trending Market Intelligence /marketintelligence/en/news-insights/trending/jcqycfksmbuctzxme_ajda2 content esgSubNav
In This List

Struggling to compete, tiny credit unions succumb to mergers

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


Struggling to compete, tiny credit unions succumb to mergers

The smallest credit unions continue vanishing from the financial services scene and are reducing the total number of credit unions in the U.S.

There were 5,646 operating credit unions in the U.S. at the end of the first quarter of 2018. That number was 5,859 a year ago. The credit union industry lost a net 688 institutions nationally since the first quarter of 2015.

It is often the tiniest credit unions that are leaving. The average asset size of the credit unions that disappeared between March 31 and June 7 was $16.3 million, a study by S&P Global Market Intelligence found. That is the lowest that mark has been in more than a decade.

SNL Image

Illinois had the sixth most number of operating credit unions in the country at the end of the most recent quarter, at 262. But the state has lost a net 88 credit unions since the first quarter of 2013 and 176 in the past 10 years.

Tom Kane, president and CEO of the Illinois Credit Union League, said in an interview he feels badly for small credit unions that have been around for decades but have found it impossible to continue independently because of compliance, regulation and competition. In Illinois, about 84% of credit union are below $100 million in assets.

Kane said there have only been two credit unions with more than $100 million in assets that have left the Illinois landscape in recent years. In some cases, mergers are strategic but usually it is a last resort. "Most of them feel like they don't have much of a choice," Kane said.

Even though economic conditions of late have been pretty favorable, some small credit unions are still at risk. When the next downturn inevitably comes, they could be in trouble. "If they're not making good money now then their chances of being able to stick around and survive another recession are probably fairly low," Kane said.

Even the passage of S.2155, the regulatory relief bill, would be more of a help to medium and large credit unions and not so much their smaller counterparts, Kane said. Some of the mortgage-reporting requirements will be eased, though, so that could provide a little relief.

Lack of succession planning is another large hurdle for the smallest institutions, according to Kane. "They can't find anybody to come in and take over a $25 million credit union," he said. Many times they also have trouble finding enough volunteers to man their boards. The obligations and responsibilities of those positions have become much more complex in recent years.

"The days of getting people to volunteer and work in the credit union for nothing are starting to wane," he said.

The number of federally insured credit unions with less than $10 million in assets declined to 1,486 in the first quarter of 2018 from 1,608 a year ago, the National Credit Union Administration reported. Those credit unions held a combined $6.2 billion in assets, or less than 1.0% of total system assets. Credit unions in that category also reported a 6.0% decline in loans. Their membership fell 9.5% and net worth declined 5.9%.

Although the number of credit unions continues to shrink, overall membership continues to grow. in the first quarter, the industry grew to 114.1 million members. That represented year-over-year growth of 4.3%.

Kane said he tells credit unions around Illinois that mergers will undoubtedly continue. Credit unions with dynamic leaders, however, that offer attractive products and services and have loyal memberships can continue independently, he said.

"But when JPMorgan Chase & Co. can put literally billions and billions of dollars into their mobile app, how do you compete with that?" he said.

SNL Image

There have been a few deals around the country involving two credit unions of $300 million and above recently, but Kane said he has heard no such talk among Illinois' largest institutions. He said the state has about 15 credit unions above $500 million in assets, and the only institutions that never worry if they are large enough to compete are those above $1 billion.

Kane said he has heard little chatter in Illinois about groups interested in launching de novo credit unions, and those that have considered it ultimately became part of an existing credit union's field of membership instead.

"It just takes too much money and too much effort," he said of launching a new credit union. "It's a tough slog."

SNL Image

Did you enjoy this analysis? Click here to set up real-time alerts for data-driven articles on the U.S. financial sector.

Click here for a template showing the change in number of credit unions over time on a state-by-state basis.

Click here to view aggregate financials for U.S. credit unions.