WASHINGTON-According to credit union analysts, the trend toward a more consolidated credit union community will continue well into the future. Smaller credit unions, as well as federally chartered credit unions, are particularly affected by this environment. "This trend is going to continue on for some time," said NAFCU Director of Research and Analysis Dr. Tun Wai. "It will continue because the traditional excuse is they want to offer services that the credit union doesn't already have." In this, the personal connection of credit unions with their members could be at risk. Not to say that larger credit unions cannot serve their members and stick to the credit union philosophy, Wai emphasized, but members may not be addressed by name when they walk in the door. "When you talk about being large just to be large…and provide services at a lower cost…, that may not be what the member wants," he explained. The economy of scale is important, CUNA Senior Economist Steve Rick commented. He pointed out that studies have shown that once an institution reaches $200 to $200 million in assets, which is still a fairly small institution, it has reached the peak where it can offer services at the least cost to itself and to its members. "In a way, it is helpful to offer a broader array of services, and credit unions can still have cooperative common bond service," he said. NAFCU's statistics demonstrate that the merger trend is on the upward swing of the pendulum. In 1997, 62 credit unions merged; that number nearly doubled the next year to 114. By 1999, 195 credit unions merged and in 2000, 221 credit unions merged. Wai noted that most of these mergers were voluntary and that the `assisted' mergers were in the single digits. Rick said that these numbers still are not anywhere near the 897 CUs that merged in 1983 during the height of the merger movement. Wai also emphasized that while the number of credit unions merging is on the rise, the assets of the credit unions are shrinking. In 1997, the aggregate assets of the merging credit unions totaled $620 million, which fell to $560 million in 1998. An anomaly occurred in 1999 where the total assets of merging credit unions jumped to $1.21 billion, but that dropped to just $150 million by 2000. In 1999, there were a few larger credit unions that merged. Wai added that this trend of increasing mergers of less assets does not necessarily spell doom for smaller credit unions. "There are special niches…where a smaller credit union can serve their members and do it very well," he said. For example, he named church associated credit unions, because they are typically even closer knit than other credit unions. Rick agreed that smaller institutions are necessary, "especially when it come to low-income credit unions." He stressed that many times, that small credit union is the only financial institution willing to serve the community of smaller depositors. Both highlighted that technology is key for these smaller credit unions to be able to compete in the financial institutions marketplace. "That's why, we, as a trade association, try to push more towards technology," Wai said. He admitted that one can definitely see the technological advances at many of the larger credit unions, but smaller ones sometimes lack the staff and resources to advance technologically. Rick added that technology can help smaller credit unions still reach the economies of scale with less resources. Smaller credit unions are not the only ones feeling the squeeze of consolidation into larger credit unions. Most cross mergers, a merger between a state and federally chartered credit union, tend to keep the state charter, according to Wai and Rick. In 1998, of 69 cross mergers, only nine chose to continue the federal charter, according to NAFCU statistics. In 1999, the split was 51 to 35 in favor of the state charter. Last year, 60 merging `mixed' credit unions took the state charter, while 28 kept the federal charter. "This indicates to me, when looking at merging partners, the states have something to offer," Wai said. It should be more equal, he added. With NAFCU President and CEO Fred Becker's arrival at the trade association, the organization has been campaigning to `enhance the federal charter,' and this data supports their belief that right now states have the advantage, Wai said. Rick said that choice is essential to the credit union movement. "That's why we have a dual chartering system, so people can choose," he explained. "Right now one is more attractive." [email protected]