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With the number of credit unions dropping from a one-time high of 24,000, to well below 10,000 with no let up in sight for the downward spiral, the word survival is heard more frequently in credit union circles. There should be no doubt in anyone’s mind that credit unions are here to stay. The eventual number, although unpredictable, will never hit zero. However, it has also become obvious that there will continue to be fewer credit unions every year. But as a separate and distinct financial entity, the credit union industry will definitely survive. Nevertheless, credit union statistics show that with increased credit union liquidations and mergers, survival is a very real issue for at least certain categories of credit unions. Can it thus be concluded that the small fry of the credit union world are doomed to extinction sooner rather than later? Not necessarily, despite what some statistics show and the constant fretting by some regulators. Let’s divide most of the 9,000 plus remaining credit unions into three asset size categories and look at each. First, there are the small credit unions. By small, let’s assume we’re talking about those under $10 million, the new number NCUA uses to define small CUs. Next there are the middle-sized credit unions. For this discussion we’ll define middle-sized as between $35 million and $75 million. We are especially singling out here those credit unions that have been approximately the same size for a long time. Then there are the large credit unions, a category of CUs anywhere between several hundred million to King of the Hill Navy Federal Credit Union on its way to becoming a $20 billion shop. The large credit unions will always be around. Although relatively small in number, soon they will represent 90% of the industry’s assets and members. Large CUs will not only survive, but will get ever larger in all important categories. Not just assets. These are the credit unions that the banking industry would like to eliminate overnight. But if they can’t do that (they can’t), at least they would like to tax them out of existence (they won’t). Generally, large credit unions are doing a good job of meeting their members’ changing financial needs and increased demands. They can take care of those who want high-tech. They can satisfy those who want lots of human touch points, namely, high touch. These are the credit unions that constantly offer new products and services. They offer competitive rates. They pay generous dividends. Whatever way members want to interact with these credit unions, from the Internet to convenient branches, they can. Large credit unions never stop looking for ways to serve their members better and they have the economies of scale and management and board expertise to do it. On the opposite end, it cannot be denied that many of the smaller credit unions are in danger of disappearing. But not all of them. There will always be those small credit unions whose members understand them. They see them grow slowly or not at all. These CUs fit a niche like a small hardware store down the street from Home Depot. Members know these credit unions can not function as full-service institutions, or even offer the best rates like the big guys, but that’s okay with their members. Many smaller credit unions have small but loyal memberships who have modest expectations. They support them with at least a small portion of their financial business, like a separate savings account and perhaps a small loan. They like the manager and the volunteers, the personal service, its feeling of family, in many cases the convenience, and in other instances the fact that this credit union was once their main credit union. They don’t want to see it fail. The third category, the credit unions most in danger of not surviving are those in the middle group. They are not small enough to enjoy the support mentioned above that some small credit unions receive. They attempt to be warm and fuzzy like the little CUs but are a bit too large to pull it off effectively. While striving to present an image that belies their smaller size, they may experience the opposite effect with members who want to support what they perceive to be a small credit union. Despite sometimes having aggressive marketing, these middle-sized credit unions are not large enough to be like the full-service credit unions also described above. They try to provide what the big guys offer, but often fall short in members’ eyes because of the expectations created, especially those with new facilities. Although they may market and position the credit union as being able to do about everything a member would want, they often don’t have the staff and volunteer expertise, the potential membership, and the financial wherewithal to make it happen. They just don’t have the numbers. This despite the fact that as they struggle for their place in the credit union sun, they may actually be working harder and longer hours than even those below and above them in size. Middle-sized credit unions can’t be regarded as small or large. They exist in a space that makes them become increasingly a candidate for a merger with a much larger credit union. And that is what is happening. Mergers involving credit unions in this category are going to occur with even more frequency as member expectations of large CUs, and thus of those credit unions that try to operate as large credit unions but can’t, become greater. The solution to survival for middle-sized credit unions as a stand alone CU is to go backwards or forward. They either must choose to look and act like a small credit union, or do whatever it takes to move into the ranks of the larger credit unions. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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