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Today’s Presentation: Preparing Your Credit Union for Crisis Recovery

Hear about beneficial card portfolio strategy changes that will be required of your credit union in light of expected increases in delinquency, credit losses and changes in consumer behavior. Also, bringing you the latest on card marketing trends and recommendations...stay tuned for insight provided by our Advisors Plus subject-matter experts.

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Today’s Speakers:• Glynn Frechette, Senior Vice President, Advisors Plus• Norm Patrick, Vice President, Advisors Plus• David Ross, Vice President, Data & Analytics

Preparing Your Credit Union for Crisis RecoveryApril 29, 2020Glynn Frechette

Norm PatrickDavid Ross


DisclaimerInformation as of April 29, 2020

Though we are familiar with regulations, acts and practices, the suggested recommendations we provide do not constitute legal advice and should not be acted upon without specific counsel from your credit union’s legal representation.


Today’s Topics§Market Conditions

•Looking Back

•Since COVID-19

•Outlook

§What Credit Unions Should Do Now

§Additional Resources and Services


The Path to Crisis Recovery

§ As the COVID-19 situation ramped up and began showing signs of leveling-off, our credit unions have done a remarkable job in taking care of members – some examples

• Adjusted delivery channels to promote social distancing

•Deployed special pages on websites to provide important information to members

• Provided flexibility in loan repayment (aka deferred payments / skip-a-pay) to keep impacted members on track

§ Now, as we look to the current state and future, it is time to not only continue to take great care of our members, but to also examine the impact on your CU business and begin to move forward into the stage of crisis recovery.

Turning the Corner


The Path to Crisis Recovery

§ As with most crisis events, we will get through this and we will be stronger on the other side

•Will take time, patience and a whole lot of effort to get there

•Our industry is strong and you have great resources to assist you

We Will Get Through This


Market Conditions – A Quick Look Back


Source: US Bureau of Labor StatisticsSource: US Bureau of Economic Analysis

Trends Coming Into 2020

§ An economic recession is defined by two consecutive quarters of negative GDP growth

§ Approximately 70% of US GDP represents consumer spending

§ GDP forecast was at ~2% for 2020 and the unemployment rate was trending favorably at a 50-year low

Two Important Economic Indicators


2.2%

3.3%

2.0%

2.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2014 2015 2016 2017 2018 2019

Credit Card Charge-Offs

All FICUs All FICUs ex. Navy Federal

Trends Coming Into 2020Slight Softening in Card Spend and Slow, Steady Rise in Charge-Offs

10.7%9.6%

12.3% 12.2%

9.4% 8.3%7.8% 8.0%

6.5%5.4%

11.6%

9.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2014 2015 2016 2017 2018 2019

Purchase Volume Growth

Credit Debit

Source: Nilson Report Source: NCUA 5300 Reports


Market Conditions – Since COVID-19


Source: US Department of LaborNote: Dates represent week-ending date

Initial Unemployment Filings

§ Prior to COVID-19 outbreak, weekly filings were in the low 200k range for a prolonged period of time

§ Over the pasts 5 weeks alone, 26.7 million Americans filed an initial claim

§ Peak during Great Recession was 665k in March 2009

§ Previous record of 695k in 1982

Nearly 27 Million in Five Weeks


Source: PSCUNote: Dates represent week-ending date


Recent Consumer Spend Trends

§ Overall, credit card volume has been down nearly one third over the past four weeks, with some marginal improvement in the most recent week

§ Debit has been improving and has benefitted from stimulus payments

YoY Growth in Total Spend – Weekly View

Credit Card Debit Card




Recent Consumer Spend Trends

§ Travel, Entertainment and Gasoline sectors have been hit the hardest

§ Goods and Services have been strengthening in recent weeks

Sectors Experiencing High Negative Impact

Credit Card Debit Card


Market Conditions – Outlook


Analyst Estimates - GDP and Unemployment

§ Approximately 70% of GDP is driven by consumer spending

§ About 21% of combined credit card spend happens in travel, entertainment and dining sectors. Lost sales will not be made up in 2020 and will have a lagged recovery.

Similarities to 2009

GDP Forecast 1Q 2Q 3Q 4Q FYF 2009Goldman 2 -6.0% -24.0% 12.0% 10.0% -3.8%JP Morgan 1 -4.0% -14.0% 8.0% 4.0% -1.5%Bank of America 0.5% -12.0% 3.0% 4.0% -0.8%UCLA 0.4% -6.5% -1.9% 4.0% -0.4%CUNA -1.0% -20.0% 0.2% 1.0% -5.0%Visa -0.2% -8.3% -0.6% 3.1% -0.8%Morgan Stanley -3.4% -37.9% 20.7% 15.9% -5.5%Goldman 3 -9.0% -34.0% 19.0% 8.0% -6.2%JP Morgan 3 -10.0% -40.0% 23.0% 13.0% -3.5%Average -3.6% -21.9% 9.3% 7.0% -3.1% -2.5%Unemployment 4.4% 20.0% 9.0% 6.0% 9.9% 9.9%

Initial 1Q GDP: -4.8%reported 04/29


Income Statement Implications

§What to plan for over the next 12+ months

•Compression in Net Interest Margin, driven by Fed rate changes

•Need to increase Provision for Loan Losses

•Card-based fee income (interchange, ATM fees) will be reduced due to lower transaction volume and discretionary waivers

•Operating Expenses may be higher in support of social distancing, remote workforce setup and other unplanned expenses

•All of which will drive to much lower than planned net income and ROA


What Credit Unions Should Do Now


Products and Services

§ Contactless Credit and Debit Cards

§ Mobile Wallet Proliferation

§ Digital Banking / Remote Deposit Capture

§ Electronic Payments (e.g., direct deposit, P2P, recurring payments)

§ Use of Credit Union Website as Important Communications Tool

Great Time to Launch and/or Promote


§ Conservative, economic risk in membership

§ Favor programs using existing credit availability over new extensions

§ Tighten credit criteria & exclusions, better income verification, review forbearance & DTI, ex. payment < 10% of open-end balances

§ 20% lower initial lines on new approvals

§ Credit line decrease / closure on open inactives(criteria-based, deposit check, # relationships)

§ Assistive, but careful, marketing• Member/cardholder retention & TOW is the priority• Watch creative – no crowds, work teams• Programs that do not involve a credit score = ok• Pause direct new account marketing in short run

Paths to Marketing in 2020Marketing Must Continue – Approaches Will Vary

§ Credit union and FOM are on solid financial footing and largely unaffected by C19 – fortress balance sheets, member job and income security

§ Tone = empathy, assistance, value

§ Include in media and digital ads

§ Full slate of marketing activity – follow the plan but more careful about credit risk

§ 60%+ effort in new account acquisition

§ Grow new accounts = lifeblood

§ Lower & longer intro rates

§ Temp increased intro reward

§ Temp repurpose travel rewards

§ Awareness, New Accounts, CLIP, Usage/BT

Stable Protective


Marketing GuidepostsSome Suggestions

If You Are Thinking About Doing… Objective Considerations

New Account Acquisition

Revolving credit to qualified members at preferred terms

• Careful underwriting; strengthen criteria & income validation, raise credit standards for the next 12 months• Reduce standard line assignments by $1k except for the most qualified• “Limited Time Only” introductory terms – low cost of new money

Authorized Users Additional credit access

• Requires no credit check• Credit bureau reporting decision

Activation Hidden Value • Strive for incenting long term performance• Review process for credit line decrease or closing of open inactives

Balance Transfers PFM • Provide online transfers and account funding through digital banking


Marketing GuidepostsSome Suggestions

If You Are Thinking About Doing… Objective Considerations

Credit Line IncreaseAdditional

Purchasing Power and Revolving Line

• Careful underwriting; strengthen criteria & income validation, raise credit standards for the next 12 months• Watch for accounts in forbearance

Convenience Checks Flexible Low Cost Account Access

• Careful underwriting; strengthen criteria & income validation, raise credit standards next 12 months• Exclude accounts with < 10% repayment

Usage

Top of Wallet (TOW) Targeted as beneficial to cardholder

• Incent affected retail (dining, barber/beauty, furnishings, charity)• Reinforce new spend patterns (delivery)• Back-to-School Tax Holiday sync• Digital usage incentive• Amazon & Walmart “Prime Days”

Sweepstakes Goodwill / TOW • Sensitive publicity


Other Actions to Take NowREPORTING

Track aggregate performance for COVID-19 relief accounts

Daily and MTD vs. prior month vs. prior year same business day

Max billed delinquency – sum of cycles

Monthly trends of volumes, revenue, risk & ratios

Variance to Budget, Forecast, Prior Year

ADVERTISING

Take advantage of beneficial placement and mass media rates

Tone of empathy, assistance, strength, safety and soundness

Examples of helping members with difficulties

PFM and digital options

Less product, more solution

Avoid email fatigue and applicability

ASSISTIVE MARKETING

Focus on member retention & responsible marketing

Top-of-Wallet emphasis

LTO bonus points business support: i.e. dining, hair salon, fitness, hotels

“Today Only” bonuses

ID & promote new spend trends & reinforce – i.e. digital, delivery

Educational benefits


Other Actions to Take Now

PREPARE YOUR COLLECTIONS SHOP

Delayed, not avoided, delinquency and loss surge coming

Assume scarce resources – find scale now

Members can be stressed across product lines

Plan to prioritize queues for dollars at risk – size and probability of payment

Present multiple payment options & monitoring

NEW ACCOUNT PRICING

Revenue shortfalls and narrowed margins

Interchange falling, losses & expenses growing

Cheap money = better, longer intro rates

Raise margins?

Adjust credit tiers upward as necessary

“Lifeline” account? Expensive to offer


Additional Resources and Services


Advisors Plus Consulting and MarketingValuable Advisors Plus Services (www.advisorsplus.com/services)Ad

visor

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ogra

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The

Deta

ilsConsulting Plans

With Light MarketingMarketing Plans

With Consulting Options

Essential On Demand Accelerate Maximize

Portfolio Metrics &Benchmarking Reports 4x/year

Portfolio Metrics & Benchmarking Reports 4x/year

Advisors Plus Academy Advisors Plus Academy Advisors Plus Academy Advisors Plus Academy

1 turnkey marketing email campaign 2 turnkey marketing campaigns 3 custom marketing campaigns 3 custom marketing campaigns

Full Consulting Engagement Full Consulting Engagement

Strategic Consulting Access up to 25/hours per year

Strategic Consulting Access up to 4x/year (8 hours) with regularly scheduled Marketing Analyst meetings

Strategic Consulting Access up to 25/hours per year

Dedicated Marketing Analyst Dedicated Marketing Analyst12 Month Marketing Plan 12 Month Marketing PlanPro-Forma Projections Pro-Forma ProjectionsResponse Tracking & Results Analysis

Response Tracking & Results Analysis

http://www.advisorsplus.com/services

http://www.advisorsplus.com/services

Data Science & InsightsPredictive Analytics


Financial Hardship Model


Attrition ROI DashboardBased on real historical data, the ROI dashboard allows CUs to define their campaign population


Solution: Predictive AnalyticsEnd-to-end solution, built on data science and Credit Union feedback

Predictive Analytics

Attrition

FinancialHardship Growth

End-to-End Solution:v Scoring modelsv ROI dashboardv Automated Campaign

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Scoring and ROI:

v Scoring modelsv ROI dashboard

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Scoring Only:

v Scoring models via DataVue

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3 Options for Credit Unions Omaha Full Service CREDIT only


Solution: Predictive Analytics

For additional information, please join our Webinar on Tuesday, June 9, 2020 at 2PM Eastern Time


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