Posted by Karen Houston-Johnson, VP, Credit Union Resources, Inc on 9/30/2016

It’s a story that’s repeated all too often in credit unions across the country.  Many Annual Membership Meetings come up in the first quarter the first of the year, and that includes director elections.  So the Chair quickly forms a Nominating Committee and directors scramble to find willing candidates to fill the open positions.  But many times this process results in choosing “less than ideal” replacements because of the time constraints.

The job of building the board is more than ‘just filling slots’ – it is about being strategic in the way a board looks at its composition and its governance responsibilities.  That is where board succession planning comes in.  Board succession planning is the process through which a board takes a proactive approach to ensuring that it has, and continues to have, individual directors who, at a full board composite level, possess the skills, qualifications, experience and attributes necessary to govern well on behalf of the credit union’s members.

According to “The Board Building Cycle” by Berit M. Lakey, there are nine steps to finding, recruiting, and engaging credit union directors that address two major purposes . . . to replenish the board’s people-power by bringing in new members and to strengthen the board’s performance.  Effective boards don’t happen by accident.  Just as you plan for the strategic direction of your credit union each year, it’s critical that you also plan for the strategic future of your board of directors.

At OnBalance we are here to help you with this important initiative as well as Strategic Planning, CEO/Management Succession Planning, and much more.  To learn more about all of the products and services we offer visit us at www.curesources.coop/onbalance or contact Karen Houston-Johnson at khouston-johnson@curesources.coop, Howard Bufe at hbufe@curesources.coop or Dean Borland at dborland@curesources.coop .

Posted by Mark DeBree, Vice President, ALM Services, Catalyst Strategic Solutions on 9/29/2016

Roll with the punches. Get with the times. While these well-known clichés aim to pack a positive punch, they don’t garner as much enthusiasm when we’re attempting to deviate from tried-and-true standards. But, there’s no time like today to begin adapting to a new normal!

For the past six months, the NCUA Office of Examinations and Insurance has been alluding to a new standardized “NEV Supervisory Test” to streamline its interest rate risk (IRR) examinations. The final elements of this test will be unveiled over the next few weeks.

This test establishes four ALM risk classifications – Low, Moderate, High and Extreme, and is based upon a two-part process:

Part 1 of the test is the credit union's Post Shock NEV Ratio.

Part 2 is NEV Sensitivity, as measured by percentage of change in the +300 bps rate shock scenario from the base case scenario.

Why is this happening?

This test will be examiners' new focus, instead of the previously-relied-upon NEV analysis that placed a par valuation on non-maturity deposits through all of the rate shock scenarios. In the past, valuation of non-maturity deposits in the NEV calculation has posed challenges for regulators in the consistent treatment of measurement, management and monitoring of interest rate risk from one credit union to the next.

But…how?

When performing this analysis, the NEV valuations will be adjusted to reflect a one percent premium for non-maturity deposits in the base case scenario and four percent (from the base case) in the +300 bps scenario.

And then what?

In order to adjust to changes in the regulatory environment, the previous NEV analysis with Shares at Par will be discontinued. For now, the NEV Supervisory Test will fall within the “L” component of CAMEL with an expectation that CAMEL will be adjusted in the future to CAMEL(S) with the “S” component reflecting sensitivity to market risk.

What does it all mean?

Credit unions need to be aware that the point of this test is to gauge the risk to the insurance fund as though the credit union were no longer a going concern, which would be the case under a failure and liquidation,” said Aaron Martini, Manager of ALM Client Services for Catalyst Strategic Solutions. “This is not meant to supersede the risk management practices that the credit union currently employs, nor alter their strategy."

The new test is expected to bring greater consistency and uniformity among examiners and supervisory practices. NCUA outlines other benefits as: a shift in focus of examiner efforts toward credit union “outliers;” increased clarity of IRR expectations, increased accuracy of IRR rating; and greater opportunity for risk-focused discussions. Credit unions will still be expected to perform IRR analysis, as the NCUA will rely upon the credit union's asset valuations for investments, loans, and funding valuations for term deposits and notes payable. But, according to the NCUA, the new test will reduce examination burden for most credit unions.

As your credit union continues implementing these new standards, remember, change can be a good thing!

Categories: Business Partners, Compliance, Education & Training, Financial & Auditing, Strategic Planning & Consulting
Posted by Mr. Dean Borland, SCMS, CUDE, VP Product Development, Credit Union Resources, Inc on 9/23/2016

A quick Google search of “the branch is dead” can help you with instructions on how to prune a dead / decaying tree limb, and you will also find that some people think financial institution branches are on track to follow the dinosaur into extinction. Read a little closer, and you will find that many financial services pundits do not believe the branch is on life support, but that a “transformation” is needed to sustain viability and complement the move toward increasingly greater use of digital / mobile technology.

Over the past several months, Credit Union Resources’ “Impact Group” of credit union leaders and three Premier Business Partners, LEVEL5, Diebold-Nixdorf, and CO-OP Financial Services, collaborated to explore the issues and opportunities of branch transformation. The study culminated at the 2016 Cornerstone Credit Union League’s Leadership Conference with an Impact Group review of review of how “transformation” can be leveraged into a variety of branch platforms. Here are the major take-aways from the study…

  • Branches will continue to be an integral part of an omni-channel financial services distribution network where members will continue to perform transactions and interact with Credit Union staff, but in ways very different from the “traditional” branch. The “branch of the future” will be a redesigned mix of physical structure and automated transaction fulfillment supplemented with expert human support provided by on-site staff and / or via video interface with a dedicated contact center.
  • The branch footprint will vary widely depending upon each credit union’s needs, membership demographics, and business model.
    • Large format facilities (5,000+ ft2) will host a staff of member facing personnel including subject matter experts for mortgages, investments, commercial accounts, insurance, etc. Drive-thru service will likely continue to be available with delivery via conventional pneumatic systems or using interactive, two-way video assist technology.
    • Smaller “community” branches (2,000-5,000 ft2) will mimic larger format deployments but within a smaller footprint.   “Universal bankers” will focus will focus primarily on member engagement. Semi-private and private “hotel offices” and two-way video will allow interaction with subject matter experts housed at other Credit Union facilities. Secure, 24-hour vestibules offer around-the-clock access to services.
    • Further downsizing will create 800-1,500 ft2 “micro” branches (likely in retail storefront space) hosting service similar to a “community” branch, but in an even more compact environment. Drive-thru capabilities will be site-specific, but secure, 24-hour vestibules will offer around-the-clock access to services.
    • Finally, credit unions may deploy fully self-service branches (footprints of less than 1,000 ft2) where members will have extended hour access to robust automated and two-way video-assisted transactions.
  • Modern branches will be retail centers leveraging digital signage to deliver standardized, flexible messaging and retail merchandising to reinforce the Credit Union brand. Nighttime LED lighting creates visual interest and awareness of the branch, making it stand out from its surroundings.
  • Fully automated or video assist self-service delivered through interactive teller machines (ITMs) may eventually replace traditional teller transactions. In the interim, automated cash dispensers and electronic journaling will simplify the mechanics of the teller transaction, freeing member-facing personnel to focus more on the member experience and less on the technical aspects of journaling transactions. Lobby automation manages walk-ins and guides members for quicker service delivery.
  • As branches transition from a transaction platform to sales and service platforms, the competency and skill sets of the member-facing employee will evolve. Electronic journaling of automated transaction fulfillment minimizes the need for member-facing employees to have “accounting” competencies, shifting focus to individuals with refined sales and service skills. Performance measures shift from “over-short and transactions per hour” to relationship measures like services per household and share of wallet.

After learning that a major newspaper had printed his obituary, Samuel Clemens (Mark Twain), reportedly quipped to a reporter, “The reports of my death are greatly exaggerated.” Projections of the death of credit union branches are probably exaggerated at well. But, it is true that the in-branch experience is in transition. In the future, credit union branches may look, feel and function much more like an Apple Genius Bar than a traditional paying and receiving transaction platform. The question may not be whether your credit union will make the transition, rather when your evolution will begin.

Thank you to the members and guests of the Credit Union Resources Impact Group, and to our partners, LEVEL5, Diebold-Nixdorf, and CO-OP Financial Services, for providing us, and you, with a glimpse of the branch of the not-too-distance future. 

Categories: Human Resources, Remote Transaction, Sales & Service, Strategic Planning & Consulting
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