Credit Union Exam Solutions Presents With Flying Colors

Speaker: Hey everyone, this
is Mark Trike with another

episode of With Flying Colors.

I hope you are having a
good day here in March.

March Madness.

Great weekend of basketball.

And I'm gonna be talking
about Merger Madness today.

I've got a PowerPoint presentation
I put together by look, which goes

through some data and some opinions
on the NCA data from their quarterly

merger reports that go back on their
website to the third quarter of 2018.

We took a look at, or I took a look
at all of the credit unions that had

merged and compared their data and
their median data and looked at those

credit unions that had acquired.

And so in this instance, we have
one 1,901 credit unions since 20.

18 that had either merged or had
been the survivor of a merger.

So the total universe of credit
unions is 1,901, and there were 1,298

mergers during that time period.

Again, goes back 31 quarters
if I'm not mistaken.

And includes over 111 billion of
merged assets 30 quarters of NCA data.

There was one quarter that
was missing for some reason.

But anyway here we go.

We're off and running and.

If you're watching on YouTube in
this instance, it'll be a little bit

better to follow some of my numbers.

I'll try and do a nice summary
so that if you're just listening,

it still makes sense and not
throw too many numbers at you.

But this is a more numbers
than normal that'll be throwing

out here in the podcast today.

And we go to the consolidation math page.

Slide number one.

Credit union mergers typically
run between 130 to 180 per year.

That's three to 4% of the U
units per year on average.

And one of the takeaways is that,
and you know this, when you read the.

The articles that are out there,
but the average merging credit

union and in this instance, I'm
talking average not m median.

In 2018, the average total assets of
merging credit unions was 36 million.

And this last year,
2025, it was 285 million.

So the trend is bigger and
obviously as smaller one goes

away, that should be normal.

But this is almost what, eight times.

Seven.

Yeah, seven times six and a half times
the an increase over those years as far as

the average size of credit union mergers.

And if you're under 285 and you're
trying to survive and you see the

average merger is that I'm sure makes
you scratch your head about how you can

continue to fill your niche, et cetera.

But again.

The highest peak was in 2019.

There were 254.

And you can see that here on this slide.

For those of you on the podcast
what we can see here is that.

The biggest year of mergers
and numbers was 2019 with 254.

The lowest was the year before
that 2018, which had 106 and 20.

In 2025 there were 157 mergers.

And what other takeaways as
far as the number, the second

highest number as far as.

The busiest merger year
would've been 181 in 2022.

And if you're watching those
numbers are in the blue bar charts.

Then the red line, which is
the emerging assets you can see

that has really shot up here.

But it was.

And I'll round to the
nearest billion in 2018.

4 billion in assets, 2019,
15 billion in assets.

Then it fell down to 20,
in 2020 to 6 billion.

And I believe with that being the lowest
second, lowest number, 130 merged in 2020.

That was, the world was frozen because
of COVID in many different ways.

And I think mergers just
didn't happen that year.

And then they picked back up in 2021.

In number but in assets, it was
still 6 billion, again, 2022,

11 billion, 2023, 9 billion, and
then it shot up to 14 billion,

the second highest number in 2025.

And then it went through the
roof as they say in 20 25, 40.

$5 billion in mergers and that was some
very large credit unions that merged.

Not gonna go into specific
names here, but you've read the

stories as well have as I have.

But that's a trend that is impacting
credit unions and will probably, IM

continue to maybe not match the 45 billion
because of some of the big players that

were merged, but I expect to see that
trend of bigger merging to continue

as we move forward despite the fact.

That there's new trade
associations out there for small

credit unions, which is great.

And I love small credit unions,
but it's getting harder and

harder for them every year.

So the quarterly data, 30
quarters of merger activity.

Again, here we have the blue
bars, which signifies the units.

The red line, which signifies
the assets that have gone away.

And the biggest takeaway here was
the fourth quarter of 2019 was a

juggernaut almost 140 credit unions
merged in that fourth quarter.

The second highest quarter was
almost less than half of that,

which was the third quarter of 2022.

And it looks like there was about 58.

And other than that, the
quarters look pretty reasonable

when you look at dollars.

The second highest dollar quarter
was that quarter that I mentioned,

the fourth quarter of 2019.

No surprise.

Nearly a hundred and 50 units merging.

Got some stuff going on in the background
here, which is why I'm chuckling

and I'll just leave it at that.

The, there were 150 units.

In 2019, and that was also the
second highest number of dollars.

And then the third quarter of
2025 was when a lot of the large

credit unions barged last year
driving that data through the roof.

Now, why Credit Union merged?

This is called, it's not what you
think, and, I don't wanna say that's

misleading, but let me explain what
it's not, what you think means.

The chart shows 80%
voluntary, 20% involuntary.

And when I say 20% involuntary,
I don't mean that 20% of.

Those credit unions were forced by
NCUA through the requirements of

the Federal Credit Union Act, or
through the requirements of prompt

corrective action regulations,
risk-based capital regulations.

It was the identifying party
saying that they were involuntary.

It was under distress that they had
management issues or governance failures

that they had to deal with that they
had poor financial condition that they,

this says no officials, but they had
challenges getting officials that they

had management issues or they lost
sponsor support or lost their sponsors.

So in that category, there were
265 mergers, 7 billion in assets.

141 tied to financial conditions.

74 tied to challenges with officials.

19 tied to challenges with management,
and 31 tied to a loss of sponsor.

Now, on the voluntary side, this
is where, it's the standard.

We did it for expanded services.

It was a strategic choice.

This was over a thousand mergers,
over 104 billion in assets.

And these credit unions had a
median, ROA of being positive.

The other credit unions had a.

Median ROA of being negative.

And we'll go into, I've got another chart.

The last chart I added here, although
it's not the last chart in the PowerPoint

that goes into some median data merged
and versus median data of the rest of

the universe, which shows the kind of
numbers you would think, but it kind of

verifies the conclusions that you might
have when you think about who might merge.

So merger region by year.

Again if you're listening this
chart has, I gotta move my.

My screen here a little bit.

We have blue, we have
red, orange, and gray.

The biggest category is blue,
which is expanded services.

The next biggest category most
years is poor financial condition.

The next biggest in the
orange is typically.

Typically challenges getting officials.

And then the other category is there
in gray nothing real alarming there.

Merger type distribution, federal
charter, and state charter.

So this is an interesting chart.

I, it i to describe the color scheme.

If you're listening, it kinda
looks like a Denver nugget.

Jersey, you got blues, you got o orange
shoes, and you got yellow Qs like the sun.

But this shows mergers of feds into feds.

Feds into Fiscus a Fis U as a state,
federally insured, state chartered

credit union fisco into Fis U into Fed
Fis U into Fis U and other, which would

be something involving an uninsured
credit union getting merged into.

Either a fed or a state.

The big the interesting thing here
is that feds tend to merge into feds,

states tend to merge into states.

The biggest category nearly
every year is fed into Fed.

The second biggest category
is Fis U into Fis, U.

The third biggest category
is fed into fis ccu.

So if a Fed merges it's more common to
a, for a fed to merge into a Fis U than a

Fis U to merge into a fed, although every
year has some of those fiscus into feds.

And some of that could be just
what happens in that state.

Some of that could be field
membership rules being more

accommodating one way or the other.

But the number one type of merger is
fed to fed number two, fis, U to Fis.

U number three is fed to Fis U and
number four would be Fis U to Fed.

Serial acquirers.

I, that's the header here.

I think maybe a frequent flyer would
be a little bit nicer way to say

that a serial acquirer has a little
bit of a negative connotation to it.

And I don't mean that, but
there are some volume players.

The most active acquirer completed
24 mergers in a four year period.

That's one nearly every six weeks.

Multiple credit unions have done.

Seven to 10 mergers absorbing
smaller credit unions.

And then that's one approach.

Credit unions these frequent
flyers tend to take and 104 credit

unions during this time period
completed three or more mergers.

So again, these would be frequent flyers,
but then there's the scale players.

Some acquirers focus more on larger
deals, getting a few mergers of one

to $2 billion credit unions joining.

And then creating a, a bigger institution.

And you can see when you look at the
data, you can see which credit unions

are playing which game, or which credit
unions are taking, which strategic

choice, maybe better than a game.

Mission-driven, several acquirers
specifically go after credit unions

that have challenges with their numbers.

So you can see there's people out
there watching the numbers saying, Hey,

this is somebody we might wanna reach.

And by the way on that the chart of of.

The 80% chart, let me go back here.

The 80% voluntary versus
the 20% involuntary.

A lot of times when you're out with,
when I was at NCA, people would come up

to me and say, Hey, I really wanna know
when you're shopping these credit unions.

And that led to NCA while I was
there creating the merger registry,

which is a great tool, but the
reality is very few instances.

It is a handful, five to 10 each
year where the regions are asking

credit unions to take a bid where
the regions are expecting to maybe

take some, pay some money, and that's
where the registry comes into play.

It's more often that these deals
are cut on the golf course that

they're cut at dinner, they're cut
between boards getting together.

They're cut between.

The consultants out there who help
credit unions find other credit unions

that's how these deals generally get
done, not through NCA pushing it.

Now, NCA will, if a credit union
does have some challenges and capital

will say, you need to pick a floor
where you're not gonna go below this.

And NCA will want them to pick a floor
that's not going to cost the agency money.

And, they will do that.

And that's not necessarily
one that NCA required.

It's one where NCA said, if
you don't do certain things,

you'll decide to go that route.

It's a subtle nuance, but it's
not where, a credit union is going

to be insolvent within two years.

And because of that, NCA decides to do
an emergency merger, which allows the

field of membership to transfer over.

And by the way, I've had some situations
where credit unions wanted to know,

Hey, will NCA waive the merger vote?

Had an interesting conversation
where the surviving credit

union didn't like the answer.

But the answer is the answer and
Hue does not like to waive that.

They will only do it in rare instances.

And why is that?

Because they respect the
democratic process, right?

The member should have a choice,
and it's very hard to get away

from that member has the choice.

So while the act and the
regulations allow for a waiver room.

Of a merger vote.

It's not something that NCUA likes
to do very frequently and will

do only when it really truly is
an emergency of the utmost type.

So pre-merger profile this is
the median merging credit union

versus the median general.

So this looks at the.

5,300 call report of merging credit
unions versus the general population,

and it's the median numbers.

So the median merging assets
was 11 million versus the median

general population was 66 million.

So that, so on average.

The merging credit union is six
times smaller than the average

median credit union out there.

The median number of members,
1,308, or 1,382 versus 4,800.

So the median number of members
is three and a half times.

Smaller in the emerging credit union, the
ROA, this was a, an interesting number.

The, and it's the biggest kind of
tell of the haves and the have nots.

The median merging credit union was a loss
of two basis points and the median, ROA.

Of the general population
was 71 base basis points.

So the median merging credit
unions, breaking even at the

median general population, credit
unions making a decent profit.

And again, that means half of the credit
unions median, half of them lost money.

Merged and half of them didn't.

But that the middle most one
was two ba two basis points.

Lost net worth ratio.

They're very similar.

The merging net worth is median is 11.2

versus 12.5

for the general population loan to
share emerging credit unions at 55%

versus 70% for the general population.

Membership growth.

This is interesting.

I had to.

Double check this data, but it's accurate.

The merging credit union's membership
growth was a negative 91 basis points,

and the general population membership
growth was a negative 19 basis points.

So that means the middle most credit
union is shrinking the la and so

when you see that the industry in
total is growing, it's because the

big credit unions are growing in
members, not the smaller credit unions.

And then delinquency, delinquency
is higher, 32% higher in

the merging credit unions.

But that's only comparing 50 basis
points at the time they decided

to merge versus the Daniel general
population of 38 basis points.

And oh, by the way, we recently did
a podcast with my crew about the

quarterly data from the end of year.

I'm gonna take a sip here.

And that was showing that delinquency
on average is over over 1% now.

Going back to 2018, merging
credit unions only had a 50.

Middle.

Most merging credit unions only
had 50 basis points of delinquency.

And the industry as a whole
has one a hundred basis points

of delinquency right now.

What does that mean?

It means that asset quality
is gonna drive the train here.

If credit unions get into a pinch, it's
because asset qualities take a hit.

I don't think 1% is alarming.

It's alarming that it's the first time
in 10 or 20 years that it's been there.

But I, in and of itself, it's not
a number that's problematic, but

it is indeed a number to watch.

Again, on two sides of
every merger we've got, oh.

We've got let's see.

The bottom says the punchline
net worth ratios are nearly

identical, both around 11%.

That's on the far right, you can see 11.2

and 11.2%

merging credit union.

The di, the big difference is earnings.

Two basis points versus 82 basis points.

And this number is a touch different than
the other page, and I'm not exactly sure

why that number, but again, rough justice.

It says essentially the
same thing acquirers have.

Oh, so this is acquirers.

Versus the general population in total.

That's why it's a little bit different.

So acquirers have 82 basis points.

Acquirers have 139,000 members merging.

Credit unions have only 1,382, so that's
what's at a hundred times bigger in

the number of members for the median.

The median, so the acquirer is the median
of the top a hundred likely acquirers.

So these are the ones, these are,
these, takes the serial acquirers

and says, what are their asset size?

The.

For clarification.

And then total assets those a
hundred serial acquirers have 2.5

billion in assets versus median
average assets versus the average

merging credit union at 11 11 million.

So the two charter
conversion pendulum, I, I.

I'm a hundred percent supportive of the
dual charter being, having the options.

Most states, I think it's 50 47
of the 50 states, it's 46 or 47.

I know South Dakota doesn't
offer state charters, and there's

two others that escape me, but.

Having that choice is a good thing.

Some states have better
field of membership rules.

Some states allow board
members to be paid.

Some.

Some states have other things that make
it a good thing to be a state charter.

And generally speaking, over
time credit unions tend to

move from the Fed to the state.

They tend, the bigger
credit unions tend to.

Moved from the Fed to the state,
but there was a big pivot here.

And if you're watching on screen, you
can see 2018 to 20 20, 20 4 billion in

assets moved to the state from the Fed.

And since 2021, that has been reversed, 41
billion have moved to the federal charter.

And in 2025 alone 19 came back to the Fed.

And there were some
conversions on the West coast.

And again, pendulum swings.

Sometimes it can be
driven by a change in law.

Sometimes it can be driven by a change
in commissioners, a change at NCUA.

Usually that'll only drive one or two.

But this is a trend to watch.

I'm very curious to see
what happens in 2026.

Will there'll be more conversions
on the West Coast that that drive

more charters to the federal side.

And of course, if you become a
federal charter, your operating

fee is paid to the feds.

If you're a state, it's paid to the state.

And NCA subsidizes their
insurance responsibilities through

the overhead transfer rate.

And if you're a state charter,
you're, and you're over a

billion, you're gonna see NCOA.

How do they pay for that?

They take it outta the insurance fund
under the overhead transfer rules,

which are let's just say complicated.

So charter conversions by year.

This just shows you what happened
in you can see the last three

years there've been 9 20, 23, 9.

Feds states to feds 20 24, 8 states
to feds 20 25, 11 states to feds.

And over that time the other direction,
23, 2 Feds went to state 2024.

Two State feds went to state in 2025.

Four feds went to state, but the
trend in numbers and assets is in

the direction of the federal charter
and charter conversions by by assets.

You can see again, this kind of just
go, shows you that the biggest move

towards the state was 14 billion.

In 2019, the biggest moves to
fed was two years in a row, 2024,

14 billion swung back, and then
19 billion swung back in 2025.

So the value of charter optionality, if
you're a Fed, one of the arguments would

be you have one re regulator versus two.

The field membership flexibility has
converged with low income designation.

The Advantage state charter's got.

In that arena has dissipated
in many instances.

And it really comes down to
strategically what makes the

most sense for your credit union.

It's good to have those options.

I'm glad to see some credit
unions pursuing that option.

And of course, pendulum swings in
government pendulum swings in this.

And I'm curious to see what the
first quarter shows in 2026.

And I'll probably do a quarterly
update on mergers on this

podcast as I feed the new data.

Into this history of data that
I have here together that I'm

presenting here for the first time.

So where is the industry headed?

I said let's put a chart together.

This chart shows the current number
of federal charters at the end of

2025, excuse me, total charters.

So this just mixes 'em all together.

I'm not talking states or feds.

4,316 charters at the end of 2025.

What happens if 3% of those go away?

And what happens if 4% of those
go away over the next 25 years

and in five year timelines?

In 2030, we are under the 3% scenario.

We're gonna go down from 4,300
to 3,700, so that's a drop of

600 the next five years to 2035.

So we're at the 10 year mark.

We're gonna go down another 500
to 3,200, another five years.

We're out at 2040, so we're
out 15 years from now.

We're at 2,732.

Another five years to 2045, down to 2346.

Ending 25 years from now at 2015 charters,
by the way, when I started in 1986,

I wanna say there were thir between
almost 14,000 charters in the country.

And they just, they get whittled.

It's what happens, right?

Industries consolidate.

As I said earlier, the annual
changes between three and 4%.

That was what is what happens
if it's 3% every year, what

happens if it's 4% every year?

And what would those five
year buckets show in 2030?

We'd be down to 3,500.

So that's 200 less than
the 3% version in 2035.

You'd be down to 2,900.

So that's 300 less than the 3%.

Attrition rate.

2040.

We're out 15 years.

Now we're at 2,339.

2045.

You're, you finally fall under 2000.

Charters, you're at nine 1,907 and 2050.

25 years from now, you have 1000.

555.

And by the way, every ensuite
board member gets excited when

they, there's a new charter.

I get excited when there's a new charter,
but those, a lot of those new charters

fail within the first five years.

A lot of those new charters really
don't achieve much of anything, which

is not saying they shouldn't try.

But the reality is consolidation
is the reality of every industry.

And if you're out there wanting
to charter a new credit union

because you have a niche that
needs to be filled, that's awesome.

But it's as small credit unions would
attest to, that's a big challenge

to already have some momentum.

And starting a fresh is challenging
despite the fact that everybody

likes to applaud when it happens.

And I like to applaud just as
much and there are some real

good success stories out there.

But new charters are rare.

So lastly, what this data makes me
think about size is no longer a shield.

The average merger target
in 2025 was 285 million.

Someone if you can't articulate why
you wanna remain an independent you,

someone's gonna come to you and say you
shouldn't someone will be making an offer.

There are offers being made out there,
I'm sure as we speak, as somebody's.

Trying to get someone
else to merge with them.

A board is a vulner, your
board is a vulnerability.

A lot of credit unions
couldn't find directors.

And typically this is in smaller
institutions, and quite frankly, sometimes

they check that box because, they had
seven and they have to go down to five

and they're all in their eighties,
or they're all in their seventies.

So it's a real, it's a real situation.

Oh, how do you attack that?

You get you get new board
members, you get new blood.

You include your board in the.

In the oh boy, the ensuing is
rule on succession planning.

Thank you.

You included the end the board
in the succession planning.

And you recruit younger members.

You recruit younger board members
and that's how you, that's

how you fight that, right?

So watch the R-O-R-O-A is not just
net worth the average credit unions.

That merged had decent capital,
but they didn't have good earnings.

So those acquirers who are targeting
people, I'm sure they're targeting the

credit unions that are losing money.

Membership growth is a
canary in the coal mine.

Merging credit unions lost
nearly 1% of members per quarter.

Four consecutive quarters
of decline is a pattern that

leads to merger conversations.

And by the way.

In looking at this data I looked at
what happened to what did the stats show

for a credit union that merged the four
quarters before they merged, and what did

it show the of the surviving credit union?

But those credit unions that
were merging were losing

members at a pretty hefty pace.

And then of course, understand
your charter options.

A fed's good for some reasons.

A state's good for other reasons,
but knowing what your options are and

pivoting if it makes sense, it's good to
see that some credit unions every year.

Consider doing that.

That's all I've got.

I will update this on a quarterly basis,
and if it's worth talking about on

the podcast, I will I will do I hope
your bracket isn't as busted as mine

is and enjoy those basketball games.

And have a wonderful a wonderful Tuesday.

This episode and my new
episodes come out on Tuesday.

As always, I appreciate you listening.

I appreciate you watching.

This is Mark TriCal signing
off with flying colors.