Essentials

...to help all of Delaware's credit unions exist, compete, and prosper   Summer 2009

Managing Through Tough TimesTough Times
Issues and Considerations for Small Credit Unions

Navigating today’s treacherous waters can be difficult.
These developments can cause significant financial
and operational issues for many credit unions. And
those issues loom especially large for many small
credit unions.

What is the best course of action for boards and management in these trying financial times? CUNA’s Small Credit Union Committee offers the following suggestions. First and foremost committee members agree there is no silver bullet; no correct answer. Responses will be as varied as small credit union operations. But there are common themes:

     • Provide context. Ensure directors know how other credit unions are faring in these tough economic times. Knowing that other small credit unions face earnings challenges (and knowing the magnitude of those challenges) will help directors make more informed decisions, and it will reduce the likelihood of overreaction.
     • Since most small credit unions have more than adequate capital, they should strive to avoid penalizing members with higher loan rates, more and higher fees, lower dividend rates, service cutbacks or layoffs just to keep net income from falling for a year or two.
     • Rising delinquency and loan losses require close monitoring and active collections, but they do NOT necessarily call for a tightening of credit standards. Avoid drastic underwriting changes, if possible. Now may be a good time to revisit and recalibrate loan quality parameters. The result, for many, may be a relaxation rather than tightening. The best response to a decline in net income caused by rising loan losses may be to adjust your budget and then carefully let income decline.
     • This economic downturn is unlike any other in modern times. Mortgage defaults are increasing dramatically. For many small credit unions, one mortgage delinquency is a big event – today some are dealing with multiple delinquent and defaulting mortgages. Work carefully to develop a mortgage modification policy and guidelines to provide assistance to members during this economic downturn. Use creativity and care in providing options to members while being mindful of your credit union’s loan portfolio risk and ways to manage that risk for the best interests of the members and the credit union.
     • Use care pursuing new activities – don't “swing for the fences” in an attempt to increase or maintain earnings. And try to avoid big strategic changes in uncertain times. Prudence suggests new activities be pursued in a limited way.
     • Loan demand typically falls during economic downturns. Investments become increasingly important. Be conservative with investments and ensure that your current investment strategy is in sync with the rapidly changing market realities.
     • Be diligent with your asset liability management since market conditions are extremely volatile and your financials are vulnerable. If you haven’t done so yet, set policy parameters on fixed-rate mortgages, establishing a set percentage or dollar amount of fixed-rate long-term mortgages that you carry on your balance sheet.
     • Activities with outside, third-party vendors require extra care in uncertain times. Vendors often suffer in a down economy, so it is critical to keep close watch on their health. CUNA's Due Diligence Task Force has a guidebook, “Guide to Third-Party Vendor Management,” on the website. The guidebook contains advice and a sample policy. It is available free of charge on the CUNA website here: http://www.cuna.org/initiatives/due_diligence.html.
     • Tell people about your share insurance. Most, but not all, know that credit union deposits carry federal insurance. Make sure they do. Stress that your deposits are backed by the full faith and credit of the U.S. government – just like bank deposits.
     • Write down your plans and communicate your risk tolerance. Make sure regulators know that your credit union’s leaders have carefully considered where the credit union is headed financially and that they’ve mapped out a reasonable plan to deal with the uncertain future.

Most small credit unions now have strong balance sheets and near-record-high capital levels. The appropriate course of action for most, therefore, is to take a long view. This means letting the capital cushion do its work and temporarily letting net income fall as a result of the loan losses. It is imperative to avoid doing unnecessary harm to the credit union and its members that would result from trying to maintain net income in the current environment.

There are often opportunities for well­-positioned market participants in times of financial dislocation. Small credit unions, like their larger counterparts, should seek ways to show both members and non-members the unique and substantial benefits of their cooperative structure.

Prepared by CUNA’s Small Credit Union Committee [More ideas are below.]

 

CUNA Publishes Small CU Staff Salary Survey

When it comes to replacing a credit union CEO, small credit unions are more likely than credit unions overall to give internal applicants first preference, according to a CUNA salary survey.

According to the 2008-2009 Small Credit Union Staff Salary Survey, published by CUNA’s Center for Research and Advice, 48% of credit unions with $1 million to $35 million in assets give internal applicants first preference. An additional 40% of small credit unions post the job externally and internally at the same time, while only 9% give external applicants first preference. Credit unions overall are evenly split between giving internal applicants first preference and posting the job externally and internally at the same time.

In addition to base salaries and ranges, the report details the average incentives, bonuses, total cash compensation, and job descriptions for the 24 full-time positions most commonly found in small credit unions, along with hourly wage and variable pay data for eight part-time positions.

CUNA's 2008-2009 Small Credit Union Staff Salary Survey sells to credit unions for $89. For more information or to order a PDF file of the report online, visit CUNA’s website: http://buy.cuna.org/detail.php?sku=28107P.

 

The Board’s Role in Credit Union Mergers Is the Focus of Recent Filene Study

Board members discharge a number of essential duties at credit unions. None is more important than the role they take in the increasingly common credit union-to-credit union merger.

In the past two years, the following Delaware credit unions have merged: Delaware Department of Labor into Del-One; Delaware V.A. into DEXSTA FCU; Delpart into American Spirit FCU; Diamond State into Sussex County FCU; and Southern Delaware Postal Employees into Sussex County FCU.

The latest study from the Filene Research institute seeks to offer new insights into the credit union merger decision. The following are some of their high-level findings:

• Mergers seem to develop for one of two reasons: concerns about the long-term viability of the merging credit union (i.e., shrinking or stagnant membership, weakening financial condition) or the imminent departure of a longtime CEO;

• Two-thirds of the mergers discussed in this study are not a part of the organization’s long-range plan or predetermined strategic objectives;

• Potential merger partners are most likely to be identified through existing professional networks;

• In about 25% of cases, the board is not highly influential in the decision to merge;

• Most boards rely heavily on the CEO to oversee and manage the merger process; and

• Major issues discussed and decided by the board include making sure the merger is in the members’ best interests and ensuring the continued financial viability of the continuing credit union.

To learn more about this report, please go to www.filene.org (see the following article). The Delaware League also retains hard copies of the Filene reports in our lending library.

 

Filene Research Offers Special Access to Reports for Small, Mid-Sized CUs

Recent economic events have made us all more aware of the need for relevant and reliable information that will help consumers and credit unions as they chart their course in this uncertain environment. In response, the Filene Research Institute is promoting an offer to assist in disseminating its research to benefit smaller credit unions.

Filene will offer FREE online access to all credit unions under $5 million in assets and for a nominal fee of $99 to credit unions between $5 and $49 million. The $99 fee is a fraction of the cost for an annual membership. Membership will allow downloads of reports as they are released and enable these credit unions to access the entire research library.

It is critical that small credit unions be given the opportunity to experience the value of the Institute’s research and innovation first hand. So the Delaware League urges all eligible credit unions to take advantage of this fantastic opportunity.

 

Ideas, Suggestions, Options, Solutions!
Provided by Debra Cohn, Corporate Account Manager
Mid-Atlantic Corporate Federal Credit Union

Small credit unions are challenged in many ways. The pace of change at financial institutions is increasing with new service and technology advancements. As you know, internal resources in small credit unions are often limited and staff members must wear many hats.

More than ever, credit unions need creative, innovative, cost effective and timely ways to survive in today’s economy. The good news is that many small credit unions desire more and better services while remaining viable financial institutions. Fortunately, there are many low cost resources available to small credit unions to help them keep pace with the many changes in our industry. Here are a few ideas that may help your credit union make it through tomorrow, next week, next month, next year, and beyond.  I am sure you have thought of these ideas in the past, but sometimes seeing them again in print may spark a thought, suggestion or concept. 

Define Your Niche
It has been said many times: Know your membership and meet their specific needs. One of the most important aspects of the credit union movement is that credit unions know their members. Not all credit unions can be all things to all people. To succeed, you must find out what you do well, know whom you serve, and articulate that you are different from the other financial institutions in your area. Focus on what you do best and utilize the resources available through third parties.

Once your niche is defined, promote it. Ask yourself the following questions:

     1.  What are we doing to maintain our membership? 
     2.  Do our existing members know all that the credit union can do for them and the services we can offer them? 
     3.  What are we really selling and what are our members really buying from us?

Survey Your Members
The best way to find out what your members want is to ask them. Credit unions conduct surveys to discover answers to certain questions. These questions are diverse and vary widely depending on how you plan to apply the data and what data-driven decisions you will make as a result of the data acquired.

Surveying provides a “snapshot” of your target membership’s attitudes, perceptions, needs and wants. With this data you can formalize your future objectives, while meeting your members’ specific needs. You may find that the new program that sounded so good to your board of directors is not what your members are looking for. You may also find that there are services that are needed by your members that you did not think of.

Surveys can be conducted by mail, by phone and/or through the Internet. Sometimes there is an incentive for completion, such as a drawing for a gift card, a deposit to a share account, a choice of “credit union” prizes, or a special parking spot for a month. Creativity is the key in making a survey well received, completed and returned!

Today there are no easy answers to membership growth and credit union stability.  Finding your niche and surveying your members may just be the first steps to finding those answers.

 

If You Haven’t Tested Your Disaster Recovery Plan—It Isn’t Really a Plan

You will probably never find a convenient time to run a test of your credit union’s business continuity (aka “disaster recovery”) plan. The only thing you can know for sure is that the worst time to test the plan is during an actual crisis. In a May 2009 webinar, CUNA Mutual experts outlined three methods that credit unions can use to test business interruption plans:

1. Structured walk-through: This is a preliminary step in the overall testing process that can be an excellent training tool by itself. Involve all the employees who play critical roles in conducting your credit union’s business interruption procedures. Read through the plan together, step by step. Note any issues that arise during the walk-through and clarify them before moving on to the following simulations.

2. Technical “hot site”: Your plan should include procedures for running operations from alternate sites. The term “hot site” refers to a pre-determined facility where the credit union will have access to its data and the ability to conduct transactions. This is a demanding test to set up, but it provides critical hands-on experience. A hot site test should require employees to mobilize in the remote facility, establish communications with the necessary employees and vendors, and perform actual processing.

3. Disaster simulation: The most practical type of simulation may be the “table-top” format, where the exercise is conducted in a conference room or series of rooms, where employees can gather in functional groups. It generally takes two to four hours. You need a credible disaster scenario fully written, including a series of events that happen in timed segments. A facilitator explains the hypothetical events as they happen, and employees must carry out key elements of your business interruption plan. (Contact Alice Smith at the League office for more details about table-top simulations.)

Involve employees from every part of your operation – and your board of directors, if possible – in testing your business interruption plan. It helps if people from across the credit union have already been involved in creating the plan. Remember that not all employees may be available to work during an emergency, so if you put the business continuity planning in the hands of only one or two people, you’re at greater risk of a disorganized response.

Disaster Planning Experts Provide Guidance
A recording of CUNA Mutual’s webinar, “It’s Not a Plan If You’re Not Testing It,” is available for no charge to bond policyholders at cunamutual.com. You will need a log-in name and password to access this site: http://www.cunamutual.com/cmg/secured/mycunamutual/freeFormDetail/0,1248,17194,00.html

The webinar covers the material in this article and much more. It is led by CUNA Mutual’s Mike Retelle, chairman of the disaster response team; Glen Engle, business continuity coordinator; and Vince Wagner, risk manager and credit union protection expert.

Retelle, with more than 29 years of experience in handling disaster-related claims at credit unions, says that regulators require credit unions to have a business continuity plan and to test it – but that’s not good enough. “You have to ask yourself, ‘Do I have a plan that is going to succeed? Am I still going to be able to serve my members?’ Having a plan that simply meets the regulatory requirement isn’t really a plan,” he says.

Retelle recommends that CUNA Mutual policyholders take the free online risk assessment to learn more about the strengths and weaknesses of their credit unions’ risk exposures and insurance packages. The assessment can be found on CUNA Mutual’s website at https://www.cunamutual.com/cmg/secured/protresource/ssl/ProtectionResourceCenter/0,1582,3434,00.html

Insurance products offered to credit unions are underwritten by CUMIS Insurance Society, Inc., a member of the CUNA Mutual Group.

 

Clarion - Ocean CityVolunteer Leadership Conference Set for October 23-25 in Ocean City
Save the Date: CUNA CEO Dan Mica to Speak!

The Delaware Credit Union League and the MD/DC Credit Union Association will host the 13th Annual Volunteer Leadership Conference (VLC) October 23-25 at the Clarion Fontainebleau Hotel in Ocean City, MD.

The VLC offers another exceptional line-up this year with an opening session by CUNA CEO Dan Mica on Friday afternoon. On Saturday morning, NCUA Board member Gigi Hyland and Mid-Atlantic Corporate FCU President/CEO Jay Murray will update volunteers on the regulatory environment and the corporate stabilization program.

Saturday afternoon will feature break-out sessions: Attorney Chris Pippett on board governance, CUNA Mutual Group vice president of sales Troy Mooney on changes to the CUNA Mutual bond, and the 2009-2010 Environmental Scan review by Delaware League president Pat Mahaney. For credit union board members who need to complete NCUA’s required annual Bank Secrecy Act training, MDDCCUA director of compliance Andre Lucas will host a session, and certificates will be awarded.

There will be an optional supervisory committee track, which will feature two sessions: Attorney Chris Pippett on due diligence and CUNA senior vice president Kathy Thompson on compliance issues. Marketer Becky McCrary will keynote the final session on Sunday morning.

Invitations for the event soon will be available. Small credit unions under $20M in assets are encouraged to apply for a VLC registration scholarship by contacting Alice Smith at the League office.


clip3Essentials is published periodically by:
The Delaware Credit Union League
4 Quigley Boulevard           
New Castle, DE  19720
                 (302) 322-9341 or (800) 292-7875
                 Fax: (302) 322-9354
                 Editor: Alice Smith, E-mail: alice@dcul.org