Effects of the Economy on Credit Unions

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An operating environment resulting from slow growth in the economy, low interest rates, and nagging unemployment has from a macro-perspective produced an outcome of rapid savings growth, slow loan growth, and a steep yield curve.

We have seen:

  • Declining yield on assets due to lower interest rates plus the asset distribution shifting to lower-rate investments and maturing loans being replaced with low rate loans;
  • Declining cost of funds due to lower dividend rates plus the distribution of savings shifting to low-cost savings products;
  • Indeterminate net interest margin due to cost of funds falling faster than yield on assets if dividend rates are aggressively lowered.  However, if loan growth is very weak and savings growth very strong, yield on assets may fall faster than cost of funds;
  • Rising provisions for loan loss due to higher bankruptcies and charge-offs reflecting employment trends;
  • Lower operating expense to average asset ratio due to rapid savings growth increasing assets faster than the growth in operating expenses;
  • Higher fee income due to non-sufficient funds and late payments.
  • Return on assets will be flat to marginally lower; and
  • Capital-to-assets will be flat to marginally higher.

Things to consider in maintaining net income when interest rates are very low are listed below:

  • Avoid extending investment maturities significantly;
  • Limit additions to the fixed rate mortgage portfolio;
  • Don’t overreact by slashing operating expenses; and
  • Adjust rate paid on member savings downward.

Some factors to consider with respect to falling net worth ratios are as follows:

  • Members are seeking a safe place to store their financial assets (asset growth has been strong);
  • If rates paid on savings are not hyper-competitive, this savings growth can be healthy.

This blog entry you have just read was written by Edward Lis who is a former senior executive of three different credit unions. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com or by calling 518-420-2108.

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The Future of Online Banking-Online Financial Management

Comments Off on The Future of Online Banking-Online Financial Management

Banks and credit unions continually assess new online services to offer their consumers and members.

One of the newer online services is online financial management (OFM). Online financial management allows users to:

1) aggregate their financial accounts in one place;

2) have their transactions automatically categorized;

3) establish and monitor a budget; and

4) set financial goals and track their progress.

It’s been unclear whether online financial management’s capabilities would resonate enough with users to make them a more avid users of their primary financial provider’s online banking site.

OFM represents possibility the next evolution of online banking.  It’s about putting the consumer in control of their finances without any software to install or information to download.  OFM enables its users to see trends in their spending and even find ways to save – regardless of how many accounts they have or with what financial institutions.  OFM allows users to manage financial accounts from thousands of financial providers – including their credit cards, loans, deposits, investments, utility bills, etc. – all in one place.

More than 2 million people have already turned to third-party Web sites for personal financial management tools. According to Forrester Research, 8 out of 10 consumers would prefer to manage their finances at the place they trust most with their personal financial data – their financial institution.

OFM empowers consumers to manage their money with easy-to-use tools and automatic updates.  The product drives customer satisfaction, leading customers or members to log into your Web site more often, recommend your institution to friends and family, and adopt other online banking products.

Small Business Solutions:

With 27 million small businesses generating annual sales of $2 trillion, this segment offers significant revenue potential. In fact, because of their specific business needs, one small business is, on average, at least twice as profitable as two consumers.  Many OFM providers offer tools for small businesses.  Tools they need – and want – so they can better manage their business.

This blog entry you have just read was written by Edward Lis who is a former senior executive of three different credit unions. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com or by calling 518-420-2108.


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