High Performing Credit Unions - Cornerstone Credit Union League
Transcription
High Performing Credit Unions - Cornerstone Credit Union League
Winter 2012 High Performing Credit Unions CEOs Share their Secrets to Success Contents Winner of the CUNA Marketing & Business Development Council's 2007 Diamond Award. Texas Credit Union League 18 EDITORIAL Managing Editor Linda Webb-Mañon 28 Associate Editor Allison Griffin Contributing Writers Idrees Rafiq Karen Houston-Johnson Kimberly Jones Mark Arnold Monte Robison Steve Gibbs Susan Looney Tom Hodge Tonya Farmer ADVERTISING Advertising Sales Director & Account Executive Tracy Florida BUSINESS Chief Operations Officer Bob Gallman Subscription Coordinator Linda Webb-Mañon HOW TO REACH US 4455 LBJ Freeway, Suite 1100 Farmers Branch, TX 75244-5998 e-mail: [email protected] Web site: www.tcul.coop Main Office: (469) 385-6400 (800) 442-5762, Ext. 6400 Editorial: (469) 385-6486 Advertising Sales: (469) 385-6424 Advertising Design: (469) 385-6473 Subscriptions: (469) 385-6486 Letters to the Editor: [email protected] LoneStar Perspectives is a quarterly publication of the Texas Credit Union League (TCUL) and is offered to TCUL–affiliated credit unions as a dues-supported service. If you are not an employee or volunteer of a League- affiliated credit union and would like to subscribe to this publication, an annual subscription rate of $20 is available. LoneStar Perspectives is a trademark used herein under license. Copyright 2006 by Texas Credit Union League. All rights reserved. 6 FEATURE 18 High Performing Credit Unions by Linda Webb-Mañon DEPARTMENTS 2 President’s Message Differentiate, by Dick Ensweiler 3 Chairman’s Forum New Year’s Resolutions, by Pamela Stephens 5News FOCUS ON THE ECONOMY: What Credit Unions Can Expect in 2012, by Brian Turner New Year Brings about New Opportunities, by Richard Grady Leveraging Shared Branching, by Dylan Orrell 10 Professional Development Build a Sales Environment, by Pierre Cardenas Top Reasons to Attend Annual Meeting, by Tonya Farmer 14 Regulatory & Compliance Compliance Matters, by Steve Gibbs Don’t Forget Retrieve Your Unclaimed Property!, by Monte Robison 22 Philosophy in Action Building Effective Relations through Communication, by Karen Houston-Johnson The Policy Component: Where Credit Union Boards Cannot Delegate But Can Initiate, by Dennis Dollar 24 HR Corner Alleviate management ‘derailers’ to become a better manager HR Q&A, by Kimberly Jones 310 East Interstate 30, Ste. B107 Garland, TX 75043 469-429-9300 28 Small Credit Unions Handling Big-Time Requirements with Small-Time Resources, by Allison Griffin Determining Safety, Soundness – from the Examiner’s Perspective Publisher William Strunk 30 Products & Services The Three R’s of Private Student Lending, by Jim Holt Spring is in the air – and so are tornadoes! Does your CU have a plan?, by Tom Hodge WES Publishing Graphic Designer Marlina Rahman WINTER 2012 H TCUL 1 President’s Column T o differentiate is to see or show the differences between two or more things. I believe the public – with the help of Bank Transfer Day – now more clearly understands how the core values of credit unions are distinctly different than those of for-profit banks. Throughout 2012, that message will continue to be reinforced as we join in the International Year of Cooperatives celebration. For the first time ever, the United Nations – through this designation – is recognizing the significant role that cooperatives play in society. Without question, the cooperative business model is a solid one. But we shouldn’t wait for events like Bank Transfer Day and International Year of Cooperatives to get that message out to the public. We must consistently and continually promote the credit union difference. Differentiate is the theme that has been chosen for this year’s Annual Meeting & Expo taking place April 17-20. As always, this premiere event of the year offers the opportunity for credit union executives, staff and volunteers alike to hear from industry experts about the latest trends and developments and catch up on the critical issues that affect our industry. For example, the League has lined up Jason Jennings to serve as our opening presenter. Jennings is a recognized authority on leadership, growth, innovation and differentiation. I am confident you will come away with some great ideas on how to differentiate yourself from the competition, as well as gain some solid techniques to help you strategically position your credit union for the future. In addition to three general sessions and 24 educational breakout sessions, other highlights from this year’s meeting include: 1. Expo Hall – This annual event affords credit union executives and board members the opportunity to interact with hundreds of vendors and make valuable contacts for future business needs. 2. Entertainment – For the first time ever, your League has secured the Water Colors, a New York-based Broadway group, to emcee this year’s event. This comedic group is certain to liven’ things up! We’re at the beach in 2012, so who better to entertain us during the Annual Meeting party than the Surf City All Stars. Put on your best casual wear and dance to the greatest hits of the Beach Boys and Jan & Dean. 3. Awards Dinner – We’re trying something a little different this year. Instead of just having an awards ceremony, we’re going to have an awards dinner, which will be held in conjunction with the Annual Meeting party. Annual meeting attendees don’t have to worry about registering separately for the Annual Meeting party this year, as the conference registration rate includes a ticket to the Awards dinner and Annual Meeting party. This year’s Annual Meeting is for those who dare to “differentiate,” so leave your suit and tie at home. No stiffs allowed! See you there! Dick Ensweiler 2 TCUL H WINTER 2012 By Dick Ensweiller President/CEO Texas Credit Union League Chairman's Forum By Pamela Stephens President and CEO Security One FCU New Year’s Resolutions W ow! I can’t believe it – 2012 is already here. After a tumultuous 2011, I have to say I’m pretty happy to welcome in the New Year. With confidence, I think this will be a great year for credit unions – particularly when you consider that 2012 is International Year of Cooperatives. This designation gives us a rare platform from which to build on the momentum generated by Bank Transfer Day and to continue to deliver the message that the presence of credit unions in the market space is good for the consumer and good for society. The New Year is a time when many of us resolve to make significant improvements in our lives – perhaps exercise more, lose weight, quit bad habits, become more savvy money managers – and generally make better choices than we did last year. Let’s be honest. When we make our resolutions, we do so with the best of intentions. However, by the end of the year, many of us have to face the harsh reality that we failed to fulfill our lofty resolutions. Does that mean we should just toss out the whole idea of coming up with a New Year’s resolution? Absolutely not! Say for example you committed to saving 20 percent more of your income, but by the end of the year you had only saved an additional 10 percent. Does that mean you failed? Not at all. You identified an area of weakness – lack of savings – and you made critical lifestyle changes to shed some of those not-so-great spending habits. And you saved more. Maybe you didn’t save as much as you had hoped to, but you made progress toward your goal. As individuals, I believe it is important to begin every year with goals and expectations. While I’m quite certain I could benefit from a little more exercise and some healthier eating habits, I’ve taken a little different direction with my New Year’s resolution. And I’ve committed to myself that it won’t just be another resolution that is forgotten some three months into the New Year. In 2011, I emphasized the importance of collaboration. So it probably comes as no surprise that my 2012 New Year’s resolution is to explore every avenue and every potential opportunity for collaboration among credit unions. Success is best met when we work together, cooperatively and collaboratively, to ensure the overall strength, health and vitality of our credit union movement. So, I say, make those resolutions with every expectation of success! Draw on the support of others, revisit your resolutions from time to time to ensure you’re staying on track, and celebrate your progress and milestones along the way. It will be a great year! WINTER 2012 H TCUL 3 By Brian Turner Director, Advisory Services Catalyst Strategic Solutions News FOCUS ON THE ECONOMY: What Credit Unions Can Expect in 2012 H ow the economy will perform going forward rests directly on two factors – employment and consumer spending. Simply put, members remain insecure about their jobs. They see their household wealth being impacted by falling home values, and now, volatility in the stock markets is threatening their 401(k). As a result, they have deferred their spending, especially on big ticket items such as automobiles, homes and appliance – all items for which credit unions extend credit. Following is my “cautiously optimistic” outlook.... Employment….. A stable employment picture certainly is the foundation for economic growth. It determines consumer spending behavior, facilitates demand, and spurs construction and investment. Currently, the unemployment rate is 9 percent with about 14 million workers still idle. The number of long-term unemployed (those jobless for 27 weeks and more) is about 6.2 million, or about 44 percent of that unemployed base. The so-called “underemployment” rate stands at 16.2 percent and includes the unemployed and those part-time workers who are seeking full-time employment as well as those not actively seeking work. There is a direct correlation between disposable income and credit union share growth; therefore, it becomes instrumental in credit-union growth strategies, as well as the ability to create stable and sustained net interest margins. Share growth most likely mirroring 2011 with growth estimates ranging between 6 to 8 percent. Consumer Spending…..Comprising two-thirds of the nation’s GDP, how and if our members spend their money directly impacts overall economic growth. As noted, job insecurity and loss of household wealth have greatly impacted spending which in turn has affected credit union balance sheet sheets. It is anticipated that in order to spur spending to the point that provides long-term economic stability and loan growth exceeding 7 percent, the unemployment rate must fall to no more than 8.1 percent. Most economists are expecting the unemployment rate to fall no lower than 8.9 percent in the coming year. Therefore, it would be reasonable to expect another year of modest loan growth, most likely in the 1.5 to 2.5 percent range. For most, this could require a greater dependence on investment portfolio assets to replicate current revenue streams. Currently, for every $1 of loan principal received, it would require $2.65 of redeployed investment principal. Interest Rates……The Fed has already telegraphed its intent to retain overnight rates at their current level until mid-2013. Their actions under “Operation Twist” now attempt to hold down longer-term rates. Combined, these actions could create less steepness in the yield curve which could impact marginal spreads. So far, industry net interest spreads have remained stable as lower marginal asset yields have been offset by improved delinquency rates. This will continue in 2012 as modest loan growth and improved delinquencies will enhance asset yields while strong liquidity profiles should hold down cost of funds. Profitability will then depend on the credit union’s ability to hold operating costs in check. Others might consider further de-leveraging of their capital formation by shrinking their balance sheet. WINTER 2012 H TCUL 5 News New Year Brings about New Opportunities W 6 elcome to the New Year and the first quarter of 2012! This past year was challenging, and probably many of us are glad to leave it to the history books. But challenging does not mean that is was a bad year. It really means we earned our pay. The most recent data reveals that, year over year, Texas credit unions did just fine. Assets grew by over $4.6 billion, which was wonderful except for the fact that not all the growth was in the flavor of assets we like. Consumers are doing what we have been preaching for years; they are paying down debt (deleveraging as economists call it), reducing their borrowing, and saving more. Those activities have certainly brought in more capital, but the lending side of the equation has not been as active as we would have desired. Total loans only grew by $1.2 billion while all savings and deposits grew by $4.6 billion, leaving us with $3.4 billion in additional capital that might not earn any income and certainly could create more expenses in the way of dividends. So the capital was placed in investments (about $1.5 billion more than 2010) and placed on deposit (nearly $1.7 billion) primarily because share draft accounts grew so rapidly. Overall, in a tough economy, members saw the equity in their credit unions grow over 7.25 percent, which is certainly significant in light of the number of industries that had no or negative growth. Where the demonstration of our non-profit, solid management work ethic really appeared was in the consolidated income and expense statement. Overall credit unions were really challenged to manage the operation, and they met that challenge head on, producing a net income nearly 40.3 percent higher than one year ago. That income certainly did not come totally from loans and other investments, as that shrank by over 4.6 percent. Where the work became visible was with improvements in other operating income (not fees; that actually fell by nearly two percent) and the holding of non-interest expenses to less than a four percent increase. It also helped that the immediate need for stabilization funds was significantly lower than in past quarters. So, from an operational and financial viewpoint, credit unions did very well and it is one for the history books. However, the question remains, what will 2012 be like? What can we expect? TCUL H WINTER 2012 Here are a few thoughts on the near future: • From a labor market position do not expect to see any significant increase in employment (or decrease in unemployment). The economy is not significantly growing at a pace to produce enough jobs to re-employ those that have been out of work and much less those that are entering the work force. U.S. unemployment will remain around nine percent and Texas will remain in the mideight range for nearly the entire year. For credit unions this means members who are caught in the situation will still struggle to free themselves, while those who are employed will experience little upward mobility. Basically, consumer budgets will be just as tight in 2012 as they have been in the past few years, and the need for financial counseling and education will grow. • With unemployment remaining high, stresses on society will also remain, and therefore behaviors will remain unchanged. The uncertainty will keep savings rates by consumers high, the borrowing low, the spending in check, and the reduc- By Richard Grady Vice President, Research Texas Credit Union League • tion of debts a certainty. Managing the financial aspects of the credit union will be just as challenging in 2012 as in previous years. Growing the credit union will mean capturing all of the current members’ needs for loans and other financial services, and building the primary financial institution relationship. o On a statewide basis, all Texas credit unions combined have about a 10 percent share of all consumer deposits and 4.5 percent of all consumer loans. o On a statewide basis, less than half of the members name their credit union as their primary financial institution. o On a statewide basis, only 20 percent of credit union members have their car loan with their credit union. o On a statewide basis a significant portion of the credit union members are baby boomers readying themselves for life after 65 (notice I did not say retirement) with significant deposits in the credit union, yet few credit unions have a relationship with a firm to offer wealth management and thus keep those deposits from flowing into investment companies. The housing market in 2012 will remain in a state of flux. Texas real estate prices will hold up better than the nation. Texas’ economy will also draw migrations from other states looking for employment which could cause an upward creep in the unemployment numbers if employment is not secured. The housing stock currently available, and the stock held by financial institutions as it clears the foreclosure process, will keep housing prices from increasing in many regions. There are a few regions experiencing more rapid growth, and new housing construction will be good in those areas. • With a compression on home prices, property tax values will remain low, which will cause further strains on municipalities and school districts as they budget from their primary sources of revenue, property taxes, fees, and sales tax. For credit unions this means potential opportunities for growth. First mortgages in credit unions actually grew over 6.2 percent in the past year, second only to used car sales that grew 7.5 percent (new vehicle sales actually fell by nearly three percent). Building and strengthening relationships with real estate agents, title companies, and furniture and appliance stores, and, in the case of used cars - dealerships, should be a significant business development activity. So, as we welcome in the New Year we should welcome in new activities that ensure continued growth in our credit unions. Best wishes for a prosperous New Year. WINTER 2012 H TCUL 7 News By Dylan Orrell Marketing Manager Resource One Credit Union Leveraging Shared Branching I 8 t can be a challenge trying to be available for our 40,000 members nationwide when we only feature eight branches in the Dallas/Ft. Worth metroplex and two in the Houston area. Luckily with the constant growth in technology, we have become more accessible to our members through shared branching. Shared branching is a network created by credit unions who have joined together to share their branch locations so that their members can conduct basic transactions at any of these shared branches. Not only does this fit well with the credit union philosophy of “people helping people,” but it also ties in nicely with Resource One Credit Union’s own mission statement, “Total Member Delight.” We decided to sign on with shared branching initially because we obtained a new field of membership through a recent merger. Implementation of shared branching was crucial for two reasons: The merged credit union already participated in shared branching and we did not want to take it away from their members, and shared branching would allow us to better position ourselves in the new market now made accessible to us by our merger. Shared branching is a great selling point to potential members who may be unconvinced that your financial institution is right for them. Convenience is one of the deciding factors in many people’s minds when considering all that their credit union has to offer. While our branch locations may not be in people’s normal everyday route, shared branching allows us to still give our members access to their accounts without causing them to be inconvenienced by a further location. Shared branching is also a great retention tool to keep members that may be thinking of leaving the credit union because of distance. We have many members who joined Resource One Credit Union through our various Select Employee Groups (SEGs) and live outside of Texas. In the past, the only way to conduct a good portion of their business was either by phone, mail, or electronically through Automated Clearing House (ACH) or wire remittance services. Shared branching allows us to retain those members by giving them a closer location to perform necessary financial transactions while still keeping them as a valued member. While we are constantly looking for growth opportunities through increased locations and charter expansions, shared branching is a cost-effective touch point for our existing and potential members. After all, it’s much cheaper and quicker to participate in a program that utilizes pre-existing financial institutions for your members’ needs than to try and build brick-and-mortar locations and then staff them accord- TCUL H WINTER 2012 ingly. Additionally, shared branching can assist our members by offering an alternate location if any unexpected technical or weather-related disasters occur at any of our branches. Leveraging our shared branching participation is an ongoing process that revolves almost exclusively around communication. After all, not one member will take advantage of a service made available to them if they are not aware it exists. In addition to the standard pieces of internal marketing that we will be using - statement messaging, newsletter, in-branch materials - we will be relying most on word of mouth and technology. Our front-line staff is not only trained on how to perform shared branching transactions, but they are also the individuals who interact with our members on a daily basis. They have developed personal relationships with our members and can genuinely offer the products and services that will help our members. By understanding and utilizing shared branching as a part of doing business, they will be able to communicate this enhancement to our membership. Technology also plays a big key. Since the crux of shared branching involves transactions that are done away from a member’s regular branch, technology helps us bridge the gap between a normal and a shared branch transaction. Our live system updates our members’ accounts quickly and accurately, and most transactions performed at a shared branch are reflected immediately. In addition, Resource One Credit Union members can access locations of shared branches via our website, www.r1cu.org, and check any account activity through our mobile services. Resource One Credit Union is proud to offer shared branching to our members, just another way we provide “Total Member Delight”! To learn more about shared branching, please visit http://www.curesources.coop/RTR.html. ProfessionalDevelopment By Pierre Cardenas Senior Consultant Credit Union Lending Advice, LLC Build a Sales Environment I n the fall issue of LoneStar Perspectives, I talked about the “7 Habits of Highly Successful Lending” the first being “Great Underwriting.” Without an experienced, well-versed underwriting team/person you will not get very far. As a matter of fact, many times you won’t even get off the starting blocks. You need to hire, train, develop and continuously educate your underwriters. That is where everything in lending starts. One point I wish to clarify and get out of the way right up front: “sales” is not a bad word. As a matter of fact it is a very good word - a word that many credit unions fail to embrace and ingrain into their culture. Consequently, your members are being sold to, just not by your staff. As a result they are financing autos and purchasing products and services at higher costs elsewhere because no one ever told them that the credit union could do it at a cheaper cost or at a savings to them. Poor service is when your employees fail to offer your members a product or service or financing that would save them money. So what does it take to build your sales culture? A lot of time, hard work and a core foundational commitment to developing a program that teaches your employees how to deliver a positive, retail experience for your members through every touch point. To do this, you have to start at the beginning by defining what “sales” means within your organization. Define it properly and clearly for your staff to understand and fully comprehend what they are being asked to do. Once they know the “why,” they will rally around the “how.” The reason we are so jaded by this term is because we envision the used car salesman ready to pounce upon our unsuspecting, vulnerable and timid member. And it is up to us to save them from themselves and all these vultures that seek to prey upon the weak and frail members. Well, while this may be true for approximately 2-3 percent of your members, the other 97-98 percent are pretty sharp, well educated and know what they want. Consequently, we would do a much better job for both them and ourselves to present viable options and allow them to choose what fits best for them. Over the years I have found three ideal definitions to selling that you may want to consider incorporating into your credit union’s sales program: 1. NBS – Needs Based Selling a. 10 Selling should always be based on the needs of the member and not on the product to push for the month. Pushing products could be dangerous, especially if the member is working hard to get out of debt. That would be like offering a recovering alcoholic a drink. TCUL H WINTER 2012 b. The only way you can find out what the member’s needs are is by asking questions. If you ask the right questions you will be able to clearly identify what the best solution would be for the member at that time. If you strategically start by asking the question “why,” by the fifth “why” you will fully understand the root of the situation. Now you will be able to properly offer the best product or service that fits the need. There is a reason why God gave us two ears and one mouth. So that we could listen twice as much as we speak. If you train your staff to do this they will become a great sales force. 2. Consulting Selling a. Most people don’t necessarily want a loan or another payment, but they do want and relish good advice. This was taught to me in commercial lending school. A business owner wants a trusted adviser who can help them make good financial decisions. If you are that to them, they will seek you out when they need a loan. This is true of your members. If they are getting good consultation from your lending staff, either F2F, Online, or Call Center they will go to you when they are ready for a loan. The more knowledgeable your employees are about lending topics, the more confident your members are going to feel about doing loan business with “only” you. 3. Follow up Sales a. Sales is all about following up. If you are not teaching your folks how to properly follow up with every potential needs based sales conversation they have, you will never build a sales program. This is a technique that has been around since the beginning of time; however, it seems as though we have lost our way. Back in the day it was called “working your book of business.” Just following up on your members alone would increase opportunities if done properly and purposefully by your staff. Pretty simple stuff, huh? There are more pieces to the puzzle like making sure your pay structure has a strong “pay for performance” incentive piece to it and other crucial factors, but bottom line: start with the top three and go from there. By the way, make sure you have a meaningful recognition program that promotes the behavior that will make you a great sales and service organization. By Tonya Farmer Vice President of Training & Events Texas Credit Union League ProfessionalDevelopment Top Reasons to Attend Annual Meeting H ard to believe we are only a few months away from the kick off of the Texas Credit Union League’s (TCUL) 78th Annual Meeting & Expo in Galveston. At this point, the Training and Events staff is busy attending to the final details of the program and accepting registrations from credit union professionals and volunteers anxious to experience all that this premiere event has to offer. If you are questioning why you should attend this year’s conference, I would challenge you to instead ask yourself, “Why wouldn’t I attend?” Every year, the League strives to introduce new events and highly-relevant educational sessions, as well as to enhance the Exhibit Hall and social activities. This year’s conference is no exception. Differentiate is the theme for the 2012 Annual Meeting & Expo, and we’ve made lots of changes to fulfill our promise of a “different” experience. Check out these top 10 reasons for attending the 78th Annual Meeting & Expo: 10. Location, Location, Location. This year’s conference is being held in Galveston and the hotel is on the beach! Bring your swimsuit and bask in the sunshine on the beach or pool side – when there are no sessions going on, of course! The average April temperature in Galveston is an ideal 75 degrees during the day, cooling down to the mid-60s in the evenings. 9. Discover what’s new. With more than 120 booths in the Expo Hall, the Annual Meeting & Expo affords attendees the opportunity to meet with exhibitors and learn about innovative and highquality products, services and solutions that will benefit your credit union and members. 8. Networking. TCUL’s Annual Meeting & Expo provides an exciting venue for engaging in networking opportunities that foster personal and professional development, as well as collaboration. Through interact with our peers, we are able to build connections and share thoughts, ideas and best practices. 7. Become enlightened. Whether it’s through interactions with the vendors in the Expo Hall, skills and information obtained by attending educational sessions, or informal discussions with your peers, this year’s conference offers an opportunity for credit union professionals and volunteers to opti- 6. 5. 4. mize their leadership skills and challenge their current knowledge. General Sessions. For our opening general session, we’ve got Jason Jennings, a well-respected researcher and authority on leadership growth and innovation, and for our closing session, we have Erik Qualman, the highly-acclaimed and bestselling author of socialnomics. Both of this year’s general session speakers will cover timely and critical issues and hone in on how to differentiate from the competition. Educational Sessions. As with past annual meetings, attendees will be able to pick and choose educational sessions that most apply to their needs. In addition to three general sessions, TCUL is offering 24 educational breakout sessions this year led by top-notch presenters ready to challenge you with fresh perspectives and insights. Whether you are a seasoned professional or new volunteer, you will find tremendous value in this year’s engaging, interactive and hands-on educational sessions. Continuing Professional Education (CPE) Credit. We are offering a strong line-up of educational sessions that provide attendees ample opportunities to earn CPE credit. Aside from earning CPE credits, TCUL’s Annual Meeting & Expo empowers attendees to take charge of their personal and professional development. WINTER 2012 H TCUL 11 Record number of “first-time evers.” We’ve never had an emcee, and this year we’ve booked a New York-based Broadway group (the Water Colors) to facilitate the event and ensure the program flows smoothly without any snags. We’ve also added an awards dinner, so that we may more formally salute our accomplished leaders. And unlike past years, attendees will not pay an additional fee for the Annual Meeting party. The cost of the Annual Meeting party and awards dinner (one event) is included in the conference registration fee. And for all those “tweeters” out there, TCUL has created a Twitter hastag to help you keep up with the conversation. The hashtag is #tculam12. 1. And the number one reason to attend TCUL’s Annual Meeting & Expo… Participate! TCUL’s Annual Meeting & Expo isn’t just about networking, education and entertainment. A very important event takes place at this conference, the official business meeting of the League. Attending the business meeting will allow you to meet TCUL’s new board of directors for 2012. If you recall, in 2010, the voting delegates approved the restructuring of the League board, reducing the number of directors elected to the board from 21 to 12. So there you have it...my top 10 reasons to attend the 78th Annual Meeting & Expo April 17-20 in Galveston. See you there! 2. 3. 12 iPod, Android & Mobile Applications: For the tech geeks or “enviro” friendly types, utilize a mobile application. Organize your personalized conference schedule, download speaker presentations, learn your way around Galveston’s Sea Wall Boulevard and the Convention Center and even meet new people through Twitter event conversation, by downloading our Annual Meeting mobile application to your smart phone or tablet. TCUL H WINTER 2012 Regulatory&Compliance Compliance Matters D uring this period of time in which we have to worry about “bottom lines,” an unsure market and growing salary and benefit demands from staff, the fact remains that the issue of regulatory compliance still matters and is beginning to eclipse these other concerns. Since 9/11, we’ve seen an emphasis on compliance and regulations that has exponentially grown far beyond the early days of Truth-In-Lending and Equal Credit Opportunity. Moreover, growing public and political discontent over money landing in the pockets of Wall Street bankers through questionable practices has caused an outcry to punish the whole financial services industry. As a result, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) has been the latest carrier for hundreds of potential regulations yet to flood the industry. Compliance has joined the ranks of “safety and soundness,” now affecting examination ratings, the type of business we engage in, institutional reputation and even the “bottom line.” Key Examination Priorities Obviously, the onslaught of new compliance rules and regulations has tipped the scale of examination reporting. What was once a small section of the examination, now takes up a significant portion of the report. As a primary example, the Bank Secrecy Act (BSA) section of the report has grown in size and importance since 2001. When joined with AntiMoney Laundering (AML) and Office of Foreign Assets Control (OFAC) regulations they become a “triple threat.” If there are problems with BSA, AML, OFAC or any combination of those items, in most cases the examination report will hold an overall negative tone, affecting both management and operations ratings. The most significant regulatory enactment of the last 30 years, Dodd-Frank may affect several major areas of significant impact to financial institutions, primarily through the Consumer Financial Protection Bureau (CFPB). Although still in the fact-finding stage, the CFPB will eventually have authority to make new regulations, as well as interpreting and supplementing those already in existence. The Federal Reserve has turned over virtually all consumerrelated regulations to the CFPB, which is headquartered at the Federal Reserve. NCUA, as well as state regulatory agencies, will examine and enforce those regulatory changes or enactments made by CFPB. Other areas include: • Regulation Z – Truth-In-Lending Act • Regulation B – Equal Credit Opportunity Act • Truth-In-Savings Act • Regulation CC – Expedited Funds Availability Act • Concentration Risk - Examiners are closely looking at this area for mortgages, indirect lending, member business loans or any major grouping of asset types or underlying related characteristics (ie., risk categories). • Secure and Fair Enforcement (SAFE) Mortgage Licensing Act • Vendor Due Diligence • Social Media and Online Networking Policies Examinations also call for a compliance review of the following crucial policy elements affecting the overall compliance program: • Review of individual policies no less an annually; • Documented training for all staff on policies directly affecting their areas of responsibility; • Maintenance of files and/or databases of changes to law/regulations affecting policies; and • Periodic (annual/semi-annual/quarterly) audits of policies. 14 TCUL H WINTER 2012 By Steve Gibbs AVP/Director, Shared Compliance Credit Union Resources, Inc. Effect on Ongoing Business Poor examination ratings and resulting regulatory actions can adversely affect the ability to make new loans, begin new loan programs and limit the decision-making ability of management. Lowered ratings leave examiners with discretional ability to limit or even prohibit activities such as: • Lending • Deposits • Investment • Hiring • Engaging Vendors • Handling and development of fixed assets (building) Reputation As seen recently through the customer backlash and verbal attacks on Bank of America, mishandling of any compliance issue may result in a negative impact to reputation. In this case the exodus deposits and accounts not only affected Bank of America but also other large banking institutions. With government becoming more “transparent,” the industry has been forced to take a more public position of this type. The emphasis on consumerism, publicity given the “Occupy Wall Street” groups, and the enactment of CFPB through Dodd-Frank has increased reputation risk for most financial institutions that might run afoul of compliance regulations. The Bottom Line In some cases, regulatory violations due to compliance issues can affect earnings through sanctions and penalties. As we’ve seen by past Department of Justice actions, penalties can be devastating. Wachovia Bank, one of the largest banks in the United States, entered into a deferred prosecution agreement with the U.S. government to resolve charges that it willfully failed to comply with various areas of BSA. Wachovia forfeited $110 million to the United States in addition to separate Cease and Desist and Civil Money Penalty Orders issued by the Office of the Comptroller of the Currency, which required an additional $50 million fine to the U.S. Treasury. Penalties for some violations can range from $100 to $1 million per day per violation. Although these can sometimes be mitigated, they could be economically fatal for many credit unions. Does Compliance Matter? In the present and future environment, compliance matters. Given the increasing impact and emphasis of regulation on all financial institutions, there is little choice but to embrace the changes and develop a “compliance culture” as we’ve developed for lending, sales and management. As we can see, the alternatives can be expensive, unpleasant and unproductive. WINTER 2012 H TCUL 15 Regulatory&Compliance By Monte Robison Compliance and Research Specialist Texas Credit Union League Don’t Forget Retrieve Your Unclaimed Property! I t may be hard to believe, but one in four Texans have unclaimed property from forgotten bank accounts, uncashed checks, security deposits and utility refunds. This could be you! You may surprised to find you’ve got some money held by the Texas Comptroller for some old utility account from your college years, or perhaps bequeathed to you by a long lost relative. Texas is currently holding more than $2.2 billion in cash and other valuables waiting for the rightful owners to claim. It’s never too late to make a claim. In 2010, the state returned more than $163 million to its owners. Find out what you may have been missing by searching the unclaimed property database on the Comptroller’s website (http://www.window.state.tx.us). For residents outside of Texas, the National Association of Unclaimed Property Administrators (NAUPA) offers information and helpful website links on how to retrieve property from state governments nationwide (http://unclaimed.org). If that wasn’t exciting enough, you can also bid on unclaimed property auctions hosted by the Texas Comptroller on its Ebay website (http://myworld.ebay.com/tx.unclaimed. property). The lots often include such items as rare coins, gold, silver and jewelry. In the future, the maximum timeframe periods in which property is escheated to the State of Texas will decrease, as discussed below. New Changes to Texas’ Unclaimed Property Timeframes and Reporting In the 2011 Session, the Texas Legislature passed HB 257 relating to unclaimed property that is presumed abandoned. This revised law will affect state and federal credit unions and includes effective dates of both Sept. 1, 2011 and Jan. 1, 2013 as explained below. Credit unions should ensure procedures are updated accordingly and appropriate staff trained on the changes in this New Year. In an effort to bring more money to the state of Texas, the bill shortens the abandonment period for several types of property to be escheated to the State and speeds up the reporting deadline. The bill adds a new section 73.101(c) that reduces the abandonment period of checking accounts, savings accounts, and matured certificates from five years to three years. This is effective Sept. 1, 2011. The bill revises section 72.102(c) of the Property Code to reduce the abandonment period for money orders from seven to three years. If a holder imposes a service, maintenance, or other charges on 16 TCUL H WINTER 2012 a money order prior to the time of presumed abandonment, such charges may not exceed $1 a month (up from 50 cents) for each month the money order remains uncashed prior to the month in which the money order is presumed abandoned. These provisions regarding money orders are effective Sept. 1, 2011. The bill also amends the reporting and notification dates tied to abandoned property. Effective Jan. 1, 2013, a credit union that holds abandoned property on March 1st must file a report of that property on or before July 1st. [Previously those dates were June 30th and November 1st respectively.] The credit union must also send notice to the affected member by May 1st [formerly August 1st] stating that the credit union is holding abandoned property and that it might be required to turn the property over to the comptroller on July 1st [formerly November 1st]. The changes in reporting dates are effective January 1, 2013. For the notice requirement, credit unions can view a sample due diligence letter which can be used for bank accounts, safe deposit box contents and certificates of deposit, at http://www.window.state.tx.us/up/98-903_Due_DiligenceFinancial_Inst.pdf). According to the Unclaimed Property Section of the Comptroller’s office, here is how financial institutions will be affected: • Report due November 1st, 2011 – no changes • Report due November 1st, 2012 – abandonment periods for money orders, checking/savings accounts and matured CDs change to 3 years • Beginning in 2013, a new due date of July 1st becomes effective for property abandoned as of March 1st. You can read the bill text online from the Texas Legislature (http://www.capitol.state.tx.us). Texas Comptroller Offers Ways to File Electronically The Online Express Reporting system allows users to enter unclaimed property reports directly into the Comptroller’s computer after setting up a password-protected account with the Unclaimed Property Division. Get started by applying for a User ID and password on the Comptroller’s website: http://www.window.state.tx.us. Holders with more than 25 owners to report should continue to file electronically using the downloadable software, or any commercial unclaimed property product, that creates a file in the format approved by the National Association of Unclaimed Property Administrators (NAUPA). Complete information regarding filing for holders is available on the Comptroller’s website. By Linda Webb-Mañon, I-CUDE Vice President, Communications & PR Texas Credit Union League High Performing Credit Unions CEOs Share their Success Stories Neches Federal Credit Union (FCU) Neches FCU, which today boasts eight physical branches and 317 shared-branching locations [the credit union joined the shared branching network in 2008], was founded in 1952 by a handful of employees from the Jefferson chemical plant. After nearly 50 years of successfully serving the financial services needs of just one select employer group (SEG), the now-$328 million credit union decided it was time to expand its outreach. The man that would lead Neches FCU through this transformation was Jason Landry, who had been CEO since 1991 when he assumed the helm at the tender age of 26. Landry says management, as well as the board of directors, were acutely aware of the risks associated with being a single-SEG credit union. “All of our business was tied to the plant. As a SEG credit union, our financials were strong; however, the reality is, if there were layoffs or strikes, it would definitely impact the credit union,” notes Landry. “Diversifying our membership became a top priority.” The credit union received its community charter in 2000. At that time, Neches FCU was serving just 5,500 members and had assets of only $50 million. Today, about 35,000 people belong to the Port Neches-based credit union. “Our membership growth had been stagnant for years, and when we opened our doors to the community, we were amazed at how many people wanted to take advantage of what we have to offer,” recalls Landry. Landry says mergers, including mergers with Neches FCU in 2004 and with Beaumont Telco FCU in 2006, also have contributed to the growth of the credit union. The credit union has always had a good mix of core products and services, says Landry. The problem was, with a limited field of membership, the penetration just wasn’t there. “Going community charter made us a stronger financial institution,” affirms Landry. “With more members using our products and services, we had more resources to allocate toward technology and facilities.” 18 TCUL H WINTER 2012 Today, the credit union offers mobile banking, online bill pay and 24 hour telephone access to accounts. The number of branches has increased from one to eight. And when many financial institutions started raising fees to make up for lost revenue, Neches FCU bucked the trend, instead keeping fees low and even implementing a debit card reward program. With a 13.55 percent capital ratio, Neches FCU is indeed well capitalized. According to Landry, the credit union has on its books about $200 million in loans. Going from SEG to a community charter did require making some adjustments in its policies and procedures, but one thing the credit union didn’t do was tighten its lending standards to the point at which it would become too difficult for members to obtain loans. “We serve people of lesser, greater and in-between means. And our experience has been that many of what we consider ‘D’ paper loans perform as well if not better than some of our ‘A’ paper loans,” notes Landry. “Our philosophy has always been, if you aren’t lending you aren’t serving – and that didn’t change when we became a community charter.” Neches FCU is about 61 percent loaned out and its delinquencies are about .36 percent. During the economic recession when many financial institutions quit lending, Neches FCU continued making responsible loans. Prior to the recession, Neches FCU saw an 8 to 10 percent loan growth annually. During the recession, loan growth dropped just slightly – to about 6 to 8 percent annually. Aggressive and consistent marketing of their loan products, Landry says, has helped the credit union maintain a strong loan portfolio – even during the recession. As a risk-based lender, Landry says credit scores are certainly considered in every loan decision. However, the relationship the credit union has with the member is also taken into account as a loan is under review. “Our low delinquency rate can be attributed to several factors. First is our members’ desire to honor their financial obligations with their credit union that they know is here to serve them,” says Landry. “Second is our strong lending and collection policies and processes. “Finally – and perhaps most importantly – is the staff,” notes Landry. Landry considers himself fortunate to have a staff of 120 people who are vested in the success of the organization. “The overall success of this credit union boils down to one thing: our people,” observes Landry. “Employing great people who want to grow themselves, as well as the organization, is critical to sustaining the financial strength and health of the credit union.” About four years ago, Neches FCU adopted a Service and Sales culture. “Anyone can perform a transaction, but we’re here to create relationships,” stresses Landry. “We intentionally put service before sales because we are in the business of getting to know our members so we can match them with the financial products and services they need at whatever life stage they are in.” Of course training is critical to empowering staff to effectively serve the members, Landry adds. “If you concentrate on creating a positive work environment for your staff, your staff will be more engaged and motivated to deliver quality service to your members,” says Landry. “In turn your members will show their appreciation and loyalty by using your products and services, thereby generating revenue that can be put back into the credit union.” Landry must be on to something, as readers of the local newspaper have voted Neches FCU as the best credit union in the area for five years in a row. “It may sound cliché, but doing business at Neches FCU is a different experience,” says Landry. “Our employees are happy and it shows. People like doing business with us because we offer such personalized service.” United Heritage Credit Union (CU) The story of United Heritage CU began in 1957, when eight active duty military personnel at Bergstrom Air Force Base each purchased one $5 share for a total deposit of $40 to charter Military FCU. After one year of operation, the credit union had grown to $56,000 in assets. Major Joseph B. Lowrance, Jr. would become the first president of the Austin-based credit union that exclusively served active duty military personnel stationed at Bergstrom Air Force Base. Throughout much of its history, the credit union, which went through several name changes, enjoyed great success in meeting the financial services needs of its original SEG. However, the directors and management recognized the risks of being a single SEG credit union and realized that diversification would be key to sustaining future growth. Through a series of mergers and acquisitions, the credit union indeed was able to expand its field of membership. This diversification in membership worked in the credit union’s favor, when Bergstrom Air Force Base shut down in 1993. The late1990s marked the beginning of significant growth for the credit union. By 1997, the credit union had completed its conversion from a federal charter to a state charter. Along with the charter conversion came a name change. After 40 years of operating under the name Military FCU, the credit union now called itself United Heritage CU. Leading the credit union through the charter conversion, field of membership expansion and name change was Buddy Schroeder, who joined the credit union’s management team in 1980 and became CEO in 1994. “The decision to convert to a state charter was driven by the opportunity to expand and solidify membership options,” recalls Schroeder. “The initial community basis for our charter was a 10 mile radius from offices – that was changed to select counties in 2003.” Schroeder says the opportunities derived from the conversion to a community charter were significant – the most notable being the opportunity to market to a wider, more diverse field of membership. “Although marketing costs increased with the implementation of mass marketing, the benefits derived from the enhanced member base far exceeded those costs,” says Schroeder. As the credit union has evolved, they’ve never drifted from their intense, personalized, focus-on-the-membership approach. From its humble origins as a single-SEG credit union serving military personnel, United Heritage has grown to 13 branches serving WINTER 2012 H TCUL 19 a strong perceived value to their lives – and we focus upon our ability to convey that value,” stresses Schroeder. “Member satisfaction is a large factor in determining the likelihood of success and performance.” “When there is member loyalty, retention rates are high and business results tend to follow,” he concludes. Texas Plains FCU more than 55,000 members and maintains a strong presence in Central and East Texas. The credit union’s newest branch was constructed by Level 5 and opened last month in Southwest Austin. To facilitate continued growth, Schroeder says the credit union remains attentive to developing an aggressive, diverse range of loan programs that are not only competitive, but also remain relevant to the needs of its growing membership. “The single factor facilitating our ability to reach and assist our current and potential members with more individualized lending needs is our loan sales staff, a concept implemented in 2003,” notes Schroeder. “Our loan sales staff is empowered to work with members, advocating for their individual needs and providing concrete solutions to their lending problems, with a goal of improving their long-term economic outlook.” Since turbulence in the financial industry began in 2008, Schroeder says United Heritage has proactively adjusted, with changes in loan and share products to maintain an overall low- to moderaterisk profile. “We are fortunate that the economy in our market area has remained comparatively good, enabling us to take a proactive approach toward addressing issues causing delinquency and working with those members that are struggling,” says Schroeder. “Confronting issues early creates the opportunity to go beyond collecting, to assisting members with their collective debt and improving their chances for long term success,” he continues. Credit unions, Schroeder believes, share a collective desire to provide value to their members – it’s the basis upon which credit unions were founded and it is part of what makes credit unions unique. “We have found that our members see long-term value in their credit union relationship, and are willing to exert extra effort to protect that relationship,” says Schroeder. According to Schroeder, the ultimate measures of success for United Heritage CU are similar to those of most credit unions. “Whether it is loan or share programs, we focus extensive effort upon providing programs that are relevant to our members’ needs, with 20 TCUL H WINTER 2012 Texas Plains FCU opened its first branch in 1940 to meet the financial services needs of Southwestern Bell employees. More than 70 years later, the credit union has grown to nearly $30 million in assets and has expanded its outreach to serve the underserved areas of the Texas Panhandle. Recognizing that there was already significant competition for prime borrowers, the credit union saw enormous potential among the large unbanked population in its area and determined a community charter was not in its best interest. Instead, it decided to go after this largely untapped market. Though reaching out to this segment of the population required Texas Plains FCU to re-examine its product and service offerings and re-think how it does business, CEO Terry McCormick is confident this demographic group represents tremendous opportunity for the credit union. “While some financial institutions may look at the unbanked and underserved markets as ‘too risky,’ we see them as people who just need to be given an opportunity to prove themselves as a good credit risk,” says McCormick. “Treat people with respect, and they’ll be more likely to honor their financial obligations.” According to McCormick, many of their members have either no or bad credit, but rather than see that as a barrier, McCormick sees it as an opportunity. “We work with our credit-challenged members and find ways to lend to them, while minimizing the risk to the credit union,” he says. For example, McCormick says the credit union works with auto dealers to get their members in a vehicle at a price they can afford, but limits the amount of loss to the credit union should the member default on the loan. This may require that the member provide a down payment, additional collateral or a reliable cosigner. “We feel we give our members an alternative to payday lending or other shady lenders that take advantage of the member’s financial position,” says McCormick. “But because we lend to those with bad credit, our collection department and loan officers must stay on top of delinquency.” Between the credit union’s loan officers and collection department, he says they do a great job of underwriting the loans, monitoring those loans and working with members to keep their loans current. “As the saying goes, the squeaky wheel gets the grease. We definitely want to be that squeaky wheel,” McCormick chuckles. McCormick says the credit union is fortunate to have a board of directors that is receptive to new ideas and has supported management in the changes they’ve recommended, especially with regard to their lending philosophy. “We have an amazing staff that works hard to serve our members and knows them on a personal level,” says McCormick. “And we have a board of directors committed to the growth and success of this institution and the unbanked market we serve.” PhilosophyinAction By Karen Houston-Johnson Vice President, OnBalance Credit Union Resources, Inc. Building Effective Relations through Communication Improving Communication between the Board of Directors and Employees A credit union’s CEO or other senior manager typically handles communication between the directors and employees. However, there should be a clear plan in place that allows for open communication between directors and employees. Benefits of Effective Internal Communication When your credit union is communicating effectively with its internal “stakeholders,” whether they are employees, management, or volunteers, it develops a cohesive culture where everyone is focused on the same goals and has the same objectives. By working within a cohesive culture, everyone can work more efficiently together and collaborate more effectively. Some specific benefits that can result from effective internal communication: • Employees can make more decisions themselves since they have the tools and knowledge to know the “right” decisions in line with the credit union’s goals; • Staff can identify better with the goals, mission, and procedures of the organization, which can result in a sense of “making a difference” and increase effort and efficiency; • Programs and departments share more resources and information resulting in less duplication of work and stronger impact as a whole; and • Day-to-day conflict can be reduced since a lot of conflict is the result of differing ideas on what is important. Open Dialogue The directors should foster an open dialogue and remain sensitive to being good listeners while responding in a factual way to all questions and issues that may arise. This should take the form of larger credit union questions, with care to avoid specific matters related to the employee’s job, which are best handled by the CEO or direct supervisor. This keeps the lines of communication clearly drawn and avoids the possibility of ‘he said – she said’ interpretations that may end up being harmful to all concerned. Defined Communication Policy or Strategy Credit unions should follow well-defined practices that address next steps after an employee contacts a director. The director should immediately inform the CEO to keep them fully aware of all matters of concern. Conversely, this should be done as a matter of course when a director wishes to speak with an employee, which is typically the purview of the 22 TCUL H WINTER 2012 CEO or other senior staff. For matters having to do with an employee’s concern about management, directors should perform their own due diligence, inform the full board and bring it to the attention of the management member for resolution at the appropriate time. Internal communication within an organization is often overlooked, yet it is vitally important. It is the communication that relates directly to the foundation of your credit union – the people (including staff, management, and directors) that give your credit union its ability to function. Developing sound internal communication processes and evaluating these processes on a regular basis is the same as making sure your car runs smoothly and is serviced regularly. Your internal communication strategy should emerge from, and be guided by, your credit union’s overall strategic plan. This is because strategic internal communication is simply a step towards helping your credit union achieve its mission and vision more effectively. Improving your internal communication requires careful thought, creativity and detailed planning. Monitoring and evaluation must also be built into your plan. Operational Matters Well-run credit unions have efficient and written procedures that involve regular channels of communication regarding operational issues. These are not matters with which the board actively inserts itself, as they are not generally the best use of a director’s skill or time. If the CEO specifically requests the input of one or more board members, however, this often draws upon the director’s extensive business experience that can be invaluable in confronting the often complex issues that arise within today’s credit unions. Credit Union Events Credit union-sponsored events, such as conferences, retreats, annual shareholders meetings, and all-day strategic planning sessions, can be ideal forums for interaction between employees and their board of directors. Whether informal or more structured, employees typically appreciate the personal connection, which fosters a sense of working toward the same goals for the benefit of all concerned. Such occasions can increase employee motivation and satisfaction, as well as the crucial feeling of being heard. OnBalance, a service of Credit Union Resources, Inc., assists credit unions and their boards of directors with strategic planning facilitation, board governance and leadership development assistance. PhilosophyinAction By Dennis Dollar Former NCUA Chairman Principal Partner, Dollar Associates LLC The Policy Component: Where Credit Union Boards Cannot Delegate But Can Initiate W hile the best credit union boards delegate the day to day implementation of their established policies to a strong management team that they can trust, the one area where boards cannot delegate is the policy making itself. But they can initiate a policy evaluation process that can contribute greatly to their credit union’s success. Here’s the basis. Good management teams recommend strong policies to their boards. Good boards evaluate and approve strong policies recommended to them. But the approval process of all credit union policies is a board fiduciary responsibility. Board members cannot hide behind any other part of the credit union when it comes to responsibility for policies. Policy making is the board’s primary responsibility, plain and simple. It is for that reason that regulators are looking more closely at board minutes, travel, training and governance structures than ever before. This level of scrutiny is likely to continue for the foreseeable future in this post-Enron, postWall Street meltdown period in which we currently operate as credit unions. It is for this reason that we strongly recommend that our client credit unions establish a regularly scheduled policy review process that results in every written credit union policy being reviewed and acted upon, whether changed or not, at least bi-annually – if not each year. Laws change. Regulations change. New guidance is issued. Court decisions are rendered. Each one of these actions can require a revision to an established credit union policy. Credit unions should not wait until the examiner comes in to require an update of a particular policy in order to be compliant with a recent law or rule change. The board is responsible for maintaining full compliance of all credit union policies to applicable rules, regulations and statutes. Because it cannot be delegated, many boards seek to ensure that they stay on top of their responsibility for compliance with regulatory and legal changes with an established formal policy review process. We strongly agree with the need for such a process. Many credit union boards divide their policies into more manageable groups of three to five policies and biannually (or, preferably, annually) review those particular policies in a monthly board meeting and take action on each policy recorded in the minutes. By reviewing and acting on a smaller number of policies each month, a credit union board can avoid an unnecessarily long board meeting to accomplish this purpose once a year or every two years. It is a much better approach is to spread the review process over one or two years with enough time to carefully evaluate every policy and take action to either update the policy or reaffirm it as presently written. The “divide and conquer” strategy, as it relates to a fairly large policy manual, works best for this purpose. Does this mean there is no role for management in the policy review process? Absolutely there is a key management role. Management should be the source of all necessary update recommendations and guidance on changes in regulation, law, guidance or simply how a particular policy is working within the credit union. We would even recommend that a Policy Review Committee consisting of management and board members be created and charged with the responsibility of reviewing all policies, recommending any changes and presenting those recommendations to the board for action at each month’s meeting. The fiduciary responsibility of policy making is the most important role of a credit union board. Boards should not allow the updating of policies to put them on the defensive when an examiner comes in and lowers the management component in CAMEL because their credit union policies have not been looked at in several years, even though the laws and regulations have changed significantly over that time. Responsive credit union boards should take the offense with the initiative of establishing a formal policy review process that ensures every policy is reviewed and acted upon on a systematic basis by the board, either updating the policy or reaffirming it as currently written. The board should incorporate management expertise and recommendations, but it should be carried out under the board’s auspices on a regular basis. No policy should ever go more than two years without formal review and action recorded in the board’s minutes. Again, if possible, one year would be preferable. The result - one that the board can be proud of as it will contribute to a better credit union - will be reflected in better policies, enhanced compliance and higher CAMEL ratings. WINTER 2012 H TCUL 23 HRCorner Alleviate management ‘derailers’ to become a better manager B ecause managers carry more responsibility than any other position in most offices, their personal development is sometimes forgotten. Over time, procedures can become routine, and managers can unconsciously begin to derail. How can your leaders become effective managers? There are three symptoms a derailing manager may exist: resistance to change, inability to deliver expected results, and inability to see beyond their own functional silos. It is crucial to treat each of these symptoms immediately in order to ensure that the manager and organization stay on track and continue to be productive. Derailer #1: Resisting change A manager “at risk” of derailing due to resistance to change may exhibit some of the following behaviors: • Expresses frustration at the suggestion of change • Is preoccupied with reminiscing about “what was” versus “what will be” • Continues to do things the same old way yet expects new results • Discomfort with ambiguity and lack of openness to discovering better ways of doing things • Team members complain about mixed messages from leadership and their manager 24 TCUL H WINTER 2012 There are several ways to remedy this manager’s resistance. The first step is to understand the manager’s appetite for change. People are “wired” differently, and this influences our appetite for risk and challenge. A second way to assist a manager is to help the manager understand his natural aversion to change. If a manager has a natural tendency to resist change, then it is important to make him aware of this tendency. This will enable him to develop his own way of helping himself adapt to change. Finally, when trying to develop a manager resistant to change, ensure that the manager is focused on the new priorities. There are many ways to communicate change, but words are not enough. You need to translate this change into meaningful actions and goals for the manager, and then you need to inspect what you expect. Derailer #2: Unable to deliver expected results Another type of manager with potential to derail is one who is unable to deliver expected results. If the manager in question meets these symptoms, they are “at risk:” • Results are consistently below goals, especially those that are measurable • Manager blames others or makes excuses for his own failure • Manager avoids discussions about setting, tracking, and progressing toward goals • Manager spends too much time, energy, and resources on low-prior ity activities • Team is unaware of how they con tribute to the manager’s or organi zation’s goals To “cure” this type of management, first clarify the expected results and goals. Next, you should attempt to understand the manager. Not everyone is naturally goal oriented. For those who aren’t, the notion of setting, tracking, and achieving goals can be extremely intimidating. This is especially true of new managers in roles where measurement is difficult. Finally, inspect what you expect. Once goals are clear and you have the manager’s buy-in, establish a process for tracking the most important goals. Use these goals to create a personal “dashboard” that helps the manager set his own priorities that drive results. Require the manager to update his goals weekly, and use his progress to facilitate a coaching discussion. Finally, check back with the manager on a periodic basis to ensure that his priorities are properly aligned. Derailer #3: Missing the big picture The final type of manager with potential to derail is a manager who cannot see beyond their own functional silos. Symptoms of a manager “at risk” of derailing include: • Unwilling to communicate or collaborate with others outside of his unit • Makes decisions that benefit his unit but clearly hurt the overall organization • Resists change that impacts him but clearly benefits the organization • Hoards information that might benefit others outside of his unit • Co-workers complain that the manager is out of touch with the organization’s mission The first step in developing a manager with high silos is to establish clarity. Don’t assume that the manager understands how he and his people fit in and interrelate with other units to achieve the organization’s greater mission. Be sure to include the manager in at least one cross-functional team. Have the manager experience firsthand what it means to contribute to a broader team and depend on others to achieve a significant common objective. Ideally, he or she should work under an experienced team leader who can provide both coaching and a positive experience. Finally, monitor the manager’s progress. This is more than just an annual performance review; it’s about holding the manager accountable, ensuring that he is aligned with the company’s priorities and changing his behavior. This is done by monitoring his progress and offering coaching and additional development. Input from multiple sources such as the manager’s managers, peers on crossfunctional teams, and subordinates is valuable. These three types of managers are more common than they should be. And these symptoms don’t just occur in newly minted managers or old and grizzled ones – they can surface at any time, so monitor your people regularly. Encourage your leaders to know how to be effective managers. Reprinted with permission of Profiles International, a partner of Credit Union Employment Resources. For more information, contact Susan Looney, SPHR, at (800) 442-5762, ext. 6431. WINTER 2012 H TCUL 25 HRCorner By Kimberly Jones Human Resources Consultant Credit Union Employment Resources HR Q&A S 26 TCUL H WINTER 2012 everal federal, state, and local laws require employers to post notices in the workplace. Most of these laws indicate the information that must be posted and how it should be posted. Employers who fail to comply with the posting requirements may be subject to fines and other penalties. Workplace poster requirements may vary according to federal, state, and local law, so employers should be sure to evaluate which posters are required to be posted and then ensure that they are posted correctly. Most required postings for Texas can be downloaded for free on the Department of Labor’s website and/or the Texas Workforce Commission’s website. Below is a common question regarding workplace posters and its answer: Q: What are some of the most common workplace poster compliance mistakes and how can we avoid them? A: Some of the most common workplace poster compliance mistakes are: • Not knowing which notices to post. It’s important to review all federal, state, and local requirements to see which, if any, apply to your workplace. For example, even if your state minimum wage is higher than the federal minimum wage requirement, by law you are still required to post the federal minimum wage poster. Please remember, some poster requirements apply to virtually all employers regardless of size, industry, state, etc. • Failing to update posters. Laws can change regularly, which may require employers to update their posters. States may also make minor revisions to their laws. You may check for revision dates on your notices to determine if the most recent notice is posted in your workplace. • Not posting in conspicuous location. Workplace posters must be displayed in places where employees can easily see them, such as break rooms or time clock areas. Some notices, such as the Family and Medical Leave Act and Equal Employment Opportunity laws, are required to be posted where employees, as well as, applicants can see them. In some instances, employers are required to post certain notices where other notices are typically provided to employees. For example, if an employer typically posts rules and policies on the internet or intranet they may be required to post other posters in that same manner in addition to a physical location in the workplace. If your credit union has a question about workplace poster compliance or needs assistance with their HR needs, please contact Kim Jones or Susan Looney with CUER at (800) 442-5762, extension 6432 or 6431. Also, visit us online at www.cuer.coop. SmallCreditUnions By Allison Griffin Owner Griffin Strategies, Inc. Handling Big-Time Requirements with Small-Time Resources I 28 n the century since the founding of the credit union movement, the affection and loyalty Americans feel for their notfor-profit credit unions have been closely associated with small credit unions. A place where the teller knows your name. Where your financial well being is a top priority. Where the ‘people helping people’ philosophy is tangible and observable. Of course, the romanticized idea of life in a small credit union is not necessarily the reality, given the flood of regulations and requirements and the “bigger is better” wave of financial mergers and acquisitions. In fact, adhering to big-time requirements with smalltime resources can be downright difficult. Ward County Teachers Credit Union (Monahans) CEO Kay Rankin-Swan acknowledges that compliance is the number one challenge for her $13 million credit union and others like it. “We know we have to be in compliance at all times,” says Rankin-Swan. “What is not always so obvious is how to fund it.” Rankin-Swan says she and her credit union staff spend a lot of time making sure they’re up to date on new regulations and requirements. The Texas Credit Union League (TCUL) provides important information and announcements, and her credit union also contracts with TCUL’s compliance team to help them write policies and procedures to address new requirements. “I find it’s a worthwhile expense because otherwise I’d be spending all my time on that,” says Rankin-Swan. “Instead I’m able to spend time with my members, which is far more important.” Boosting the success of small credit unions has been an important focus of TCUL and the Credit Union National Association (CUNA), especially since a landmark report was issued 12 years ago about the obstacles facing small institutions. In the wake of the persistent economic downturn that has shrouded the nation, CUNA recently revisited the 12-year-old assumptions and found that the challenges facing small credit unions also persist, although the nature of those challenges has changed somewhat. TCUL H WINTER 2012 In late 1999, small credit union CEOs told CUNA their top concerns were 1) the need to offer a wider range of services, and 2) staff and volunteer skills. Today, their top concerns center around: • Compliance and the volume of regulations • Expense ratio associated with backoffice responsibilities • Lack of succession planning It appears Rankin-Swan’s top concerns are very much in line with those of her peers nationwide. “The challenge of providing products and services is not quite as big a worry as it once was,” says Rankin-Swan. “There are products out there that we can afford and that fit the needs of our members and our credit union.” Having just upgraded the website and bill pay and adding mobile banking, Rankin-Swan suggests that small credit unions do their due diligence and talk with their peers when looking to expand their products and services. And then work a deal with recommended vendors. “You really have to become a master negotiator,” she says. On a daily basis, one of the current challenges facing Ward County Teachers CU is loan demand. “Here in the Permian Basin, people are doing pretty well. However, they go home and see story after story on the evening news about the bad economy, so they’re not spending,” explains Rankin-Swan. “Personally, I am passionate about financial literacy. Professionally, I want my members to save their money and be in a good financial position,” she says. “But realistically, my credit union needs loans to keep the lights on!” Another industry challenge that hits small credit unions especially hard: succession planning. “Larger credit unions may have a well-qualified and experienced person as their number two, who is being groomed to take over down the road, but at small credit unions, we don’t have that luxury,” says Rankin-Swan. “As more small, credit union managers retire, it’s going to be challenging to find new, qualified people to fill their shoes,” she worries. “I mean, I love what I do – I love to make a difference in the lives of our members – but who is going to want to step up to take the reins in 10 or 12 years as a wave of credit union managers begin to retire?” Rankin-Swan explains. “Small credit unions have to plan today to make sure we’re here tomorrow,” she said. SmallCreditUnions Determining Safety, Soundness from the Examiner’s Perspective T he examination of your credit union is about to commence. Although this occurs annually, you may have apprehension. It is okay. The examiner team does as well. Typically, the examination process focuses on common areas from one year to the next. However, new areas of focus emerge regularly based on national trends – and in many cases, trends developing within each credit union’s distinct operations. The examiner’s focus is safety and soundness, adherence to the regulatory environment, and risk to the National Credit Union Administration Share Insurance Fund (NCUSIF). An examiner’s approach includes the idea that adherence to regulation and safety and soundness are interrelated. The examination process is a joint effort between NCUA examiners, State Supervisory Authorities and credit unions. The intent is to ensure safe and sound operations to protect individual credit unions and the industry from net worth loss due to controllable factors, and to minimize loss resulting from uncontrolled factors, such as economic downturns. Primary areas of focus that raise examiner’s cognizance to safety and soundness concerns include, but are not limited to: Board oversight of management, and staff accountability; consistency in business or strategic plans, as compared to actual results; the state of the internal control structure and internal audit department; areas of high growth or abrupt changes in balance sheet accounts; operating expense structure; level of due diligence and planning for new program implementation; reconciliations and outstanding items, particularly relative to corporate accounts; reliance on third parties for loan origination and servicing; reliance on third parties for investment decisions and analysis; and board and management assessments (or lack thereof) of balance sheet risk exposures and financial trends. Each of these areas of review, combined with credit union responses, interpretations and written objectives, leads to an initial determination of safe and sound operations. From that point, examiners expand their reviews into perceived areas of higher risk. Why? Because a credit union’s most controllable element is the effectiveness of management’s actions, decisions, implementation and achievement of strategic objectives. Operations, objectives, goals and ultimately performance commence and conclude with management (management includes the board and sub-committees). Safety and soundness are more than just a report card of past performance; they also ensure the organizational structure is adequately built to proactively handle the strategies and future plans for the credit union. The examination process is not easy, but it also is not meant to be confrontational. Instead, the process is intended to protect everybody – most importantly, your membership. Reprinted by permission from the NCUA. An expanded version of this article is available at www.lonestarperspectives.coop. WINTER 2012 H TCUL 29 ProductsandServices By Jim Holt Vice President, Sales Operations Credit Union Student Choice The Three R’s of Private Student Lending A ttributed to a toast given by British Parliament member Sir William Curtis in 1825, the three R’s were long known as the foundations of a basic skills-oriented education program. While reading, ‘riting, and ‘rithmetic may be obsolete in today’s era of standards-based education, this simple concept can still be a valuable tool for credit unions when considering the opportunity in private student lending. Reading We’ve all seen the headlines. Ever-increasing college costs have left students and families searching more than ever for affordable college financing options. According to one recent survey, 46 percent of families borrowed money to help pay for college*. The federal government’s Stafford and Perkins student loan programs are the most widely-used student loans and remain the best and cheapest way for students to borrow. In addition, President Obama’s recently announced plan to lower monthly payments for federal student loan borrowers is another positive step during challenging economic times. However, students and families also rely heavily on private student loans to fill funding gaps, with 13 percent of families utilizing them in 2010, versus just 8 percent two years earlier. With the average cost of attending a four-year, in-state public college at $17,131 per year (up 6 percent from 2010-11) and the average cost of a private college at $38,589 per year (up 4.5 percent from 2010-11), it comes as no surprise that families need additional financing options**. Reality — Nearly $8 billion in private student loans were originated in 2011 and remain a critical funding component for millions of people. While the ubiquitous “student loan” moniker may mask the issue, it’s important to understand these loans are a family decision, oftentimes with mom or dad playing the role of co-borrower. ‘Riting As any financial institution can attest, writing loans is a risky business. Understanding that risk and employing proper mitigation tactics are the keys to portfolio performance. While private student lending is unique in many ways, it’s not unlike mortgage or auto lending, in that there are important factors that can be utilized to mitigate risk. Key factors include: • Risk-based pricing with minimum credit score requirements and criteria that strongly encourages a co-borrower • Using school certification to verify enrollment, validate loan amount, and determine fund disbursement • Restricting loans to students who are attending tra- 30 TCUL H WINTER 2012 ditional 4-year schools with a proven history of low student loan defaults • Lending “directly” to students and families within your existing field of membership to establish an opportunity for genuine, long-term relationships For credit unions looking to eliminate risk completely, it may seem easy to refer borrowers to another lender or simply not make these loans at all. But is the answer really that easy? • Reputation risk is inherent in any scenario where the referring credit union has zero impact on the value being delivered to the member. • Competitive risk must also be considered. Referring loans to a bank that is aggressively pursuing consumer deposit relationships should give pause to credit unions. Risk — Regardless of a credit union’s role in student lending, risk is present in some shape or form. Understanding that all student loans are not created equal and that aligning that risk with a credit union’s business strategy is essential. ‘Rithmetic Delivering superior value to borrowers is an admirable goal, but it’s only possible if value is also being returned to the bottom line. In 2011, the average private student loan rate on a national level was approximately 8.5 percent (variable rate that resets quarterly based on index). The average rate on private student loans issued by the 200+ credit unions partnered with Credit Union Student Choice was just a shade over 6 percent. Quite simply, these credit unions are doing better for their members while simultaneously returning value to their balance sheet and establishing a genuine foundation for a long-term member relationship. Rewards — While the numbers have to make sense, the rewards can be measured in more than just ROA. Fulfilling a social role by delivering fair-value credit to those in need, establishing new relationships with young adults and families, and helping students achieve a critically important achievement in life are all part of the “mathematical” equation. Credit Union Student Choice is the leading provider of higher education financing solutions to America’s credit unions, and is a preferred product provider of Credit Union Resources, Inc. *From Sallie Mae’s How America Pays for College Study, Aug 2010. Conducted by Gallup. ** The College Board. ProductsandServices I By Tom Hodge SVP, Business Development & Sales Credit Union Resources, Inc. Spring is in the air – and so are tornadoes! Does your CU have a plan? t may seem a bit early to start thinking about the wind, hail and storms that are as much a part of the Texas springtime as cowboy boots and barbecue, but now is the time to start planning. Are you ready? “Have a Plan to Recover – Put our Resources to Work for You!” is a program we want you to embrace to keep from having to make excuses after it’s too late. The percentage of small- to mediumsized businesses that never recover after a disaster is staggeringly high, especially since the steps in putting together a recovery plan are quite simple. Credit Union Resources’ business continuity package includes everything necessary for disaster recovery planning, with the added bonus of a Business Continuity Preparedness Manual provided at no cost to your credit union. The manual contains information, worksheets and checklists to assist your credit union in the areas of disaster recovery, communications, public relations, exit strategies, and financial and technology plans. In addition, experts are available to answer questions and assist you throughout the process. Credit Union Resources’ business continuity package includes: • The Business Continuity Preparedness Manual at no charge that includes: ➢ ➢ ➢ ➢ Planning Information Workbook Business Continuity Plan Worksheets Emergency Plan Checklist & Quick Reference Sample Communication Plan with Sample Press Releases ➢ Sample Disaster Supply Kit List ➢ Contacts, Links and Resources • Policy and procedure development through our Shared Compliance team • Technology consulting and security risk assessments through Financial & Technology Resources • Agility Recovery Solutions’ contingency planning facilities service • Diebold’s contingency planning ATM equipment • Ongoing Operations’ business continuity assistance Don’t be caught unprepared when the storms begin to strike - let Resources help you now. We have the tools and expertise to tackle any situation and make building a strong plan easier than you think. Talk to your League Consultant or call Tom Hodge, SVP, Business Development & Sales at (800) 442-5762, extension 6424, or email him at [email protected]. WINTER 2012 H TCUL 31