With Exception of One Region, Existing Home Sales Down in U.S. During March

04/24/2024 07:28 pm

WASHINGTON – With the exception of one region of the U.S., existing-home sales slipped in March, according to new data from the National Association of REALTORS.

Among the four major U.S. regions, sales slid in the Midwest, South and West, but rose in the Northeast for the first time since November 2023. Year-over-year, sales decreased in all regions, according to the NAR.

The NAR reported total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – receded 4.3% from February to a seasonally adjusted annual rate of 4.19 million in March. Year-over-year, sales waned 3.7% (down from 4.35 million in March 2023).

No Major Moves

"Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves," NAR Chief Economist Lawrence Yun said in a statement. "There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market."

Total housing inventory registered at the end of March was 1.11 million units, up 4.7% from February and 14.4% from one year ago (970,000). Unsold inventory sits at a 3.2-month supply at the current sales pace, up from 2.9 months in February and 2.7 months in March 2023, NAR said.

"More inventory is always welcomed in the current environment," Yun added. "Frankly, it's a great time to list with ongoing multiple offers on mid-priced properties and, overall, home prices continuing to rise."

The Data Points

According to the NAR data:

• The median existing-home price for all housing types in March was $393,500, an increase of 4.8% from the previous year ($375,300). All four U.S. regions registered price gains.
• According to the monthly REALTORS® Confidence Index, properties typically remained on the market for 33 days in March, down from 38 days in February but up from 29 days in March 2023.
• First-time buyers were responsible for 32% of sales in March, up from 26% in February and 28% in March 2023. NAR's 2023 Profile of Home Buyers and Sellers– released in November 2023 – found that the annual share of first-time buyers was 32%.
• All-cash sales accounted for 28% of transactions in March, down from 33% in February but up from 27% one year ago.
• Individual investors or second-home buyers, who make up many cash sales, purchased 15% of homes in March, down from 21% in February and 17% in March 2023.
• Distressed sales – foreclosures and short sales – represented 2% of sales in March, virtually unchanged from last month and the prior year.

Mortgage Rates

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.88% as of April 11. That's up from 6.82% the previous week and 6.27% one year ago.

Service FCU’s 87 ATMs Onboarded by Dolphin Debit

04/23/2024 07:27 pm

HOUSTON– Dolphin Debit Access, the ATM/ITM-as-a-Service provider that is a wholly owned subsidiary of Euronet, is reporting it has onboarded Service Federal Credit Union’s fleet of 87 full-service ATMs in the U.S. and Germany.

Portsmouth, N.H.-based Service Credit Union has approximately $5.4 billion in assets and more than 350,000 members.

"We are thrilled to work with Service Federal Credit Union and welcome them to our esteemed portfolio of partners," Tim Fanning, CEO, EFT Americas and Dolphin Debit, said in a statement. "This partnership reflects our dedication to delivering exceptional concierge service to financial institutions across the U.S.”

Remote Fixes

According to the company, Euronet’s EFTS platform, powered by Ren, allows for remote fixes and other innovations at the ATMs. As part of the collaboration, Dolphin Debit said it has developed a state-of-the-art portal in the Dolphin Back Office solution for Service Federal Credit Union to utilize.

“The innovative portal complements the dual currency conversion solution on the Germany ATMs, enabling Service Federal Credit Union to offer its members seamless foreign exchange services at machines in Germany while dispensing dollars and euros,” Dolphin Debit said.

Quick Response

Added Kristie Aversano, ATM coordinator for Service Federal Credit Union, “We can always count on Dolphin Debit for their quality of service. They are attentive and respond quickly to all our concerns, allowing us to provide the best member service we can.”

For more info: www.dolphindebit.com.

Deposit Times Are Changing

04/22/2024 07:27 pm

By Ray Birch

LAKE FOREST, Ill.— While the U.S. money supply in recent years has appeared to be stable, one economist says that’s not the case, adding that money supply components have been moving as wildly as a theme park ride and affecting deposits at FIs across the country.

“What’s the story?” asked Michael Moebs, economist and chair of Moebs $ervices, whose new study takes a detailed look at money supply components. “Insured transactions have fallen but are at an all-time high since 1914. Insured savings are making a big comeback. And uninsured deposits are soaring with insured deposits. Total money supply is far from stable. It is like a Disney amusement park ride with people looking suspiciously calm after a wild ride where each screamed and yelled as limbs and bodies were thrown around.”

Moebs said Federal Reserve Chair Jerome Powell’s “new definition of money,” announced in the second quarter of 2020, has finally been implemented by financial institutions of all sizes.

“FIs all over are marketing and selling as dollars and accounts are moving to the best deals and highest rates,” he said.

What Happened in 2023

Moebs detailed what happened with money supply in 2023:

• Regular DDA (no interest) accounts fell slightly, by (1.7%) or about $90 billion, yet are still at their highest levels since 1914 when the Fed starting tracking money
• Interest paying DDA levels fell (11.5%), the lowest since COVID started in U.S in. January 2020
• Savings levels dropped dramaticaly (13.9% or $1.5 trillion), and are at their lowest level since COVID started. “In March 2020, when Powell eliminated reserve requirements and monthly transaction restrictions moving savings to M1, the bell started tolling for savings,” Moebs said. “The saver is moving money to DDA since saving rates are less than an average of 25 BPS. Plus, DDA is where stimulus funds came into play and have left about $1 trillion”
• M2 was left with term-money CDs and retirement accounts (IRAs and Keoghs)

Michael Moebs

Additional Changes—And a First

Moebs highlighted the major money supply changes that ocurred last year:

• Retail CDs had a huge resurgence “after almost dying” during COVID. Retail CDs increased 282% in 2023 and now are over $1 trillion
• Jumbo CDs surged 46.7% to more than $800 billion

“For the first time since starting in 1962, retirement accounts at depositories dropped (19.3%),” Moebs said. “Why the dramatic shift in money? The answer is rates. Wall Street rates are being offered for all CDs and staying low for IRAs and Keoghs. M3 is money market mutual funds. Rates for MMMFs soared and funds poured in. Dollars mainly came from depositories. The most sensitive was depository retirement deposits.”

Effect on Money Stock

Moebs reiterated that pricing is influencing money stock.

“Gathering funds has gone beyond deposit insurance caps of $250,000. Risk is fundamental to price. Depositories need to adhere to analytical systems such as debit scoring and forego judgemental approaches,” Moebs said. “CDs are returning. Savings are falling. DDA is high. MMMFs on Wall Street are soaring. The signals call for new and different methods for managing deposit portfolios. Info is vital.  Measuring and pricing is essential. Deposit times are changing.”

Financial Analyst Forecasts Big Drop in Home Prices

04/22/2024 07:32 pm

NEW YORK–A person once called the “Oracle of Wall Street” for calling the financial crisis of 2008-09 is now predicting home prices are likely to fall substantially, and a big reason is the habits many young men have developed.

Meredith Whitney

“You have men staying single longer…and then you have what I call a growing crisis of the young American male…they’re twice as likely to live at home than women,” Meredith Whitney told CNBC. “One out of five young men live at home with their parents, and these aren’t young men going to college and coming home for holiday breaks, these are young, grown men choosing to live at home.”

Whitney told the news outlet she believes housing prices will begin a “multi-year/decade decline, just due to supply/demand dynamics. You’ve had a demand, supply imbalance: more demand, less supply. And I think that’s going to invert.”

A Big Shift

In other words, supply is going to outweigh demand, a big shift from the current market when demand for housing remains strong and inventory remains tight.

Whitney told CNBC demographic shifts are playing a big role in her view, noting the bulk of housing is owned by people and households over the age of 40, but household formations are at their lowest point in more than a century.

The result: a demand problem.

Prices Could Drop by 20%

Whitney, who is founder and CEO of Whitney Advisory Group, further said the rock-bottom mortgage rates of several years ago led to housing inflation. But that will change.

“Normally you would think as rates go up, home prices would go down, and that hasn’t happened over the last two years,” Whitney told CNBC. “I think home prices will normalize because as more inventory, more supply comes on the market, you’ll see a true clearing price that is lower than it is today. So, I would say 20% lower than it is today.” 

Not All Forecasts Correct

It should be noted, however, Whitney has made earlier forecasts that have not panned out, or at least not yet. She predicted, for instance, that numerous municipal bond defaults were likely, but that has not been the case.

House Committee Passes Resolution Blocking CFPB's $8 Fee Cap on Late Card Payments

04/17/2024 08:40 pm

WASHINGTON–The House Financial Services Committee has approved resolution H.J. Res 122, which blocks CFPB's new rule capping credit card late fees at $8. The rule was which slated to go into effect May 14. The committee voted along party lines, with the Republican majority carrying the 28-22 vote.

The resolution will now go to the House Floor, where it is also expected to pass it, again most likely along party lines.  

The Senate, which also has an identical resolution, presents a difficult but possible next step, as this kind of resolution only requires a simple majority, according to Washington observers.

If it passes the Senate it will then go to President Biden, who will either veto it directly or simply refuse to sign it. Consumer groups have strongly backed the $8 cap; financial institutions, including credit unions, have opposed it.

Fought the Good Fight

“Credit unions fought the good fight on this and will likely continue to—the overwhelming sentiment in the industry is that this rule is a case of CFPB overreach,” said John McKechnie, who advocates for credit unions in Washington. “Unfortunately, we are swimming upstream against an Administration that calls any fee charged by a business a junk fee.  It’s hard to see President Biden letting this regulation be overturned by Congress.”  

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Our extensive back-office experience allows financial institutions to focus on what matters — customer relationships strengthened through comprehensive wealth management, financial planning, estate planning, life insurance, and investment solutions.

These are the things that you’ve staked your reputation on. And we understand, because these are the same things Money Concepts is known for.

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With over four decades of success in establishing branch-based financial planning centers, Money Concepts can uniquely support your institution’s economic interests and customers’ needs. As a full-service financial planning and wealth management organization, Money Concepts offers a proven institution-branded and controlled approach.

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Ready to Market to an Even Newer Generation "Gen Alpha"?

 75.1% of parents would consider switching to a different financial institution that offers a youth banking solution if theirs does not, spotlighting the direct link between such offerings and customer retention.”

04/11/2024 07:18 pm

BLUE BELL, Penn.–Credit unions still working to respond to the divergent needs and attitudes of Millennials, Gen X and Gen Z now have research around a new generation to adjust to: Gen Alpha.

A new report from Rego Payment Architectures and Q2 Holdings titled “Banking on Tomorrow: How Today’s Youth Will Shape the Future of Banking,” offers what the company said is a comprehensive analysis of the financial habits of Generation Z and Alpha and their parents' preferences for a youth banking solution.

In addition, the report highlights the “transformative impact” youth banking solutions can have on the growth of financial institutions, according to the companies.

How to Hit Objectives

“In recent years, banks and credit unions have faced a multitude of challenges related to digital disruption and new financial technology entrants,” the organizations said in releasing the report. “To combat these challenges, financial institutions have focused on increasing customer loyalty and deposit growth. The report offers insight into how both of those objectives can be achieved by tapping into the population of hands-on, well-educated parents who are hoping to instill healthy financial habits in their children.”

Key Insights

According to the two companies, key insights from the report include:

• Financial institutions have an opportunity to maximize on significant youth spending power. Approximately 80% of children ages 7-17 spend up to $50 a week, and 10% of those children spend $100 or more each week – equating to $5,200 of transactions yearly.
• Financial institutions must pay attention to parents’ wants and needs when considering a solution. “Burdened by student loans, the scarcity of affordable housing, and the stagnation of wages, the majority of parents (56.3%) identified the desire to arm their children with the financial savvy needed for a secure future, highlighting the demand for youth-focused banking solutions,” the companies said.
• Parents seek solutions from their current banking provider – and it “could play a huge role in customer loyalty if financial institutions do not adapt. According to the report, a significant majority of parents (57.2%) express a preference for their existing banking provider when considering a youth banking solution,” the report found. “However, 75.1% of parents would consider switching to a different financial institution that offers a youth banking solution if theirs does not, spotlighting the direct link between such offerings and customer retention.”

Welcome to Sheehan's Consulting LLC

 Welcome to Sheehan's Consulting LLC

In the 21st Century, exceptional service is at the forefront of our mission at Sheehan's Consulting LLC. With a deep commitment to meeting the evolving needs of our clients, our firm is dedicated to providing top-tier professional services tailored to your specific requirements.

Our team of experienced advisors covers a wide range of topics, all with one central focus: determining what will benefit you most. We firmly believe in guiding you towards the best possible outcomes, aligned with your unique objectives and aspirations.

At Sheehan's Consulting LLC, we live by the age-old wisdom that advises against seeking directions from someone who has never ventured beyond familiar territory. As a consulting firm that has explored uncharted territories and overcome challenges, we are well-equipped to accompany you on your journey towards success.

As the visionary CEO of Sheehan's Consulting LLC, I bring a wealth of experience in dynamic leadership and strategic decision-making. With a passion for driving positive change and a track record of achieving transformative results, I am dedicated to partnering with you to navigate challenges and seize opportunities. My extensive background as an executive in associations, credit unions, and municipal management positions equips me with the essential skills to collaborate effectively with management, boards, and the public.

I take pride in leveraging my leadership and management expertise to deliver innovative solutions, optimize profitability, and drive productivity through industry best practices. At Sheehan's Consulting LLC, we are committed to being a valuable resource for your business, helping you achieve your strategic objectives and reach new heights of success.

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grant@llcmiami.com
www.sheehansconsulting.com 

The best succession planning comes from within

April 10, 2024 by Jill Nowacki, Humanidei

ShareShareShare

An email from Scott* when he was notified he would not be considered as my client’s next President/CEO:

Jill,

I’ll be interested to see the candidate you select as my experience in retail banking is extensive.

My background is diverse in retail sales, customer experience, strategy, finance, and risk. I am currently responsible for over $2 Billion in portfolio assets, not to mention lending investments with assets under management exceeding $100 Million.

So… Will be interesting to see the candidate that’s placed having a broader range of expertise than I do.

This email would’ve made more sense if I actually interviewed for the position but that’s the problem with recruiters so thanks so much you have yourself a great day.

Scott

You know what? I don’t think Scott was sincere in thanking me. I’m not convinced Scott really did want me to “have myself a great day.” I do, however, believe Scott was authentic—and accurate—in one thing: There is a problem with recruiters.

Credit unions would be much better off if you never had to use them.

Wait. What? Isn’t a large part of Humanidei’s business executive recruiting? It is. The reason I believe credit unions would be better off without recruiters is not because we do not know what we are doing or that we fail to recognize the superior talent of a for-profit banking executive who has never sat in a board room making strategic decisions. It is because our industry would have a brighter future if we were growing from the inside, cultivating and developing the passionate individuals who believe in this industry, who advocate for members, who volunteer personal time to give back to the community, and who crave– more than anything else– the chance to grow at the credit union they already love.

When we look at our teams, we brag about the diversity: Of the gender balance, the represented races, the languages in which we can serve members. We appreciate their community engagement, the lived experiences, the knowledge they have of our members’ needs. We celebrate how much our members love them.

But we keep them too busy. We treat them and their development a bit like the wicked stepmother treated Cinderella. She was welcome to go to the ball if she could finish all her chores and figure out her own logistics.

Our developing employees have the same opportunity. They can go to the conference or workshop if they finish all their chores and figure out their own logistics: It can’t conflict with another employee’s time off. A scholarship or grant must pay for it. Sometimes, they even need to take PTO if they want to go. The obstacles are significant, yet some make it happen.

They go to a Crash program like Nanci Wilson did. They attend a League YP event. They come back energized! They want to talk to their leaders about what they’ve learned, and they’re told to reign it in. To know their role. To get back to the work at hand.

Then. When it is time to add to our leadership—to build our executive team—to hire a new President/CEO, we look within for a minute and realize that our people aren’t ready. They don’t have broad enough knowledge, deep enough training, or enough understanding of how the business really works.

So. They call a recruiter. The recruiter finds candidates who match their ideal profile, who know their stuff and bring energy and leadership. They look for someone who can coach a team to higher levels. After all, it was disappointing there wasn’t an internal candidate this time around.

Sometimes, credit unions are satisfied with the results, but sometimes they are a little uninspired. These people don’t have passion for your members. They don’t love your community. They don’t know your team or its culture.

Statistically, internally promoted candidates have higher success rates than external hires. They catch on more quickly, integrate into the culture more easily, and tend to navigate obstacles with greater commitment to the organization.

If you recognize your credit union in this scenario and are facing an executive retirement without a clear succession plan, you may wonder what you can do to get it right the next time around. Here’s how: Introduce a Career Path Planning Program in your credit union within the next quarter.

Give every employee who works for you a path forward to their next step, then the step after that, and the one after that. Plan for them, commit to it, and fulfill that commitment. Hold your managers accountable to regular conversations about your employees’ desires, gaps in their competencies and skills, and opportunities to fill those gaps. Use this credit union village we love—the trade associations, the African American Credit Union Coalition and the National Association for Latino Credit Union Professionals, networking groups, Humanidei’s Humanedge program or our Leadership Circles, mentors from other credit unions—to support each and every one of your team members in their growth.

Yes. I know you are a small credit union. That you only have 100 employees. Or 34. Or 6. That you think you can’t do this; that this article isn’t for you. But it is. And you can.

You probably won’t. I guess that gives me job security. But you should. And if you do. If you get serious about Career Path Planning in your credit union … Scott still won’t get the job, but you may solve his problem with recruiters: You will seriously reduce the need for our business.

More importantly, you will build a stronger credit union—and stronger credit union industry—in the process.

If you are ready to move forward with a formal and easy-to-implement Career Path Planning Program at your credit union, contact Humanidei. We will guide you through this process, resulting in strong succession planning and a more engaged workforce.

*Maybe I changed his name. Maybe.

Jill Nowacki

Jill Nowacki started her career with credit unions in 2001. She has taken on leadership roles at credit unions and state and national trade associations. Now, she uses he

'Victory is Elusive': CU Economist Agrees Fed Rate Cuts Questionable Following New CPI Report

04/10/2024 11:01 am

WASHINGTON–A credit union economist has joined with other economists and analysts in forecasting a delay in any rate cuts by the Fed in 2024 following today’s inflation report.

The newly released Consumer Price Index climbed 3.8% on an annual basis after stripping out food and fuel prices. That “core” index was stronger than the 3.7% increase economists expected, and unchanged from 3.8% in February. 

Counting in food and fuel, the inflation measure climbed 3.5% in March from a year earlier, up from 3.2% in February and faster than what many had forecast. 

"Victory in the Federal Reserve's inflation fight remains elusive with a stubbornly high headline consumer price index increase of 0.4% in March, matching February's disappointing result,” said America's Credit Unions VP-data and research, chief economist Mike Schenk. "Market expectations around the timing and magnitude of Fed interest rate changes are being recalibrated. The report clearly suggests later and fewer cuts than previously believed, especially if recent trends aren't reversed in the next few months.

"Average consumers will continue to wrestle with already-stressed household budgets & borrowing costs will remain high. Savers, on the other hand, will almost certainly enjoy high yields for longer,” Schenk added. 

Mike Schenk

From Three to Zero?

As CUToday.info has been reporting, as 2024 got underway most economists, including in credit unions, had pencilled in three rate cuts for this year after several years of ongoing rate increases. The Fed itself also signaled as recently as March that it would look to reduce rates three times.

But inflation has proven stubborn, and many have backed off those forecasts, with some questioning whether the Fed will be able to reduce rates at all this year.

The Fed’s target inflation rate is 2%, and while it’s down substantially from where inflation stood two years ago, strong economic numbers and robust employment have complicated the picture.

‘Price Pressures’

“It’s a stronger than expected number, and it’s showing that those price pressures are strong across goods and services,” Blerina Uruci, chief U.S. economist at T. Rowe Price, told the New York Times.  “It’s problematic for the Fed. I don’t see how they can justify a June cut with this strong data.”

If NY's AG Is Right, Then We Are All Doing Something Seriously Wrong

Credit unions in New York State could be on the hook for billions of dollars in additional unauthorized transfer costs.

By Henry Meier, Esq. | April 08, 2024 at 12:43 PM Credit/Shutterstock

There's been a lot of national news lately about pending court cases in New York City, but you may not have heard about the one that is important for credit unions on a national level.

In January, New York Attorney General Letitia James filed a lawsuit generally alleging that CitiBank was engaging in illegal and deceptive practices by refusing to extend protections of the Electronic Funds Transfer Act (EFTA) to consumers victimized by unauthorized wire transfers. See People of the State of New York v. CitiBank, S.D.N.Y., Case No. 24 Civ. 0659).

Late last week, CitiBank filed a motion to dismiss the lawsuit. It makes a compelling argument that the AG's argument amounts to a radical reinterpretation of existing law that would expose financial institutions to billions of dollars in losses and make the existing framework for wire transfers obsolete overnight. Although this decision would only apply to the Second Circuit, you don't have to be Nostradamus to see that it would end up being litigated across the country.

In 1978, Congress passed the EFTA. Most importantly, the statute caps liability for unauthorized transfers involving a consumer account. However, even as it passed the law, Congress created a distinction between wire transfers, which are generally transfers using the Fed wire system and similar networks, and transactions covered by the EFTA. This distinction was absolutely critical since financial institutions did not want to be on the hook for the huge amount of money facilitated by the Fed on a daily basis. See 15 USC §1693a(7)(B).

Article 4A of the UCC, which was adopted in the 1990s, was drafted, in part, to further delineate the distinction between wire transfers and EFTA protections. Under Article 4A, financial institutions are not subject to strict liability for unauthorized fund transfers. They must, however, adopt procedures agreed to by customers designed to confirm that wire transfer requests are authorized. There is no strict liability for unauthorized transfers. Today, this distinction is so well established that virtually every account agreement contains separate sections for wire transfers and EFTA disclosures.

This background explains why the AG's argument is so important. The AG's argument is that financial institutions interpret the EFTA exemptions too broadly. The AG argues that while a wire transfer between banks using the Fed system is not subject to EFTA protections, the subsequent transfer of that money by the receiving bank into a consumer's account is covered.

For this and other reasons, I am cautiously optimistic that the AG's argument is a bridge too far and will be rejected. If it is not, credit unions in New York State will be on the hook for billions of dollars in additional unauthorized transfer costs and credit unions across the country will have to deal with similar lawsuits sprouting up in a courthouse near them sooner than later.

In fairness to the AG, however, the more I delve into issues relating to liability in EFT transfers, the more I have to concede that this is a statutory framework that is woefully antiquated. Wire transfers used to be primarily for facilitating fund transfers by large companies and wealthy individuals (remember George Wainwright used a wire transfer to quickly send money to the Bailey's Saving and Loan on that fateful Christmas Eve).

But times have changed. Today, many banks and credit unions provide consumers easy online access to wire transfers. While this is a boon for convenience, it is also a boon for hackers who can transfer a member's life savings out of their account within seconds.

The premise of existing law is that wire transfers would be used to transfer a large amount of money between sophisticated actors, while the EFTA would be used to protect consumer transactions. While the lawyer in me agrees with and supports this crystal clear distinction, the policy wonk in me thinks it is inevitable that as the distinction between wire transfers and EFTA transactions becomes harder and harder to recognize, you will see Congress, Legislatures and if need be, the courts bend over backwards to place more liability on financial institutions, not because they have done something wrong, but because they will feel that the consumer needs their protection.

Henry Meier, Esq.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.

Are You Ready for the Next Wave of Mergers & Acquisitions?

Remember you are not alone with NCOFCU! 

If you are consedering a merger reach out to us to see if we can't keep you within the first responder credit union network. ceo@ncofcu.org - 305.951.3306

ALM First shares key lessons and advice from credit unions with merger and community bank acquisition experience.

By David Ritter & By Brandon Pelletier | April 10, 2024 at 09:00 AM Credit/Shutterstock

With the pace of industry mergers already ramping up in 2024 and projected to increase, it's more important than ever for credit unions to have a predefined M&A strategy and be ready for the inevitable calls from prospective partner organizations.

Here, we'll share key lessons and advice from cooperatives that have merger experience with other credit unions and acquisition experience with community banks to help your team prepare.

Define Your Vision and Evaluation Criteria

Successful credit union mergers happen when members and employees from both organizations benefit. Start by asking how a potential partner could benefit each of your key stakeholders and vice versa. Could they expand your geographic footprint in a desired market? Do they provide complementary, incremental, or even better products and services? Does their team have capabilities in key areas like commercial lending that you lack, or technology? As a combined credit union, would this provide the scale to enable you to offer more competitive rates and fees to your combined members?

Running the numbers can be a quick way to see whether a merger makes financial sense, but other qualitative factors such as cultural alignment can make or break a transaction, so start the non-financial conversations early to assess fit and focus.

Understand Each Party's Why

There are multiple reasons credit unions, and community banks, seek M&A partners. It's important for you to have a clear understanding of what's driving each party. Some common reasons we see through our work with hundreds of financial institutions nationwide include:

• Meeting members' needs: Keeping up with the latest technology investments, offering the products members require such as mortgages and commercial loans and providing convenient distribution channels (both physical and technological) – all while retaining the same familiar faces members have grown to trust – can be big drivers of M&A activity. Increasingly, strategic mergers between two well run credit unions are escalating as represented by the increased number of mergers of equals across all peer sizes as they recognize the benefits that scale can bring to their combined memberships, employees, communities and financial statements.
• Lack of succession planning: At the board, executive or senior leadership level, the impending retirement of key leaders can cause institutions of all sizes to consider their M&A options.
• Partner as opposed to compete: Today, more and more mergers are based on strategic considerations than ever before (as opposed to historically purchase and assumptions). Credit unions are enduring the endless battle to retain and obtain employee talent, evaluating new branches in targeted areas to grow membership, building capital and expanding geographic diversity. Considering mergers with credit unions that may fill these gaps is often the impetus to exploring partnerships as opposed to competing.
• Growth aspirations: While financial institutions continue to seek areas for growth, limited fields of membership and geographic footprints can lead some credit unions to reach their saturation point. To meet future growth goals, they must consider other, non-organic options such as mergers to broaden their footprint. Mergers can also help alleviate the cost of opening and staffing a branch in a new market by partnering with a credit union that already has a branch in the areas of focus.
• Financial realities: Capital, liquidity needs and asset quality are paramount considerations today. An increase in net charge-offs or other financial losses can quickly turn into an inflection point. Geographic member diversity may be a way to strategically alleviate certain concentration risks over the longer term. In addition, scale may help ease some of these risks.

Have a Process in Place

Whether your institution decides to openly seek M&A opportunities or is receptive to in-bound conversations, it's important to have an evaluation framework defined. When exploring a merger with a credit union, some key questions that should be part of your evaluation process include:

Would an opportunity provide member value via:

• Increased access to advanced technological distribution channels in current and future expansion areas?
• Reasonable economies of scale allowing more competitive offerings and improved pricing opportunities?
• An enhanced, more complete suite of products and services?
• In-person service and superior digital experiences that are adaptable and scalable to improve and enhance service?

Would an opportunity provide the combined institution value via:

• Efficient, multiple operational or "administrative centers" to retain employee talent in areas currently conducting business?
• Access to a greater talent pool, additional career opportunities and better compensation?
• Increased geographic and economic diversification to better position the combined institution for macroeconomic fluctuations and long-term viability?
• A larger organization with the ability to maintain and grow market share?
• Access to a larger asset base and more capital to leverage for member benefit (technology, additional products, member service)?

Would an opportunity provide employee value via:

• Additional specialized positions as well as succession plan opportunities?
• The creation of a larger institution with the potential to remain competitive on compensation and benefits ("Do No Harm" to employees)?
• New roles, products and services, and expanded training opportunities for employees?
• A competitive compensation structure with greater ability to incentivize employee engagement?
• Retaining more engaged and performing employees, while also offering a competitive retirement consideration for those at this stage of their career?
• Short-term (integration) and long-term career path opportunities?

Would an opportunity provide community value via:

• Allowing the combined organization to increase philanthropic efforts?
• Motivating employees to donate time, ideas and energy toward community causes?
• Creating a larger institution with the ability to maintain long-term relevance and better serve the broader community?
• Enhancing governance by retaining representation and diverse perspectives that represent the members/customers being served?

Watch for Red Flags

To help avoid wasting time, effort and money, ask the difficult questions early. Discussions should include the following questions, at minimum: How many board seats will each entity retain? Which charter would remain? What does the executive board look like? How will key technologies integrate? Who will be retained as the combined credit union CEO? How will the executive team be leveraged both in the short term (merger integration) and long term (steady state)? Do you have the IT resources needed? How do cultures align?

Arm Your Organization With Education and Advance Preparation

While not every opportunity will come to fruition, forward-thinking institutions are prepared to have those conversations and assess opportunities quickly. Boards of directors are also becoming increasingly involved in M&A discussions. From attending education and training sessions to engaging in early conversations to ascertain board dynamics and whether there are complimentary values, your member-owners' elected representatives need to be prepared to thoroughly assess opportunities and make informed decisions.

If your credit union isn't prepared, you may be missing out on potential member, employee and community benefits.

David Ritter is Managing Director, M&A Advisory for ALM First in Dallas, Texas.

David Ritter

Brandon Pelletier is Managing Director, M&A Advisory for ALM First in Dallas, Texas.

Brandon Pelletier 

A Look at What Higher Fed Funds Rate Has Meant for CU Lending, According to TruStage Economist "Steven Rick"

04/09/2024 07:28 pm

MADISON, Wis.–While some on Wall Street are backing off forecasts that the Fed will cut rates three times this year—with some even predicting it may not cut rates at all—TruStage Chief Economist Steve Rick said he still expects the Federal Reserve will lower the Fed Funds rate this summer as inflation approaches its 2% inflation target.

“So, what impact did this higher Fed Funds interest rate have on credit union lending over the last two years?” asked Rick in his analysis released as part of the company’s newest Trends Report. “Historically, a rising Fed Funds interest rate slows credit union loan growth, holding all other factors constant. There have been three other Fed hiking cycles since 1999. Every time, credit union lending fell from around an 11% seasonally-adjusted annualized growth rate at the start of the hiking cycle to around 7% at the end of the hiking cycle, with about an 18-month lag from the beginning of the hiking cycle until credit union lending began to slow. This lending slowdown is one of the ‘long and variable lags of monetary policy’ that Fed Chairman Jerome Powell likes to reference.”

Mark Twain’s View on Lending

Quoting Mark Twain’s observation that “History doesn’t repeat itself, but it does rhyme,” Rick noted that credit unions reported a seasonally-adjusted annualized loan growth rate of only 5.3% in January 2024, down from the 19.5% reported 18 months earlier in July 2022.

“So, it appears history does rhyme. We expect credit union lending to continue to slow throughout 2024, with loan growth coming down to only 4% this year,” he wrote.

Many CUs Likely to Face New Operating Challenges "Michael Moebs"

04/08/2024 09:04 pm

By Ray Birch

LAKE FOREST, Ill.—The trend lines don’t lie: Financial institutions charging high overdraft fees will likely face operating challenges in the near future and may even be forced to merge if they don’t follow the market trend of lowering their OD charge.

Michael Moebs, economist and chairman of Moebs $ervices, is offering that forecast following his company’s new overdraft study, which has found overall net OD revenue for 2023 was down 5.7%, with banks dipping by 8.1% to $31.4 billion, thrifts falling by 28.6%. and credit unions actually increasing net revenue 2.2%.

The study further reveals the median actual overdraft price across the nation, among all FIs has fallen to its lowest level in 30 years at the close of 2023, while transaction volume has increased. Total overdraft transactions at the end of last year stood at 1.237 billion, a 6.2% increase over 2022.

“The most significant reason for the volume increase is more FIs are lowering OD prices,” said Moebs.

The Prediction

Moebs is predicting the revenue the actual median OD price will be even lower when the study is conducted again next year.

Michael Moebs

“The actual OD price per transaction will fall below $20 by 2025,” predicted Moebs. “Want to keep the high price of $30? Then, switch processing from price per OD transaction to one charge per day based on end of day balance like USAA. Or, exit the overdraft business by not charging at all like Capital One. Finally, be like BofA and waive OD fees for customers with car loans or mortgages—or possibly a combination of several of these options.”

The Other Option

Of course, institutions do have one other choice, according to Moebs.

“You can do nothing and wait for hundreds of FIs to take steps before you. If so, what are your merger plans?” he said.

As Moebs has explained in previous CUToday.info reports, the “old method” for determining the median overdraft price among FIs surveyed only the price for institutions offering checking.

“The new method weights the OD price by the number of checking accounts at each financial institution, which truly gives the most accurate picture—the actual price the average consumer is paying,” he said. “Think of this OD pricing measurement approach as a market of 10 providers of checking. Nine of these depositories charge $30 per OD transaction, while one charges $10.

“The one charging $10 has 75% of all checking accounts in the market, while the other nine have 25%. The old-fashioned way calculates the market price as $28 an OD, while it in fact is closer to $10.”

Led by Bank of America’s dramatic overdraft fee price drop to $10, other FIs are returning to basic economics, stated Moebs.

“Lower price makes volume go up,” said Moebs, who has stressed that point in previous CUToday.info reports. “BofA moved to relationship OD pricing, thus losing more OD revenue but increasing profit from other services. The CFPB—the junkyard dog of banking—continues to attack the overdraft marketplace, but the results are not what they hoped.”

Some, like Capital One and Citibank, have eliminated overdraft fees, closing their doors on OD users, noted Moebs.

A New Model

“Others, like USAA, have switched their OD price protocol, moving away from charging per transaction to only one OD charge per overdrawn daily balance, thus rejecting the ‘junk fee’ premise of the junkyard dog altogether,” Moebs asserted. “As one BofA customer said, ‘Why would anybody call an OD fee of $10 junk when this price is really low, helping me manage money better?’”

Moebs said credit union OD revenue climbed slightly in ’23 because CUs, overall, lowered price more than banks and have greater website transparency on OD pricing, which helps consumers make decisions on overdraft use.