ARLINGTON, Va.-While membership numbers are surging, the number of federally insured credit unions has now dropped below 7,000.

It is a number not seen since prior to 1939, the first year official statistics for credit unions began to be tracked. In 1939, there were 8,036 CUs in the country, a number that would peak at 23,866 in 1969.

According to NCUA 2Q data, the total of federally insured CUs stands at 6,961, and economists and merger experts see the current rate of credit union consolidation continuing at about 200 a year for the next several years. From 2005 through 2011, credit unions have averaged about 250 mergers annually (see chart).

Including all non-federally insured credit unions, the industry total is 7,218.

Experts hesitated to agree on any cutoff point for the consolidation, and attribute much of the declining numbers to smaller CUs needing to gain scale in times that demand more products, technology, and regulatory compliance expense. Many agreed, however, that the reduction in total numbers and a boost in average asset size will allow CUs to compete more effectively with banks in the areas of advertising, products, reach, and service.

But one person sees in the decades ahead when banks will build a stronger presence versus credit unions, outnumbering CUs nearly two-to-one.


Acquirers Vs. Acquirees

NCUA Chief economist John Worth noted CUs have been consolidating at about 3% annually and that there has not been any significant fluctuation in that rate for the last couple years. To understand what's happening with credit union consolidation, Worth emphasized that attention should be paid to the type of CUs doing the acquiring vs. those being acquired.

"The vast majority of credit unions that leave the system-90% plus-is by merger. The credit unions being acquired are predominantly small. Since the end of 2000, about 75% of the CUs being acquired each had total assets of less than $10 million."

Worth contended that many of the decisions to merge are being made by small CUs as a way to offer more services to members. "Since the end of 2000, about only 50% of credit unions that have merged out had checking accounts, 32% offered credit cards, and less than half had any real estate loans."

CUNA Senior Economist Steve Rick looked that the trends, ran the math, and estimated that by 2021 the industry will have 5,471 CUs. Rick projected that by 2021 the industry will have 436 CUs in the billion-dollar club, and that the growth in assets won't all be due to merger but simply to CUs growing in size. Rick pointed out that currently the median credit union asset size is $20 million.


Top 100 Are The Drivers

What will also drive asset size is the fact the big credit unions are getting stronger fast, grabbing the greatest percentage of the industry's member and asset growth. According to analysis by The Financial Brand, in 2012 the top 100 credit unions (ranked by assets) added 1.3 million new members, accounting for 84.4% of all new members gained across the entire industry. The top 100 credit unions also contributed the lion's share of asset growth in the industry. In 2012, assets of the top 100 equaled $387 billion, or 38% of all assets held by the entire industry. The top 100 credit unions in 2012 added $28.7 billion in assets, accounting for 45.3% of the $63.4 billion gained by the entire industry last year, its analysis suggests.

The Financial Brand estimated that 20 years from now there will be fewer than 4,000 CUs, 1,218 having $1 billion in assets or more, and 319 with less than $100 million.

Rick is one who does see a point when there will be some leveling out in consolidation, predicting that up until 2016 the industry will lose more than 200 credit unions a year, and the total will begin to decline as 2016 approaches. "After 2016, we will lose less than 200 year, so maybe 180, 170, 150."


Bank Numbers May Double CUs

Worth, however, cautioned that it is difficult to draw any "straight line" with CU consolidation, saying CU merger activity could go up as well as go down.

"While we have seen consumers seek a broader array of services, we have also seen kind of a democratization of those services. IT improvements are allowing smaller institutions to offer more services at lower costs. It's really anyone's guess where this consolidation ends up shaking out."

But David Bartoo, president of Merger Solutions Group in Forest Grove, Ore., has a guess. "At an average consolidation rate of just 3% per year there will be less than 5,500 credit unions by 2022, under 4,000 by 2032, and fewer than 3,000 by 2042. A 1% increase in average consolidation rates would put the number of credit unions in the U.S. under 2,000 by 2045. Currently there are over 7,500 banks, and they are consolidating at a rate of less than half that of credit unions. This would put banks outnumbering credit unions by nearly two-to-one in under 30 years."

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