In the aftermath of the NCUA's release of second-quarter data, several interesting pieces made their way to my inbox last week. One analysis that stirred quite a bit of debate came from The Financial Brand, stating that if current merger and closure trends continue, there will be half the number of credit unions in existence two decades from now.

The stat just stands there, neither positive nor negative. It's simply exhibited naked to the world. The number of credit unions with less than $100 million in assets has declined by more than 2,200 between 2007 and 2012. Meanwhile, the credit unions with more than $1 billion in assets have increased by 71 to 194, but they only represent 2.7% of credit unions. Credit unions under the $100 million threshold represent 79.6% of credit unions, down from 85%, according to The Financial Brand.

The figures are what they are. The only way to change them is to increase the relevancy at the lagging smaller credit unions (and a couple of the larger ones, too) that members apparently feel are irrelevant. Simple denial that many smaller credit unions are unable to serve their members needs isn't going to fix the problem.

With strong and intelligent leadership and barring extreme situations, nearly every credit union of any size can be healthy. For example, Glatt Consulting's latest HealthScore showed the top 90th percentile of credit unions averaging $601 million in assets, but the minimum asset size for the healthiest of credit unions (based on 11 different criteria) was just $975,000 in assets. Survival isn't entirely about having scale–but it sure can help, as the trends of larger credit unions have demonstrated.

The bottom 10th percentile represented just 1% of the assets, so it's not a huge risk to the insurance fund, but it also represents more than 10% of the industry. Would these 754 credit unions be missed by anyone (other than the employees, unfortunately) if they were gone tomorrow?

The least healthy credit unions aren't all small, for those who think I pick on them. The largest credit union in this category holds more than $371 million in assets. Size isn't necessarily the savior.

Conversely, despite the number of smaller credit unions, The Financial Brand found that credit unions' overall membership growth of 1.5 million or 1.62% has been fueled primarily by the largest 100 credit unions. Approximately 84% of net membership growth occurred at the largest 100 credit unions. More than 30% of credit union members belong to these 100 credit unions, an increase from 28.6% just two years prior. Not surprisingly, these credit unions also represent 45.3% of the industry's asset growth.

If these credit unions are gaining so many members and assets, it stands to reason some are heading in the other direction. Membership at credit unions with less than $100 million in assets are losing members, to the tune of approximately 1 million per year between 2007 and 2012 (more than 2 million between 2009 and 2010) for a total negative growth rate of 6 million members.

That figure is before accounting for population growth in the U.S., which according to Wikipedia was 0.91% for the 12 months ending July 2011, based on U.S. Census data. That negative 6 million is even worse than it appears. And these credit unions have lost more than $5 billion in assets during that time.

Of course there are many really great credit unions with less than $100 million in assets, but for the others, small or large, negative membership and asset growth is not a sustainable business model.

That doesn't spell the doom for existing small credit unions. Certainly during that time some grew their way over the $100 million hump, including by merger.

Credit unions of all varieties are necessary to maintain a healthy system. As Ron Shevlin of Aite Group pointed on in his comments posted to Mt. Lehman Credit Union General Manager Gene Blishen's Tinfoiling.com blog in response to The Financial Brand's analysis, he refers to all industries and businesses as an ecosystem where symbiotic relationships abound.

The metaphor is particularly apt for cooperative industries where smaller credit unions get advocacy, compliance, back-office and other assistance from larger credit unions and third-party vendors, and smaller credit unions provide the mom and pop feel to take up to members of Congress and talk about legislative and regulatory burden. All are capable of being worthy and need each other.

As an aside, despite the predictions that the branch is dead, the larger credit unions are increasing their branch networks as the rest of the industry decreases its number of branches. In 2012, the number of credit union branches actually decreased for the first time. The Financial Brand rightly surmises that 2011 was the likely peak of the branch.

Instant Insights /

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