DUST OFF YOUR DEPOSIT ACQUISITION STRATEGY PRESENTED BY:

Transcription

1 DUST OFF YOUR DEPOSIT ACQUISITION STRATEGY PRESENTED BY: Rob Johnson Executive Vice President/Principal c. myers corporation

2 KEY TAKEAWAYS Questions that should be addressed to help ensure a strong deposit acquisition strategy Create a sense of urgency that decision-makers may need with respect to deposit acquisition Ideas for using readily available member data to deliver compelling messages

3 ABOUT C. MYERS We have the experience of providing actionable decision information to over 550 credit unions 50% of those over $1 billion in assets 25% of those over $100 million in assets A/LM, Long-Term Financial Forecasting, Liquidity Analysis, Leadership Development, and Strategic Planning Facilitate 150+ strategic engagements each year Think to differentiate. Drive better decisions.

4 DEPOSIT NEEDS SURVEY Do you: 1. Need more deposits now? 2. Expect to need more in the near future? 3. See pressures building in the long term? 4. Need more loans, not deposits?

5 LIQUIDITY RESPONSE The levers you pull to respond to liquidity pressure depend on the situation. Consider: What is causing the pressure? What is the financial position of the credit union to respond to liquidity pressure?

6 LIQUIDITY RESPONSE Two simple examples of the cause: 1. Loans are growing 15%, deposits are growing 3% 2. Loans are growing 5%, deposits are shrinking 5%

7 IF DEPOSITS ARE DECLINING Where is the $ going? What types of accounts are declining? What are the sizes of accounts that are declining? Are there patterns regarding the age of the members?

8 IF DEPOSITS ARE DECLINING In the near-term may mean paying more Over long-run, how do you engage members

9 LIQUIDITY RESPONSE Financial position things to consider: High/Low return on assets (ROA) High/Low net worth ratio Value of investment portfolio Are the loans being produced saleable? Ability/collateral for borrowing High/Low operating expenses

10 STRATEGY AND RESOURCES Over the last decade, most institutions have primarily focused on lending. Some of the strategic energy and resources will need to shift to funding.

11 STRATEGIC PLANNING FOR LIQUIDITY Consider: What percentage of your strategic plan over the last several years has been focused on deposit acquisition?

12 STRONG ACQUISITION Occurs through different paths: Attracting members Look at membership growth without indirect Increasing balances Rate or relationship Increasing engagement # of accounts and balance

13 CONSIDER Do you have a clear value proposition to attract members (organic)?

14 CONSIDER Do you have a clear value proposition to attract deposits?

15 Urgency?

16 FUEL YOUR ENGINE

17 STRATEGY LEVERS Yield on Assets Cost of Funds = Net Interest Margin Operating Expense Provision for Loan Loss + Non-Interest Income = Return on Assets (ROA)

18 DEPOSIT MIX ST rates at 1% ST rates at 5% ST rates at 0% ST rates at 1% Source: NCUA and Callahan s P2P

19 % OF TOTAL GROWTH SINCE 2007 Growth Regular Shares Money Markets Share Drafts # of Accounts Average Bal per Account 21% 8% 46% 79% 92% 54% Source: NCUA and Callahan s P2P, 12/31/17

20 AVERAGE BALANCE Time Period Money Markets 4Q, 2007 $19,217 4Q, 2017 $36,743 Source: NCUA and Callahan s P2P 2% inflation would equal $23,425

21 EXPOSURE TO AVERAGE BALANCE If you have 10,000 accounts and the average balance per account goes from $37,000 to $23,000, what would that add up to? $140 Million

22 MONEY MARKET RATES Source: 09/10/18

23 TECHNOLOGY Ease to move money/set up new accounts FinTechs Digital assistants Artificial intelligence (AI)

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25 POTENTIAL ASSISTANT REQUESTS Transfer excess funds from checking and regular shares to higher-paying money market at the credit union Move all but $5K from my accounts to an insured institution that pays the highest money market rate Analyze my pattern of deposits. How much could I move over to my investment portfolio? Analyze my CD portfolio, and if there is an opportunity to earn more interest after paying the penalty, please do so What else might people ask?

26 Test Options

27 WHAT MAY BE THE IMPACT Shares Shift to 1-Year CDs The credit union replaces a material reduction of regular shares and money markets with 1-year CDs (for members and non-members).

28 Base MM to 1-Yr CDs

29 Base MM to 1-Yr CDs

30 Base MM to 1-Yr CDs

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32 SOURCES TO GROW FUNDING SURVEY If you need funding now, what would you say is your primary liquidity tool? 1. Increase Non-Maturity (primarily money market rates) 2. CD Promotion (members) 3. Brokered CDs 4. Borrowings

33 TEST MULTIPLE IDEAS More aggressive deposit pricing More dramatic money market tier pricing More tiers to motivate members to move to the next level Create new money market product Consider potential negative impact to member relationship

34 TEST MULTIPLE IDEAS (CONTINUED) CD promotions: Test different lengths Non-member CDs Borrowings: Test different lengths

35 TEST MULTIPLE IDEAS (CONTINUED) Growing relationships/engagement Mergers Sell some of the production and/or slow loan growth Sell investments probably at a loss Each idea has a trade-off

36 CD PROMOTIONS Understand the potential marginal cost of the promotion. Marginal cost is different than the rate offered because it factors in cannibalization (the amount transferred from lower-cost sources) Existing CDs going into the promotion Movement from shares or money markets

37 CD PROMOTIONS MARGINAL COST EXAMPLE A

38 CD PROMOTIONS MARGINAL COST EXAMPLE B

39 Engagement

40 ENGAGEMENT Takes deliberate focus and energy Brand and reputation are key but it may take more creativity in the future

41 COMPETITION TO GET USER ENGAGEMENT Peer competition to drive engagement Source:

42 EDUCATION FOR USER ENGAGEMENT Source: 08/02/18

43 GOAL-SETTING USER ENGAGEMENT Source: MyFitnessPal mobile app

44 GOAL-SETTING USER ENGAGEMENT Source: MyFitnessPal mobile app

45 REWARDING USER ENGAGEMENT Rewards for watching ads

46 REWARDING USER ENGAGEMENT Could you offer an account that features digital ads from companies that may be a good fit for your membership? Could you share advertising revenue in the form of higher interest rates?

47 REWARDING USER ENGAGEMENT Source: 08/02/18

48 STRATEGY AND RESOURCES How does your strategic plan address the potential changes in funding in the future?

49 STRATEGY AND RESOURCES Have you tested the potential financial impact of different funding strategies?

50 Thank You! We welcome your questions and comments. Contact us at cmyers.com or