By 2025, experts estimate there will be only 4,500 credit unions.

CEOs at the nation's 40 state leagues are working to reposition their organizations for this future credit union landscape. As small credit unions continue to merge into larger ones, many of the surviving cooperatives are expected to expand not only in their home states but across state lines and will need leagues to support their operational and political needs.

Despite the decades-long merger trend in which 16,617 credit unions were lost from 1970 to 2012, league mergers didn't take hold until recent years. From 2007 to 2013, 16 state leagues merged. Ten of the credit unions formed two-state leagues and six merged to create three-state leagues.

Though mergers eroded member credit union revenues, leagues are financially sound because of investments they made in for-profit subsidiaries, according to tax documents filed with the IRS.

League executives point to net assets as a key indicator of financial condition. Net assets include the net income of a league's cash funds, savings, accounts receivable, investments, and the equity value of for-profit subsidiaries. What also has reinforced the financial stability of leagues is that they hold few liabilities such as mortgages and other debts, IRS 990 forms show.

Collectively, the nation's leagues posted nearly $250 million in net assets as of 2011. Many leagues generated year-over-year net asset increases from 2008 to 2011, while others have maintained steady. A handful of leagues have seen strong asset spikes, while a few have had slight declines in net assets but are still financially sound.

For-profit subsidiaries have allowed leagues to become far less dependent on declining credit union membership dues, program revenues and other fees from years of consolidation.

In fact, some credit union leagues such as Iowa and Michigan run operating deficits to keep membership dues low because their for-profit companies are generating strong profits to subsidize the shortfalls.

For example, the Michigan Credit Union League, which posted more than $55 million in net assets in 2011, made more than a dozen dues reductions and rebates worth millions since 2001, when there were 454 credit unions in the state. In 2001, the league collected $3.2 million in membership dues. In 2012, when there were 306 Michigan credit unions, the league received just $635,000 in dues, or about $2,000 on average for each credit union.

“We could run our operation without dues, but we decided not to go that route because we realized on the business side there are vulnerabilities if we were to lose major sources of revenue,” said Dave Adams, president/CEO of MCUL. “We prefer to do the 50% rebate on dues every year based on the performance of the organization.”

Executives contend their organizations can remain viable by continuing to produce innovative products and services while also marketing them in related or new industries for new revenue opportunities.

However, continuing consolidation will put pressure on some leagues to merge, predicted Dan Egan, president/CEO of the Massachusetts Credit Union League.

“You are rapidly getting down close to 5,000 credit unions in the country. It becomes virtually impossible to sustain the stand-alone state trade association model with those numbers,” Egan said. “All of the league consolidations are now gaining the efficiencies of a centralized staff that can be delivered to multiple states. That has really been the answer to the issues of declining numbers of credit unions.”

Egan negotiated the industry's first management agreement with the New Hampshire Credit Union League in 1985 when it was serving 53 credit unions. The Rhode Island Credit Union League was serving 55 credit unions in 1992 when it also signed a management agreement with MCUL.

Egan believes the growing trend of large credit unions opening branches in other states or merging with credit unions in other states will lead to more league consolidations.

“We are seeing larger memberships, partially through mergers and partially through field of membership changes that allow credit unions to grow regionally or nationally,” Egan said. “So credit unions will want services in multiple states to meet their operational and political needs in those states. I think the trade associations are going to have to cover larger geographical areas to be sustainable over the long term.”

Patrick LaPine, president/CEO of the League of Southeastern Credit Unions, agrees.

LSECU merged the Alabama and Florida leagues in 2010, and saved more than $1 million in operating costs as a result.

Demographic information has become so sophisticated it enables credit unions to quickly target growth markets in other states so they can open new branches or merge with other credit unions, LaPine said.

Currently, there are about 700 credit unions that operate branches in other states, and that number is expected to increase over the next few years, according to the American Association of Credit Union Leagues.

“My marching orders from my board are that when we look to continue to expand and grow regionally, we should not be hindered by geographical limitations; meaning, just don't look at contiguous states,” LaPine said.

Ultimately, he said, LSECU's decision to merge with other leagues, regardless of their location, comes down to the best fit when it comes to size, strength and for-profit subsidiaries growth opportunities.

The Cornerstone Credit Union League, which finalized the consolidation of the Arkansas, Oklahoma and Texas leagues in July, is not currently looking for new merger partners. However, the Cornerstone name was purposely selected because it's not location specific, said CCUL President/CEO Dick Ensweiler.

He explained CCUL didn't want to get branded as a southern league, but instead one that could serve credit unions anywhere.

“It was important to us not to have a specific geographic location reflected in the name,” Ensweiler said. “We could get bigger. For many (leagues) our model may be an appealing alternative, but we are not now in the market trying to merge with other leagues.”

Likewise, the Mountain West Credit Union Association is not currently looking to merge with other states, but MWCUA President/CEO Scott Earl said his board would consider it.

Susan Newton, executive director of the AACUL, said she isn't certain credit unions expanding into other states will force more leagues to merge. However, she did predict more inter-league collaboration initiatives to help control costs and deliver products and services to credit unions.

“I do think the (trend) of credit unions growing in multiple states does create an opportunity for leagues to look at how (they) can engage credit unions that are not based in their state, how they can engage them in advocacy and how they can provide them with products and services,” Newton said.

Among the 21 state leagues that merged through consolidations or management agreements, 14 had fewer than 100 credit union members.

Next Page: Cornerstone a Product of Demand

The Cornerstone league merger, for example, included two small leagues. The Credit Union Association of Oklahoma was serving 70 credit unions and the Arkansas Credit Union League was serving 62 when decided to merge with the Texas Credit Union League, which by comparison had 518 members.

Credit union leaders in Arkansas and Oklahoma said mounting financial pressures of rising costs and the demands for more products and services drove their decision to approve the merger.

At the end of last year, 14 independent leagues were serving fewer than 100 credit unions in their states.

Ken Watts, president/CEO of the West Virginia Credit Union League, said he discussed mergers with his board earlier this year. There were 97 credit unions in West Virginia at the end of 2012. Since 2000, the state has lost 35 credit unions.

“We discussed all of this and what's the (breaking) point of sustainability and viability,” Watts said. “Our board feels we still have the mass to be able to function, but it still is a very real concern and one that we have to deal with.”

The Idaho Credit Union League and the Montana Credit Union League are in similar positions.

At the end of 2012, there were 56 Montana credit unions; since 2000, the state has lost 20 credit unions. In Idaho, there were 51 credit unions in 2012, and the state has lost 22 credit unions since 2000.

“My board as recently as nine months ago sort of ratified the idea that they want to stay as their own league,” said Tracie Kenyon, president/CEO of MCUL.

Chris Johnson, ICUL's president/CEO, said he would not be serving the league if he thought it might become a merger candidate.

“Independence in policymaking and management is a key tenet of the governing philosophy of our league board and our service corporation board,” Johnson said. “Personal engagement with our elected representatives and regulators on a credit union-by-credit union basis is of paramount importance to us, and that is something that is best accomplished by an independent league.”

All three league CEOs said they plan to remain independent by collaborating with other leagues for cost savings and revenue opportunities.

Maine Credit Union League President/CEO John Murphy said a league's number of credit union members doesn't really matter. His league serves 61 credit unions. Since 2000, Maine has lost 21 credit unions.

“At one time, every state league had a hell of a lot more credit unions than they have today, so it comes down to the desire of credit unions in each state as to what they want to fund out of their dues structure,” he said. “It really all comes down to that.”

For example, MCUL increased dues in 2009 with the approval of its member credit unions to support a state-wide awareness campaign that the league has managed since the 1970s. Murphy said credit unions continue to support the awareness campaign because it has helped them attract new members and grow.

Some of the larger leagues that serve more than 100 credit unions also are confident they can remain autonomous even though they expect the number of credit unions to fall under the 100 mark over the next few years.

The Iowa Credit Union League, for example, served 121 cooperatives in 2012, but expects that number to fall below 100 in the next five years. Since 2000, the state has lost 72 credit unions.

Patrick Jury, ICUL's president/CEO, said the board decided years ago not to fund the league completely through membership dues and has no plans to increase dues. Instead, ICUL expects to rely on the capital generated from its group of for-profit subsidiaries to support the league's operations.

As Iowa credit unions grow through mergers, Murray Williams, ICUL's chief operating officer, said the league will be focusing on how to serve them.

ICUL plans to remain independent and, as of 2012, it has built up more than $30 million in net assets that can help it stay that way.

“Our model has never been one of trying to find a way to consolidate with trade associations around the Midwest. Our model has been more of how can we engage with the leagues in terms of the products and services they offer their members to create more value for their organizations and create value for our organization,” Jury said.

For example, Jury said ICUL provides regulatory compliance support for the Nebraska, Kentucky and New Mexico leagues. And, he said his league has additional deals with other leagues.