Su10 ceo workshop_supporting slides

©2010 Open Solutions Inc. Raddon Financial Group (RFG) is a business unit of Open Solutions Inc. www.raddon.com | 800.827.3500

CEO Strategies WorkshopsSupporting Slides

Raddon Financial GroupSeptember 2010


Industry & Economic Overview


Key Industry Challenges1. The economic environment continues to present challenges for consumers

and for financial institutions.• The decline in loan volume is not just an “economic cycle” issue; it represents a significant

consumer behavior change.

2. Capital preservation results in a focus on managed growth.• Meanwhile, industry consolidation continues to accelerate; mergers and acquisitions will

become a bigger priority.

3. Net interest margin compression continues to hamper financial institutions and will be even more important in 2011.• However, a high percentage of credit union members say the predominant factor in decision to

select a credit union was price.

4. Demographic shifts will impact the industry in the long-term and present a significant opportunity and threat for credit unions. • Credit unions are at a perceptual disadvantage with the Gen Y segment.

5. Escalating threats to non-interest income are fundamentally altering the competitive landscape. • Has free checking run its course?


Current ResultsLonger Term

Outlook RFG PerspectiveGross Domestic Product (GDP)

Up 1.6% (2nd qtr 2010)

Projected 2% to 3% growth for 2010

Positive growth for last three quarters; however, growth will remain modest at best

Unemployment 9.6%(August 2010)

Likely to remain in 10% range for 2010

Tepid GDP growth will result in unemployment remaining at very high levels

Vehicle Sales Up 14.0%(seven months 2010 vs. seven

months 2009)

2010 will be lowest year since 1984, except for 2009

Improvement looks promising but coming from historically low levels

Housing Starts Up 11.0%(seven months 2010 vs. seven

months 2009)

2010 will be second lowest year in history (other than

2009)

Likely to remain low for the next several years as we work through excess housing

Foreclosures Down 3%(May 2010 from June 2010)

2010 still likely to see highest foreclosure activity in history

Subprime has spread to prime; foreclosures will remain high in 2010

Consumer Confidence(Conference Board)

50.4(July 2010;1985 = 100)

Consumer confidence has been below 100 since Sept

2007

Consumer confidence is slowly improving but not likely to exceed 100 any time soon

Positive Result Neutral Result Negative Result

Economic Overview


Industry Consolidation ContinuesThe number of banks and credit unions have both declined by over 36% since 1994. By 2014 there is likely to be 6,500 banks and 6,100 credit unions.

Projection

Source: NCUA, FDIC, 2014 estimates by Raddon Financial Group


3.00%

3.20%

3.40%

3.60%

3.80%

4.00%

4.20%

4.40%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Net I

nter

est M

argi

ns

Bank NIM Credit Union NIM

Industry Net Interest Margins Continue to DeclineMargins have declined for financial institutions over the past 15 years. This decline has occurred in both high and low rate environments.


2009 Reversed a Long-Term Growth Trend in Non-Interest Income

Source: Raddon Financial Group, CEO Strategies Group


CARDAct

The Hand You’ve Been Dealt

DebitCard

InterchangeOverdraft

Fee Income

Legislation,Legislation,Legislation

Dodd-Frank

CFPB

GreatRecession

LoanLosses

InsurancePremiums

NCUA


Turning your Hand Around

ODP Opt-in Operational Efficiency:Revenue & Expense

Loan GrowthGen Y

Social Media

Delivery Channel

Optimization

Small Business Rational Pricing


Reg E and Dodd-Frank:The New Reality


The Dodd-Frank Act:Implications for the Financial Services Industry


Major Implications of the Dodd-Frank Bill

1. Fannie and Freddie were not addressed. This leaves the mortgage market still in fundamental disarray.

2. Debit card interchange restrictions will have a significant negative impact on most community financial institutions.

3. Consumer Financial Protection Bureau (CFPB) has the potential to become the next political playground for legislators and regulators, much as CRA is now.

4. CFPB could also become basis for ultimate “single regulator” for the financial services industry, which could be damaging for specialty industries such as credit unions.

5. An unintended consequence is likely to be lessened access to credit for consumers.

6. Much will depend upon regulatory interpretations of the bill.7. A significant impact will be a substantial increase in compliance costs for

financial institutions. This is likely to increase the consolidation of the financial services industry, especially among the smallest players.


Provision Impact

1 Creates the Bureau of Consumer Financial Protection, a New Consumer Watchdog Agency Housed within the Federal Reserve Board

High

2 Establishes a New Financial Stability Oversight Council, Charged with Identifying and Responding to Emerging Risks in the Financial System

Medium

3 Establishes New Regulation of Debit Card Interchange Fees High

4 Restructures the Federal Regulatory Jurisdiction over Banks and Their Parent Companies, and Abolishes the Office of Thrift Supervision (OTS)

Low

5 Adopts New Standards and Rules for the Mortgage Industry Medium

6 Grants the Treasury, FDIC, and the Fed Broad Powers to Seize and Wind Down “Too Big to Fail” Financial Institutions (Including Non-Bank) in an Orderly Fashion

None

7 Allows Depository Institutions to begin Paying Interest on Demand Deposits (Small Business Checking)

Low

8 Tasks the Federal Banking Agencies with Adopting New and Enhanced Capital Standards for All Depository Institutions

Low

9 Permanently Increases the Deposit Insurance Limit to $250,000 per Depositor per Institution for Each Account Ownership Category

Low

The Dodd-Frank Act: Projected Impact on Credit Unions


Durbin Amendment

Require the Federal Reserve Board to ensure debit card interchange fees are “reasonable and proportional”

Institutions with assets less than $10 Billion excluded from the interchange restriction

Allow merchants to offer discounts for a particular form of payment (cash v. debit v. credit) or for use of a particular card network (Visa v. Mastercard)

Allow merchants to set minimum debit card transaction levels

Regulating Debit Card Interchange Fees


Reregulation: What is the appropriate response?


Step 1: Maximize Opt-In

Step 2: Evaluate Product

Lines

Step 3: Back to Basics

What Percentage of your Members are Opting In?

Can Free Checking Survive?

Relationship Development and Operational Efficiency


Step 1:Maximize Opt-In

What percentage of your members are opting in?

Each group warrants a unique strategy Find teachable moments (ATM, Mobile, On-line, Branch) Track opt-in rates individually for each group

• Habitual• Incidental• Non-NSFers Incidental

19.3%

Non-NSFers70.4%

Habitual10.4%


Opt-in Success Story $750 million Financial Institution in Southeast Region 30,000 retail debit card holders Direct Mail in January yielded only 8% response

• Didn’t wait for system updates. Created temp Access db to track responses Started Teller focus end of February. By mid-May, had been in

contact with 88% of all debit card holders. Of those,

96% opted in (98.28% of habituals)

How?• Front-line incentives• Tellers were paid $1 for each “decision”

» approx. $24,000 in incentives paid• Branch FTEs also did outbound calling during

down time


Step 2:Evaluate Product Lines

Can Free Checking Survive?

Threats of future regulations likely to continue:• Consumer Financial Protection Bureau

What types of product changes might be necessary for your institution?• Minimum Balance fees• Negative Balance Grace Zone• Limiting ATM Surcharge Rebates• Opportunity to begin offering ODP Coverage on Debit Card/ATM?


Financial Impact of Reg E and Fee Structure Changes

OD Income per Checking Account

$84

$56 $54 $50$41

$0

$20

$40

$60

$80

$100

Current After Reg EChange

Offer OneFree OD

Reduce ODFee by $5

Reduce ODFee by $10

Based on the consumer responses for each NSF group, the average institution should realize two-thirds of their past overdraft income. Based on consumer reactions to various fee structure scenarios, the typical institution would only retain 48% of past OD income if the fee is reduced by $10.


REACTION TO A CHECKING ACCOUNT REQUIREMENT

52%

17%21%

32%

18%

46%

7%

67%

0%

25%

50%

75%

Direct Deposit Requirement Five Debit Card Trans. $500 Min./ $5 Fee $1K Min./ $15 Fee

Likely to Stay Likely to LeaveSource: RFG National Consumer Research (SPSG), Spring 2010


Difference in Impact of an Annual Fee On Debit and Credit Rewards Programs

Source: Raddon Financial Group, National Consumer Research


Top 10 Largest Retail Banks - Free, if…Free Checking, if…

Direct Deposit or 5+ monthly Debit Card Transactions

eBanking: Deposits & Withdrawals made electronically or at ATM; and E-Statements requiredMyAccess: Direct Deposit or $1500 min avg balance

Combined Avg Balance of $1500 in Checking or Savings

Value Checking (no bill-pay): Direct Deposit or $1500 avg daily balanceCustom Mgt Package: Checking and Savings packaged: $1,000 balance; or $25 auto transfer to Savings; or Direct Deposit

FREE (no requirements) – Includes Free Debit Card Rewards

FREE (no requirements) – Includes Free Debit & Bill-Pay Rewards; ATM rebates when Avg Monthly Balance $2,000+

Direct Deposit or $1500 Deposit Balances or $5000 Combined Balances


$100 Min Daily Balance (waived for 1st 12 months); Includes Debit Rewards and ATM Rebates


As-of 9/2/2010

https://www.wellsfargo.com/


1. Should you continue to offer free checking?

2. If “Yes”, how do you take advantage of an evolving marketplace?

3. If “No”, what changes should you make to your checking product line?

• Offer a menu of checking accounts

• Minimum Balance Fees

• Relationship Pricing

• Behavioral / Channel Pricing

4. How should the debit card change?

• Annual fees for Debit Rewards programs?

• Off-setting revenue losses with increased account activity

Checking Decisions You Need to Address


Step 3:Back to Basics

Relationship Development

Evaluate other areas to make up the revenue:

Accounts with High Relationship Potential• Cross-sell additional products and services

Accounts with Low Relationship Potential• Consider alternative fees to off-set expense burden

Operational Efficiency

Delivery Channel Optimization:

Employee efficiency Branch optimization Electronic channels


How to Drive Efficiency


GROUP PROFILES

ASSETS

DEPOSITS PER BRANCH

HH's PER BRANCH

DESCRIPTION

CRITERIA

GROUP 'A' GROUP 'B'

$325.1M93

$30.3M28

11,26685

2,56320

$4.36BAll Institutions Exceed $1B in Assets

$375MRange from $75M to $950M in Assets

Top 10 Most Efficient CU's Overall

Top 10 Most Efficient "Branch Model" CU's

10 Best Efficiency Ratios

Deposits and HH's per Branch:Both Percentiles Below 40

Efficiency Ratio:Percentile Above 80


LOW INCOME DEPOSITOR

MIDDLE INCOME DEPOSITOR

UPSCALE

DEMOGRAPHICS

FEE DRIVEN

CREDIT DRIVEN

MIDDLE MARKET

11.9%46

9.1%32

10.5%

27.4%62

20.9%28

23.5%

GROUP 'A' NATIONAL AVERAGE

GROUP 'B'

14.9%49

27.2%76

21.9%

17.4%40

16.2%32

17.6%

14.5%65

8.2%34

9.4%

13.8%58

18.6%75

17.2%


INSTITUTION OVERVIEW

EFFICIENCY RATIO

REVENUE PER HOUSEHOLD

EXPENSE PER HOUSEHOLD


GROUP 'B'

41.8%99

71.8% 62.8%87

$1,06386

$670 $69268

$43657

$43459

$468


EARNINGS FACTORS

NON-INTEREST INCOME PER HH

BALANCES PER HOUSEHOLD

NET INTEREST MARGIN

$44,23591

$22,22161

$22,210


GROUP 'B'

2.84%20

3.89%61

3.70%

$20159

$20764

$183


BILL PAY PENETRATION

E-STATEMENT PENETRATION

TELLER TRANS. PER HH

TELLER TRANS. PER FTE

DELIVERY CHANNELS

35.4%71

19.3%40

26.0%

75.1%76

58.8%59

55.3%


GROUP 'B'

1.020

5.874

2.3

2,07740

4,27865

2,922

% of Online Accts

% of Checking HH's

Per Month

Per Month


SERVICES PER HOUSEHOLD

RELATIONSHIP FACTORS

CHECKING PENETRATION

CROSS-SELL PERCENTAGE

PERCENT WITH LOANS

8.5%47

9.1%53

8.4%

55.1%74

51.2%62

47.0%


GROUP 'B'

2.4275

2.1357

2.08

56.9%62

54.5%52

53.5%

Excluding CD's


$31,05586

73.9%59

REVENUE PER HOUSEHOLD

$1,15494

$93893

$82687

$78884

$55625

PROFILE:Top 10 “Relationship” Institutions

by Asset Size and Peer Group

CRITERIA:Ten Highest Average Percentiles in

Services and Balances per HH

$64623

2.7997

$62312

2.4988

2.4586

$49,38696

$31,86188

$57020

2.5791

$37,62991

SERVICES PER HOUSEHOLD EXPENSE PER HOUSEHOLD BALANCES PER HOUSEHOLDEFFICIENCY RATIO

59.1%86

71.6%64

61.0%85

Build Relationships to Drive Efficiency

High Asset

Low Asset

$750M

Community Non-Community


$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

B of A / Merrill Wells / Wachovia Chase Citibank PNC / Nat City US Bancorp Suntrust

Depo

sits

$Bi

llion

s

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Num

ber o

f Offi

ces

US Domestic Deposits Domestic Offices

Retail Banking Space Dominated by Three Players

The U.S. banking system has become more oligopolistic – three major players dominate the US banking space.

Source: FDIC


Bank Branch Growth Has Declined

-454-205 -147 -230 -293

943

1,750

2,443

1,379

-406-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

1994-2000 2000-2006 2007 2008 2009

Annual Change in Number of Banks Annual Change in Number of Bank BranchesSource: FDIC

2007 was the heyday for bank branch expansion with the addition of 2,443 new bank branches. 2009 actually saw a shrinkage in the number of bank locations in the US.


Credit Union Branch Growth Is Also Down

-360 -327-265 -268 -300 -258

422497

316

557 555

-62

-600

-400

-200

0

200

400

600

800

2004 2005 2006 2007 2008 2009

Change in Number of Credit Unions Change in Number of Credit Union Branches

Source: NCUA

Credit union branch locations grew steadily through the 2000s until 2009, where we saw a decline in the number of credit union locations in the US.


Online Banking and Lobby Trends

54%

8%

78%85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Online Banking Lobby or Drive-up

Source: RFG National Research, Fall 2009

Since 2000 we have seen the usage of online banking grow from 8% of households nationwide to 54%. In that same period, usage of lobby or drive-up facilities has declined only very slightly. Delivery channels tend to be complementary, not substitutive.


Gen Y Usage of Lobby and Drive-up is Not Significantly Different Than Other Groups

80% 88% 80% 78%

3.4

4.34.14.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Traditionalist Baby Boomer Gen X Gen Y

Perc

ent U

sing

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Mon

thly

Tra

nsac

tions

% Using Lobby or Driveup Monthly Avg Monthly Lobby or Driveup Transactions

Source: RFG National Consumer Research


Reasons for Choosing Primary FI

68%

68%

51%

47%

37%

37%

29%

19%

18%

6%

Branch Availability

Service Quality

Safety and Soundness

Checking Products

Online Banking Capability

ATMs

Array of Products and Services

Loan Rates

Deposit Rates

Mobile Banking Capability

Branch Availability and Service Quality Equally Important in Selecting Primary Institution



Reasons for Choosing Primary FI

70%

16%

25%

3%

69%

37% 38%

5%

68%

48% 46%

9%

60%65%

40%

10%

Branch Availability Online Banking Capability ATMs Mobile Banking Capability

Traditionalists Baby Boomers Gen X Gen Y

Electronics Important to Younger Demographics, But Branches Are Still Important



1. Measure Constantly • Growth Potential – Existing HH & New HH growth

• Sales Performance Metrics New households with checking Cross-selling incidence

• Service Quality - Provide feedback loops

2. Set realistic performance goals and reward for performance• Growth goals should be specific to each branch based on demographics of members and the market

• Don’t measure on things that can’t be controlled at the branch level

• Create both individual and group goals

3. Provide the tools essential for success• Lead presentment tools

• Performance dashboards

• On-boarding programs

• Staff sales aptitude testing and training

4. Branch manager becomes the Branch CEO• More authority / more autonomy

• Greater performance accountability

• Performance incentives should be significant

Steps to Optimizing Branch Performance


Can Gen Y Revive Us?


The Generational Segments

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Live

Birt

hs (0

00)

Traditionalist Baby Boomers Gen X Gen Y

2.7 million births per year (MBPY) 3.9 MBPY 3.4 MBPY 3.8 MBPY

Avg. Household Deposits:$32K $16K $11K$33K


Generation Future Loan Demand

3%4%

5%4%

6%7%

6% 6%5%

11% 11%

6%7%

4%

13%

4%

6%

12%

10%

0.3%0%

5%

10%

15%

Used Auto Loan Mortgage Loan New Auto Loan Student Loan Credit Card

Traditionalist Baby Boomer Gen X Gen YSource: RFG National Consumer Research

Make Sure They Are Over 21


52%

31%

50%

66%

71%

20%

5%

21%

27%32%

Total Traditionalist Baby Boomer Gen X Gen Y

Use

Cell

Phon

e

Text Message Plan Internet Data Plan

Cell Phone Internet Data Plan Ownership

Source: RFG National Consumer Research


Activities Conducted Online

20%

14%17%

7%

36%

28% 26%

14% 14%

51%

36%31%

18%15%

59%

53%

28%

19% 18%

9%

Checking Imaging View Statements Order Checks Fraud Alerts Balance Alerts



Delivery Channels Used78%

38%

50%

10%16%

80%

62%66%

34%

25%21%

74%67%

74%

43% 40%

22%

74%

62%

36%

13%

78%

47%

10%

Lobby orDriveup

ATM Debit Card FI OnlineBillpayment

VendorBillpayment

VoiceResponse



Social Network Sites are Used by All Generations, but Gen Y leads the way

Percent of Citing Usage of Any Tested Site

80%

72%

54%

25%

0% 25% 50% 75% 100%

Gen Y

Gen X

Baby Boomer

Traditionalist

Source: RFG National Consumer Research, Spring 2010


Aspects of a Gen Y Plan1. Trans-generational marketing efforts – use your strength with Baby-

boomers to market to their Gen Y offspring.

2. Segment the Gen Y market and develop distinct strategies for each group. Independents (22 – 30 years)

College age (18 – 22 years)

Dependents (13 – 18 years)

3. Tie product design in with delivery. E-statements and debit card usage have high value

4. Social networking should focus on information and education Social networks are a marketing channel, not a delivery channel

5. Use relationship pricing to build loyalty.


Generating Growth:The New Reality Redux


The Shifting Growth Paradigm

The economy is not likely to grow in any substantial fashion in 2010 …

… or 2011

… or 2012.

Organic growth will be non-existent.

Conclusion: Growth will be dependent on stealing market share from competitors


Growth Rates in 2009

8.8%

10.5%

0.8%1.7%

6.7%

11.2%

1.0%

2.8%

Total Deposits Core Deposits Total Loans Consumer RealEstate Loans

Gro

wth

Rat

e - 2

009

Credit Unions Banks

Source: FDIC, NCUA


The Personal Savings Rate is Rebounding

0%

2%

4%

6%

8%

10%

12%

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

1985

= 1

00

Real Estate Wealth Impact

Consumer De-

leveraging

Baby-Boomer Impact

Personal savings rates (savings as a percent of disposable income) have fallen significantly below the long-term historical rate of 7% (from 1946 to 2008) since the early 1990s.

The personal savings rate rose in 2008 and 2009, and suggests a de-leveraging on the part of the consumer.

This is good news long-term – BUT the impact on loan growth will continue to be felt.

ActualProjected

Source: Bureau of Economic Analysis


The fundamental question:

HOW DO WE GROW OUR SHARE OF THE MEMBER’S WALLET?


Why Consumers Are Loyal To Their Primary Financial Institution

Credit Union Issue: Too much of the value proposition is built on price.

We have to move beyond philosophy of “one size fits all.”

Source: Raddon Financial Group, National Consumer Research, Spring 2010


Members Use Multiple Institutions

46%

25% 31%18%

25%

19% 11%

6%

11%

26%

3%

2%

Used for Deposits Used for Credit Cards Used for Loans Used for Investments

One FI Two FIs Three or More FIs

1.7 Average 2.6 Average 1.4 Average 1.4 Average



Primary Customers Provide A Greater Share Of Wallet

28%

35%35%

49%

Loan Balance Share of Wallet Deposit Balance Share of Wallet

Total Primary CustomerSource: Raddon Financial Group, Member Survey


Factors Behind Designating a PFI

87%

72%

23%14%

38%

15% 14%

38%34%

10%5% 4% 3% 2%

Where I HavePrimary

CheckingAccount

Where I HaveDirect

Deposit

Where All MyAccounts

Are

Where I HaveMost

InvestmentAccounts

Where I HaveMost Deposit

Accounts

Where I HaveMost Deposit

and LoanAccounts

Where I HaveMortgage

Influence Most Important Influence



Credit Card Opportunity The New Reality in Credit Cards

• CARD act forcing many national card offerers to alter their account structures, potentially making them less profitable

Renewed focus on using the CC as a relationship product• Opportunity for Credit Unions to compete for the business and

steal market share

Unprofitable card portfolios and the inability to compete with the seemingly unlimited marketing dollars of the Big Banks forced many credit unions to sell their card portfolio in recent years.• Is it time to get back in?

(assuming non-compete clause time period has expired)


Historical Look at Consumer Debt

$-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.819

68

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

$ Tr

illio

ns

Non-Revolving Consumer Debt Revolving Consumer Debt

Revolving Consumer Debt (majority of which is Credit Card debt) has risen consistently since the FDIC started tracking this data in 1968…until now. The recent decline in revolving consumer debt is unprecedented.


2.14

3.24 3.36 3.493.73

4.12 4.18

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

IndirectAuto

Direct Auto Classic CC All CC PlatinumCC

1st Mtg HELOC

Services per Household by Product Type

Source: CEO Strategies Group – National Average


Understanding the composition of the credit card portfolio is important in identifying what drives profitability and relationships for different types of card users.

Based on data from RFG’s Credit Card Analysis program, the average percent of cardholders within each of the five Credit Card Segments is shown on this page.

Source: RFG Credit Card Analysis


Credit Card Household RelationshipWhile the strength of the card relationship is important, it is also important to look at the total relationship of these households. In many cases, the card itself is a drain in terms of account profitability, but the overall relationship with the member is very strong.

Source: RFG Credit Card Analysis

The value of the Relationship: Only 2 of the segments are profitable at the account level, yet overall Household Profit is positive across all segments.


Mortgage Case Study

An Incentive Compensation Plan That Works


Background $755 Million Community CU in Midwest Most mortgages sold to secondary market, servicing retained Originate mortgages in 10 states 9 total originators, 4.5 processors Hired several established lenders when local bank sold Lenders do first mortgages only (no accounts/consumer loans/equities) Centralized underwriting process, originator attends each closing Priced to make 50bps off sale (today 100 bps) Average rates compared to competition Underwriters have discretion on matching competitive offers Compete with Wells, Associated Bank, US Bank and many CUs Survey new mortgage members to ask them about their experience


Incentive Plans

Mortgage Originators• Established plan in 2003• $30 to $35k base, average 2009 incentive comp was $73k• Highest paid lender made $125k total in 2009• No cuts to the base pay when the plan was rolled out• 17bp on new mortgages, 13bp on construction loans, 5 bp on refis

Processors and Support Staff• If monthly volume is 90% of budget each FTE gets $1 per total loan closed• If monthly volume is 110% of budget each FTE gets $2 per total loan closed• If monthly volume is 130% of budget each FTE gets $3 per total loan closed


Results

20 closed mortgages per originator per month (100th percentile) 11% market share in 2003, 24% in 2009 $328 million originated in 2009 ($198 mil was previous high) Highest 2009 volume per FTE = $83 mil, $69 mil, $64 mil 2010 volume expected to be $230 million Haven’t lost a lender the last 5 years Survey all mortgage members, scored 6.6 out of 7


Small Business = Big Impact


Small Business Remains Pessimistic

4% 4% 4%

12%12%10%

19%

24%

18%

29%

23%

27%

30%

27%

34%

6%8% 7%

Perc

ent

Citi

ng

Less Than 6Months

6 to 9 Months9 to 12 Months 12 to 18Months

More than 18Months

Do Not Know

Spring '09 Estimate Fall '09 Estimate Spring '10 Estimate

Small businesses were asked how long they predict the economic downturn will last. Their estimates have lengthened over the last 12 months.

Source: RFG Small Business National Research, Spring 2010


48%

43%

18%

13%

5% 5%3%

Credit CardCompany

NationwideBank

RegionalBank

Local-Community

Bank

Credit Union OnlineLendingBroker

OnlineLender

Institution That Denied Credit

CREDIT DENIALS EXPERIENCED IN PAST YEAR



INDUSTRY PRICING PERCEPTIONS

1.892.452.492.54

2.662.742.76

2.852.85

3.36

0 0.5 1 1.5 2 2.5 3 3.5

Credit Card Cos.

Finance Cos.

Cable TV- Satellite Cos.

Energy-Utility Cos.

Banks

Cell Phone Providers

Telecommunications Cos.

Local Phone Cos. - Land Line

Stock Broker Cos.

Credit Unions

Scale 1 to 5: 1 = Very Unreasonable - 5 = Very Reasonable



PFI DESIGNATIONS

39%

23% 22%

7%

3% 4%

Perc

ent

Cite

d as

PFI

NationwideBank

Local Bank -Community

Bank

RegionalBank-Multi-

state But NotNationwide

Credit Union Credit CardCompany

Do Not HaveOne Primary

Provider

Institution Type Designated as Business PFI



Top Box Satisfaction Rating

25% 24%

42%

51%

0%

10%

20%

30%

40%

50%

60%

Nationwide Bank Regional Bank Local/ Community Bank Credit Union

Very Satisfied

SATISFACTION LEVEL WITH PFI BY TYPE OF PFI



Pricing is #1 Reason for Dissatisfaction

19%

19%

27%

37%

43%

45%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Employee Knowledge-Expertise

Product Features-Selection

Credit Availability

Service Quality

Convenience-Location-Hours

Product Pricing-Rates-Fees



IMPORTANT CHARACTERISTICS FOR BUS. BANKING CONTACTS

47%

48%

54%

58%

63%

65%

0% 10% 20% 30% 40% 50% 60% 70%

Has Authority to Make Credit Decisions

Makes Suggestions for Fin. Products-ServicesAppropriate to My Needs

Understands My Financial Profile - Business andPersonal

Has Authority to Make Decisions on Fees and Rates

Understands My Business and Business Problems IMight Have

Is Knowledgeable About All Financial Products-Services

Top Two Box Extremely/ Very Important



89%

62%

79%

30%

71%

24%

64%

19%

64%

20%

61%

27%

56%

18%

38%

17%

27%

12%

Check Acct.Bals.

OnlineStatements

TransferFunds

Print-ViewCheckImages

Receive E-mail Alerts

from FI

Bill Pay-ViaYour FI

Visit FI'sWebsite for

Info.

DownloadAcct. Info.

IntoSoftware

BillPresentment-Via Your FI

Total Usage Use At Least Weekly

FIRMS ARE ENGAGED IN ONLINE ACTIVITIES



SMALL BUS. VS. CONSUMER MOBILE BANKING USE/LIKELIHOOD

18%

7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Small Businesses Consumers

Current Mobile Banking Use

26%

18%

0%

5%

10%

15%

20%

25%

30%

Small Businesses Consumers

Near-Term Likelihood to UseExtremely/Very/Somewhat Likely



Small Business Summary

Offers significant opportunity for increased NII and improved deposit margins.

Most Small Business banking relationships are based on deposit services, even though 55% of businesses utilize credit cards.

Small Business relationships fit well into a credit union’s consumer sales / service business model.• Transaction oriented• Convenience / Delivery• Savings• Basic lending services

Small Businesses are not impacted by pending new financial industry regulation and / or legislation.


Key Action Items


1. Adopt a “Back to Basics” in how you manage.

• Better margin management

• Grow alternative sources of non-interest income

• Enhance focus on member development and profitability

2. With continuing margin compression and reduced fee income, improved operational efficiency is paramount.

• Utilize technology to manage costs more effectively

• Continue to focus on improving your margin income on deposit accounts

Key Action Items


3. Impact of technology on the member continues to grow.

• Gen Y is doing their banking in fundamentally different ways

• Credit union needs to be able to deploy new technologies rapidly

4. Develop a checking account growth strategy for the new environment.

5. Create a merger strategy.

• Desired geography / markets

• Desired member profile

6. Key focus is building the Member’s Share of Wallet.• Look to create value in your services that goes beyond rate.

• Create linkages in account design between products and channels.

Key Action Items

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