Be a Hero. Rethinking Service to People of Modest Means: New Strategies Out of the Box Thinking and Best Practices

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1 Be a Hero Rethinking Service to People of Modest Means: New Strategies Out of the Box Thinking and Best Practices

2 Leveraging Our History to Develop New Strategies

3 Credit Union Heroes Dare Greatly

4 To Dare Greatly is to experience risk and uncertainty while accomplishing great things; which at the time makes us feel vulnerable.

5 Vulnerability is NOT It is the most accurate measure of weakness. courage.

6 Our Founders Were COURAGEOUS

7 Edward Filene

8 Unions Credit Unions Chamber of Commerce

9 Workman s Compensation Collective Bargaining 40 Hour Work Week 8 Hour Work Day

10 We are Innovators

11 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

12 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 12

13 Philosophy as a Competitive Advantage to Invent Qualified Borrowers

14 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 14

15 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? 15

16 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? 16

17 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? 17

18 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? 18

19 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? 19

20 Turning the Frog into the Prince Profitable Underserved Members Working Class - Your former A&B borrowers that experienced hardship that lowered their credit score. Vulnerable Populations - Underbanked and unbanked consumers. 20

21 Your 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 21

22 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 Vulnerable Consumers 22

23 Overview of Market 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 23

24 Overview of Market continued 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. 24 * FDIC 2011 Survey

25 Strategies for Serving These Members 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. 25

26 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. 26

27 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. 27

28 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. 28

29 New Strategies Create Out of the Box Products

30 Vision Visa

31 Vision Visa Where will consumers make their next large dollar purchase from? The results: Tax Return Nest Egg Savings 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.

32 Tax Refund Direct Deposited to Savings Vision Visa Life s Emergency 60 for Super Bowl Furniture Purchase Pay Down Credit Card

33 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.

34 Re-Marketed Vehicle Program Second Look Auto Financing

35 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%).

36 Shreveport FCU & the City of Shreveport Financial & Business Empowerment Center

37 Shreveport Federal Branch and Empowerment Center (before) 37

38 2230 Jewella Avenue; Shreveport After 38

39 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. 39

40 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. 40

41 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. 41

42 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. 42

43 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. 43

44 WAAAAAAY Out of the Box

45 Re-Entry Program

46 Re-Entry Program Partnership with State Department of Corrections since Provides financial education to inmates that are nonviolent 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.

47 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.

48 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.

49 Leveraging our Global Impact to Develop New Strategies

56 NCBA Community Development Initiative

60 60

62 The Park Street Boys

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65 65

66 66

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68 Our Best Practices Have the Best Financials

69 Proving Philosophy is Profitable: Four Case Studies Industrial CU, WA Hawaii First FCU, HI Pelican State CU, LA Shreveport FCU, LA $189 Million $33 Million $219 Million $100 Million 69

70 Financial Trends of These CUs 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. 70

71 Financial Trends of These CUs 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. 71

72 How are They Doing it? 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. 72

73 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. 73

74 Hawaii First FCU ($33m) 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 74

75 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 75

76 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. 76

77 Case Study: In-depth Financial Analysis of One of Our Credit Unions

78 Financial Analysis 12/31/ /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%

79 Financial Analysis (continued) 12/31/ /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%

80 Loan Types Interest Rate Loan Analysis Amount % of Total Amt. of Loans Average Balance Unsecured Credit Cards 8.90% $2,057, % $1,632 Other Unsecured 8.90% $4,982, % $1,875 New Vehicle 4.00% $11,507, % $16,726 Used Vehicle 4.90% $35,243, % $10,439 First Mortgages 4.40% $14,260, % $49,006 Other Real Estate 5.50% $637, % $21,252 Other Loans 8.57% $2,384, % $8,396 Total Loans $71,073, % $8,277

81 Deposit Types Dividend Rate Deposit Analysis Amount % of Total Amt. of Deposits Average Balance Share Drafts 0.50% $6,524, % $1,257 Regular Shares 0.43% $31,139, % $1,338 Share Certificates 1.01% $36,690, % $47,039 IRAs 0.50% $4,995, % $22,007 Total Member Shares $79,350, % $2,692 Non-Member Shares 1.60% $994, % $331,333 Total Shares $80,344, % $2,726

82 Financial Analysis (continued) Strengths Opportunities/Challenges 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 High cost of funds but declining High provision/operating expenses Low average deposits Typically high loan growth, currently fluctuating

83 Shreveport FCU Loan Analysis Profitability Credit Grades Loan Balance Loan Interest Charge Off Net Income A $5,084,492 $186,497 $0 $186,497 A $3,861,293 $178,330 $0 $178,330 B $8,159,913 $474,062 $40,935 $433,127 C $12,974,294 $820,369 $46,435 $773,934 D $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

84 Who are They Serving?

85 Demographics Mississippi Delta Unemployment Rate Family Median Income Families in Poverty US 8.3% $62, % Mississippi 9.9% $45, % Coahoma 12.3% $29, % Quitman 12.6% $26, % Tallahatchie 11.4% $26, %

86 Demographics Mississippi Delta No High School US 6.36% Coahoma 25.1% Panola 28.3% Quitman 37.4% Bolivar 28.9% Tallahatchie 35.7%

87 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%

88 Demographics Mississippi Delta 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% Quitman 25.7% 29.2% 36.33% 0 1 Bolivar 24.8% 28.3% 30.83% Tallahatchie 24.5% 28.5% 26.9%

89 Where is Our Movement Today?

90 The Story of Denise

91 Joplin, MO

95 Anywhere, USA

97 Our Roots

98 Our Roots

99 The Most Inspiring and Effective Credit Unions are Found Where Great Philosophy Meets Exceptional Business

100 They are Daring Greatly

101 The Man in the Arena -Theodore Roosevelt

Inventing Products to Serve the Underbanked. Today s Panel

Inventing Products to Serve the Underbanked Moderated by: Stacy Augustine, CU Strategic Planning Panelists: Cindy Gribben, NATCO FCU; DeAndre Zachery, Shreveport FCU; Alycia Juvik, CU Strategic Planning