Are we at a tipping point for credit unions? Proactive credit unions that have been performing well for a long period of time are starting to reconsider potential mergers and acquisitions for relevance, stability, scale and, most importantly, to benefit their members. The COVID-19 crisis and resulting economic uncertainty may usher in new opportunities for organizations to consider collaboration, especially those without strong digital infrastructure or drive-thru capabilities. Adapting has proven quite difficult for some organizations and simple for others as they streamline existing remote and contactless operations to serve their members.
Could your credit union be a white knight?
In general, larger institutions are better prepared to handle the ebbs and flows of economic uncertainty than smaller institutions. We can see this in the Q1 2020 data as every peer group over $500 million increased shares. For the $5 – 10 billion peer group, shares increased even more significantly by 9.73% on average, while peer groups under $500 million all saw declines in share growth.
Bank deals have stalled because of declining valuations and uncertainty, but credit union deals are still being announced in 2020 and we expect this to continue. Your credit union may have an opportunity to be a “white knight” by helping a struggling credit union that is either lacking a strong digital infrastructure or being significantly impacted by the pandemic. The number of transactions may decline; however, some organizations are taking a proactive approach and new discussions are happening. The chart below shows why – as scale drives member, employee and credit union value.
Which trends are likely to continue?
While no one knows exactly what the recovery will look like, we do expect to continue to see higher loan loss provisions. We also expect to see lower net interest margins due to the substantial decline in interest rates and lower earnings throughout 2020.
Unlike the Great Recession, earnings are the primary issue for financial institutions—not capital as banks and credit unions entered COVID-19 with capital near record levels.