Staff Report

Shoppers who belong to credit unions spent 15 percent more and made 15 percent more transactions during the peak holiday shopping season in 2011 than in 2010, according to an analysis by CO-OP Financial Services and Saylent Technologies, a provider of payment intelligence solutions.

“This month-long holiday spending surge among credit union members is even higher than Black Friday sales growth among the same group, which we found grew 8.1 percent year over year,” said Stan Hollen, president/CEO, CO-OP Financial Services. “This robust sales activity mirrors the powerful momentum of the credit union movement overall.”

The holiday sales analysis is based on more than 71.9 million transactions representing $2.8 billion in spending made between Nov. 25 and Dec. 25, 2011. Drawn from debit card transactions across 563 credit unions processed by CO-OP Financial Services, the year-over-year comparison was performed through an advanced analytics solution, CO-OP Total Revelation™, powered by Saylent Technologies, and was conducted by Saylent’s Insight360™ consulting team.

“Our analysis revealed a remarkable 10-percent increase in the number of debit cards in use during the holiday season, the result of a burgeoning consumer interest in credit unions,” said Tyson Nargassans, president and CEO of Saylent Technologies. “The CO-OP Total Revelation solution provides detailed payment intelligence that helps card issuers uncover hidden opportunities and insights to better serve their expanding roster of members.”

The analysis spanned 30 days of spending activity among the credit union members both at brick-and-mortar establishments and on the Internet. Some of the key highlights include:

• ’Tis the season for politics: The end of 2011 saw a spike in political contributions, up 513 percent over the same time last year, as the U.S. Presidential campaign season went into full swing.
• Holiday cheer: Tavern and alcoholic beverage purveyors toasted the end of the year with a 48 percent increase in sales.
• A season of giving: Contributions to charitable and social service organizations were up 38 percent year over year.
• Stocking up: Buying clubs and shopping services bulked up with a 125 percent sales increase.
• Popular gifts:  Among the merchandise categories showing strongest gains were leather goods (up 42 percent), records and CDs (up 42 percent), flowers and nursery stock (up 40 percent), bicycles (up 22 percent), computer software (up 21 percent), books (up 21 percent), candy and nuts (up 18 percent), and pets (up 17 percent).

For more information on CO-OP Total Revelation, visit www.co-opfs.org. For more information on Saylent Technologies, visit www.saylent.com.

By W.B. King

I can’t recall whether it was the convenience of his last name or the intriguing cover art, but the first book I took out from the library­­––while in the second grade­­­­––was a biography of Martin Luther King Jr. (There was no doctor in his title.) It served as one of my first assignments, a book report.

From that moment on, this man and the change for which he stood inspired me. Throughout the years, I have studied his works closely, followed in some of his actual footsteps in Selma, Ala. across Edmund Pettus Bridge, and visited his final resting place in Atlanta. What I enjoy most is reading his words. “All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence,” he once said.

As this year’s national holiday saluting King passed, I thought about that quote and how it pertains to our industry. There is a true sense of “humanity” in this financial construct more so than that of “big banks,” though not all bankers are “bad.” It is this idea of “excellence” that continually attracts me to the moving parts of the credit union industry especially technology, vendors, senior executives, and the list goes on.

Moving through the first month of the year, I continue to read reports that the credit union industry is growing, adding 1 million members to an existing 90-million base in 2011. I also came across The Financial Brand and its “2012 Bank and Credit Union Financial Marketing Survey.” The survey included 101 banks, 143 credit unions, 33 community banks and 26 other financial organizations.

The responses were both intriguing and encouraging. For example, despite new regulations and a daunting economy, respondents cited internal issues as its biggest challenge in 2012. The report found that 84 percent of those polled said that their budgets would either increase (45 percent) or remain the same (39 percent); however, 46 percent said the feared insufficient budget or manpower. Much like the last few years, about half of senior executives are looking to invest in technologies while nearly the other half are doing their respective best to keep the boat afloat.

Factoring Technology

While I will delve into suggested cost-appropriate technologies in a bit, I want to share more findings from The Financial Brand. In an effort to measure the use of digital and online channels in 2010, they conducted an online marketing survey and found that 69 percent of banks and credit unions utilized email. That number increased by 10 percent last year. Similarly, 68 percent of those polled said that they pay for online banner ads compared to 54 percent in the 2010 study. “Those pursuing an SEO strategy also grew by 13 percentage points since 2010,” the report stated. “It is anticipated that these shifts will continue as more people consume information electronically.”

To no surprise, social media outlets such as Facebook, Twitter and YouTube are on the rise. Facebook, in fact, saw the largest jump in usage from 46 percent in 2010 to almost 75 percent last year. Twitter increased by 19 percent since 2010, and YouTube increased by 24 percent. These mediums thus far have proved more effective than blogs as only 18 percent said they published a blog on a regular basis.

As a result, progressive organizations are redirecting investments in traditional television and radio advertising and creating new positions such social media manager or social media specialist. These professionals are using new “onboarding” techniques to communicate directly with new members during the critical first 90 days. An interesting factoid from the report was that more than 50 percent of banks (mostly larger institutions) are investing money into customer-welcoming campaigns, which indicates acknowledgement of the exodus of banking customers to credit unions. The game is on.

The Credit Union Draw

We know that members are drawn to the personalized touch of a credit union but more so, they are attracted by services such as lower loan interest rates and higher saving rates. The continual challenge is understanding member behavior which is where different technical applications come into play.

“All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.”
- Martin Luther King, Jr.

FI Compliance Solutions announced in January its new risk-monitoring solution, Enterprise Risk Monitoring (ERM) 365, which was designed to assist financial institutions in the monitoring of the livelihood of their respective organization through a cloud-based software solution.

“Over the last year we spent countless hours talking to our clients, and conducting focus groups with non-customers to better understand how we can help solve their problems. The result was ERM 365 – Enterprise Risk Monitoring 365 days a year,” said Eric Strohl, president and CEO of FI Compliance Solutions. “Institutions are frustrated with spread sheets, and the board of directors and senior management were looking for a solution to see the big picture without seeing all the details.”

ERM 365 contains an expert developed library complete with risk and compliance related rules, a risk monitor, automated alerts, notifications and additional features. With a reasonable price point and perhaps more important, flexible contract terms, ERM 365 clients enjoy unlimited implementation support, online training, and advisory services for no additional fee.

Another company to check out is Open Solutions Inc., which provides integrated enabling technologies. Recently, Marion and Polk Schools Credit Union (Maps Credit Union) selected Open Solutions’ DNA platform to handle its core processing needs.

The Salem, Ore.-based credit union, with $400 million in assets, serves more than 40,000 members across nine branches. C.J. Daiker, vice president of information technology at Maps Credit Union, explained that after considering core systems from several providers, Maps Credit Union ultimately chose Open Solutions’ DNA platform for its architectural openness, future-forward design and ability to streamline the credit union’s business operations.

“Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.”
- Martin Luther King, Jr.

“The advantage of choosing Open Solutions over another vendor is that DNA has a clear vision and detailed roadmap for the future,” noted Daiker. “With Open Solutions’ DNAcreator and DNAappstore comes the opportunity to develop efficiencies and core customizations in-house or purchase them, which is very attractive, and aligns with our long-term goals.”

Louis Hernandez Jr., chairman and CEO of Open Solutions, explained that using .NET technology, DNA employs a unique member-centric data model that enhances Maps Credit Union’s workflow, flexibility and productivity. A centralized Oracle relational database serves as the platform that allows Maps Credit Union to effortlessly customize and enhance the platform with DNAapps from Open Solutions as well as third parties and other DNA users.

“Maps Credit Union is a very forward-looking financial institution with strong values of educating its members and providing superior member service,” stated Hernandez Jr. “I look forward to seeing how this innovative and collaborative credit union will use DNAcreator and DNAappstore to solve common problems, improve service and generate additional revenue. We are confident that the members of Maps Credit Union will ultimately benefit from the new efficiencies and enhanced service.”

With this new initiative, Maps Credit Union can create and share its own DNAapps or download them from others on the DNAappstore, which enhances DNA in response to regulatory, technological, and market changes, noted Hernandez Jr.

“Open Solutions is a core vendor that can meet our goals and help provide us with real, modern solutions,” said Jill Nowacki, vice president of development at Maps Credit Union. “Selection of Open Solutions’ DNA core platform is paramount to increasing efficiencies across our entire operation.”

Heed the Call

Theoretically, winter is a time of reflection so one can “spring” into action. Taking advantage of relatively cheap technologies to grow business models is essential to survival. With a presidential election and tough campaign season ahead of us, voters (members or potential members) will be concerned most with the economy. They are looking for someone or something to trust. It is clear that politicians, regardless of persuasion, are not favored nor are supposed “fat cats” on Wall Street.

Credit unions that deliver exceptional rates, customer service and ease-of-use applications will have the unique opportunity to grow exponentially and should the heed the call of their members, so senior executives really need to listen to them. Consider onboarding methodologies, additions of sound and safe-cloud computing while keeping your eye on compliance and regulatory demands.

2011 was a time of financial upheaval. People are looking at where their money is housed in increasingly critical ways. Those institutions that have made _{mistakes­­––selfishly} or otherwise­­­­­­––are being cast aside by customer defection in growing numbers.

I’ll leave with words from Dr. Martin Luther King Jr., (and I know you see the creative light shining on the credit union industry). “Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.”

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. 

I read a scary statistic the other day. An office worker is productive, working on a task, activity or project, on average one-and-a-half hours per eight-hour workday. The rest of the time is spent on email, phone calls, meetings, chatting, looking for files, surfing the net, staring into space, going to the restroom, you name it.

Increasing your productivity is not that hard. It does take a little discipline and adjusting some of your habits.

Email: this is a hard one for so many. Are you addicted?

Tip 1: Stop checking your e-mail every second. It takes up enormous chunks of time.  This is a huge drain on energy and productivity. Schedule when you’ll look at your email.  Perhaps it’s three times a day. Turn off the “ding.”

Tip 2: Use this tip if you are addicted to checking email and you are not required by your job to check as it comes in. You can set up an auto-responder that says: “Hi, I got your email and will respond to you shortly during my email checking hours which are … Or “Thanks for your email. I’m tied up right now and will respond to you by the end of the day.”

Tip 3: Do you send email to your staff and expect an immediate response? If you do, you are reducing their productivity. When you send email after regular work hours your saying to your staff they should be available 24/7, when you just wanted to clear your mind. Only send email during regular working hours and set a culture that you don’t need an immediate response. Stress will go down and productivity will improve.

Phone calls

Tip 1: Put your phone on silence. Schedule time in your day to return phone calls––when you can give the call your full attention. I always made it a point to return phone calls within 24 hours of receiving the call. This is polite and professional. There is nothing professional about not returning calls. It’s part of your reputation.

Tip 2: When you do return the phone call, you may go to voice mail. Leave a message that answers the caller’s question as thoroughly as possible. If you still need to talk to the person, include in your message when you’d be available to talk; write that on your calendar. For those people you don’t want to talk to, return the call toward the end of the day and leave your message.

Tip 3: Ignoring vendor calls is unprofessional. You can get the vendor off your phone back very quickly and easily. Call the vendor back and leave a message, or if you speak to them directly, say, “I appreciate your call. I am not interested in your product right now. I will let you know when I am.” This will take you off the vendor’s callback list, and allow you and them to move on.

Do you ever get interrupted when you’re trying to get something done? Have you ever not been interrupted when you’ve tried to get something done?

When you’re working on something you’re not that interested in, it’s easy to get distracted. That doesn’t help you get done what you have to do. Here are some tips when you have to get things done.

Tip 1: Just say no. If your employees are constantly running into your office and asking you for information, you may have turned into a human training manual. You want to be really helpful. What you’re actually doing is training your employees to use you as a verbal reference guide­­––they don’t learn how to do things on their own, or figure things out for themselves. As a leader, you’ve got to encourage your employees to think and act independently.

Here’s what you say: When someone comes into your office, politely, but firmly, say,  “I’m in the middle of a deadline. Can we talk later?” If you’ve never done this, you might get some startled looks. It’s worth it. You can even add: “Could you come back at 3 o’clock with your question?” You’re still being helpful, and controlling your schedule. About 90 percent or more of the time the person will not return to your office.

Tip 2: Close your door. You could pick a certain time each day or a few times during the week. Post a sign on your door and tell your staff that you’re not to be disturbed for the next hour or two.

Sub tip: If you want to maximize your concentration and productivity, work in 50-minute segments. Stand up and walk around for 10 minutes before you begin your next 50-minute segment.

Tip 3: Remove yourself. You can’t be interrupted if you’re not there. Take your task to a new environment. You might be inspired to look at things in a new way!

How does a credit union transition from 12 branches across the country to no branches at all? 

What was the reaction of members––mostly women in their 40s and older––who were not exactly prime candidates for a virtual credit union?

What did they lose in the process?

And, most importantly, was it the right decision?

To find out, we spoke with John Saatela, CEO of the progressive CarePoint Federal Credit Union, one of the few completely virtual credit unions. Back in 2008, CarePoint FCU had 12 branches and $75 million in assets. In August 2010, the credit union closed its last remaining branch.

Like many other credit unions, CarePoint FCU was starting to feel the effects of the economic downswing about three years ago. While most of its membership is made up of nurses, (think: job security), household incomes had decreased significantly. The loss of a job by a significant other, fewer hours, no overtime, and no longer working in multiple hospitals, nurses took a hit and were bringing home smaller paychecks.

With shrinking incomes came delinquencies and char-e offs. Even members who had been keeping current on paying their bills simply couldn’t do it anymore.

With costs up and income down, Saatela made a decision out of necessity. All branches would be closed. It was the only way to survive.

“We’ve become virtual out of necessity, but during the process, it cemented the idea for us that a branch served a location, but it didn’t serve our membership,” Saatela said.

With members across the U.S., having branches in several hospitals may have served the members in that hospital, but it really didn’t serve the membership. For example, the credit union has not had a branch in Texas for years, but many of its members live in Texas.

For members like those in Texas, having no branches made no difference—they weren’t benefiting from the branches in any case. For others, those who did come in to branches, it was an adjustment. Saatela and his staff directed these members to the shared branch network and to the CO-OP Network ATMs. Because there are many more ATMs and branches available through this network, brick-and-mortar banking could be positioned as being even more convenient for members than if they added physical branches of their own.

CarePoint FCU also enhanced the branch locator resource on the website so it’s easier for members to find the locations and CO-OP ATMs.

“We couldn’t have done this 10 years ago,” Saatela said. “We did get some negative feedback from members. Females in their 40s and more are a tough demographic to move to being virtual. Our membership works 24/7 taking care of patients, and like to be handheld. They deserve to be handheld. It was difficult at times for us to do this.” As new technology becomes available, such as remote deposit capture, it’s becoming easier for credit unions to consider the option of going completely virtual.

The credit union compensated by adding new features to its website and longer hours to its call center, and included more information on the website capable of being downloaded and submitted right from the website. They added the DocuSign product for loan documents so they could securely send documents to members, e-sign them, and easily fund loan requests within a day. That’s something they just implemented, and members love it because it’s quick and secure, and they don’t have to find a fax machine.

A big part of the transition was member communication. CarePoint FCU let members know about the branch closings through letters, statement messages, and its newsletter.

In the process, the credit union lost about 10 percent of its membership. A significant number, certainly, but a full 90 percent stayed with the credit union during the transition

“It wasn’t an overwhelming disagreement, but it was painful for many members who were used to coming in and seeing the same MSR every payday,” Saatela said.

However, most members didn’t have access to the branch anyway.

At this point, Saatela wishes he would have done it sooner “A virtual credit union wouldn’t work for everyone,” he acknowledged. “But for our field of membership, where we can’t have a branch in every hospital, this is a better approach.”

By far, the biggest benefit to the credit union was cost-cutting. At the same time, members gained new technology. Because the credit union became completely virtual, it was forced to look at new and innovative technology to fill in the gaps that might have existed had they simply closed their physical doors and gone virtual with no changes.

“As we redesigned the website, we wanted to have everything possible available at 3 a.m. when our member––likely to be a nurse––is getting ready to start work. We made more things available to members 24/7, because they’re working 24/7. So when they want to do their banking, it’s available.”

If you’re thinking of going virtual, Saatela has this advice: communicate with your members well in advance and often. Adjust the mentality of your staff, because it is a change of pace. Not every front-line staff member can handle a call center, so it’s a big change. In the office it’s a lot quieter because me

mbers aren’t coming in. It can cause you to get lulled in the quiet.

“We’re still working through all those issues,” Saatela said.

And don’t be afraid of it. Some management teams are fearful of going virtual because of the unknown. If it makes sense for your credit union take a look at it. Think about it in terms of “what if?”

What if we didn’t have a branch? How could we better serve our members without a branch?

What if we were able to find some cheap, out of way office space we could move to? How can we better service our members in a less costly location?

Any credit union with a phone center and online banking, already has a virtual branch. For that reason alone, no credit union should be fearful of it. It’s only a question of how far you can take the virtual concept to cut costs and give today’s members what they really need.

Bottom line? CarePoint FCU closed all of its 12 branches, and went from 49 employees to 14. The credit union now has a higher net worth, and made money in the past two years, a definite bottom line improvement from where they were before the transition.

As they say, the proof is in the pudding.

Now more than ever, credit unions will look to the marketing department as a profit driver. OK, I said it. Yes, credit unions are concerned about profit. With declining fee income, plus an aging population whose majority has moved beyond its prime borrowing years, credit unions, and their marketing teams, will have to get smarter regarding growth. This means relying on data analytics to create personal, relevant and specific offers whose outcome can be tracked. It’s time to move your marketing team from the backroom to the boardroom, and in this article we’ll show you what to look for and how to manage expectations of performance.

Gone are the days of the mass-market and broad extravagant campaigns that do little to add monetary value and that fail to link the credit union’s brand promise to tangible results. Today’s smart marketer relies on data-based marketing in the same way a single sponsor in-plant credit union operated 20 years ago: by knowing the member, giving them personal service and relying on word-of-mouth advertising.

Three key words that should be on the wall of every marketing department are: Personal, Relevant and Specific. Only through the delivery of your brand promise and the strategic use of these three words can you truly maximize the marketing investments.

Here are five steps to make marketing a more actionable part of the overall business strategy.

Step 1: The Departmental Breakeven.

The first step is to provide an understanding to your team of the revenue required to break even on its own marketing expense. Use this simple calculation. Divide the total marketing budget ($200,000 for example) divided by your spread (3 percent). The result is $6.6 million. This amount is what is required to cover the department. Is this an easy number to convey? I think knowing this puts everyone on the same page and focuses everyone’s efforts. In this example, $6-plus million required to cover expenses should be enough to toss aside meaningless efforts and projects (or at least reduce time and expense involved in these kind of non-performing projects). This includes the pursuit of social media for profit, executing creative that’s focused on earning industry awards, attending/holding meetings that occupy more than 10% of the day and endless revisions of brand standards.

Once this is simple number is understood, it will set a starting point expectation for performance.

Step 2: The Revenue Imperative

The next step is to set an expectation of growth. A quick and easy way to impart this knowledge to your team (so anyone can continually judge their over/under progress) is to follow this quick chart. Insert your numbers in A, B and C.

Using this quick analysis, the marketing department needs to drive and be accountable for a portion of the 15 unit sales required daily, by providing leads that are easy to track and meaningful. There’s also no way to hide from this number. By simplifying your corporate goals to this level, your department can visualize its responsibilities and keep focused on what’s important (and it isn’t Facebook).Yes, I realize this number does not take into account return on existing assets, so cut it in half and move on. The point is, you can say, “We have to net $1 million dollars this year through the prudent management of time, treasure and talent. And by serving the member to best of our ability and delivering superior service, we will get there.” Or you could say, “We must generate 15 sales per day to hit our goal.” Which will be remembered tomorrow?

Step 3: Get Relevant.

Relevant is defined as having a bearing on or connection with the subject at issue. Remember when (if you’ve been around credit unions for more than 15 years) your main office was in a facility and members just walked down the hall to discuss their financial needs? Now that was a connection! Today, the single sponsor, facility located credit union is rare and our members now come in all shapes and sizes. So how can you become (and stay) relevant? With data analysis. For those of you reading this that do not have an MCIF, get one for your marketing department. There is no better way to build member knowledge than with a centralized marketing and profit focused database.

The MCIF will combine data from your core and other data silos (credit card, mortgage, investments) along with appended information from credit bureaus, demographic and psychographic firms. Through the analysis of this data your department can determine what products, offers and delivery channels will create a lasting connection with your members.

This tool (the MCIF) does not generate revenue; however, it gives the marketer the means to build, execute and track marketing efforts. It also allows the marketer to look at micro segments of the membership and make relevant offers based on individual needs. From the member’s perspective, communications that come from you are more tailored. This translates into better response, which in turn means more leads!

Step 4: Get Personal.

If your marketing department is about getting AWARDS, it’s time to evaluate their purpose. Marketing should be about the REWARDS of a healthy bottom line. Sure, it’s fun to be recognized by your peers, but I’ve been around long enough to see how the lure of hardware (and the visual aesthetics) gets in the way of making simple, clear offers and measuring their outcome.

Getting personal is about leveraging the data to create a one-to-one marketing experience across multiple channels. Often this includes a general business objective, i.e. growing mortgage loans and deploying that objective across multiple member segments and deliver channels. That’s a fancy way of saying make the right offer to the right person. This can come in many forms including, but not limited to, the use of variable content printing to display images and offers that are tailored to an individual’s life stage. In the images below, a mortgage loan was presented to four segments using life-stage codes and credit bureau data. The offer featured variable photos, copy and payment information. Compare this to a one size fits all offer. Which would you rather receive?

Another way to get personal is by providing content that’s meaningful. Look for ways to leverage data sources to give the member something to remember. One example of this is using NADA data and appending it to the member’s VIN. The result is the ability to provide a statement of vehicle value along with an equity position. The letter below shows an example of how this looks. Along with the value statement, this CU made an offer for financing on their next vehicle. What’s more appealing? A general offer (no matter how creative) or one that gives you real, usable information?  P.S .This one generated $3 million in new loans and a response rate of 10 percent.

Step 5: Be Specific.

What is it that you are asking the member to do? Your offer and call to action must be simply worded and specific. It not, send it back to the drawing board. The more clear the offer, the better the response. A side benefit of the clarity-of-offer is the internal training advantage. If the offer is simple, your staff (outside of marketing) will have a greater understanding of it and will be in a better position to communicate its value.

An example of this is the self mailer below. On every piece, the current member or prospect was told that if their monthly payment was $X, they were paying too much for their current vehicle loan. By moving that loan, the member/prospect could save money. Specific data points used were:

1. Current monthly payment on the existing vehicle loan.
2. New calculated loan payment.
3. Rate based on risk level.
4. Member life stage photo (four life stages represented).
5. Member preferred branch location and contact details.
6. Prospective members received a driveway to branch map with turn by turn instructions.

Think about it. Doesn’t this offer make more sense than a generic one? While this approach requires more work, we seen it proven over and over that this approach yields more long term growth.

By first delineating the marketing goals into easy-to-understand metrics and employing the business rule of personal, relevant and specific, your credit union can and will enjoy higher response rates and greater profit. And that’s the REWARD for which we are all looking.

Tony Rizzo is the General Manager/Creative Director of MARQUIS Creative. For the past 20 years Tony has served the Credit Union Movement in many diverse roles ranging from auditing to advertising. Tony pioneered the concept of 1:1 marketing for credit unions and has been involved with thousands of campaigns designed to do one thing: get results. 

As Credit Union Business magazine’s newest contributor, Emily Hollis, CFA, has a lot to offer readers.

Hollis is a principal of ALM First Financial Advisors LLC, and has served in the role since the company was established in 1995. Under Hollis’ leadership, ALM has steadily grown to a client base of more than 150 financial institutions representing more than $170 billion in assets. At ALM, Hollis manages the operations department, and the analytics and development department, in addition to guiding the strategic direction of the company.

“ALM is privately owned,” Hollis noted. She owns the company along with her two partners, Angela Calvert and Thomas Manley.  Services offered by ALM include merger valuations, rights evaluations, ALM validation, balance sheet risk assessment, total return asset management, loan profitability analysis, mortgage servicing rights valuations and liquidity forecast model.

“Our biggest up and coming product is the derivative service,” Hollis said.

Hollis is a popular speaker at industry events. As an expert in asset and liability management, Hollis has spoken for the American Institute of Certified Public Accountants, Financial Managers Society, CUNA & Affiliates, the National Association of Federal Credit Unions, and the National Center for Credit Union, in addition to several corporate credit unions.

For CUB, Hollis plans to write on many subjects.

“My initial article, on purpose I made it very general,” she explained. “It touches on a lot of different topics that I can branch off and write about, so to speak. I wrote on how to enhance your balance sheet, and hedging. In the article I make some suggestions in the end on how you  can minimize risk. I touched on investments, and I touched on derivatives. There could probably be a whole year of articles stemming from that article. That was my intent.”

Before partnering ALM, Hollis has held roles including: vice president for Kidder Peabody Asset Management, chief investment officer for Southwest Corporate FCU, and investment trader for a New York Stock Exchange Co. Her background also includes executing and managing risk-management programs, and implementation of one of the first uses of futures hedging and synthetic structures in the credit union industry. She also served as the portfolio manager for one of the first mutual funds offered exclusively for credit unions.

Hollis holds both a master’s degree in business administration and a master’s degree in arts from Southern Methodist University in Dallas. She holds a BFA from Texas Christian University in Fort Worth, Texas. She holds the Chartered Financial Analyst (CFA) designation.

On the company’s website, www.almfirst.com, Hollis also has a column featured, known as the Ask Emily column.

 “I have a little following,” she said. “People ask me questions. It allows me to express an opinion. Then I get responses from readers. But it’s a limited audience.”

In her Ask Emily column, Hollis writes about a broad range of topics, including investment and derivatives.

“We’ve talked about mergers. We’ve talked about the economy,” she said. “We’ve talked about regulation. Every time a new letter comes out, we talk about it. Those are the sort of topics.”

She is hoping to bring a similar discussion to CUB, as it has a larger audience.

For the future of her columns in Credit Union Business, Hollis hopes to generate ideas.

“Sometimes that is what happens to my ask Emily column,” she said. “It is kind of stimulating.”

Hollis is open to CUB readers writing in for topics they would like her to focus future articles about. Hollis hopes the topics she will write about in future columns will help readers, and offer them advice. She also feels that the new column will offer good exposure to ALM First.n “I have a passion for this company,” she said. “I really believe in what we do. I believe it’s a win-win situation.”

Joyce Moed is the editor of Credit Union Business magazine. She has worked for 15 years as a newspaper magazine reporter and editor, covering news, features, business, politics and community news. Since 2007, Moed has focused on writing about the credit union industry. 

By Emily Hollis

It’s 2012, and another year has passed. If we turn back time to 2006, who would have guessed that events resulting in losses of such great magnitude would have occurred in our industry over the past couple of years? Because of this, the NCUA appears to be receiving pressure from the Obama Administration via the Dodd-Frank Act to carry out new mandates of more government regulation to prevent any potential future crises. Specifically, NCUA letters have addressed liquidity, interest rate risk and concentration risk. Many respected economists are concerned that the 2,310-page law (formally called the “Dodd-Frank Wall Street Reform and Consumer Protection Act”) is a threat to future economic growth. It serves as a statement to the American public that the government will intervene with more regulations, more requirements and more oversight in order to help prevent future crises. But for now, this is what we must live with.

Add today’s low-interest rate environment, and create strong headwinds for financial institutions that are already facing particularly demanding pressures on net interest margins and return on assets. Rates are at all-time lows and given the troubled economy may yet be on a long, slow rebound­­­––meaning flat, low rates for a while.

One thing all economists can agree on: interest rates have nowhere to go but up; it’s when rates begin to rise that’s still out for debate. Since the Federal Open Market Committee first cut interest rates to a historic zero to 25 percent in December 2008, that level has remained unchanged. Rates will eventually rise; and the question isn’t so much when, but whether we are prepared for the potential risk. What a quandary! Credit unions need income now, however, avoiding risk in a long-term low rate environment could be just as costly as taking the risk should rates rise.

The good news is that credit unions are starting to take advantage of tools that can monitor risk.  Retaining mortgage loans is not a bad thing! The trick is to know how much to retain and to have a strategy if too much risk is assessed.

The New NCUA Mandate for Measuring Interest Rate Risk

Determining the level of risk your credit union should take is challenging, whether you’re dealing with credit, interest rate, or liquidity risk. (The combination of the three should be addressed in concentration risk measurements.) Each credit union is unique, with different risk-tolerance levels, capital levels, and member needs. Financial institutions should not focus solely on setting random maximum limits on loan types, but instead should focus on the realignment of other parts of the balance sheet if one particular loan product brings value to the credit union and its members. In other words, while some institutions may garner too much interest rate risk with the majority of their loans in fixed-rate mortgages, others will be fine.

Interest rate risk should be managed and credit unions should be measuring and monitoring the systems they currently have in place to ensure that risk is within set boundaries. What determines how much risk you should take? Two key measurement tools are essential to help you better understand your credit union’s interest rate risk: net economic value (NEV) analysis and net interest income (NII) analysis. Performing a NEV analysis helps to determine the amount of interest rate risk on your balance sheet within different rate scenarios, while an NII analysis measures income volatility within different scenarios.

With rates inevitably poised to begin rising, it is imperative to model anticipated balance sheet changes before they occur to gauge the impact on interest rate risk. It is also prudent to perform “what-if” scenarios to help understand what the impact of an increase in loans held on the balance sheet would have on NEV ratios and NEV percent changes. By doing so, your credit union will have a more accurate picture of its exposure to interest rate risk and will be better prepared to manage it effectively.

With the expectation that rates will eventually rise at some point, examiners are requesting fairly simple “what-if” scenarios, such as an up-500 basis point change.  Although an immediate rise of an up-500 scenario is not likely, the test would reveal results of an up-200 rate movement.  In this environment, the resulting up-300 economic value would be the current up-500 scenario, with the up-200 scenario being the new base. The chart below provides an example, with this credit union moving from a low regulatory measure of interest rate risk at a 25 percent NEV change to a measure very close to a high-risk designation of negative 49 percent NEV change.

Of course, this test is not perfect, as rates will not rise 200 basis points overnight. However, the test does provide a simple tool that can provide adequate information. If you accept a moderate amount of interest rate risk and the result of this test is less than a 45 percent NEV change with an NEV ratio greater than 6 percent, you should feel comfortable adding mortgages up to that level.

Forward Net Economic Value Analysis

A more precise analysis of a risk measurement is to conduct a forward NEV analysis with a snapshot of your balance sheet and book rates after a gradual rise of rates over a period of time.

Better yet, conducting a forward NEV analysis that incorporates your budget can be extremely useful.

For instance, suppose that throughout a three-year period, a credit union budgets to increase mortgage holdings. Income simulation modeling can be used to grow the balance sheet and mortgage loans using rising projected market rates. In the example below, mortgage loans increase gradually from 8 percent to 30 percent of assets. Concurrently, the two-year Treasury rate is held constant for a period of one year, and then gradually rises 300 basis points over the next two years.

The forward NEV would be a snapshot of the ending balance sheet after three years. The balance sheet is used with yearend 2014 account balances and the book rates. NEV values are calculated given the new base rates and the new base rates plus 300 basis points. You then have a snapshot of what your NEV up 300 basis point scenario would look like over three years, a much more realistic scenario.

If you determine that too much risk is inherent, here are a few strategies that can be used to decrease excessive risk exposures:

• Hedge your risk – Surprised? Yes, hedge your risk!  For some, hedging can be a scary word, but hedging interest rate risk is an effective risk reduction measure, and derivatives have been used by financial institutions for decades. The collapse of the financial markets brought a minimal amount of losses on derivatives that were collectively used to minimize interest rate risk. The worst case scenario for hedging against rising rates with interest rate swaps occurs only if rates move to zero. This can be calculated and assessed. Though financial institutions need to be further educated on this type of “insurance,” it works well if utilized properly, and it allows an institution to retain longer- duration assets on its books.
• Borrow – Most credit unions have adequate capital to borrow long-term, extending liability duration. There are many types of borrowings that fit well into balance sheet strategies, including embedded options.
• Consumer loans – These typically have shorter maturities, less extension risk, and less price volatility compared with mortgage loans. So, there is less interest rate risk and impact to NEV.
• Promote certificates – To lock in funding costs, you can provide share certificate options. However, this may be difficult to do, for long-term certificates would reap the most benefit and members are currently reluctant to tie up funds in this low-rate environment.
• Buy shorter effective duration securities – Credit unions can invest in shorter maturity securities or in floating-rate investments. With floating-rate investments, the yield resets higher in a rising-rate environment with minimal price volatility. Credit unions should invest any excess cash in maturity ladders with monthly maturities to ensure liquidity.

Yes, rates will rise at some point. To be prepared, every credit union should be armed with effective strategies for managing that eventuality.

Emily Hollis, CFA, is a partner with ALM. ALM First has provided credit unions with financial advisory services since 1995. It has more than 150 clients and $17 billion in funds under management. Emily Hollis may be reached at (800) 752-4628 or ehollis@almfirst.com.

During the past six months, we’ve introduced (or reintroduced) several terrific credit union consultants to deliver important advice for you: Holly Herman is a former two-time credit union CEO, who also spent some valuable time at the NCUA.

Holly is an executive coach (www.achievingskills.com), who has a great amount of experience to share with you in her monthly column, “Achieving Skills.”

Laura Enock brings a wealth of knowledge of credit union marketing and communications from her years of working closely with credit union executives.  Her website, www.cucontent.com, offers free content for credit unions; you need to only sign up and copy and paste.  We’re thrilled to have Laura bring her insights to CUB each month.

Ask Emily, Please!

 Just in time to launch the new year, I’m very happy to introduce our newest columnist, Emily Hollis, a founder and partner of ALM First Financial Advisors LLC, a very successful investment firm located in Dallas.

 Emily has graciously agreed to partner with CUB to provide you excellent wisdom and advice about finance. ALM First is the nation’s leading financial advisory firm serving the credit union community since 1995, with more than $15 billion under management and more than 150 CU clients.

I first met Emily shortly after her firm’s launch. I remember that it was in mid-August, with typical Dallas summer weather (HOT).  ALM First initially set up shop in Reunion Square in the Downtown area of the “Big D,” an air-conditioned building featuring a full-scale ice-skating rink as the main feature of its huge atrium!

Emily is a charming and brilliant financial expert who will impart much wisdom to the Credit Union BUSINESS audience. And she is looking forward to lots of feedback from you.  Please feel free to your specific finance questions to info@almfirst.com.

On behalf of all of us that work hard to bring this BUSINESS magazine to you,  thanks for reading!

The four signees include Nassau Educators Federal Credit Union (NEFCU) in Westbury, N.Y., Nassau Financial, also Westbury-based Winthrop-University Hospital Employees FCU in Mineola, N.Y. and Island FCU in Hauppauge, N.Y. (www.islandfcu.org).

Each participating credit union’s website will have a banner linking it to the cuautocoupon web page where members can retrieve their coupon. Here, the shopper can also apply for a pre-approved auto loan with their credit union, as well as find a local participating dealership or national auto service where these coupons can be redeemed.

“We are thrilled,” said President Robert O’Hara. “This is a great way for us to establish not only a regional, but national footprint. These credit unions believe that our product will benefit their members as well as attract new ones all while increasing their auto loan balance sheet. It’s a ‘win-win’!”

cuautocoupon also provides credit unions with auto loan refinance leads from their members who financed their vehicle purchase with an outside lending institution.  As an added benefit to the program, members can save by redeeming a coupon at any local participating dealership to receive 10 percent off their next service, parts or accessories purchase.

cuautocoupon is a coupon program that was set into motion in November to help drive more business to credit unions and auto dealerships. The program provides discounts to credit union members when purchasing a new or pre-owned vehicle while supplying the credit union with real-time leads of members in the market to purchase a vehicle. Additional information may be found at www.cuautocoupon.com/cuac.

Executive Compensation Solutions (ECS), in Covina, Calif., has released its 8th annual Survey 2011: Employee and Executive Compensation and Benefits for the Credit Union Movement (“The Survey”). This year’s survey continues to indicate an increased strategic approach to an overall compensation and benefits philosophy and practice, as well as a stronger correlation between pay and performance. Tying the overall compensation package to sustainable and relevant performance measures that are aligned with the interest of the credit union and its members is becoming an increasingly important practice to attract, reward and retain key value creators.

“It appears from this year’s results that the credit union movement is slowly emerging from a difficult economic period,” said Adam Zelinsky, ECS director of operations. “Financial performance and performance ratios, as well as pay practices, indicate a slow and gradual easing of the tight economic environment of the past few years. While compensation increases are not dramatic, reported responses indicated a significant decrease in the number of salary and bonus freezes, as well as a significant drop in the number of credit unions that have suspended their employer match into their 401(k) plans.”

New to “The Survey” this year was the inclusion of male vs. female CEO base comp. The results indicate that there are a higher percentage of women CEOs in credit unions than in banks and other financial service institutions, but a disparity in pay levels between male and female CEOs does exist. ECS will continue to monitor this and other demographic factors that may impact the pay and benefit practices of credit unions.

Again this year, ECS tied its survey participation numbers to raising funds for Credit Unions for Kids. With an increased participation of 25 percent, ECS was able to raise almost $3,000 for the organization.

“These funds will be utilized to help with overall fundraising which will benefit all our hospitals throughout the U.S.,” said Credit Unions for Kids senior director Joe Dearborn. “We are sincerely grateful for ECS’ continued support.”

Overall, the responses to this year’s survey continue to provide a road map for credit union boards and management of the competitive landscape, and the importance of articulating a compensation philosophy and matching practices to that philosophy. To view the survey online, visit http://www.ecs-m.com/CreditUnionResources/TheSurvey/item22147.html.

Executive Compensation Solutions (ECS) was founded in 1970 and brings innovative thinking to a variety of executive compensation and benefit issues, including compensation benchmarking and client-driven surveys, incentive structures, “equity-like” compensation arrangements, retirement plans, elective deferred compensation, actuarial consulting, valuation services, survivor, disability and long-term care benefits.