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THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS THE CU BRANCH ISSUE AUGUST 2015 VOLUME 10 ISSUE 8 Strategic Planning Overarching Trends Will Stress-Test Every Credit Union s 2016 Strategic and Operational Plans MARVIN C. UMHOLTZ The Law Cautious Optimism for NCUA s Proposed Fixed Assets Rule BRAD R. BERGMOOSER CEO Velocity Interviews with Top CEOs Innovating for Member Success A Discussion with Redstone FCU CEO Joe Newberry SCOTT MCCLYMONDS AN ARMY OF SUPPORT WITH SWBC YOU GAIN A TEAM OF EXPERIENCED FDCPA-CERTIFIED COLLECTORS THAT WORK ON BEHALF OF YOUR CREDIT UNION. Our outsourced collections service includes customizable call and letter campaigns reduced cost structure multiple payment channels and after-hours and weekend support. And best of all we can get this service up and running for your credit union within a couple of weeks. 2015 Copyright. All rights reserved. 5540-1113 CUB 0715 Visit collections or call 866-316-1162 today to learn how SWBC outsourced collectors can become a part of your team. TABLE OF CONTENTS VOLUME 10 ISSUE 8 Credit Union BUSINESS GAIN AN ARMY OF SUPPORT with SWBC OUTSOURCED COLLECTIONS THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 PUBLISHER S POV Introducing Branch BUSINESS Tim O Hara CEO VELOCITY 26 29 32 36 40 42 45 CFO CURRENCY Enterprise Risk Management The Value Of Centralizing Risk Functions Thomas Griswold BRANCH BUSINESS Innovating for Member Success A Discussion with Redstone FCU CEO Joe Newberry Scott McClymonds Don t Write a Eulogy for Branches Meredith Deen MARKETING MATTERS 10 14 17 VIEW FROM THE CROW S NEST The Value of Fostering Loyalty Elizabeth Rowe MEMBER BUSINESS LENDING All Hands On Deck Juli Anne Callis SHARED BRANCHING Credit Union Shared Branching The Sky Is Still The Limit Bill Prichard STRATEGIC PLANNING The Role of CUSOs in a Successful MBL Program Ryal Tayloe THE LAW Overarching Trends Will StressTest Every Credit Union s 2016 Strategic and Operational Plans Marvin C. Umholtz LENDING SOLUTIONS Cautious Optimism for NCUA s Proposed Fixed Assets Rule Brad R. Bergmooser CU REBRANDING 23 Rebranding An Eight-Step Strategy Lisa Liebman and Jennifer Forg t COMPLIANCE UPDATE Sales or Service Are Your Branches Prepared for the Future Scot Vackar Field Day HMDA Data Collection Requirements Soon to Double Jason Skemp 1 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M ABOUT US THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim Iliana Nord Operations Manager iliana Patti Manzone Designer Ashok Kumar Circulation Director PUBLISHER S POV THE ONLY ALL- DIGITAL BUSINESS RESOURCE FOR CREDIT UNIONS T H E S T R AT E G I C P L A N N I N G I S S U E AUGUST 2015 VOLUME 10 ISSUE 8 Strategic Planning Overarching Trends Will Stress-Test Every Credit Union s 2016 Strategic and Operational Plans MARVIN C. UMHOLTZ Tim O Hara CEO VELOCITY Scott McClymonds VIEW FROM THE CROW S NEST The Law Cautious Optimism for NCUA s Proposed Fixed Assets Rule BRAD R. BERGMOOSER Juli Anne Callis SHARED BRANCHING CEO Velocity Interviews with Top CEOs Innovating for Member Success A Discussion with Redstone FCU CEO Joe Newberry SCOTT MCCLYMONDS Bill Pritchard STRATEGIC PLANNING Marvin C. Umholtz LENDING SOLUTIONS Scot Vacker CFO CURRENCY SUBSCRIPTIONS Thomas Griswold BRANCH BUSINESS Meredith Deen MARKETING MATTERS Credit Union BUSINESS is published monthly (12 issues per year) by CU Business Magazine Inc. A one-year Digital membership is 75 yr x 3 ( 225). An online membership form is available at register. SALES AND ADVERTISING Elizabeth Rowe MEMBER BUSINESS LENDING Tim O Hara Publisher tim or 561-282-6015 1 CONTACT INFORMATION Ryal Tayloe THE LAW Brad R. Bergmooser CU REBRANDING Lisa Liebman and Jennifer Forg t COMPLIANCE UPDATE Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim Jason Skemp 2 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M Ready for more value from your ATM provider Open your doors to a new ATM provider For decades Cummins Allison has helped you make the most of your branch resources. Now we re excited to offer a complete line of highly reliable secure full-function ATMs to t any branch con guration from drive-up to walk-up. And best of all our ATMs are backed by the responsive dependable local service you need and have come to expect. So open your doors and give us a try. When you re ready to replace add to or expand your ATM network let s talk. Visit letstalk 2014 Cummins Allison Inc. All rights reserved. PUBLISHERS TAB POV BY TIM O HARA Long Live the Branch I always enjoy visiting my branch the West Palm Beach branch of Tropical Financial Credit Union. I ve been visiting this branch since shortly after we launched Credit Union Times newspaper 25 years ago so I m a bit of an expert. Not long after we launched CUB we five employees were designated a Select Employee Group and were welcomed with open arms to TFCU. And I ve been doing 100 percent of my banking there ever since including cars homes and college tuitions. C.U. Business Magazine Inc. is also a business member of TFCU and has been since we hung the shingle in 2005 I m pretty sure that CU BUSINESS is the only CU trade publication that is 100 percent credit union banked Branch BUSINESS Just about every week it seems I read some negative prediction about the future of the branch yet every time I visit my branch there is a line at the tellers desk and another waiting to see GAIN AN ARMY OF SUPPORT with SWBC OUTSOURCED COLLECTIONS MSRs. As far as I can tell anything that gets sold at a credit union gets sold inside the branch Branch employees need love too. To celebrate the fact that CU BUSINESS now boasts more than 1 000 readers who hold the title of branch supervisor branch manager or assistant branch manager we are officially launching a new monthly column titled Branch BUSINESS. Like each of our other monthly columns Branch BUSINESS is aimed at helping your branch network run as smoothly and efficiently as possible with advice and best practices to share. The first Branch BUSINESS article beginning on page 29 is titled Don t Write a Eulogy for Branches Just Pay Attention to How Their Role Is Changing. A most appropriate topic We re Branching Out Later this month CUB will launch a new LinkedIn Group called FS Branch BUSINESS. It will be a private forum for branch personnel to identify discuss and solve common problems. Watch your inbox for an invitation. And thanks for reading Tim 4 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M service The occupation or function of helping. What limits should a function like this have A good CUSO not only knows the answer to this question but also builds their availability upon it. At PSCU our 24 7 365 Total Member Care Team embodies your credit union to assist your members all hours of the day and night. We have the tools and technology to address concerns quickly and we spring to action when you wish to unwind. As for limits that s not our business. tmc 888.918.7357 CEO VELOCITY TAB BY SCOTT MCCLYMONDS Innovating for Member Success A Discussion with Redstone FCU CEO Joe Newberry This month s CEO spotlight takes us to Huntsville Alabama. Joe Newberry of Redstone FCU sits down to discuss ways credit unions can serve members beyond financial products. He also offers practical advice on how CUs can innovate in ways that not only increase financial performance but also benefit both members and the community. T 6 Joe Newberry CEO of Redstone FCU his month my leadership discussion was with Joe Newberry CEO of Redstone FCU in Huntsville Alabama. Redstone has approximately 4 billion in assets and over 375 000 members throughout the Tennessee Valley. While the entire credit union movement is talking about innovation and the need to become more relevant Joe is an example of an industry veteran who is taking the innovation bull by the horns and making a real difference in the lives of Redstone s members. Joe and his team are passionate innovators and our discussion was focused almost entirely on how Redstone s innovations are increasing the credit union s relevance and value for its members while strengthening the institution s financial performance. What I found refreshing was that Joe refuses to let Redstone default into the commodity mindset that many financial institutions find themselves in oftentimes subconsciously. Joe realizes that what worked yesterday and today won t necessarily work tomorrow. So in order to provide differentiation and value the Redstone mindset is We are here to benefit our members lives and members have more than just financial needs. C R E D I T U N I O N B U S I N E S S In other words Redstone looks for ways it can serve members beyond financial products. For example The CU s Trusted Advisor program provides members with critical information on life events such as weddings exiting the military and finding a job. Redstone Discounts helps members get discounts on items they purchase from local and national merchants. Handling the Stresses of Being CEO While discussions on leadership and strategy are always fascinating I like to remember that this is a real person I m speaking with and the job they have is demanding and stressful. Like just about every CEO I converse with Joe says the CEO role is a 24 7 job. He is always trying to anticipate events that may or may not happen and there is a constant demand on his attention from employees and people in the community. Joe handles the stress by going to the gym daily and surrounding himself with great people. His proudest accomplishment as Redstone s CEO occurred during the worst part of the Great Recession when the credit union was netting about 1 000 new members monthly. Redstone A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY was able to achieve that unlikely growth due to the trust it had built within its membership and its communities. Turning Cost Centers into Profit Centers The next innovative Redstone NII strategy was something I ve advocated for years and it is turning some of the credit union s operational areas like IT and training into profit centers. Joe and his team began to realize that some of the solutions its divisions were creating for its internal use had value outside the organization. For example Redstone s IT area created an application for mobile deposit capture which it now sells to banks and credit unions. That s a great illustration of creating what Joe calls mission-related NII that doesn t directly come out of members pockets. Another example of turning an internal area into a profit center is Redstone s Training area. The CU has begun marketing some of its training services to non-financial institutions. For example the credit union has a trainer who is certified to teach Gallup s Strength Finders. A lot of companies need similar types of training and Redstone believes its training area has solutions that can fill that gap. Joe has encouraged all of his operating divisions across Redstone to think about how they can become profit centers instead of simply being an expense. Challenging his teams to find ways they can profitably help other organizations is a paradigm shift that has helped improve NII as well as the financial benefits accruing back to members. He and his team have formed two CUSOs for this purpose Redstone Services Group and Redstone Consulting Group as the umbrella groups for these various services. Innovating for Non-Interest Income Before I spoke with Joe I examined Redstone s P&L and noticed that non-interest income was nearly as high as interest income. That isn t all that common of an occurrence at least not in the banking industry where I spent most of my career. I asked Joe about this and he told me about one of the most refreshingly innovative and forward-thinking strategies I have encountered in the financial services industry. In the 2007 2008 timeframe Joe and his team became concerned about shrinking net interest margins and began looking for ways to increase non-interest income (NII) in ways that would not cost members anything. This of course is contrary to what we were doing in the banking world at the same time. While Joe and his team were looking for ways to generate non-interest income without driving up member fees we in the banking industry were creating new fee-based checking accounts in a scramble to recoup interchange fees lost with the Dodd-Frank Bill. Redstone s strategy to increase NII began with acquiring checking accounts and incentivizing debit card usage in order to increase interchange income. In an effort to counter the massive disintermediation of the payments system Redstone has redesigned its checking accounts to acquire as many of its members DDAs as possible. One way the credit union did this was through a program called MemberPlus where members with checking accounts get higher rates on CDs and savings accounts. But the NII innovation didn t stop there. The next step in the strategy was to pay members to use their debit cards. Yes you read that correctly. Joe and his team pay members five cents for each personal debit card transaction and 10 cents per business transaction. This incentive created far greater checking account growth than anyone expected and that growth is continuing. The interchange income has increased markedly as well since last year the CU s members made over 1 billion in debit card purchases. The Member Success Business 7 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY I have spoken with CEOs about this concept for many years but Joe and Redstone are one of the very few institutions I have met that have actually implemented it. As I tell CEOs continually small and mid-sized businesses are needy and credit unions have the capability of adding great value to these business owners beyond financial products and services just as Joe and his team have proven. The average credit union has internal core competencies and processes that most small business owners would love to take advantage of. If a credit union s executive team members embrace the belief that they are in the member success business a world of opportunities opens up to them including those Redstone has taken advantage of. Other types of opportunities include bringing in outside coaches consultants web designers attorneys CRM systems marketing agencies and a host of other services needed by businesses. If you have already vetted these providers your members will see you as a trusted advisor and word of mouth will spread like crazy. You re already doing this with investment advisors credit life title insurance property and casualty insurance and other third-party providers. Why not do it for non-financial services as well As Joe said We know that whatever we ve done in the past won t necessarily work in the future. We have to innovate to stay ahead. also created scripts and decision trees within its systems that prompt questions to members and trigger marketing events. The Trusted Advisor program ensures members receive helpful information to better navigate the challenges of the life event they have identified. This doesn t generate money for Redstone but it is an excellent way to create high value for members and the loyalty and word of mouth that comes with it. This is perfectly in sync with the philosophy expressed by Jay Baer in his book Youtility which says helping people without hype is the best form of marketing. Related to Trusted Advisor and the life events concept is Redstone Discounts. This program provides members with product discounts when they use their debit cards at participating merchants. Since Redstone s membership base across the Tennessee Valley is so vast merchants see accepting these discounts as a way to benefit from Redstone s marketing and increase their sales volume. While merchants are not yet charged fees to participate in Redstone Discounts Joe and his team are evaluating that possibility. Redstone Innovating Around Member Success You Can Do This Too Joe and his team at Redstone have forced themselves to innovate and expand their thinking about how to benefit members and their communities. They have meshed being in the member Trusted Advisor and Redstone Discounts success business with creating a financially strong business. Redstone s capstone innovation to date is what the credit union The credit union s life events concept is squarely focused calls Trusted Advisor and Redstone Discounts. Joe and his on members by not only providing them with the appropriate team have identified about 14 life events that are fairly common financial services but also recognizing that Redstone can help within the CU s membership regardless of what age a person members work through their life events with great information happens to be. and money-saving discounts. Encouraging its operational units to think and behave Examples of life events are like businesses has enabled Redstone to serve businesses in Getting married or divorced its communities and across the nation while generating nonBirth of a child interest income. Death of a loved one Incenting debit card usage by paying for transactions is Graduating from college yet another way that Redstone has created NII and value for Moving to a new home Redstone has designed a monstrous database to capture events members without taking money out of their pockets. that are occurring in its members lives. The credit union has 8 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CEO VELOCITY You may be saying Yes but Redstone is huge compared to my credit union. Its member and employee bases have allowed the CU to do things we could only dream of. There s truth to that assessment no doubt. However that doesn t mean you can t get started by innovating around your capabilities and constraints. Every team has to start somewhere and each team is capable of generating great ideas it can execute and build upon. Assign them the task of creating solutions around the 10 best ideas. Evaluate the solutions according to their impact on income and members. Your Path to Innovation Starting where you are I recommend the following six steps toward innovation. Remember with innovation speed is your friend and less is often more. Here we go Have each branch operational team and management team list at least 25 member needs. Think about these individuals lives not just finances. If you serve both consumer and business members do this exercise for both. Out of all the ideas choose the 10 that either keep repeating or which will have the most impact on members (business and consumer). Create cross-functional innovation groups of no more than eight people that meet weekly for no more than six weeks. Prioritize the implementation of the solutions. Assign an implementation the team task of making the solutions come to life first through a pilot then if the pilot is successful a full implementation. Scott McClymonds is a veteran leader in the financial services industry and an expert at helping credit union CEOs create relevant high-performing organizations that produce loyal members and positive community impact. You can reach Scott at 479.263.0774 or scottm Scott M cClymonds and CEO Velocity help financial institutions like yours increase earnings member loyalty and employee productivity. Scott has helped hundreds of CEOs and senior managers find answers and solutions to tough questions like Who are your most profitable members and how vulnerable are they to attrition Where can you find m ore of them Are they already doing business with you How does your strategy need to be adjusted to improve your results by 20% or more What technology updates will give you the highest payback How should you develop your most promising leaders Email scottm to request a free paper on how to find and close earnings gaps in your credit union. scottm 479.263.0774 U N I O N C R E D I T B U S I N E S S Scott McClymonds is one of the most creative strategists in the financial services industry. - Elio Spinello Principal RPM Consulting 9 A U G U S T 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST BY JULI ANNE CALLIS All Hands on Deck This Wise Captain Successfully Navigated Her Ship to Land on Very Friendly Shores Has your credit union ever considered the potential of a community development financial institution model JetStream CU has. Sail along with the credit union s CEO Jeanne Kucey as she discusses how this change in strategic navigation ultimately led to growth and success. Jeanne reflects on how she had to do quite a bit of paddling to get underway. I wasn t sure how the JetStream board 80 percent of whom were either current or retired FAA employees would feel about this change in direction. I also needed Jeanne Kucey CEO of Jetstream CU my team to understand why we needed to shift our member-growth strategies and embrace our new mission to serve the low- and moderateincome members in our community. I took the following steps. Assisted by the NCUA I conducted research which uncovered that 75 percent of the current JetStream membership resided in low-income zip codes. I spoke with several CEO colleagues nationwide and determined that the benefits of pursuing a low-income designation CDFI certification and related grants were numerous. The shift in strategy would not only better serve our community members but it would strengthen JetStream s bottom line and ensure our future relevance. I spoke with the senior management team and then board of directors about my findings and recommended that JetStream apply for a low-income designation. I learned long ago that clear communication is critical to effective organizational change management. Any leader particularly a new CEO must effectively and repeatedly 2 0 1 5 C U B U S I N E S S . C O M W hen Jeanne Kucey landed the CEO post at JetStream CU it was not all smooth sailing. The ship was struggling to stay afloat and a new course need to be set to reach a safe harbor. The leadership change at the helm marked a change of command that looked out across the waters where ultimately a route was discovered toward becoming a very successful community development financial institution. Jeanne shares the saga of this very interesting journey to encourage other leaders to consider the potential of the community development FI model. JetStream was founded in 1947 to serve the Miami FAA employees and their families. JetStream added numerous SEGs over the next 60 years and eventually adopted a community charter encompassing Miami Dade County and three counties in Puerto Rico. While the community demographics changed significantly over the years the credit union s strategic direction failed to keep pace. JetStream was still targeting the FAA employees to the exclusion of the general community. The FAA employees have a wide variety of financial options making them a difficult group to recruit and retain as credit union members. Products and services were aligned to appeal to the six-figure-salary FAA employee not the low-income member who generally walked through our doors. The mismatch was even more evident in Puerto Rico. Unfortunately the credit union didn t appear to know who [it] served or even who made up [its] local communities. This went far in explaining the negative member-growth trends that the credit union had experienced in recent years. Getting everyone On Board is where the saga begins as 10 C R E D I T U N I O N B U S I N E S S A U G U S T VIEW FROM THE CROW S NEST communicate the business benefits of strategic initiatives to volunteers and team members at every level. Once the low-income designation was received we embarked on CDFI certification and grant writing. JetStream received CDFI certification in 2012. We have received over 1.3 million in grant funds to date including a 1.2 million grant that was recently awarded to expand small business lending to low- and moderateincome business owners. JetStream was the only credit union in Florida to receive a grant in the 2014 funding round. In September of this year JetStream became the first financial institution serving both South Florida and Puerto Rico to certify its entire team in the Community Development Certified Financial Counseling (CDCFC) training program. Essential for credit unions serving moderate- to low-income populations the certification ensures credit unions like JetStream can better serve their members who may experience financial challenges. JetStream joined the very few credit unions nationwide that have achieved this full-staff certification. When Jeanne first headed out to sea she needed to navigate by reading the stars and reverse a pattern of members being lost at sea. Jeanne shared the historic perspective as well as future hopes for JetStream. As we embarked on this new journey an interesting pattern emerged. Membership growth was 3.9 percent in 2009 and 10.8 percent in 2010 when it began to take a turn. Our membership growth in years 2011 2013 was a positive 5 percent 5.1 percent and then 16.5 percent respectively. Membership growth in 2014 was positive as well despite purging over 600 accounts in preparation for a debit card reissue. We look forward to assisting more members with greater resources and strengthening our bottom line at the same time. When anyone takes the helm of an organization they are bound to the current crew and must find a way to lead through the transition in a manner that achieves results. When asked how she was able to get her crew all rowing in the same direction Jeanne noted her leadership style was highly visible. I m committed to modeling the type of behavior that I want my team members to emulate. I take great pains to communicate JetStream s vision to our team members while simultaneously encouraging employee input. This increases buy-in and develops a strong sense of C R E D I T U N I O N B U S I N E S S teamwork among all employees. I involve my team in making decisions and ensure that they are provided [with] the training and tools required to perform their jobs effectively. I m present onsite walk around the office several times a day interact with the team and observe. I don t micromanage however I m always willing to ask the tough questions ensuring that I stay informed. My leadership style helps to establish a partnership where every team member understands our mutual goals and we are all working in unison to reach the credit union s strategic objectives. Getting all the oars in the water to move efficiently across the ocean is always a difficult challenge for the captain of the ship and in the case of JetStream this aim is extremely complex due the very nature of the mission and the crew. The following words of wisdom reflect the heart of the issue The multicultural environment in which JetStream FCU operates is truly unique. We have branches in both Miami Dade County and Puerto Rico. Our team members are comprised of 16 different nationalities most are bilingual and several speak three languages or more. Mutual respect is at the heart of every harmonious workplace. Showing those around you that you respect them enough to learn who they are and what they have to contribute as individual human beings is the key to building healthy relationships that leverage diversity and promote teamwork. When asked to reflect upon what makes the captain get up at sunrise to continue the journey Jeanne was quick to respond Progress There is nothing more exciting than progress. Like most credit unions we have a lean management structure wear many hats and put in long hours. We are very fortunate however to have so much to show for our efforts. We ve seen significant improvement in every measurable area of the credit union s performance including the nuts and bolts of building a sound vessel. Our efficiency and cost-reduction efforts over the last six years have resulted in an ROA increase of 118 basis points (from 0.20 to currently 0.98). The major strategies we have implemented include the following. Provide employees with secure consistent access to information via an employee Intranet which includes policies forms and training materials. Analyze traffic trends and adjust staffing needs accordingly in all branches and departments. 11 A U G U S T 2 0 1 5 C U B U S I N E S S . C O M VIEW FROM THE CROW S NEST Renegotiate unfavorable contracts before the expiration date. Promote effective interactive collaboration among employees community partners vendors and members. Conduct due diligence analysis on both current and competing vendors. Streamline procedures and processes. Add and redesign products and services. Streamline communications with members. Outsource IT tasks through the utilization of a managed service. Develop a long-term technology plan. Eliminate all unnecessary expenses. Increased efficiencies and reduced operating expenses were achieved while simultaneously maintaining above peer growth in both membership and the loan portfolio. Once the mast was properly set it was important to move forward boldly and a number of innovative programs have JetStream sailing smoothly in new territories. Jeanne reflects on a number of those initiatives that work exceptionally well. We added business lending to our product line approximately four years ago and hold a current portfolio of just over 15 million. In an effort to meet additional loan requests from our membership we recently expanded our business lending program to include small-dollar loans for new small and lowincome businesses. We now offer loans from 10 000 to 50 000 that are underwritten in-house with loosened qualifying criteria. We have funded just over 500k in the first three months prior to the kickoff of our small business loan advertising campaign. We are a successful subprime auto lender. In order to meet the needs of our membership many of whom are recent immigrants with no credit history we needed 12 C R E D I T U N I O N B U S I N E S S to develop a competency in subprime auto lending and effective collections practices. This has resulted in double-digit loan growth over the past four years with delinquencies and charge-offs below peer levels. In 2014 we became the first financial institution serving both South Florida and Puerto Rico to certify our entire staff in the Community Development Certified Financial Counseling (CDCFC) training program. We joined the very few credit unions nationwide that have achieved this full-staff certification. JetStream is taking its commitment to the next level. We re confident that our efforts toward financial empowerment will result in not only increased visibility but also increased community goodwill and member loyalty. I feel that every employee should possess the tools to effectively manage [his or her] finances. Regardless of position everybody has the ability to positively impact [his or her] community by assisting friends family neighbors classmates and membership with financial counseling. With the CDCFC certification our team members can help our members with a variety of topics including Budgeting Money Management Managing Credit Debt Credit Cards Buying Leasing an Automobile Homeownership Predatory Lending We are dedicated to our members prosperity and are truly committed to identifying and serving the needs of this diverse multi-ethnic population. This certification will definitely help us meet that goal and better serve our members 75 percent of whom reside in low-income zip codes. As we wrap up the View from the Crow s Nest it is a time to consider the philosophy that propels this very successful ship. Jeanne would advise leaders to consider this 2 0 1 5 C U B U S I N E S S . C O M A U G U S T VIEW FROM THE CROW S NEST advice Make sure you tune into and respond to the needs of your community. I ve read several articles warning credit unions not to abandon their SEGs when they move from SEG based to a community credit union. I agree. It s even more important however to tap into and meet the needs of your new community. JetStream moved from serving an SEG where the average income was six figures to serving a local community comprised of 75 percent low-income residents. Once we embraced our low-income mission and aligned our products and services accordingly we experienced success in turning around every negative trend. Not only are we meeting more member needs but we ve enjoyed four years of double-digit loan growth and [we ve] doubled our net income year over year. Providing financial assistance to members of modest and moderate means is our top credit union priority for several reasons. At JetStream we are truly committed to reaching out to our underserved communities and assisting those who have limited access to financial products and services. Increasing active participation in the communities we serve will lead to amplified membership growth and increased lending thus ensuring the future health of our credit union. Juli Anne Callis is a nationally recognized industry leader with a substantial track record as a pragmatic innovator. She has served in numerous executive roles in both the credit union and banking industries. From her early days at Citibank working in market segmentation to Langley FCU in Virginia and over a decade in Silicon Valley at AEACu KeyPoint Callis has led in the development of new technologies and business models which landed numerous awards in the financial services industry. She was also an original founder of the CUNA Councils. FREEBORN S CREDIT UNION INDUSTRY TEAM o ers a full range of legal services to credit unions and credit union service organizations to address and manage the complex challenges facing the financial institutions industry. To account for the full range of business needs of credit unions Freeborn s Credit Union Industry Team delivers a broad range of legal services including Regulatory and Legal Compliance General Corporate Representation Commercial Finance Board Governance Real Estate Services Labor and Employment Vendor Contract Representation Intellectual Property Counsel Investments within ICUA and FCU Parameters Mergers Commercial Lending and Bankruptcy Insurance and Charter Conversions Risk Management Send an email to CreditUnionsCommittee to subscribe to our legal newsletter. CHICAGO 311 South Wacker Drive Suite 3000 Chicago IL 60606 (312) 360-6000 (312) 360-6520 fax 13 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M SHARED TAB BRANCHING BY BILL PRICHARD Credit Union Shared Branching The Sky Is Still The Limit Now Third Largest Among All Financial Branch Networks The shared branch network offers unlimited growth potential for credit unions. Learn more about the history behind the concept the entry of CO-OP Shared Branch into the arena and how you can leverage shared branching to power the growth of your CU. ike a single mustard seed growing into a great tree some business ideas can start very small and grow as large as an entire industry. The credit union industry s shared branch network now the third largest branch network among all financial institutions is one such compete against big banks. Now it is that but shared branching is also helping the movement meet the challenge of the vast array of alternative payment offerings from providers well beyond traditional bank competitors. For all the advantages enjoyed by banks shared branching is the one channel no bank will ever have said Sarah Canepa Bang President and Chief Operating Officer FSCC LLC and Chief Strategy Officer COOP Shared Branch. It is the tangible demonstration of credit unions willingness to work together on behalf of all members. L example. Today CO-OP Shared Branch managed by CO-OP Financial Services of Rancho Cucamonga California ( connects more than 5 300 credit union branches and 1 800 self-service kiosks in all 50 states. It is a key element in the credit union industry s initiative to extend convenient services to members wherever they may travel. In many ways it is powering the growth of the credit union movement its purest expression of coast-to-coast collaboration. Shared branching grew out of necessity and its enduring value to the industry is underscored by its longevity and continued growth. The seed was planted in the late 1960s when a handful of credit unions in the Detroit area banded together to establish the first shared branch network. The concept was to allow a member of one independent credit union to transact business in another independent credit union as if they were in their home branch. That is still the idea but the concept is also now at the forefront of the industry s need to transform branches. And originally the goal was to create a credit union network to help The Network Grows As the popularity of the concept grew so did the network ... or networks. In Michigan shared branching credit unions incorporated in 1974 under Service Centers Corporation (SCC). Sarah Canepa Bang 14 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M SHARED BRANCHING In 1990 Financial Service Centers Corporation (FSCC) Ontario California organized another shared branching network growing into a western state network. And in 1992 in the Southeast eight credit union leagues established Credit Union Service Corporation (CUSC). While these entities served their regional purpose the three networks realized there was a need for common branding additional outlets and a national presence. In 1994 FSCC and CUSC founded Credit Union Service Centers with SCC joining in 1999. The CU Service Centers swirl logo became the recognized symbol of shared branching to members for the next 15 years. In March 2013 the number of credit union live teller branch locations available through the nationwide shared branching network reached 5 000 just over three years after reaching 4 000 in early 2010. In January 2015 CO-OP announced that it established a new annual record in 2014 by processing more than three billion electronic funds transfer and shared branch transactions by credit union members an increase of nine percent compared to 2013. A Significant Milestone And at last in June 2015 CO-OP reported that its shared branching network of 5 341 branch locations surpassed Bank of America in number of branch offices. It is now the nation s third largest network of financial institution branches according to data drawn from the FDIC. We have achieved a significant milestone by reaching more than 5 300 branches and 1 800 kiosks but the sky is still the limit for our industry s unique shared branching concept said Craig Beach President and Chief Operating Officer CUSC. There are about 1 800 credit unions participating Craig Beach in shared branching offering convenient branch access to more than 52 million members wherever they may travel in the United States. If all of the nearly 7 000 credit unions in the U.S. were part of shared branching our locations could number about 21 000. The credit union industry s shared branch network is also gaining fast on the two remaining national banks with more branches. Chase has 5 892 branches and Wells Fargo has 6 392 according to the same FDIC source. With the growth has come the need to revisit the concept s branding. In April 2013 CO-OP unveiled its plans to replace CU Service Center signage with CO-OP Shared Branch underscoring the twin sources of credit union convenience to members the 30 000-strong CO-OP ATM network as well as the shared branching network. CO-OP Enters the Picture With its own exclusive-to-credit-unions surcharge-free ATM network growing rapidly CO-OP Financial Services saw the increasing importance of shared branching. CO-OP made its move into this arena when it acquired SCC in June 2002. Taking another step CO-OP and CUSC signed a letter of intent in January 2007 to combine operations. In July of that year they formed a new entity CO-OP Shared Branch. The three major shared branching entities finally came under unified management when CO-OP and FSCC officially merged on December 31 2011. The combination of CO-OP and FSCC blended the strengths and value of both companies creating a more tightly integrated shared branching network said Canepa Bang. The merger provided not only a platform for future growth but also greater efficiencies in branding technology and administrative costs. Indeed growth has continued apace. 15 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M SHARED BRANCHING Customer at teller window CU Family Service Center Looking into the Future Not only is the shared branching concept on a course for future growth but Canepa Bang and Beach see it as ideally suited to help credit unions meet many of today s business challenges. The branch isn t entering an end cycle rather it is evolving with more of a concentration on sales than service said Canepa Bang. As technologies such as mobile and mobile remote deposit capture contribute to the decline of basic branch transactions the value of the branch channel remains significant. In fact shared branching is becoming more important than ever. As the number of individual credit union branches decreases the nationwide network of shared branch locations will enable credit unions to maintain their community presence. Sharing a branch will bring in more transactions transactions that bring in revenue said Canepa Bang. For credit unions [that are] reticent to close branches opening their existing branches to shared branching is a way to bring in income and transactions. And for credit unions considering closing branches who are rightly worried about how that will play for members who like branch service their solution is to join shared branching said Canepa Bang. The concept in fact provides a smooth transitional glide path for lowering branch count. No matter what your branch strategy is add branches transform them close them your members are still going to need locations 16 C R E D I T U N I O N B U S I N E S S everywhere and shared branching is the solution. Beach adds With shared branching credit unions also have access to the new world of mobile banking and P2P payment technology through in the case of CO-OP Shared Branch the same network that enables account transactions across branches. All would be integrated to make your work simpler easier and more powerful. And the fact is that branches continue to be attractive to a new generation of members. In spite of their virtual-world reputations Gen Yers like the touch and feel of the real world and the proof is in their preference for branch services said Beach. Gen Yers prefer to conduct transactions in person at branches at a rate of 2.5 times greater than consumers over the age of 65. Credit unions looking for deeper market penetration are going to need to provide multichannel access to meet members expectations and branches will continue to be one of those channels. Bill Prichard is Senior Manager Public Relations and Corporate Communications for CO-OP Financial Services ( org) Rancho Cucamonga Calif. a financial technology provider to credit unions. Prichard can be reached at (800) 782-9042 ext. 3450 and bill.prichard A U G U S T 2 0 1 5 C U B U S I N E S S . C O M STRATEGIC PLANNING BY MARVIN C. UMHOLTZ Overarching Trends Will Stress-Test Every Credit Union s 2016 Strategic and Operational Plans With 2016 less than a half year away credit unions need to prepare themselves to have their strategic and operational plans stressed to the limits. See what impacts the Dodd-Frank Act s supervisory compliance and law enforcement risks will have on these plans in the upcoming year and beyond. hen determining the management component of the CAMEL rating (or CAMELS rating in some states) the National Credit Union Administration s (NCUA) examiners and the examiners from the state credit union regulatory agencies include an assessment of each credit union s strategic and operational plans. Additionally strategic risk such as making adverse business decisions improperly implementing a product line or lacking a response to industry changes is similarly an integral part of the regulators risk-based examination. A credit union s leaders are expected to understand the marketplace in which the institution operates and to integrate risk management with planning and decision-making. In planning for 2016 and beyond credit union management executives and members of the board of directors will find themselves especially stressed out because those strategic and operational plans will be stretched to the point of snapping. This strain on strategy is due to the increasingly intrusive supervisory and rulemaking environment created by the passage of the hyper-partisan Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. W CAMELS C Adequacy of Capital A Quality of Assets M Capability of Management E Quality and Level of Earnings L Adequacy of Liquidity S Sensitivity to Market Risk GAIN AN ARMY OF SUPPORT with SWBC OUTSOURCED COLLECTIONS 17 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M STRATEGIC PLANNING The Dodd-Frank Act s supervisory compliance and law enforcement risks have become dominant factors impacting upon a credit union s strategic and operational plans. Through that ill-advised law the federal regulators have usurped by fiat the role that should be the purview of a credit union s board of directors and management team. Impact of Compliance Mandates Limit Strategic and Operational Options The Dodd-Frank Act established a prescriptive supervisory rulemaking and law enforcement structure that provided the federal regulatory agencies with unprecedented authorities. And since the enactment of that law the flood of complex and costly new compliance mandates has severely challenged every credit union s strategic and operational plan. It has come to the painful point where the federal government agencies are de facto prescribing every credit union s strategic and operational plans in advance and then demanding that these rigid governmentdesignated plans be implemented without exception. By far the leading generator of a credit union s biggest regulatory compliance burdens is the Consumer Financial Protection Bureau (CFPB). The CFPB s TILA-RESPA Integrated Disclosure Rule the Ability-to-Repay Rule and the Qualified Mortgage Standards Rule readily come to mind as illustrations of that compliance burden. Those CFPB rules were specifically highlighted in NCUA s January 2015 letter to federally insured credit unions that announced supervisory priorities for the year. Unfortunately the CFPB has tons of additional rules in its rulemaking pipeline concerning data collection fair lending mobile payments transaction accounts payday loans credit reporting debt collection overdraft programs and much more all of which will have costly compliance price tags attached to them. Few of the CFPB s rules would stand up to a rigorous cost vs. benefit analysis but the law doesn t require them to. The U.S. Treasury s Financial Crimes Enforcement Network s (FinCEN s) Bank Secrecy Act and Anti-Money Laundering Act (BSA AML) would also be on the credit union s compliance list. Additionally the Federal Financial Institutions Examination Council (FFIEC) of which NCUA is a member has cited enhanced cybersecurity at regulated institutions as a nationwide supervisory priority. The ability of every credit 18 C R E D I T U N I O N B U S I N E S S union s information technology system to effectively handle the BSA AML compliance and cybersecurity threat issues will be closely scrutinized come examination time. The regulators also expect those information technology system compliance issues to be reflected in the credit union s strategic plan and to be closely monitored by senior management and the board of directors. In recent years many credit union leaders committed to upgrade their institution s technology. They also recognized that their institution will probably have to do even more to keep both its members happy and the insistent regulators at bay. In 2016 that trend will continue. Although not a government agency the Financial Accounting Standards Board s (FASB s) proposed forward-looking credit loss model (CECL) for assessing credit impairment which is required for inclusion in the allowance for loan and lease loss account (ALLL) also comes to mind as fitting this toocomplex type of externally mandated compliance. Its potential impact on a credit union s strategic and operational plans is huge. Individual regulators like the NCUA Board Chairman have given lip service to regulatory relief but the compliance burdens continue to grow. The intrusive regulatory environment will continue to affect credit union strategic and operational plans at least for the short term. The current regulatory environment could prove untenable if it continues long term. Strategic Stress-Testing the Overarching Trends The Dodd-Frank Act was passed as an overreaction to the 2008 financial crisis but it has instead been a burdensome assault on American free enterprise. The law cannot be blamed for all the drags on the distended slow-growth U.S. economy or for all the other overarching marketplace environmental trends that could impact each credit union s 2016 strategic and operational plans. However the Dodd-Frank Act was at least a contributor to many of them. The law structured a regulatory environment that raised all financial institutions costs of doing business. Those costs in turn have increased the speed at which federally insured depository institutions are consolidating. The pace of consolidation will continue to increase especially for smaller A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY CURRENCY STRATEGIC PLANNING CFO CFO CURRENCY are calculated figures not assumptions. The have significant implication on the ALM conclusion. The of time. Credit will need to be assumptions used should be changed government bond inputs allow the user to model cash flows with an end maturitybenchmark if budget surpluses dry up thein progressive intervals credit unions as the regulators apply zero-error-tolerance mitigating the next financial crisis. Led by the U.S. Secretary of and and for authorized They have already become revieweddetermine the and decay rates that are similar to BSA AML compliance and the market. the outputFSOC is driving the the standardspiralpricing theand Treasury the should be recalculated to take weeks. impact supervisory toward expectations for compliance. The amortizations. this can of a different Dividend and discount ratesmost likely starting points for many corporate bonds. allow for the present value homogenization. assumption. cybersecurity compliance are the If you rates and spreads are uncertain as to calculations (premiums)law each modeled interest rate scenario. Knowing where swapbanks are getting it are will allow In other words if consolidation-inducing in enforcement. the many done to them of requirements and Effective duration calculations can then mathematically bebetter hedgingunions will soonexecution. When them too.need Conclusioninvestment have it done to investors This The expedited financial institutions homogenization all today credit applying and using derivatives credit risk and market compared to that of the institution s assets. In this case effectiveto gaugeregulatory deposits can be viewed as sameness might Non-maturing sameness and sentiment theaswap curve is franchise value marketplace engaging an external federally insured depository institutions being regulated alike federal consider becoming the more important curve to analyze. durationtreated alike andmerely backing into the price change have occurred generated without the enactment of the Doddor benefits eventually from loyalty of the membership when being is calculated by ultimately acting alike is another service provider to help you formula. For example if the liability present value is 100 Act.the Frank Act however the law has hardwired homogenization s deposits are retained when dividend rates are low in a higher overarching strategic trend with ties to the Dodd-Frank in through First Financial Emily Hollis CFA is a partner with ALM the steps. base 101 inmandated collaboration scenario and 99 in the down inevitability.environment. And vice versa A financial unions market This homogenization has brought to used derivatives The law the up 100 basis point between federal financial Properly credit institution Advisors LLC. higher system regulators as diverse the heads of the is one percent that offers challenges as risk-based rate higher than market 100 basis point scenario theaseffective durationSecurities and such strategic a non-maturity dividend capital interestcapital risk can offset rate planning and value Exchange Commission (i.e. (101-99) 200). (SEC) and of the Federal Reserve System expectations hot money will decrease the economic testing ofthe to attract liquidity contingency funding is inherent within its that Board of Governors (the Fed) while also including the NCUA and stress testing. And that is probably just the accounts for a more liabilities. It is imperative to model these beginning. competencies to meet the final requirements. The second part credit union industry today. This is vital because as competition NCUA has asked of Board Chairman. accurate depictionCongress for statutory to Sensitivity Analysis submitted when all requirements are grows derivatives can interestcreditrisk. examination and allow rate unions and final to that end is law created the Financial Stability enforcement authority over credit union service compete more application the providers Also The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. of Financial Research including credit-union-owned credit union service organizations to Oversight Council (FSOC) and the Officeassumptions. Sensitivity Emily Mor Hollis CFA is a partner with ALM First Financial quantify the effects of changing Setting up a line super-regulator macro-prudential is similar (OFR) are facilitate a at a dealer core share to becoming a (CUSO). The LLC. also has a plan in place to gain authority Advisors agency analyses to essential because the evaluation may Emily Hollis CFA is a partner with ALM First Financial member of the FHLB--it can berisk to the U.S. financialgood deal to increase the reserve levels of the National Credit Union Share approach to preventing systemic laborious and takes a system. Advisors LLC. Additionally the FSOC is responsible for preventing or at least Insurance Fund (NCUSIF). The Federal Deposit Insurance Exhibit 4 The outputs Some analysts view swaps as the most likely replacement for Treasury bonds as a financial benchmark if budget surpluses dry up the government bond market. 19 C R E D I T U N I O N B U S I N E S S November 2014 A U G U S T 2 0 1 5 Credit Union BUSINESS C U B U S I N E S S . C O M 15 March 2014 Credit Union BUSINESS 17 STRATEGIC PLANNING Corporation s (FDIC s) structural model for the Deposit Insurance Fund s (DIF s) risk-based assessment system has a multi-year goal of achieving a 2.0 to 2.5 reserve ratio range. Both of these new NCUA bank regulator-copycat authorities could strategically or operationally alter a credit union s costs financial statement or both. Market Disrupters Ubiquitous & Smart Technologies and Millennial Cohort Reality Check The financial services marketplace disruption from new competitors has been ruthless in recent years and much of it has been driven by the ubiquitous and smart applications of technology linked to Internet and wireless access. Whether one name-drops the latest San Francisco startup or the multibillion-dollar household name the less-regulated competitors in the private sector have been experimenting with ways to carve out profits by driving out costs. A credit union s strategic and operational plans must consider the worst-case scenario where a cost-killer disrupter enters the marketplace. For an example one need simply look at what Uber has done to reduce the collateral value of the taxi medallion lenders in New York. The new smart technologies meaning those software applications used by the private sector and the government that track a consumer s day-to-day activities purchasing preferences and individual behaviors and that can even predict a consumer s emotional state are a double-edged sword. They are loaded with ethical and legal concerns yet strategically they hold the promise of providing a credit union with an opportunity to build a one-to-one relationship with each member. The smart technologies genie that analyzes that prodigious amount of personally identifiable collectable data is out of the bottle but a credit union s leaders must be very careful about how they craft each customer-targeting wish. Internet-connected devices are the preferred access by many credit union marketers latest passion Millennials those individuals born in the 1980s and 1990s. Purported to like video games public transportation and craft beer and to hate the National Security Agency (NSA) student debt and paying for cable (they are not stealing it they are exclusively online) Millennials are reportedly not getting married and 20 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M don t expect Social Security to be around for them. They are unlikely mortgage loan or auto loan borrowers at least until the economy picks up and they get better jobs. The demographic cohort of Millennials is overrated for the short term. Besides a demographic cohort of approximately 80 million Americans that have only their age range in common cannot be that readily pigeonholed as a single stereotype. A credit union s leaders should also cherish the Baby Boomers and the Gen-Xers who are already members of their CU while keeping a prudent eye on the return on investment that is applied toward wooing Millennials. And for that matter most of the Boomers and GenXers enjoy using the new technologies too. Plan on it. Board of Directors Increased Role in Risk Mitigation and Strategic Risk Oversight In a number of recent pronouncements made by the NCUA Board and the agency s senior management it has become very clear that they expect a credit union s board of directors to be very attentive to their credit union s risk philosophy its risk policies and its risk mitigation practices. The credit union s strategic and operational plans are also expected to reflect these important considerations. A credit union s risk attitude could vary from one extreme (aggressive risk taker regardless of the consequences) to another (risk aversion regardless of the potential gains that might be made). How well a credit union manages its risk appetite by applying and monitoring its risk tolerances is critical to its success. According to NCUA and credit union industry risk management experts this involves comprehensive oversight of risk by the board of directors. The strategic and operational With 80% of U.S. households saving coins coin processing is in demand especially at nancial institutions where most prefer to redeem their change. Give customers the means to do it themselves and you can increase their satisfaction by as much as 20%. That s the power of self-service coin counters. Now Cummins Allison gives you more ways to add coin machines to your branch. Choose from fast quiet and reliable coin counters that you can buy rent lease or place free of charge. We ll even pick up and process your coins. Coin counters are a proven way to increase traf c and member satisfaction -- let us show you how. Get a custom report comparing your self-service coin options. traf c Copyright 2014 Cummins Allison Inc. All rights reserved. STRATEGIC PLANNING plans need to be crafted such that they articulate how the credit union identifies measures controls and monitors the risks. Experts in the field of risk management advise that a credit union should stay within its risk appetite which depends on several factors Risk attitude Perception of risk Total assets Financial condition and strength Mission and strategic goals Those same experts recommend that a credit union s appetite for risk be periodically reviewed and adjusted if required by changes to any of the relevant factors. A credit union s board of directors continued attention to the credit union s risk philosophy policies and practices is among the many responsibilities and duties in which the governance group engages on behalf of the organization and in service to its membership. In developing the strategic and operational plans for 2016 a credit union s leaders should ensure that the plans are directly linked to the credit union s ability to demonstrate its constant vigilance toward and oversight over its risk mitigation policies and procedures. The future is always unknown and credit union leaders are stuck with best-guessing. There is as much art to it as science and applying too much science can turn it into a too-complex exercise yielding questionable results. And always remember that if credit union officials don t take care of the short term there is no long term. For there to be a long term a credit union needs to survive if not thrive through the strategic and operational plans-impairing post-Dodd-Frank Act era. The hottest topic in the credit union industry s strategic narrative today is not what the institutions have been or what they are today but rather where they are headed. There are many possible future scenarios from which to choose and all credit union officials will not choose the same scenarios to pursue. There is indeed no one future fits all. There will be a hardto-pin-down point in the actual future when a credit union s leaders can look back and say We ve made it Only then will strategic analysts and consultants like me be able to discern just what that individual credit union has become. Marvin Umholtz is President and CEO of Umholtz Strategic Planning & Consulting Services based in Olympia Washington. He is a 39-year credit union industry veteran who has held many leadership positions with credit union organizations and financial services industry vendors. A former association executive and lobbyist he candidly shares his credit union industry knowledge and analysis with public policymakers financial industry executives and vendor companies. Umholtz also writes and distributes CU Strategic Hot Topics a clients and colleagues newsletter that analyzes the actions of the National Credit Union Administration (NCUA) Congress the Consumer Financial Protection Bureau (CFPB) the Federal Reserve the lagging economy uncertainties in financial markets divisive partisan politics and the growing conflict about the future role of credit unions in the financial services industry. No One-Size Strategic Scenario Fits All Some of the external regulatory-driven and economically-driven strategic factors might change for the better after the 2016 presidential and congressional elections but that future point in time seems a long way off. Most forecasters don t see any of the external political or economic factors getting better over the next 12 to 18 months and some could worsen. Regardless when crafting strategic and operational plans some things remain constant. The NCUA examiners guide states that the strategic and operational plans should be appropriate to the size and complexity of a credit union. Also a credit union s leaders need to understand their CU s institutional strengths and use them to the maximum advantage. There exists no boilerplate strategic or operational plan it s all custom-made to order. Since all strategic planning is forward-looking modeling based on assumptions it is inherently a theoretical exercise. 22 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS BY SCOT VACKAR Sales or Service Are Your Branches Prepared for the Future Declining transactions have many credit unions contemplating the closure of branches. But that decision doesn t have to be an either-or one. Uncover ways to transform your CU s branches into centers that not only serve members but also generate sales. f your branch offices are like many of the clients we at Lending Solutions Consulting Inc. work with you have been experiencing a decline in transaction volumes over the past few years. Why is this critical It ultimately drives up your average cost per transaction and focuses pressure on the profitability of that particular branch. Should you keep these type of branches open or consider closing them This article will discuss strategies on how to avoid having to ask yourself this question by turning your branches into both sales and service centers. According to a study by ORC International even as consumer usage of mobile banking increases 88 percent of consumers feel they still need a physical branch location to go to for their banking needs. Even with new technology such as video kiosks the need for personal contact appears to prevail. Developing strategies to enhance profitability in these branches will become the key to continue providing that personal touch and to maintaining profitability for shareholders. Our company philosophy at Lending Solutions Consulting Inc. is that everything follows loans. Loans are the most sustainable and lucrative form of ongoing revenue. At the branch level we believe wholeheartedly that it s all about relationships. The goal should be to turn a new member into a lifelong member. Opening an account with a nominal share balance and no draft credit card or loan has no value for that new member or the credit union. The question is how do you accomplish the lifelong member objective The answer is centered on the strength of the interview and the skill of your branch employees to actively not passively listen. When this is C R E D I T U N I O N B U S I N E S S I accomplished sales become far more natural. I hear from multiple credit unions that they want to avoid being pushy or annoying. Everyone has experienced such unwanted pressure multiple times and when given the chance wants to ensure they themselves are not that person. I would argue that not selling telling or informing your members is far worse. In fact it s a disservice to your members. Your products and services save your members two things that we all want and never get enough of More Money in their pocket by educating them on FICO scores and how to ultimately pay less interest on their loans PEACE of Mind that their family and finances are financially secure Your branch employees need to view themselves as financial experts. They are solution driven and truly believe and endorse that there is in fact always a solution. My experience with working at credit union branches is that the problem often starts the minute a new or existing member walks in the door. Today many branch offices are structured as sales versus service. The service group is comprised of tellers and member service representatives and the sales group is comprised of loan officers or financial service associates. I believe the responsibilities need to be blended where sales and service represent a unified approach working for the better good of the branch. Every time a member or a prospective member visits the branch enhancing the relationship and providing financial solutions must be the objective. I hear the same concern and problem from every credit 23 2 0 1 5 C U B U S I N E S S . C O M A U G U S T LENDING SOLUTIONS union that reaches out to our organization for assistance. They all need loans. While marketing and indirect opportunities are part of the solution they require work and money. You have opportunities in front of you every hour of every day that are being lost. On a recent portfolio analysis and audit for a client we identified 82 000 in sales opportunities by simply reviewing credit reports from the last 10 new members who joined. To acquire the 82 000 didn t require any dealer reserve costs or mass mailings they were simply coming in the door. What does 82 000 in new business equate to Let s take a closer look 82 000 in investments at 1.4 percent over 60 months earns the credit union 39 000. 82 000 loaned out at an average of six percent earns the credit union 220 000. This is only a difference of 180 000 what does this do for the profitability of your branch This scenario does not even factor in credit card and debit card profitability or potential overdraft courtesy pay income etc. The right people need to be talking to your members when they come to your branches. In my experiences the following skills are a must Have an upbeat and positive attitude a glass half full approach to life and a frequent smile on their face Are able to connect with the member and build trust and relationship know and recall members names recent vacations or life milestones Can find out the member s true motivation for coming in and be able to share the moment what motivates a member can range from price payment response time convenience etc. Have a solution even if it s not today and can give hope If you don t become part of the solution your competition will. You will have lost out on revenue and your member will be required to pay more elsewhere. Aren t afraid to look someone in the eye Are sympathetic and not judgmental of the situation or member recognize that life has bumps and bruises Love the credit union and tell every new member their own story about how they became associated with the credit union Use the credit union themselves If your employees 24 C R E D I T U N I O N B U S I N E S S are using your competitors products how can they sell yours Believe in the products and understand the value the credit union can deliver to the member (via your credit cards or debt consolidation loans) Aren t afraid to sell Rejection is inevitable when you ask for something. They have to know this is OK and not a reason to stop. Also they are trained on how to overcome objections when it is truly in the best interest of the member. Have passion for everything they do Understand FICO scores trends and improvement strategies Action Plan 1. Assess which branches have declining transaction volumes. 2. Look at your average members per employee and ask yourself the following questions Are you appropriately staffed to start getting the whole story to sell and serve How do you relate to your peers Do you have the right employees representing you in front of your members Refer to the bullet points above. Are branch employees required to pull credit reports Are branch employees trained on reading credit reports Are branch employees FICO score experts Are they required to compute competitor interest rates and analyze in comparison Do they really understand your products and the benefits over the competition Can they easily recall the last premium GAP or life disability payout 3. Pull your last 10 members to join the credit union at each branch. Are the branches with the declining transaction volumes focusing on only the service aspect of the job How are they stacking up against each other How much was lost 4. Are branch employees taking notes and documenting why they joined and what was discussed Do you have any unanswered questions when you audit them Once you believe you have the right blended structure and the right employees in place you need to endorse one more philosophy this is not a horse race. The first person to the A U G U S T 2 0 1 5 C U B U S I N E S S . C O M LENDING SOLUTIONS Branch Operations Consumer & Mortgage Lending and SEG Relationships. Currently he is the Director of Sales at Lending Solutions Consulting Inc. Lending Solutions Consulting Inc. (LSCI) is the industry leader in providing consumer lending advice to credit unions across North America. Rex Johnson founded the University of Lending a comprehensive five day lending school in 1996 and has since trained over 30 000 credit union employees. Rex Johnson and his team of experts have helped credit unions achieve dramatic improvements in their loan ratios bottom lines and member service practices. For any assistance in branch development installing a successful sales and service approach at your branch level Scot Vackar brings more than 30 years of credit union or having LSCI review your new member accounts please experience in Sales & Service Business Development contact Scot Vackar at svackar or 224286-6070. finish line doesn t win he or she just finishes first. The winner is the person who gets the whole story and helps your members with what matters most being a trusted financial resource that provides the best solutions throughout your members lifetime relationship. This by the way is what makes talking to members never tiresome or monotonous. Everyone has his or her own story to tell and learn from. Once you have this approach engrained in your branch employees minds they will become the experts you will pride yourself on and they will build that reputation in the community. The sales and service approach takes time but it will ultimately be what saves your branches and has you building for your future. University of Lending May 11 - 15 Crystal Lake IL August 10 - 14 Crystal Lake IL 4th Quarter 2015 Las Vegas NV C M Y CM MY CY CMY K Management Institute for CEOs and Managers September 15 - 17 Phoenix AZ Collections Institute April 7 - 9 Chicago IL October 6 - 8 Phoenix AZ Indirect Institute May 4 - 6 San Antonio TX 25 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY BY THOMAS GRISWOLD Enterprise Risk Management The Value Of Centralizing Risk Functions Cybersecurity operational reputational regulatory the types of risks credit unions face these days is almost endless. The implementation of an effective enterprise risk management system however can aid a CU in protecting its future. Learn why ERM s top-down holistic approach helps mitigate lost value. t its core enterprise risk management (ERM) is a method of centralizing the measurement and management of an institution s overall risk. By integrating all aspects of risk the institution ensures its strategic goals are managed in conjunction with the risk necessary to achieve them. Traditionally risk has been measured in silos with individual divisions managing exposures according to pre-specified mandates. This approach can result in conflicts because risk takers are also risk managers or at the very least may influence risk managers. Centralization significantly limits the potential for conflicts. Further with the risk manager reporting directly to executives firm-wide goals can be monitored and quickly altered if the risk to achieve them becomes excessive. The top-down holistic approach encouraged by ERM aids management in recognizing the full scope of risks the institution faces. Today the complexity surrounding financial depositories is ever-increasing. In traditional thought the dominating risk factors affecting depositories were interest rate and credit risk. Although still relevant those risks are known and thus easier to mitigate. Conservative loan underwriting helps prevent overexposure to credit risk while multiple methods exist to reduce interest rate risk. ALM models and the use of interest rate derivatives help identify and defend against the adverse movement of market rates. Since credit and interest rate risks 26 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M A can be measured they are much easier to control if monitored appropriately. A more significant threat is the unknown risk which is difficult to mitigate and hard to quantify in terms of potential losses. Such rare unexpected risks generate significant losses and are typically called black swan events a term popularized by Nassim Nicholas Taleb. Since modeling black swan events is complex it is crucial to incorporate a comprehensive list of protocols and procedures and to adhere to them consistently. Cybersecurity operational reputational and regulatory risk are among the most prevalent factors endangering financial entities in which losses are arbitrarily quantified. To further emphasize the value of a holistic approach to risk management note that none of these risk exposures is independent of another. CFO CURRENCY A breakdown in one area often leads to a contagion domino effect causing failures in other risk categories. For instance a lack of cybersecurity protocols can affect a firm s reputation discomforting customers clients regulators and other stakeholders and resulting in multiple failed risk parameters. In recent years cybersecurity failures have dominated headlines costing an estimated 400 billion to the global economy according to a 2014 study performed by Intel Security Group. Within the financial services sector alone spending on cybersecurity measures was estimated at more than 4 billion. Financial companies are expected to increase their cybersecurity budgets by 2 billion over the next couple of years according to PricewaterhouseCoopers as threats to IT infrastructure are anticipated to increase. The three biggest drivers of this new spending are compliance and regulatory requirements business continuity and disaster recovery and reputational risk. The expenditures are expected to include development of formal IT security policies and procedures implementation of security awareness and training auditing of security practices and constant monitoring and reporting of security risks. Operational risk is typically described as loss of value due to control failures or other disruptions related to divisional process failures often including IT risks as well as those associated with processing transactions. For financial depositories a significant requirement in transaction processing is adherence to the Bank Secrecy Act which requires firms to assist government agencies in detecting and preventing money laundering. A review of BSA compliance by Sullivan & Cromwell LLP concluded that the increased focus on the Act will continue for the foreseeable future. During 2014 there were multiple actions taken against institutions for BSA compliance failures. The most high-profile instance concerned BNP Paribas resulting in guilty pleas to multiple charges and an 8.9 billion settlement with U.S. regulators a sign of the importance government agencies place on compliance and safeguards against money laundering. Reputational risk has become exceedingly crucial in a society where individual opinions can gain traction. Given the popularity and omnipresence of social media one negative experience by a customer or a single inappropriate employee remark can gravely affect a firm s reputation. Larger institutions hire outside firms to continuously monitor their online presence and report negative reactions. If the work is not outsourced most firms dedicate an employee to monitoring this task. While it may seem excessive constant monitoring allows a firm to track customers opinions and respond to potential problems before they escalate. The financial industry is one of the most closely scrutinized industries in the world and many regulatory agencies have been created solely to monitor the activities of institutions and protect consumers. As such all financial depositories face the increased risk of complying with a growing number of regulations from different sources. For example the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau. Its jurisdiction includes banks credit unions securities firms mortgage-servicing operations and other financial operating companies in the United States. Similarly Congress enacted the Credit CARD Act in 2009 to ensure fairness and transparency to credit card users. The Act prohibits increasing the rate on existing balances and requires credit card providers to clearly disclose all related rates and fees. Consumer protection is a focus for multiple financial regulators. In addition financial institutions are facing increasing pressure to maintain adequate capital to mitigate future credit or other economic crises. To prevent significant capital losses regulatory agencies developed risk-based capital requirements. 27 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CFO CURRENCY The NCUA recently published a second proposed risk-based capital (RBC) rule for credit unions that if approved by the Board would become effective in 2019. RBC requires institutions to hold more capital reserves as the perceived riskiness of assets increases. Financial institutions face an increasingly complex and dynamic environment. Complete risk avoidance is neither possible nor advisable. Financial services companies exist to evaluate and assume appropriate levels of risk. A proper approach is to advocate diligence and continuous risk monitoring. Implementing an effective ERM system can aid a financial firm in successfully protecting its future. By adopting the top-down approach executives of financial institutions are always aware of potential failures allowing them to react quickly and responsibly to limit lost value when unexpected adverse events occur. Thomas Griswold joined ALM First Financial Advisors in 2013. As an Associate Strategic Solutions Group Mr. Griswold performs merger and acquisition analysis for financial institutions ALM model validations for depositories and assists with interest rate hedging strategies. Prior to joining ALM First he worked as an analyst underwriting commercial credits with PlainsCapital Bank. Mr. Griswold graduated from the University of Notre Dame with a degree in finance. WEBINAR FOR AUGUST 11TH 2015 3PM (EST) WHAT IS VIRTUALCORPS.COM R TAKEAWAYS What is CECL This webinar will discuss the new CECL model explain how it works elements that must be considered in its application and how to achieve compliance with the new FASB regulations. What must a credit union include in the CECL calculation How does it apply to credit unions is a corporation of experts that are aggregated from all parts of the credit union movement under one virtual organization. We have compiled a library of over 70 webinars speaking topics that offer a wide range of critically compliant and unique topics. Our experts are available for annual meetings special events and conferences. is bringing the world together through webinars speaking engagements and extension of staff consulting. WHO SHOULD ATTEND CEO CFO CLO Accounting Supervisory Committee and Board Members http virtualcorps-com 28 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M BRANCH BUSINESS BY MEREDITH DEAN TAB Don t Write a Eulogy for Branches Just Pay Attention to How Their Role Is Changing Think mobile devices are sounding the death knell for the credit union branch Research is showing in fact that CU branches still have plenty of life left in them. Their roles are just changing. Find out how to make your physical locales viable now and into the future. very day more consumers conduct financial transactions with their mobile devices. They re tapping their phones at the point of sale they re taking pictures of checks and depositing them remotely and they re balancing online checking regions from all across North America. The March 2015 study encompasses over 16 million teller transactions and compares the same information to the previous 23 years of the study. The trends inform us about transaction volumes pay rates labor costs per transaction and part-time utilization. Here are some important statistics from that study Along with the 45.3 percent reduction in teller line transaction volume since 1992 community banks and credit unions in that same period collectively have had a 90.1 percent increase in staff salaries and benefits. Those two factors have contributed to a 133.3 percent increase in labor cost per teller transaction since 1992. In that same period teller line productivity has dropped 18.5 percent in the number of transactions processed per teller hour. E accounts. Banks and credit unions are simply making it easier for Americans to manage their finances on the fly generating a great deal of debate about the impending death of the branch. But according to the 2015 FMSI Teller Line Study branches in fact are not on life support. Far from it. They are evolving from a place to conduct transactions into centers for financial advice and sales. The numbers show that branch transaction volume is indeed declining in fact a full 45 percent since 1992. Certainly tough decisions are ahead for banks and credit unions regarding their bricks-and-mortar locations. But those decisions should be based on detailed insights of where branches have been where they are heading and the types of adjustments both culturally and technologically needed to make branches viable in the future. Follow the Trends For nearly 25 years FMSI has conducted a detailed annual study of teller activity volumes using the month of March as a benchmark. The annual Teller Line Study is a compilation of statistics from community banks and credit unions in geographic 29 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M BRANCH BUSINESS The Teller Line Study also shows that the ratio of population to branches has declined from 9 340 people per location in 1970 to 2 970 in 2014. It s a staggering metric resulting from a nearly 300 percent growth in the number of branches since 1970 while the population growth was nearly half of that. Together the decline in the ratio of population to branches and the recent decline in bank branches down nearly five percent as of June 2014 from the all-time high of 99 550 locations in 2009 (FDIC) suggest that the market is starting to correct itself from being over branched. Data shows that the decline in branches is more the result of a market correction from a glut of branches as opposed to alternative channels replacing the branch. Still those alternative channels will eventually have their lasting impact on financial institutions offices as bricks-and- mortar transactions continue to fall while online and mobilebanking activity relentlessly marches higher. A new study by Javelin Strategy & Research reveals that the United States has reached a tipping point the number of mobile users now surpasses the number of weekly branch visits. The Sales-Centric Branch The shift in financial services delivery will ultimately transform a credit union s branch system to become sales-centric as well as a place for consumers to get advice from a trusted resource. And many financial institutions are beginning to take this step today. Yet it will take time for the sales-centric branch to become the financial services industry standard for a litany of reasons. They include the impact of commercial deposits the 30 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M BRANCH BUSINESS cost of branch physical transformation and the complexity of transitioning staff. However we see two key reasons the change will occur slowly. First while branch transactions are dropping a great deal of transactions are still taking place at financial institutions physical locations the large majority being simple deposits and withdrawals. It will take time for those types of transactions to move to electronic channels. In fact if you continued the rate of decline as recorded by the Teller Line Study out another 20 years the average monthly branch transaction volume would be approximately 3 500. The second reason this shift will take time is that no matter how simple the other channel technologies are the reality is there will always be some who never adopt them. Nevertheless at some point in time these simpler transactions will certainly almost completely migrate to more efficient channels when future generations replace the older population segments of today. cross-sell metrics backed by on-demand sales-reporting tools we find lead to accountholders taking more products and staff increasing their performance. With smartphones users expected to more than double by 2020 reaching 6.1 billion globally according to Ericsson credit unions should leverage such technology to enhance the branch experience. Consumers are also beginning to understand how the two forms of interaction virtual and in person work together thanks largely to other industries. For instance consumers use their smartphone apps to reserve movie theater seats order pizza and set appointments at the hair salon. People are becoming accustomed to getting what they want through their mobile devices and fulfilling their branch banking needs should be no different. Branches Here To Stay But Changing All the movement toward mobile is generating concerns about the death of the branch. However statistics show there s no need to write a eulogy as branches are not going away. They re simply changing purpose. Branches someday won t be the place to deposit checks. Rather they will be a center for sales and deepening member relationships as well as a place for consumers to receive trusted financial advice. Those credit unions that recognize this shift the soonest and that take steps to transition their bricks-and-mortar focus away from transaction centers will be successful for years to come. Meredith Deen is the Chief Operating Officer of FMSI. FMSI provides easyto-use yet sophisticated business intelligence and performance management systems that facilitate efficient staff scheduling and systematic lobby management of the branch. She can be reached at meredithd fmsi. com. For more information visit or call (877) 887-3022. Plan Today Therefore it s wise to begin making transition plans now. Those financial institutions that move the soonest toward creating salescentric branches in retail footprints that appeal to the growing segment of heavy digital users will likely have an advantage over competitors in the years to come. These new sales-centric offices will look and operate drastically differently from today s traditional deposit-centric locations. Catering to digital users seeking out the branch for advice on financial products and services these branches will deliver what FMSI calls higher-quality interactions that lead to a greater share of members wallets. These higher-quality interactions are more likely to lead to closed product sales and additional cross-selling. As a result they ll represent much more profitable exchanges than simple deposits and withdrawals especially with labor costs of more than 1 per transaction. Tech Supports Sales Centers Technology will play an important role in the sales-centric office both in branch and in the hands of consumers. Lobby 31 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MARKETING TAB MATTERS BY ELIZABETH ROWE The Value of Fostering Loyalty With so many rewards programs for consumers to choose from credit unions are facing a new conundrum. How can your CU reimagine its loyalty offerings to remain keenly relevant and attractive to your members Read on to find out how customized loyalty strategies are the key. oyalty as a stimulator of member acquisition and repeat business is the next big thing. While it may seem it has always been a bedrock strategy to pique new member interest and then stimulate repeat engagement after onboarding our industry seems to be shirking the necessity of infusing loyalty throughout the full range of our members interactions with our institutions. Certainly most of the biggest most recent hoopla in the world of payments has been around mobile. But without a robust loyalty strategy we subsume our brands to handset manufacturers and operating systems rather than develop (and then redevelop) the critical loyalty offerings that can give us relevancy and centrality in the member experience. in the member experience by asking How can we differentiate ourselves How can we make ourselves the first and only provider for payment products and channels The first step is a refresh of our use of loyalty and rewards programs. L Loyalty and Rewards When surveyed by the Federal Reserve and asked why they are not using mobile payments consumers expressed three principal concerns. Their number one concern is security (38 percent) followed by lack of ease (36 percent) and then rounding out with statements such as I don t see any benefit (35 percent). Loyalty and rewards programs are absolutely central to moving mobile payments into the mainstream of the American wallet. The following benefits will serve as stepping stones First loyalty programs change behavior. A 2014 SteelHedge survey found that 82 percent of consumers are more likely to shop at a retailer offering a rewards loyalty program than at other retailers. In fact another survey by 60 Second Communications found that 57 percent of respondents say they have changed Then and Now This is the first time financial services institutions have dealt with vendors actively working to usurp the primary relationship we have with our members. Imagine if in the 1980s NCR had run a huge marketing campaign telling consumers to always look for one of their trustworthy ATMs. Or if International Vault had launched a B2C campaign telling consumers to entrust their valuables only to institutions offering their vaults. But that is what we are dealing with now the very kinds of firms that would have white-labeled their consumer-facing products and worked exclusively as B2B vendors just five to 10 years ago are now selling directly to consumers and merchants. And we have been complicit in turning over some of the heavy lifting to those vendors that now promote their brands rather than our brands. But after years of forfeiting primacy (and brand awareness) in member relationships as we have pursued lowest-cost delivery channels many in our industry are evaluating strategies to recreate the centrality of credit unions 32 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M 250 000 Credit Union Employees 92 Million Members 100 Million Miracles Since 1996 Credit Unions for Kids has raised more than 100 million for Children s Miracle Network Hospitals giving hope and healing to kids in your local community. YOUR FUNDRAISING DOLLARS IN ACTION MILLION 10 2 1 iMRI machine and surgical suite 1 Cardiac X-ray machine 1 Ultrasound machine 1 Bone marrow transplant 1 Fully-equipped Giraffe OmiBed incubator MILLION THOUSAND 270 THOUSAND 250 THOUSAND 100 MARKETING MATTERS when and where they shop in order to maximize their rewards. Second loyalty program enrollment is up. A 2015 survey by Bond Branding found that the average number of loyalty programs in which consumers are enrolled continues to climb from 10.9 programs per member in 2014 to 13.3 programs per member in 2015. Third although consumers are signing up for more programs they are actively participating in fewer of them. Bond Branding found that while the number of programs consumers are enrolling in jumped 19 percent over the previous year the number of programs in which they are actively involved shrank from 7.8 to 6.7 (or a decrease of 14 percent). Think of it like looking for the largest brunch buffet with the hope that having more options will increase the likelihood that you will actually find those king crab legs you have been craving. Signing up for more and more programs appears to increase the sense of possibly finding the perfect crab legs program. In other words with more options consumers can really zero in on the programs they see as having maximum value. Embracing and Moving Forward In a world where consumers have more options than ever before and are honing their expertise in program evaluation we must reimagine how we craft our rewards and loyalty offerings so they remain keenly relevant and attractive to our members. And to that end we need to think of payments deposits and loans as a single accelerator for our rewards and loyalty offerings. Just as every service delivery channel has its unique role within your credit union (with their different budgets strategic prioritization and allocation of employee time and talent) each delivery channel must also have a loyalty strategy customized for it that then integrates back into an overall agenda. So if millennials A generation marked by increased use of social media and digital technologies. Would this ad matter to the generation that can make or break a brand within a few keystrokes These digital natives are the current prime target for credit unions everywhere and PSCU has the social media tools and insights you need to reach them in a way that s relevant. The leading CUSO for 30 years we know a thing or two about embracing change and having conversations that matter. Let us show you how. 888.918.7357 34 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MARKETING MATTERS mobile payments are a key play for your institution then reward accordingly with generous bonuses for enrolling with your institution s mobile payment or bill pay services. If credit cards are your next key initiative then think about pushing not only the traditional selling points for each of your card products (no annual fee low APR rewards etc.) but also linking greater rewards to the activities that loop back to your other initiatives. For example if you are also promoting online or mobile banking bill pay encourage your members to link their creditunion-issued credit cards to their recurring bill payments by offering double or triple points (or more) for each bill they pay. The campaign alone will stimulate awareness of and interest in your credit cards. And for cardholders it will immediately begin to enhance the value proposition of your credit cards (think top of wallet) as it begins to pull bill pay from ACH s direct debit to the richer interchange earned on credit card transactions. PSCU s fully integrated merchant-funded rewards program CURewards Mall empowers credit unions to reward members with points in a way that is faster and more effective than ever. The program includes 400 online and 10 000 local regional and national brick-and-mortar merchants. The mall fully integrates with the CURewards website for a seamless and engaging member shopping experience that stimulates card usage. PSCU credit union members enrolled in the company s loyalty program can also use the CURewards mobile app to view merchandise redemption options review offers and check on points. In addition members can request to receive communications from their favorite retailers about special point offers or purchase discounts. Overall PSCU reports that members with rewards cards spend 60 percent more and conduct 30 percent more transactions than non-rewards cardholders. As non-traditional financial services players begin to ramp up heir own loyalty offerings and campaigns we have a moment s window of opportunity to deliver value that captures our members loyalty capitalizes on product and channel usage and greatly offsets the power of external players. Elizabeth Rowe is a financial services strategist for PSCU. As an ambassador for credit unions Elizabeth works with PSCU s Product Technology and Advisory Groups to bring a larger context to the strategies deployed by our internal and external customers. Her work emphasizes the threats and opportunities presented by emerging payment channels and form factors economic and regulatory trends and impacts of changing consumer demographics. Prior to PSCU she served as Group Director of Banking Advisory Services at Mercator Advisory Group where she spearheaded the launch of a banking practice focused on 21st century financial service challenges. Previously Elizabeth was the Group Leader of the Financial Services Practice at Guideline Inc. and also led Guideline s Private Capital Research Center. She is the author of an extensive portfolio of research identifying and analyzing the market opportunities at the convergence point of cultural economic and technological change. Her high energy passion and knowledge to make sense out of complicated shifts continues to make her a highly sought-after client and industry speaker. Elizabeth holds an A.B. from Harvard University and an M.A. from the University of North Carolina at Chapel Hill.. insights An instance of capturing the true nature of a thing. 35 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING BY RYAL TAYLOE The Role of CUSOs in a Successful MBL Program M Humble Growth ember business lending (MBL) is a market opportunity ripe with potential but it s important to recognize how unique it is compared to consumer lending. An MBL program requires different policies procedures and processes. While credit unions have a long and proven history when it comes to retail services and consumer lending including mortgages car loans and more business lending is a relatively new arena for most CUs. As with anything in life when starting something outside your conventional domain whether it s learning a musical instrument foreign language or taking on a home renovation project you will have the most success in your new venture when you turn to an expert for guidance and direction. Similarly for credit unions who are new to MBL leveraging experienced business lending consultants and professionals can provide the knowledge and skills necessary for success. From my observation there is no better resource for a credit union getting started in business lending than an MBL credit union service organization (CUSO). more than 2 500 credit unions or approximately 40 percent of all credit unions in the country participating in a CUSO according to Callahan & Associates. This growth demonstrates the important role these organizations play in keeping credit unions relevant competitive and innovative. With all of the CUSOs currently in existence you can find one to do just about anything a credit union needs whether it s providing operational support IT infrastructure or disaster recovery. When it comes to business lending there are numerous MBL CUSOs located all over the country enabling member credit unions to develop stronger relationships with its business members while increasing efficiency reducing costs and remaining compliant. Partnering for Commercial Lending One such CUSO is Member Business Solutions (MBS) a Floridabased CUSO that serves more than 100 credit unions nationwide. MBS has underwritten more than 4 billion in business loans Beginnings Accelerated In 1984 the National Association of Credit Union Service Organizations (NACUSO) was formed to help credit unions explore the use of CUSOs and the delivery of nontraditional products and services. That same year the National Credit Union Administration (NCUA) implemented its first CUSO regulation at a time when only a few CUSOs existed. As of Sept. 30 2014 there were approximately 1 001 CUSOs in the U.S. with 36 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING since it was founded in 2003 while maintaining delinquency rates below the industry average. MBS specializes in multifaceted business lending services and helps its members build their business loan portfolios in a variety of ways. Our partner credit unions have 21 professional employees at their disposal to assist with underwriting documentation and servicing. The depth of experience and skill we offer our clients generally cannot be replicated at the credit union level says Jim Gallagher president of MBS. MBS partner credit union Franklin Mint Federal Credit Union based in Broomall Penn. agrees. Franklin Mint has been providing financial products and services to residents and organizations throughout the Delaware Valley and beyond since 1970 and first began working with MBS in early 2010. We knew we needed to engage with a CUSO due to the complexity and specialized nature of commercial lending and determined that MBS was the best fit for us said Brian Quinn AVP and Business Services Manager at Franklin Mint Federal Credit Union. In addition to the wealth of knowledge they have due to years of combined experience in commercial lending they have also assisted us with writing our MBL policy and training our sales staff. and more. Even for experienced commercial lenders who have come over from the banking world member business lending at a credit union is quite different. Unlike consumer loans business loans must be monitored on a regular basis and this additional workload may cause issues at the credit union level says Gallagher. The current (and proposed) regulation calls for a level of staffing experience and independence that most credit unions cannot meet. Using a CUSO such as MBS satisfies the regulation quite well. The NCUA and state regulators have established very specific requirements for MBL programs that are generally more restrictive than those of community banks. However NCUA s recent proposed rule is seen as a significant step in the right direction and would enable several changes to strengthen business lending including allowing credit unions to write their own business loan policies without prescriptive regulatory limits removing loan-to-value limits and removing the MBL cap consideration for participation loans. As of the writing of this article these changes are currently out for a 60-day comment period. One thing we can be sure of is that the regulatory landscape will continue to evolve and an MBL CUSO is a valuable resource to help your institution understand manage and comply with all business lending regulations. Staying Abreast of Business Lending Regulations Another key piece of business lending is ensuring your credit union is compliant with NCUA loan policies and procedures. Given recent proposed changes to those regulations it seems credit unions must take more ownership of their policies and procedures themselves and demonstrate to regulators sound practices. Now more than ever business lending requires routine and regular monitoring and oversight including gathering and analysis of annual financial statements reviewing collateral positions for borrowing based purposes routine onsite collateral inspections and site visits C R E D I T U N I O N B U S I N E S S The 1 Solution for Member Business Lending 37 A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING Reducing Costs Increasing Income Partnering with a CUSO enables credit unions to capitalize on opportunities to provide operating capital and business services support to small businesses and commercial real estate firms without having to incur the high fixed costs associated with starting and maintaining commercial lending and business services departments. Member Business Financial Services (MBFS) a Pennsylvania-based CUSO jointly owned by a dozen credit unions expands on the cooperative nature of its owners by delivering services to help credit unions provide member business loans at a cost lower than they could individually. Mark Ritter CEO of MBFS sees this cost-sharing model as one of the key advantages of working with a CUSO. CUSOs like mine and others around the country have invested in the technology and tools up-front where you can have access to state-of-the-art systems and get things rolling in a very reasonable manner said Ritter. CUSOs have already invested into those fixed costs so you re not buying into the growing pains they re already done. That s a huge benefit even for the larger credit unions who think they may want to do it themselves. How would your customers rate their experience at your drive up Maximize Teller Productivity with a Currency Dispenser (or Recycler) Contact us at Proven Performance and Quality Phone 800-243-2624 Email dispensers Online 38 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING Brian Quinn of Franklin Mint Federal Credit Union adds Unless a credit union is planning on hiring a highly experienced very well compensated team to underwrite and document commercial loans engaging with a CUSO is the way to go. An added benefit to using a CUSO is that they see a high volume of loans so they can understand industry trends easier than a single credit union s commercial lending team. Leveraging the Power of Collaboration Since they were first conceived nearly 40 years ago CUSOs have offered credit unions the ability to remain competitive by increasing efficiencies and by offering a wider array of products and services through collaboration. This collaboration between credit unions is a natural extension of the Cooperative Movement from which credit unions were founded. By working together through a CUSO credit unions can acquire economies of scale market power and resources that far exceed their individual sizes. Additionally CUSOs offer an advantage due to their variable cost model. Instead of hiring several credit officers at a significant fixed cost a credit union that is relatively new to member business lending can benefit from the flexibility of working with a CUSO allowing the credit union to scale up or down as needed depending on the ebb and flow of the business. Most business experts now agree that variable cost models are the way to go and credit unions are taking a similar approach with other services they use. For instance many institutions are shifting away from the expensive on-premise software solutions that require upwards of hundreds of thousands of dollars in upfront fixed costs in favor of newer cloud-based SaaS providers that allow credit unions to pay only for the service and support they need as they need it. The ability to leverage these variable cost resources to provide scalability as the business scales further enables a competitive advantage for today s credit unions. As more credit unions look to start or expand MBL programs they can gain numerous benefits from partnering with experienced CUSOs that specialize in business lending services including loan underwriting documentation loan covenant compliance and tracking deal sourcing and even the development of MBL policies and procedures. The CUSO model is a great way for credit unions to improve their overall offerings while maximizing resources and continuing to offer premium service to business members. There is no time like the present to start or expand member business lending and credit unions don t have to pursue it alone CUSOs are there to help. Ryal Tayloe is vice president of credit unions for Wilmington N.C.based nCino the leader in cloud-based operating solutions for the financial services industry. Through its flagship operating system nCino leverages the power of to provide credit unions and other financial institutions with superior transparency and clarity into their existing loan production pipelines portfolios and operating efficiencies across all business lines resulting in increased profitability productivity gains and regulatory compliance. For more information visit or connect with the company on LinkedIn and Twitter nCino. insights An instance of capturing the true nature of a thing. 39 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M THE TAB LAW HERE BY BRAD R BERGMOOSER BY AUTHOR NAME HERE Cautious Optimism for NCUA s Proposed Fixed Assets Rule The latest installment of National Credit Union Administration fixed assets amendments could prove advantageous to credit unions. CUB s legal expert discusses what two major changes are in store and how your federal or state chartered CU can reap their benefits. which includes all real property branches and parking lots ATMs telephones computers printers office furniture and HVAC systems. The proposed rule removes the five percent cap (and the need for a waiver) and replaces it with supervisory guidance for examiners to use in reviewing each credit union s fixed assets situation. As the NCUA states in the proposed rule The objective of the fixed assets rule is to place reasonable limits on the risk associated with excessive or speculative acquisition of fixed assets. Upon further review and consideration the Board believes this objective can be effectively achieved through the supervisory process as opposed to a regulatory limit. Removing the five percent cap seems like regulatory relief but it may be the devil we know. Depending on how the proposed supervisory process is implemented credit unions could experience a more uncertain and possibly even stricter fixed assets standards than is in place now. The NCUA has made it T he National Credit Union Administration (NCUA) has issued proposed changes to its fixed assets rule ... again. If you recall NCUA issued similar amendments in July of last year but they were never finalized. The second proposal which came out in March is similar to the first proposal but it includes some changes that could prove beneficial to credit unions. NCUA s fixed assets rule (12 CFR 701.36) directly applies to federally chartered credit unions but state law sets the limits to fixed assets ownership for state chartered credit unions. To regulate fixed assets ownership states could either create separate standards or adopt a parity provision to bring in the NCUA rule. If finalized the proposal would impact fixed assets investing for federal credit unions and those in states that incorporate federal law. This proposal is also an important one for state chartered credit unions that don t follow the current NCUA rule since federal law is often the basis for changes made at the state level. The proposed rule amends the current structure in two major ways 1) it replaces the cap on ownership of fixed assets with a case-by-case approach and 2) it simplifies the requirements for occupying real estate owned by the credit union. Fixed Assets Cap Current law restricts credit union ownership of fixed assets to five percent of shares and retained earnings with the ability to receive a waiver from NCUA. The term fixed asset means the credit union s premises furniture fixtures and equipment 40 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M THE LAW clear that supervisory expectations remain high. In fact if a credit union has an elevated level of fixed assets [over five percent of shares and retained earnings] NCUA will maintain close oversight to ensure it conducts prudent planning and analysis with respect to fixed assets acquisitions can afford any such acquisitions and properly manages any ongoing risks to its earnings and capital. The proposed rule is a trade-off between an objective standard and an examiner s application of supervisory guidance to the credit union s fixed assets operations. It s difficult to argue separate meanings to five percent but a great deal of time and expense could be expended to agree on the appropriate type and quantity of fixed assets that should be held by the credit union based on its prudent financial analysis. The best method for a credit union to see benefit in the possible rule change is to adopt a detailed approach to its ownership of fixed assets. The NCUA has determined that a poor fixed assets strategy could cause impairment to the National Credit Union Share Insurance Fund so there is no such thing as being over-prepared. Credit unions should review their policies and procedures to ensure they account for any negative impact on capital accumulation and operating expenses. They should also determine how current and future fixed assets investment aligns with their growth plan and net worth and they should provide adequate due diligence related to fixed assets to minimize financial and other risks. The rule is still a proposal but taking these proactive steps only bolsters practices under existing law and will allow credit unions to potentially avail themselves of the elimination of the cap if it s finalized. purchase to partially occupy the property regardless of its condition (improved or vacant land). The proposal retains the ability for a credit union to apply for a waiver of the six-year limit but it removes the requirement that it must be applied for within 30 months of purchasing the property. The NCUA remains firm that acquiring property for lease to a third party and or for the intent to recognize a profit based on appreciation is not within the incidental powers granted to a credit union. But leasing the unused portions of property the credit union has acquired with the intent to ultimately occupy the space is allowed. Further credit union incidental powers are broader when it comes to other fixed assets and renting or leasing those assets is generally allowable so long as they were originally acquired in good faith to provide a service to the credit union members. For example a credit union may offer correspondent ATM services to another credit union and may receive income from that activity. Likelihood of a Final Rule So why should credit unions spend time on this issue now Well the proposed rule was open for comment until April 30th so it may be some time before we see a final rule issued. Since this is NCUA s second go-around with amending it however it s safe to say changes to the fixed assets rule are imminent. In addition to the inevitable change in the fixed assets rule credit unions continue to operate in a highly regulated environment and reviewing practices involving fixed assets will help reduce their regulatory burden in the long run. Brad R. Bergmooser is Senior Counsel at Freeborn & Peters LLP and a former Assistant General Counsel for Illinois Credit System. He is a member of the firm s Corporate Practice Group and Credit Union Industry Team and concentrates his practice on matters involving credit unions and other financial institutions. He can be reached at bbergmooser 41 Real Estate Occupancy A large portion of fixed assets owned by a credit union is likely in real property. Under federal law a credit union can own only property necessary or incidental to its operations. The fixed assets rule builds off this statute and requires a credit union to fully occupy the real estate within one year of its purchase or execute a board resolution detailing plans for full occupation. Additionally if the real estate is unimproved land the credit union must partially occupy the property within six years. That stipulation drops to only three years if it s improved property. The proposed rule simplifies the ownership occupancy process. If finalized credit unions will have six years from C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CU REBRANDING BY LISA LIEBMAN AND JENNIFER FORG T Rebranding An Eight-Step Strategy Take a step-by-step walk through the strategies one credit union recently employed to rebrand itself to reflect its modern identity. This guided stroll through process execution and results serves as a solid case study for other CUs that are considering rebranding themselves. H udson Valley Federal Credit Union (HVFCU) is a 4.1 billion not-for-profit financial institution that recently rebranded to better reflect its growing relationship with consumers and businesses in its upstate New York markets. The decision to rebrand was not undertaken lightly. While HVFCU had grown and evolved in the past 20 years its brand identity remained the same and did little to represent the credit union its constituencies or its future direction. The brand s new identity launched in May 2015 and is the cornerstone of a cross-channel marketing and advertising campaign that comprises broadcast print outdoor and digital marketing as well as merchandising and collateral materials throughout the HVFCU network of branches in Dutchess Orange Putnam and Ulster Counties New York. Here s the story behind the rebranding process execution and results. While this is just one credit union s experience its success makes for a solid case study for others considering such an undertaking. 1. General perceptions of the brand are favorable among members and non-members alike. 2. The credit union is known for its high-service standards even among non-members. 3.While HVFCU is recognized for the positive role it plays in the community it could better communicate and deliver on how it serves members in today s world. The research findings and implications served as the blueprint for creating a new identity for HVFCU. New Positioning The goal was to position the credit union for growth by modernizing its image and broadening its appeal. Through the new brand HVFCU will cast a wider net in terms of attracting new members and educating prospects on who they are and what they offer with a new positioning that HVFCU is more than just a credit union it is a dependable partner whose members are its top priority. Research First The objective of the research was to get an understanding of the brand s strengths weaknesses opportunities and threats (SWOTs) by exploring its perceptions among key internal and external audiences. This research included in-depth interviews (IDIs) with HVFCU s board of directors and senior leadership an online survey among employees and focus groups with consumer and business members and prospects. The insights gleaned from the research helped influence and drive the credit union s repositioning. Some key highlights of the findings were that 42 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M CU REBRANDING This platform is intended to differentiate Hudson Valley Federal Credit Union from competing institutions as the local financial partner that puts members needs and those of the community above all else. It is also designed to establish HVFCU as a credit union that stands as a strong viable alternative to big banks with service standards those institutions simply can t match (and don t want to). through adaptations that speak directly to them. For example There s a Reason People Save Here and There s a Reason Business Banks Here. Brand Launch Planning Sessions I II and III Planning for the new brand s launch occurred in three stages. First the credit union needed to take stock of all of the elements that would be impacted by its new identity. From there it needed to make a plan from its letterhead and business partnerships to logo-wear and premiums website social media and advertising. A full audit was then conducted and a master execution plan crafted for a seamless transition. A second planning session was conducted to review the media objectives strategy and channel allocation for the new advertising campaign. Finally a third planning session focused on the elements and timing of the internal launch intended to rally the entire organization and create internal brand champions and advocates for HVFCU s new identity. New Logo The new positioning was the basis for the creative development of a new logo for the brand. The exploration looked at different color palettes fonts graphics and treatments. Important questions that were answered through this exercise were 1.Is the logo unique and own-able 2.Does it project a more contemporary brand image 3.Does it depict members and the community as the priority The resulting design accomplishes all that and more. The new brand icon a fresh clean depiction of the Hudson River and its banks comprising the Hudson Valley graphically positions HVFCU as the safe local service-focused and loyal go-to financial partner individuals and business owners trust. Beyond its bold and distinguishable color palette strong graphics and modern expression of the community it serves the icon has the flexibility to work as a branding element and to support the promotion of specific products. New Advertising Campaign A creative brief was developed and approved based on the new positioning and a campaign exploratory followed to accomplish three objectives 1.Build awareness of the brand s new identity 2.Deliver product and service news to consumer and business members as well as prospects 3.Educate consumer and business prospects on the benefits of membership The new campaign kicked off with a teaser effort in April that unveiled elements of the logo in high-traffic billboard locations. The new identity was launched internally in April too with a week-long rallying event. An internal video message from HVFCU leadership a desktop puzzle of the brand icon distributed in daily pieces with corresponding brand values messaging a branded gift and a brochure that explained how the new brand identity came to be and how to live it each day were included as part of this event. The external advertising campaign followed in May. Known as The Valley this campaign demonstrates HVFCU s integral role in the lives and businesses of the Hudson Valley. It also expresses the sentiment that doing it here together makes us who we are to focus on the credit union s community 43 2 0 1 5 C U B U S I N E S S . C O M New Tagline As part of the brand s refreshed identity the newly developed tagline communicates the CU s enhanced positioning in a succinct and memorable manner and it does so as part of the brand s sign-off. While a range of lines were explored the one that prevailed for its memorability and flexibility is There s a Reason People Bank Here. The line was chosen for its ability to deliver on the brand s core values of 1.Excellence in products and the way in which they are provided (easy convenient financially responsible) 2.Exceptional service at every turn 3.Caring compassion respect and dignity toward members and employees The new tagline also enables the brand to convey its variety of products and services to both consumer and business members C R E D I T U N I O N B U S I N E S S A U G U S T CU REBRANDING HVFCU Rebrand Milestone Recap Round 1 Brand Identity (BI) Preso Round 2 BI Preso Round 3 BI Preso Valley Logo Selected Plastics Sub-brand & Stationery System Kicko BI Preso to HVFCU Board Brand Launch Planning Session (1) Logo Finalized Signage Guidelines Delivered Sub-brand Logos Submitted Plastic Files Finalized & Delivered Media Preso Creative Brief Approved Brand Launch Planning Session (2) Internal Launch Plan Submitted Brand Campaign Concept Preso Broadcast Pre-Pro Session Sub-brand Logos Finalized Stationery System Sub-brand Letterhead Finalized Media Plan Finalized Brand 60 Finalized Prelim Product (Cert) Assets Complete Puzzle Gift Branding Brochure Delivery Final Internal Video Released Brand Launch Internal Teaser Billboards Live Advertising Branding Digital Direct Research Planning Began Focus Groups Research Findings Preso Digital Display Released Product Print Released Internal Video Script Submitted Brand Launch Public (Includes Signage TV Print Digital) Brand Guidelines Finalized 12 12 2013 3 11-3 12 5 1 6 25 7 15 8 14 9 2 10 3 10 15 2014 10 23 10 30 11 11 11 20 11 25 12 17 12 22 1 16 1 23 2 23 3 10 3 13 3 16 3 18 3 24 2015 4 6 4 21 4 24 4 27 4 29 4 30 5 4 5 22 The overall process to develop HVFCU s new brand identity and launch it to internal and external audiences is described in this infographic which details each of the steps taken from the initiation of research to the final brand guidelines. member-centric values. The campaign was executed across multiple channels including broadcast and digital media and it was incorporated into a print deposit campaign that was in progress. Brand Guidelines As a final step to ensure consistency of HVFCU s new identity brand guidelines were created to explain the tone and style of presenting the brand as well as proper logo usage. The guidelines are not only used with outside vendors but are also shared with all management staff throughout the credit union to reinforce the importance of brand consistency. Lisa Liebman Vice President Managing Director KPIs (Key Performance Indicators) While it is too early to determine the success of the effort there has been an outpouring of positive sentiment expressed for the brand s new image and its advertising campaign. These sentiments have been conveyed by employees members in branch and HVFCU s social media community. Going forward several KPIs have been put in place to measure performance including an A&U study that will determine lifts in consideration over other financial competitors in the market. While rebranding is a massive undertaking as HVFCU s experience shows if you do it strategically logically systematically and with a holistic view and a passion for your brand you can tap into where your credit union is today and build it for future market growth. After 30 years of experience on Madison Avenue working for blue-chip clients at some of the most creative agencies Lisa joined Austin & Williams in her quest for greener pastures. As Managing Director Lisa is the agency s brand ambassador new business leader talent scout and a key strategist across all of its clients. A&W actually created this new agency position for Lisa in response to her enthusiasm interests and skill set. Jennifer Forg t Vice President Client Engagement Jennifer is responsible for managing client relationships and overseeing the account teams that service the businesses of Austin & Williams partners. An accomplished marketing executive she is best known for managing global initiatives for premium beverage alcohol brands financial service institutions mass retailers and not-for-profit organizations. She is also tasked with overseeing large multi-disciplined agency teams. Her focus on integrated digital and relationship marketing has earned her broad industry recognition and the opportunity to work for some of the top agencies in the world. 44 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M COMPLIANCE UPDATE BY JASON SKEMP Field Day HMDA Data Collection Requirements Soon to Double Is your credit union ready for the expanded data collection requirements the Home Mortgage Disclosure Act is about to add These three tips will ensure the Big Data revolution doesn t turn into big headaches for CUs that participate in mortgage lending. t seems everyone wants to participate in the Big Data revolution. Even U.S. lawmakers are getting in the game expanding requirements to collect more information from financial consumers. For its part the Consumer Financial Protection Bureau (CFPB) has said it will add up to 22 new fields to its Home Mortgage Disclosure Act (HMDA) data collection requirements come late summer. The idea is to have a better grasp on the nation s fair lending practices to ensure a healthy and diverse mortgage lending environment. The fact is some credit union loan officers already have difficulty meeting HMDA data collection requirements. With even more complexity on the horizon now is the time to make sure your policies procedures software and staff are a finely tuned well-oiled HMDA reporting machine. I Ensure Proper Disclosures Are Given. What would a step in the home mortgage process be without a disclosure When collecting data from a prospective borrower credit unions must share with the applicant specific disclosures stating that the data is required to be collected due to federal regulations. The borrower is not required to furnish this information if he or she doesn t want to. Staff must provide this disclosure before attempting to collect any personal information. If not provided orally the disclosure can also be stated on the mortgage application itself. HMDA posters must also be present in each branch location where mortgage applications are accepted. The language in the poster lets the public know that your credit union s loan application register is available to them so be sure your records are kept up to date and accurate. This brings me to my next point... Double Check Data Collection Procedures. First things first is your credit union properly collecting data from both approved and denied applicants Staff members taking the applications must understand their responsibilities specific to HMDA regulations. One of the common missteps we see is staff being unaware that they still have to report some data even when an applicant says he or she does not wish to supply that data. This is true only when a loan officer is taking the application in person. The loan officer is then required to designate the applicant s race ethnicity and gender based on surname and or visual observation. Make Sure LAR Data Is Current. Although you are required to submit applicant data on the Loan Application Register (LAR) only once each year there is a requirement that you enter the data itself on the LAR within 30 days of the end of each quarter. The last thing you want to do is wait until the last minute to enter and check over an entire quarter s (or worse an entire year s) worth of data. Best practices depend on the scope of a credit union s mortgage business but typically quarterly HMDA data reviews to compare LAR and application data will do the trick. If the quarterly reviews are too much for staff or you want an impartial pair of eyes an outside review may be just the ticket. 45 2 0 1 5 C U B U S I N E S S . C O M C R E D I T U N I O N B U S I N E S S A U G U S T COMPLIANCE UPDATE Since learning of the expanded HMDA data collection proposal credit unions and others have worked to persuade the CFPB that reporting should be limited to only the most essential pieces of information. If history is any indication the bureau will take this perspective into account as it decides on a final rule. However even a small expansion could have a huge impact if policies procedures software and staff are not ready. Dedicate the next few months to addressing any outstanding issues so staff members are ready and confident to tackle the additional requirements. Jason Skemp is director of compliance solutions for PolicyWorks. Contact him at jasons or at 515-221-1858. Loan Originator training You ve got this. Do you still need to satisfy your training requirements Look no further than the comfort of your own office. A new NMLSapproved self-study course is specifically designed for credit unions and meets the continuing education requirements of Reg Z. Enroll today at MLO Check it off your to-do list Enroll today at MLO OFFERED BY INSTRUCTED BY The services provided by PolicyWorks should not be construed as legal services legal advice or in any way establishing an attorney-client relationship. Making compliance easy for you. 866.518.0209 POLICYWORKSLLC.COM 46 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M TAB LIMITED TIME OFFER Introductory Rebate 47 C R E D I T U N I O N B U S I N E S S A U G U S T 2 0 1 5 C U B U S I N E S S . C O M mobile Capable of moving or being moved readily. So are you Your members are. Your future members are. And so are your competitors. As the leading CUSO PSCU can move you forward in the way of mobile delivery. That means putting you in all the places your members are and helping you outpace the competition on the road ahead. mobile 888.918.7357