It’s no secret that consolidation has been and continues to be a part of the credit union experience. We’ve gone from almost 13,000 credit unions in 1990 to about 6,300 in 2014 and 4,400 now. This is not a new trend, nor does it warrant pressing the panic button. But it is worth reviewing why this trend continues and how your credit union might be positioned in relation to sustainability as an institution.
Three Main Drivers of Consolidation
There are a lot of reasons that credit union consolidation continues. Our (non-scientific) observation indicates that there are three factors that continue to be the predominant reasons pushing the consolidation trend in credit unions. So put the panic button away and instead have a focused, open conversation at your credit union about how you are positioned on these factors.
1. Management and Succession Challenges
Much of the overall reduction in credit union numbers has been related to succession events, particularly at smaller credit unions. For credit unions with a staff of 20 or fewer total people, the Manager/CEO wears many hats and is relied on to conduct, oversee, and report on just about everything. This reliance on the individual Manager/CEO affects larger credit unions as well.
This is not, in and of itself, a problem. It becomes a problem when that person comes to a point where she or he wants to retire. Too often, the credit union does not have a “second in command” person waiting to take over. Often, there just wasn’t room in the budget to hire, develop, and retain that person. Recruiting a new Manager/CEO from outside is challenging because candidates who are appropriate for that role are also great candidates for larger institutions (with better pay scales, benefits, and opportunities for growth) to hire as VP-level leaders.
The NCUA’s succession planning rule, effective on January 1, 2026, was put forth with the stated purpose of helping to address this issue. The NCUA acknowledged in the introductory comments to this rule that a lack of effective succession planning is a significant factor in industry consolidation.
2. Complacent Boards
Let’s not forget about the Board. Many Boards have long-serving members who do not have a plan for the future. No one will actually say they don’t have a plan for the future, so don’t look for that to be stated in writing anywhere. These credit unions typically do have a “strategic plan” and talk about the future. But the strategic planning process is too often just a “going through the motions” exercise that does not drive meaningful action. These credit unions are not moving forward and are bound to be left behind, not because they did anything wrong, but because they failed to do anything.
The challenge of moving the credit union forward is exacerbated when the demographics of the Board do not align with the demographics of the member base. Look at your credit union’s data on average member age and average age of Board members. Chances are the average member age has been slowly but steadily increasing over time. This is often accompanied by a decrease in the loan to share ratio. In other words, as your members have aged, their needs have shifted more towards deposit accounts and less toward loans. The longer this trend continues, the less sustainable your credit union is. If you’re not acknowledging and talking about this issue and how to address it, the likelihood that you will need to one day merge your credit union into a more sustainable credit union is high.
There is also a good chance that the average age of the Board is notably higher than the average age of members. Keeping the Credit Union relevant to members and potential members is challenging when the Board is not demographically reflective of members and potential members. Sure, retired people bring a wealth of life experience and knowledge to the Board. But there is a real likelihood of a disconnect between what the members and potential members actually want from a credit union and how a group of retirees view what the credit union should be offering. I’ve actually heard more than one credit union Board state out loud that they only look for retired people to serve as Board members because it is easier to schedule meetings with people who are not working. If this sounds familiar to things said at your credit union, you have a severe challenge.
3. Lack of Purpose
Does your credit union have a mission and vision statement? When was it last updated? Would any of your employees be able to state the mission or vision statement if asked? If you asked employees to tell you why the credit union exists, would they have an answer? Would Board members have an answer to this question?
Responses to these types of questions are too often generic to the point where they do not differentiate your credit union from any other financial institution. In some cases, there was a reason for the credit union to exist when the credit union was founded, but that purpose was lost over time. At the beginning, there was an “esprit de corps” that gave the credit union purpose, often tied to a common employer or other identifiable common characteristic. Members and credit union employees knew why the Credit Union existed and the sense that there was a “common bond” was real. Many credit unions evolved away from that “feel” either because of changes at the original employer(s) segments or by expansion to a “community” charter that diluted the common elements by which members identified themselves as a group.
For too many credit unions, this original sense of purpose, having been diluted over time, was never replaced by anything meaningful. Sure, your Credit Union has a mission statement, but does it actually mean anything that differentiates your Credit Union from any other financial institution?
Taking Action: Re-establishing Purpose & Sustainability
If any of these three factors sound familiar, you should initiate an internal reflection process to re-establish a meaningful reason for the Credit Union to exist and for people to want to work and volunteer there. Don’t call this “strategic planning.” Establishing a strategic plan when you can’t articulate why the Credit Union exists is not going to result in anything meaningful.
It’s very difficult to have effective conversation about the credit union’s purpose if the people involved in the discussion are all long-time “insiders” at your credit union. Asking an independent outside advisor to engage in this discussion with you is of value to ensure there is an objective voice. This person should be someone you can trust to tell you things that you might not want to hear when such topics are necessary to have a complete and objective view of the credit union’s situation.
I have personally worked with credit union management teams and Boards to facilitate and help with this kind of discussion. From that experience, I know that any credit union, regardless of size, can re-establish its purpose and reinvigorate itself around that renewed sense of meaning. From there, a strategy for on-going sustainability can be established.
Focus on What Matters
Consolidation doesn’t have to be a crisis. Each credit union needs:
- A clear purpose that differentiates it from other institutions
- An engaged and forward-thinking Board
- A succession plan to ensure ongoing leadership
Find these elements, and your credit union will be well-positioned for sustainability, regardless of broader industry consolidation trends.
If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
