More Mergers Occurring For Strategic Reasons Rather Than Financial Distress

While mergers continue unabated in the credit union industry, the reasons for undertaking them has shifted over the years. As we reported in our 2019 white paper, “When Prospective Partners Come Calling,” most mergers in the past occurred because the merging institution was in dire financial straits. Today, however, mergers are much more likely to happen for strategic reasons that will position the credit union to better serve their members and become a stronger force in the financial services marketplace. 

An NCUA analysis of mergers from 2017 to 2021 helped prove this point. The NCUA’s Office of Examination and Insurance reviewed more than 600 voluntary mergers in that five-year period. In 76% of those cases, “expanded services” was given as the primary reason for the merger. “Poor financial condition” was given as the primary merger reason in only 12.4% of the cases. All other primary reasons cited were in the low single digits, including “inability to obtain officials,” “lack of sponsor support,” “loss/declining FOM,” “poor management” and “lack of growth.” 

Four years later, our analysis of NCUA’s merger figures for the first quarter of 2025 show consistency with that 2017-2021 study. Of the 35 mergers reported for the quarter, “expanded services” was the primary factor in 26 of them (nearly 75%). “Poor financial condition” was cited in a mere three mergers (less than 9%). 

Why Healthy CUs Merge 

In its five-year analysis, the NCUA noted that there is an increase in the average size of merging credit unions over the last several years, reflecting a trend toward larger, financially healthier credit unions merging with other healthy credit unions of similar size. One such example in is the 2020 merger of two well-capitalized credit unions, each with assets exceeding $1 billion. 

In our reporting from the last five to 10 years, we likewise have noted the phenomenon of two healthy credit unions merging to create a consolidated institution that is significantly larger in asset size, member size and market scope. The merger gives the combined credit union the scale to achieve operating efficiencies that will allow them to better serve their members and have a greater impact in their communities while still maintaining the cooperative principles for which credit unions are known. 

This is a proactive approach that takes a clear-eyed view of the competition presented by banks, fintechs and other well-financed players in the financial services space. At a time when technology and infrastructure costs are rising exponentially, it makes strategic sense for well-performing credit unions to join forces with the goal of creating a bigger and better financial institution to solidify their standing in a competitive marketplace. 

Fewer—But Bigger—Credit Unions 

Admittedly, there is concern that continued merger activity is decreasing the number of credit unions at far too fast a rate. However, the rate of mergers has been relatively consistent for years, with a low of 130 mergers in 2020 (during the apex of the COVID pandemic) and a high of 181 mergers in 2022. With 2024 concluding with 162 mergers, the five-year average stands at 156 mergers per year.  

With that steady pace of mergers, the number of federally insured credit unions is obviously declining. In the five-year period from Dec. 31, 2019, to Dec. 31, 2024, the number of credit unions has decreased by nearly 15%—from 5,236 to 4,455. However, the good news is that asset size and member size for the industry overall has grown robustly over that same period. Looking at NCUA’s quarterly credit union data for 2019 (Q4) and 2024 (Q4), asset size climbed from $1.57 trillion to $2.31 trillion, a jump of 47%, while total membership for the industry rose from 120.4 million to 142.3 million, an increase of 18.2% in total members served. 

Given this data, it’s clear that strategic mergers have strengthened the industry, not weakened it. In a crowded market where options for financial services abound, becoming larger through mergers is a savvy strategy for even healthy credit unions. 

Click here to learn more about the strategic reasons for mergers in CEO Advisory Group’s white paper, “When Prospective Partners Come Knocking.”