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The year-end ISSUe december 2013 VOLUme 8 ISSUe 12 9.95 Debt Collection Tips for Surviving the Holiday Season CU Training 1st advantage FcU creates a Successful corporate University do you Kasasa OFFERING LOANS BUT NOT INSURANCE It s like offering burgers without fries. If you re not offering insurance with every auto mortgage and business loan you close you re basically giving your borrowers money away to someone else. Think about it--you wouldn t go to one place to buy a burger and then another to buy fries so why make your borrowers do just that when purchasing a car or home IF YOU D LIKE TO START OFFERING INSURANCE BUT DON T HAVE THE RESOURCES TO SUPPORT AN IN-HOUSE AGENCY CALL SWBC INSURANCE PARTNERS AT 866-316-1162 OR SCAN THE QR CODE cOnTenTS Credit Union BUsiness december 2013 V O L U m e 8 I S S U e 12 4 6 8 12 16 pov Do You Kasasa Tim O Hara aCHieving SkillS Holly Herman lenDing line 21 CU MaRkeTing What About Radio An Open Letter to Credit Unions about the Past Present and Future of social Media Jason M. Dias TeCHniCally Speaking Build Your network Debt Collection Tips for surviving the Holiday season Karin Brown-Purtell CU TRaining 25 29 32 ACH Federal Helps Credit Union Lasso in Business Tax Formatting issues Roy W. Urrico aT THe C level The Legacy CU UpDaTe 1st Advantage Federal Credit Union Creates a successful Corporate University Lisa Church Cfo CURRenCy Marc A. Bringman The Difference Between Deterministic and stochastic Asset Liability Management Models and Why examiners are asking for stochastic Modeling Emily Mor Hollis CU RegUlaTion industry information A step Toward Mitigating Loan Risk & Building Relationships Agata Kaczanowska and Lauren Setar Get it for the entire executive team register 19 Credit Unions are Better Positioned to implement the Most Recent Mortgage Rule Brian D. Godwin December 2013 credit Union bUSIneSS 1 abOUT US Publishing Team Tim O Hara Publisher tim Steve Magnuson Managing editor steve Iliana Nord Operations Manager iliana Patti Manzone Designer Ashok Kumar Circulation Director THE YEAR-END ISSUE DECEMBER 2013 VOLUME 8 ISSUE 12 9.95 Debt Collection Tips for Surviving the Holiday Season CU Training 1st Advantage FCU Creates a Successful Corporate University Do You Staff Writers Holly Herman Achieving Skills Emily Mor Hollis CFO Currency Roy W. Urricho Technically Speaking Kasasa contributors Jason M. Dias Brian D. Godwin Lisa Church Karin Brown-Purtell Agata Kaczanowska & Lauren Setar CU Update Subscriptions Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine inc. A one-year membership costs 89 for print or 69 for Digital. An online membership form is available at register. Sales and advertising Bernie Fitzgerald Advertising executive Bernie or 561-282-6015 1 Greg Halpern Advertising services Manager Greg or 561-282-6015 4 contact Information Credit Union BUsiness Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim 2 credit Union bUSIneSS December 2013 FROM tiM Publisher s POV Do You Kasasa in the ongoing war between banks and credit unions credit unions are almost always considered the David to the big bank s Goliath . The member-owned neighborhood good guy credit union versus the big bad cold-hearted mega-bank. sound familiar Just the thought that Citibank alone outstrips the entire credit union industry in assets brings a shiver down the spine of my 401K. While it doesn t keep me up at night this one-sided big bank dominance certainly gives me cause for concern. BUT what if . . . What if community banks felt the same way about mega-banks as credit unions What if community banks and credit unions actually c-o-o-p-e-r-a-t-e-d with one another against the Darth Vader forces of mega-banks i know what you re probably thinking but it could happen. i know because i recently sat in a room side-by-side with dozens of credit union executives and community bankers and listened for hours to an enthusiastic pitch about a new brand concept with one really weird name KAsAsA How to Provide Products superior to Mega Banks How to Win the War for new Accountholders Online Why Financial Literacy for Kids Holds the Key to Your Present as Much as the Future in Austin i heard from BancVue s very talented employees comprised of mostly young people who fervently believe that credit unions and community banks can not only co-exist but can blanket the country with a new type of checking account using a common brand identity Kasasa Don shafer is the evangelistic co-founder and chairman of BancVue. He continually moved about the conference room asking questions which he answered in a booming baritone voice with a Texastwang accent and a rapid machine-gun like delivery. The number two head honcho of BancVue is CeO Gabriel Gabe Krajicek a 30-something dynamo who would surely be everybody s choice for the next under 40 CeO of anything except that he s already had the title for nine years Don and Gabe have surrounded themselves with a team of young talented and equally enthusiastic experts in various disciplines such as research technology training and social media. Together they offer a one-stop shop for increased efficiencies and optimum ROi. Kasasa was launched in 2009 during the deepest recession of our time and their network grew 65 percent last year alone. There are currently 197 Kasasa partners in the U.s. in 43 states. Kasasa is currently the 11th largest branch network. stay tuned i ll bet that you ll be hearing a lot more about this growing threat to the mega-banks. Kasasa seems like an idea and a network that will really help to level the playing field between big banks and credit unions in the right direction Thanks for reading Do you KAsAsA Kasasa--pronounced just like it s spelled--is a new and fastgrowing national brand of deposit accounts that are only offered through credit unions and community banks. And--get this--many of the banks and credit unions serve the same markets Kasasa is the brainchild of an Austin TX based company called BancVue who invited me to attend the two-day conference in Austin to learn about their plan to level the playing field between the good guy community financial institutions and the mega-bank bad guys. Here s the agenda that caught my attention and compelled me to accept the invitation to attend this event Topics for discussion Why Many Financial institutions are Going the Way of Borders & Blockbuster What You Can Do to Drive More non-interest income How a national Brand Can Help You be More successful 4 credit Union bUSIneSS December 2013 achIeVIng SkILLS build your network i By Holly Herman t s likely that you your credit union or both have a page on Facebook are tapped into Linkedin active on Google or are involved in any number of other social media networks. Many people believe the myth that they are building networks and expanding their reach. But are they Review these thoughts to make sure that social media is meeting your expectations. Thought 1 Know why you use the site. Think about what you want to accomplish or why you use each social media site. Write down the reasons for using each of the social network sites you re part of. Perhaps you use Facebook to keep up with friends and family monitoring their status and posting regular updates for them to see. Maybe Linkedin keeps track of your business contacts lists of your industry peers professionals you want to keep in touch with and the names and contact information of people you ve met at networking events. Knowing why you joined each site will help you use them effectively. build on relationships through phone calls or meetings whether informal or professional. Thought 2 it s only a start. Remember that when you connect with someone on a social media site--whether it s someone you Thought 4 nurture select relationships. During the building met at a networking event a reconnection with an old school process i may meet someone i would like to partner with chum industry colleague or someone you admire--you ve just someday someone i greatly admire or someone who has scratched the surface. Having a social media contact does not accomplished something i would like to accomplish. sometimes mean you have a relationship with any of your contacts. it just i meet people whose company i enjoy and am interested in getting means you have a contact. to know better. The only way to nurture these relationships is through personal connection whether over the phone or in Thought 3 Build your network. i define my network by person. social media may give you some idea of who a person is including only people that i ve met in person or have spoken to and email can answer a few questions but personal connections over the telephone. They are people i feel comfortable calling are the only way to build stronger relationships. whenever i have a question people to whom i d recommend a resource or people i d call to congratulate if i hear of some Thought 5 Take the time make the effort. Building your accomplishment or achievement. My relationship to my network network is an active not passive process. it takes time and effort goes deeper than that of a simple website connection. Anytime on your part. The bigger your network the more resources i connect with someone through social media i follow up and you have at your disposal. The bigger your network the bigger 6 credit Union bUSIneSS December 2013 achIeVIng SkILLS reach and influence you ll have in others lives. The bigger your network the more ideas and opportunities will come your way. The bigger your network the greater the likelihood you will achieve success. People do things for people they know. Get to know your network. CEO SUBSCRIPTION WiTh BenefiTs Benefit your CFO COO CMO CCO CLO CIO HRD With free Monthly E-Newsletters Thought 6 Add value. You can strengthen your network by offering added value to others. Recommend a book write a blog and offer to introduce other people in your network. Adding value to others is a great way for people to remember you and it s a lot of fun. Holly Herman is a former CEO of two credit unions Chief of Staff for National Credit Union Administration Chairman Johnson and currently an Achievement Coach helping individuals and organizations. She can be found at or contact her at Holly Subscribe NOW register December 2013 credit Union bUSIneSS 7 LendIng LIne debt collection Tips for Surviving the holiday Season By Karin Brown-Purtell i m dreaming of a white Christmas With every Christmas card i write May your days be merry and bright And may all your Christmases be white hh the beauty of freshly falling snow the hustle and bustle of frantic shoppers and the familiar music of Christmas the sight sounds and cheer of the holiday season surround us. everyone s getting into the holiday spirit everyone that is except debt collectors Bah humbug Debt collectors generally hate the holiday season. it s not that they have no holiday spirit it s because the holidays are usually the most difficult time of year to collect money. Debt collectors will tell you that people simply do not pay what they owe in november and December adding that debtors are going to buy presents and celebrate the holidays regardless of how much or to whom they already owe. The excuse happens to be somewhat true. Historically consumer delinquency has increased during the latter part of every year although it s important to note that the seasonal uptick in rates does not typically indicate an underlying change in how consumers are repaying their debt obligations. Anecdotally we see seasonal delinquency patterns start with the back-to-school retail kickoff and gradually trending upward through the end of the year. Unfortunately collectors sometimes use this seasonal pattern to excuse why they did not or could not get the job done. A 8 it is no surprise that many credit unions also struggle to collect during the holiday season. Generally Credit Union collectors tend to be extremely sympathetic and bend over backwards to help any member experiencing financial difficulties. But do they offer assistance before knowing all the facts or do they chase PTPs (promise to pays) trying to beat year-end numbers it s easy to blame the season for not collecting debt but what holiday season strategies did you employ to improve collection results in order to survive the holiday season you need to approach your recovery efforts strategically and find new ways to collect that use different tactics than those you used in the past. in other words it s time for a change Here are some tips to help you collect through the holiday season Tip 1 Quit Chasing the Payment Quit Chasing the Payment Quit Chasing the Payment Quit Chasing the Payment (How many times can i say this ) in these times of fierce competition for payments look for opportunities in the way you approach your recovery efforts. To remain successful collectors need to alter their approach and move away from focusing on payments toward incorporating a resolution based recovery methodology into their collection activities. credit Union bUSIneSS December 2013 LendIng LIne Resolution methodology utilizes a three-prong approach and is designed to walk the collector through a cognitive thought process when looking for mutually beneficial payment solutions. Your money is gone and you have run out of time to collect on the debt. The game has changed moving away from member retention to debt recovery. Don t wait for the money. instead your collection team should be selling the benefits of reoccurring payments during every call. Monthly payroll deduction direct deposit or ACH payments can become be your collectors new best tool. Focus on at-risk accounts rather than treating all accounts the same and simply chasing payments. Taking the right action at the right moment means you re more likely to find yourself in an improved debt recovery position. Most troubled borrowers want to pay but need your help in finding how to come up with the payment. Your goal is to help debtors find solutions such as flexible payment options that will keep your troubled borrowers paying you each and every month. Without your help they will seek their own solution and that might include a bankruptcy attorney Are Your Collectors stuck in a rut Collectors can get stuck in a rut collecting the same way they did five ten or even twenty years ago. Although their strategy might have worked sometime ago using it today is akin to buying an express ticket to the collections graveyard. Collectors who collect only enough to keep accounts out of reportable delinquency actually create more work for themselves and generate less profit for the credit union. it might keep the account out of the 60day bucket this month but next month the account will be right back in their queue. To break out of the rut collectors should avoid becoming order takers and stop using the same collection speech as a panacea to solve every debt problem. While all troubled borrowers have some commonalities the reasons members become delinquent is uniquely their own. And so is the fix to their problem. if only things were that simple Collectors shouldn t get fooled into agreeing to unreasonable future payments. if a member only makes eight dollars per hour he s never going to be able to make lump sum payments of 2 500.00 not now not ever. it s just not going to happen. He s not going to be able to come up with one-and-a-half payments over the next six months either the cash flow simply isn t there. Troubled borrowers usually agree to outrageous payment arrangements simply to get collectors off the phone. Debtors know that collectors need payment and will agree to almost anything. Afterward they ll begin dodging your calls when you try following up on their broken payment promises. stop putting yourself and your members in this position Change your tactics. Try making each call productive. Collectors should utilize effective interviewing techniques to Tip 2 Don t Let Your Members Pay at the end of the Month Most troubled borrowers have a tendency to wait until the last minute to make a payment which is our fault. For years we ve taught members that that it s okay to pay 30-days late. We just needed the payment by the month-end and that became the focus of our collections strategy. But waiting until month-end for your payment is often a game changer something can and usually will happen to the money that was earmarked for your payment. Other bills or other expenses creep up and more aggressive collectors show up. You end up waiting for a check that was never mailed. December 2013 credit Union bUSIneSS 9 LendIng LIne discuss the circumstances that caused the loan to go past due whenever they make contact. evaluate the debtor s reasons for default with empathy and sensitivity and look for any opportunity that will keep the member paying you. Calculate a debtor s ability and assess the likelihood of their making future payments. Update critical contact information and listen for trigger statements which should prompt you to ask additional questions. Remember too that debtor motivation alters as the economy changes. Troubled debtors paid credit card debt even before satisfying their mortgage obligations during the most recent recession. This fundamental shift in payment priorities created the highest foreclosure rates since the great depression but also resulted in the lowest credit card delinquency rate since 1994. to maximize your collector s effectiveness and productivity. Control the roll and you ll control delinquency. Be proactive. Talk to your members about the holidays and their credit union payments early. Do they have a plan for making payments during the holiday season in an effort to resolve delinquent loans collectors should be gathering and updating critical information using strategic questioning and active listening skills assessing debtor resources exploring sources of cash and looking for solutions that will keep members paying you. Keep it Real Try not to get suckered into thinking skip-a-pays are the only solution. it s easy to do but not all accounts need or deserve a deferral or a payment-skip. Payment skips or deferrals should never be used simply to delay the inevitable. it is a Band-Aid approach and nothing more than a very temporary fix to a much bigger delinquency problem. Remember whenever you are skipping payments your money is going to someone else. We ve seen examples of this in collector call notes like Member is unemployed and having a hard time making payment. Offered member skip a pay if he made one payment and paid a 25 fee. Before offering the skip the collector should determine Tip 3 Control the Roll The holiday season comes every year yet each year it arrives as if a big surprise. The key to delinquency control lies within the 30-day bucket. Typically accounts that roll to more than two payments past due are 50 percent more likely to be charged off than delinquent accounts that stay within the 0-59 day range. start collection efforts earlier in the recovery process 10 credit Union bUSIneSS December 2013 LendIng LIne and have him share his strategy with his colleagues. Reward successful tactics to encourage others. We ve come a long way from the hardcore collection tactics of the past. whether this solution would actually help the member or merely keep him dangling in debt anxiety limbo. Tip 5 Recognize Risk and Know When to Take Action Your relationship with your member begins with a sale and ends with a payment. However if that payment doesn t occur the actions you take and when you take them will directly impact your bottom line. Recovery efforts should be expedited whenever a member Hasrepeatedlybrokenpaymentpromises Flatlyrefusestomakepayments Doesn trespondtoyourdemandsforpayment Hassub-primeorindirectloantypes Isa1stpaymentdefaulter Collectors also need to know when sKiP tracing efforts are no longer profitable and when it s the right time to call it quits. Collectors should assess the likelihood of repayment and determine whether or not continue working with an account is likely to be profitable. Are their efforts just adding to the loss Finding the debtor doesn t always mean the collector will be able to collect the debt. Collectors should be critically accessing the collectability of each loan on a case-by-case basis. in today s risk-based lending environment effective collection practices mandate that we approach recovery actions differently than we did in the past. This is a tough business and the holidays create more of a challenge for these valuable and talented employees than any other time of year. in order for collectors to have a successful year-end they will need to make every step of the process as effective and efficient as possible. The upcoming holidays can be a rewarding and productive time for your Resolutions Department if your collection team looks outside the box and considers any and all solutions that keep members paying you. Don t let the holidays become your excuse for increased losses. Oh and Yes Virginia there is a santa Claus Happy Holidays. Tip 4 implement a sales culture into your Resolutions (Collections) Department We ve come a long way from the hardcore collection tactics of the past. Today s collection professionals are the best sales people in your organization. Almost every call they make is a cold call and collectors have to rely on sales techniques to overcome payment objections every day as they sell debtors on the benefits of paying your credit union. every call should be a sales opportunity. set Goals and Communicate expectations Define your business goals clearly so that others can see them as you do. Communicating clear expectations is essential to your collections department success and is often a key contributor to employee workplace satisfaction or dissatisfaction. Happy collectors find solutions. Happy collectors collect money Goals should tie into your organization s overall delinquency and charge-off objectives and developed for 60-plus delinquency 30-day delinquency and charge off objectives. incentives can easily be tied to these PMOs. reinforce and reward Positive Behavior Celebrate success--even small wins--and recognize employees that meet or exceed goals and performance expectations. This shows other employees that their accomplishments will be recognized and rewarded as well. Want your collectors to follow-up better Reward your most successful staff member Karin Brown-Purtell is Vice-President of Collections at Lending Solutions Consulting Inc. 1 2 http 2013 08 13 card-delinquency-near-lowest-since-1994-transunion http 2013 04 30 reward-desired-behavior-as-well-as-successes December 2013 credit Union bUSIneSS 11 cU TraInIng 1st advantage Federal credit Union creates a Successful corporate University ust one year ago 1st Advantage Federal Credit Union did not have a Corporate University or a one-stop shop for organizational communication information sharing or learning. We did not have user-friendly access to online training a state-of-theart digital library or a virtual leadership program. now we have all of these. J By Lisa Church By creating scalable user-friendly virtual universities organizations were providing flexible learning and just-intime resources to every employee each of whom could work on their own schedules and at their own desks. Corporate Universities uniquely meld online experience classroom learning support tools and information resources together to create a customizable individual program. i soon realized this was exactly the solution 1st Advantage had been looking for and i was eager to return home and get started. Getting started Like many people in many industries we found ourselves struggling to balance the need for more sophisticated retail and leadership development systems with a diminishing capacity to deliver face-to-face programs. The changing demands of staff and market-savvy members the constant demand for growth and mounting compliance burdens had stretched our resources to the limit We needed to find a new approach to internal communication and training. Last fall i received a routine voicemail message inviting me to participate in an upcoming Corporate University Week 2012 conference. The Training Team had discussed the idea of a corporate university so it caught my attention. After finding out more about the conference i decided to attend. At the conference i learned how much companies could accomplish through their Corporate University programs. Choosing the Right Time Our timing was excellent We had just undergone a perfect storm of events that put us in an ideal position to launch a Corporate University. in 2011 retirements in senior Management introduced new staff and brought policy changes that included a renewed emphasis on learning and coaching. We had spent the previous four years on a journey of Customer experience concentrating on building memorable service skills. The Training Team had stressed experiential learning and was eager to utilize any new approach that would continue to enhance colleague performance and build leadership skills. Our Training and Technology Teams had just implemented a new Learning Management system (LMs) that required an increase in broadband capacity and employees were given upgraded 12 credit Union bUSIneSS December 2013 cU TraInIng computers that were better equipped to stream audio and video. And the Marketing Team was tackling a complete overhaul of the organization s intranet. All of these events factored into our acknowledging the value of joining forces to launch a final product that would be bigger better and faster than the sum of our individual plans. Overall the stage was well set for change and the plan for 1A University and intranet was born. Prior to launch we committed to a full-week of testing. The Advisory Board tested every page button video and document to ensure that all were accurate and functional. Our internal staff and outside vendor quickly addressed each issue the Board uncovered. We launched on a Friday by hosting a TGiF Party at our corporate headquarters. The party centerpiece included a cake with our 1AU logo and we gave live demos and handed out door prizes. We hand-delivered Launch Kits to our eleven branch Managers that included candy gifts and prizes and even delivered cupcakes with the 1AU logo to our retail colleagues. setting sail the Launch Once we realized that all of the major components for a Corporate University were in place we got to work. The first step was creating a visual road map that showed how we would organize manage and measure the Corporate University. i met with the CeO and each executive to present the plan and get buyin. Once approved the Training Team met in a full-day planning session to design the framework for the University. The next phase involved bringing in our technology vendor and providing them with all of the system requirements. We quickly developed a strong working relationship with the outside tech team and it continues strong to this day. With development underway we initiated a vital element the Advisory Board. This diverse group of employees would offer feedback on every aspect of the plan s implementation from layout and content to execution of the launch plan and securing continued buy-in from management and staff. They were and continue to be a key factor in socializing and supporting our Corporate University (or 1AU) effort. Manager buy-in was next. We hosted a 1AU Orientation and invited every Manager to attend. Leaders were shown a sneak peek of the intranet and the University and gave us their feedback. We adapted many of their suggestions and followed up to show the changes we had implemented based on their feedback. That meeting had 100% attendance and generated a great buzz . soon the word started spreading out to other colleagues. We then turned our attention to staff education with a marketing campaign that included eye-catching teaser videos and targeted emails. employees were asked to complete a Campus Tour which was an online interactive tour t hat gave viewers an overview of 1A University. We followed launch day with an online scavenger Hunt that familiarized the staff with the new intranet and University. By participating in the scavenger Hunt they learned basic navigation skills and began diving into some of the content resources and online tools. They were also able to leave online comments on the 1AU Blog. 1st Advantage University at a Glance 1A University (or 1AU) contains a virtual wealth of learning resources information curriculums and data and is available 24 7 via our CU s intranet. it is organized in eight key areas each of which contains a collection of relevant tools and topics. LMs The portal to our online training system that gives access to everything online and provides enrollment windows for classroom in-person training sessions. December 2013 credit Union bUSIneSS 13 cU TraInIng Library Digital Forms documents procedures and information are now all in one place. staff may also check out material from our lending library of more than 200 books videos and magazines. Tool Kit A collection of tools that assist colleagues in performing their day-to-day jobs and includes manuals updates and job aids. Dashboard Contains a Measurements at a Glance graphic that displays progress made toward reaching organizational goals that all the staff can see and strive toward. These are revised and updated quarterly. syllabus & Calendars Lists Training Marketing and Community event Calendars for all staff Access. extra-Curricular includes information that explores job related and personal development topics such as wellness exercise and professional demeanor and dress. experience Material and information related to the member and colleague-to-colleague experience. Leadership Resources for current and aspirational leaders. What s in Store for 2013 1A University Learn and grow as 1AU grows Find the current version of any form procedure or manual in our easy-to-use searchable Library. Watch a video that helps you perform your job better Review the Book of Month and check out a book. Play games and puzzles that sharpen your job skills. Easily link to a BVS class or assessment. Locate support items and job aids before and after training. Discover Leadership development for current and aspiring Leaders Find a video or article about health & wellness professional attire finance and more STAY TUNED FOR UPDATES hosted a contest in which we asked them to submit their own list of the benefits of learning and featured their submissions on launch day. Charting Your Course Lessons Learned Launching a corporate university is no small task. We found that the project seemed to grow larger as we dug deeper into each element and began tackling the long list of actions that were needed. However everyone involved understood the longterm benefits of this worthwhile venture knowing the unlimited options 1A University offered would far outweigh the short-term pains of its development and launch. Given the ever-changing economy and an environment of changing member needs and fast growing competition we feel we now have a flexible scalable resource that we can count on to keep pace with the changing times. Here are three key lessons we learned 1. Get buy in in a financial world where analysis and security are often valued over creative thinking and new ideas promoting learning must be paramount. With the help of the Advisory Board the Training Team began a campaign to market the University s mission to enhance the value of learning and explain the services 1AU would provide. The group created a list of benefits that was used 3. Measure. to develop posters and targeted email. To get staff involved we We understood the value and need in having robust tracking 14 credit Union bUSIneSS December 2013 2. Plan short term and long-term goals. We mapped out both short-term and long-term plans for the University as we tackled our launch. We viewed the initial launch as the foundation and framework of an ever-growing resource. Our short-term goals focused on the launch and first phase of implementation. These goals included items such as creating a communications hub for the staff a digital library and providing user-friendly access to forms and documents for employees. We also included a self-paced online Leadership curriculum that is available to everyone. For long-term goals we continue to rely on our annual strategic planning and training initiatives and Advisory Board to help us plan and adjust course for the continuous growth and improvement of 1AU. some of our ideas include just-in-time videos no more than five minutes long that guide employees in completing difficult or critical tasks. We are also planning specific curriculums designed to assist employees in meeting their goals. Programs will be designed around skills (i.e. sales referrals new accounts customer service etc.) as well as specific positions (teller accounting etc.) to allow employees to pursue learning in any area they choose to focus on. cU TraInIng in order to measure and improve 1AU over time. so we were thrilled to find that the LMs the Training Team had selected the prior year was a perfect tool for the University. Our LMs allows us to generate specific reports assign training across positions design curriculums and track training hours and assessment scores. For example we know that currently ten percent of the staff is in the process of completing our (voluntary) Leadership Program. We can create a goal to improve that percentage and recognize staff that is currently enrolled. We awarded a prize to the first colleague to complete the program visiting her in person and sharing her accomplishment and photo with the rest of the staff. Our intranet vendor helped us install Google Analytics to supplement our LMs data which we use to track total visits to the site number of pages per visit visit duration and set goals to improve the outcomes. As we are able to benchmark these measures we can incorporate them into future incentives. We will also tie performance results back to 1AU usage. We hope to see correlation between improved performance and available utilized training on 1A University which we will track using our LMs and Google Analytics. included among the organizations and universities who inspired us to begin this journey. The mission and promise of 1A University to enhance the value of learning supports the mission of 1st Advantage Federal Credit Union to be the most trusted provider of financial services in the community. in today s uncertain economy our members look for trusted guidance from each of our employees. With a climate that continues to focus on compliance government regulations and ongoing changes employees must have a mind-set of continuous learning to best serve our customers. 1AU will enable us to provide relevant practical skills and results to our staff for years to come. Following our perfect storm 1AU s ship is sailing full speed ahead. Lisa Church is Chief Experience Officer of 1st Advantage Federal Credit Union where she has spent more than six years focusing on the member experience and colleague training. She can be reached at lchurch or on LinkedIn and Twitter. Full speed Ahead We have had more than 52 000 page views in the three months since 1A University launched with the average time on each page increasing from 3 55 to 4 25. The top three most visited areas are the Library LMs links to the online courses and the Tool Kit. We continue to monitor usage and strive to increase participation by enhancing those areas colleagues find most valuable. Our colleagues have found immediate benefit in using the new resource and discover more each time they visit 1AU. Our goal to have a one-stop-shop for communication reduce the number of emails and offer anytime access to learning and resources is a work in progress. One colleague put it this way i love the new look. The new system is much more user friendly and the more i use it the friendlier i find it. in addition to the gains the University has provided we were honored by being named a finalist for the 2013 Corporate University Best in Class (CUBiC) Awards in the category of Best new Corporate University--north America and were delighted to receive the Runner Up Award for Best new Corporate University--north America. Of course it was thrilling just to be 1st Advantage Federal Credit Union 1st Advantage Federal Credit Union is a community credit union with 11 branches throughout southeastern Virginia. Formed in 1951 by a group of civilian employees who pooled together 500 of their own money to thwart the loan sharks that preyed on the employees at Fort eustis 1st Advantage is now a full-service credit union with assets of nearly 600 million and 60 000 member-owners. As a community-chartered credit union 1st Advantage continues to be a strong supporter of the local community. From countless volunteer hours by staff to substantial monetary donations given to local charitable organizations 1st Advantage recognizes the importance of being a good corporate steward. December 2013 credit Union bUSIneSS 15 cFO cUrrency the Difference Between deterministic and Stochastic asset Liability management models and why Examiners are Asking for Stochastic Modeling s 1 By Emily Mor Hollis CFA Partner of deterministic modeling. The solution to a math problem can usually have only one right answer and the graph of a function can only have one specific set of values. However stochastic modeling is like varying a complicated math problem slightly to see how the solution is affected and then repeating this action many times and in many different ways. These slight variations represent the randomness or unpredictability of real-world events and their effects. stochastic modeling uses ranges of values for variables in the form of probability distributions. in probability theory a purely stochastic system is one whose state is non-deterministic so that the subsequent state of the system is determined probabilistically. One form of stochastic modeling (and the one most commonly used in effective duration calculations) is the Monte Carlo method. The name Monte Carlo was popularized by physics researchers stanislaw Ulam enrico Fermi and nicholas Metropolis among others. it is a reference to the Monte Carlo Casino in Monaco where Ulam s uncle borrowed money to gamble. The use of randomness and the repetitive nature of the process are analogous to the activities conducted at a casino. tochastic modeling is imperative to accurately calculate a financial institution s net economic value (neV) but is not needed to calculate net interest income (nii). To explain let s start with actual definitions of neV stochastic and deterministic modeling and their relation to market value changes and effective duration measurement. neV is the difference between the net present value of the credit union s asset cash flows including the value of the asset s embedded options1 and the net present value of the credit union s shares and liability cash flows including the value of the liabilities embedded options. For purposes of discussion we will focus on the credit union s assets and refer to all asset cash flows (e.g. mortgage loans securities car loans) as bonds. By definition a deterministic model is one whose outcomes are precisely determined through known relationships among states and events without any room for random variation2. To understand the idea of stochastic modeling it may be helpful to consider that in a way it is the opposite of deterministic modeling. Most elementary mathematics consists An embedded option is a special condition attached to a bond that gives the holder or the issuer the right to perform a specified action at some point in the future. This can greatly affect the value of the bond of which it is a component. 2 Wikipedia 16 credit Union bUSIneSS December 2013 cFO cUrrency Monte Carlo methods (or Monte Carlo experiments) are a broad class of computational algorithms that rely on repeated random sampling to obtain numerical results e.g. by running simulations many times over in order to calculate those same probabilities heuristically--just like actually playing and recording your results in a real casino situation hence the name. So what does this have to do with NEV The present values used in the neV are figured given the base and up and down 300 basis point scenarios in 100 basis point increments. The neV analysis therefore measures price volatility and attempts to assess risk given large interest rate movements. stochastic modeling in the form of Monte Carlo represents a tree in which rates diverge up and down consistently from each knot on the tree branch. For simplicity let s assume we start in period one and that rates move up and down by a determined amount from one knot on each branch to the next. You then have two branches in period two. Rates will then move up and down from these two branches to produce four more branches and so on as shown above. each forward branch uses projected forward rates. This tree example is a one-factor model. As discussed the Monte Carlo method is much more complicated and uses numerous random paths. An example of a Monte Carlo stochastic model using 250 paths is shown below. The Y-axis shows rates and the X-axis shows time. simulations where random paths are built is needed to accurately measure effective duration measurements effective duration volatilities and mismatches. These interest rate paths can become extremely complex depending on how many paths are used what change (volatility) of interest rates is used and how the paths are developed. To calculate the projected prices of a bond by using stochastic modeling begin by projecting a series of interest rate paths into the future and evaluate the bond along these paths as shown above. The most simplistic method is one that December 2013 credit Union bUSIneSS 17 cFO cUrrency continues to pay a rate that is at or lower than the cap value and therefore no income losses have yet been incurred. However a stochastic model would price the loan significantly below par probably closer to 90 percent of book value. This might be your first hint of where examiners might question price validity and rightly so because many paths are being modeled with market rates moving significantly higher than 6 percent in the future and thus they are calculating opportunity losses of the rate being capped. The deterministic model would significantly underestimate the projected market value loss of the ARM as no buyer of the loan in the secondary markets would pay par. The cap is equal to the market rate and given the nature of probably theory of stochastic modeling the chances are high that opportunity losses would occur in the future. Thus the price would suffer because of it. now to complicate things even further paths of stochastic modeling are generally built on current market values and projected forward rates. in other words if a yield curve is downward sloping forward rates are generally less than current rates and there are usually fewer paths that would show opportunity losses in our sample ARM. in this scenario the price might be slightly higher than 90 percent of the original book value and of course vice versa if the yield curve is upward sloping. stochastic modeling is imperative in neV calculations that include cash flows with any embedded options. Options of this nature would include interim caps caps mortgage loan prepayments call options in callable securities or put or call options that might be embedded in borrowing structures. By using a deterministic ALM model you can grossly miscalculate the true value of your balance sheet and hence neV results would be misleading and inaccurate. indeed this is the reason why examiners require stochastic modeling. Emily Mor Hollis CFA is a partner with ALM First Financial Advisors LLC. after these paths are built prices are calculated by present-valuing all of them and effective durations are estimated. effective duration measures the ratio (percent) of the proportional change in bond value (price) to the parallel shift of the spot yield curve. After these paths are built prices are calculated by presentvaluing all of them and effective durations are estimated. effective duration measures the ratio (percent) of the proportional change in bond value (price) to the parallel shift of the spot yield curve3. But enough of all this technical talk let s discuss this logically. Take a very simplistic adjustable rate mortgage (ARM) loan that has one lifetime cap of 6.00 percent as an example. The borrower will never pay you more than 6.00 percent on this loan. in essence you the lender have shorted this embedded option because the borrower has the right to not pay you more than 6.00 percent. Assume that the term is for 30 years and the current rate on the loan is 3.00 percent. Also assume that the value of the ARM loan is at par (no gain or loss) in the current market environment. if rates move up by 300 basis points the deterministic model would continue to price the loan at par because the borrower 3 For more information on duration measurements and option adjust spreads please refer to the November Credit Union Business article. 18 credit Union bUSIneSS December 2013 cU regULaTIOn Credit Unions are Better positioned to implement the Most Recent Mortgage Rule e By Brian D. Godwin ven though we knew it was coming the last thing credit union leaders wanted to add to their list of strategic plans for 2014 was undertaking the implementation of another mortgage rule especially since 2013 has already been a busy year for compliance staff and mortgage professionals. The Consumer Financial Protection Bureau or CFPB had already issued proposed rules final rules and even revised final rules when on november 20th they released the most comprehensive mortgage rule the ResPA and TiLA Combined Disclosures rule. Credit unions incurred substantial costs implementing the new rules in 2013 using funds for training consulting and software upgrades. Many credit unions would have preferred using this money to boost marketing efforts and build their membership base. While it would be easy to be pessimistic about yet another mortgage rule i would ask you to see the glass as half-full not half-empty. it is likely you ve nurtured inter-departmental collaboration as you were developing efficient implementation procedures and board and management involvement in compliance efforts is probably at an all-time high. Your focus on compliance over the last twelve months has undoubtedly strengthened your resiliency in adapting to changes in the regulatory environment which means that the time and money you dedicated to implementing the new rules in 2013 will pay out as dividends in 2014. it also means that credit unions have developed a stronger relationship with the CFPB. since its July 21 2011 launch the CFPB has shown that it is responsive to the comments of credit union leaders as well as to the consumers they ultimately serve. Although credit unions may have become increasingly frustrated with each revision of the final rules the revisions were drafted with a better understanding of their day-to-day implications on mortgage professionals. The CFPB has provided stacks of educational materials charts and implementation guides December 2013 credit Union bUSIneSS 19 cU regULaTIOn a disclaimer is required to prevent confusion with the Loan estimate. The Final Truth-in-Lending and HUD-1 settlement statement will also be discontinued in favor of a new document titled the Closing Disclosure which must detail every cost associated with the transaction and must be provided three business days prior to the origination of the mortgage. Additionally a revised Closing Disclosure must be provided to members whenever the APR changes by more than 0.125% for most loans the product is changed or a prepayment penalty is added. Closings may be delayed by up to three business days after the member has received the revised disclosure in these three situations. so yes there is yet another rule with which credit unions must comply and yes there will be additional costs associated with the implementation of the new rule. But the combination of increased compliance efficiencies with regulator flexibility and forthcoming educational resources will contribute to a credit union s successful execution of the process. The experience gained by credit unions throughout the past year better positions them to adapt to future changes in the regulatory environment and that facilitates meeting their ultimate goal maintaining a healthy organization and providing superior member service. Brian D. Godwin is Senior Compliance Officer at PolicyWorks. PolicyWorks is a national leader in credit union compliance solutions and known for having the resources vision and expertise necessary to assist with the most challenging of compliance issues. For more information visit www. The new rule will render both the early Truth-inLending--or TIL--and good Faith estimate obsolete replacing them with one form which combines most of the same information in a more consistent easier-to-read document called the Loan estimate. that are designed to inform consumers and assist financial institutions in their compliance efforts. The CFPB has also been flexible even though the Dodd-Frank Act deadlines allowed for very little flexibility. The CFPB released its proposed ResPA TiLA combined disclosure rule back in July of 2012 and has been evaluating consumer and industry representative comments ever since. in response to these comments the CFPB removed the all-inclusive Annual Percentage Rate calculation and the requirement that records be maintained in an electronic machine-readable format. The bureau also delayed the effective date of the new rule until August 1 2015 to give financial institutions software vendors and other third parties sufficient time to implement the rule. The new rule will render both the early Truth-in-Lending-- or TiL--and Good Faith estimate obsolete replacing them with one form which combines most of the same information in a more consistent easier-to-read document called the Loan estimate. The new rule requires that applicants must be provided with a Loan estimate within three business days of a credit union s receipt of application. if the credit union elects to provide members with written estimates prior to application CEO SUBSCRIPTION WiTh BenefiTs Benefit your CFO COO CMO CCO CLO CIO HRD With free Monthly E-Newsletters Subscribe NOW register 20 credit Union bUSIneSS December 2013 cU markeTIng What about Radio an Open Letter to credit Unions about the Past Present and Future of Social media By Jason M. Dias Where We Have Been A Brief History of social Media CompuServe was founded in 1969 lighting the fuse that would travel 33 years before igniting the social media explosion. In 1989 CompuServe began allowing incoming and outgoing email. AOL turned ten in 1995 when it gave away so many free introductory CD-ROMs that I used them for beverage coasters in my cable-ready apartment. As early as 1995 you could go online to chase down high school friends and ex-sweethearts on providing your spouse was not using the house phone line. Two years later online blogging became big and in that same year an AOL executive began using the term social media to describe AOL s unrealized goal. In 2002 Friendster a site still popular in Asia created a version of social media most like what we re familiar with today and a year later LinkedIn arrived for grownups and MySpace showed up for kids. In 2004 the fuse finally reached the keg of dynamite--Facebook-- and boom Social media as we now know it had blown into our lives Two years later a smaller but no less impactful aftershock exploded Twitter. Now you can tweet about anything. Credit Unions spent the last decade trying to figure out how to react in the aftermath of this social media explosion but as with most explosions there was really no way to prepare. So many of us wandered around dazed and wondered what we should do next while others raced to the scene waited to gather more information or had board members that were too old to hear the explosion and grasp it s ramifications. I believe these are the reasons so many credit unions talk about social media but don t know how to use it effectively. Where We Are now The social media we see referred to on virtually every piece of conference literature is still in its adolescence mature enough to recognize but still evolving. It s still impossible to imagine how social media will look in the 2020s the decade during which I believe it will finally reach adulthood. From a commercial perspective Facebook and Twitter have legitimized social media and are must-haves for any brand looking to engage a multi-generational audience. Facebook used to represent the party the kids were having until the parents came home unexpectedly and Twitter is the new favorite of the twenty-something crowd. Despite the fact that Facebook is an excellent marketing tool for reaching Baby Boomers and Twitter for grabbing younger folks most Credit Unions use them as a way to remind all younger members December 2013 credit Union bUSIneSS 21 cU markeTIng SOcIaL SITe TargeT aUdIence hOW TO USe IT Find the right balance between information and fun. You won t grow your audience with just information or contests. You need a thoughtful balance of giveaways financial education and marketing messages. Balance and tempo are the key to growing your Facebook following in every demographic. This is the choice of Generation Z the Digital Citizen. Use twitter to share things that would interest your kids at home or link them back to targeted parts of your brand online. High School football scores athletes of the week scholarship applications and your Facebook contest for the dorm room makeover. Be bold and brave and Generation Next won t mind a bit. FacebOOk Multigenerational with a baby boomer edge. TWITTer Generation Next yOUTUbe YouTube can be tricky because this is Google and you never really know Multi-generational with an edge what to expect. You can have a funny to Gen Next although according and edgy video that resonates with young people but shares the page with to the AARP the top 4 sites something that offends the parents. for Baby Boomers are Google In this space be creative and bold Facebook YouTube and Yahoo. but be prepared for the occasional angry email from Mr. or Mrs. Parent Grandparent. that they are closed on federal holidays. It should be used for much more than that. Both Facebook and Twitter have already crossed generational platforms Last year baby boomers spent an average of two more hours per week online than their grandchildren. Limiting your tweets to holiday closings and political messages-- Don t tax my credit union campaigns--is not compelling enough to win the loyalty of digital citizens of any generation. The best and brightest brands have already begun re-imagining how to use social media in their marketing. Is your credit union one of those forward thinking organizations Just as some of us have just begun to hit our social media stride the mobile marketplace has entered the social media landscape as a key player. Are you reaching out to grab a piece of the mobile Apps business What about mixing Twitter with YouTube With careful planning and creative production you can give your advertisements an edgy appeal that can be used on YouTube as well as conventional Cable TV. 22 credit Union bUSIneSS December 2013 cU markeTIng Be creative and remember this truism Social media is in its adolescence. Therefore it is a process not a finished product. We have reached the place on the social media continuum where we can begin making thoughtful decisions about how we plan our social media strategies for the short and medium terms. Use the table on page 22 as a guideline for navigating social media.. Keep it Local The concept of local is one of the most powerful survivors of the recent great recession. Most of your members do business with you because they are close enough to share an ethos with your brand. You should target this ethos on your social media space to counteract the multi-million dollar ad campaigns of your national bank competitors. While Bank of America can hire an actor that pretends to be getting a small business loan you can actually have lunch inside the restaurant with a new commercial client and share that moment and successful outcome with your social media audience via Facebook Twitter and YouTube. In doing so you will proactively remind members and followers that you conduct commercial and small business banking while helping advertise a brand or business that owes you a monthly loan payment. One big advantage to knowing how far we ve advanced along the social media continuum is that we ve been able to study how other brands are using it and can now copy those brands that are using it well. Although they are not the third largest credit union in America Mountain America FCU has the third largest Facebook audience in the CU marketplace with over 100 000 likes. Before you pay any fee to attend another social media conference go to Facebook find Mountain America FCU and like them for free. You will learn far more than any conference could teach you without any need to get in your car. Mountain America did not start out having any special advantages over other CUs. They simply used the pre-existing trust December 2013 credit Union bUSIneSS 23 cU markeTIng members had in their brand and found the perfect message mix with content balance to attract a Facebook following. They did not hire a full-time social media professional to manage their social sites until late 2010 and as of October 28 2013 less than three years later they have 101 134 likes. It will be far more by the time you read this because they have developed a social media strategy with tremendous balance. According to Sharon Cook VP of Marketing and Public Relations We have marketed it like everything else. We market it online in the mail and in our branches. Also we have struck the right balance between fun things like contests and useful financial information and marketing offers such as loan campaigns. GTE Financial is another social media All-Star and are also growing their Facebook following by balancing wit with contests and meaningful information. Just a few years after a re-naming and a major re-branding campaign GTE Financial has more than 12 000 likes and projects a far different vibe than Mountain America. But it has been effective. With a little imagination you can leverage local much better than a giant corporate bank. Remember Social Media is social and mobile but most of all LOCAL format along with music performed by local artists and or interviews with commercial clients about their business. Radio shows can be linked on your Facebook page or sent out on Twitter. This is real media being sent via social media where it can be easily accessed and shared A social media platform integrating all social media. You own the air you own the content and you use it to effectively and purposefully engage your audience. You don t simply post a picture and bio of the new CEO you let your members and employees hear an interview with him or her. You don t simply tweet and post a picture of a Reverse Mortgage seminar you broadcast it live and post it online for those who aren t able to hear it live or whenever someone needs to consider a reverse mortgage. Launching a branded broadcast channel is a logical next step for the boldest financial brands. Eloquent Online started a weekly branded online radio show catering to the banking marketplace in 2010 and three years later it has over 76 000 live and archived listens. Finally we are what we have always been as humans members of separate tribes. In spite of more than a century of mass marketing people still self-segregate and bond with brands and people who share similar interests needs and community. In banking terms this often translates into cultural economic and or generational channels. Social media affords us the best means of intentionally engaging our audience and potential audiences with an interactive and ongoing message that keeps the members of our tribe invested in and generationally bonded to our brand. Jason M. Dias is the president of Eloquent Online. He uses history live music and humor to tell stories about the American workplace and our shared future. His speaking style is candid and direct and thousands of followers across the country have praised Dias for his ability to inform and inspire. Participants have given his Keynote Sessions the highest ratings at every conference and trade show he s addressed since 2002. Where Are We Going next Predicting the future is always more difficult than evaluating the past. However it is clear that social media is here to stay. It has made the jump from college dorm laptops to mobile phones in the cup holder of grandma s Nissan Maxima. It must become a part of your ongoing marketing and communications strategy if it s not already. In order for your marketing to have the greatest impact on your brand and reach existing members as well as potential new members your message must be more socially segmented and appear on a broader range of media. At Eloquent Online we are working with a number of credit unions to create proprietary online branded broadcasting channels. Having an Internet radio station enables credit unions to inform and inspire their internal and external audiences easily and cost effectively using any pc Mac or mobile device. It gives them the flexibility to broadcast live shows that are automatically archived allowing listeners to tune in whenever they want or need to. Financial literacy reverse mortgages Medicare questions and college planning shows can all be shared using this 24 credit Union bUSIneSS December 2013 TechnIcaLLy SPeakIng aCH federal Helps Credit Union lasso in Business Tax formatting issues s we head into tax season it is worth noting that numerous businesses initiate tax payments electronically through financial institution provided services. Credit unions banks and non-banks (operating as service providers) offer commercial taxpayers an assortment of ACH credit payment initiation services. ACH Federal which provides e-Payments processing allows credit unions to reach out to businesses in their respective communities. Recently ACH Federal announced the implementation of its PaymentsHQ processing platform by 1.9 billion Travis Credit Union based in Vacaville California. With this installation TCU now also incorporates the latest PaymentsHQ enhancement that streamlines and simplifies the complicated federal and state tax addenda format required by nACHA. The significance of the federal and state tax addenda enhancement is that it was developed due to a customer A By Roy W. Urrico need and turned into a technology that created a solution for many other financial institutions and direct customers as well said Kurt schusterman president of ACH Federal. The tax addenda format was developed and tailored Kurt Schusterman specifically for Travis Credit Union according to schusterman. TCU expressed the need challenge and ACH Federal turned that into technology that provided an effective solution. TCU now has the ability to remit payment information for business and payroll taxes with ease. schusterman points out that the federally required tables are loaded directly into the PaymentsHQ processing system so that selecting the appropriate categories and entering iD s is all that December 2013 credit Union bUSIneSS 25 TechnIcaLLy SPeakIng needs to be completed before the system builds out the required Ansi addenda for the transaction. The new formatting requirement developed from nACHA the governing body for the Automated Clearing House (ACH) network requires service providers to conform to the agency routing format specifications. in general these service providers hard-code a taxing authority s account number transit-routing number addenda and other information to properly format and route the payments according to the taxing authority requirements. PaymentsHQ provides gateway services for all payment types (debit credit and ACH) and end-to-end processing for ACH Payments. The technology allows for the direct deposit of funds to bank accounts and enables acceptance of payments via phone internet or recurring billing. PaymentsHQ requires no software and suits the needs of credit unions and community banks as well as small to medium enterprises that use the internet to make payments. ACH Federal partnered with FUnDtech a provider of banking transaction technology to launch a comprehensive ACH processing solution. The upgraded PaymentsHQ processing system says the company combines the power and performance of FUnDtech s serverbased technology with ACH Federal s proprietary Web-based AAP-designed front end. The new feature from ACH Federal allows Travis Credit Union the eleventh largest credit union in California with more than 178 000 members the ability to remit payment information for business and payroll taxes with ease. The federally required tables are loaded directly into the PaymentsHQ processing system so selecting the appropriate categories and entering iDs is all that needs to be done before the system builds out the required Ansi addenda for the transaction. The Addenda integration is part of the PaymentsHQ product suite and provides companies with a benefit to their ACH processing system. The new feature is available for all ACH Federal clients. The upgraded PaymentsHQ processing system includes ParentLevelReporting thisnewfunctionalitywill roll out this quarter. IncreasedOptimization theupgradedPaymentsHQ system is more efficient is said to have has virtually unlimited capacity and faster speeds. This provides shorter processing times for higher volume transactions without impacting other users on the system. ANSI12Addenda thisnewfunctionalityaddsthe ability to make tax payments on CCD transactions. elements of the PaymentsHQ product suite include a single sign on payment gateway fraud protection business continuity and disaster recovery sOC3 compliance and elevated risk management Tier 1 processing (Fed Terminal on premise) and a service Bureau with six Accredited ACH Professionals (AAPs). PaymentsHQ is not integrated to a core system and functions more like a saas based model. The power of PaymentsHQ is its ability to be tailored to the unique needs of our customers. schusterman explains PaymentsHQ is a hosted solution so credit unions don t have to incur a significant capital expense. By using ACH Federal s saas model credit unions don t have to worry about trying to keep up with the dizzying pace of technology changes regulatory compliance fraud protection and risk management reporting. Also ACH Federal is staffed with six AAP s so their customers have immediate free access to ACH experts. Among the functions and features PaymentsHQ provides are Singleentry recurringandstreamlinedACH processing Improvedcashmanagementforecasting RecurringACH Reducedlatepaymentandlatefees ACHbatchcreationandacceptance VerificationServices AAPdesignedreporting Preventionofpaymententryerrors Business-to-businesspayments Electronicchecks Electroniccommercepayments Automatedreturns confirmationsandexception handling Federal stateandlocaltaxpayments Remotedepositcapture Real-timetransactionacceptance Multipleformauthenticationandfileformats acceptance DailyFedbalancing Customer bankaccessandbanklevelreporting GLbalancingassistance 26 credit Union bUSIneSS December 2013 TechnIcaLLy SPeakIng across all states. The TXP addenda format was developed and is now widely utilized and recognized by nACHA. it s approved by Ansi AsC X12 for financial eDi. The nACHA tax addenda format helped solve a huge communications issue. Before when non-federal tax authorities enacted changes that affected the ACH payment routing or information requirements for electronic tax payments (e.g. routing account number changes adding new tax types) they typically communicated the modifications to taxpaying businesses only via the U.s. mail. service providers learned about changes after the fact often from taxpayers sometimes during an investigation of why a payment was not received by an agency. This created inefficiencies and hazards for ACH payments and added cost as well. According to nACHA the scope of this issue affected every service provider that originated payments to a given tax authority and any business that wanted to send an electronic payment to the given tax authority. Two of biggest issues centered on Misrouted or rejected tax payments by a service provider unaware of routing formatting changes. This often caused the assessment of late fees and penalties against the business igniting disputes and aggravating relations between business taxpayers and service providers. Customerserviceissuesduetonumerouscustomer inquiries seeking clarification and or remediation. in some cases it could take 2-4 months for a service provider to release an update necessary to support the enacted tax authority change (i.e. the time required for information verification coding update release testing and installation). Lacking an industry standard for carrying necessary remittance information in an ACH credit payment employers and other third party payers resorted to writing checks to state taxing authorities or to developing electronic implementations where the remittance flows outside the ACH network. Without a standard solutions developed and implemented by states individually would lead to payers having to track and use such solutions on Banks and credit unions can be set-up and activated in as quickly as two-weeks. Because the platform is Web-based and not iP-restricted it can be accessed from handheld devices such as tablets and smart phones to provide convenience in creating payments handling risk for clients and accessing a wide variety of reports. About The nACHA Tax Addenda Format nACHA s Council for electronic Billing and Payment which includes banks vendors and corporate members focuses on promoting electronic billing and payment. nACHA approached the Federation of Tax Administrators about improving the timeliness and quality of communications between tax collectors and service providers regarding format data changes that affect ACH payments for business taxes to provide more lead-time for service providers to implement changes and reduce the risk of misdirected payments and associated fees penalties. states needed taxpayer data in the electronic payment in order to match the payment to the return. Taxpayers and service providers needed a standardized payment format December 2013 credit Union bUSIneSS 27 TechnIcaLLy SPeakIng a state-by-state basis. For example according to nACHA one leading service provider estimated that it maintains over 2 000 state tax applications which meant they had to implement a hard coded process for originating business tax payments via the ACH to all 50 states plus multiple taxing authorities within each state. Changes within any of the applications needed to be tracked to update the service provider s system code and an extended requirement to provide and install the code within the banking platform could be added in cases where a financial institution relied on a service provider to offer payment services. This led to a standardized ACH process across all payers and all states to help employers and states reduce costs by replacing costly manual check payments with electronic ACH payments and remittance information. The nACHA Operating Rules and Guidelines govern the formats specifications and exchange of ACH entries. nACHA also develops and maintains nACHA-endorsed banking conventions. With respect to the data contained in the Addenda Records of ACH formats the nACHA Operating Rules stipulate the type of data that may be exchanged as well as which standards and formats are permitted but the structure of the data content is managed outside of the nACHA. Roy Urrico is a freelance ghostwriter and byline writer of books articles newsletters guides case studies and white papers about financial institutions financial technology compliance information security credit and collections foreign exchange and many other financial topics. To find out more about how Roy can help your organization check out Roy s profile on LinkedIn visit his Web site at or email him at roy 28 credit Union bUSIneSS December 2013 aT c LeVeL The Legacy By Marc A. Bringman T As Frank reflects upon his 30-year career and looming retirement he s flooded with a mixture of nostalgia and melancholy. Once home enthralled by the pages of Moby Dick the concept of legacy begins to haunt him. if life as you knew it disappeared tomorrow what kind of professional and personal legacy would you leave behind here are times when we just sit back and reflect back to the task at hand packing up the office. After more than and so it was with Frank on his last day of work. He 30 years he had retired from the top job. He looked forward to looked around his office. The barren walls paraded his first night of retirement and for the first time a night filled with no thoughts of work the company no trophies or diplomas. or the problems. Tonight he planned Those were in tattered to read fiction just fiction where the boxes at home somewhere along with mind is given to fancy and everything forgotten gabardine navy uniforms and is possible. He had earned this journey old suits some several sizes too small. into fancy and he needed the break from Family photos spread across most flat years of reality. surfaces in his office and a 13-year-old picture of his wife smiled back at him The afternoon passed quickly and after from the corner of his desk. many short goodbyes Frank drove home for the last time. A pleasant evening At the center of this desk two black ensued and night arrived--time for bed. Mont Blanc pens stood ready for use. He was excited about opening his 1942 He had never used these writing illustrated edition of Moby Dick or The instruments. The thought pulled his White Whale. lips into a tight smile. His wife had given them to him many years ago when he As he leaned against his pillow ignoring was first promoted to VP. since then he the ever-present TV Frank tried to never touched them and they probably adjust his reading glasses but left them didn t work after all those years. He cockeyed perched on the tip of his wondered why he had kept them so nose. Finally he said to himself as he long in the same prominent spot. Was reached for his copy of Moby Dick. He it appreciation or a status symbol He wasn t sure. He wondered where he would put the pens at home. placed the old book on his chest. He had waited 30 years to Then it occurred to him. Ah yes he had just the right place the re-read this novel. For many moons the old book had rested center of a desk he didn t plan to use. Frank turned his attention quietly in his small library unopened untouched and one of the December 2013 credit Union bUSIneSS 29 aT c LeVeL few precious items his mom had left him after her death more than 20 years earlier. From its shelf the book had beckoned him for years yet it remained unopened. He had often scolded himself for not reading it but never pulled it from the shelf. This time tonight he wanted to read it right. He wanted to release his imagination and let Melville teach him about the affairs of men on the sea who came together for a single great purpose. no Cliffsnotes this time no this time he would take notes in the margins and argue with the author as the two protagonists set sail on an old and well known adventure. He began to read. Frank opened the book and noticed right away his mom s handwriting--just a name and date a symbolic piece of her legacy. she had taught him to read. Until this moment he had never considered her legacy and although a tempting thought the lure of the sea ishmael and Ahab overwhelmed him. He paged past the title and arrived at a dedication to none other than nathaniel Hawthorne. Melville Hawthorne i m in good company here he mused. in short order Frank arrived at Chapter Vii The Chapel. He read that ishmael had visited Whaleman s Chapel in new Bedford as so many of the sailors had before setting sail. While waiting for a small ceremony to begin ishmael had noticed the inscriptions on the wall John Talbot who at the age of eighteen was lost overboard near the isle of Desolation near Patagonia november 1st 1836. This tablet is erected to his memory by his sister. Frank carefully read three similar inscriptions and again his mind turned to legacy. This time it captured his attention and he silently questioned his inner self. Will this be it a tablet quietly placed somewhere on a well-groomed lawn A mind unburdened by stress and the affairs of the day often turns to the higher functions imagination wonder and of course reflection. The inscriptions and thoughts of his mom left him wondering about his own legacy. On the other side of the large bed Liz glanced at her aging husband something she had done frequently over their 35 years of marriage. He s a good man she told herself and perhaps now this first night of his retirement he can rest. Tomorrow she hoped to initiate those things they had always wanted to do but put off travel see the country and visit family. Until this night Frank had never considered legacy. The sudden flurry of thought troubled him. What would he leave behind The bills were paid. He had just left a strong company that was likely to weather most storms but legacy had to be more than that didn t it He wondered. He re-read the inscriptions of the new Bedford sailors courageous men who had succumbed to an unpredictable and often unknown sea. Then he noticed that all the inscriptions described an end not something that lived on. The plaques were nothing more than a remnant of a life that was and over time even this would fade away. so what remains he asked himself. He silently mouthed the words What remains Frank let the book fall softly on his chest while his thoughts turned to the inscription that would survive him. He had reached the pinnacle of his business career early on always a winner an athlete and sometimes scholar but no plaque would immortalize these accomplishments. Great accomplishment is immortalized but that type of recognition is reserved only for the very best or the first Henry Ford Babe Ruth and neil Armstrong. There were no plaques for second place just ask Buzz Aldrin. Frank dismissed the thoughts and chastised himself. The musings of an old retired man he thought. Then silently he asked What is the product of my life He wondered if such anxious thoughts were just another rite of passage a part of growing old. Aging had been a series of daily lessons some quite painful. He tried to calm himself with a little personal jab Well it s a heck of a night to start worrying about this. A bit frustrated Frank looked at his wife and then scanned the many family pictures around the master bedroom. Ten thousand memories of family kids adventures and good times flooded his brain and his short search for a legacy dissolved into simple satisfaction. All was well. He started to read again-- this time without interloping thoughts. Frank didn t wake up the next morning. He died peacefully with the glasses still on his nose and Moby Dick closed resting on 30 credit Union bUSIneSS December 2013 aT c LeVeL his lifeless chest. Liz lived on for many years and although very lonely at times she never regretted a moment she had spent with her husband. each day had been a gift and she cherished every memory. she did hope with all her heart that he had finished the book but she never really knew. it s just a story right Can it happen to you Real life sometimes hits us right in the chops. Daniel Chappie James Jr. four-star Air Force general survivor of almost 200 combat missions in both Korea and north Viet nam retired in February 1978 and by the end of the month this 58-year-old American hero was dead of a heart attack. Few will do more with a single life than Chappie James but will we remember him What legacy did he leave Who remembers Chappie James in First Things First stephen Covey describes several human needs to live to love to learn and to leave a legacy. He describes legacy as a spiritual need-- a sense of meaning purpose personal congruence and contribution. so i ask if legacy is a basic need where will we find it Legacy is a personal experience not the plaything of those who survive you. Look not to plaques and headstones. Real legacy is hidden from view but very alive in the people you positively influence in your life the child you taught to read the kids you took fishing on a Wednesday the people you mentored despite pressing responsibilities the example you set during a lifetime of work and the jobs you created through hard work entrepreneurship integrity and business savvy. This is your legacy. The end can come at any time and in many ways. Best advice Be complete. if you have an opportunity to take a kid to a ball game do it. if you see a need to correct an injustice do it. if you sense a problem with your team explore it. if your business needs a shot in the arm get a syringe and fill it with the right thing to do. Marc A. Bringman was the editorial director of Credit Union Business and author of Swapping Lies Deception in the Workplace. December 2013 credit Union bUSIneSS 31 cU UPdaTe industry information a Step Toward mitigating Loan risk & building relationships lthough lending risk should be a major concern for credit unions especially in small-business loan departments few credit unions provide their employees with the appropriate tools to properly build and diversify their lending portfolios. The time that employees have to assess business loans is increasingly limited as competition with other financial institutions such as big banks escalates. Having appropriate industry and risk information at hand allows employees to quickly and easily undertake fundamental risk analysis and facilitates the kind of leadership skills that helps build and strengthen member loyalty. Many lenders turn to industry research reports which offer quick accurate and easy to understand analyses of most clients operating environment instead of using an informal search method--like Google--to identify growth potential and trends within a given market. Using existing unbiased industry analysis as a starting point for risk mitigation business development and customer service helps credit unions save time and money while assisting them in making better business and lending decisions. A By IBIS World Industry Analysts Agata Kaczanowska and Lauren Setar Risk Mitigation Using Risk scores to Balance and Diversify Loan Portfolios Credit unions mitigate risk through loan portfolio diversification. To achieve diversification they need to know all of the factors that tie individual businesses together which is especially critical when managing small portfolios where each additional loan can lead to portfolio imbalance. By knowing how similar businesses are performing along with their upstream and downstream counterparts credits unions can ensure that their loan portfolios are not too heavily dependent on single supply chains which is an indicator of low portfolio diversification and heightened risk. industry reports highlight not only situations that individual companies face within their own industry and supply chain but also spotlight outside factors that can tie diverse businesses together. Business environment reports can become key external drivers of industry performance. Understanding the external causes that affect an entire industry will make it easier for credit unions to study unsystematic risk or risk that occurs within industries that react similarly to outside factors such 32 credit Union bUSIneSS December 2013 cU UPdaTe as environmental or regulatory trends by connecting those industries that share these key external drivers. This information is also invaluable to credit unions looking to diversify their small-business lending portfolios. Having good risk information facilitates business loan evaluation as well. Credit unions can use risk scores assigned to each industry to identify the level of industry-related risk for a specific company. For example iBisWorld Risk scores are calculated based on an industry s current and expected operating environment. These scores which were developed in collaboration with the Risk Management Association (RMA) combine the three components of risk structural growth and sensitivity risk. structural risk is calculated using an industry s fundamental operating environment like barriers to entry competition and technological change while growth risk is based on changes in revenue and sensitivity risk is tied to an industry s external drivers. Risk scores take the guesswork out of evaluating risk for a specific industry and when used with company statements and evaluations present a more complete picture to loan evaluation officers. When a portfolio manager analyzes the overall supplychain risk he can highlight those industries with risky suppliers and customers and avoid potential defaults in his portfolio. understanding markets helping CUs target the appropriate markets for business lending portfolio diversification. Portfolio managers use industry research to identify risky sectors or potential supply chain issues. For example if retail risk scores rise CU loan officers may be advised to avoid that sector and focus their portfolios on areas with less risk. Portfolio managers can analyze additional risks that can influence the probability of default once they have identified the industries that a client buys from and sells to. A portfolio manager with several loans to auto parts retailers for example should be aware of other industries that affect the auto parts retailer supply chain such as auto manufacturing and auto parts wholesalers. industries that supply auto parts manufacturers such as iron and steel manufacturers and metal stamping companies also influence risk. When a portfolio manager analyzes the overall supply-chain risk he can highlight those industries with risky suppliers and customers and avoid potential defaults in his portfolio. Business Development Reaching new Markets With industry Research as a Guide industry research helps credit unions better understand what is in their existing lending portfolios and gives them the information they ll need to achieve their growth potential. Most credit unions focus on specific areas of interest but CUs can use industry research to reach new markets by allowing them to quickly identify potential lending opportunities by match ing lending criteria with industry performance. Having good risk information facilitates business loan evaluation as well. Credit unions can use risk scores assigned to each industry to identify the level of industry-related risk for a specific company. CUs can use industry research to screen for industries exhibiting a certain average profit capital intensity risk competitiveness technological change etc. Time spent researching new markets and potential loans is critical especially to small credit unions with limited personnel and industry research provides an efficient solution to quickly Customer service Understanding the Market That Clients Operate Within industry research allows companies to take advantage of opportunities within their clients space by identifying key success factors growth drivers and growing markets or product segments. Credit unions look at industry research to understand market conditions when they investigate a borrower s ability to repay a loan. Credit unions are able to assess whether or not December 2013 credit Union bUSIneSS 33 cU UPdaTe borrowers are taking the necessary steps to remain competitive and successful. To help clients prepare for the challenges an industry faces industry research can provide valuable information on market size and competition as well as assist in drafting business plans pitch books benchmarking forecasting business valuations litigation support and due diligence. Using industry research allows credit unions to better understand any industry and its potential for success or failure. in many cases this research also reviews an industry s key success factors and drivers to explain how successful businesses operate. Consistency Using the same tool across lending roles and activities Using a single resource for industry research gives a credit union a consistent baseline across departments and staff which streamline the loan process by minimizing errors and eliminating research redundancy. in other words there s no guesswork and all employees have immediate access to the research including risk information allows employees to same information and fully understand the sources that their examine industries in a prompt precise and simple manner to in order to better understand their clients operating environment. colleagues used to compile research. Credit unions use industry analysis to save time and money while observing risk enhancing business development and improving Why industry Matters several studies have found that industry effects contribute customer service. directly and significantly to the success of an individual business. According to a paper authored by schmalensee in 1985 About iBisWorld inc. industry effects account for 20% of the overall fluctuations Recognized as the nation s most trusted independent in business-segment profitability. This statistic was verified source of industry and market research IBISWorld through comprehensive data and enhanced statistical analysis offers a comprehensive database of unique analysis and by McGahan and Porter at Harvard University in 1997 which information on every US industry. With an extensive online study ended up with a similar figure of 19% (please refer to the portfolio valued for its depth and scope the company equips individual studies for specific results). Therefore credit unions clients with the insight necessary to make better business using industry research are able to efficiently diversify their decisions. Headquartered in Los Angeles IBISWorld serves portfolios with unbiased information by viewing loans within a range of business professional service and government the scope of industry research. Considering that this can affect organizations through more than 10 locations worldwide. performance by 19-20% industry research can significantly For more information visit http affect each business s performance and their ability to repay or call 1-800-330-3772. your loan. Harnessing industry data and business environment statistics enables small lending institutions to mitigate risk through improved portfolio diversification and client retention. industry Using industry research allows credit unions to better understand any industry and its potential for success or failure. 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