NACUSONACUSOSeptember 27, 2007September 27, 2007

CU COLLABORATION

CREATING A CREDIT UNION COLLABORATION POLICY AND ALIGNED ORGANIZATION STRUCTURE

It was the Best of TimesIt was the Best of TimesIt was the Worst of TimesIt was the Worst of Times……

It was the age of wisdom, it was the age of foolishness, It was the age of wisdom, it was the age of foolishness,

It was the epoch of belief, it was the epoch of incredulity, It was the epoch of belief, it was the epoch of incredulity,

It was the season of Light, it was the season of Darkness,It was the season of Light, it was the season of Darkness,

It was the spring of hope, it was the winter of despair, It was the spring of hope, it was the winter of despair,

We had everything before us, we had nothing before us,We had everything before us, we had nothing before us,

…… in short, the period was so far like the present period, that sin short, the period was so far like the present period, that some of ome of its noisiest authorities insisted on its being received, for gooits noisiest authorities insisted on its being received, for good or for evil, d or for evil,

in the superlative degree of comparison only.in the superlative degree of comparison only.

___ ___ Charles DickensCharles DickensA Tale of Two CitiesA Tale of Two Cities

The Best of TimesThe Best of Times

Credit Unions Hold Over $32 Billion Credit Unions Hold Over $32 Billion In Excess CapitalIn Excess Capital

10.4% 10.6% 10.9% 11.1% 11.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2003 2004 2005 2006 2007

Credit Union Net Worth to Assets RatioAll U.S. Credit Unions as of March 31

7.0%

Credit Unions Continue To Post Positive Growth In All Loan Categories

12-month growth for all CUs as of June 30, 2007

6.2%

12.2%

18.6%

1.1%

1.1%

8.9%

10.0%

0.0% 5.0% 10.0% 15.0% 20.0%

Total Loans

Credit Card

MBL

Used Auto

New Auto

Other RE

1st Mort.

12-month Growth in Credit Card Balances

8.3%

2.2%

12.2%

-0.4%

-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%

Banks/S&Ls Credit Unions

Jun-06 Jun-07

% C

han

ge

Source: FDIC, Callahan & Associates

Credit Unions Are Showing Continued Momentum Credit Unions Are Showing Continued Momentum In Credit CardsIn Credit Cards

The Loan To Share Ratio Is Holding Steady

67.8%

71.8%

75.9%

80.3% 80.3%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

2Q 03 2Q 04 2Q 05 2Q 06 2Q 07

Loans/Shares for all CUs as of June 30

11stst Mortgage Volume YearMortgage Volume Year--toto--date Has Increased date Has Increased Versus 2006Versus 2006

1st Mortgage originations YTD for all CUs as of June 30

$29.7

$27.5$27.2

$28.9

$25.0

$26.0

$27.0

$28.0

$29.0

$30.0

2Q 04 2Q 05 2Q 06 2Q 07

$ B

illio

ns

Delinquency rate for all CUs

0.50%

0.70%

0.90%

Mar

. 31 2

002

June

30 20

02Se

p. 30

2002

Dec. 31

2002

Mar

. 31 2

003

June

30 20

03Se

p. 30

2003

Dec. 31

2003

Mar

. 31 2

004

June

30 20

04Se

p. 30

2004

Dec. 31

2004

Mar

. 31 2

005

June

30 20

05Se

p. 30

2005

Dec. 31

2005

Mar

. 31 2

006

June

30 20

06Se

p. 30

2006

Dec. 31

2006

Mar

. 31 2

007

June

30 20

07

Total Loan Delinquency Remains Low Among Total Loan Delinquency Remains Low Among Credit UnionsCredit Unions

.69%

12-month Share And Member Growth Is Picking Up

11.3%

2.2%

5.5%

1.7%

4.2%

1.6%

3.8%

1.1%

6.1%

1.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2Q 03 2Q 04 2Q 05 2Q 06 2Q 07

Share GrowthMember Growth

The Worst of TimesThe Worst of Times

?

When the sea is calm,all ships alike showed mastership in floating.

__William ShakespeareThe Tempest

Non-Traditional Players Are Gaining

Four Waves of New Entrants:

I. E-Providers

I. Payday Lenders and Check Cashing Outlets – 1990 >50; 2005 22,000 providing ~$40B in high interest credit.

II. H&R Block and Wal-Mart

IV. Peer-To-Peer Lending: Zopa, Prosper

Auto Loan Growth Is Slowing In All CategoriesAuto Loan Growth Is Slowing In All Categories

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

June 302005

Sep. 302005

Dec. 312005

Mar. 312006

June 302006

Sep. 302006

Dec. 312006

Mar. 312007

June 302007

IndirectUsed AutoNew Auto

4.79%

1.99%1.96%

Credit Unions Rank High on Advocacy

“My financial provider does what’s best for me, not just its ownbottom line.”

USAA 88%Ind Fin Advisors 76%Credit Unions 66%A.G. Edwards Brokerage 66%Regional/Local Banks 48%Bank of America 33%Wells Fargo Bank 32%U.S. Bank 27%Citibank 27%Chase Bank 27%

Source: 2007 Forrester Research Report

0%

10%

20%

30%

40%

50%

ShareDraft

Auto Loan CreditCard

CD IRA HELOC 1stMortgage

InvestmentServices

Prod

uct P

enet

ratio

n

Source: CUNA Economics & Statistics

High

Low

The Consideration Problem

The CONSIDERATION ProblemConsumers consider a small subset and ignore the rest.

Advertising does not generate consideration.

Consideration results from differentiated/superior products + WOM + the customer experience.

Poll of Eligible Non-members

Is there a difference between a Credit UnionAnd a Bank?

56% - No43% - Maybe (but I don’t know what it is)

Can You Identify Which Brands Are Credit Unions?Can You Identify Which Brands Are Credit Unions?

There are ~8,400 CUThere are ~8,400 CU’’s Todays Today……

0

5,000

10,000

15,000

20,000

25,000

1945 1955 1965 1975 1985 1995 2005 2015 2025

Num

ber

of c

redi

t uni

ons

How Many Credit UnionsWill There Be In 2025?

Every time a credit union is mergedout of existence, we lose pointsof presence in the community.

The Stall in CU Growth1. 2006 member growth of 1.1% is lowest since

deregulation

2. 4,982 (58%) credit unions saw share balances decline in 2006; these CUs hold $147 billion in shares

3. 3,137 (37%) credit unions saw loan balances decline in 2006; these CUs hold $72 billion in loans

AGING MEMBER BASEAGING MEMBER BASE

Average age of a credit union member has grown from 40 Average age of a credit union member has grown from 40 -- 47 during the 47 during the past 2 decadespast 2 decades

The national population is aging but much more slowly; US CensusThe national population is aging but much more slowly; US CensusBureau estimates that the average age of the population will groBureau estimates that the average age of the population will grow from w from 36 in 1995 to 40 in 36 in 1995 to 40 in 20402040..

At age 47, members are past their prime borrowing years.At age 47, members are past their prime borrowing years.

““MembershipMembership”” of little importance to younger membersof little importance to younger members

Younger members want immediacy, convenience, InternetYounger members want immediacy, convenience, Internet

Need to deal with lack of credit historyNeed to deal with lack of credit history

4 Troubled Credit Unions4 Troubled Credit Unions

Florida Land Speculation SchemeFlorida Land Speculation Scheme

Huron River Area ($268M Ann Arbor, MI)Huron River Area ($268M Ann Arbor, MI)New Horizons Community ($149M Denver, CO)New Horizons Community ($149M Denver, CO)NorlarcoNorlarco ($344M Fort Collins, CO)($344M Fort Collins, CO)

Cal State 9 ($449M Concord, CA)Cal State 9 ($449M Concord, CA)

OverOver--exposure in 2exposure in 2ndnd mortgages without being fully aware of the mortgages without being fully aware of the underwriting of the 1underwriting of the 1stst mortgagemortgage

Key Questions to AskKey Questions to Ask

What are the ways your credit union can get into trouble?What are the ways your credit union can get into trouble?

What was the underwriting of any 1What was the underwriting of any 1stst mortgages or other loans that mortgages or other loans that an individual may have?an individual may have?

Are your members increasing usage of other lines of credit?Are your members increasing usage of other lines of credit?

What are your lines of liquidity and are they reliable?What are your lines of liquidity and are they reliable?

It is clear the future holds opportunities – italso holds ptfalls. The trick wil be to sieze the

opportunites, avoid the pitfalls, and getback home by 6:00.

___Woody Allen

Inflection Point Options CurrentlyInflection Point Options CurrentlyBeing Used By CUBeing Used By CU’’ss

1. Continuing on the Same Course1. Continuing on the Same Course –– more branches, market expansion, and more branches, market expansion, and imitating competitor best practices.imitating competitor best practices.

2. Consolidation2. Consolidation –– while some mergers are essential, merging credit unions doeswhile some mergers are essential, merging credit unions doeschange the industrychange the industry’’s market share nor create any meaningful economy of scale.s market share nor create any meaningful economy of scale.

3.3. Conversion to a Bank CharterConversion to a Bank Charter ---- the economic and philosophical costs outweigh the economic and philosophical costs outweigh the benefits.the benefits.

…… but these donbut these don’’t have longt have long--term benefitsterm benefits

The Best of TimesThe Best of Times

Leading the Industry Into Leading the Industry Into An Era of Collaboration An Era of Collaboration

& Cooperation& Cooperation

MultiMulti--Owned CUSOs Address ManyOwned CUSOs Address ManyCritical IssuesCritical Issues

Create and drive more value back to the memberCreate and drive more value back to the member

Gain access to significant scale and lower operating costs, creaGain access to significant scale and lower operating costs, creating NIM through business lending, ting NIM through business lending, generating NIIgenerating NII

Leverage infrastructure; provide convenience through shared branLeverage infrastructure; provide convenience through shared branching, ATMsching, ATMs

Enhance strategic positioning, consideration, and credibility thEnhance strategic positioning, consideration, and credibility through efficient delivery of the Desired rough efficient delivery of the Desired Member ExperienceMember Experience

Attract Quality CU Partners & Third Parties; assists in centraliAttract Quality CU Partners & Third Parties; assists in centralized RFP processeszed RFP processes

Gain Access to Expertise; Gain Access to Expertise; all of us is smarter than any of us.all of us is smarter than any of us.

Spread the Risk and Capital Investment; assist in raising capitaSpread the Risk and Capital Investment; assist in raising capital l

Own the Intellectual Capital; e.g., supporting stateOwn the Intellectual Capital; e.g., supporting state--ofof--thethe--art interfaces and operational solutionsart interfaces and operational solutions

Is an Alternative to Mergers and Conversion to MSBsIs an Alternative to Mergers and Conversion to MSBs

Provide Models for Innovation and offer innovation to other credProvide Models for Innovation and offer innovation to other credit unionsit unions

INCOME/MEMBER & OPERATING EXPENSE/MEMBERBY CU ASSET SIZE

$0$100$200$300$400$500$600$700$800$900

<5m

5m-1

0m

10m

-20m

20m

-50m

50m

-100

m

100m

-200

m

200m

-300

m

300m

-400

m

400m

-500

m

500m

-600

m

600m

-700

m

700m

-800

m

800m

-900

m

900m

-1b

1b-2

b

2b-5

b

Income / Mbr OpEx / Mbr

CooperativeCredit Union

Network

Indirect Lending

InsuranceAgency

MortgageBanking/RE

Services

Technology

SharedBranching/

ATM Network

Investment Services

LoanParticipations

Small BusinessServices

IMAGINE: A COOPERATIVE CU NETWORK

While the Cooperative Model is Growing,While the Cooperative Model is Growing,it is Still Not the Dominate Themeit is Still Not the Dominate Theme

887 CUSOs887 CUSOs697Wholly697Wholly--Owned CUSOsOwned CUSOs190 Multi190 Multi--Owned CUSOsOwned CUSOsMore than $1.4B invested or loaned to CUSOsMore than $1.4B invested or loaned to CUSOs

~2,100 credit unions have a loan or investment in a CUSO~2,100 credit unions have a loan or investment in a CUSO

~6,300 credit unions have no have no direct investment or loan t~6,300 credit unions have no have no direct investment or loan to o a CUSOa CUSO

Source: Callahan & AssociatesSource: Callahan & AssociatesDataData as of 12/06as of 12/06

WhollyWholly--Owned CUSOs By Line of BusinessOwned CUSOs By Line of Business

LendingLending (Mortgages, Auto, Business)(Mortgages, Auto, Business) 18%18%

Tech/OpsTech/Ops (DP)(DP) 5%5%

Financial Financial SvcsSvcs (Investments, Ins, Trust (Investments, Ins, Trust SvcsSvcs, Tax Prep), Tax Prep) 56%56%

OtherOther (Collections, Marketing, (Collections, Marketing, PayDay,CheckPayDay,Check Cashing) Cashing) 20%20%

Source: Callahan & AssociatesSource: Callahan & Associates12/31/200512/31/2005

MultiMulti--Owned CUSOs By Line of BusinessOwned CUSOs By Line of Business

LendingLending (Mortgages, Auto, Credit Card (Mortgages, Auto, Credit Card SvcsSvcs, Business), Business) 42%42%

Tech/OpsTech/Ops (DP, Shared Branches, ATM Networks(DP, Shared Branches, ATM Networks, , IP)IP) 33%33%

Financial Financial SvcsSvcs (Investments, Ins, Trust (Investments, Ins, Trust SvcsSvcs, Tax Prep), Tax Prep) 17%17%

OtherOther (Collections, Marketing, (Collections, Marketing, PayDayPayDay Lending, Ck Lending, Ck CshCsh) ) 9%9%

Source: Callahan & AssociatesSource: Callahan & Associates12/31/200512/31/2005

COCO--OP Network OP Network –– 25,000 surcharge25,000 surcharge--free ATMs in all 50 statesfree ATMs in all 50 statesCU Service Centers CU Service Centers –– 2,700 branches2,700 branchesCUDL CUDL –– 7,000 dealerships, 500 CUs, 38 states7,000 dealerships, 500 CUs, 38 statesPrime Alliance Prime Alliance –– 40% of CU 140% of CU 1stst mortgage originationsmortgage originationsCFS CFS –– 100 largest investment programs100 largest investment programsMBL business deposits $200M+; one of the top SBA lendersMBL business deposits $200M+; one of the top SBA lenders

Multi-owned CUSOs Are Redefining Credit Union Reach, Range, and Robustness

EINSTEINEINSTEIN’’S SUCCESSS SUCCESS

…came from questioning conventional wisdom and marveling at mysteries that struck others as mundane.

This led him to embrace a morality and politics based on respect for free minds, free spirits, and free individuals.

These leadership traits are just as vital for the credit union industry today in which our success will depend on our

critical thinking, innovation, and collaboration.

What is the number oneWhat is the number onereason for COOPERATING?reason for COOPERATING?

……To Provide The Member With More Value andTo Provide The Member With More Value andThe Best Possible Experience!The Best Possible Experience!

Staff Knowledge & Expertise About Products/Services & CompetitionStaff Experience & TenureReputation & Stability of the FIFavorable Testimonials/Referrals Feeling of Confidence

Has My Best Interests At HeartAsk Questions And Assess My Situation Before Giving SolutionDemonstrates Understanding of My SituationExplains Things At My Level of UnderstandingActs With Impartiality And ObjectivityTransparency: Free From Pretense or DeceitProactive In Securing My Financial Information & Preventing FraudCompetitive Rates and FeesFeelings of Trust & Security

Branch LocationsHours of OperationRemote AccessEase of Use SpeedAvailability & AccessibilityFeelings of Comfort & Relaxation

FriendlinessGives Me the Individual Attention I WantRecognition by Branch StaffSolve Problems QuiclyRewards Me for Amount & Length of my BusinessStaff can Negotiate Certain Rates and Fees on Their OwnResponsiveness & Follow-UpFeelings of Importance and Being Valued

Advocacy Advocacy ServiceService

CredibilityCredibility

ConvenienceConvenience

The The Desired MemberDesired Member

ExperienceExperience

Research Q’s:

1. What do you want?

2. Why is that important (x5)?

3. Demographic Segments

Resistance to CooperationResistance to Cooperation

1.1. I Can Do It Better Myself; I Know More Than Anyone I Would CoopeI Can Do It Better Myself; I Know More Than Anyone I Would Cooperate With rate With (Superiority Complex)(Superiority Complex)

2. I2. I’’m Already Doing It and Donm Already Doing It and Don’’t Want to Share It With Anyonet Want to Share It With Anyone(Selfishness)(Selfishness)

3.3. Membership overlap with community charters and open Membership overlap with community charters and open FOMsFOMs result in other result in other CUCU’’s being viewed as competitorss being viewed as competitors…… why would I want to partner with my why would I want to partner with my competitor? (Fear)competitor? (Fear)

4. Trying to work with and manage a lot of other ego4. Trying to work with and manage a lot of other ego’’s is hard work. (Insecurity, s is hard work. (Insecurity, Fear)Fear)

5.5. As a smaller credit union, cooperating with larger credit unionsAs a smaller credit union, cooperating with larger credit unions is merely a is merely a prelude to merging with them. (Fear) CULprelude to merging with them. (Fear) CUL……

6.6. There are various levels of risk tolerance and propensities for There are various levels of risk tolerance and propensities for working together in working together in the group (Fears and Differential Preferences)the group (Fears and Differential Preferences)

Resistance to CooperationResistance to Cooperation

6.6. If I join the group, I lose my autonomy, control, power, and/or If I join the group, I lose my autonomy, control, power, and/or identity. identity. (Fear)(Fear)

7.7. If itIf it’’s a new cooperative venture, how do I know it will be successfuls a new cooperative venture, how do I know it will be successful??II’’ll sit on the sidell sit on the side--lines until it proves itself. (Fear)lines until it proves itself. (Fear)

8.8. Can I really trust the other parties to the venture? (Fear)Can I really trust the other parties to the venture? (Fear)

9. If the cooperative opportunity is not successful, it could 9. If the cooperative opportunity is not successful, it could adversely impact adversely impact my job security (Fear)my job security (Fear)

10. Many CEO10. Many CEO’’s of small CUs of small CU’’s are also part of the staff. I dons are also part of the staff. I don’’t have time to t have time to consider a cooperative venture (Resources).consider a cooperative venture (Resources).

11. I have been successful by doing the things that got me here.11. I have been successful by doing the things that got me here.Cooperating with other CUCooperating with other CU’’s didns didn’’t get me here.t get me here.

The Real Reasons Resisting Cooperation The Real Reasons Resisting Cooperation Are Largely EmotionalAre Largely Emotional

1.1. EgoEgo’’s and Superiority Complexs and Superiority Complex

2.2. SelfishnessSelfishness

3. Fear of Some Kind of Loss: autonomy, power, control, securi3. Fear of Some Kind of Loss: autonomy, power, control, security, or ty, or identityidentity

I had a tea party this afternoon at three.I had a tea party this afternoon at three.‘‘TwasTwas very small very small –– three guests in all three guests in all –– just I, myself and me.just I, myself and me.

Myself ate all the sandwiches, while I drank all the tea.Myself ate all the sandwiches, while I drank all the tea.‘‘TwasTwas also I who ate the pie, and passed the cake to me.also I who ate the pie, and passed the cake to me.

Overcoming Resistance to CooperationOvercoming Resistance to Cooperation

Rational Appeals:Rational Appeals:

1.1. Cooperative models can help generate NII and/or lower operating Cooperative models can help generate NII and/or lower operating expense.expense.

2.2. Shared risk and capital expenditures.Shared risk and capital expenditures.

3.3. Through cooperative models, you can offer more products, serviceThrough cooperative models, you can offer more products, services, and delivery channels s, and delivery channels to members.to members.

4.4. Cooperation is a viable alternative to mergers.Cooperation is a viable alternative to mergers.

5.5. Focus on the Member Focus on the Member –– the cooperative model can drive significantly more value back tthe cooperative model can drive significantly more value back to o the members through economies of scale and the economic model tothe members through economies of scale and the economic model to build the business, build the business, decreased unit costs and better pricing, and partnering with quadecreased unit costs and better pricing, and partnering with quality thirdlity third--parties.parties.

6.6. Education Education –– the real competition isnthe real competition isn’’t other credit unions. (CLUE: Look at your market t other credit unions. (CLUE: Look at your market surveyssurveys…… ItIt’’s the Banks! Market Share, PFI, SOW).s the Banks! Market Share, PFI, SOW).

Overcoming Resistance to CooperationOvercoming Resistance to Cooperation

Rational Appeals:Rational Appeals:

7. Even though the competition is not other credit unions, w7. Even though the competition is not other credit unions, we should be able to compete with e should be able to compete with each other in certain areas and work together in others.each other in certain areas and work together in others.

•• RBS ModelRBS Model……

•• Offer compromises to satisfy the various propensities.Offer compromises to satisfy the various propensities.

Overcoming Resistance to CooperationOvercoming Resistance to Cooperation

Emotional Appeals: (Most of the resistance is emotional)Emotional Appeals: (Most of the resistance is emotional)

1. Fear of loss is best addressed by showing people how they1. Fear of loss is best addressed by showing people how they can gain back what they have can gain back what they have lost. lost.

2. Cooperation is a viable alternative to mergers.2. Cooperation is a viable alternative to mergers.

3. What will happen if we don3. What will happen if we don’’t do it? (Per Dr. Phil: t do it? (Per Dr. Phil: ““HowHow’’s That s That WorkinWorkin’’ For For YaYa??””))Do you have a better solution?Do you have a better solution?

4. Cooperation is an inherent part of our values and philoso4. Cooperation is an inherent part of our values and philosophy. We need to extend that to phy. We need to extend that to cooperating and collaborating with each other.cooperating and collaborating with each other.

5. Hard isn5. Hard isn’’t bad, itt bad, it’’s just hard. Any effective solution from here on out is going ts just hard. Any effective solution from here on out is going to require o require hard work, lots of effort, and some sacrifice. (The butterflyhard work, lots of effort, and some sacrifice. (The butterfly……))

Dr. Phil asksDr. Phil asks……

How is that traditional How is that traditional credit union model credit union model working for youworking for you??

CUSOs Will Outnumber Credit UnionsCUSOs Will Outnumber Credit Unions

As the number of credit As the number of credit unions decline and the unions decline and the

number of CUSOs rise, the number of CUSOs rise, the day is rapidly approaching day is rapidly approaching

where CUSOs will where CUSOs will outnumber credit unions.outnumber credit unions.

Collaborations Can Be Wildly SuccessfulCollaborations Can Be Wildly Successful

νν $1,000,000 in fees in one year from title insurance $1,000,000 in fees in one year from title insurance agency servicesagency services

νν $2,000,000 in real estate commission rebates to $2,000,000 in real estate commission rebates to members annually and 16% to 27% increase in first members annually and 16% to 27% increase in first mortgagesmortgages

νν Creation of hot sites across the country to run Creation of hot sites across the country to run credit unions in the event of disasterscredit unions in the event of disasters

Estimate of Impact of Ongoing Operations: Estimate of Impact of Ongoing Operations: Disaster Recovery/Business Continuity CUSODisaster Recovery/Business Continuity CUSO

νν Average cost of services to 200Average cost of services to 200--400 million CU on their own:400 million CU on their own:–– DR/BCP Planner DR/BCP Planner -- $80k per year$80k per year–– Backup DatacenterBackup Datacenter -- $50k per year $50k per year –– Backup SystemsBackup Systems -- $50k per year$50k per year–– Technical and Testing Expertise Technical and Testing Expertise -- $25k per year$25k per year–– Third party connections Third party connections -- $20k per year$20k per year–– Backup Phone System Backup Phone System -- $20k per year$20k per year–– Maintenance, Utilities, Support, workspace, security etc. Maintenance, Utilities, Support, workspace, security etc. -- $50k per $50k per

yearyear–– Total Cost = $295k per yearTotal Cost = $295k per year

νν Cost to CU through Ongoing: $60 Cost to CU through Ongoing: $60 –– 80k per year80k per year

Collaborations Can Be Wildly SuccessfulCollaborations Can Be Wildly Successful

νν Increasing fee income to 10% to 15% of total credit Increasing fee income to 10% to 15% of total credit union incomeunion income

νν Reduced employee benefits costs by over 30%Reduced employee benefits costs by over 30%

νν Having more assets under management then Having more assets under management then assets in the credit unionassets in the credit union

Collaborations Can Be Wildly SuccessfulCollaborations Can Be Wildly Successful

νν Returning $3 million in 2006 to credit union Returning $3 million in 2006 to credit union investors in an broker/dealer CUSOinvestors in an broker/dealer CUSO

νν Opening up new loan channels and member Opening up new loan channels and member acquisition from funding elective procedures in acquisition from funding elective procedures in dentists and plastic surgeon officesdentists and plastic surgeon offices

νν Significant increases in the share of insurance Significant increases in the share of insurance commissionscommissions

Collaborations Can Be Wildly SuccessfulCollaborations Can Be Wildly Successful

νν Significant reduction in the risks and costs of Significant reduction in the risks and costs of starting business lending servicesstarting business lending services

νν Raising outside capital to fund business loan Raising outside capital to fund business loan demanddemand

νν Savings thousands of dollars with more effective Savings thousands of dollars with more effective collection servicescollection services

Collaborations Can Be Wildly SuccessfulCollaborations Can Be Wildly SuccessfulCall Center CUSOCall Center CUSO

νν 5 credit unions, $70 5 credit unions, $70 -- $200MM$200MMνν Each has call center w/ 5 employeesEach has call center w/ 5 employeesνν Combined annual cost: $1MMCombined annual cost: $1MMνν Equivalent to $600MM CU with 25 Equivalent to $600MM CU with 25 -- person call person call

centercenterνν All inbound calls, 80% could be auto responseAll inbound calls, 80% could be auto responseνν Consolidation returns $200,000 to bottom line of Consolidation returns $200,000 to bottom line of

each credit unioneach credit union

Originating Credit Union

Credit Union

Credit Union

Credit Union

Credit Union

Credit Union

Credit Union

Credit Union

CUSO

3rd party Loan

Review

Loan Docs

PARTICIPATIONS

1. Originating credit union electronically sends MBL application package to CUSO, or application is originated by CUSO

2. CUSO performs credit analysis, decision and presents participation opportunity to LLC Members.

3. CUSO prepares loan documents and (a) transmits docs to originating credit union or (b) closes loan at CUSO

4. CUSO provides post closing review, participation management and servicing for originating credit union and all participants

MULTI CREDIT UNION OWNED MBL CUSO

The AllianceThe Alliance

A A ““virtualvirtual”” CUSO without wallsCUSO without walls……

The Oregon Credit Union AllianceThe Oregon Credit Union Alliance

Credit Union DCredit Union D Credit Union CCredit Union C

Credit Union ACredit Union A

OCACUSOOCA

CUSO

Credit Union BCredit Union B

Credit Union A provides loan servicing and collections

Credit Union C provides all Call Center Support

Credit Union B provides compliance services

OCA CUSO LLC is a “reverse holding company”, providing management services to all Alliance Member CUs. Board consists of member CU

CEOs. CUSO is managed by an independent third party.

OCA CUSO LLC is a “reverse holding company”, providing management services to all Alliance Member CUs. Board consists of member CU

CEOs. CUSO is managed by an independent third party.

Credit Union ECredit Union E

Credit Union D provides HR, Salary and Benefits Administration

Credit Union E provides Marketing and Advertising Services

Credit Union A

Credit Union D

Credit Union B

Credit Union C

Virtual Support CUSO

Requirements:

Independent Management Company

Benefits:

• no staff (salaries, benefits)

• no physical location (rent, utilities)

• highly replicable

If collaborations are essential to credit unions If collaborations are essential to credit unions and will remake the way credit unions and will remake the way credit unions operate, then credit unions need tooperate, then credit unions need to……

Policy and Staff to Support Policy and Staff to Support CollaborationsCollaborations

νν Develop a Collaboration PolicyDevelop a Collaboration Policy

νν Reorganize the organization structure to include a Reorganize the organization structure to include a staff position to implement the Collaboration Policy staff position to implement the Collaboration Policy throughout the credit union.throughout the credit union.

Examples of Collaboration PolicyExamples of Collaboration Policy

νν Goals of collaborationsGoals of collaborationsνν Parameters of collaborationsParameters of collaborationsνν Dedicate staff to keep current on collaboration Dedicate staff to keep current on collaboration

opportunitiesopportunitiesνν Criteria and procedures for selection of service Criteria and procedures for selection of service

partners partners νν Standards and procedures to understand and Standards and procedures to understand and

manage the operational risk to the CUmanage the operational risk to the CU

Examples of Collaboration PolicyExamples of Collaboration Policy

νν Define expectations and measure and report Define expectations and measure and report performance of the collaborationperformance of the collaboration

νν Actively integrate collaborationsActively integrate collaborationsνν Establish staff performance goals to align with the Establish staff performance goals to align with the

success of collaborationsuccess of collaborationνν Hold the CU personal and the partner accountableHold the CU personal and the partner accountableνν Use consistent collaboration agreementsUse consistent collaboration agreements

Collaboration AgreementsCollaboration Agreements

νν Allocate duties clearlyAllocate duties clearlyνν Allocate risks fairly Allocate risks fairly νν Define the expectationsDefine the expectationsνν Provide a clear and fair revenue sharing Provide a clear and fair revenue sharing

arrangement arrangement –– transparency of revenue flowtransparency of revenue flowνν Efficient means to resolve conflictsEfficient means to resolve conflicts

–– Injunctive power optionInjunctive power option

Collaboration AgreementsCollaboration Agreements

νν Protect the member relationshipProtect the member relationship–– Prevent unauthorized solicitationsPrevent unauthorized solicitations–– Prevent unauthorized disclosure of member infoPrevent unauthorized disclosure of member info–– Prevent misuse of CU and CUSO brandPrevent misuse of CU and CUSO brand–– Provide means to measure acceptable service levelsProvide means to measure acceptable service levels

Collaboration AgreementsCollaboration Agreements

νν Clear and fair termination processClear and fair termination process–– Quick, noQuick, no--cause termination rightscause termination rights–– Prohibition to solicit members and return disclosed Prohibition to solicit members and return disclosed

member infomember info–– Cooperation to transfer the accounts to the new credit Cooperation to transfer the accounts to the new credit

union service partnerunion service partner–– No restriction on CU to solicit its membersNo restriction on CU to solicit its members

Be a Good Partner, Who Is:Be a Good Partner, Who Is:

νν Jointly committed on the fundamental goalsJointly committed on the fundamental goalsνν Open to the consideration of new ideas to achieve Open to the consideration of new ideas to achieve

the goalsthe goalsνν Flexible as to the process to achieve the goalsFlexible as to the process to achieve the goalsνν Able to timely make decisions and deliver on Able to timely make decisions and deliver on

promisespromisesνν Trusting of each partnerTrusting of each partner’’s integrity and s integrity and

competence (able to give up total control)competence (able to give up total control)

Finding Good PartnersFinding Good Partners

νν Find organizations who share or complement your Find organizations who share or complement your fundamental goalsfundamental goals

νν Get to know the people and the organizationGet to know the people and the organizationνν Establish a trust comfort levelEstablish a trust comfort levelνν Start small and focusedStart small and focusedνν Visioning sessionVisioning session

ReRe--Organizing Credit Union Structure To Align With Strategy Organizing Credit Union Structure To Align With Strategy and Facilitate Integrationand Facilitate Integration

Board of DirectorsBoard of Directors

CEOCEO

Market Expansion Market Expansion and Growthand Growth

Relationship Relationship ManagementManagement

Operations Operations ExcellenceExcellence

Professional Professional Development of Development of

EmployeesEmployees

FinanceFinance OperationsOperations LendingLending Information Information TechnologyTechnology MarketingMarketing Human Human

ResourcesResources

Chief Collaboration & Chief Collaboration & Integration OfficerIntegration Officer

InvestmentsInvestments

© Davis & Company

Mindset of New Credit Union ModelMindset of New Credit Union Model

νν Think Collaboratively First Think Collaboratively First ----Is there an existing collaborative solution?Is there an existing collaborative solution?

νν If no existing collaborations work for us can we If no existing collaborations work for us can we create a collaborative solution that works?create a collaborative solution that works?

νν If all else fails, go it alone.If all else fails, go it alone.

Credit Unions not Networked in aCredit Unions not Networked in aNetworked World are at a Networked World are at a

Severe DisadvantageSevere Disadvantage……Perhaps a Fatal Perhaps a Fatal Disadvantage.Disadvantage.

““Our greatest resource is our ability to Our greatest resource is our ability to cooperate among ourselves for the greater cooperate among ourselves for the greater good of a continuous financial cooperative good of a continuous financial cooperative

system that will bring benefits to citizens not system that will bring benefits to citizens not yet born.yet born.””

___Ed Callahan___Ed Callahan

People have made a start on discovering themeaning of life when they plant a shade treeunder which they know they will never sit.

___D. Elton Trueblood

The 100The 100thth MonkeyMonkey