It's becoming more of a balancing act for credit unions as some of them consider whether a merger may be in their best interests for the long term. The most current consolidation numbers paint such a picture, according to CUNA Mutual Group's latest Credit Union Trends Report. Apprehension about where the economy is heading could be one of the factors behind a continued increase in credit union mergers and signing on new members. Over the last 12 months, there has been a net decline of 322 credit unions with a loss of 16 during April, the data showed. Through the first four months of 2009, the number of credit unions declined by 106, compared to 91 for the same period in 2008, leaving 7,982 credit unions. CUNA Mutual is forecasting that by the end of 2012, there will be 6,624 credit unions. By the end of 2015, that figure could drop to 5,566. The total count depends on whether there are "major system shocks and no significant changes to the underlying value of a credit union charter." "The combined challenges of a deep economic cycle, a credit and real estate crisis, and the financial drag of continued unknown insurance assessments, will lead many credit unions to actively pursue mutually beneficial merger partners," according to the report. The vast majority of credit unions under $20 million in assets could be affected the most, said Dave Colby, chief economist at CUNA Mutual. "All of these challenges, the assessments and others are just overtaxing the leaders of these credit unions," Colby said, adding that 74% of credit unions are under $50 million in assets. "To throw all of this at them, some of them are saying, 'Maybe we shouldn't spend all of our money on these things [but] move in with larger credit unions.'" This could be especially true for credit unions with overlapping geographic FOMs, Colby explained. The smaller financial institutions are probably thinking it would be in their "best fiduciary interest" to gain scope and scale by serving a particular region. As for membership, the steady rise in numbers may be fueled by credit unions seizing the opportunity to court consumers frustrated with bank bailouts. According to the trends report, membership was up 202,000 in April and 1.3 million over the past year, to 91.9 million. Year-to-date estimates through April indicated credit unions have generated a net increase of 1.1 million members. "[We] believe tight expense management [including] purging inactive members, lower deposit yields and high merger activity, [which will reduce] member count redundancy, will more than offset other credit unions who are actively pursuing growth by leveraging consumer dissatisfaction with bailouts of big banking," Colby said. Based on market conditions and historical seasonality, CUNA Mutual forecast that credit unions will finish the year with 1.2 million more members. Beyond 2009, annual membership growth is expected to slow to just below 1%. For now, credit unions reaping the benefits of consumers seeking out safer financial options may consider applying for community charters, Colby predicted. "That's probably going to be the differentiator. If credit unions want to have adequate room to grow, the whole marketing campaign needs to be about community." Even more so now that bigger financial players continue to come and go and single-sponsor credit unions become a rarity, Colby said. "Just think about the [General Motors] credit unions. We saw it with the telephone and military-tied credit unions. Some started thinking, 'We really need to have a community charter,'" Colby recalled. There are some exceptions. Despite the ebbs and flows of the airline industry, most of the airline credit unions are doing relatively well, Colby pointed out. One significant driver of the merger and membership shakeups may be the growing number of mortgage originations that credit unions are experiencing. Despite the downturn in the housing market and the credit crisis, credit unions originated almost 43% more first mortgages in the first quarter of 2009 than they did in the same period last year, according to the trends report. The dollar volume of originations was 41% higher at $25.7 billion. Colby said member demand will remain robust well into 2010 if solid retention strategies are in place. "They're meeting member demand, selling off mortgages and probably generating fee income," Colby said. "Credit unions are doing as much as they can with all of the capital hits. What [they] do now, will define what [they] do going forward." –[email protected]