Challenges & Opportunities in a New Era May 1, 2010
Today s Discussion Credit union results in the Great Recession How does Alaska credit unions performance compare with national credit union averages? A changing regulatory environment The Tipping Point
DENSE LANGUAGE OBSCURES USURIOUS INTEREST RATES, PUNITIVE LATE FEES USA Today October 31, 2006
January 8, 2007
The current for-profit student lending industry is still more about shareholders and profits than the genuine needs of students, who very often don t have enough money in the first 2, or 5, or even 10 years out of college to pay the high interest rates and onerous fees that make the industry so profitable. There are some things in life that really ought to be about more than making money. Surely, student loans should be on that list. New York Times April 21, 2007
BUSINESS WEEK JUNE 16, 2008
MORE THAN JUST A FINANCIAL / ECONOMIC CRISIS The task we face is to recover that discourse, to rediscover the moral spirit of capitalism so that it best serves all people. Regulation, though necessary, is not enough. A box ticked is not a duty done. We require a narrative which describes the journey s end what kind of society we want. I think the story should be that markets are servants of the people. We can then begin to act in the moral spirit of capitalism, informing markets with our moral and spiritual dimensions. Tame the markets to make capitalism ethical By Ken Costa Chairman, Lazard International Financial Times 11/2/2009
How did credit unions respond to this economic/ social crisis?
Credit unions originate the highest loan volume in their history Annual loan originations for all US Credit Unions as of December 31 Source: Callahan s Peer to Peer Software
Billions Over $71 billion of new shares flow to credit unions Data for all US Credit Unions as of December 31 Source: Callahan s Peer to Peer Software
Member growth trends up over recent years Data for all US Credit Unions as of December 31 Millions Source: Callahan s Peer to Peer Software
7,710 Credit Unions as of December 31, 2009 As of 12/31/09 12-mo. Growth 4Q 2009 12-mo. Growth 4Q 2008 Assets $896.8B 8.9% 7.2% Loans $580.5B 1.0% 6.6% Shares $763.3B 10.4% 7.0% Capital $96.9B 4.6% 0.9% Members 91.2M 1.4% 1.6% Branches 21,684 1.3% 2.8% Source: Callahan s Peer to Peer Software
1 st mortgage & consumer loan originations grew in 2010 Billions Loan Originations by Category for all US Credit Unions $253.8 3.6% 4.7% 53.1% 55.4% $271.9 12.2% 27.7% 8.4% 34.9% Source: Callahan s Peer to Peer Software
1 st mortgage originations and market share reached new highs in 2009 Data for all US Credit Unions as of December 31 Billions Source: Callahan s Peer to Peer Software, MBA
Credit union auto lending market share topped 22% during 2009 Credit Union Auto Lending Market Share (12/09) 26.0% 24.0% 22.0% 20.0% 21.5% 22.7% 20.4% 19.6% 20.3% 20.7% 22.3% 20.9% 20.1% 19.5% 19.0% 18.0% 16.0% 17.9% 16.4% 14.0% 12.0% 10.0% Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Source: Callahan s Peer to Peer Software, AutoCount from Experian Automotive
Credit card lines of credit continue to rise $95.4 $95.5 $98.2 $100.6$102.2 $103.0 $104.0$104.4 $106.9 $107.6$108.2 $108.1 Billions Millions Source: Callahan s Peer to Peer Software
Banks cut over $1 trillion of credit card lines Data for all FDIC-Insured Institutions as of December 31 Billions $4,002$4,061 $4,359$4,355 $4,195 $4,350 $4,367 $4,065 $3,626 $3,481$3,481 $3,283
MIT Case Study
MBL origination volume shows that credit unions remain active Annual MBL originations for all US Credit Unions as of December 31 Billions Source: Callahan s Peer to Peer Software
Consumer Lending bottoming at banks Data for all FDIC-Insured Institutions as of December 31 Billions Source: FDIC
Wall Street Journal, February 24, 2010
60% 50% In 64 out of the past 65 years, credit unions have expanded their total loan portfolio (1945 2009) 40% 30% 20% 10% 0% 1945 1955 1965 1975 1985 1995 2005-10% Source: Callahan s Peer to Peer Software, CUNA
COUNTERCYCLICAL FIRST RESPONDERS Before the government stepped in, credit unions were creating solutions in: Auto finance Student loans Real estate loan modifications 1 st Mortgages Fair credit cards Fulfilling our public policy covenant
Alaska CUs Performance Comparisons vs. the average U.S. CU
Alaska CUs versus all U.S. CUs Average Institution Alaska Credit Unions All US Credit Unions # Institutions 10 7,790 Assets $201.1M $116.3M Shares $170.0M $99.0M Loans $124.2M $47.6M Capital $18.3M $12.6M Members 19,269 11,826 Source: Callahan s Peer to Peer Software, Other than # Institutions all other figures represent averages for each peer group
Loans growing in Alaska at a strong pace 12.3% 2.9%
Alaska CU share growth picked up during the recession 13.0% 12.5%
Member growth slows in Alaska during last year 3.5% 0.7%
Rapid share growth and slowed loan growth leads to lower loan-to-share ratio 76.0% 72.8%
Alaska credit unions portfolio more auto loans Alaska CUs
Whereas the average US CU holds more in real estate All US CUs
Money market accounts for one-third of AK CU shares Alaska CUs
US CUs hold more in certificates and regular shares All US CUs
More consumer lending enables Alaska CUs to generate greater interest income than peers 5.35% 4.99%
Alaska CUs also keep a lower cost of funds, leading to 1.75% 1.26%
a significantly wider net interest margin 4.09% 3.24%
Higher levels of non-interest income in Alaska CUs 2.10% 1.36%
The average credit union runs leaner than Alaskan peers 4.64% 3.21%
The average credit union is provisioning at double the rate of Alaskan CUs 1.12% 0.60%
ROA well above the average CU 1.45% 0.54%
Loan delinquency on downward trend in Alaska 1.83% 1.18%
Charge off rate stays relatively level despite recession 1.22% 0.70%
Net worth ratio trends below average but remains sound 10.4% 8.8%
The average CU employee serves more members than in Alaska CUs 381 229
Alaska CUs able to attract higher share balances $8.8k $8.3k
Share draft penetration trends significantly above average 56.9% 46.7%
Alaska CUs also able to attract higher loan balances $14.3k $12.5k
Alaska CUs also experience rapid rise in auto penetration 20.7% 17.1%
yet trend slightly below average for credit cards 14.4% 11.2%
Alaska CUs able to generate greater income per member $595 $431
What do you take away from these performance comparisons?
A Changing Regulatory Environment
Is Washington the new financial center of America? Fed offers consumers mortgage protection Administration s loan modification initiatives Treasury/Fed purchases of troubled assets Congress passes Credit CARD Act in May 2009 Regulatory overhaul: Consumer Protection Agency and systemic risk regulator Continuing Congressional reforms: overdraft protection, interchange income next? Future of Fannie, Freddie, and the FHLB system Credit union legislative priorities: member capital (change of net worth definition); raise business lending
One CU s Top 10 Planning Topics New credit card compliance Reduction in interchange income Courtesy pay legislation NCUSIF The future of the corporate system The future of Fannie and Freddie CUNA s financial viability CRA Unemployment NCUA (new Chair, NCUSIF focus, potential for combined regulators, etc.)
Mortgage Stimulus Package
Clearly Explaining the Implications of the CARD Act for members
Courtesy Pay & Interchange Income Defensive tactics In the middle of 2009, fees increased for credit card late payments, credit card over the limit fees, NSF transactions, stop payments, wire transfers and money orders Operating expense reviews, including contract negotiations Product focus Sell auto and homeowners insurance through a third party, and offer financial planning services We will initiate a plan to increase our credit and debit card usage in order to increase our credit card balances and associated interchange income New business lines Start Business Loans And Business accounts Purchase of a mortgage brokerage firm and the acquisition of a title agency
NCUA The Focal Point for Next Events Key Questions: How will Corporates future be decided? How should the industry s collective resources be used? What should the relationship between the NCUA and the other components of the credit union system be? Should credit unions try to set a national policy agenda for NCUA? (proactive vs. reactive)
NCUA S DIRECT RESPONSIBILITY FOR $193 BILLION OF CREDIT UNION RESOURCES NCUSIF $10B CLF Borrowing Authority $41.5B Corp Stabilization Fund $30B US Central (12/09) $35B WesCorp (12/09) $21.1B Corporate Share Guar. $55.5B Total $193B
CREDIT UNIONS ARE PART OF A COOPERATIVE SYSTEM Members CUs Business partners Corporates CUSOs Leagues CLF Regulators NCUSIF
THE TIPPING POINT The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. Malcolm Gladwell The Tipping Point
Credit Unions have doubled in key balance sheet categories over the past decade 1999 2009 % Change # Credit Unions 10,860 7,710-29% Assets $418B $896.8B 115% Loans $276B $580.5B 110% Shares $364.6B $763.3B 109% Investments $128.6B $274.4B 113% Capital $48.5 B $96.8B 100% Members 76.6 M 91.1 M 19%
CREDIT UNIONS HAVE BECOME A MODEL FOR OTHERS But one lender has withstood the mortgage meltdown relatively unscathed and could serve as a model for others: the North Carolina State Employees' Credit Union (SECU). Before approving a mortgage, loan reps for the $16 billion credit union the nation's secondlargest visit with the applicant and painstakingly build a household budget that determines what the borrower can really afford. "We make loans face to face, and we eat what we cook," says CEO James C. Blaine. "The commercial banks can do what we do they'd just have to relearn the lending business." BusinessWeek By Dean Foust and Christopher Palmeri 8/13/2009
Credit Unions at a Tipping Point
Washington s focus in 2008-09 was on institutions
FROM WALL STREET TO MAIN STREET: WASHINGTON S POLICY FOCUS IN 2010 2010: THE YEAR OF THE CONSUMER THE BEGINNING OF A COOPERATIVE DECADE
The Tipping Point: Credit unions in 2010 Above average growth opportunities are available as more organizations are open to learning about the credit union option Local is more important than ever Lending is critical to our success Innovation through collaboration - develop more system options Tell your story
THE KEY TO YOUR FUTURE Remain true to who you are
Questions? Jay Johnson jjohnson@creditunions.com