End the Consolidation Hand-Wringing
The issue has nothing to do with the asset size of the credit union but actual quality service and understanding of and ties to the community or field of membership it serves. For smaller credit unions, it particularly helps to have the support of the sponsor for space and other resources. But when they’re creative and resourceful, credit unions can accomplish great things even without those things. I caught up recently with Gregg Stockdale of 1st Valley FCU who’s doing just that at $37 million in assets.
Even SAFE CU CEO Henry Wirz, who often writes about the downfall of the small credit union, agreed on that point, though he still contends a larger credit union can do it more efficiently. I concede the point but is efficiency always better? It goes back to what you consider service. McDonald’s serves decent coffee efficiently, but Starbucks is still booming at twice the cost. Many local coffee houses are faring well in the shadows of these two giants, too.
To Henry’s point though, a decade ago there were more than 10,000 credit unions. As of Aug. 31 there are less than 7,200, according to a CUNA compilation of NCUA figures. In the last 12 months, the number of credit unions declined 3.6%, yet assets grew by 7.5% and membership grew by 2.7%. The average size of a credit union has reached $144 million in assets, up from $57 million 10 years ago. These dramatic swings are in large part due to consolidation brought on by constricted lending, ever-increasing compliance burdens, CEO retirements, scale and various other factors. It’s a trend that experts see continuing for some time to come.
Credit unions nationwide are looking for ways to improve their earnings. Sometimes that can be achieved by mixing up product offerings or investments or fee income. Other times, credit unions are looking for scale and may decide a merger is the best option for both the merging and acquiring parties. Not every credit union can or deserves to remain in business. While credit unions are not-for-profit, they are not charities and they are not savings clubs. If credit unions want to truly compete with banks, they need the right mix of product offerings and back-office efficiencies to appropriately serve their fields of membership. Bemoaning the declining number of credit unions simply for the sake of numbers is not a worthy cause. Moving forward with the strongest credit union industry possible is what is needed. Purpose-driven safety and soundness is key and not sheer numbers.
Not every credit union can or deserves to remain a credit union. Some do act more like banks, and credit union diehards take offense to that. If you want to act like a bank, be a bank they say. The problem with that mentality is that, generally speaking, these credit unions tend to be the larger ones–the ones that support the national trade groups and leagues that provide desperately needed educational and other services for smaller credit unions. You can’t live without them and politically they can’t live without the smaller credit unions. Work together or the industry will fall apart.
Much of this debate rests on the member-owner myth. I didn’t used to feel that way, but in hosting a web seminar on mergers last week, it got me thinking about Educational Systems FCU’s $35 merger fee that was to be charged (but ultimately rescinded) to members of the merging MCT FCU. If credit unions' members are truly owners, they should accept some of the cost. They’re more than willing to accept the lower rates, fees and dividends in good times. Perhaps it could have been handled in a different way. I don’t think many credit unions would think twice about lowering APY or raising APR to make up necessary capital. This fee was more transparent than burying it in the regular costs of doing business. Something to think about.
At the same time membership growth has been stronger in the last 12 months than recent history as we head toward the first anniversary of Bank Transfer Day, which will be Nov. 5. Consumers still believe in supporting local entities and are shying away from the big banks. NAFCU’s October Economic & CU Monitor found that 56% of credit unions responding said that membership growth in the past year has exceeded expectations and that those new relationships have strengthened over the last year. The most common effect has been an increase in accounts cited by 60% of respondents, followed by real estate loans (33.3%), credit card loans (26.7%), auto loans (20%) and CDs (6.7%).