Credit union consolidation continues; federal to state charter conversion trend eases

<p>ARLINGTON, Va. – The credit union community is definitely in a period of consolidation, as is the rest of the financial services arena. According to data from CUNA, in 1939 there were 8,036 credit unions in existence with aggregate assets of $200 million and 2.3 million members. Thirty years later, the number of credit unions peaked at 23,866 with 21.6 million members and $15.9 billion in aggregate assets. At the end of the first quarter of this year, the credit union community was down to 10,241 credit unions, but membership was up to 82.2 million and assets jumped to $542.6 billion. Between year-end 2001 and the first quarter of 2002, more than 100 credit unions were lost. “One of the amazing things is how they maintain that pace (of asset growth),” NAFCU Director of Research and Analysis Tun Wai said. He credited technology with helping credit unions adapt to the system changes and membership expansion. He explained that banks have an older systems of doing things so when mergers occur, they often have more difficulty in merging the systems, like losing member accounts. However, because credit unions are still entering into new types of technology and are smaller institutions, it is easier for them to change. The relationship among credit unions also accounts for easier transitions. “One of the nice things about credit unions is because they have this type of relationship.when you do merge they try to make sure that the level of service continues.” Being democratically run organizations, this consolidation has an effect on the impact of each credit union members’ vote. “Any time you add somebody, you dilute the value of your vote. That’s always been there any time you add new members,” Wai said. However, he added, “The election process holds true no matter how many institutions you merge with. It’s the politics that change.” He said the change is neither good nor bad, but it can lead to a dynamically different board of directors. Typically, the merged credit unions are smaller institutions, but Wai feels they are not in danger of extinction, though the definition may change. “As long as there is a niche for smaller type institutions, there will always be small institutions,” he said. This is particularly true of faith-based credit unions, he said, which have a special tie to their communities. The trend of federal to state charter conversions appears to be easing. There were 21 last year, compared to 74 in 1997. According to NCUA there were 6,981 federal credit union charters in 1997, which declined to 6,118 at year-end 2001. The size of credit unions converting is also declining. According to Wai, there was an up tick in 2000 in the size of conversions with a total of $9 billion in assets, while in 2001, the converting credit unions held just $4.9 billion in aggregate assets. The average size of converting credit unions from federal to state charter in 2000 came in at $289 million, but dropped to $163 million in 2001. Part of the explanation of this is the change in leadership at NCUA, Wai explained. “There was a wave of dissension with the former chairman at NCUA,” he said, and to avoid the issue, some credit unions converted to state charters. However, he added, “Mr. Dollar has done a wonderful job trying to get people to understand that there is a certain value associated with the federal charter.” Wai pointed out that the conversions are not without a cost, though it may not be dollars and cents. “You have to look at it in terms of what are the advantages of the business I can do and what do I lose in terms of help from NCUA,” He noted certain areas such as California, Texas, Illinois, Colorado, and Washington state are “conversion havens.” [email protected]</p>