Despite outpacing the banking industry in asset growth, credit unions rarely cross the critical $10 billion in assets threshold. Only 10 of the 5,410 credit unions nationwide are above that mark.

For the few approaching or beyond that milestone, offsetting the regulatory burden can be a more difficult task than for banks, which often take the acquisition route to rapidly add business and make up for lost fee revenue and higher compliance costs. The Durbin amendment, a provision of the Dodd-Frank Act that limits the interchange fees a financial institution can collect, kicks in at $10 billion in assets. Companies must also begin to contend with examinations and oversight from the Consumer Financial Protection Bureau.

But using M&A to leap past the threshold is a less viable option for credit unions due to their strict field of membership requirements. Credit unions can acquire other financial institutions, but the customers must fit in with that field of membership, said Carrie Hunt, executive vice president of government affairs and general counsel for the National Association of Federally-Insured Credit Unions. As a result, credit unions usually grow past $10 billion in assets organically, without the scale to counteract the new costs.

Just seven credit unions crossed in the past decade, compared to 71 banks that crossed and are still above the threshold as of the second quarter. Credit unions that cross $10 billion in assets tend to serve a large field of membership that extends further than one community in one geographic area. Navy FCU, the largest credit union by assets, is not geographically limited, serving military members and their families nationally.

Similarly, many credit unions that are past $10 billion in assets serve the population of an entire state. For example, Golden 1 CU, which crossed in the first quarter of 2016, serves anyone that lives or works in California.

Once a credit union crosses the threshold, it becomes subject to oversight from the Consumer Financial Protection Bureau and increased regulation from the National Credit Union Administration. Credit unions could also see up to a 50% decrease in interchange fee income from becoming subject to the Durbin amendment. The lost revenue does not always represent a large chunk of revenue for all institutions, but the new compliance costs can add up, executives said.

Chicago-based Alliant CU, which has about 450,000 members across Illinois, has felt the impact of the "significant costs" from organically crossing the threshold, according to CFO Harry Zhu.

The credit union's interchange fee income decreased by half, or about $2.5 million, Zhu said in an interview. However, the lost revenue was equal only to about 7.0% of the credit union's $34.9 million noninterest income in 2018.

Alliant began preparing two years before it actually hit the threshold in the first quarter of 2018. Since crossing $10 billion, the credit union has hired 33 full-time employees and is looking hire about 15 more.

"I don’t even know if 50 is enough, but I hope we can stabilize with 50," Zhu said.

The costs of hiring more employees and creating systems to comply with the new regulations from the CFPB and the NCUA has increased overall expenses, Zhu said.

"There is no good way to offset this," he said, noting that the credit union has not done any acquisitions since 2011. The credit union is seeking M&A for growth, though, and it has looked into purchasing a bank, Zhu said.

Tukwila, Wash.-based Boeing Employees CU, whose field of membership includes residents of the state of Washington and select counties in Oregon and Idaho, also crossed $10 billion through organic growth. Chief Risk Officer John Stewart said the credit union had to invest "quite a bit" in order to comply with CFPB exams. The credit union also saw a 35% reduction in interchange fee revenue as a result of Durbin, though its total fee income was equal to only about 7% of its total interest income in 2018.

Live Oak, Texas-based Randolph-Brooks FCU is the closest credit union to passing the $10 billion mark, a moment it has been focusing on for several years, said COO Sonya McDonald. Randolph-Brooks has a wide field of membership, including active or retired military members and their families and residents in eligible areas in Texas.

Sitting at $9.68 billion as of June 30, the credit union expects to pass $10 billion in the first quarter of 2020, McDonald said. It hired a chief risk officer to prepare and sought advice from credit union peers that have already crossed $10 billion in assets, McDonald said.

The credit union has grown organically by launching into new markets like Dallas and Austin, but M&A is on the table to offset the estimated $30 million hit to its bottom line from both decreased revenue and increased expenses, she said. Such a hit would represent 28% of its $106.7 million in net income in 2018.

Randolph-Brooks is "absolutely" interested in potentially acquiring a bank, McDonald said. Credit unions acquiring banks has become a growing trend in 2019, with 14 deals announced so far this year compared to only nine in all of 2018.

"If there is something that makes sense for us as far as entering a new market or they have really great branch placement, we're not going to say no to anybody or any opportunities," she said.