Ask most credit union executives about the state of the industry and you’ll hear some version of the same story: it’s hard to be small. Big banks enjoy tech budgets that community institutions can’t match. Fintechs compete for younger members with slick apps and aggressive rates. Compliance costs rise every year.

With all that, it’s easy to see why so many credit unions under $350 million in assets believe consolidation is a matter of “when,” not “if.”

Membership numbers seem to confirm this. Across the country, the average credit union in that range is shrinking in membership. Through 2025, they saw membership fall by 0.45%. That may sound small, but if the trend doesn’t reverse, that story ends in consolidation.

But that’s not the whole story. Over the same period, a particular group of credit unions in the same asset class grew membership by 2.18%.

CU*SOUTH credit unions buck the trend entirely, according to Callahan & Associates’ Peer Suite Analytics. While comparable institutions shed members, CU*SOUTH clients added them.

That might complicate the popular narrative. If size alone was destiny, then every institution in this asset class would be moving in the same direction, but they aren’t. There are headwinds that small credit unions face, but they can be overcome, and we know because our clients are doing it.

Strong Growth on Sound Footing

Membership growth on its own could be a fluke, but the data shows that it isn’t. The same outperformance shows up on virtually every metric that Callahan tracks for credit unions under $350 million in assets.

Through the end of 2025, CU*SOUTH clients grew:

• Assets by 5.85% vs. 4.10%
• Shares by 5.39% vs. 3.70%
• Loans by 4.77% vs. 2.35%

The skeptic would ask what this cost, since short term growth is easy to manufacture if you’re willing to assume more risk, like loosening credit standards.

But CU*SOUTH clients are growing safely and profitably. Capital and credit quality held even as the balance sheet expanded:

• Net worth ratio: 13.15% vs. 12.77%
• Net charge-offs: equal to peers at 0.48%
• Delinquency ratio: in-line with peers at 0.92% vs. 0.93%
• Coverage ratio: 107% vs. 97%

And the returns are evident:

• Net interest margin: 3.80% vs. 3.67%
• Return on assets: 0.88% vs 0.77%

CU*SOUTH credit unions are expanding membership and lending in an environment where their peers are contracting, while building capital rather than spending it down.

What Growing Credit Unions Have in Common

It’s interesting that the difference between growing credit unions and shrinking ones seems to go beyond size and spending reductions.

The institutions that are growing aren’t on the larger end of the size range, meaning growth cannot be attributed simply to having more resources to invest. In fact, CU*SOUTH clients are starting smaller than the peers they’re outgrowing, averaging $59.6 million in assets and 4,256 members versus $71.7 million and 5,278.

The explanation has to lie in how they operate. The common thread we see is access to scale.

Scale is what allows a large institution to spread the cost of technology, expertise and infrastructure across a large membership, so the cost of each falls to a few dollars per member. A $5 billion institution can make massive investments in hiring and technology, then amortize it across hundreds of thousands of members. A $60 million credit union can’t, at least not alone. That’s the disadvantage of being small.

The credit unions that are growing have found a way around that constraint. Rather than try to build enterprise capability alone, they’ve pooled their resources through a credit union service organization (CUSO), spreading costs across many credit unions. Each metric where they outperform traces back to a capability that’s hard to afford at small scale but far more attainable when shared:

• Growth that builds capital is, in large part, a matter of strategic thinking and financial discipline. Pricing loans and deposits to protect margin, managing assets and liabilities, modeling liquidity and planning capital are all functions of a chief financial officer. Most small credit unions can’t justify the expense of a full-time CFO, however. Access to that expertise on a fractional, shared basis can fill the gap.
• Faster, profitable lending depends on modern lending tools and the data to make good decisions. A shared core processing platform with analytics capability lets a small credit union lend with the sophistication of a much larger institution.
• Membership growth in a shrinking field depends on staying competitive where today’s consumers judge an institution. That means online and mobile banking that holds up against both big banks and fintechs. That, too, is enterprise technology that a small credit union reaches through shared infrastructure with a CUSO, rather than building it from scratch.

The payoff shows up in how efficiently these credit unions run. They operate at a 76.29% efficiency ratio versus 78.52% for peers (lower being better), and turn every dollar spent on salary and benefits into $3.56 of revenue compared to peers’ $3.27.

This is the same collaborative logic that gave rise to the credit union movement in the first place, applied to the back office. Credit unions have always been about pooling capital for the benefit of members, but through a CUSO, technology, financial strategy and operational functions can be shared too.

Decline Is Not Inevitable

The prevailing assumption is that it’s only a matter of time before small credit unions consolidate out of existence, but the data suggests a more nuanced story. Small credit unions that operate in isolation are, on average, losing ground. Small credit unions that have found a way to access scale are growing, faster than their peers and on a stronger footing.

For a credit union weighing what the future looks like, the real question is whether it has the partners and shared capability to compete at any size, rather than its size alone.