "I firmly believe when it comes time for boards to replace the CEO, they're going to have sticker shock."
On the flip side, a CEO's retirement may open up a window for a board to evaluate bringing on new products and services, Colby said. That may be more the case at smaller credit unions with a limited lineup of offerings. At the very least, "high capital levels will make them more attractive merger partners" if they choose to go down that path, he pointed out.
While it may be too early to say if the NCUSIF assessments will trigger more mergers, they could have an impact on membership growth. Credit unions may take a potentially less aggressive stance with deposit pricing and meeting asset growth targets as a result of net worth ratio gyrations, Colby said.
"If you limit growth in assets, you can improve capital asset ratio. Given the depth of some of these assessments, some credit unions may be forced to do that." Depositors may leave if CDs are not priced competitively or if rates fall below the market threshold, Colby explained.
Membership gains are traditionally seen in the early part of the year as newly funded marketing budgets help to sign up additional select employer groups and attract new members, the report noted. Through the first two months of 2009, credit unions added 627,000 members with an estimated 91.4 million members at the end of February. CUNA Mutual indicated that it is more than halfway to meeting its early 2009 forecast of 1.1 million new members this year. While this reflects normal seasonality of data, Colby will be looking closely at CUNA Mutual's model assumptions to see if they accurately reflect the current market and economic conditions.
"Credit unions are challenging every expense dollar. Every credit union is going to be very active in managing their membership rolls," Colby said. "One CEO told me even sending online statements is costing [more than keeping the low-account member relationships]."