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T H E O N LY ALL- D I GI TAL ALL -BUSINESS RESOURCE FOR CREDIT UN IO NS T H E T H E IP L A N NLI E N DIIS S U I S S U E B U S N E S S NG N G E A Case for Collaboration PSCU s Owner Credit Unions Help Shape New Release of MemberConnect LISA TOWNSEND MAY 2016 VOLUME 11 ISSUE 5 Turning a 700 Score into an 800 Score REX JOHNSON 7 Tips for Effective Member Engagement EVA LAMERE Turn on your team with an introductory discount and money back guarantee. Each month Credit Union Business Magazine brings you the most informative news from the top publication in the CU world. Direct reports receive timely articles in their disipline CU Business monthly e-Magazine Weekly top article Over 5 years of back issues on our website As CEO you will receive Everything your direct reports receive Your own weekly CU TeamBuilder articles Walter Merkle EVP Northwest Georgia CU CEO Velocity & View from the Crow s Nest Credit on the Wall of Fame website and donation that will be made to the Children s Miracle Network CU name city asset base and CEO name to appear. Title CEO Lending SVP VP of Lending CIO CMO VP of Marketing Compliance Officer Executive Admin COO SVP Branches Branch Manager email ID (name) (name) (name) (name) (name) (name) (name) (name) (name) (name) (name) eCub monthly CEO Velocity CFO Currency CU Training Technically Speaking Lending Solutions Marketing Matters Compliance Update Branch Business With the new CU Team Builder program I ll be able to retain hard copies of your magazine and ensure that my colleagues receive helpful articles on a position-specific basis Signing up is simple 450 for the first year (10% introductory discount of 50 per year). (10% donated to the Children s Miracle Network) Pay with major credit cards through https subscription or send a check to C.U. Business Magazine PO Box 223 Palm Beach FL 33462 Email tim with a completed list (you ll find it on the website) of direct reports who should receive CU TeamBuilder articles Name title credit union and email address. TABLE OF CONTENTS MAY 2016 VOLUME 11 ISSUE 5 THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS 4 6 11 16 18 21 23 UP FRONT Content is King Tim O Hara CU TRAINING 30 33 36 40 42 44 47 MARKETING MATTERS Eva LaMere Seven Tips for Effective Member Engagement TECHNOLOGICALLY SPEAKING Mentor Instead of Manage Kenneth C. Bator CEO VELOCITY Bridging the Gap Kenneth J. Sole Relevance The CEOs Main Responsibility Scott McClymonds COMPLIANCE UPDATE Cindy Williams EXTRANETS MEMBER BUSINESS LENDING Pam Easley CFO CURRENCY Moving Toward a New Dawn in MBL Lending Indirect Loans Do You Really Know What They Are Yielding Emily Hollis LENDING SOLUTIONS Rex Johnson CU PAYMENTS Known by the Company You Keep A Case for Collaboration Lisa Townsend LEADERSHIP Turning a 700 Score into an 800 Score Why Credit Unions Succeed In Building a Nation One Community at a Time Diana Dykstra For CUs the Real Estate Advocacy Trend Comes of Age Timothy J. Mislansky REAL ESTATE LENDING Cash Is the Wallet Dinosaur The Meaning for Cards Bill Prichard MEMBER BUSINESS LENDING Catch the Wave The Mobile Banking Revolution Has Arrived Ryal Tayloe 1 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M TAB THE ONLY ALL-DIGITAL ALL-BUSINESS RESOURCE FOR CREDIT UNIONS PUBLISHING TEAM Tim O Hara Editor & Publisher tim Ashok Kumar Associate Publisher ashok Patti Manzone Designer UP FRONT Tim O Hara CU TRAINING Kenneth C. Bator CEO VELOCITY Scott McClymonds COMPLIANCE UPDATE Cindy Williams CU PAYMENTS Lisa Townsend LEADERSHIP Dianna Dykstra REAL ESTATE LENDING Timothy J. Mislansky MARKETING MATTERS Eva LaMere TECHNOLOGICALLY SPEAKING Kenneth J. Sole MEMBER BUSINESS LENDING Pam Easley CFO CURRENCY Emily Hollis LENDING SOLUTIONS Rex Johnson MEMBER BUSINESS LENDING Bill Prichard MEMBER BUSINESS LENDING Ryal Tayloe 2 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M T H E ON LY A L L - D I GI TA L A L L - BU S I N E SS R E S OU R C E FOR C R E D I T U N I ON S T H E M E M T H E P L A NN E N G LS S U EN G I S S U E B E R B U S I NI S S I E N D I A Case for Collaboration PSCU s Owner Credit Unions Help Shape New Release of MemberConnect LISA TOWNSEND MAY 2016 VOLUME 11 ISSUE 5 Turning a 700 Score into an 800 Score REX JOHNSON 7 Tips for Effective Member Engagement EVA LAMERE SUBSCRIPTIONS 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 Tim O Hara Publisher tim or 561-282-6015 1 CONTACT INFORMATION Credit Union BUSINESS Magazine P.O. Box 2223 Palm Beach FL 33480 (561) 282-6015 (561) 588-7711 (fax) tim cuso A community joined together for a common purpose. In what ways does collaboration benefit a credit union Can it expand reach and outpace the competition Provide greater services and prevent newer risks At PSCU we know that credit unions are stronger when they stick together. And we re proud to be a 30-year leader in credit union connectedness. When you join PSCU you re joining the ranks of more than 800 credit unions nationwide that leverage the power of our cooperative. 888.918.7357 UP TAB FRONT BY TIM O HARA Content is King Content is King And in this issue of Credit Union BUSINESS we offer you terrific content from some leading financial services experts It s truly a wellrepresented lineup of helpful editorial articles designed to help you run your credit unions. From CEO to CFO CLO CMO CIO Compliance Training and Branching you ll find content targeted to every one of your CU s professional contributors About five years ago my friend and editor-in-chief at the time Marc Bringman and I decided to alter the direction of CUB s editorial content from general business topics to specific credit union operational columns. We sorted the mix so that each member of the management team would have something specific to learn in each issue. And this issue is especially illustrative of that new direction. It was a good decision This edition features one of my favorite CUB contributors Rex Johnson founder and boss at Lending Solutions writing a column with the same name. I m sure many would agree that lending is the engine that keeps the credit union moving forward. And Rex really puts a human face on that CU propeller by giving solid examples of real people with real problems seeking real solutions Rex suggests some very real ways to help your members increase their credit scores thereby increasing your lending results. The Lending Solutions article begins on page 41. If lending is the engine that propels the CU then it naturally extends that the marketing function is the gas tank You need to attract new members through the door while retaining your member base and selling them your products. Member relationships and member engagement are the topics of this month s Marketing Matters column. They mark the debut of Eva LaMere the president of Austin & Williams a highly successful marketing agency in Long Island N.Y. A&W works with credit unions and community banks throughout the country. 4 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M Beginning on page 29 Eva gives us seven specific strategies that have worked for some large and small credit union clients. Please share them with your marketing department If marketing and lending are vital to bringing money into the credit union then the Finance department is critical to maximizing those funds. Few people in the CU industry are as adept at money management as ALM First s CEO Emily Hollis. Emily or an associate of her firm have been contributing CFO Currency articles for more than two years and they are always on target for our CFO and CEO readers. On page 39 Emily takes a well-measured look at indirect loans and their yields. Each month we also like to take a view of the captain of the credit union. And this time we ve got two views. I m very proud to offer the words of CEO Velocity s CEO Scott McClymonds as he discusses the critical importance of Relevance in staying in tune with your members. Industry leader Diana Dykstra president and CEO of the California and Nevada CU Leagues offers us an up-close look at the community activism and local achievements of one of her leading constituents Donna Bland the CEO of giant Golden 1 Credit Union in Sacramento Calif. And there is much much more great content to be had in this month s electronic magazine. I hope you will learn from and enjoy every story in it. Thanks for reading Tim CU TRAINING BY KENNETH C. BATOR MBA Mentor Instead of Manage Are your credit union employees engaged or disengaged If the answer to that question is the latter how can you expect your members to be engaged These three solution strategies will help you give your CU staff members an active voice in your organization that loudly and clearly resounds with your members. They just don t listen They care more about living off of daddy than actually working for a living. As soon as I train them they leave so I don t bother putting much time into new employees. These are all direct quotes from some of my credit union clients concerning their staff during conversations that I have had over the past five years. These folks were clearly frustrated. Just as unfortunate I know the staff that reported to them we re equally annoyed. It was clear in each situation that the employees were disengaged from the organization. Many of them were actively looking for other jobs and most if not all were doing just enough not to get canned. The motivation for these employees in these situations certainly was the opposite of going above and beyond. I truly believe that the biggest casualty of the financial crisis in this country which began in 2008 and I would argue we have never recovered from is employee engagement. The divisiveness I see lately whether it be arguments over minimum wage or blatant violence between supporters of different presidential candidates has perpetuated the strongest and quite possibly scariest us-vs-them mentality I have ever witnessed in my lifetime. The causes of the divide between subordinate and manager as well as the cancer that is plaguing the health of employee engagement certainly didn t just mystically rear their ugly heads for the first time in the last eight years. These issues have been around for decades probably even centuries. They simply have been magnified and exacerbated since the rise of the6 C R E D I T U N I O N B U S I N E S S new normal which is characterized by a ridiculous high speed of change continual uncertainty and constant chaos. Case in point since the mid-80s I have worked for ten different employers. These were actual traditional earn-a-paycheck jobs not contractual engagements as I have today. Among those ten workplaces I truly felt respected within only 1.75 of them. Respected for my ideas. Respected for my talents. Respected for what I could be. My favorite example from the 8.25 was when I was a Series-7 registered rep for a small brokerage firm in my early 20s. Push the (bleep) stock But the company doesn t have good fundamentals boss. Do you know for a fact that the stock isn t going to go up but... Then sell the (bleep) stock to all of your clients and prospects It may surprise you that it wasn t long after that dialogue that I resigned from that job. M A Y 2 0 1 6 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 CU TRAINING Now for some good news especially as it pertains to the readers of CU Business Magazine. Four of my aforementioned ten employers were credit unions and that entire 1.75 positive experience came from two of them. For those wondering about the 0.75 that came from my first credit union job where I worked for eight years. I still look back on the first six years as a very positive and formative experience. The final two years of my employment there which took place after a very difficult merger that drastically changed the culture were a little different. That speaks to the drastic effects a merger can have on a culture but more on that another time. I started that first credit union job shortly after I left the aforementioned brokerage firm and it was like a great big breath of air. It was the equivalent of being caught underwater and someone setting me free so I could finally gasp above the ocean and swim to dry land. For example as I mention in my recent book I had only been in that job for a month or two when my manager asked me for feedback that he could take to the strategic planning meeting. Me I m 23 What could I have to offer At least that s what all of my former employers had told me or made me feel. My manager quickly squashed that thought with his explanation that at this credit union everyone had a voice. While my CU-employee experience of 1.75 out of 4 is clearly much better than my overall 1.75 out of ten that s still less than 50%. In an industry founded upon people helping people a 44% personal employee satisfaction rate seems a little low. In fact the last credit union I worked for was a bit too reminiscent of my Just push the (bleep) stock experience. Granted my example is just that my example. My opinion. My feeling. However from what I see feel and hear from many credit union employees over the past decade seems far from the everyone has a voice environment that I enjoyed during my first CU job. Furthermore the numbers today would suggest that most employees are closer to the experience I had with the 8.25 than the 1.75. A report posted on Dale Carnegie s website states that 71% of all employees are not fully engaged and that over a quarter of all employees are actively disengaged. A Gallup poll reported that in 2015 reported that only 32% of employees in the US are engaged. And probably most important to all of the CPAs and CFOs out there Huffpost Business reported in November 2014 that employee disengagement costs the US economy more than 500 billion per year. That s BILLION with a B If you re running a 100 million credit union or even a 1 billion credit union what does that say to you A better question to ask is What s the solution Here are a few ideas 1) Take a breath. I continually argue that many of the basic factors that lead to a divide 8 M A Y 2 0 1 6 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 CU TRAINING between 20-somethings and 40 or 50-somethings in the workplace are not new. When I was in my 20 s I was agnorant a combination of arrogant and ignorant. I was fortunate to have bosses that mentored me through that in the 90 s. I recently read Overpowering Fear by Michael Luckman a member of the Greatest Generation who talked about some of his arrogance in the workplace in the 1960 s when he was in his 20 s. I would venture to guess there were more than a few 20-somethings in the transition from the agricultural age to the industrial age that wanted their 40 and 50-something bosses to change the way they did business. So in many ways it s not that much different today. What is clearly different today is the bombardment of information the constant doing more with less and the bottomless in-box. As I stated in an article I wrote three years ago we re all spent. It becomes easier to simply bark out an order than to truly mentor someone and discover the why behind the behavior. Taking a breath and realizing as a manager that you may be emotionally spent at the time but choosing to approach an employee problem in a different way is the start of true employee engagement. 2) Remember that employees are your first members. This is a take on my ongoing mantra that staff represents your first customers. In other words how can we expect the members to be raving fans of our credit union if the employees can t stand being there It s nearly impossible at best to create a positive member experience when 9 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M CU TRAINING there is a continually revolving door to the HR department due to constant movement of former and new employees. Truly engaged employees become brand advocates of the credit union. They tell their friends and families not only about how they enjoy coming to work but also about the great products and services. In order to create that level of engagement management needs to adopt a mindset of employees are members too much like that at this credit union everyone has a voice experience I mentioned. We realize that whether an employee stays with us for ten years ten months or ten minutes that our job is to make his or her life better by teaching in a way that is going to resonate. his or her life better by teaching in a way that is going to resonate. Just as we do with members we need to strive to make a human connection. To create what I call The Great Circle. Even if an employee leaves tomorrow he or she may be an important addition to your Great Circle and be someone you may be able to rely on at some point in the future as a colleague at another credit union or just simply a good friend. So maybe as mentors instead of managers we need to listen first. Maybe we need to understand why it seems they want to live off of daddy rather than work for a living. Maybe even if they resign tomorrow we should train and teach them anyway. Isn t it that type of human connection that people helping people was all about in the first place Ken Bator has more than 20 years of experience in helping organizations make money save money and survive internal challenges and tough economic conditions.As a facilitator for training and strategic planning sessions and an expert in brand concept culture building and management Ken has helped hundreds of organizations since 2001. 3) Mentor instead of manage. Speaking of mindset this last point is the most important takeaway from this article and possibly the most difficult paradigm shift. Stop thinking manager to subordinate employer to employee or executive to staff. Think mentor to mentee. When we think that way it changes our perspective. We no longer rely on that power of position which frankly isn t as powerful as we think it is. We realize that whether an employee stays with us for ten years ten months or ten minutes that our job is to make http employee-engagement engaged-employees-infographic http poll 188144 employee-engagement-stagnant-2015.aspx g_source EMPLOYEE _ENGAGEMENT&g_ medium topic&g_campaign tiles 3 http jeff-fermin 13-disturbing-facts-about_b_6140996.html 2 1 10 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M CEO VELOCITY BY SCOTT MCCLYMONDS Relevance The CEOs Main Responsibility T Drawing from the experience he gleaned at the recent Cornerstone Credit Union League s annual convention Credit Union BUSINESS s CEO expert offers up advice on how to stay relevant in today s financial environment. Before you roll your eyes about the relevancy talk ... again ... prepare for a fresh and honest take on the matter. In my column this month I m going to address the topic of relevance but please don t be offended if I seem impatient. On one hand I ve had enough of this discussion of relevance. But on the other hand I realize patience and a gentle hand are needed. The Bible says A gentle answer turns away wrath so my purpose in this article as in all the articles I write is to encourage you with a gentle answer. However I admit I am a bit frustrated with the relevance discussion. his past week I attended the Cornerstone Credit Union League s annual convention in Oklahoma City. Since the League includes Texas Oklahoma and my home state of Arkansas I ve been able to attend exhibit and speak at a number of its events. Dick Ensweiler s Cornerstone staff puts on first-class events. Several speakers at this event stood out to me. Onewas Mark Meyer CEO of Filene Research and the other was Ken Schmidt one of the engineers of Harley Davidson s renowned turnaround in the late 1980s and 1990s. I saw Ken last year at the League of Southeast Credit Unions (LSCU) conference and he was great there too. Mark stood out to me because in discussing Filene s report on Credit Unions in 2025 he brought up the R word relevance. How many times have we heard that word in the last few years We ask ourselves How will we remain relevant Conversely Ken stood out because he answered the question of how to remain relevant in one word lifestyle. 11 C R E D I T U N I O N B U S I N E S S Why I m Frustrated with the Relevance Topic The impatient Scott says relevance is common sense and that the topic of relevance is irrelevant. Companies M A Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY that are relevant provide their customers with what they need when they need it at a price they re willing to pay in their preferred manner of accessing it so that it meets their transactional needs and lifestyle goals. As I ll point out below from Ken Schmidt s speech meeting lifestyle needs is critical as long as it can be done conveniently and with a smile. Not long ago before a trip to Austin Texas I went to Sam s Club and got new tires for my F-150. Was Sam s relevant to me Yes they were. They had the tires I needed at the price I wanted the salesperson was exceptional and the service was quick. There were other places in Fayetteville where I could have gotten my tires but Sam s was painless. I hit a major rainstorm driving through Austin and central Texas so I was grateful for Sam s and they were definitely relevant. For most of my auto repairs I go to a local Ford dealer. Are they relevant to me No question. They ve taken good care of me over the years. They re honest do good work and are fair with their prices. They don t fix things that aren t broken. What does each of these companies do for me They help me keep my F-150 in good shape and on the road. Is my F-150 just a truck Heck no. It represents me. It s part of my lifestyle. It s paid off 15 years old big burly and in great shape. I have confidence in it and the fact that Sam s and the Ford dealer take good care of it gives me wonderful peace of mind. So it s not just a matter of tires brakes and an oil change is it Did I mention the fact that the dealership s staff recognize me by face use my name and keep a record of my maintenance so I don t have to Even though they don t see me every day they know me. On the other hand Bank of America is totally irrelevant to me. I have one of their credit cards for my business and I pay it online. I don t know what else they offer and they haven t told me how they can help me. They send me a bunch of mail constantly and I shred all of it without reading it. Their envelopes are too thick for me to get the whole thing through the shredder at once so I have to open it then shred. That ticks me off and makes them more irrelevant. Here s the point credit union CEOs You either give your members what they want so they can meet their life objectives or you go out of business. That s just business 101 which is on one hand why I think the whole discussion of relevance is a neurotic handwringing exercise. Give members what they want in a manner they want it at a fair price and make their lives better. How is that hard to think about With that little tirade out of the way I m going to calm down return to the patient Scott and focus on what Ken Schmidt s Harley story can teach us about relevance. A Lesson from Harley Davidson Before Harley s turnaround the quality of the company s motorcycles was inferior the brand appealed to a small but loyal group of people on the fringe of American culture and the business was losing money. Harley Davidson was irrelevant to most people which is not a good place for a brand to be. 12 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY The company s turnaround featured a vast improvement in quality but even more than that an incredible rebranding of its product to appeal to the lifestyle needs of a much broader and more profitable market. Harley Davidson studied its target market diligently so it knew them well enough to give them not just motorcycles but an intense lifestyle experience that could be shared with thousands of other people. Ken said people pay four times more for a Harley than for a similar high-quality Honda. Why Harley provides an identity people want to associate with. The company s leaders realize motorcycles are the products they make but lifestyles are what they sell. Your credit unions offer checking accounts credit cards mortgages and debit cards but that s not what your members are buying from you. Like Harley s customers but perhaps not as dramatically they re buying opportunities to achieve their lifestyles and dreams. Just like Harley motorcycles are means to achieve their riders lifestyle goals your products and services are also conduits through which your members achieve their life goals. Harley found a way to be different from all other motorcycle manufacturers and in the process became supremely relevant to its customers. Likewise you need to stand out far above the crowd even if you re a small credit union so you can have a similar impact on your members. So how do you do that Golden 1 s Donna Bland whose team regularly conducts consumer research to track and anticipate trends and preferences WPCU s Doug Fecher who is redefining his culture and product line to become more relevant to members at different levels of financial health and Steve Hennigan from SACU who regularly walks neighborhoods in San Antonio to better understand the city s residents. Over the last few months I have also shown you how the topic of member portfolio management can enlighten your understanding of members and markets and can help you create differentiated value for various groups of members. Anyone can stand out but it requires putting oldschool thinking on the shelf and embracing innovation and change. Those can be scary issues for sure but there is simply no other way to stay relevant to your members and communities. It is hard work and requires tremendous leadership focus and effort and that s where you come in. The CEO s Role in Creating Relevance In my career I have orchestrated major changes in the companies I have served and not one of those changes has occurred without the support and energy of the CEO. Likewise the innovation and change needed to How to Stand Out In business speak we refer to standing out as being differentiated and that was the point of Ken s talk. It is possible for any credit union to be differentiated and as a result highly relevant. Where do we start By committing to deepen our understanding of members then using that understanding to create differentiated products services and experiences for them. As examples of this commitment and execution I have written about 13 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY be relevant both now and in the future can t occur without your involvement. We re talking members the lifeblood of your business the very people you are chartered to support. If the CEO isn t concerned with creating differentiated value for members who is In each of the examples mentioned above the CEO played a vital role in ensuring his or her team deeply studied and understood members and markets and then put that understanding to use. In my role at Arvest Bank both the chairman and president reinforced what I had implemented when they met with the various banks in the holding company. The point is that you as the CEO have to be the chief advocate for the members because they re the only reason you exist. I know the Chamber of Commerce and board meetings are important. Keeping a high profile in your community is critical. But nothing is more critical than ensuring your employees have an ever-deepening understand of your members and are using that understanding to develop new ways to create value for those members. That s the only way you stay relevant. of their members and this was insufficient to meet their evolving needs. Simply put they became irrelevant commodities. I ve heard various objections and replies to my argument of being relevant by deeply understanding your member s lifestyle goals and innovating around them. Here are a few We re too small and don t have the staff or budget We don t have a sales culture We bought a CRM and can t get anyone to use it Many of us are retiring in the next five years We re already doing social and digital advertising and Our services are fully digital. The Results of Not Differentiating on Member Lifestyle Needs The failure of CEOs to lead the charge of differentiating based on member lifestyle needs is one of the major reasons the number of credit unions has dwindled from close to 20 000 to about 6 500. Yes regulations and compliance costs have driven some credit unions out of business. But the vast majority became irrelevant because they never went beyond a general understanding 14 C R E D I T U N I O N B U S I N E S S The first four are valid constraints but they are not insurmountable obstacles. The last two address lead generation and table-stakes operation but not the issue of deeply understanding and meeting member needs. 50 million credit unions are creating differentiated value for members because they have forward-thinking CEOs who are determined and won t take no for an answer. You can do the same. It doesn t take any money to walk neighborhoods and speak with residents. It takes a little money to conduct focus groups and other primary research. The analytics and member portfolio management systems I alluded to are affordable. Consultants to help you are also affordable. M A Y 2 0 1 6 C U B U S I N E S S . C O M CEO VELOCITY Everything Rises and Falls on Leadership My leadership mentor John Maxwell likes to say Everything rises and falls on leadership. Whether or not your credit union stays relevant to your members and communities depends on your commitment to understanding their lifestyle needs and delivering superior value that meets those needs. It s a simple equation but somehow we ve gotten away from it. Look I know you re busy. You have a lot on your plate. Staff and board meetings performance reviews employee morale ALCO meetings balance sheet and income statement issues compliance complications. I get it. But at the end of the day the ultimate question is Do we know what members consider value and are we delivering it That s your biggest responsibility as CEO. Embrace it and make it the focus or your credit union. That s how you stay relevant. Scott McClymonds of CEO Velocity coaching and consulting specializes in helping credit unions acquire and retain profitable members. His focus on creating value for members helps credit unions stay competitive and relevant while building profitability and brand strength. Subscribers to CU BUSINESS can ask Scott questions about how getting to know their members better can generate greater returns. He can be reached at 479.263.0774 or scottm Sco tt McClymonds an d CEO Velocity help credit union s acquire and retain profitable mem bers. Using mem ber portfolio management and other advan ced strateg ies CEO Velocity helps you impro ve profits wh ile better servin g the needs of your members an d communities. Do you n eed more profitable members Does your profitability need to increase Do your have business u nits or branches that need to improve performance Do you n eed to better understand y our market dynamics Email scottm ceo to request a free paper on how to find and close earni ngs gaps in your credit union. I have worked with hundreds of clients on strategic marketing programs over the last 20 years and Scott McClymonds is at the top of the list. I would highly recommend Scott as a resource to anyone looking to improve their performance. - Tim Keith Partner and Chief Strategist Infusion Marketing Group ceov 47 9.263 .077 4 15 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M COMPLIANCE UPDATE BY CINDY WILLIAMS Known by the Company You Keep By Cindy Williams T Do you know what your credit union employees are posting on social media during their personal time What they are sharing could directly reflect back on your CU so making your expectations on digital behavior clear is critical. Keep reading for advice on how to achieve such clarity. spotlight on a credit union s fair lending practices especially if that employee holds a lending position It s not hard to imagine an examiner determining the employee s actions call for a targeted review of the credit union s lending activities. There would certainly be questions Did this person apply her personal beliefs to lending decisions Did she set a tone of unfair or discriminatory practices followed by others who either held the same beliefs or were intimidated into doing so by the commenter You may wonder if credit unions are allowed to dismiss an employee for something he or she says either online or in the real world. What about the Constitutional right to free speech Although a credit union may choose to hold itself to the same standards he pitfalls and perks of participating in online conversations are something credit unions have bandied about for nearly a decade probably longer in some of the more tech-savvy circles of the movement. Today there is no shortage of information and advice regarding a credit union s use of blogs social media consumer reviews and other still-emerging digital communities. Less information is available however about individual credit union employees participation in these communities especially during off hours. In this day and age many credit union leaders may be wondering how an employee s personal use of these tools affects the credit union. And who is watching to see how representatives of the cooperative behave online Members Business leaders Law enforcement What about examiners In March of this year a credit union mortgage loan services officer was fired for comments she made on her personal Facebook page. Although the comments which included a racial slur were not posted on the credit union s Facebook page nor during her work hours the credit union understood the ramifications. Beyond impacting the cooperative s reputation in the community one has to wonder did leadership consider the potential regulatory consequences My mother always reminded me You re known by the company you keep. Might an employee s actions on a personal social media page shine a 16 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M COMPLIANCE UPDATE TAB as the U.S. government it is not required to protect an individual s right to free speech or expression at work. So an individual who had been let go for online comments might have a hard time trying to argue in a court of law that his or her First Amendment rights had been violated. The best protection is clarity. In other words get your credit union s expectations of employees digital behavior down on paper in black and white. Gather key leaders and board members together to determine which restrictions make the most sense for your credit union to place on employees participation in online conversations and other activities. Run those restrictions by legal counsel to be sure you aren t sideways with any laws or HR concerns. Be sure those restrictions clearly state that the expectations apply to both credit union owned and personal pages. Then set strategy for how employees online behavior will be monitored. Document your decisions in a formal written policy with associated written procedures. Treat them as you would any other policy or procedure with annual reviews and updates as needed. Share them with managers and require training for each of the credit union s employees at least once each year and as new employees join the team. As the digital world evolves so too do the trends temptations and traps facing each of us making consistent evaluation of online behavior policies paramount. Cindy Williams is vice president of regulatory compliance for PolicyWorks a national leader of credit union compliance solutions. She can be reached at cindyw 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 17 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M EXTRANETS BY LISA TOWNSEND A Case for Collaboration PSCU s Owner Credit Unions Help Shape New Release of MemberConnect If streamlining efficiency and productivity of day-to-day activities top your credit union s goals an extranet might be the solution. See how one credit union service organization is successfully leveraging an extranet to exchange confidential information with its owner credit unions and how you can too to simplify your daily operations. E xtranets are modified Internet sites that provide a private and secure channel for a company to share and exchange confidential information with its customers. In the case of a credit union service organization like PSCU an extranet is a portal for sharing information with the CUSO s 800 owner credit unions. Originally launched in spring of 2002 PSCU s extranet MemberConnect was developed as a way to exchange confidential information with owner credit unions in a secure password-restricted environment. Once integrated into the PSCU service model MemberConnect made day-to-day activities more efficient streamlined and productive for both PSCU employees and its credit unions. In 2006 MemberConnect was refreshed with minor cosmetic modifications and new subject categories. For nearly a decade it has provided a reliable and useful platform for credit unions to access information crucial to their daily operations. 18 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M EXTRANETS TAB With the emergence of the digital age and the increase in innovative products and services entering the financial services market PSCU needed to improve MemberConnect s functionality to make it easier for credit unions to use. In PSCU s ongoing commitment to service excellence the CUSO had the opportunity to revisit the tools its member credit unions depend on most and to improve the areas of highest importance. The first step was to look at the ways PSCU could make it easier for credit union employees to do their jobs by conducting onsite visits designed to better understand how credit unions were using MemberConnect. During 2015 PSCU began asking for participants to help shape MemberConnect 2.0. Seven leading credit unions stepped up to be the voice for the CUSO s 800 owner credit unions across the country. The credit unions were interviewed about what they liked or didn t like about MemberConnect and were then given tasks so PSCU team members could observe their technique for navigating the beta version of MemberConnect 2.0. Katie Bendyk ATM and card services manager for Vantage Credit Union (St. Louis Mo.) said during a recent interview Cards are a big deal to us so our relationship with PSCU is very important. When asked to give feedback on the site that helps keep our cards top of wallet we jumped at the chance. Bendyk continued We were blown away by the demo of MemberConnect 2.0 and though our team comprises a wide range of generations and skill sets everyone agrees that the ease of navigation and search functionality improvements are awesome. Most importantly our feedback didn t stop at PSCU s onsite visits. We d receive a link from PSCU every couple of weeks to test and were asked to speak up regarding what works and doesn t work for us. Another volunteer change-agent on behalf of the CUSO s owners was American Airlines Federal Credit Union (Fort Worth Texas). Christy Haley manager of payments servicing and risk said Change is scary so it was nice being consulted for the redesign of Mem- berConnect. We ve been with PSCU since 2009 so we felt good about the chance to give input. When asked about her favorite features of the new site she said The bookmarks are really helpful and we ve noticed a tremendous decrease in the amount of clicks needed to get where we need to go. Though we re still trying to feel our way around we think all credit unions will benefit from some of the changes we helped shape. Though MemberConnect 2.0 houses many of the original elements that made version 1.0 a solid source for information new features like a customizable dashboard and bookmarks are part of the flexibility strategy PSCU incorporated into the build. MemberConnect 2.0 needed to be easy to use because it competes with email which is a core productivity application for nearly any modern knowledge worker. Extranets can t represent extra work or they ll simply be supplanted by email. Therefore PSCU aimed to make 2.0 the best it could be in that regard. Perhaps some of the heaviest users of MemberConnect and the ones who are most excited to participate in the rebuilding of the site are staff members from VyStar Credit Union (Jacksonville Fla.). Sarah Mills credit and rewards program portfolio manager for VyStar said We were eager to participate in this pilot and give feedback because our credit card operations are dependent on MemberConnect. Additionally we run reports manage our portfolios and submit tickets for help through this site so we definitely wanted to have a part in crafting the improvements. 19 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M EXTRANETS As with every other participating credit union the PSCU team visited VyStar where they asked users to reveal their ideal landscape for the new site. PSCU specifically asked them what the new MemberConnect would look like if they could dream up anything without limitations. Mills was quick to respond We d have the freedom to build our own dashboard and customize it as we see fit. Today Mills is pleased to see that her team s recommendation was implemented and that they now have the flexibility to see what they want and make modifications as necessary. Throughout development we d click our way through certain assignments delivered by PSCU and we had the opportunity to weigh in on whether or not the navigation met our expectations. One thing that was really great and innovative was PSCU s ability to remotely access our machines and watch us work. This [capability] gave them a first-hand glance at how we work what we re struggling with and which features we use most on a daily basis said Mills. I definitely feel they built the new MemberConnect 2.0 based directly on a lot of the feedback we gave them and in terms of rollout it was wonderful to have the chance to test the new site before it was introduced to all the PSCU owners. PSCU s rich tradition of service and delivering an unparalleled member experience is already driving the CUSO s plan for the next iteration of MemberConnect. In order to be a service-first CUSO PSCU has to keep asking its member credit unions about their vision for the future. The credit union service organization must also continually mold its technology to be there and working for its owner CUs in tomorrow s payments world. Lisa Townsend program manager strategic initiatives specializes in leading PSCU s major corporate projects. She led the effort on PSCU s recent MemberConnect complete overhaul implementing the usage of the organization first effort ever at inside-out new product delivery. Lisa s success is built on leveraging her experience in sales product management product development process improvement and pragmatic marketing to help meet internal and external clients needs. Prior to joining PSCU 15 years ago Lisa worked in sales at Computer Sciences Corporation and the Federal Reserve Bank. Lisa holds a degree in Business Management from Minot State University and Pragmatic Certifications. 20 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M LEADERSHIP BY DIANA DYKSTRA Why Credit Unions Succeed in Building a Nation One Community at a Time I Growth and innovation are the hallmarks of the credit unions of tomorrow. And strengthening the communities a CU serves lies at the foundation of those coveted traits. Read on to see how one California credit union doubled its membership and earned widespread recognition by embracing such a mission. n my role as president and chief executive officer of the California and Nevada Credit Union Leagues I have the opportunity to observe the growth and innovative traits of credit unions throughout the country. A microcosm of this growth and innovation can be seen in California in particularly at Sacramento Calif.-based Golden 1 Credit Union. A credit union s core mission resides within its ability to strengthen the communities in which it serves that is to say its capacity to empower members where they live work and play. Within this arena credit unions are becoming the choice of consumers for a wide spectrum of financial services from checking and savings accounts to mortgages auto loans consumer loans retirement account instruments and even safe deposit boxes. CUs are also making gains in enrollments in the latest financial services such as automatic bill pay and mobile banking. Since 2000 Golden 1 Credit Union has experienced a doubling in membership to 750 000. President and CEO Donna Bland s DNA is hardwired to be local engaged and organizationally optimistic. She stays close to her San Francisco roots by promoting a familycentric environment with the credo Family is No. 1. We work to live not live to work. She emphasizes community engagement as the centerpiece of a strategy 21 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M that empowers employees and members to be seen as local ambassadors. The goal of this strategy is to create a culture that can change California one community at a time. An example of this mission is Golden 1 s toward President and CEO Donna Bland commitment investing in the education of California s leaders of tomorrow. The credit union will be awarding 400 000 in scholarships later this year to students who plan to attend accredited nonprofit colleges and universities in California. Since 2013 Golden 1 has awarded 98 student scholarships totaling more than 1 million. As for Bland she received the 2015 Businesswoman of the Year award by the Sacramento Metro Chamber of Commerce. This prestigious recognition honored her work not only within the financial industry but out in the community. During her nearly six-year tenure as Golden 1 CEO Bland has worked across industry sectors to foster relationships that have led to big game-changing projects in various communities throughout the state. These undertakings will have farreaching impact for decades. LEADERSHIP Bland was also instrumental in Golden 1 s securing the naming rights to the Golden 1 Center a multi-purpose indoor arena and the cornerstone of a revitalization and transformation effort in California s capital city of Sacramento that is changing the look and feel of the city s downtown core. The NBA s Sacramento Kings once on the precipice of leaving town will be the benefactors of this new arena when it opens in October. Economists have estimated that the facility will attract up to 1.6 million additional visitors annually which will translate into several million dollars of added economic activity for the region. But Bland didn t stop there. She s hands on in tackling the financial industry s professional gender gap specifically by steering young women toward STEM (Science Technology Engineering and Math) education programs. She continues to mentor and advocate for women in finance and senior leadership positions by supporting women as they progress through the ranks. As data security and fraud prevention have become priorities within the financial services industry Golden 1 was an early adopter of several best practices and counter-measures to protect the identity and security of its members. Bland again pushed for Golden 1 s adoption of EMV chip technology and in the process helped the credit union earn the 2015 Visa Debit Processing Service (DPS) Client Achievement Award for Best In Class Innovation. It was the CU s pathpaving approach to improving debit card program performance and cardholder satisfaction that resulted in this recognition. The new chips are now becoming more commonplace in the banking and retail industry as an added fraud detection tool to enhance data security for customers. C R E D I T U N I O N B U S I N E S S Golden 1 s history is steeped in the tradition of helping others. Several times during the 1990s and again in 2009 when the state of California experienced budget crises the credit union stepped in and provided no-cost loans to more than 100 000 members. This initiative ensured that state employees could provide for their families. Whether expanding local holiday food assistance programs or advancing literacy activities for foster youth Bland has chosen to put resources where they can have the most impact directly into the communities that Golden 1 Credit Union serves. In the next few years Golden 1 plans to add to its stable of more than 80 branch offices by expanding into the Southern California market. On top of all that Bland s business acumen and influence in finance extend outside the boundaries of Golden 1. She also serves on the board of the Greater Sacramento Area Economic Council and Credit Union Direct Corporation. This kind of involvement across industry disciplines serves as a blueprint for the credit union industry of tomorrow. Advances in technology and a focus on digital engagement with members will offer new challenges and opportunities for credit unions moving forward. But the industry is uniquely positioned to take advantage of new and emerging trends and it will continue to play a major role in reshaping the nation s industrial and economic landscape. Diana Dykstra is president and chief executive officer of the California and Nevada Credit Union Leagues. 22 M A Y 2 0 1 6 C U B U S I N E S S . C O M REAL ESTATE LENDING BY TIM MISLANSKY For CUs the Real Estate Advocacy Trend Comes of Age W Is your credit union s purchase mortgage business thriving as well as it should be If not the lessons learned and the trends that emerged from the housing crash could prove fertile ground for growing a purchase mortgage services program. Keep reading to help get your CU up to speed on real estate advocacy. hen is a trend no longer a trend When does it become the new normal or an industry standard against which all other efforts are measured During the 2007 2012 housing market crash many lenders struggled. Some failed. Home sales and new construction evaporated and of course the stream of purchase mortgage applications came to a virtual standstill. Instead refi loans ruled supreme. That changed. Since that time in spite of some ups and downs consumer confidence has crept up. People are shopping for homes again. That s all great news but that s not the whole story. Something big transpired during the housing crash. In the absence of normal mortgage operations a trend emerged Credit unions increased their efforts to develop a stronger watchdog approach over their members real estate interests. And as a result they discovered innovative opportunities to grow their purchase mortgage business. Here s how the real estate advocacy trend started matured and emerged as the industry standard for any CU that wants to develop a thriving purchase mortgage services program. for a new home and selling his existing one. He found the entire real estate experience to be expensive timeconsuming and inefficient. Corn who had launched and sold several thriving tech companies was frustrated and wondered about better options. He believed buyers should be able to preview homes online and spend less money buying them. It s important to remember that this was long before the days of direct access to web-based MLS databases so this was a very cuttingedge concept. Corn shared his experience with Craig Davis a friend and real estate broker and they began to develop an idea to offer a better way to buy and sell homes. Before It Was a Trend The spark of change occurred in 2000 a decade before the crash. This is when Mike Corn a successful Scottsdale Ariz.-based entrepreneur was searching 23 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M REAL ESTATE LENDING Integration was the cornerstone of their work. Corn and Davis believed it was important to give homebuyers a seamless experience integrating all the tools needed to search for a home research markets and get financing into one program. They also felt it was necessary for homebuyers and sellers to work with knowledgeable competent real estate agents who had been properly vetted. And finally the new model needed the right kind of client ... credit unions. According to Corn We identified credit unions as the perfect fit because of personal experience because they are very memberfocused and always striving to cultivate strong customer relations. We knew this concept would help credit unions improve on what they were already working hard to do. The result In 2004 a new CUSO CU Realty Services was born. In that same year the startup began working with select credit unions to finalize development of a turnkey real estate program called HomeAdvantageTM. The Secret Sauce A primary goal of the venture was to ensure everyone involved was a winner including members credit unions and real estate agents. This meant that the HomeAdvantage program needed to 1. Drive more business to partnering credit unions. But more than that it had to help CUs build a bigger lead pipeline by identifying buyers and sellers early in the lead process before they typically talk to a lender. 2. Be valuable and worthwhile to a network of select real estate agents. These professionals would be integral to a credit union s success so the program had to consider their needs. Hot qualified prospects quickly attracted the industry s most experienced and highly-regarded agents. 3. Provide credit union members with a financial incentive. Along with the convenience of online shopping members who use the program should also enjoy financial benefits that reduce their out-of-pocket costs. These goals though were dependent on one key change Credit unions would need to embrace a paradigm shift away from being seen as just a lender. And to do this they would have to MOVE OUT of their long-held position of selling competitive mortgage rates and INTO a new much more proactive role as a real estate advocate. The difference between lender and advocate is that one focuses on the loan while the other focuses on the member. Lenders sell mortgages rates and terms. Advocates educate equip and serve as a partner during the entire real estate journey from finding a home to financing it. This was an unprecedented shift in both the credit union world and the real estate industry because it positioned the CU as the First Point of ContactTM a role traditionally held by the real estate agent. The First Point of Contact can influence every aspect of the real estate transaction including and most importantly the selection of a lender. CUs serving as advocates are connected and engaged with their members early in the home-buying lifecycle long before they are ready to talk about home loans. This means that credit unions are perfectly positioned to earn their members mortgage business. 24 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M REAL TAB ESTATE LENDING Early Adopters and First Successes Remarkably Corn and Davis were able to bundle all of this into one powerful package and then offered a beta version of HomeAdvantage to a few select credit unions. In 2004 Wright-Patt Credit Union (WPCU) Inc. (WPCU out of Beavercreek Ohio) became one of the first to use CU Realty s HomeAdvantage program. This 3.1 billion 300 000-member credit union immediately saw an increase in loans closed and member savings which came through rebates. Additionally the CU saw an improvement in relationships with local real estate agents who had not previously valued Wright-Patt as a home lender. In full transparency I serve as the senior vice president and chief lending officer at Wright-Patt and I m a member of CU Realty s Board of Directors. WPCU is also one of the owners of the CU Realty CUSO. This association however does not detract from the very real results achieved at Wright-Patt or any of the other credit unions that have adopted the real estate advocacy model. No one can argue over the results we ve seen like this In 2015 WPCU now the 1 purchase mortgage lender in our MSA closed 260 mortgages through the HomeAdvantage program. Almost 94 percent of the members who use the program get their mortgage through us. Looking beyond WPCU there are some other early adopters that have been partners with CU Realty Services for a decade or more. These include 3.9 billion Bank-Fund Staff Federal Credit Union in Washington D.C. and 2.6 billion Northwest Federal Credit Union in Herndon Va. Last year their members saved 465 000 and 462 000 respectively through the rebate program. The Trend Becomes the Standard Now 15 years after Corn s original idea CU Realty is the largest real estate CUSO in the United States. More than 100 CUs and mortgage CUSOs millions of members and nearly 500 real estate agents across the 26 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S USA are reaping the rewards of the advocacy model and the HomeAdvantage program. The successes are quantifiable. They have been and continue to be tracked measured and validated. From a corporate perspective 2015 marked the fifth year in a row that CU Realty Services saw year-overyear growth and expanded into new markets. Nine new credit unions partnered with CU Realty to implement HomeAdvantage. Five new markets were added through expansion into San Diego Calif. Vancouver Wash. Melbourne Fla. San Francisco Calif. and Charlottesville Va. More than 4.3 million in savings were rebated to members through the HomeAdvantage program a 21 percent increase over 2014. 23 000 members signed up to use HomeAdvantage a 17 percent increase over 2014. Each completed a short questionnaire about his or her future purchase including timeline and pre-qualification status. These profiles and other transactional data are available to the credit union. 8 500 referrals of members to agents were processed through HomeAdvantage a 10 percent increase over 2014. MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M REAL ESTATE LENDING Nearly 3 000 closings were reported through HomeAdvantage an 18 percent increase over 2014. While that macro snapshot is impressive the success metrics of the individual credit unions paint an even more complete picture. For example in 2015 WrightPatt members saved more than 225 880 from rebates through the HomeAdvantage program landing it in CU Realty s top five credit unions with the largest payouts. WPCU is one of five CUs that saw member savings of almost 1.5 million. 1. Bank-Fund Staff Federal Credit Union (Washington D.C.) 365 855 2. Baxter Credit Union (Vernon Hills Ill.) 363 799 3. Northwest Credit Union Association (Herndon Va.) 318 957 4. Wright-Patt Credit Union (Beavercreek Ohio) 225 880 5. Tower Credit Union (Laurel Md.) 214 548 As success stories and figures like these are shared throughout the industry more and more credit unions see the great value associated with adopting CU Realty s real estate advocacy model. There is a bit of a snowball effect now. What was once a new idea has transitioned to become the benchmark of success. saw the largest member rebate payout. What s behind that Dan Rogan general manager of lending at Bank-Fund says HomeAdvantage provides members with everything they need during their home-buying process and allows the mortgage team to engage well ahead of mortgage application time. By connecting with members early on and [by] assisting them along each step we are doing more than growing mortgage volumes. We are strengthening relationships. Develop Stronger Member Relationships Credit unions that already enjoy strong relationships with members report that HomeAdvantage improves those relationships significantly. Baxter Credit Union (BCU) is a great example of this. Director of mortgage sales at BCU Bob Pondelicek says the HomeAdvantage program strengthened the CU s relationships with members substantially. When members come to us they are already trusting us as their financial institution. And now they re coming to us as well for a real estate agent relationship. Members Love One-Stop Shopping Providing members with a one-stop shopping experience while walking them through the homebuying process has fostered fierce loyalty for Northwest Federal Credit Union (NWFCU) ever since it partnered with CU Realty in 2004. In the last 15 What Other Big Payout CUs Say about Real Estate Advocacy and HomeAdvantage For CUs that want to grow their purchase mortgage business there is much to be learned about real estate advocacy and the HomeAdvantage program from the other CUs that landed in the top tier. Their insight goes well beyond those fantastic member rebates. Early Engagement Grows Mortgage Volumes and More Along with Wright-Patt Bank-Fund Staff Federal Credit Union partnered with CU Realty Services in 2004. As one of the CUSO s first customers this CU has a long rich history of success. Last year it 27 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M REAL ESTATE LENDING months the CU has had nearly 700 registrations and given nearly 400 000 in HomeAdvantage rebates back to both buyers and sellers. Joe Talmadge the VP of mortgage lending for NWFCU said We know that when our members use this program we have an 85 percent chance of keeping their business and that is significant to us. point if we worked with HomeAdvantage earlier. We ve already seen results and I can only imagine what the coming months will bring. The New Standard Corn and his team at CU Realty Services have developed HomeAdvantage into an industry-altering solution for credit unions helping them to be a contender in the CUs New to HomeAdvantage See Success Early home mortgage business. But even more the program s Sacramento Calif.-based Schools Financial Credit impact can be felt by members who are able to find a Union implemented HomeAdvantage in late 2015 friend as well as savings in their credit union and by to bolster purchase mortgage volume after rising local agents who are able to develop new relationships interest rates hampered the refinancing side of the with the credit union community. CU s business. The 1.6 billion credit union hopes to achieve a new goal becoming the go to name for both Timothy J. Mislansky is refinancing and mortgage lending. David Menker vice Senior Vice President & Chief president of real estate lending at Schools Financial Lending Officer WrightCredit Union says results were almost immediate. I Patt Credit Union Author wasn t expecting to have much success [closing loans] of the CU-focused blog in such a short amount of time. It s very encouraging for mortgagesarememberlicious. us. Plus We ve found the HomeAdvantage program com is particularly helpful for first-time homebuyers. Mislansky s career at WPCU There s a lot of personal attention. Loan officers and began in 2001. His duties include formulating and real estate agents help coach our members through the administering high-level organizational strategies entire home process from beginning to end. and initiatives as well as executive responsibility for In December 2015 Consumers Credit Union consumer mortgage and commercial lending. Prior (CCU) out of Illinois partnered with CU Realty to joining WPCU Mislansky was vice president of Services to offer members a one-stop home-buying member services at Chaco Credit Union in Hamilton experience. The 883 million credit union was in Ohio where he was responsible for branch operations search of a way to boost growth in mortgage closings. lending and collection functions. With HomeAdvantage CCU saw its mortgage pipeline Currently Mislansky serves as a member of the expand by more than 100 members in less than 60 Board of Managers for the HomeOwnership Center of days CCU s director of mortgage lending Gil Chavez Greater Dayton. Additionally he serves as a director for says The biggest thing I value about this program is CU Realty Inc. a director for America s Credit Union that we re getting to these buyers early. Most of our Mortgage Association and a member of the Fannie Mae new registrations don t have an agent or financing set Credit Union Advisory Board. up. Reaching them early is critical to accomplishing A graduate of Miami University in Oxford Ohio our goal of growing our mortgage pipeline. Chavez Mislansky holds bachelor s degrees in both accountancy added We should have joined with this program and finance. He and his wife Julie live in West Chester several years ago. Who knows where we d be at this Ohio with their two children Joe and Mary. 28 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M MARKETING MATTERS BY EVA LAMERE Seven Tips for Effective Member Engagement Is your credit union getting the most out of its member relationships Keeping members engaged is the most surefire way of cultivating such relationships. Keep reading for seven success strategies that will not only reward the people you serve but also foster their loyalty to your CU brand. A s credit unions face the challenges of increased competition reduced marketing budgets and greater consumer demand they need to optimize their member relationships and maximize the way in which they provide value to their member base. While there are many approaches to cultivating member relationships few offer a greater return on investment than the development of a plan comprised of critical engagement strategies. Strong member engagement strategies foster brand growth and loyalty. Credit unions that focus on member engagement are committed to real value creation whether through an exceptional end-to-end service experience great content or strong member support beyond the traditional sell. Here are some examples of successful member engagement strategies you might want to consider incorporating into your credit union marketing program. Whether you are aiming to acquire new members or deepen your relationships with your current ones these ideas can help reward the people you serve and increase their allegiance to your brand. institutions. Big banks have been characterized as cold and impersonal for years. Credit unions therefore have the opportunity to humanize their brands by creating personalities who are passionate about what the brand represents. For example Bethpage Federal Credit Union humanized its brand by creating the characters Beth and Paige who are dedicated to helping members with their financial needs. These two brand advocates created a trusted face that helped in not only building the brand s presence and personality but also making the CU stand out from the big bank competition. In addition it grew awareness and market share for the credit union. 1. Humanize the brand. People appreciate brands that are relatable and that understand their needs. Generating such appreciation is especially important to financial 30 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M MARKETING MATTERS TAB 2. Cultivate happy members. Understanding and relating to members on their own terms is critical to ensuring their satisfaction and loyalty. And understanding their world beyond merely how they interact with your brand is key to achieving this aim. For credit unions it s another way to increase satisfaction loyalty and advocacy and in the long run to deepen share of wallet. One organization that approached this relatability in a unique way is Mid-Atlantic Federal Credit Union (MAFCU). The CU built a relationship with Katie an area native and savvy mom who represents the credit union as a blogger. On her blog she provides financial tips and hints that help subscribers and MAFCU s members not only maximize their worth but also find balance in their lives. through Facebook and Twitter and helps encourage a dialogue. The credit union creates content on the topic responds to questions and concerns and promotes its financial wellness services. These efforts position MHFCU as a financial expert the community trusts. 3. Use social media to connect. Social media provides an opportunity to engage audiences and build a community. Valuable content and shared experiences keep customers interacting with brands. McGraw-Hill Federal Credit Union (MHFCU) does exactly this type of interaction through a social media outreach initiative that educates its community on the benefits of its financial wellness program. The credit union s outreach extends to prospects and members 31 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 4. Add unexpected value. One of the easiest ways to deliver an exceptional member experience is to see where a product service or benefit with a perceived value can be offered for free. A good example is Hudson Valley Federal Credit Union (HVFCU) which is the presenting sponsor of The Valley Table s Hudson Valley Restaurant Week in the CU s area. This partnership allows HVFCU which serves a significant number of members connected to the Valley s vibrant food and beverage industry to support and celebrate the rich culinary tradition of the local region while benefiting all members. As part of this sponsorship HVFCU offers each member advance reservation booking at participating restaurants and culinary venues free of charge. 5. Give members a voice. Allowing members to voice their opinions ideas and concerns is not only the credit union way it also builds value and loyalty. Credit union brands should engage their members to understand attitudes and perceptions of the organization the 2 20 01 16 6 C U B U S I N E S S . C O M TAB MARKETING MATTERS challenges it needs to overcome and opportunities to enhance both the brand and the way in which it serves its constituents. This eye-opening can be done either qualitatively or quantitatively depending on the market research objective. Credit unions that have conducted this kind of research to help them develop a new positioning or brand platform include Bethpage Federal Credit Union McGraw-Hill Federal Credit Union and Hudson Valley Federal Credit Union. HVFCU introduced this concept to its employees through a leadership video branded logo-wear and merchandising to help educate them and to demonstrate how they do in fact live the brand through every member transaction and interaction. 7. Make the brand experience consistent. Whatever experience strategies credit unions employ consistency is key from brand messaging to members end-to-end experience from their very first interaction all the way through the various departments in which these members will move. Give them a consistent (and exceptional) experience and the reward will be their trust and loyalty and their banking business. Such is the case with Suffolk Federal Credit Union. Its research-driven We see it too brand platform creates an engaging consistent connection across all marketing touch points from broadcast print and digital media to branch merchandising ATM and online banking screens. It has also delivered a solid ROI for key product marketing initiatives. Given the competition that credit unions face whether regionally or nationally from other credit unions or from banks big and small the way in which you connect and create a dialogue with your members to ensure their satisfaction and feedback can help you not only stand apart from the pack but also stand out in the marketplace. Developing and implementing the strategies outlined in this article can successfully enable your credit union to build member relationships that go beyond simply offering products and services that are in demand. Eva LaMere is president of Austin & Williams an outcomes-driven financial marketing agency headquartered in Hauppauge Long Island N.Y. Austin & Williams provides clients with branding advertising and digital marketing ideas that inspire action. For more information visit 32 6. Empower employees. By turning employees into brand advocates credit unions can make the frontline of their business their most effective tool for driving member engagement and ensuring an amazing service experience. Hudson Valley Federal Credit Union did just this by launching its new brand platform internally first thereby engaging its employees in the reshaping of its brand. The credit union developed a strong brand advocacy platform that focused on putting the member first above all else through the nexus of excellence service and caring. C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M TECHNOLOGICALLY SPEAKING BY KENNETH J SOLE Bridging the Gap M Is the dis-communication bug spreading throughout your credit union If a gap exists between your IT function and the end users of that technology then your financial institution has probably been exposed to the dis-communication virus. This prescription will get your CU back on the path to recovery. earlier in the selection and implementation process this balance is achieved the better. Many times I have seen cases where the LOB conducts its own evaluation of a particular platform purchases the system and then informs the technology division (after the fact) that it must install the new capability. No consideration whatsoever has been given to technology-level requirements the database utilized interface and data flows security operational platform or maintenance requirements. I refer to this as the user dominant syndrome. In this scenario the IT division is simply nothing more than an order taker. The technology department has no buy-in and does not establish a stake in the success of the project. It considers the effort a user department initiative and its only role is to stand up to the new processing platform. In contrast we have the IT dominant syndrome whereby the IT division receives a request from the any financial institutions (both credit unions and banks alike) suffer from an acute case of information technology dis-communication. This term refers to the chasm that exists between the managers of various application technologies (i.e. the IT function) and the end users of those very same capabilities. The results of this common malady are a high level of user dissatisfaction regarding the performance of technology platforms increased operational costs a failure to satisfy regulatory compliance and eroded levels of services to members. Although the reasons for these symptoms are numerous and fault can be attributed to both sides of the organization all is not lost. The cure is easily attainable via a three-step process 1) the implementation of a few simple control mechanisms 2) the application of sound technology management principles and 3) open communication between the two entities. It is amazing to me how often consultants are enlisted to issue RFPs to replace application processing systems that are reputable and being utilized elsewhere very successfully. More often than not the processing system targeted for replacement is not being utilized to its fullest capability due to a poor implementation thanks to lack of end-user training or because data and information files that reside in these systems have little or no integrity. These situations can be easily averted by striking the appropriate balance of communication responsibility and control between the information technology function and the line of business (LOB). And the 33 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M TECHNOLOGICALLY SPEAKING LOB and then proceeds to implement the platform under a methodology in which the application knowledge and processing mechanisms are held to the highest levels of secrecy. In this case the IT division shares little or no knowledge of the system s capabilities and operational requirements. Instead it prefers to act as the gatekeeper of the system parameters and processing expertise. More often than not the users desires are not adequately factored in to the implementation and the system does not meet user objectives. Additionally this scenario results in a high level of dependency upon the IT division (by design) to implement any new product or service that falls within the realm of the platform. Such dependency increases the frustration level of the end user who is now in a position of being placed in a queue with other competing initiatives IT is engaged in. As a result timeliness and or quality are compromised. Management of applications and technology must be a cooperative effort between the technology division and the end-user departments. In addition the lines of demarcation and responsibilities should be clearly defined. I refer to this management structure as the Framework for Technology. The framework consists of a few basic components and the tenets for executing within the management structure. These components consist of a few basic control documents the Technology Steering Committee a change management process and adherence to a systems development lifecycle methodology (SDLC). The control documents consist of a formal project request form a project inventory and an active projects roster. The project request form is completed by the user and must detail the need for the system the anticipated level of effort a cost benefit analysis and the desired timeframe for implementation of the new application. Once the request has been submitted it is reviewed and evaluated. In large organizations this task may be accomplished by a Project Review Board but in most cases the Technology Steering Committee will perform this function. The requested project will then be assigned a tier category (based upon size cost timeframe) and if approved will be placed in a queue for Steering Committee evaluation. Once the Steering Committee decides to move the project forward it is added to the project inventory for prioritization and assignment of a target date. The Technology Steering Committee is necessary to establish organizational priorities to act as a monitor regarding technology division activities and to foster communication among the various lines of business. The committee should have representation from all lines of business within the organization. This all-inclusiveness is critical to creating an awareness of what the IT division has been assigned from a workload perspective and to ensuring understanding with respect to IT priorities. No new systems should be purchased without the submission of a needs analysis and the approval of the Steering Committee. Systems being considered for acquisition should be thoroughly vetted by both the technology division and the end users. Technology should be cognizant that it is their responsibility to act as enablers and not create obstacles in allowing the end users to accomplish their objectives. A formal project inventory must 34 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M TECHNOLOGICALLY SPEAKING be maintained and baselined against available IT resources by the committee so that realistic priorities and timeframes for completion may be established. Once a system has been approved for acquisition and a schedule for implementation has been established the necessary activities should be routed through a formal SDLC. The SDLC methodology ensures that the new capability is implemented is working as designed and is in accordance with the end users requirements. Once again communication and cooperation between the two divisions is necessary to accomplish such items as system configuration data conversion unit testing and controlled integration testing (with other ancillary platforms and or external agencies). The SDLC will dictate such items as functional requirement documents and formal test scripts to eliminate problems and ambiguities. Once the new system is ready for implementation it should move through a formal change management process. The change management component will ensure that all appropriate parties have had ample opportunity to review changes that may impact their operation or business process to question the validity and effectiveness of the new processes and to offer suggestions for improvement. All entities must also sign off on the change be aware of (and concur with) the implementation timeframes and ultimately participate in ensuring the success of the change. Each of the items presented herein is discussed at a high level to provide insight but is necessary for effective and efficient utilization of technology. If properly applied they will save time and expense and will result in a sound relationship between the IT function and end users of the credit union. Kenneth J. Sole is the founder and president of Kenneth J. Sole & Associates Inc. a leading technology and operations firm dedicated exclusively to the financial industry (banks thrifts and credit unions). The company established in 1988 has conducted engagements throughout the United States as well as in Canada and the Caribbean. The firm has also been engaged by such industry leaders as Fiserv Unisys EDS and Aurum Technology (now FIS). Mr. Sole was the founder of the first client serverbased data center in the United States and has conducted scores of Core System bank conversions. He has also undertaken numerous large-scale systems integration projects related to bank mergers and or acquisitions. His career spans over 38 years in the industry. 35 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING BY PAM EASLEY Moving Toward a New Dawn in Member Business Lending T The new member business lending rule offers credit union s an unparalleled opportunity to not only expand their loan portfolios but also extend a valuable service to their members. These six pointers will help your CU chart a roadmap for proceeding in the new regulatory environment so you can capitalize on MBL. responsibly current market conditions are ideal for offering commercial loans to members. Business lending in the United States has grown slightly in some areas and is flattening in others. Meanwhile demand for these loans has continued to grow. Underemployment nationwide has caused an increased need for multifamily housing while growth in construction starts has led to opportunities to lend in secondary markets. As credit conditions have recovered to pre-recession levels meaning that more consumers have better credit and are better potential borrowers credit unions have the chance to originate business and commercial loans to current and prospective members with sound underwriting practices. Pricing competition has also increased alongside the growing demand for commercial loans and a high number of qualified borrowers. This tendency demonstrates that the market would welcome additional lenders. Such demand has enabled nontraditional lenders to strengthen their market share through pricing strategies that produce lesser yields while buying market share. Deploying risk-based pricing that is focused on the risk and opportunity at an individual loan level rather than a one-size-fits-all pricing strategy can help ease this competition if more borrower education is deployed as well. As the market recovers nationwide credit unions are faced with an opportunity and a challenge entering into a growing market full of opportunity that is somewhat competitive in pricing. With this said credit he non-prescriptive nature of the new MBL rule is one our industry has requested for many years. After January 1 2017 credit unions will have an opportunity to redefine their commercial lending programs in alignment with market conditions while maintaining safe and sound lending practices. This redefinition presents credit unions with the opportunity of developing a sound MBL plan within the new regulatory environment. Such an environment provides for credit unions to work with strategic partners to ensure that the institution has the necessary knowledge to embark on sound commercial and business lending. It also allows CUs to complete an originations selection process and take an underwriting approach that ensures borrowers ability to repay. This new way of doing things requires lenders to know more about their borrowers than ever before. It also necessitates gauging the amount of information required to responsibly lend in order to determine the level of repayment ability. To offer member business loans to members with this new freedom individual credit unions need to create a specific plan that takes into consideration their particular goals their resources and internal knowledge and their appetite for risk. Capitalizing on Ideal Market Conditions While the non-prescriptive environment will present credit unions with the opportunity to engage in MBLs 36 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB unions continue to be a sound alternative because it is in their nature to continue to lend responsibly. Post-Recession Standards Prior to the NCUA ruling credit unions were held to a strict set of guidelines designed to protect them from facing high default rates such as were seen at the beginning of the recession. The regulations that were implemented during this timeframe focused on establishing a strict credit risk rating system and effective monitoring. This monitoring process included a comprehensive annual review of credit unions loan portfolios to ensure 1) the portfolio stayed within the credit union s appropriate risk profile and loan quality and 2) that borrower behaviors contributed to the health of the loan on an ongoing basis. Under the new rule this expectation does not change. In fact it becomes the core of a successful business and commercial lending program going forward. While the annual loan review was considered more of an annual compliance requirement it has become an early warning detection system for portfolio risk. Such detection involves assessing a borrower s credit standing changing collateral values embracing borrower and guarantor concentration making economic or geographic changes surrounding the asset and even shifting risk in the asset class itself. Other factors are tied to the specific asset class itself. Examples are environmental considerations or regulatory changes that may impact the asset. Under the new rule these expectations will not change but the 37 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S method by which credit unions must go about assessing these risks might continue to evolve. Greater emphasis beyond more traditional risk management toward enterprise risk management as stated in the new rule will be key to maintaining a greater understanding of the credit union s portfolios. Ensuring that the credit union s risk rating methodology still makes sense having a more formalized method for measuring risk migration within the portfolio and understanding the impacts of borrower guarantor behavior on individual credits will be essential components to a successful business and commercial lending program. Additionally the new rule addresses guarantors. This shift from the previous guidance is helpful but carries with it a great deal of responsibility to further understand the risk within each deal more completely. It also places a lot of emphasis on the need to stress test the portfolio in case of default. In addition it bears the question Will the credit union have amply underwritten the credit and be protected should the credit stop performing In these cases a guarantor may be a risk mitigant that should be continually considered. Charting a Roadmap Forward With these new guidelines about to be in effect forcing credit unions to assume responsibility for sound origination and portfolio management practices credit unions need to develop a roadmap that outlines their relationship with MBL. It is crucial that credit union management teams are fully invested in this process which will determine the success of the MBL MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING program. Each credit union s management team needs to ascertain how MBL fits in the CU s overall strategy. Too often CUs explore new ventures without having the right infrastructure in place to make them a success. Establishing strict guidelines for each credit union moving forward is essential since NCUA s new rule has left many credit unions unsure of how to proceed. Having a comprehensive roadmap in place will enable credit unions to engage in MBL safely and will ensure that their loan portfolios remain in line with their ideal risk profiles. Areas to consider for your roadmap are 1. Guidelines and Standards Ensuring there is alignment with the credit union s current and future lending practices 2. Pricing and Yield Continuing to monitor and be realistic about market conditions with regard to commercial and business lending pricing to be competitive in a safe manner using risk-based pricing when it is appropriate to do so ensuring there is alignment between lending activities and the financial needs of the credit union 3. Enterprise Risk Management Framework Now than ever before enterprise risk management helps to expand management s visibility into the total risk within the credit union but more specifically within the lending portfolios as well. More comprehensive risk management beyond compliance in the way of increased analysis and stress testing measured collateral geographic borrower guarantor and asset class and if appropriate environmental factors will ensure alignment and that the credit union is reserving and mitigating risk in a knowledgeable way. 4. Governance The way in which management including the Board of Directors oversees commercial and business lending activities to 38 C R E D I T U N I O N B U S I N E S S M A Y ensure compliance with internal guidelines policies and procedures as well as consistent education and training to keep everyone current with market and risk trends 5. Tools for Success Ensuring that underwriting guidelines continue to be realistic and appropriate for the credit union s risk appetite ensuring that the risk rating methodology being used continues to be reviewed for adequacy given today s and the future s risk trends creating and using improved risk reports to detect positive and negative trends for proactive portfolio management and continuing education and participation in industry dialogs on the subject 6. Teaming with Experienced Partners The new rule stresses the value of strategic partners such as CUSOs to expand the knowledge and experience of the credit union s current team. Through these partnerships a credit union can not only embark successfully into business and commercial lending but also expand its service offerings to its members while diversifying its own portfolio for balance. Moving Forward Credit unions have a great opportunity to expand their loan portfolios and offer members a valuable service through MBL. To take advantage of this new environment credit unions management teams need to determine how commercial lending plays a role in their overall strategy. To do so responsibly members of management may elect to cultivate more in-house knowledge regarding commercial lending. They may even plan to work with a trusted commercial lending advisor or they may elect a combination of both. Partnering with an outside firm can help supplement the internal knowledge of the credit union. A trusted partner can bring insight into commercial lending including having access to recent knowledge in commercial 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING markets expanding the capability to originate sound loans for the credit union having access to CUSOs that specialize in enterprise risk management and credit risk monitoring gaining accessibility to experienced commercial underwriting knowledge and capabilities and leveraging commercial servicing capabilities and the processes needed to be in place to oversee the program. Since NCUA has adopted a less prescriptive approach to MBL credit union management should build a roadmap that is focused on sound origination practices and risk analysis. Doing so will ensure that they are investing in sound loans based on consistent guidelines. Pam Easley is the CEO of Extensia Financial LLC. Extensia provides business and commercial origination regionally and nationwide back office underwriting commercial servicing business and commercial lending education to staff management and boards and consulting services in enterprise risk management including annual loan reviews risk consulting and framework creation. If you would like to reach Extensia call (800) 894-8328 to find out more. MEMBERSHIPS DEPOSITS LOANS IDEAS THAT INSPIRE ACTION MARKET SHARE We re the financial marketing experts who can help your credit union stand out from the pack attract new members and deepen relationships with existing ones. What defines success for your brand ADVERTISING BRANDING DIGITAL 877 . 730 . 2210 AUSTIN-WILLIAMS.COM AUS493_AW_PR_1675x1203_4C_v3.indd 1 4 11 16 4 40 PM 39 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M CFO CURRENCY BY EMILY HOLLIS Indirect Loans Do You Really Know What They Are Yielding R Is your credit union really making money on indirect loans The answer to that question isn t as simple as it might seem. The true realized yield of such loans is more complex than you might imagine. See how a loan profitability analysis can sort it all out. esults from our loan analyses are sometimes surprising to clients. It is not abnormal to show higher occurrences of negative yields in A paper versus B and C which is somewhat counterintuitive. In many cases higher-quality indirect paper is just priced too low. In order to assess whether indirect loan programs are profitable analysis incorporating dealer fees and the risk of prepayments is essential. A loan profitability analysis can ascertain whether a financial institution is truly making money on indirect loans. Profitability is measured as a net yield over the life of the loan which includes historical results as well as projected. For car loans in general poor performance can be masked by seasonality or growth. And loan analyses that just show monthly net yields can be very misleading. Defaults and delinquencies are dependent upon not only the credit criteria of the loans but also their seasonality. Normally defaults and delinquencies can be represented by a bell curve. In other words within a portfolio of loans loans that have a few months to mature tend to experience minimal defaults while those in the 18- to 30-month range normally show the maximum losses of a particular pool. For indirect loans determining the realized yield is more complex thanks to the indirect fees which must be written off due to prepayments or defaults. Let s discuss calculating yields for indirect loans. 40 C R E D I T U N I O N B U S I N E S S A true realized yield must take into consideration the fees servicing costs delinquencies and losses associated with the origination of the loan. Some credit unions prefer to compare the yield to the marginal cost of raising funds (e.g. a share certificate promotion) or alternative investment choices. A 400 fee to the dealer for a three percent fouryear 20 000 loan (two percent) can be fairly costly. It represents 99bps for a net yield of 2.01 percent and that s before assessing labor and delinquency costs. If the borrower prepays the loan after six months the 400 dealer fee represents a whopping 4.19 percent leaving the credit union with a net negative yield of 1.19 percent. Assuming 30bps in labor costs and 25bps in charge-offs (credit costs) the net yield is negative 1.75 percent. The numbers are based on a three percent loan. On occasion we see indirect loan rates that are even lower. Obviously volume will not make that product line profitable M A Y 2 0 1 6 C U B U S I N E S S . C O M CFO CURRENCY CURRENCY CFO CFO CURRENCY 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 reviewed and authorized To sum output alreadybe recalculated to determine pricedand Loan profitability similar to amortizations. and They indirect become be standard for the impact and decay rates that areanalyses can be as detailed as and market. theup have shouldloans can the profitable ifpricing correctly an institution performed andoften as the userallow for (Normally they many corporate bonds. if not pricedthis can take weeks. of a different assumption. Dividend as discount rates desires. the present value correctly however If you are uncertain as to are executed on an annual basis.) Analyses calculations (premiums) in each modeled interest rate can be can experience lesser yields due to theare will allow scenario. Knowing where swap rates and spreads upfront fees the would by conducted where pools are categorized by credit rating associated with these loans than itmany requirements of Effective duration calculations can then mathematically bebetter hedging and investment execution. When investors need Conclusion in short-termapplying and usingsimply investments. At derivatives worst or loan type (i.e. indirect used or new autos direct maintaining funds compared to that of the institution s assets. In this case effectiveto gauge credit risk and market be viewed as aswap curve is Non-maturing deposits can sentiment the franchise value consider the credit more could experience negative yields external used or new autos). Profitability is measured as a net becoming theunion important curve to analyze.engaging anafter duration over the life by merely backing into the price change assessing thegeneratedan indirect program. These funds is calculated of the loans or the pools of the loans. or benefits costs of from loyalty of the membership when yield service provider to help you formula. For example ifshow that itpresent value is 100 in the could have more productive alternative uses.low in a higher deposits are retained when dividend rates are The analysis might the liability is better for the credit Emily Hollis CFA is a partner with ALM the steps. through First Financial base 101 in the up 100 particular scenario and 99 in the down market environment. And vice versa A financial derivatives union to forgo a basis point loan type and promote Advisors LLC. Properly used institution 100 basis point scenario the hand although competition Emily Hollis CFAinterest rate risk another. On the other effective duration is one percent that offers a non-maturity dividend rate higher than market can offset is a partner (i.e. (101-99) 200).pricing the credit union can choose to attract hot money will decrease the economic withinofthe with ALM First inherent value its normally drives that is liabilities. It is imperative This is vital because as competition Advisors these to promote a product knowing that it is yielding less credit union industry modelLLC. accounts for a more competencies to meet the final requirements. The second part for certain business the accurate depiction of allow rate unions Sensitivity Analysisreasons at whenexpense of a lower grows derivatives can interestcreditrisk. to compete more and final application is submitted all requirements are yield today. But in order for this to be a good business The regulator strongly suggests sensitivity analyses as a means effectively. completed including dealer contracts. to positive value in to decision the effects it must lead assumptions. Sensitivity Emily Mor Hollis CFA is a partner with ALM First Financial quantify ultimately of changing Setting up at a dealer is similar some manner.a linebecause the core share to becoming a Advisors LLC. analyses are essential evaluation may member of the FHLB--it can be laborious and takes a good deal Emily Hollis CFA is a partner with ALM First Financial Advisors LLC. 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. 41 C R E D I T U N I O N B U S I N E S S November 2014 M A Y 2 0 1 6 Credit Union BUSINESS C U B U S I N E S S . C O M 15 LENDING SOLUTIONS BY REX JOHNSON M Turning a 700 Score into an 800 Score How can you use this information Knowing what it takes to score 800 plus will show you what s keeping your member in the 700 s. We should all want our members to get our very best rates and helping your members attain their best score will help them achieve this goal. After all isn t that what credit unions are all about Almost all of the major credit card providers are offering some type of credit monitoring or FICO score service nowadays. So members and the general population are more aware than ever about their score. However they still need someone like you to help guide them and truly understand their score. To enable credit unions to help their members we included many tools in our new manual. One of which is featured on the next page titled What Road to Choose . This document gives credit unions a quick cheat sheet when counseling their members. I hope you ll take a minute to check out this quick tool and if have any feedback we d love to hear from you. Drop us a note to UofL Even though times change credit unions will always be about helping people. Rex Johnson is the current CEO and Founder of Lending Solutions Consulting Inc. (LSCI) an organization dedicated to providing consulting expertise to credit unions. For more information regarding Rex s availability or any of LSCI s products services contact us at 877-915-7675 or please visit us at y team of consultants and I work with hundreds of credit unions each year and we are constantly noticing new trends. In recent years we are seeing more and more credit unions proactively taking steps to help members improve their credit score. You say Rex that s not a new thing that s been going on for years. True but not at the level we re seeing it now. In the past we ve seen things like credit counseling credit-builder loans etc to help those with poor credit improve their scores. Now it seems like everyone wants to enhance their score even the 700 members. With more members interested in improving their score this is one of the things we teach credit unions at our University of Lending classes. When I re-wrote the manual for our classes this year we included an entire section on this important topic. I d like to share a few of the basics with you here today. So what does it take to move a 700 score into the 800 s Scores 800 or Higher What do they have in common 1. No public records 2. No bankruptcy in the last 10 years 3. No collection accounts 4. No charge offs 5. No current delinquency 6. No past delinquency 7. Credit history of seven years or more 8. Homeowners for seven years or more 9. Revolving debt (credit cards) 95% available 10. Inquiries are less than three over the last 12 months 11. Unsecured debt of 5000 or less 12. Oldest trade line is at least seven years old 42 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M 43 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M CU PAYMENTS BY BILL PRICHARD Cash Is the Wallet Dinosaur The Meaning for Cards Does your credit union have a sound mobile strategy in place If not you may be at risk of failing to keep pace with the evolution of mobile payments. The increasing consumer interest in digital wallets demands that your CU keep speed with the technology. The convenience your members expect depend on it. onsumers are carrying less cash today than ever. According to a recent Bankrate survey conducted by Princeton Survey Research Associates International 40 percent of respondents reported that they carry less than 20 in cash in their wallets. Only nine percent of those surveyed in 2014 by TSYS said they preferred cash over cards as a payment method. And a recent MasterCard survey reported on reveals that 80 percent of U.S. consumer spending is cashless. While these data points illustrate how consumers utilize cash today they also beg the question How long before payment cards follow suit especially given new advancements in digital wallet technology Globally the mobile payment market reached 450 billion in 2015 and is projected to rise to 1 trillion by 2019 according to research published by Even so this doesn t mean that either cash or cards will disappear from the point of sale any time soon. Consumers carry cash even if in small amounts because it works every time requires no authorization and never runs out of battery life. Card usage has a proven history with consumers as well and is rising up 7.8 percent annually nationwide according to While cash and cards are likely here to stay so are digital wallets partly because they allow consumers to leverage one of their all-time favorite toys the smartphone. 44 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M C Today s Mobile Consumer The Huffington Post reports that 71 percent of consumers sleep next to their smartphones 35 percent check their phone as soon as they wake up and 29 percent continue to check it every five to 10 minutes throughout the day. What exactly are we as consumers doing on our phones all day Using apps a recent Nielsen report says identifying gaming entertainment and social media apps as our top picks. So what will it take for Apple Pay and other digital wallets to gain traction with consumers Testing the Waters To a certain extent these payment types already are gaining popularity with consumers. Mobile payments are in fact on the rise. However the majority of mobile transactions completed at checkout today are CU PAYMENTS TAB for low-priced items such as a morning latte. This tendency suggests that consumers are still testing the waters. When it comes to higher-ticket items such as appliances cards remain the payment method of choice. Demographically tech-savvy Millennials have been faster to embrace digital wallets than older consumers. But the biggest obstacle preventing the technology s widespread adoption has been lagging support from merchants. That dynamic is changing. the Dash Button to reorder via Wi-Fi network. His or her Amazon Prime account is then charged and the product will arrive with free shipping in just two days. According to The Atlantic the Dash Button and other technologies like it are fueling a trend known as ether-commerce. In this type of commerce mobile technology is embedded in what the article calls the secret recesses of ordinary life allowing consumers to bypass the phone and computer altogether. Early Adopters Lead the Way A 2015 study issued by Berg Insight and published on reported that nine million NFC-capable terminals are now enabled at U.S. merchant sites up threefold from 2013. And early adopters of the technology are enjoying success. According to mobile payments accounted for 21 percent of sales across Starbucks stores during the fourth quarter of 2015 totaling 1.03 billion for the quarter. USA Today reports that Walmart s own mobile payment app Walmart Pay has 22 million active users and that instore usage of the app has nearly doubled year over year. Tech giants Google and Amazon continue to invest heavily in the technology as well with solutions that take the digital wallet one step further. TechCrunch. com reports that Google s Hands Free mobile payment app allows a mobile device to communicate with an NFC terminal without being swiped clicked or even removed from a purse or pocket. Android Pay transactions that are effortless highly secure and instantaneous are thus enabled. Amazon s new Dash Button reflects how future mobile technologies might work for consumers. Available from select Amazon merchants and only to Prime customers Dash Buttons can be placed throughout the home next to items a consumer will likely replenish such as detergent razors or diapers. And at the moment the Amazon customer notices his or her supplies are running low s he can simply press 45 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S How to Move at the Speed of Mobile Given how quickly mobile payments are evolving and the increasing consumer interest in them it is vitally important for credit unions to have a sound mobile strategy in place. It is also critical that CUs execute well on such a strategy with a reliable service and support organization. Best practices suggest that it is better to be selective about the technologies you deploy than to leave members without the support safety net they will require. Offering even just one or two of the major digital wallet platforms will get you into the market and give your members all the speed and convenience they expect from mobile. And as with any technological undertaking remember to keep your mobile strategy focused on the member experience not on transactions. The mobile platforms you offer should be intuitive engaging and consistent every time. Bill Prichard is senior manager of public relations and corporate communications for CO-OP Financial Services ( a Rancho Cucamonga Calif.-based provider of financial technology to credit unions. Prichard can be reached at 1-800-782-9042 ext. 3450 and bill.prichard MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING BY RYAL TAYLOE Catch the Wave The Mobile Banking Revolution Has Arrived The mobile revolution has taken the financial services industry by storm. Is your credit union ready for the tidal wave that s about to crash down Don t fall into the category of CUs that are slow to respond to demand for mobilization and thereby lose out to eager FinTech startups. Follow these tips. A s if there was ever any doubt the mobile tidal wave is finally hitting the financial services industry. It is making an impact on all areas of the operation including even small business lending. Consider this According to the data research firm Statista three out of four Americans have access to the Internet via a mobile phone. It took a bit longer for the financial services industry to catch up with the mobile revolution at large due to the reticence of traditional financial institutions to introduce digital banking solutions. Consumers long-held concerns surrounding privacy and information security also contributed to the delay. But the situation on the ground is shifting rapidly with the influential Millennial generation leading the charge. Millennials are much less likely to use a branch than their elders and are more comfortable using mobile banking for the majority of their financial transactions. This behavioral change is starting to have a broader impact across generational lines. According to a 2015 survey by Bankrate. com Four in 10 Americans haven t visited a branch in the last six months. All trend lines are pointing in the same direction As the mobile channel claims dominance within the financial services sector the days of the traditional branch are surely numbered. Faster more convenient digital channels are rapidly becoming the new standard for member interaction. Credit unions and community banks have been somewhat slow to respond to public demand to mobilize their institutions by equipping employees with technology that serves members more quickly. As such nimble and innovative FinTech startups are rushing in to fill the gap. How prepared is your credit union for the coming tsunami Charting a New Course for Serving Your Business Borrower This sea change in consumer behavior has hit the small business sector as well. Business owners are among the most savvy and time-strapped of members demanding rapid response and easy secure access to accurate 47 C R E D I T U N I O N B U S I N E S S M A Y 2 0 1 6 C U B U S I N E S S . C O M MEMBER BUSINESS LENDING TAB financial information. To maintain a competitive edge innovative financial institutions are finding ways to engage members fully in the digital realm offering superior convenience and transparency regardless of the specific type of transaction. To keep pace your credit union must do the same. Fortunately today s leading cloud-based loan origination systems offer numerous advantages over traditional server-based platforms including better communication fuller transparency lower infrastructure costs and the opportunity to provide better member service and responsiveness. With these full-service and flexible capabilities you are well-prepared to meet and exceed your members higher expectations. Here is how a cloud-based loan origination system can help your credit union rise to the top. 1. Meet the members on their wave. Let your loan officers and business development professionals loose by sending them out into the field to meet directly with borrowers and prospects where they live work or play. Armed with secure access to credit union and member data your team will make the most of these opportunities to build relationships face to face. 2. Allow members into the process. With accurate real-time tracking of their loans from the initial application stage straight through approval processing and closing members feel like they are in control. The member can contact his or her loan officer and other key team members 48 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S right within the portal and receive a secure reply within the credit union s promised service delivery window. Marry that with the ability to complete a loan application or upload documents at any time day or night from the comfort of one s home or office and your member will feel empowered and in the driver s seat. 3. Secure email and snail mail are all washed up. A virtual tool like the member portal eliminates the headaches and security risks associated with manual delivery of documents via U.S. Mail courier service or personal delivery at a branch. Borrowers can scan and upload documents such as tax returns and proof of income directly into a dedicated secure online site where the information is immediately available to the loan officer within the document manager functionality. 4. Faster decisioning means a smoother ride. If your credit union decides to utilize an automated decisioning process loan requests can be approved and communicated to the applicant within hours or even minutes of the initial request. For more complex loan requests the decisioning process is streamlined dramatically. Approvals are tracked electronically within the cloud-based system eliminating the paper chase and any need to manually track down approval signatures. Above all your member gains valuable time back into his or her day and receives the benefit of faster loan approvals and funding. How s that for staying ahead of the curve Gaining Back a Bit of Competitive Advantage A cloud-based member portal can help your credit union earn back a bit of competitive advantage from the big banks and FinTech disruptors. It allows you to complement the outstanding inperson service you provide your members every day with a fast easy and convenient online and mobile experience. This capability will help seamlessly bridge your credit union s brand into the digital world. 2 20 01 16 6 C U B U S I N E S S . C O M MMA A Y Y MEMBER BUSINESS LENDING TAB Cloud-based solutions equal lower operating overhead. They replace expensive and rapidly depreciating onpremises system architecture requiring fewer team members to provide an equivalent or even better and more personalized member service experience. As your members expect more self-directed online and mobile service channel options over time fewer inbranch representatives will be needed. As a result overhead will be reduced and your team will be freed up to go after the business. Most critically a cloud-based member portal will help your credit union compete effectively with disruptive agents ranging from major retailers like Walmart and Apple to P2P lenders such as OnDeck and Kabbage. By leveraging the latest cloud-based and mobile technologies only credit unions can offer their members the best of both worlds outstanding worldclass high-touch service coupled with a sleek secure and fast digital experience. It s time to grab your surfboard. Ryal Tayloe is vice president of creditunions 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 Salesforce. com 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. The 1 Solution for Member Business Lending 49 C R E D I T U N II O N U N O N B U S II N E S S B U S N E S S MMA A Y Y 2 20 01 16 6 C U B U S I N E S S . C O M THEY SAY... TIME is We give you more of both. Cummins Allison branch automation technologies have helped thousands of FIs become more ef cient. Our reliable cash coin check and ATM solutions move low-value deposit and cash handling transactions away from your tellers reducing operating costs and improving staff performance. Your branches are more productive and pro table and your customers get a better experience. Simple yet effective branch automation technologies from Cummins Allison add to your bottom line and allow your staff to focus on what matters most more meaningful engagement with customers. MONEY. automation GET MORE AT