new strategies out of the box thinking and best practices€¦ · – pawn shop – rent-to-own...
TRANSCRIPT
Be a Hero Rethinking Service to People of Modest Means:
New Strategies
Out of the Box Thinking
and Best Practices
To “Dare Greatly” is to experience risk and uncertainty while accomplishing great things; which at the time makes us feel vulnerable.
1900s – First character based personal loan
1930s – First payroll deduction
1960s – First loans to women (in their own names)
1970s – First personal line of credit
1970s – First full service ATM network
1980s – First home equity line of credit
1980s – First debit card and POS debit service
1980s – First educational savings plan
1990s – First online banking
2000s – First check imaging service
“We must remember what we started out to do and then find ways to do it with the
modern techniques available.”
Louise M. Herring, The Mother of Credit Unions
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International Operating Principles • Open and Voluntary Membership • Democratic Control • Non-Discrimination • Distribution to Members • Building Financial Stability • Service to Members
• On-Going Education • Cooperation Among Cooperatives • Social Responsibility
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International Operating Principles
• Non-Discrimination- Are we discriminating against members facing hardship and vulnerable populations?
• Distribution to Members-Are we distributing equality
the profits of the cooperative even to distressed and vulnerable members or are we ignoring them?
• Building Financial Stability- Are we helping members
to become financially stable, if they are not currently?
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• Service to Members
– What services are we providing to these members that are already in our field of membership?
– How many of our members faced hardship during the economic decline?
– How many of our members are vulnerable?
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International Operating Principles
• On-Going Education – Are we educating them? – Are we seeking education for our board,
management team and staff about the mission of our credit union and responsibility to members?
– Are we providing financial education and coaching to our members?
– Are we proactively providing education and coaching to our distressed and vulnerable members?
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International Operating Principles
• Social Responsibility
– What are our social responsibility efforts?
– Is our social responsibility limited to donations to other non-profits and not-for profits?
– Why? Aren’t we a not-for-profit? What is our mission?
– Are we being socially responsible within mission to serve our members?
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International Operating Principles
• Service to Members - What services are we
providing to these members that are already in our field of membership?
• How many of our members faced hardship during the economic decline? How many of our members are vulnerable?
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International Operating Principles
• Working Class - Your former A&B borrowers that experienced hardship that lowered their credit score.
• Vulnerable Populations - Underbanked and unbanked consumers.
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Turning the Frog into the Prince
Profitable Underserved Members
• Working class credit union members faced increased hardship with the economic decline.
• 28.3% of US households are either unbanked or underbanked.
• 8.2% are unbanked (10 million households) They do not have a checking OR savings account.
• 20.1% are underbanked (24 million households)
* FDIC 2011 Survey
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Your Profitable Underserved Members
• These underbanked consumers have a checking or savings account and have used one of the following within the last 12 months:
– Payday Loan
– Pawn Shop
– Rent-to-Own Service
– Refund Anticipation Loan
– Check Cashing Outlet
– Non-Bank Money Order
– Non-Bank Remittance
* FDIC 2011 Survey
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Vulnerable Consumers
• One-quarter of all households have used at least one Alternative Financial Service in the last year.
• 12% of households used Alternative Financial Services within the last 30 days.
• Nearly one-half of non-Asian minorities, lower income households, younger households and unemployed households are unbanked or underbanked.
* FDIC 2011 Survey
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Overview of Market
• Reasons for using costly Alternative Financial Services are:
– Convenience
– Easier, faster credit
– Do not have a bank account
– Shame and embarrassment
– Need coaching- Not just one loan from the CU. It takes 21 days to change a behavior.
* FDIC 2011 Survey
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Overview of Market – continued
• Emphasize commitment to CU Philosophy. • Obtain board commitment to serve this market. • Credit union needs to be innovative in
developing products and “development services” that meet member needs and brings them into mainstream payment system, improves credit and mitigates risk.
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Strategies for Serving These Members
• Savings packages are a key element to building a relationship.
• Lending products and practices will require changes. Members need education, one-on-one counseling and products tailored to their needs and qualifications.
• Members that do not qualify for a loan must be counseled on what they can do to qualify.
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Strategies for Serving These Members
• Pricing services must reflect additional cost and risk. For example: small loans are costlier and should have higher APR. Must use fees prudently.
• Partnerships with non-profits and government agencies create lending pipelines.
• Unique lending and underwriting policies. • Unique collateral, rates, and terms.
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Strategies for Serving These Members
• Community development and reaching out to the members is essential and provides opportunities to educate and provide counseling.
• Credit unions with in-house financial education,
credit rebuilding and coaching report fewer charge offs, than collections alone.
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Strategies for Serving These Members
Where will consumers make their next large dollar purchase from? • Tax Return • Nest Egg • Savings
The results: • CU reports good credit to 3 major credit bureaus. • Better rates on loans outside of credit union. • 12 months of on-time payments improves “credit union
only credit score”.
Vision Visa
Tax Refund – Direct Deposited to Savings
Vision Visa
60” for Super Bowl
Pay Down Credit Card
Furniture Purchase
Life’s Emergency
Simple Features
• Immediate access to spending needs; while building long-term savings.
• Improved Credit Scores. • Shared Secured Revolving Credit Line. • Low APR of 10%. • Platinum Card – Offers user benefits and PRIDE.
Re-Marketed Vehicle Program • Repossessed “write off” vehicles are refurbished. • Non-traditional borrowers (short term employment,
credit problems within last 18 months). • CU has already said “no”. • Offered Second Look Auto Financing. • Loans are closely monitored. • GPS tracking mitigates risk . • Members get reasonable rate compared to what’s
available to the in the marketplace (15% compared to as high as 28%).
What is the Inner City Strategic Initiative?
• It began as a partnership between Shreveport FCU and the City of Shreveport Community Development Department.
• The city had a building…. • Shreveport FCU has the expertise to run a
financial institution and to train people in the community about money.
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The Reason for the Inner City Strategic Initiative
• To reduce the number of people living in poverty… through the implementation of innovative, results-driven initiatives.
• To transform the lives of those participants
who come in from the community.
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The Reason for the Inner City Strategic Initiative
• Help residents with financial workshops. • Empower the business community by
providing cash flow planning, creating a business plan, budgeting, etc.
• Create new jobs.
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Services for Businesses
• Structuring a Business Plan. • How to keep business taxes in order. • How to keep track of you business (record
keeping). • How to obtain micro, business expansion,
and commercial loans from Shreveport FCU. • Letters of credit. • Bonding assistance.
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Success Story – Tonya Williams
• Local beautician – Tonya Williams. • Opened business account. • Established deposit history. • Began by booth rental. • Now, she owns her own salon. • Next…a SPA & SALON.
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Re-Entry Program
• Partnership with State Department of Corrections since 2008.
• Provides financial education to inmates that are non-violent offenders and within 1 year of their release date.
• Program is as basic as “Intro to Banking” and as advanced as First Time Homeownership Buyer’s Guide.
• Inmates receive graduation certificates for participation upon completion of program requirements.
Re-Entry Program cont…
• CU conducts financial education 6 hours weekly. • 1,470 inmates graduated and released back into our
communities. • Recidivism rate less than 90% in the Re-Entry program
compared to the state’s rate of 48%. • The program is in high demand amongst inmates. • Statewide waiting list for program. Inmates are chosen
to take part in this program. • Conduct has improved within the penal system of
Louisiana.
Re-Entry Program cont…
• During first year of release from prison the program intervention maintains a 89.3% success rate, with only one in every ten graduates of the program returning to crime.
• During the second year of release 75.6 % of the program graduates were still in the community and had not returned to crime.
• In Year 5 of the program we are expanding to employment staffing services for ex-offenders.
Proving Philosophy is Profitable: Four Case Studies
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• Industrial CU, WA $189 Million
• Hawaii First FCU, HI $33 Million
• Pelican State CU, LA $219 Million
• Shreveport FCU, LA $100 Million
Financial Trends of These CUs
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1. Although the CUs did not always have higher net worth ratios than their peers, all substantially increased their ratio during the past two years.
2. All had ROA consistently much higher than peers.
3. Three factors drove their profitability:
a. All four had higher yield on loans.
b. All four had higher other income than peers.
c. All had higher loan to deposit ratios than peers.
Financial Trends of These CUs
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4. The higher profitability & growth in net worth ratio (NWR) were achieved despite significantly lower average deposits per member.
5. Growth was significantly higher in net worth and membership compared to peers.
6. Growth in deposits was usually higher than peers, because the higher ROA enabled higher growth without reducing the NWR.
7. Growth in loans was usually higher than peers despite the fact that the loan to deposit ratio was higher to begin with.
How are They Doing it?
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1. Connected and understand their community needs.
2. Meeting the community need, by inventing products or using best practices to create programs that create solutions.
3. Pricing loans that generate revenue while providing loans to people that no one else will help.
4. Use of partnerships for risk mitigation and increased efficiency.
Industrial FCU ($189m)
• Members help to invent qualified borrowers. – Instead of fighting of A and B loans, loyal members
refer new members because the credit union helped them when no one else would.
– Next up.. – Partnerships: Center for Economic Vitality mitigates
risk providing three year business evaluation and coaching to micro and small business borrowers.
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Hawaii First FCU ($33m)
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• Community Resource Center(s) – Invents qualified borrowers through financial
education and coaching – Partnerships: Social service organizations refer
consumers – One on one coaching to move members from debt to
asset building
Pelican State CU ($219m)
• Helping Empower Louisiana's Poor(HELP) – Partnerships: SEGs allowed 58 financial education
workshops. – Every employee is a Community Development
Certified Financial Counselor©. • Identify, intervene and coach/transfer. • Keep up with predatory practices. • Tracking
– Debt consolidation loans, and asset building to prevent future predatory lending
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Shreveport FCU ($100m)
• Financial Empowerment Center – Partnerships: City of Shreveport donated inner city
building valued at $750,000. – Best practice in pricing, lending to extreme poverty,
collections as workout assistance. – Sets up unique collections in the lending process. – Tracks D and E loans to show regulator, losses are
far, far, far, far, far less than profits.
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Financial Analysis
12/31/2012 12/31/2013 Peers: 12/31/2013
Total Assets $90,518,919 $99,443,432 - Membership 20,541 21,057 - Net Worth Ratio 15.60% 15.60% 11.25% ROA 3.04% 1.40% 0.43% Yield on Loans 10.49% 10.18% 5.74% Cost of Funds 1.14% 0.88% 0.40% Provision Expenses 0.72% 0.85% 0.24% Operating Expenses 7.49% 6.85% 3.72% Other Income 2.22% 2.10% 1.27%
Financial Analysis (continued)
12/31/2012 12/31/2013 Peers: 12/31/2013
Avg. Shares/Member $3,642 $3,816 $8,490 Loan to Share 92.90% 88.46% 60.91%
Growth:
Net Worth 12.01% 9.84% 4.42% Shares 3.20% 7.41% 2.72% Loans 4.15% 2.28% 4.25% Assets 4.36% 9.86% 2.71% Membership 5.17% 2.51% 0.71%
Loan Analysis
Loan Types Interest Rate Amount % of Total
Amt. of Loans Average Balance
Unsecured Credit Cards 8.90% $2,057,525 2.9% $1,632
Other Unsecured 8.90% $4,982,802 7.0% $1,875
New Vehicle 4.00% $11,507,222 16.2% $16,726
Used Vehicle 4.90% $35,243,135 49.6% $10,439
First Mortgages 4.40% $14,260,843 20.1% $49,006
Other Real Estate 5.50% $637,545 0.9% $21,252
Other Loans 8.57% $2,384,601 3.4% $8,396
Total Loans $71,073,673 100.0% $8,277
Deposit Analysis
Deposit Types Dividend Rate Amount
% of Total Amt. of Deposits
Average Balance
Share Drafts 0.50% $6,524,472 8.1% $1,257
Regular Shares 0.43% $31,139,193 38.8% $1,338 Share Certificates 1.01% $36,690,719 45.7% $47,039
IRAs 0.50% $4,995,673 6.2% $22,007 Total Member Shares $79,350,057 98.8% $2,692
Non-Member Shares 1.60% $994,000 1.2% $331,333
Total Shares $80,344,057 100.0% $2,726
Financial Analysis (continued)
Strengths
• Excellent net worth ratio • Very high ROA • Very high yield on loans • Very high other income • Very high loan to share ratio • High net worth, share, asset,
and membership growth
Opportunities/Challenges
• High cost of funds but declining • High provision/operating
expenses • Low average deposits • Typically high loan growth,
currently fluctuating
Shreveport FCU Loan Analysis Profitability
Credit Grades Loan Balance Loan Interest Charge Off Net Income A+ 730 + $5,084,492 $186,497 $0 $186,497 A 680-729 $3,861,293 $178,330 $0 $178,330 B 640-679 $8,159,913 $474,062 $40,935 $433,127 C 600-639 $12,974,294 $820,369 $46,435 $773,934 D 550-599 $14,253,113 $1,136,339 $178,604 $957,736 E 549< $16,974,860 $1,479,728 $126,396 $1,353,332 No Score $3,446,864 $253,343 $99,466 $153,877 Visa $1,772,262 $88,025 $1,949 $86,076 Total $66,527,092 $4,616,692 $493,785 $4,122,907
Demographics – Mississippi Delta
Unemployment Rate
Family Median Income
Families in Poverty
US 8.3% $62,363 9.86%
Mississippi 9.9% $45,700 16.97%
Coahoma 12.3% $29,034 31.58%
Quitman 12.6% $26,818 31.31%
Tallahatchie 11.4% $26,543 29.08%
Demographics – Mississippi Delta
No High School
US 6.36%
Coahoma 25.1%
Panola 28.3%
Quitman 37.4%
Bolivar 28.9%
Tallahatchie 35.7%
Demographics – Mississippi Delta
African American
Hispanic or Latino
White
US 13.1% 11.2% 70.6%
Mississippi 37.02% 2.75% 59.13%
Coahoma 69.1% 1.3% 29.2%
Quitman 63.6% 0.6% 35.5%
Bolivar 61.7% 0.7% 36.8%
Tallahatchie 58.0% 0.5% 41.0%
Demographics – Mississippi Delta
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Unbanked Under banked
Receive Food
Stamps
Farms with
Direct Sales
Food Desert Census Tracts
US 7.7% 17.9%
Coahoma 25.3% 30% 35.28% 2.3 2
Quitman 25.7% 29.2% 36.33% 0 1
Bolivar 24.8% 28.3% 30.83% 1.9 3
Tallahatchie 24.5% 28.5% 26.9% 2.7 2
The Most Inspiring and
Effective
Credit Unions
are Found Where
Great Philosophy Meets
Exceptional Business