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Reconn Radio: Podcast #12 – Week of 02/24/2014

ReconnRadio

The Economy, Investment Services & Farewell to Spangler

This week, I discuss the economic items for this week. We also delve into investment services with our special guest, Joel Beck of the The Beck Law Firm. Joel brings a wealth of information on broker/dealers and general considerations in forming an investment business unit for your bank or credit union. You can learn more about Joel on his website, www.thebeckfirm.com, or follow him @brokerdefender. Finally, we say farewell to Harold Ramis. He has, indeed, crossed the stream. May he rest in peace.

 

To listen to more of our podcasts, then please click here.

02/10/2014 – Our weekly perspective on the economy

The economy continues to show signs of uneasiness. Last week, we saw a surprising drop in the Institute of Supply Management’s Report on Business. What was most shocking to us, as pointed out by Marketwatch, was that we had, “the biggest one-month reversal in the new-orders index since December 1980.” The new-orders index is a component of the ISM. You can get to the ISM report here. This added to the already dower mood on Wall Street. The DJIA is down 3.96% since January 10, 2014, or approximately 650 points. Get the chart here.

This week brings more interesting news on the consumer confidence front as well as Janet Yellen’s testimony to both the House and Senate. More detail can be found on Marketwatch’s calendar here. We’ll keep you posted. Always keep one eye, or half an eye if you can manage it, on the macroeconomy.

Cheers!

Reconn Radio – Podcast #9 (Week of 02/03/2014)

ReconnRadio

 

Reconn Radio brings you its second guest in as many weeks. Also, we’re announcing our joint venture with strategic partner Structure First. Please check out the headquarters planning and facility development collaborative at myhq1.com.

Go!

 

 

 

 

2013Q3 – CU Data Visualization Extravaganza! Branches

The nature of FI branches is a hot topic right now. Many are discussing the demise of branches, the reemergence of the same, and the plethora of technology that should go into the modern branch. Oh, and the talent and process to support customers. That is why this post considers the status of credit union branches.

Histograms

A little on histograms will go a long way in reviewing the dashboard below. Histograms show the distribution of a population over a given metric. We’d like to thank SNL Financial for the data.

Number of Credit Union Maintained Branches (for institutions having less than 20 branches)

04 - Number of CU Maintained Branches (20 branches) - Histogram Dashboard

Build a branch? Move a branch? Maintain a branch? Kill a branch? These questions are floating around the industry these days. Some of our peers absolutely believe that branches should go away with the investment directed towards other channels. Check this blog post out by our friends over at Optirate. It raises some very interesting questions based on sound research.

The graphic above demonstrates that the overwhelming majority of credit unions have very few branches. This group, which is represented by credit unions having less than 20 branches, comprises the vast majority of credit unions. The questions are tough ones for this group. There likely needs to be some optimization work done once you get to the 10-branch threshold. Below that, there may be branches that just need to be shuttered. They’re not carrying their weight. No studying, no analysis. Shutter.

Will branches go to zero? I don’t think so. Not in my lifetime and perhaps not in my daughter’s. I think an environment with zero branches likely drives the entire industry towards a much smaller number of institutions. Technology is a commodity. In our way of thinking, more so than brick-and-mortar channels. The guidance: Be careful what you ask for because ultimately it all leads to a very limited group of players, an oligopoly of sorts.

Number of Credit Union Maintained Branches (for institutions having 20 or more branches)

05 - Top CUs - by Asset Size (# of branches greater than 20) - Histogram Dashboard

 

The group above – those credit unions with 20 or greater branches – is a small group. Some might say it is an elite group. The burden of optimization is the greatest at this level. Systems and talent are more complex, more dynamic at this stage. However, there must be the added burden of looking at acquisition along with optimization should the individual credit union’s culture and focus permit it.

There are 107 credit unions in this group. The size of the circle represents the number of branches as compared to the others. The color gradient represents asset size. This group, though larger, still lacks elements of scale if you look at the group without considering other dynamics (e.g., market size, membership diversity and size, merger history, etc.).

We hope these dashboards have raised some questions and perhaps answered some questions. If you need to dash, and don’t have your own board on which to make it to shore, then do give us a call. Custom reconnaissance, analysis, and direction are just a click away.

No. Really. Just click here.

We thank you for your patronage. Happy holidays!

2013Q3 – CU Data Visualization Extravaganza! Net Worth Growth

At Reconn Consulting, we like to preserve things for future generations. Our commitment to providing information to those we serve compels us to keep on writing, keep on informing. It’s what we do. We preserve. And we know, as a credit union, you are out to grow and preserve capital. That is why this post considers the growth in net worth.

Histograms

A little on histograms will go a long way in reviewing the dashboard below. Histograms show the distribution of a population over a given metric. We’d like to thank SNL Financial for the data. Enchanting people over at SNL.

03 - Net Worth Growth - Histogram Dashboard

Nearly 26% of credit unions included in the graphic above realized negative net worth growth. If this were an EPS-driven environment, there would be dramatic changes in the makeup of management teams and the industry. It is rare for a board or group of shareholders to wait for their stock to go to zero. Let’s hope it’s not the case in this industry.

For the holidays, we don’t want to be seen as scrooges and naysayers. So, the flip side of the story is that the other 74% saw growth in their net worth. That is good news.

We hope this dashboard has raised some questions and perhaps answered some. If you need to dash, and don’t have your own board on which to make it to shore, then do give us a call. Custom reconnaissance, analysis, and direction are just a click away. Right here in fact. Ask for the one and only Beth.

On Monday, we will provide you with our final dashboards for the year. Stay tuned.

2013Q3 – CU Data Visualization Extravaganza! ROAA

Okay. Perhaps extravaganza is more hype than this deserves. We believe that Reconn Consulting must bring sound data reconnaissance and analysis, topped off by direction, to the industry. This post will give you (1) a sense of where you fit in against peers, which is an okay reason in our book to continue reading and (2) a sense of what, why, and when you should do something about your current position, which is a reason to be in leadership in the industry.

This post considers ROAA.

Histograms

A little on histograms will go a long way in considering four out of the five dashboards discussed herein. Histograms show the distribution of a population over a given metric. The classic use of histograms, which many of us would prefer to forget, is the showcasing of test scores. Yeah, that’s what we thought.

In our reconnaissance and analysis, we’ve used data from SNL Financial to show the distribution of the number of institutions as well as the percentage of total that each “bin” of the distribution represents. This is akin to the concept of percentiles. Are you still with us? Good. Further, in most instances we have taken out the extremes to simplify the reporting. In each of the presentations, we shall provide the data visualization first so that you can interpret without our sublime yet subtle dissection. You knew that was coming, didn’t you?

ROAA (%)

01 - ROAA - Histogram Dashboard

Let’s talk about the good and then the bad. Overall, over 75.6% (100% – 24.4%) of credit unions are making money. The bad: the rest are not. Pick your poison – the economy, lack of scale, location, sponsor group woes, planning and execution trials, the dreaded assessment, and the list goes on. It’s time to face facts, however. With our nonprofit clients, there is a saying in the world of board development – give, get, or get out. It’s harsh. But, it’s spot on with what needs to be done in that particular space with existing and new board members. In the credit union space, we submit it is merge, grow (geometrically), or fold.

If we can help with how you look at your data, please contact us. And by all means, if you need help with what to do after you have looked at the data, then please give us a call today or drop us a line by clicking here. Ask for Beth. She likes to chat, certainly, but she loves to listen.

Where are they now? US Financial Institutions (less than $5B) as of June 30, 2013

I find the nostalgia pieces about burned out movie stars and TV teens, well, interesting. Though the industry many of us work in is not quite as, well, interesting, it does tend to have its own nostalgia. Where is everybody? What do they look like today? Will they be here tomorrow?

On our journey to analyze individualized, institutional concentration risk, which is based on our earlier post on the same topic, we thought we’d take a slight detour and see exactly where they are today: Commercial banks, savings banks, and credit unions. With an interest in community financial institutions, we thought we would limit it to institutions of $5B or less in total assets.

Pictures have a way of turning your attention. The pictures below did the same for us. The numbers caught our eye, too. With 13,585 total institutions reporting, we find the following breakdown:

  1. 5,880 commercial banks with $1.93T in total assets, or $328.1M per institution.
  2. 924 savings banks with $412.0B in total assets, or $445.9M per institution
  3. 6,781 credit unions with $889.6B in total assets, or $131.2M per institution

Total assets were approximately $3.23T, or $237.8M per institution.  Makes you giddy, doesn’t it?

As you look at the maps below, please consider the nature of our country. We are a fiercely independent and free-spirited nation. However, we can’t help to look at the map, while considering some of the numbers, and wonder what will this mean for financial institutions below a certain dollar threshold or with business models that need an infusion. Can this stubborn independence last? Is it the best thing for the end user? It’s not if technology will have an impact, but how, when, and to what level. The vector of change has not yet shown itself as we believe it will in the future. We are just getting started.

Be prepared. Be thoughtful as a leader and as a follower. Galvanize your team around sound business decisions. Survival as is certainly is the preferable outcome. In many cases, union and partnership maybe the best option for the customer or the member/owner. If the latter is your chosen path, be it as the acquired or acquirer, be firm but know that none are your enemy. It’s what has to happen.

Also, please know that these maps will change.  That notion will survive all of us.

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

More on concentration risk…this time by peer group

As promised in our last blog post on concentration risk, today we will provide a look by peer group. Our hypotheses were as follows:

  1. Larger credit unions would have a lower percentage of first mortgage real estate loans and smaller ones would have a higher concentration of mortgage loans. We were off on this one!
  2. Credit card concentrations would grow, but not necessarily reaching levels of concern, as asset size grew. We were somewhat in the right here. Concentrations did grow, but not to inordinately high levels. The prior unloading of credit cards has had its impact.

We will continue to keep our eye on concentration risk as the July 2013 data makes its way to the marketplace. Perhaps a look at concentration risk at the credit union level. Yes, that seems appealing. As always, let us know your thoughts. Here are the two dashboards for your consideration.

CU Concentration Risk - First Mortgages - by peer group and state CU Concentration Risk - Credit Cards - by peer group and state

 

All data provided by SNL Financial. Data visualization courtesy of Tableau Software. Click images to enlarge.

The states of concentration risk

The concentration of risk.  Essentially, nobody likes it and everyone wants to get rid of it.  Regulators frown on it.  Well, we’ve taken a look at it by state and by a couple of products to see what it looks like across the United States.  This graphic is for credit unions.  There are some similarities between the two portfolios, but it is clear that the concentration of credit cards within the aggregate portfolio is quite small.  As we all know, credit unions spent a great deal of time selling off portfolios some years ago.  Pricing has a been low-priority issue for regulators when it comes to credit cards.  Pricing tends to fluctuate as market rates fluctuate, thereby keeping institutions insulated from interest rate risk.  First mortgages, however, have been a growing concern for regulators.  On our next blog entry, we’ll take a look at concentration risk by asset size.

 

Concentration Risk by State

All data provided by SNL Financial.  Data visualization courtesy of Tableau Software.  Click here to enlarge.