The Rundown

• Forty-nine percent of all credit unions showed zero tonegative membership growth in third quarter.
• Analysts still believe smaller credit unions can behealthy.
• More than a year later, Bank Transfer Day stillreverberates.

As 2012 comes to an end, many credit unions marked anothermomentous year when it came to growing their member rosters.

The latest figures from the NCUA that showed an increase inmembership growth from 643,322 to 742,847 in the third quarteroffered proof that more consumers are joining more credit unions.As of Sept. 30, there were 93.9 million total members.

Those numbers are likely to bring holiday cheer to the industry,still reaping the benefits of Bank Transfer Day, which recently touted a one-year anniversaryin November.

But peel back a few layers of the growth onion and some may findthat the drivers of membership numbers are still coming mainly fromthe larger peer groups.

Indeed, credit unions in the $2 million to $50 million assetrange are not experiencing the same scenarios, according toTom Glatt Jr., strategy consultant with Glatt Consulting, aWilmington, N.C. -based firm. In fact, 49% of all creditunions showed zero to negative membership growth, which is upslightly from 47% in the second quarter, he added.

“It's not that membership hasn't increased. What the trades arereporting is accurate,” Glatt said. “Yes, we are growing, but it'sthe smaller ones that need to grow. You're ignoring half of thecredit union community.”

In his third-quarter 2012 Credit Union Industry HealthScoreanalysis, Glatt found that credit unions in Peer Group 1, or thosewith assets less than $2 million, had an average HealthScoremembership growth of negative 2.07. Those in Peer Group 2, withassets between $2 million and $10 million, had negative 1.01, whilePeer Group 3, credit unions with assets between $10 million and $50million, came in at positive 0.46.

Calculated quarterly, the HealthScore range is based on a fivepoint scale, with five being the healthiest and zero being theleast healthy.

The HealthScore numbers with credit unions in Peer Groups 4, 5and 6, or those with assets in the $50 million to more than $500million range, is where the real growth is occurring. Those scores,respectively, are 1.88, 2.94 and 4.59.

What are some of the reasons why the smaller credit unions arenot growing their memberships? Glatt said one culprit could bevisibility.

“You may have a branch that is locked down because it's not inthe community. Some of the smaller credit unions are beholden to asingle sponsor,” Glatt said. “They likely didn't have an interestin Bank Transfer Day and [former bank customers] are probably notthe people that they're attracting anyway.”

Then there are a fair number of credit unions that could careless about increasing their member bases, Glatt said. Instead, theychoose to look at other ways to define their success such asthrough loan and decent deposit relationships. However, for thelong term, that measurement could lead to failure.

“Some credit unions were dying on the vine. Their only choicewould be to merge,” Glatt said, adding over the past five quarters,the industry has lost 400 credit unions.

Still, those smaller cooperatives that had miniscule or nomembership growth in the third quarter, are not the bane of theindustry, Glatt noted. There is always room to thrive.

“Small credit unions can be healthy. We should want small creditunions to be healthy. For those small credit unions that aren't, weshould push them to do better–and help them when they falter,”Glatt said.

CUNA Mutual Chief Economist Dave Colby offered a second set of data that showed the 100fastest growing credit unions accounted for 82% of all themembership growth in the third quarter. On the other end of thespectrum, 3,241 credit unions or 46% reported declines. They makeup roughly 15% of the industry's assets.

“There's no doubt that there is a real concentration issue, butit's not just about body count,” Colby said. “What it really comesdown to is what members are looking for in terms of products andaccess channels. Your mom and pop credit unions don't have these.They might not have an online or mobile presence.”

Looking back at Bank Transfer Day, Colby said while the nationalfinancial institution switch movement brought in 2.6 million newmembers over the last year, he would want to see what happenedafter those share draft accounts were opened.

“If you did 90% of your banking with a bank and then moved allyour money over to a share draft at a credit union along with yourvehicle loan and mortgage, that doesn't count in membership numbersbut it certainly does in building relationships,” Colby said.

Both Glatt and Colby emphasized that while the bigger creditunions are the main drivers of membership growth, some of the bigcooperatives have problems of their own, too.

In a recent analysis, Glatt pointed out there is a credit unionout there with more than $500 million in assets whose HealthScoreis less than the average negative 2.07 for credit unions under $10million in assets.

“Of course, at that size, such credit unions often have fargreater reserves to withstand periods of poor health. Again, mypoint was only to suggest that health and size are not bipolar.Regardless of your size, you can be healthy,” Glatt said.