The practice of cultivating efficiencies is a given at the mega, multi-state, credit unions that flourish throughout the country. The giants in the credit union industry continue to develop methods to keep their banking products and services competitive and attractive enough to woo new members. The recent threat to add new banking fees at several of the nation’s top banks sent clients running to many of the prominent credit unions that compete with those banks, and where the only tangible difference is the institution’s ownership and reduced cost of products.

In an economy that demands strength and size, the largest credit unions fit into a safe zone where conservative practices and sheer member size can insulate most institutions from the pitfalls and challenges that belabor smaller credit unions struggling with everything from staff size to dwindling membership and the ability to offer progressive products. Ensuring the survival of small credit unions places demand upon the entire operation.

No one recognizes the unique stress facing small credit unions better than Rick Parker, president/CEO of Miami University Community Federal Credit Union, MCCU,  in Butler County, Ohio. After relocating from a much larger credit union, Parker faces challenges that distinguish an ordinary day in a large operation where the staff is sufficiently delegated to handle responsibilities versus those that have the tendency to fall upon the president/CEO in a smaller institution. Workload and hours are heavily weighted in the latter of the two.

MCCU has been serving residents as well as those who work or attend school in Butler County since 1969. The Oxford, Ohio-based credit union boasts more than 5,400 members and has assets in excess of $50,000,000. Parker transferred to MCCU at a time when the credit union’s assets hovered around $5 million. Not bad for a “small” institution.

Achieving growth while remaining independent is a priority. In addition to the extended hours, Parker takes time to participate in networking and partnership programs designed to enhance and expand member services, employee training and efficiencies otherwise prohibitive to the smaller credit unions.

One particular alliance is the Debt Management service, which is found by clicking on that category of MCCU’s website. After a brief disclaimer that alerts visitors that the Debt Management  site is not managed by MCCU, members can click on Trinity Credit Union’s link and discover an entire resource for debt management. A resource that MCCU would not be able to offer without the partnership with Trinity.

Another affiliated arrangement offers retirement and financial planning services on-site. Ray Cook, a financial planner with Preferred Planning Associates, is available to discuss the nuts and bolts of financial planning, which include college planning, IRAs, retirement,  insurance, estate and business planning. The service provides members with a full range of financial guidance.

Miami University Community Federal Credit Union recently realized their goal, which was initiated in 2007. MCCU opened its full-service, off-campus branch in May of 2011. With the goal to expand in mind, MCCU declares that they aim to “be your primary financial institution.” MCCU’s core values of “People not Profit” and “Service to our Members” motivates the team that Parker praises for providing the service that attributes to the satisfaction of members.

MCCU views member satisfaction a priority. In a bold move, they include  an online survey to query members and request feedback in their effort to evaluate members’ experiences with MCCU. Drop down boxes offer ratings from totally satisfied to totally dissatisfied and includes a comment box for personal comments.

Miami University Community Federal Credit Union is committed to members and to providing the best banking alternative available. “Changing Lives Everyday” is more than a tag line for the team at MCCU; it is its mission.

Sharon Sweda is a freelance writer who has worked in the real estate and finance industries for the past 28 years. Contact Sharon at SharonSweda@SwedaSweda.com to ‘SpotLite!’ your CU.

Unveiled during the CUNA Governmental Affairs Conference (GAC) in Washington D.C., Vero’s new suite of solutions includes three products designed to provide credit unions, their employees and their members with extensive protection from identity theft and fraud. Vero’s solutions provide valuable new resources that enhance service offerings, improve member retention, and solve risk mitigation issues specific to Red Flag requirements.

The company’s ID Recovery Pros solution gives credit unions a valuable new cost-effective member product that protects members and their families from all forms of identity theft and fraud. The suite’s new IDProSelect solution provides credit unions with protection from data breaches and fraud, while also addressing risk management needs and providing complete recovery services from all forms of identity theft for members and employees. Vero’s VBiz product provides valuable business to business protection to help credit unions better serve their small business accounts, by proving them with protection against all types of data breach and fraud events.

Statistics reveal that individuals are more likely to have their identity stolen and used by thieves in ways that go well beyond just damaging credit.  Credit unions now have an opportunity to offer the necessary added security that protects their members, as well as their own institutions from theft and fraud.

“Our goal is to provide credit unions with the most complete and comprehensive suite of identity theft solutions designed to help increase their value proposition to members, improve member cross-selling opportunities, and increase non-interest income and their bottom lines,” said Joe Annoreno, Vero’s CEO. “These new products and services will help credit unions address the ever growing concerns centered on identity theft and fraud, not only for their members but also for their staff and institution.”

For more information, visit www. Verocusolutions.com or www.cudirect.com.

cbanc President Myers Dupuy said that a survey of cbanc members showed a strong propensity for its community to try a new webinar offering: 88 percent of respondents are “somewhat” or “highly” likely to buy webinars from cbanc, where those users already spend time collaborating with their peers to solve industry issues.

“There are plenty of webinars being offered on any given topic across the industry today,” Dupuy said. “Scarcity isn’t the problem. The value add we bring to our community by folding Bankerstuff in is we can put a specific webinar offering in front of a user at the exact moment they are trying to solve that problem inside of cbanc. On top of that, we will enhance the content in the webinar by infusing it with real peer content from our community, so a banking professional can get both an expert’s opinion, as well as tried and true best practices from someone in the trenches.”

Former Bankerstuff CEO Erin Handel said joining forces with cbanc gives the website two new important tools to ensure it is providing users with the best possible webinars. First, Bankerstuff now has access to more resources and staff to deliver a broader scope of webinars, topics, and speakers. Second, Bankerstuff now has access to behind-the-scenes financial data from the cbanc community. Handel joins cbanc as the managing director of education.

“Data from more than 9,300 collaborating financial professionals reflect real-time trends of today’s hottest issues, and most importantly, the specific solutions that peers are implementing to solve problems,” Handel said. “We’ll use this data to deliver timely and relevant webinars that keep our users informed, and they can access cbanc to find a concentrated set of banker-authored content to help them develop their own solutions.”

All webinars will be provided externally through the Bankerstuff website for the foreseeable future, as cbanc users will begin to see webinar offerings this month. The webinars will be visible in the Daily Digest, cbanc Network ads, and optional education emails. Eventually, they will see a fully interactive webinar store inside of cbanc.

“We are very excited about the Bankerstuff webinar service because it directly aligns with our mission to make the industry’s banking knowledge readily available to our customers,” Dupuy said. “This integration will offer more people access to the industry’s best collaboration portal, and will help provide enriched webinar content to help banking professionals perform better in their jobs.”

cbanc President Myers Dupuy

For more information, visit

www.cbancnetwork.com.

If you are looking for high performance marketing ideas, look no further. Here are four case studies that have increased volume and member participation in just 100 days. All of these examples are real. All of the results are based on analysis and tracking from an MCIF system.

How much can you save each month?

This $1-billion credit union was looking to recapture loans financed outside the institution. While the concept of loan recapture is not new, the strategy was. Each member’s credit report was analyzed across each consumer loan category. This included looking at current rates, terms and payments versus what the credit union could do for the member. This allowed the credit union to focus on those who could reduce their monthly payments on at least two or more consumer loans.

Using variable data printing, the savings was clearly presented to the member along with a clear call to action. To further demonstrate knowledge of the member, lifestage codes were used to vary the photography of the piece. Taking this additional step increases results because the member psychologically identifies with your message to a greater level. To complement the direct mail effort, follow up phone calls from an internal outbound call team were also used. This is an excellent way to leverage your direct mail message and open the door for a meaningful conversation with the member. While the outbound call function is often overlooked, we have found it to increase overall response rate by several percentage points each time it is used.

The results of the campaign yielded eight dollars in profit for every one dollar invested in marketing. From the members’ perspective, it gave them another reason to believe in the money saving message this client reinforces in all of its marketing and sales materials.

FIGURE 1

This piece was a classic loan recapture with a twist. It presented savings opportunities across multiple loans.
State the case, make the sale!

This educational based credit union with over 100,000 members faces a not-so-unique marketing challenge¬–reactivating single service members. We know from our analysis of over 35 million households the risk of a member leaving dramatically declines with the more products they have. In fact, single account households have a 50% chance of leaving you in the next 12 months. Households with four or more products carry just a 5 percent risk of attrition. Clearly (and intuitively) the more you sell, the better the relationship.

A model was built that analyzed member demographics and psychographics, and compared profitable households to this group in order to predict what should be sold in the household. This is a critical step in order to maximize campaign response rate and minimize investment. Historically, this group is hard to motivate; therefore, be cautious with your marketing dollars or you’ll end up overspending for little results.

Before any marketing materials were sent, this credit union also assembled a series of compelling offers to get the member’s attention. Once the target market and message were established, a series of postcards were sent showcasing the product benefits.

The homework has paid off. For every one dollar spent on marketing, $1.21 in profit has been returned to the credit union. While this make not seem spectacular, it’s important to note the campaign returned a profit, reactivated single product households and decreased attrition.

FIGURE 2

A series of postcards were sent to this educational credit union FOM to increase participation and decrease attrition.
All aboard the credit union train!

Eighty percent of cross-selling occurs within the first 120 days of the new member relationship. If you are not systematically cross selling your new members, you are missing a significant opportunity to increase lifetime value and decrease attrition. At a minimum, you should reach out to the new member with a piece of direct mail and a phone call from an officer welcoming them to your institution. More detailed programs include a series of letters, emails and phone calls designed to be deployed over a six month period.

We see onboarding programs consistently pay for themselves. This $1 billion credit union has consistently generated $1.86 in profit for every one dollar spent on the onboarding program. The program has a number of product and life stage versions all designed to sell the next most likely product over the first 100 days of membership. Note the use of a non-window envelope in figure 3. We have found the elimination of window envelopes for this type of program increase response rates since the message appears more personal and less like “junk mail.”

FIGURE 3

An effective onboarding program increases lifetime value. Note the use of a non-window envelope to increase the feeling of personalization.

Looking for additional income?

Long a staple of most marketing plans, the skip a payment program provides your credit union with additional revenue and the member with some extra cash when they need it. Typically, these programs run during the holidays and summer months. What makes skip programs ultra successful is giving the member several ways to skip their payment. For this campaign (see figure 4), a member could skip via phone, personal web site or via business reply mail. Most responses were seen through the personal web site. Another item to consider is keeping your communication clean and simple. Ask for only what you need and use variable data printing and programming to have forms pre-completed for the member. The easier you make it, the better the response. Also, deploy the skip message in as many marketing channels as possible. Consider direct mail, email, newsletter, inserts and point of sale to effectively spread the word about your campaign.

This $500-million credit union generated significant results. For every $1 spent on marketing, $16 in profit was returned to the bottom line.

FIGURE 4

Generate significant fee income and give the member a break from monthly payments at key points in the year with a skip-a-payment program.

Stay tuned to this column over the coming months for additional ideas on how you can increase profit, lifetime value and member participation.

As prices soar in the lane, 44% of the consignors surveyed cited their biggest challenge is the accurate appraisal of vehicles (Fig. 1). The comments provided in the survey pointed to opportunities to obtain more thorough, accurate, and timely condition reports, and additional market intelligence, like guide books.

Figure 1 

Balancing high sale rates with maximum monetary returns was also a concern, ranking second among the entire sample and for credit unions. Finding accurate, relevant guide book data came in 3^rd at 19%.

Maximum Return vs. High Sale Rates

The companies whose primary focus was to achieve highest monetary return stated they were more likely to send a representative to the auctions to manage the physical lane sales. Across all participants, 52% said they usually or always send a representative to auctions, and just 10% said they never attend auctions in person.

42% of credit unions responded they never send a rep to auction, whereas only 30% said they usually or always send a rep to the auction. And yet, all of the credit unions focused on achieving highest monetary return indicated they usually or always send a rep to the auction.

Doing Things by the Book

In terms of guide book data preferences, the survey showed that Manheim Market Report and Black Book® are used almost equally: about two-thirds of respondents use both guides. 49% use NADA Used Car Guide, and 22% use various guide book values provided by auctions. Credit Unions were more likely to use NADA, and one credit union participant added, “[We] also use AutoTrader.com, Cars.com, or CycleTrader.com for unusual units.”

West coast respondents also mentioned Kelley Blue Book, and several northeastern consignors cited Galves. A number of companies factor proprietary, internal data analysis into their valuations as well.

The survey then asked consignors about their preferences for retrieving guide book values. 49% of respondents use the website of the guide book in question to access the needed values. Over one-third of consignors use the built-in, AutoIMS guide book feature to access Black Book and MMR values alongside condition report and bid history information. Only 3% of consignors chose mobile app as their preferred, guide book access method. Credit union responses mirrored that of the overall sample.

Key Decisions

The survey further revealed insight about the optimum number of times a vehicle should be run through an auction lane. 80% of consignors surveyed are willing to run a vehicle through the same auction lane 2 or 3 times in order to achieve a higher return. Another 17% said they would run a vehicle 4 or more times. Two runs was the most popular answer among credit unions at 47%.

When asked what factors affect the decision to repair a vehicle, the top answer was no surprise: 89% of consignors focus on the cost of the repair vs. the expected return in the lane. Credit union responses mirrored the entire sample, which also cited the type of repair as a major factor in their decisions, at 32%. Automatically adding/deducting a certain amount to/from damage and guide book values is a widely adopted pricing practice as well, at 43% of the sample.

Measuring pricing effectiveness was the final topic of the survey, revealing a wide range of metrics used by consignors to gauge the success of their pricing efforts (Fig. 2). Sale price as a percentage of guide book was the top answer at 52% for the entire sample, followed by sale price as a % of floor price (45%), and sale price as a % of remaining book value (40%).  Credit unions cited sale price as a % of remaining book value as their top metric at 56%.

Figure 2

Questions about the survey results or requests for a comprehensive presentation of the results may be directed to AutoIMS Customer Service by emailing customer.service@autoims.com or calling (888) 683-2272.

Throughout the years, credit unions have taken a page from retailer playbooks, with cutting edge facilities designed with member experiences in mind. Retail, however, has changed, too. Consider Apple, for example, with their almost community feeling and un-store settings. My favorite recent overhaul (make that very recent overhaul) of a retail experience is that of one of the most venerable of retailers, JC Penney.

Personally, I shop JC Penney for curtains and towels as well as the occasional accessory. But my teenage daughters’ love the clothes JC Penney sells, the prices always seem reasonable, and so it’s usually our first stop at the mall. As of Feb. 1, when Ron Johnson, a former Apple executive, implemented the new look and feel, JC Penny has become a whole new experience.

As senior vice president of Retail Operations at Apple Inc., Johnson pioneered the concept of the Apple Retail Stores and the Genius Bar. He joined the company in January 2000, but left to join JC Penney in November 2011. Before Apple, Johnson was vice president of merchandising for Target.

Under Johnson’s direction, Apple’s retail stores achieved a record level of growth. But forgetting about Apple for now, how do his dramatic improvements to JC Penney translate to strategic marketing and development ideas you can bring home to your credit union?

Let’s start with the new catalog that arrived in the mail. Looking more like a magazine than a catalog, (though not at all like a magalog, which has its own problems) my kids loved it, and so did I. Featured outfits were interspersed with stories that had nothing to do with JC Penney, but were of interest to me, the customer. Unlike most junk mail fliers, the new catalog sat in our magazine rack for a few days. When the new flier/catalog arrived a day before March 1, I knew I had to hold onto it so everyone could read it.

Your credit union, of course, is not selling clothing or home décor items. However, your newsletter/magazine doesn’t need to limit discussion to your products and services. What about tips and ideas on how members can better handle their finances? What about stories that interest your member—and make them want to hold on to your publication? What about brain teasers, financial cartoons, and provocative questions that get them started talking (or at least thinking) about money management in their own homes?

I’ve seen this done. It’s why I established CUcontent.com almost a decade ago. And I’ve seen credit union newsletters transformed from almost 100 percent promotional towards the ideal of 80 percent informational/educational/entertaining and 20 percent promotional. It can be done, and members are hungry for this type of information!

How does your current newsletter stack up? Objectively speaking, could it be considered—by members—as junk mail? (ouch.)

Another big change taking place at JC Penney is more basic—something as fundamental and old fashioned as a goal. Their goal is wonderful for several reasons. Success factor #1: JC Penney is not shy about sharing that goal with all of us. It’s not corporate babble, discussed at annual meetings among company executives and then forgotten about. It’s in clear, concise language that we can all understand and relate to. And success factor #2, that goal really shaped what they’re doing.

JC Penney doesn’t want to be the biggest store or the best-priced store. They want to be your favorite store.

Don’t we all want to be the favorite “bank” of each member? Can you share that vision with your members–and then ask them what it would take?

Think about it. This means you don’t necessarily need to be open on the weekends, offer products you currently don’t provide, or have 3,000 branches across the country. If your members love you, if you’re their favorite financial, if you’ve thought about what’s most important to them, then, folks, you’ve done your job.

How about promotions? JC Penney ran 580 promotions in 2011, and will be running just 12 in 2012. Wouldn’t it be great to save on all the expenses and busy work that comes with each promotion? And, doesn’t it get kind of watered down after a while, when there are more promotions than days of the year? While your credit union probably doesn’t have nearly as many promotions as JC Penney hosted in 2011, is this an area where you might want to look at the possibility that more is truly less?

Next is what they call ‘fair and square pricing’. When Mr. Johnson joined JC Penney, he couldn’t believe the complicated pricing. Sales were an everyday occurrence, and pricing models were complex. His response? Solid, “fair” pricing in the first place, so there’s no need to wait for a sale. Even though Americans have been conditioned to wait for sales and expect prices to drop continuously, JC Penney is transparent with pricing. Consumers know how and when to expect sales, but the original price is “fair,” so why not buy it now?

It’s way too early to look at results, of course, but as a consumer, seeing what they’ve done to a store that was dated is inspiring. I’ve always considered JC Penney’s merchandise to be a good value—you get your money’s worth. Even though they may not have the glossy ads of a Bloomingdales, or even the latest styles, they sell quality goods at a good price. Can you see the parallel to credit unions? For many people who have never heard of a credit union, the reputation of that small table in the church basement still lingers. For some members, the credit union is okay for some products, but you’re not their “favorite store.” However, your credit union has—or should have—the best deal in town. There’s value. Better rates across the board—fair and square!

JC Penney’s turnaround and revitalization didn’t create something new. It simply polished and showcased what was already there in a better—much better—way. The concepts are excellent. It’s exactly what credit unions, as a movement, need. Maybe it’s what YOUR credit union needs. If so, take a careful look at what they’re doing, and follow their progress. I’d love to hear how you’ve taken their strategies and applied them at your credit union.

How many of JC Penney’s strategies are you planning to implement? Please, share at laura@cucontent.com!

While a Halloween snowstorm seemed to be a harbinger for a long, cold winter, thankfully most northern east coasters, me included, didn’t have to murmur Richard the Third’s famed line, “Now is the winter of our discontent.” Crocus and tulips bloomed early, and as the spring equinox passed in the early morning hours of March 20, change was certainly in the air.

For me, it was a welcomed change. I’m not a fan of winter (post the holidays) and try and sneak down to Florida or California to escape the chill. This year, though, I had other concerns as my 6-year-old chocolate Labradoodle, Reilly, experienced kidney failure due to Lyme’s disease. While I’m happy to report his condition is stable for now, it was touch and go for awhile. Pet lovers might better understand this hardship. Nevertheless, when anatomical functions, or functions of an organization, are failing, vitality, often taken for granted, becomes a paramount concern.

With certain testing, Reilly’s condition could have possibly been detected before failure occurred; however, he didn’t show a symptom until it was too late and damage had occurred. Throughout the years, Credit Union Business magazine has covered countless aspects of sound business operations and how they impact the bottom line of a credit union. The problem is, like anatomy, there are so many moving parts that it is often difficult to “test” them all for efficiency.

Technology is the “organ” of your operation I am most concerned with as evidenced by the countless columns I have researched and written in an attempt to protect and enhance this all-important operation. The idea, of course, is to leverage technology to meet goals while paying attention to the bottom line.

The conversations I often have with c-level executives are centered on how best to determine ROI on a technology investment. In some cases, there is a gray area requiring time and due diligence before actionable intelligence is realized. In other cases, technology is required simply to meet demand and regulations. To this end, these investments ensure the ability to simply operate, but that doesn’t mean there isn’t an upside.

Take Control

Enter the New Haven, Conn.-based Continuity Control, a technology company with a mission of helping financial institutions meet compliance requirements. As we all know, federal regulations are growing seemingly by the day. I encourage readers to check out this company’s service as it removes the guess work or questions such as “are we covered?”

Named among the “Ten Tech Companies to Watch” by Bank Technology News, Continuity Control software is a personalized service developed by compliance experts with the goal of helping financial institutions better manage respective regulatory processes.

While the company works with credit unions, it also services banks. (It’s always important to keep your eyes on the competition.) Travis Colquett, vice president and compliance officer at First Citizens Bank in Luverne, Ala., said the Continuity Control platform has cut costs by removing the need to piece together compliance tools.

“Working with my Continuity Control strategist, we identified eight to 10 different areas that needed controls, and within a couple weeks they were in place,” notes Colquett, a former FDIC examiner. “Once I set them, I never have to touch them again. And if someone on my staff leaves, I only have to reassign a new person to that role, which is a 10-second task.”

Built with automated controls to meet governmental Compliance, IT, and Safe and Sound Banking requirements, Continuity Control’s solution continuously identifies new or updated regulations. The company notes that 645 rule alerts have been issued by the individual regulatory agencies over the past five years, plus hundreds of subsequent updates. One neat aspect of the service offering is its regulatory mapping function, which can link your credit union’s compliance program to the regulations that govern them. It removes all guess work, with alerts and updates addressed weekly. And if you curious just how many changes you need to be aware of, since the New Year, the company added 64 new controls to its existing platform. If you don’t know what these regulations are, it might make sense investigate now (but keep reading).

Preparing for the Test

As the call for regulation grows, more companies are providing services that not only meet these goals but provide ancillary audit benefits such as the Bellevue, WA-based FuzeDigitial. The company’s Fuze Suite aggregates and houses documents for easy retrieval, which is critical during these processes.

“Using the Fuze Suite with examiners was truly a success in our shop,” said Scott Prior, president and CEO of the Silverdale, Wash.-based Connection Credit Union. “It was a very efficient process for us and saved a great deal of running around time which typically accompanies any audit.”

In general terms, the company’s platform offering is a knowledge sharing software solution that integrates multi-channel support and community technologies. For many financial institutions, Connection Credit Union included, the ability to control access to content in a centralized location is the main selling point.

With this software, a credit union can restrict certain information that is not required during an audit or examination process. There are numerous benefits to this approach including a credit union saving time and resources during preparation and the streamlining of processes for those conducting the audit. It offers the best way to prepare for the “test” as information is bundled or placed in buckets that can be easily studied and double-checked beforehand.

Prior notes that the software was “easy to implement, searchable for tracking purposes, and provided a secure way to easily exchange confidential and sensitive information, eliminating the use of unencrypted e-mails, thumb drives, CDs and DVDs.” He continued. “The Fuze Suite also has a robust incident handling feature that worked well to engage and dialogue examiners online and provide a tracking mechanism for the questions that arose. It also aids in accountability on both sides of the table, which isn’t a bad thing.”

While a “score” wasn’t provided, a recent “exam process” set the stage for a transparent audit process, Prior noted. And with the industry landscape changing, there will be a call for credit unions to be a step ahead of the process which ultimately shines a favorable light on those progressive credit unions. “Examiners are moving in that direction and it’s much more efficient for them than a bunch of notebooks in the boardroom,” Prior said. “The easier you make their jobs, the more time they can focus on all the good things you do!”

Another reason I decided to highlight FuzeDigital is due to the software’s overarching features. For example, stakeholders and board members can securely access pertinent information via an online portal, a community knowledge base. The company notes that estimated costs of assisted support ranges from $3 to more than $100 per interaction.

“Using our Community Answers component within the Fuze Social module can provide even better savings in some cases by getting non-staff to answer new questions of other consumers. Not only can this save you significant money, in some cases a consumer actually can provide better answers than your staff regarding issues that require their unbiased perspective and real-world usage.”

Less secure materials can also be aggregated for public knowledge, or for the building of member websites, which is another service that has the interest of Connection Credit Union. “We’re continually seeking other ways to use the Fuze Suite as it helps us to do more with less,” Prior notes. “We use this one tool internally with staff, board, members, potential members, vendors, consultants and now examiners. We’re continually building and refining our collaborative knowledge base and using it to be more efficient,” he continued. “When we can find ways to use it in other areas, then we can better leverage that efficiency. Vendor management and integration issues have been minimized, and we’ve found that the more we use it, the greater value we get in other areas.”

Preemptive Measures

The aforementioned technologies are worth looking into as the combined message is the same: be prepared. In my dog’s case, he now has to take blood pressure medicine (enalapril) and an aspirin every day for the rest of his life. Could his condition be prevented? Again, it’s hard to say. If I had the opportunity to do it over again, however, I would have given him the tests. (I learned all dogs older than 7 should have their urine checked, FYI). This could have saved him the struggle and pain of acute kidney failure and saved me quite of bit of money in hospital and care costs.

As a c-level executive, you have undoubtedly been faced with a problem that cost you time, money and resources. With hindsight, you obviously would have taken measures to avoid the oversight and/or mistake. (We’re all human after all). Think about that oversight when you next connect with your IT team. Figure out where redundancies exist and identify camouflaged pitfalls. Like Alexander Graham Bell said, “Before anything else, preparation is the key to success.”

W.B. King has more than 10 years experience writing for business and technology publications. He can be contacted via email at wbradking@hotmail.com

Today’s credit union boards are fully aware of their responsibilities and the added importance of their decisions with regard to the direction, success and continuity of their organizations. They are also much more attuned to an economic environment in which they have seen corporate credit unions fail, smaller credit unions merge into larger credit unions, and regulatory agencies increase their oversight. Board members are expected to be informed, knowledgeable, and ready to defend their decisions to regulators, auditors and, most importantly, members. One of the most important issues a board has to deal with is how the board attracts, retains and rewards its leadership team.

The process of determining an appropriate executive compensation package used to be considered as simple as determining what others were offering, and creating a package that would protect the credit union from losing its talent to its “peer” competitors. But this approach (looking outward) has not consistently been an effective way to determine compensation for the key decision-makers, who are entrusted with leading a credit union into the future. What is going on in the competitive environment is an important part of the process, and it should be a tactical piece of a strategic approach to executive compensation.

Rather than comparing executive compensation to other scenarios with which they might be familiar, board members should ask themselves four key questions that set the stage for decisions about executive compensation. These questions can help ensure that the credit union will have a strong leadership team that is being rewarded for the right things.

1) Has the credit union established a written compensation philosophy?

This is the starting point of any strategic compensation process. What is important to the credit union? What are its overall goals in serving its members? Those goals should be embedded in the compensation philosophy to allow an alignment between pay practices and what the credit union wants to accomplish for its members. This document provides a guidepost for pay decisions now and into the future, and allows future board members to understand the philosophy and practices of the organization.

2) Who are the credit union’s peers and competitors for executive talent?

This tactical question must be answered to allow the board to determine where the “market” is in setting compensation, and how other like organizations establish a competitive compensation package. Many current credit union CEOs are a part of the baby boomer generation, and are beginning to look toward retirement. The Survey 2011: Employee and Executive Compensation and Benefits for the Credit Union Movement reported that 36 percent of all respondents will be looking at replacing the CEO in the next three to five years. In the search to replace that talent, credit unions must know what their peers are providing, and the comparator group should not necessary be limited to local credit unions. This is especially true for larger credit unions, where talent may be found in (or recruited away to) other financial service sectors and entities with broader geographic scope.

3) What is the balance between pay and performance?

Has an appropriate amount of the total cash compensation been structured as “at risk” compensation? After establishing a reasonable base pay level based upon the credit union’s own philosophy and factoring in what the market provides, incentive pay levels (both short and long-term) can be structured so that the executive’s pay is tied to performance. Executives only earn the incentives if the credit union prospers. In this way, performance is rewarded, and the credit union gets “paid” first. The goals of the board, the membership, and the executive team, are aligned.

4) What are the appropriate incentive targets?  

Are they reflective of the credit union’s goals and strategy? Getting this right is paramount to having an effective compensation program. In establishing the goals, the board needs to decide what the credit union wishes to accomplish in the short-term and in the long-term. CEO pay-for-performance can then be structured to establish the nexus between the accomplishment of those goals and incentive compensation. Payouts for reaching goals should be proximate to performance, so goals that can be accomplished in a shorter term should be tied to short-term incentives, and those that require a longer time horizon can be tied to longer-term incentives or blended over time. The CEO can then reflect those same goals in the structure of an incentive compensation package for the rest of the executive team, so all are working toward a common vision. It is important to pay only for sustainable results.

By creating a structure that integrates these components, the credit union not only aligns the executive team with credit union membership, it creates an inherent attraction, reward and retention program. This results in a strong and deep executive bench, so that the CEO search, when the time comes, may allow the credit union to look no farther than their own leadership team.

Guy Collins has 15 years of executive compensation and benefit consulting experience, and specializes in the design and implementation of compensation and benefit plans for credit unions that align the interests of the board and executives with the objectives of the credit union membership. Collins received his bachelor’s in economics with concentration in Finance from Lake Forest College.

By Holly Herman

I’ve heard from a few clients recently “This is the year I’m going to get organized.” Organized is an appealing word to many and can be hard to implement. “Being” organized starts as any “being-ness.” it is based on habit. Following are some tips to “being” organized.

Disclaimer. Only introduce one tip at a time. When you’ve mastered that tip, pick another tip. You don’t have to go in order. Pick the easiest tip to implement or the one that will make the most impact on your life.

Tip 1: One calendar. You have one life, therefore one calendar. Pick a paper or electronic calendar. With today’s technology, an electronic calendar can be set to synch–keeping all of your devices up to date. Use color coding (pens or electronic color options) to designate different parts of your life. Examples are work or home items, children’s or spouses’ appointments, birthdays, etc. You’ll cut down on double booking and be able to plan your day effectively.

Tip 2: Small notebook. As you go through your day, use the notebook to record commitments you make, tasks that your employees will complete and anything else you have to follow up on. At the end of the day or before you begin your next day, process your notes. Processing includes putting items on your to-do list, taking care of the quick items, or putting follow up items in your calendar or follow up system. Highlight or cross out the items on the pages that you’ve processed so you aren’t reviewing them each time you look at the notebook.

Tip 3: Projects/subjects. For each project/subject that you work on, have a file devoted to the project/subject. This includes one physical file (if you receive paper related to the project/subject) and one electronic folder (if applicable). As emails and documents come in related to the project/subject save them to the electronic folder. This is the same process for physical documents. You will have two areas at most to look for information.

Sub-tip: Don’t save emails in email folders–especially folders that are from a specific sender. We work in subject areas, not people. You’ll end up looking through a ton of emails to find the one you want.

Sub-tip: Administrative tasks–as you receive bills you’ll want to have a “bills to pay” or “administration” file to hold the items until you have time to process them.

BIGGEST TIP OF ALL: I’m sure you’ve seen a pattern to these tips, which is the key to “being” organized. Get in the habit of storing things in a single place. You’ll save enormous amounts of time, energy and increase productivity.

You’ll know you’re organized when you are controlling your time, space and things; they aren’t controlling you.

What keeps you organized? Do you have any tips to share? What one area needs organization in your life?

Holly Herman is a former CEO of two credit unions, Chief of Staff for National Credit Union Administration Chairman Johnson, and currently an Achievement Coach helping individuals and organizations. She can be found at www.AchievingSkills.com, or contact her at Holly@AchievingSkills.com.

In its guidelines for ALM examiners, the NCUA has opted in favor of five tests, which can sometimes be confusing and at times seemingly contradictory. This can lead to the quandary of which analysis to use and sometimes needless confrontation between examiners and credit unions. So, what do you do? There is a solution: just follow one measurement.

The five tests are shown above.

First of all, if you are still using a GAP analysis for risk measurement, it’s time to stop. It has been proven that repricing Gap ALM measurements are not meaningful.

The net interest income simulation (NII) simulation replicates earnings over a period of time; however, it does not capture cash flows beyond the initial horizon period of the simulation. Therefore, market value volatility of longer-term cash flows is not taken into consideration and, subsequently, its impact is not shown. Maximum rates that are embedded in loans and investments such as adjustable-rate mortgages (ARMs) may not affect income projections if the modeled scenarios do not generate interest rate paths higher than the contractual cap or level of rate restriction. Market value analysis captures the effects of embedded caps even when they are out of the money.

Because of this and other balance sheet traits, one test might show a minimal interest rate risk profile and the other shows high. Intuitively, this seems flawed, and examiners have written up credit unions as such; however, it is not.

Let’s look at an example: 5/1 hybrid ARMs that were issued two years ago at a rate of 5.50 percent might be capped at 7.50 percent should rates move up substantially. However, below this level, ARM rates would move in tandem with the market and show an increase in earnings as the mortgages were reset.

On the other hand, the NEV analysis will show a fair value loss on the market values and will capture the entire 30-year’s worth of cash flows, therefore modeling high enough interest rate paths that could potentially impact interest rate resets by hitting the maximum reset levels.

To help clarify, an example is outlined below. This financial institution has 85 percent of its assets in real estate loans, which at first glance is a red flag for high risk. These real estate loans are fairly interest-rate sensitive because the rates of the ARMs and LOCs will reset as interest rates change. When rates move up, the variable rate sectors of the balance sheet will reset up to a maximum defined cap the first year, which buffers the risk associated with the fixed-rate, 30-year loans that they hold, that will not reset.

Now let’s examine the liabilities–33 percent of the liabilities and equities are in money market accounts, which reset quickly with rising interest rates. However, the risk of these accounts is mitigated by the checking and regular share accounts, which barely move in a rising rate environment. The asset liability spread actually increases by 15 basis points and the net interest income increases by 29 basis points in the up 300 basis point scenario. When you analyze the entire balance sheet, from an income perspective, the credit union makes money when rates rise over a one-year period.

Alternatively, the NEV analysis shows a 1.04 percent increase in net economic value to capital in the base case scenario and a decrease from that in fair value of 4.45 percentage points in the up 300 basis point scenario. This is due to the market devaluation of the 30-year real estate loans (35 percent of assets), which is not supported by liability market increases on the shorter-term liabilities. The NEV takes into consideration¬ all cash flows instead of those for just one year. The institution is approaching a “high” amount of interest rate risk with a 45 percent negative change of NEV from the base case scenario.

In conclusion, one test shows minimal interest rate risk and the other shows high interest rate risk. Intuitively this seems flawed; however, it is not. The example outlined here highlights the limitations of the NII simulation. While we perform both tests, we put more credence in the NEV analysis; without it, long-term cash flows and embedded options (i.e., caps) are not adequately tested and measured.

We have seen cases where the two net economic value (NEV) “suggested tests” place client credit union profiles in the “high-risk” category, while the two NII “suggested tests” place profiles in the “low-risk” category. While both should be performed, we believe that more credence should be placed on the NEV analysis; without it, long-term cash flows and embedded options (i.e., caps) are not adequately tested and measured.

In agreement, the OTS adopted a measurement table that defines different degrees of interest rate risk. The OTS selected the NEV ratio as the sole measure of risk exposure for institutions within its jurisdiction. (The OTS uses a “NPV ratio” as its measurement, which stands for net present value. The concept is identical to the NEV ratio.) Though the OTS is no longer in existence, the concept of modeling and risk measurement used in this guideline is ideal, because it captures both the size of economic capital and its sensitivity to changes in interest rates.

As an example, an institution that has a base NEV ratio of 10 percent and a post 200 bps shock NEV ratio of 7 percent would be deemed to have a moderate amount of interest rate risk. (The OTS risk measurement table assumes a 200bp after shock value.) When using this table, the institution would locate the corresponding range for its post 200 bps NEV shock in the first column of the table and follow the line to the right, locating the column that corresponds to its respective interest rate risk sensitivity measure. In the case of this example, the 300 bps (10% – 7.00% = 3.00% or 300bps) result falls in the 201 – 400bp column and dictates a moderate amount of risk.

Summary of OTS Guideline for the “Level of Interest Rate Risk”

We suggest that the table be modified to up 300bp movement, with more categories as shown below.

Suggested NCUA Guideline for the “Level of Interest Rate Risk”

This table tackles both the size of economic capital and its changes to interest rates in one test and eliminates the question of two NEV tests and the potential of two separate outcomes.

So, if you find yourself in the position of having contradictory ALM results, we recommend that the NEV ratio be the determinant test. If you want to put yourself in a position of not having contradictory ALM results in the future, adopt a risk measurement table as suggested above. It makes sense.

Emily Hollis, CFA, is a Partner with ALM First Financial Advisors, LLC.