What’s the Strategy for Credit Union Growth?

There are consistent pressures to do more with the time and resources we have each day. My Apple Watch alerts me each evening that “You can still do it!” and close my dumb rings. Life hack: Put your watch on your dog and let them out in the backyard while you sit having a cocktail and throw a tennis ball to them. Rings closed!

Yes, it’s cheating the system and myself, but some days I only have time for so much.

While on a neighborhood walk recently, to legitimately close my rings, I passed by a tiny church with a tiny, dirt parking lot next to a tiny church sign. It was obviously a church that had been around for decades, the world growing up around it and crowding it into this micro-property.

It was like looking at a three-sided vice closing in on what was probably once a thriving place of worship, but has since been almost cordoned off to the point that it’s nearly invisible. I’ve literally walked down this street before and just recently noticed it was even there. According to my Apple Watch, after about 900 steps I realized what was pinging my brain: When feeling the pressure to grow as the world grows, how do credit unions, especially the smaller ones, do it?

After realizing my wrist computer wasn’t going to haptic-alert me anymore for the day, I took a look at our recent coverage about credit union mergers, acquisitions, charter expansions and what the NCUA’s focus was for industry growth. My thought was, “What’s the realistic and strategic plan for sustainable credit union growth? Is there one? If so, is it working?”

Credit unions are like snowflakes and my hairline – no two are exactly alike and after years of beautiful and significant growth, it’s receding.

I think it’s time to stop viewing the actual number of credit unions as a measure of growth or even decline. As with hair, once it starts receding you find other areas of growth to measure, like growth in exercise or new skills like doing crosswords. I sound old.

The number of federally insured credit unions dropped below the 5,000 mark last year. To my surprise, that appeared to panic some long-time industry experts, according to email I received at the time. I mean, it shouldn’t have shocked anyone.

Let’s focus on the positive for a moment. By the end of 2021, the number of members shot up 4.3% in a year-over-year gain to 131.1 million people.

Overall credit union industry asset growth was 8.8% and the median growth in shares and deposits was 9.6% in 2021.

As far as the constriction happening within our credit union world, the total number of credit union mergers in 2021 was 161 compared to 130 in 2020, according to the NCUA’s quarterly Merger Activity and Insurance Report. That’s a substantial increase.

A breakdown of those mergers showed that four credit unions merged because of poor financial performance, one because of poor management and one because of a lack of growth. The reason given for the merger of 34 credit unions was to consolidate for expanded services. Of the total merger numbers, only 14 credit unions merged into billion-dollar or multi-billion-dollar credit unions.

So what’s the overall growth strategy behind the mergers? I feel like the strategy of many mergers comes from the simple need to ensure survival and/or a surrendering to the realization that many credit unions aren’t equipped for today’s digital and global financial landscape.

The Madison, Wis.-based Filene Research Institute issued a pre-pandemic report in April 2019 that focused on credit union mergers and the value they might bring to members.

Overall, the research showed that yes, credit union mergers do provide a great value to members in the form of lower fees, beneficial rates and expanded services.

In a summary of the findings, Filene experts noted, “Although members of smaller credit union merger partners typically benefit more than members of the larger credit union partners, large credit unions can benefit, too. These benefits might include membership and asset growth, access to established branch offices, and the opportunity to tap into a different group of members and diversify their market and balance sheet.”

The research importantly stated, “And while many credit unions leverage mergers in their growth strategies, mergers are not guaranteed to be successful. Credit unions must do their due diligence. One of the most important determinants of a merger success that we’ve found is organizational and cultural fit. Both are absolutely critical to ensuring success.”

I would love to see Filene update this research for pandemic times. I’ve seen from our reporting that while organizational and cultural fit are very important, many credit unions have been squeezed out due to branches never reopening once the COVID shutdown happened, and/or employees simply quitting and the credit unions never being able to re-staff many frontline positions. It seems the pandemic changed the idea of what a growth strategy was, especially for smaller credit unions, and that led to a more rapid pace of merger activity and executive retirements.

Can we look to the NCUA for help with a plan for industry growth?

According to the NCUA’s 2022-2026 Strategic Plan, “The NCUA will work to recruit, train, develop and retain a highly skilled and diverse workforce that is effective, innovative and able to adapt to the continually changing financial services marketplace.”

OK, great. How will the NCUA pull this off on an industry-wide scale?

I believe the industry’s growth strategies can be pulled off by the flood of new and younger CEOs we’ve seen enter into the system in the past year. This isn’t a knock on the numerous CEOs who’ve retired or announced their retirement since the pandemic began in early 2020. These executives got us where we are today by growing membership and assets as stated earlier.

This batch of several dozen new CEOs could be the new brains with new ideas that crack the code on how credit unions endure. I believe that endurance will come in a form that could radically change what this industry looks like. And by radically change, I mean radically consolidate to grow.

I’ve come to view the merging of credit unions not as a death knell of the system, but as the best way to endure and compete. At least it appears to be the best way to grow that credit union executives can accomplish without the NCUA opening up its regulatory requirements, or without relying on Congress to make big changes to the Federal Credit Union Act.

Like the three-sided vice, the credit union industry still has at least one opening for growth – mergers and acquisitions.

I’m truly excited by what’s lies ahead and finding out what these new leaders have planned, because it’s time to redefine what growth is and can be.

Michael Ogden is editor-in-chief for CU Times. He can be reached at mogden@cutimes.com.