Bill Handel, vp of research at Raddon Financial Group, reviews the current regulatory environment and discusses the challenges and opportunities, identified at the recent CEO Strategies Group workshops, that lie ahead for credit unions.
1. The Road Ahead for Credit Unions A Review of Challenges/Opportunities Credit Unions May Face in the Current Environment Bill Handel Vice President of Research For Audio, Dial: 1 (866) 222-7056 Conference Code: 5245922 To mute your line, hit *6 on your phone To unmute your line, hit *7 on your phone
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3. How Do Our Clients Work with Us? Strategy Results
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5. Third Consecutive Year of Historically Low Housing Starts Low home sales since 2005 have resulted in very low levels of housing starts in the US. Expect these levels to remain low for the next several years.
6. Vehicle Sales Lowest Since Early 1990s 2011 projection Vehicle sales have expanded since 2009, but are still far below levels seen in the mid 2000s. Source: Bureau of Economic Analysis
7. Household Debt Levels Are Declining But Still Historically High Source: Federal Reserve Debt levels per household expanded in the 1980s and 1990s, but this growth accelerated in the 2000s, leading to our current deleveraging.
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11. Anticipated Loan Usage Has Declined Source: Raddon Financial Group, National Consumer Research RFG research shows that consumers have been looking to reduce their debt for many years; the most recent financial crisis has forced the issue.
12. 10 Are you retaining the right members? Overall member retention matters less. Retaining the right members matters more.
13. 13 Tools that improve cross-selling, via direct mail, the internet, the front line, or the call center, have increased enormously in importance. Cross-sales should be a organization-wide metric.
14. 38 The recent growth in loans has been experienced in the commercial (small business) sector. The indirect category has also seen growth for many credit unions, but price is the driving factor.
16. 51 The often-forgotten growth opportunity: unfunded loan approvals. What programs have been put in place to track and follow-up on unfunded loan approvals. These potential loans could result in significant growth for the institution.
17. 52 How much loan business are you leaving on the table? This data show the projected loan dollars and financial impact of loans that are approved but unfunded.
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19. 363 The typical credit union is obtaining less than one in four of the loan dollars its membership has, and less than 30% of the members’ deposits.
20. 366 Where are your loan strengths and weaknesses by product type. Auto loans tend to be the strongest, and yet the typical institution still gets only 40% of the membership’s auto loan balances.
21. 367 Share of loan wallet tends to be lowest among the credit driven households, which is the high income Gen Y segment. The industry is losing the loan relationships of the younger segments.
31. 111 National trends for credit unions: declining NSF offset by increase in debit card income. Total income is flat to down. NSF Debit Card Total 2003 $51 $30 $113 2008 $101 $50 $180 2011 $86 $62 $176
39. Consumer Response to Debit Fees In response to recent regulatory requirements regarding debit cards, some financial institutions may incorporate fees for the continued use of their debit card. Which of the following changes would be acceptable for your future debit card use? Source: RFG National Consumer Research, Fall 2011
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43. Industry Net Interest Margin Erosion Margins have declined for financial institutions over the past 15 years. This decline has occurred in both high and low rate environments. Banks – particularly the largest banks – are dramatically reversing this trend. Source: FDIC
44. The Big Four Dramatically Reduce the Cost of Funds **CU data as-of Mar-11 Cost of Funds Dec-08 Dec-09 Dec-10 Jun-11 2.06% 0.74% 0.51% 0.58% 2.23% 1.03% 0.63% 0.48% 2.70% 1.41% 1.08% 1.06% 1.58% 0.55% 0.51% 0.42% Credit Union Avg 1.94% 1.39% 0.97% 0.74%** CUs >$100M 2.45% 1.76% 1.21% 0.95%**
45. Base Savings Rates $1,000 in a Chase Savings account will earn the customer 10 cents/yr in interest! Rates as-of August, 2011
47. Deposit Management Strategy: What is the Loyalty and Rate Sensitivity of the Base? Loyalty Deposit Rate Sensitivity Rate-Sensitive Loyalists: 13% of Members Rate-Sensitive Non-Loyalists: 41% of Members Non-Sensitive Loyalists: 7% of Members Non-Sensitive Non-Loyalists: 39% of Members
52. Historical Trend in Operating Expense Inflation-Adjusted Operating Expense Incremental Increase in Operating Expense Adjusting for inflation, credit union operating expenses per household have risen by 52% from 1995.
56. 400 Big difference between these two ratios indicates an opportunity to increase e-statement penetration and reduce costs.
57. Will Mobile Banking Follow the Same Trend as Online Banking? Source: RFG National Consumer Research ?? Online Banking usage grew from 8% to 61% between 2000 an 2010. Mobile Banking is currently at 11% usage; will it increase at the same rate as Online? 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
58. Likelihood to Use Remote Deposit Capture Source: RFG’s Spring 2011 National Consumer Research Gen Y is more likely to use Remote Deposit Capture, with 43% expressing at least being somewhat likely to utilize the service.
60. Current P2P Usage by Generation Source: RFG’s Spring 2011 National Consumer Research One in every three Gen Y consumers conducts Person-to-Person payments. Does Gen Y need a “Checking” account?
61. With Reg II, 30% to 40% of debit card interchange income is at risk. With Alternative Payment systems, 100% of the revenue is at risk if the debit card transaction is replaced completely (if still funded by financial institution, transaction becomes ACH). Alternative Payments
62. Gen Y Still Uses the Branch Source: RFG’s Spring 2011 National Consumer Research
65. High Performers Grow Faster High performing credit unions are growing both households and loans at a significantly faster pace than the overall industry. Source: RFG’s CEO Strategies Program
66. Relationship Depth Defines High Performers Source: RFG’s CEO Strategies Program High performing credit unions are much more effective at cross-selling and have a significantly higher services per household ratio.
67. Share of Wallet is Significantly Higher Source: RFG’s CEO Strategies Program As would be expected, with higher cross-selling success comes a higher share of wallet. This is one of the most important metrics to monitor.
68. The Key to Efficiency is Revenue Growth Source: RFG’s CEO Strategies Program Better product sales and deeper relationships leads to higher revenues per household. Expense per household is also higher, but overall efficiency is much better for high performers due to the revenue levels.
69. Margins Have Not Been Central to Financial Performance Source: RFG’s CEO Strategies Program Deposit and loan pricing is not a critical difference between high performers and the industry as a whole.
70. High Performers Have Changed the Mix of Non-Interest Income Source: RFG’s CEO Strategies Program Higher non-interest income levels among high performers is a result of broader product sales as well as diversified non-interest income sources.
71. Result: Stronger Financial Performance Source: RFG’s CEO Strategies Program Financial performance does not define high performance. High performance results in stronger financial performance.
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