PITTSFORD, N.Y.—One of the clearest warning signs that a small credit union may be drifting toward a merger often doesn’t show up in its balance sheet first—it shows up in its board minutes.
That’s according to Jeffrey Paille, a partner with The Bonadio Group, a Top 40 CPA and consulting firm that audits and advises credit unions, who said a growing number of smaller institutions appear to be reaching a new strategic crossroads as they come out of the COVID era and reassess their long-term viability.
In reviewing board materials as part of Bonadio’s audit work, Paille said the red flags are often subtle but telling: meetings focused almost entirely on routine, near-term items, little evidence of real strategic discussion, and strategic plans that may exist on paper but rarely show up in board deliberations.
“A lot of it’s what we don’t see in the minutes,” Paille told CUToday.info. “If they’re not thinking big, they’re not talking about long term. They’re kind of talking about, ‘Here’s what happened this month or this quarter, here’s what we’re going to do next quarter on rates,’ and it’s kind of like a standard agenda of things that they talk about. It doesn’t change month to month, quarter to quarter, year to year.”
He added that some institutions can produce a strategic plan when asked, but if the board is never discussing it, “then the strategic plan isn’t really planned. It’s just the document that they put together at one point and didn’t do anything with.”
Three Issues
Paille said three issues are repeatedly surfacing as merger conversations continue to accelerate among smaller credit unions: leadership succession, board complacency and what he described as a lack of real institutional purpose. On succession, he said the issue has become more urgent now that NCUA has moved to require written succession planning, a step he said reflects regulators’ own recognition that leadership transitions are often the moment when merger discussions intensify.
“They talked about how they wanted to reduce credit union merger volume by forcing credit unions to have a succession plan because they knew that the succession point was the point where the merger topic comes up most often,” Paille said of the agency’s move.
For many smaller credit unions, he added, the challenge is not simply replacing a CEO, but finding someone qualified who would choose to run a small institution instead of taking a better-paid, better-resourced role at a larger one.
The second issue, he said, is complacency—something no board will ever admit, but something he believes can still be clearly seen.
“No board is going to sit there and have in their board minutes that they’re complacent. No one’s going to say, ‘Hey, we were complacent again this month,’” Paille said. “But there are things in there that are indicative of complacency, like, ‘Yeah, we’re just going to kind of keep things the same as they are. It’s just steady as she goes. Let’s just keep doing our thing. We don’t really want to rock the boat or change anything.’”
Lack Of New Ideas
He said that mindset often reveals itself not through explicit language, but through the absence of new ideas, new considerations or tougher strategic questions. In some cases, that can stem from long-serving management teams or boards; in others, it happens when newer leaders simply share the same assumptions and fail to challenge the status quo.
Paille said that complacency can be compounded when boards become disconnected from the members they are supposed to represent. He pointed to a common scenario in which boards are made up largely of retired directors who bring meaningful experience but may no longer closely identify with the needs of younger members or the kinds of consumers the credit union needs to attract to remain relevant.
“These board members who are retired—they have different needs, different experiences, perfectly good valuable experiences—but not necessarily relatable to what a 20-something is going through, or even a 40-something in some cases,” he said.
That, in turn, can make it easier for a board to continue operating as if the institution’s historical model is still enough, even as the market around it changes.
The third issue, Paille said, is the most uncomfortable because it cuts to the question of why some smaller credit unions still exist in their current form. He said there are cases where the institution’s mission and vision statements remain technically intact, but in practice the organization has lost a distinct sense of purpose beyond continuing operations until current leadership retires.
“There are credit unions of a certain size, typically smaller credit unions, where the main reason they exist is to provide employment for the management team until those people want to retire,” Paille said. “There isn’t necessarily a purpose beyond that.”
Never See It In Writing
He stressed that no CEO is ever going to write that down, and no board will explicitly say it, but argued that the pattern can emerge when leadership simply lets the institution continue on autopilot, without real urgency around growth, differentiation or long-term relevance.
“They’re not really concerned about what happens after that,” Paille said. “They just kind of let things go, steady as she goes, until they just don’t want to do it anymore.”
That, he said, is often how merger pressure builds—not necessarily through a single financial crisis, but through years of inertia. Paille said credit union consolidation has long been part of the industry’s evolution, with the number of institutions falling from nearly 13,000 in 1990 to roughly 4,400 today.
Paille said that broader trend is not itself a shock, but the more interesting story is what’s happening inside some of the smaller institutions now: as boards and management teams revisit strategy in a post-pandemic environment, longstanding weaknesses in succession, governance and mission are being exposed more directly.
As for what credit unions should do, Paille said the answer begins with a willingness to hear things they may not want to hear.
“If a credit union, if the leadership team or the board senses that they’re in this kind of situation… I would suggest that the thing to do is bring in somebody from the outside who can make an evaluation and tell them things they don’t necessarily want to hear,” he said.
He also said boards should take a hard look at their own composition and whether the people in the room truly reflect the membership and the future of the institution. Sometimes that means bringing in a strategic adviser. Other times it means changing who has a seat at the table. Either way, Paille’s message was clear: a merger may or may not be the right answer for a small credit union, but if the board is not actively confronting these questions now, the decision may eventually get made by circumstance instead of by choice.