The economic recovery remains slow but is gaining momentum. That brings some good news for credit unions, who can expect stronger earnings for the first time in many years, according to CUNA’s newly released 2012-2013 Credit Union Environmental Scan. Allowances for loan losses should decrease as lending demand picks up and credit quality improves.
The wave of new members spurred on by Bank Transfer Day means a greater emphasis on your onboarding efforts and member retention strategies, too.
The E-Scan identifies the following 10 issues as critical for credit union strategic planning discussions. Monitor the implications of these issues, and develop strategies to address them in the coming year.
1 Mobile banking
Mobile banking is going maintstream, but it won’t completely replace online banking. Mobile banking is listed as the top technology priority for credit union CEOs. If your credit union doesn’t currently offer mobile banking, it should be on your priority list for the upcoming year.
About 50% of the mobile devices in the U.S. are smartphones. Members will want to use PCs and online banking at home for basic services such as budgeting and money management. But they’ll also want access via mobile devices when they’re traveling. Your mobile banking system should integrate with your online banking system to ensure a consistent member experience between channels.
Reap the benefits of Bank Transfer Day fervor and work to build multiple relationships with new and existing members.
Make it a priority to increase nonmembers’ awareness of your CU. Nationally, 69% of young nonmembers remain clueless about CUs.
Board focus: Pay attention to governance practices. The traditional governance blueprint many boards have followed in the past is no longer adequate to move your CU forward.
2 Antibank sentiment
Bank Transfer Day brought credit union onboarding strategies to center stage. After years of anemic membership growth, most credit unions were ill-prepared for the influx of new members. About half of consumers’ attempts to open and fund credit union accounts online fail, according to Javelin Strategy and Research.
Regardless of whether your credit union is focusing on new or existing members, your product penetration could be better. Your members still do a lot of their financial business with your competitors. It’s time to convince new and existing members to move beyond solitary account relationships to multiple relationships.
3 Consumer awareness
Among a disturbingly large portion of the U.S. population, credit unions are still the best-kept secret. About 37% of all nonmembers are “not at all familiar” with credit unions. And that percentage skyrockets to 69% when you ask consumers younger than age 25.
This doesn’t bode well for long-term membership or loan growth. Increasing your credit union’s awareness, especially among young nonmembers, must be a top priority.
4 Earnings rebound
Return on assets will increase to 0.9% (after stabilization expenses) in 2012 and 2013. Lower loan loss provisions will increase net income in 2012, as credit unions let their allowance for loan loss accounts decline. Loan delinquency and charge-off rates will fall as job growth accelerates. Provisions for loan losses as a percent of assets will fall to 0.4% in 2012—below the 0.43% recorded in 2007.
NCUA assessments should equal nine basis points (bp) of insured shares in 2012 (an approximate 10 bp improvement over 2011) and loan growth should help boost asset yields slightly.
Modest growth and stronger earnings will mean capital-to-asset ratios will increase from 10% today to approximately 11% by year-end 2013, approaching the record level of 11.5% set in 2006—the year before the onset of the recession.
Layoffs, cutbacks, salary freezes, and other belt-tightening measures have left a legacy of low postrecession morale. As essential as these painful measures were a few years ago, they’re making it difficult to motivate employees today. There could be consequences—lower productivity, less engagement, poor member service, and an exodus of top talent—if you don’t offer incentives and take workplace stress down a notch or two.
Fewer employees quit their jobs in the first nine months of 2011 than in any comparable period in the past 50 years. Expect to see a slight increase in employees changing jobs during the months ahead, but turnover is expected to remain low until hiring picks up.
Lending will continue to be a struggle, and interest-rate competition will be intense. But after three years of essentially no loan growth, credit union loan balances should increase 4% in 2012 and 6% in 2013.
Auto loans, credit card loans, and purchase mortgages will be strong growth areas in the upcoming year. While mortgage refinancing activity might be exhausted, rising longer-term rates should entice first-time home buyers off the sidelines.
Be sure your credit union has a strategy for lending to credit-impaired members. Following the recession, many members will have “bruised” credit histories—but this doesn’t necessarily mean they’re poor credit risks.
As your business model changes, so must your governance model. The traditional governance blueprint many boards have followed in the past is no longer adequate for moving your credit union forward.
Innovative boards need a bolder approach to meet future challenges. Establish a culture of dedication on your board. Dedicated boards set themselves apart with their readiness to participate, contribute, and improve. Start a program to recruit future directors. New board members offer a fresh perspective on membership growth, and on products and services for your credit union to consider.
8 Membership growth
More than 21 million nonmembers younger than age 18 currently live in members’ homes—your members’ children. Offer adult members incentives for signing up their children for credit union membership.
Your credit union also must attract members of Generations X and Y to ensure future loan growth. Gen Yers’ earnings are expected to exceed boomers’ income by about $500 billion within eight years. Ride the wave of antibank sentiment and explain your not-for-profit business model to younger consumers. Once these younger consumers understand the differences between banks and credit unions, they’re far more likely to choose credit unions.
Work with minority communities to attract younger members. The average age of the Hispanic population, for example, is more than 10 years younger than non-Hispanics.
Use a member-centric approach when developing your technology strategy. Start with the desired member experience and work back toward the appropriate technology.
With decreased loan demand and increased pressure on earnings, your information technology team must watch expenses carefully. Using technology to achieve greater efficiencies was listed as the top priority among credit union CEOs surveyed by Abound Resources Inc., a CUNA Strategic Services alliance provider.
Rely on your credit union’s wealth of data when creating your business intelligence strategies. Specifically, your credit union needs a data warehouse for integrating, analyzing, and displaying data; people with analytical minds asking the right questions; and thorough integration with internal processes.
Your credit union needs a comprehensive compliance strategy to keep up with regulatory changes from multiple state and federal agencies. Without one, it’s easy to fall out of compliance and threaten your credit union’s safety and soundness.
The Consumer Financial Protection Bureau is busy setting up systems for comments and complaints on all consumer financial products and services.
Anticipate regulatory changes as best you can while staying focused on your biggest asset—your members.
CUNA: 2012-2013 Credit Union Environmental Scan: 100-page report, DVD, PowerPoint, Strategic Planning Guide, and monthly newsletter.