2 Day Capital Planning & Profitability Enhancement Workshop
The recent actions taken by NCUA to recapitalize the corporate credit union network are causing significant damage to the earnings and capital of natural person credit unions.
This comes at a time when many credit unions are also facing the challenges of asset quality problems brought on by high unemployment levels, falling real estate property values and a number of related factors that require them to set aside significant reserves for loan losses and absorb higher charge offs.
As a result, by late-2009 many credit unions will fall below adequately capitalized status and even more will fall below well capitalized status. Even those well capitalized credit unions may find themselves struggling to maintain capital goals set by their board of directors. While there are proposed actions to allow credit unions to amortize the impact from writing down their NCUSIF deposit over time, sooner or later the impact will be felt.
Credit Unions falling below adequately capitalized are REQUIRED to develop a capital plan. However, the impact of the write down makes capital planning a best practices approach suitable for credit unions looking to repair damaged capital and earnings ratios.
Capital plans confront the relationship and trade-offs between asset growth, earnings, and capital/asset ratios over a multi-year horizon and is usually done with a 3 to 5 year horizon. Once the general capital plan is in place, specific aspects of the plan must be built out.
- For example, a credit union needing to shrink into capital compliance needs to decide where best to shrink on both the asset side and funding side. Shrinkage needs to be accomplished in such a way that both interest rate risk and liquidity risk are effectively managed.
- Once the general balance sheet growth/shrinkage strategy is in place, liability side strategy is how to reduce cost of funds to the greatest extent possible while holding onto member deposits that it doesn’t wish to lose.
- On the asset side, it makes sense to identify which loans in a credit union’s marketplace are well or poorly priced relative to their risks and costs. Shrinkage in poorly priced loans while growth in well priced loans will enhance yield on earning assets.
Workshop Objectives
- Each credit union in attendance will leave with the financial portion of a 5 year capital plan. Institutions will leave the seminar with an Excel model containing their historical NCUA call report data as well as the 5 year capital plan developed at the workshop.
- Each credit union will leave with recommendations as to balance sheet structure changes needed to implement the growth or shrinkage objectives in the first year of the plan.
- Each credit union will leave with a series of recommendations on how to reduce their cost of funds while meeting their objectives for share growth. These recommendations will include ideas on new product introductions and written deposit pricing strategies.
Each credit union will leave with an analysis of the profitability of their 5-10 most significant loan categories, an identification of what’s “well” and “poorly” priced and written recommendations of deposit and loan pricing strategies.
Workshop Format
A portion of the workshop will be devoted to education – 30-40% of the two days. The vast majority of the time at the workshop will be devoted to consultative activity.
Consultant Assigned to Each Team
A consultant, staff from FARIN or Corporate Central CU, will be assigned to each credit union team and will work with them throughout the workshop. They will work with the credit union on developing and modeling the capital plan.
Senior Floating Consultants
Two senior consultants will float the room, working with individual credit union teams. Tom Farin, CEO of Farin and Associates, will focus on funding structure and deposit pricing strategies. Tom is currently one of the top deposit pricing consultants in the industry and among others provides pricing consulting to Navy Federal Credit Union and a significant number of other well known credit unions. Dave Koch, COO of Farin and Associates will work with credit unions on balance sheet structure, liquidity and interest rate risk issues. Dave is a leading A/L educator and responsible for the Corporate Credit Union’s SmartScope interest rate risk analysis product.
Credit Union Teams
We recommend you bring a team to the workshop including the CEO, CFO, and those responsible for funding and loans. Prior to the workshop you will need to provide the following information.
- Your most recent detailed balance sheet and 2009 YTD income statement.
- Your most recent deposit rate sheet.
- Your most recent competitor deposit rate survey report.
- Your most recent loan rate sheet.
Farin and Associates will be responsible for downloading your historical call report data into their trend analysis and capital planning model.
Money Back Guarantee
FARIN is willing to refund the entire seminar fee if the credit union doesn’t project at least a 10 bp savings on cost of funds as a result of funding recommendations. To quantify this, a 10 bp reduction on a $100 million credit union is $100,000. In our two most recent engagements with credit unions Tom and the credit union team have come in with a 25 bp cost savings ($500 million credit union - $1.25 million cost savings) and a 30 bp cost savings ($2 billion credit union - $6 million cost savings).
Location
Corporate Central Credit Union Office, Milwaukee, Wisconsin
Dates & Registration Information
Date: TBA. Please contact us to be notified when we select a date.
Contact:
Emilee Scott, Sales Associate
FARIN
(800) 236-3724 ext 4206
escott@farin.com