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Inside EDGE

The overall economy in 2011 continues to show anemic growth. The unemployment rate is 9.1% compared to 9.7% a year ago. The stock market has shown a lot of volatility in recent months and we sometimes feel like we are taking two steps forward and three steps back. Some of this volatility has been caused by uncertainty in the international markets. History tells us the stock market does not like uncertainty and the same can be said about leaders in the financial services industry.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was intended to prevent the next big financial crisis and a number of changes have been implemented to create additional oversight and regulation for the financial services industry. However, an unintended consequence has been increased uncertainty of financial institutions. During times of uncertainty, financial institutions remain cautious and conservative. Today's environment is a classic example.

Our traditional revenue streams are being limited while our expense structures are being driven higher in order to comply with additional rules and regulations. As previously mentioned, our ability to generate revenue from debit cards is being limited. A new Federal Reserve Bank rule takes effect July 21, 2011, that will limit the amount we receive when our members use a debit card to 12 cents. While merchants promise this decrease in expense will lower prices to consumers, the 12 cents is below our cost of the transaction. Therefore, the financial services industry will lose money on each debit card transaction. I believe our industry will no longer encourage the use of debit cards and there is a potential that debit cards will start costing the consumer. Additionally, I believe this same rule will find its way into the credit card industry and has the potential to eliminate traditional rewards programs, such as cash back and frequent flyer miles. Another outcome is large banks have started to charge more for checking accounts or require a substantially higher minimum balance to avoid monthly fees. Looking forward, I anticipate more regulatory and legislative changes will occur that will change how we conduct business.

The changes mentioned above combined with a change in how society conducts financial transactions has allowed us to close some branches and focus more on electronic delivery. Currently, approximately 20% of our members use our branches on a consistent basis (at least once per month for three straight months). Our branch transactions last year totaled approximately 560,000. This number is down from approximately one million branch transactions about 18 years ago – and we are four times larger today. Our internet channel (which didn't exist 18 years ago) now handles more than one million transactions each year. The recent roll out of banking on a mobile device, such as your internet-enabled cellular phone or iPhone, makes banking more convenient for you and should increase the number of electronic transactions. Later this year, we anticipate introducing the ability to deposit checks by scanning them at home or sending a digital picture to us. The focus on electronic delivery is a business imperative to reflect our overall membership.

We have made many difficult decisions during the past three years and will continue to make tough choices for the overall benefit of our membership. To best serve our membership, we are responding quickly. In today's age of digital transformation, systems and delivery channels may have a useful life of less than three years. Technology we implement today may become obsolete and need to be replaced faster than ever before. As I mentioned a year ago in this article, the financial services industry in two years will be dramatically different. We are seeing those changes.

Air Academy Federal Credit Union will continue to be forward-looking as we embrace the future of financial services. We appreciate your loyalty and patronage. Have a great summer!

Glenn Strebe

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