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Report #535 | | Members | Sign In

Hidden Figures: Clearing the Financial Fog Brought About by the Pandemic

As credit unions continue navigating an uncertain economic environment and increasingly competitive financial services marketplace, reviewing 2020 financial data can shed light on short- and long-term opportunities.

  • Mike Higgins Managing Partner at Mike Higgins & Associates

Executive Summary

Long ago, miners would take caged canaries into coal mines to detect if deadly methane gas was present. If it was, the caged bird would die, alerting those in the mine of danger. In financial services, the canary in the coal mine is net revenue.

In this brief, Mike Higgins reviews credit union call report data from 2018–2020 and finds that net revenues for credit unions dropped by 48 basis points in the fourth quarter. What else can we learn from the 2020 data?

What is this research about?

Exacerbated by the pandemic, the percentage of credit unions failing to show net revenue growth in 2020 increased to 48.8%—almost half the credit unions in the data set.

Many financial institutions had record earnings in 2020 brought about not by taking profits from consumers and businesses, but by being able to serve their needs.

Despite the headwinds brought about by the change in macroeconomic conditions, there were winners. Those financial institutions with mortgage lending capability were able to cash in on the wave of refinancing and home equity lending. Those with business lending skills were able to reap the fee income brought about by Payroll Protection Plan (PPP) loans. Many financial institutions had record earnings in 2020 brought about not by taking profits from consumers and businesses, but by being able to serve their needs.

In a post-mortem of 2020, and using data collected from credit unions in asset size between $200 million and $5 billion, this research brief addresses a few items, breaks conventional wisdom, and offers up some considerations going forward.

What are the credit union implications?

We will not attempt to predict the future as to how quickly, when, or even if a return to normal will occur, but there are still some absolutes.

  • There is a group of credit unions (and banks) that are doing very well during this time. It would be worthwhile to pull their data to understand exactly how they are thriving and what makes them different.
  • The financial services sector is migrating to, and is placing more emphasis upon, non-interest income sources to reduce reliance upon net interest margin in the long-term. 
  • Selling and cross selling will be vital to your success. The word “sell” is considered a four-letter word in some credit unions. That mentality must change.

Download the full report to view even more actionable items to consider, in both the short-term and long-term.

Filene thanks its members and Inner Circle sponsors for helping support this research from the Center for Innovation & Incubation.

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