September 17, 2013
branding, channel, Credit Union, customer acquisition, customer service, differentiation, Fee, profitability, revenue growth, Transactional account
The topic of Business Strategy and implications to Member Loyalty, Revenue Growth and Profitability are rather timely as Credit Unions prepare for the Annual Strategic sessions. Specifically related to checking accounts, every Credit Union ought to be asking questions including:
- How effective and efficient has the member acquisition program led by checking account product sales been?
- How effective is the cross-sale plan that is based on WOWing the checking account customer into additional product sales? How much products have been upsold, on average, to a checking account led acquisition? How much revenue and profit have the checking account led acquisition members generated for the Credit Union?
Perhaps the experience of your Credit Union is an outlier, but the data is overwhelmingly and unequivocally negative. That is, checking accounts are effective only at increasing the count of checking accounts (and perhaps the wallets of certain vendors who continue to sell the value of the checking account). 10 years ago, the checking account may have been the gateway to a broader wallet-share, revenue and profit growth, but circumstances have changed and the checking account is a liability – in all senses of the word – for the vast majority of Credit Unions.
The checking account holy grail myth seems to be inexhaustible. Bankers have been armed with the perceptions of the future based on yesterday’s experience, and buttressed by some self-interested vendors, advisors, and associations who are, frankly, afraid, to ‘tell it like it is’ or worse, who don’t know any better.
Most checking accounts generate little or no revenue and the vast majority generate non-recoverable operating losses, with little or no opportunity for cross-sell into revenue-generating products. Our own prolific writing on the topic includes the following articles that illustrate the dearth of value of the checking account to the member and to the Credit Union:
The ineffectiveness of the checking account is validated yet again by a recent TD Bank / Angus Reid Public Opinion survey that polled more than 3,000 checking account consumers.
TD Bank’s survey indicates that although a healthy 83% have a savings account in addition to their checking account, less than 50% have a credit card, and less than 20% have a mortgage, loan, LOC or Investments.
A Small Minority of Consumers Own Products that Generate Revenues for Credit Unions’ Product Ownership with Primary Bank, TD Bank Checking Experience Index
In other words, a very small minority of members own revenue-generating products from their Primary Credit Union. These findings are consistent with the findings of a recent Deloitte survey. More
August 1, 2013
Balance sheet, Board of directors, Concentration risk, Credit Union, Mortgage loan, National Credit Union Administration, Net worth, Risk, Risk management
CU officials and management have a fiduciary responsibility to identify, measure, monitor, and control concentration risk. Concentration risk must be managed in conjunction with credit, interest rate and liquidity risks; as a negative event in any category may have significant consequences on the other areas, as well as strategic and reputation risks.
Concentration risk has increased in importance during the recent economic recession. Poor risk management of residential and commercial mortgage loan concentrations, in particular, is having an adverse effect on credit unions nationwide; resulting in significant loan losses, earnings deterioration, capital depletion, and increased credit union failures.
The board of directors should establish a policy addressing its philosophy on concentration risk, limits commensurate with net worth levels, and the rationale as to how the limits fit into the credit union’s overall strategic plan. Take a global perspective when developing the policy, including identifying outside forces (such as economic or housing price uncertainty) which will affect the ability to manage concentration risk.
The parameters set by the board should be specific to each portfolio and should include limits on loan types, share types, third party relationship exposure, etc. The risk limits should correlate to the overall growth objectives, financial targets, and net worth plan. The risk limits set forth in the concentration risk policy should be closely linked to those codified in related policies, including, but not limited to, real estate loan, member business loan, loan participation, asset/liability management (ALM), investment and liquidity policies. Any Concentration exceeding 100 percent of net worth must be monitored carefully, and the board of directors should document an adequate rationale for undertaking that level of risk. More
July 30, 2013
SFAS 141 was revised in 2008 (SFAS 141-R). The acquisition method will be required for all credit union business combinations for fiscal years (acquirer) beginning after December 15, 2008.
The fair value accounting involves determining the fair values of the:
• Equity acquired;
• Assets acquired, including intangible assets; and
• Liabilities assumed.
a) Your examiner may require a high-level of FV (and the resulting accounting impact) prior to approving a merger.
b) Get our CPA firm involved at the onset.
This blog entry you have just read was written by Edward B. Lis, SVP CFO & Compliance. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com.
Edward B. Lis is a well respected credit union executive known by his peers as being decisive; a visionary; communicative; and energetic. He has led during difficult economic times driving change, achieving objectives, and effectively managing projects moving from a vision and strategy phase to implementation and final execution.
FDIC Accounting for Business Combinations
July 24, 2013
Congressional Action on Overdraft Changes Heats Up
A second bill to regulate financial institutions overdraft practiced is scheduled to be introduced to the Senate the week of July 22nd by Senator Brown (D–Ohio)Action on overdraft practices has increased since the CFPB released its study of overdraft programs which found that “overdraft programs can be costly for the consumers who use them, and that both consumer outcomes and policies related to overdraft programs can vary considerably.”
The first bill, H.R. 1261, was introduced by U.S. Representative Maloney (D-NY). H.R. 1261 would:
- Require overdraft fees to be reasonable and proportional;
- Limit overdraft to one per month and six per year;
- Codify the opt-in provisions that the Fed promulgated requiring that consumers opt-in to overdraft coverage;
- Prohibit institutions from manipulating the order of transactions to maximize overdraft fees; and
- Add additional disclosures to consumers about overdraft coverage programs
Senator Brown’s bill, which is still being finalized, would:
- Empower the Consumer Financial Protection Bureau to monitor financial institutions overdraft practices;
- Require the CFPB establish fair guidelines to protect consumers; and
- Require financial institutions post transactions and communicate process in an easy to understand format.
- Provide safe harbor for financial institutions that follow CFPB overdraft guidelines.
This congressional activity could seriously impact overdraft programs offered by credit unions throughout the country
The Credit Union National Association and state leagues and associations across the country are urging credit unions to engage their members in preserving the tax status of credit unions. Credit unions, in turn, are doing their part, including asking for “love letters.”