Q4 Director's Resource

Director’s Resource League of Southeastern Credit Unions

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December 2011 | Vol. 1, Issue No. 4

President’s Message As we close 2011 and look ahead to 2012, it’s important to think about what we collectively accomplished this past year and how we can serve our members even better next year. We saw glimpses of economic recovery with Alabama and Florida credit unions seeing a significant rise in membership and deposits in the third quarter.

We hope 2012 brings increased loan demand. With the buzz from our $1.3 million Statewide Cooperative Brand Campaign, the backlash from bank fees and Bank Transfer Day, the awareness of credit unions as an alternative to banks may be at an all-time high. When the fourth-quarter Call Report data comes out, it will be interesting to see the true impact of these activities. I hope all of your credit unions will consider contributing to our spring 2012 image campaign.

This edition of the Director’s Resource looks at how credit unions should adopt a robust risk assessment process.

This process will form the building blocks for an enterprise risk management process, which is becoming increasingly important due to increased regulatory requirements.

I hope you will consider coming to Tallahassee Jan. 24-25 for the Florida State Governmental Affairs Conference (GAC). We have two bills filed in Florida to make state chartered credit unions qualified public depositories. When we meet with our lawmakers during the State GAC, it’s important that we have a strong turnout to show them that this issue matters to us. Our Alabama State GAC will be April 4-5, 2012, in Montgomery.

Thank you for your continued support and affiliation with the LSCU this past year. Happy New Year!

10 Fundamental Good Practices for Credit Union Boards As the pace of change accelerates, certain good practices remain constant. Credit union boards can be in a strong position to deal with the next big thing if they: 1. Select the right president. Take your time. Adopt a purposeful step-by-step process and learn from institutions just like yours that have balanced success with a lot of missteps.

2. Select the right board chair. Don’t automatically choose the most popular, the longest serving and hardest working, or the one who has campaigned vigorously for the position.

Choose a chair that understands the credit union’s mission, goals, and long-term vision.

3. Empower the nominations committee. Make its members work. Insist that it thoughtfully and analytically develop a master plan for board composition.

4. Insist on a strategic vision. This is the glue that holds together the system of governance. Without it, the work of the board is disconnected, lacks forward thrust, and drifts from the unimportant to the innocuous.

5. Set goals and assess performance of senior management. These are the short-term steps that must be achieved this year so that the strategic plan becomes operating reality. The credit union leaders must adopt these goals and objectives so that they serve as benchmarks for the assessment of their personal performance.

Save the Date Florida State GAC January 24-25, 2012 Tuesday – Wednesday Hotel Duval - Tallahassee, FL Click here for more information CUNA GAC March 18-22, 2012 Washington, D.C. Washington Convention Center Click here for more information Alabama State GAC April 4-5, 2012 Wednesday – Thursday Renaissance Montgomery Hotel & Spa Click here for more information SE Director’s Conference July 15-18, 2012 Sunday – Wednesday Sheraton Norfolk Waterside Hotel - Norfolk, VA Click here for more information

6. Understand and monitor enterprise risk policy. Why single out this policy among the others? Because if you work hard at enterprise risk policy—typically the most difficult of all board oversight functions—and get it right, much of the rest will fall into place.

7. Develop future board leaders. In other words, don’t keep the same board and committee chairs year after year. It blocks innovation and suppresses opportunities for talented new leaders to blossom.

8. Structure the board strategically. Align the work of the board with the strategic plan and the annual goals and objectives derived from the plan. The missions or charges for the board’s standing committees should mirror the credit union’s primary strategic drives.

9. Embrace board education. Directors need exposure to evolving best practices as they are developed, tested, and implemented by peer institutions. Take advantage of the educational offerings provided by the League and CUNA— cost-effective, relevant training through workshops, conferences, and webinars.

10. Make board membership enjoyable. The best boards weave a social schedule in and around the board’s business agenda so that directors really do get to know one another; mutual respect, loyalties, and friendships—as well as board cohesion—will follow.

MBL Remains Top Issue for League in Washington Member Business Lending (MBL) continues to be the League’s major focus in Washington, D.C. The first co-sponsor from Alabama signed on just before Christmas. Rep. Jo Bonner (R-AL) joins Reps. Frederica Wilson (D-FL) and Corrine Brown (D-FL) as new co-sponsors in December. The LSCU delegation now has 11 co-sponsors for H.R. 1418. Sen. Bill Nelson (D-FL) is a co-sponsor of S. 509, a similar bill to raise the MBL cap from 12.25 percent of assets to 27.5 percent.

In early December, the League went to Washington and met with the Alabama and Florida delegation. MBL was the main topic of the meetings with those members who have not cosponsored either MBL bill. The League has been focused on educating legislators on MBLs and focusing on trying to attach the MBL bill to the omnibus appropriations bill or moving it in concert with community bank legislation pending in the Senate.

During meetings with non-MBL co-sponsors, the League was very clear that it opposes any support for or movement of continued legislative improvements for banks without comparable support and movement of MBL for credit unions.

While the League was not able to attach the MBL bill to the omnibus appropriations bill, the good news is that the bankers were not able to advance their priorities through the appropriations process either. The League has put increased pressure on the Senate Banking Committee to scrutinize the legislation for which they are advocating. In response to the

2012 Cooperative Brand Campaign Update The 2012 Cooperative Brand Campaign will run this spring. Since it is a presidential election year, another fall campaign would be too expensive. Plus, awareness of credit unions has never been higher. This will help keep the momentum.

The $1.3 million 2011 campaign saw 65,000 consumers visit www.betternameforbanking.com and learn more about credit unions. This helped Alabama and Florida credit unions add 48,000 new members in the third quarter. The average for the first two quarters has been 20,000. Campaign research also shows that when a consumer saw an ad they had a greater understanding of the credit union difference.

One hundred credit unions took part in the campaign last year. In just a few weeks of fundraising, eight new credit unions have paid into the 2012 campaign. The League will produce a new TV ad for the 2012 campaign giving markets two commercials. Credit unions will hear more about the 2012 campaign in January.

For information on the campaign, contact LSCU VP, Marketing and Communications Mike Bridges at 866.231.0545 ext. 1022.

2011 Development Conference Wrap-up More than 300 credit union CEOs, executives, and volunteers attended the 2011LSCU Development Conference in Point Clear, AL Nov. 2-4. The level of speakers and educational breakout sessions rival nearly any state league annual meeting. The General Opening session featured LSCU President/CEO Patrick La Pine, NCUA Region III Director Herb Yolles, and Children’s Miracle Network Chief Concept Officer Craig Sorensen.

The General Closing session featured CUNA President/ CEO Bill Cheney, while Assistant Director of the Consumer Financial Protection Bureau (CFPB) Elizabeth Vale spoke at the at the LSCU Governmental Affairs luncheon.

Credit unions were provided five hours of exhibit hall time. The conference kicked off with a golf tournament to benefit the Children’s Miracle Network with more than $6,000 being raised.

Make plans to attend the 2012 Development Conference Nov. 7-9, 2012 in Point Clear, AL.

concerns that the League raised, two hearings were held on the various bank bills.

The League will have a greater presence in Washington next year as the Governmental Affairs staff and President/CEO Patrick La Pine will make more trips to meet with the LSCU federal delegation, which is the second largest in the country.

The League has also contracted the services of former NCUA Director of Public and Congressional Affairs John McKechnie to meet regularly with the federal delegation and the NCUA. McKechnie will provide a wealth of experience and knowledge for our Alabama and Florida credit unions.

For more information on MBL, click here.

2012 State Legislative Session Preview, Focus for League The 2012 Florida Legislative Session will begin early this upcoming year as the Legislature is charged with drafting new maps for both legislative districts and congressional districts.

The session will begin on Jan. 10, 2012 and is scheduled to conclude on March 9, 2012.

The two major issues the legislature will deal with this year are redistricting and, as always, the budget.

The League’s top priority this year is to once again attempt to pass legislation that would allow credit unions to become qualified public depositories. While last year’s bill was heard and passed out of one House committee, it died without receiving a vote on either the floor of the House or the Senate. This year, the House bill, HB 669, has been filed in the House by Rep. Jason Brodeur (R-Sandord) while the Senate bill, SB 936, was filed by Sen. Chris Smith (D-Ft. Lauderdale).

The 2012 Alabama Legislative Session begins on Feb. 7, 2012, and the state’s two budgets are still dominating the discussions about what will be the focus as legislators return to Montgomery.

Rep. Jim Barton (R-Mobile) is the House Ways and Means General Fund Committee Chairman and at this point he is not ruling anything out as a fix to Alabama’s continuing budget shortfalls.

LSCU Governmental Affairs team has had several conversations with legislative leaders and staff in Alabama over the past few weeks and all are saying that the original plans to address state house and senate redistricting during the 2012 Legislative Session have been scratched and moved to 2013.

As in Florida, the League’s top priority will be our own legislation to allow credit unions to serve as public depositories.

We have held a number of meetings with leaders in the House and Senate, and have laid the groundwork for the introduction of the bill. As in Florida, we expect this to be a tough fight with the banks digging in their heels, but this is an important issue of fundamental fairness to credit unions and to agencies that wish to utilize credit union services.

In Washington, the League continues to build support for federal legislative issues, such as member business lending (see MBL article above).

Volunteer Spotlight Each quarter the Director’s Resource features a volunteer or volunteers talking about serving on a board of directors, the role of the board, or a hot credit union issue. In this edition, Jimmy Johnson from Coosa Pines CU talks about the importance of attending League conferences and having credit union leadership stay involved with relevant credit union issues. Also, Annette Barwick from Suncoast Schools FCU discusses why staying active in political advocacy is essential.

Jimmy Johnson, Coosa Pines CU Q: Why should credit union CEOs, executives, and board members attend LSCU conferences such as the AC&E, State GACs, or Development Conference?

“You do not want your credit union leadership being run by folks that are not aware of what’s going on. Every conference you pick up some very important details.

People only absorb a certain amount, and some things get by them. It’s very important that your board members and your executives attend these conferences because, it’s not only communications between credit unions in your area, it’s a nationwide outlook that gives you a very good insight and creates a forward thinking attitude for aggressive board members and executives.”

Annette Barwick, Suncoast Schools FCU Q: Suncoast’s board is very active in the political advocacy of credit unions. You played a big part in making the trip to Washington D.C. a budget line item for the board. From a director’s point of view, why is it so important to be involved?

“For a number of years, I have said because of our size, Suncoast has a duty to be as representative and supportive as we can of national organizations and national movements so that we are assisting all credit unions and the movement. Some smaller credit unions can not participate. We can. We must. My first time I attended the GAC (CUNA Governmental Affairs Conference), I was totally impressed with the access to high-level officials that we wouldn’t have had otherwise.

I feel that the opportunity to hear an upper-level— highest possible level—update on what the national picture looks like is critical to how we run our credit union and the kinds of decisions we make. I thought all our board needed the opportunity to hear that and have that experience. We now approve all board members to attend the GAC if their schedule permits. There’s no place else you really get the overview and briefing at a national prospective as you do there.

It is important to be involved in political advocacy, not for just our credit union but, for the whole credit union community and to preserve the philosophy of credit unions.”

Be sure to monitor communications from the League as legislative issues continue to develop around both sessions.

Action Alerts will most likely be activated during the Florida and Alabama sessions around the public deposits issue. Your credit union’s participation in the Action Alerts makes a difference with lawmakers as they see how this issue affects local credit unions. Plus, you can pass along any individual stories you have of public entities inquiring about depositing money with your credit union.

Credit Unions Urged to Adopt Robust Risk Assessment Process Boards of directors have the responsibility to ensure their credit unions implement a formal risk assessment process to identify, measure and control risks that threaten their institution’s net worth and earnings, says CUNA Mutual Group Senior Risk Management Consultant Ann Davidson.

Any product, service, or process may expose a credit union to multiple risks. Internal risks include employee theft and employment practices liability resulting from discrimination, harassment, or a hostile working environment. External risks range from physical threats, such as robbery and natural disasters, to ACH fraud, data breaches, and identity theft.

Risk assessments should answer these questions: What can go wrong? How can it go wrong? What is the potential impact? What preventative measures can be taken? And how can it be stopped from happening again or at all? “It’s the board’s responsibility to determine their credit union’s risk tolerance and formally establish it through approved policies,” Davidson said.

A robust risk assessment process forms the foundation for an enterprise risk management process, which is becoming increasingly important due to increased regulatory requirements. For example, the Federal Financial Institutions Examination Council (FFIEC) issued new online authentication guidance in June that stresses and reinforces the importance of performing periodic risk assessments. Examiners will start reviewing credit union controls under the updated guidance beginning in January 2012.

CUNA Announces School for Non-Financial Managers & Volunteers in Orlando, FL Registration and school information is now available for the upcoming 2012 CUNA CU Finance for Non-Financial Managers & Volunteers School, April 22 – 25 in Orlando, Florida.

CUNA CU Finance for Non-Financial Managers & Volunteers School is tailored specifically for credit union managers and volunteers wishing to set a broad foundation on the essentials of credit union finance. From accounting 101 to complex asset-liability strategies, attendees will gain a working knowledge of their credit union’s financials and become a better asset to their credit union members. The annual program attracts managers and directors with a wide range of professional backgrounds and experience levels.

By attending this school and successfully completing the on-site exam, directors will earn their CUNA Board Financial Literacy Certificate, which ensures compliance with the NCUA requirement of board members to prove their financial literacy. In addition, by completing the optional exam, board members and volunteers attending the school will also earn six credits toward the Certified Credit Union Volunteer (CCUV) designation.

Attendees will hear from Tim Harrington, CPA and president of T.E.A.M. Resources, on the following topics: The basics of finance and how it affects your credit union, the benefits of a balanced budget, how to read financial statements and analyze the nuances between the numbers, the relationship between risk and interest rates, what asset-liability is and why it is important to your credit union, and more.

For more information, click here.

Risk assessments are not “one and done” activities nor is there a “one size fits all” approach to completing them. Rather, assessments involve a continuous process comprised of four distinct activities: identifying, analyzing, controlling, and monitoring risks.

“Risk can never be entirely eliminated, but using risk assessments as part of an enterprise-wide risk management strategy will help credit unions continue to provide meaningful products and services to members while including necessary safeguards to protect the credit union,” Davidson added.

The 2012 LSCU Supervisory Conference will be held Aug. 5-9 in Destin, FL. Many subjects like the risk assessment process are covered at the conference.

To receive the latest news from the LSCU, CUNA, and the NCUA sign up for the League’s weekly newsletter, eSignal, at www.lscu.coop. Director’s Resource publisher – Joseph Davis (joseph.davis@lscu.coop)