Challenges & Opportunities in a New Era

(1)

May 1, 2010

(2)

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

(3)

“DENSE LANGUAGE OBSCURES USURIOUS INTEREST RATES, PUNITIVE LATE FEES”

(4)

(5)

“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.”

(6)

(7)

(8)

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

(9)

(10)

Credit unions originate the highest loan

volume in their history

Source: Callahan’s Peer to Peer Software

(11)

Over $71 billion of new shares flow to credit

unions

B illio n s

(12)

Member growth trends up over recent years

Data for all US Credit Unions as of December 31

Milli

o

n

s

(13)

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%

(14)

1st _{mortgage & consumer loan originations grew in 2010}

Loan Originations by Category for all US Credit Unions

(15)

1

st

mortgage originations and market share

reached new highs in 2009

B

illio

n

s

Source: Callahan’s Peer to Peer Software, MBA

(16)

Credit union auto lending market share

topped 22% during 2009

21.5% 22.7% 20.4% 19.6% 20.3% 20.7% 22.3% 20.9% 20.1% 19.5% 19.0% 17.9% 16.4% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0%

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

Credit Union Auto Lending Market Share (12/09)

(17)

Credit card lines of credit continue to rise

(18)

Banks cut over $1 trillion of credit card lines

$4,002$4,061 $4,359 $4,195 $4,355 $4,350 $4,367 _$4,065 $3,626 $3,481$3,481 $3,283

Data for all FDIC-Insured Institutions as of December 31

(19)

(20)

MBL origination volume shows that

credit unions remain active

Annual MBL originations for all US Credit Unions as of December 31

(21)

Consumer Lending bottoming at banks

Data for all FDIC-Insured Institutions as of December 31

(22)

Wall Street Journal,

(23)

-10% 0% 10% 20% 30% 40% 50% 60% 1945 1955 1965 1975 1985 1995 2005

In 64 out of the past 65 years, credit unions have expanded their total loan portfolio | (1945 – 2009)

(24)

(25)

“COUNTERCYCLICAL FIRST

RESPONDERS”

Before the government stepped in, credit unions were creating solutions in:

•Auto finance •Student loans

•Real estate loan modifications •1st Mortgages

•Fair credit cards

(26)

Alaska CUs’ Performance

Comparisons vs. the

(27)

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

(28)

12.3%

2.9%

(29)

13.0% 12.5%

(30)

3.5%

0.7%

(31)

76.0%

72.8%

(32)

Alaska CUs

(33)

All US CUs

(34)

Alaska CUs

(35)

All US CUs

(36)

4.99% 5.35%

(37)

1.75%

1.26%

(38)

4.09%

3.24%

(39)

2.10%

1.36%

(40)

4.64%

3.21%

(41)

1.12%

0.60%

(42)

1.45%

0.54%

(43)

1.83%

1.18%

(44)

1.22%

0.70%

(45)

10.4%

8.8%

(46)

381

229

(47)

$8.8k

$8.3k

(48)

56.9%

46.7%

(49)

$14.3k

$12.5k

(50)

20.7%

17.1%

(51)

14.4%

11.2%

(52)

$595

$431

(53)

What do you take away from

these performance

(54)

A Changing

(55)

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

(56)

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

(57)

(58)

(59)

(60)

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

(61)

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?

(62)

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

(63)

(64)

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.”

(65)

Credit Unions have doubled in key balance

sheet categories over the past decade

(66)

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 second-largest—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

(67)

(68)

(69)

2010: THE YEAR

OF THE

CONSUMER

FROM WALL STREET TO MAIN STREET:

WASHINGTON’S POLICY FOCUS IN 2010

“T

HE

B

EGINNING OF A

C

OOPERATIVE

(70)

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

(71)

THE KEY TO YOUR FUTURE

(72)