Summer 2011
OVERCOMING THE BRAND CHASM
Contents
Winner of the CUNA Marketing & Business Development Council's 2007 Diamond Award. Texas Credit Union League EDITORIAL Managing Editor Linda Webb-Mañon Contributing Writers Allison Griffin Barri Hamilton Karen Houston-Johnson Kim Jones Mark Arnold Steve Gibbs Susan Looney Suzanne Yashewski ADVERTISING Advertising Sales Director & Account Executive Tracy Florida BUSINESS Chief Operations Officer Bob Gallman Subscription Coordinator Linda Webb-Mañon HOW TO REACH US 4455 LBJ Freeway, Suite 1100 Farmers Branch, TX 75244-5998 e-mail: lwebb-manon@tcul.coop Web site: www.tcul.coop Main Office: (469) 385-6400 (800) 442-5762, Ext. 6400 Editorial: (469) 385-6486 Advertising Sales: (469) 385-6424 Advertising Design: (469) 385-6473 Subscriptions: (469) 385-6486 Letters to the Editor: lwebb-manon@tcul.coop LoneStar Perspectives is a quarterly publication of the Texas Credit Union League (TCUL) and is offered to TCUL–affiliated credit unions as a dues-supported service. If you are not an employee or volunteer of a League- affiliated credit union and would like to sub scribe to this publication, an annual subscription rate of $20 is available. LoneStar Perspectives is a trademark used herein under license. Copyright 2006 by Texas Credit Union League. All rights reserved.
WES Publishing 310 East Interstate 30, Ste. B107 Garland, TX 75043 469-429-9300 Publisher William Strunk Associate Publisher Saundra S. Brown Graphic Designer Marlina Rahman
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14 FEATURE 16
Overcoming the Brand Chasm
by Mark Arnold
DEPARTMENTS 2
President’s Message
Exciting Future Awaits Us, by Dick Ensweiler
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Chairman’s Forum
Collaborating for Innovation, by Pamela Stephens
5 News
Five Barriers to Lending Growth, by Michael Roark Against the Odds…, by Linda Webb-Mañon Influencing the Regulatory Process is Critical, by Winter Prosapio
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Professional Development
Social Media vs. Traditional Media: Competing or Complementary Channels?, by Allison Griffin Making Time for Professional Development, by Tonya Farmer
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Regulatory & Compliance
Defending Against Ever-Evolving Security Threats, by Idrees Rafiq You May be Richer than You Think, Regulatory Q&A with TCUL Information Central
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Philosophy in Action
Member Surveys Arm CUs with Valuable Insights in Competitive Market, by Doug Foister CEO Succession…It’s Not a Matter of If, But When, by Karen Houston-Johnson History on the Horizon, by Allison Griffin
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HR Corner
Motivating Employees with Incentives, by Susan Looney HR Q&A, by Kim Jones
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Small Credit Unions
Best Practice: Success in Lending, by Dale Hansard Getting to know all about... Eugenia Arington
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Products & Services
Texas Legislature Mandates Electronic Lien and Titles, by Robert Christini Like the Boy Scout Motto says, be Prepared!, by Tom Hodge
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PresidentMessage
By Dick Ensweiller President/CEO Texas Credit Union League
Exciting Future Awaits Us
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here is a great deal happening at the Texas Credit Union League these days! You might recall in my membership address at our Annual Meeting in Austin that I outlined several of our strategic goals and objectives. I also assured you that your League will continue to think ahead and focus on the future in all that we do. And we are. One of our strategic goals is to improve the way we communicate with you, and I can assure you that your League is committed to following through on this objective. Our web site continues to undergo enhancements, and we continue to evaluate and explore options for improving our overall communications infrastructure. With the click of a mouse, we strive to provide you with the news, information, tools and services you need. If you haven’t been to our web site lately, I encourage you to visit the Research & Statistics page and check out the Tools & Services section. There you will see that RateWatch has been added. This is a great feature that allows you to monitor rates in your local market. It’s quick, easy to use and best of all, it’s free! Our LoneStar Leaguer has also undergone a facelift. We realize how extremely busy you are keeping up with the day-to-day operations of your credit union and you don’t always have time to read through a lengthy publication, so we’re simply sending you the day’s headlines with a link that will take you directly to the article when you do have time to read. Providers of financial products and services must operate today under increased scrutiny and heightened
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regulations. Navigating through this compliance maze can be daunting. Your League is here to help. Last month you should have received a free DVD training module on “Understanding Financials.” Featuring our very own Debbie Rightmire, this comprehensive training program is designed to meet the board education requirement outlined by the National Credit Union Administration (NCUA). In the fall, we will offer a second free DVD training module, “Understanding Fiduciary Responsibility,” featuring Jack Blachly, our vice president and general counsel. On the legislative front, lawmakers have kept us on our toes! I can assure you that our Advocacy team has been in the trenches protecting our posture in the market space. Just last month, our Advocacy team led some 30 credit union leaders to D.C. for Hike the Hill. In addition to visiting with lawmakers, we also had the opportunity to visit the U.S. Treasury Department where we engaged in dialogue with Felton Booker, the Acting Under Secretary for Financial Institutions. This was the perfect forum to again state our position on interchange and supplemental capital. Hike the Hill also provided us the opportunity to sit down with NCUA board member Gigi Hyland and her policy advisor, Gary Kohn. It was a reunion well received by all parties. We have an exciting future ahead of us, and as always, your commitment and support of the League is greatly appreciated! Together we can respond and adapt to the challenges and opportunities that await us.
Chairman'sForum
By Pamela Stephens President and CEO Security One FCU
Coollaborating for Innovation
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s the environment in which we operate becomes increasingly competitive, I believe cooperation and collaboration will be more important than ever for our Texas credit unions. Your League is committed to fostering cooperation and collaboration in the credit union movement. Why? Because we believe that ongoing cooperation and collaboration are critical for growing business, improving operational efficiencies, widening the pool of innovative ideas, and developing talent within our movement. The League’s Task Force for Innovation & Collaboration is exploring new opportunities for collaboration – ways in which we can cooperate to innovate. We’re talking about working together to reinvigorate how we operate on a day-to-day basis. Harnessing the vast knowledge and expertise that exist within our movement will enable our credit unions to execute the right ideas, develop pioneering solutions to enhance the lives of our members at every life-stage, and tap into new, untouched markets. In May, our task force of which I chair met to re-assess current collaborative efforts and brainstorm about other opportunities we aren’t yet seizing. In this meeting, we reviewed findings from the recent Innovation & Collaboration study conducted by our League’s Research department. Do you know what we learned? Credit unions across all asset sizes and operational complexities see the value in collaboration. Health insurance (medical and dental), vendor due diligence, ATM servicing and networking, and regulation, compliance and fraud management are but a few of the areas you told us you see as opportunities for cooperation and collaboration. Post economic recession, we are operating in a new reality. Never have we been under more pressure to consistently provide the products and services that our members want, when and where they want them. Collaboration can help us better meet this demand. The League also has embraced this spirit in our efforts to serve your needs. We have already formed several key partnerships to share resources and costs associated with providing you with quality training programs, as well as a variety of products and services that will help you improve operational efficiencies. We see even more potential for collaboration and we will continue to explore these opportunities. In closing, I would just like to reiterate how strongly I believe that the cornerstone of our success will be our ability to cooperate and collaborate. Please continue to share your thoughts, ideas and best practices so we – as Texas credit unions – can continue to fulfill our mission of “people helping people.”
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News
By Michael Roark Chief Lending Officer Resource One CU
Five Barriers to Lending Growth
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xternal factors, like growing regulatory controls and changes in consumer attitudes regarding borrowing, will force credit unions to adapt their lending programs. But don’t let internal factors negatively impact the growth of your loan portfolio. I see five major internal barriers to lending growth. Policies It is absolutely necessary to have adequate policies in place to protect the safety and soundness of the credit union. However, this is one area that more is not better. Some points to remember when you are reviewing your policies are: • Make sure you have the required elements, but don’t add more because you think more is better. • Leave yourself the ability to make exceptions. Exception loans are recognized. Loan requests that fall outside your policy can be approved provided you document, verify and justify the reason for the exception. • Keep procedures out of policy. Procedures This is where all the ratios and documentation show up. Let’s take a look at a few: • Ratios – Total Debt Ratio which can always be manipulated using rate, term or some other “creative” finance plan. Instead, how much money does your member have left over each month to pay you? Loan to Value (LTV), as it relates to procedures, is another. Many car loans are lost to the dealership because of LTV caps. Ask yourself, “What am I trying to accomplish by using LTV?” If you are trying to strengthen a marginal deal, ask for cash down; which is not the same thing as LTV. • Document, and/or pay off, negative items on the credit bureau. A thicker file doesn’t increase the probability of repayment and those other creditors won’t thank you for collecting their charge offs for free. • New Members can’t apply for a loan until they have been a member for 90 days. If you have a community charter, this one is deadly. Pricing I’m not talking about your actual rates. Many credit unions are risk based priced. However, some credit unions never took the next step to become a risk based lender. Look at the percentage of your portfolio in D and E paper. If that
percentage is increasing towards a reasonable amount, then you are a risk based lender. Your delinquency and charge offs may increase but if earnings are increasing proportionately, don’t worry. Processes I look at processes as what a member must do to apply for the loan. In the world of five second approvals and electronic signatures, you absolutely must streamline your processes. Some common hindering processes I see are: • Too many employees involved in the loan application and approval process. I’m not talking about the number of employees accepting and decisioning loan applications; but rather the number of employees that “touch” the application throughout the process. The fewer the better. • Too much paperwork involved. If it’s not absolutely necessary, get rid of it. If it is necessary, shorten it. Perceptions This is where the people factor comes in. Do your underwriters believe that good credit is an approval and bad credit is a decline? Over the past three years, members have had some unfortunate financial events occur. It is up to us, as lenders, to talk with our members to determine if their circumstances match what is going on in the credit bureau. Some other perceptions are: • “Young people don’t have a good sense of financial responsibility and therefore won’t repay their loans.” • “I wouldn’t borrow for that purpose so no one else should either.” Don’t tailor your loan offerings around what you think is best. All members are different. • “If I approve that loan, it might go delinquent.” Our purpose is to manage risk, not avoid it. Summary Lending is an art, not a science. Software packages can be purchased that will decision an application based on credit scores and ratios. If you attempt to turn lending into a science, you end up with a one size fits all lending program. Remember, each member is different. By limiting the adverse impact of your internal barriers, you can offer lending solutions to your members that are as unique as they are and grow your loan portfolios in the process.
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News
Against the Odds CU Executive Rolls-up Her Sleeves, Turns Things Around at My Community FCU
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hen Donna Neal walked through the doors of Midland-based My Community FCU a year and a half ago, she found an organization in dire straits. With an NCUA CAMEL rating of 4, the credit union was drowning in bad loans. According to Neal, charge-offs in 2009 totaled $6.8 million. An undeterred and unafraid Neal was confident she could devise a plan to turn things around. “Quite honestly, I didn’t see anything at My Community that I hadn’t tackled before,” says Neal. “I was aware of most of the issues going in and was pretty certain that once I started digging, I would discover even more issues. But I also knew that the financial health of this credit union could be restored.” Neal was a familiar face in the credit union movement. She served some 13 years at Community CU (now ViewPoint Bank). During her career at the Plano-based former credit union, Neal held several positions of varying responsibilities, including chief lending officer/chief credit officer. Among her many accomplishments at Community CU, Neal was able to increase mortgage lending production by 10 percent in the first 90 days, reduce operational expenses in her areas of responsibility by 30 percent, and reduce the abandonment rate in loan services from 8 to 4.44 percent. She was confident in her ability to make positive changes at My Community FCU, as well. Neal took over as CEO of My Community FCU in February 2010 and went right to work. After offering her initial recommendations to the Board of Directors, Neal said she fully expected pushback, not only from the board, but also from staff.
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For the most part, however, Neal says the board and staff were excited to move forward with the rebuilding of My Community FCU. “I think everyone had a pretty clear idea of just how dire the situation was and that it would take everyone working together to turn things around,” she explains. “With that said, the first order of business was clear: stop the bleeding.” One of the biggest problems, according to Neal, was a lack of oversight and due diligence. Specifically, Neal says that the credit union had not been making any distinction between prime and subprime lending, in terms of collections. “Although they were pricing these loans appropriately, when it came to collections, they treated them the same, not realizing that you have to have different procedures and practices for each,” she says. “When a payment is not received on time, for example, a subprime borrower should be called much earlier than a prime borrower.” That has since changed, of course. Neal quickly put in place solid policies and practices, as well as a strong team of people. She brought in a mortgage lending manager, an indirect lending manager, and a direct lending manager. As a result of these and other changes, the credit union’s capital ratio improved from 8.01 percent to 10.1 percent rather quickly. However, the credit union’s problems ran deep. Within a few weeks of her arrival, the National Credit Union Administration (NCUA) was scheduled to pay a visit to the credit union. Having been assigned to the “Special Actions” department of the regulatory agency before Neal came on board, My Community FCU was to be audited on a monthly basis.
By Linda Webb-Mañon, I-CUDE Vice President, PR & Communications Texas Credit Union League
With time not on her side, Neal rolled up her sleeves and went to work. She reviewed all outstanding audit issues and outstanding document of resolutions (DOR) items. She also interviewed all of her direct reports individually to gain a better understanding of their knowledge and the skills they had to offer. With the input and support of her executive management team, they were able to resolve many of the issues related to the DOR items. As a result of those initial efforts, the NCUA adjusted the credit union’s CAMEL rating to 3 on their first visit. They also placed the credit union back on regular status, which meant the credit union was no longer subject to monthly visits. When the NCUA conducts its next exam in September, Neal fully expects the credit union’s CAMEL rating to be adjusted to a 2. Of course the rebuilding of My Community FCU had only just begun. With the DOR items behind them, Neal said she turned her attention building a stronger foundation. “Leadership and a well-trained, highly capable staff are the pillars of an organization’s strength,” Neal Stated. “If you have these two in place you can build effective policies, procedures and practices.” Unfortunately, My Community FCU had not heavily invested in staff development. That quickly changed when Neal came in. “No question, the credit union staff was dedicated and invested in the success of the organization, but some of them hadn’t received the training they needed and others were just in the wrong position,” notes Neal. “Fortunately, we were able to provide appropriate training and match staff members with jobs more suited to their experience and skill set. As a result, many are performing stronger than ever and others have been promoted.” To ensure staff is equipped with the tools and resources to succeed, Neal brought in a full-time training director, whose primary responsibility is to coordinate the development and implementation of online training. Neal says the staff and directors now are required to complete five training programs a year, tailored to their specific job. Additionally, all managers are required to learn the National Endowment for Financial Education (NEFE) High School Financial Planning Program so they are better informed to work with members who might be struggling to meet their financial obligations. “I truly believe that our staff was totally dedicated to the credit union and motivated to do the right thing, but just didn’t know what was the right thing,” observes Neal. “Providing them training and development empowers them to make the right decision.” The bottom line, according to Neal, is that the issues at My Community FCU easily could have been prevented with proper oversight, consistent policies and procedures, quality training and better communication. However, Neal prefers not to focus on the past, but instead take the lessons learned to forge a brighter tomorrow. “We have great plans for the future of My Community FCU,” says Neal. “Our team will continue to build on the processes and efficiencies and seek out growth opportunities, including expanding our presence in the Odessa area in the very near future.” “The hard work is behind us and now the fun stuff begins,” continues Neal. “Expanding products, services, locations, resources for our membership, and perhaps most importantly, continuing to invest in our most important asset – our staff – so that we can serve our members and the community with greater confidence.”
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News
By Winter Prosapio Vice President, Public Affairs Texas Credit Union League
Influencing the Regulatory Process is Critical
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rom the moment we reach out to potential member to the day they make their final payment on their loan, our interactions are governed by regulations. When a member walks in the door, they see a sign from the NCUA about deposit insurance. When they open their statement they encounter information dictated by law. And when they review their debit card, they read disclosures required by law. As credit union professionals, the first regulations that come to mind are those stemming from the NCUA or the Texas Credit Union Department. While those agencies provide the bulk of the regulatory framework under which we operate, credit unions must also be mindful of the requirements from other agencies including the Federal Reserve, the Internal Revenue Service, and the Department of Defense, to name a few. With the passage of the Dodd Frank Act, the single largest re-write of financial service law since the Great Depression, one more agency is being added to the mix - the Consumer Financial Protection Bureau (CFPB). Already the Bureau, known by its acronym CFPB, has rolled out proposed changes to mortgage documents. While the changes are
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an attempt to “simplify” the disclosures to borrowers, it represents another wave of regulations to keep up with. Fortunately regulations are not created in a vacuum. Regulators reach out and request comment on proposed regulations regularly. Take the example of the above mentioned changes to mortgage documents. Credit unions around the country are reviewing the options and recommending changes to the CFPB. As professionals in the financial sector with a keen eye on what will help our members, regulators like those at the CFPB know that we have a key understanding of unintended consequences of regulatory changes. Over the last year credit union professionals have gotten more engaged in the regulatory process. They have submitted thousands of comments on regulations, working to shape the interpretation of the laws that dictate elements of our relationships with members. It’s a positive trend that will curb the number of unintended consequences and burdens on both credit unions and our members. For more information on how you can get engaged in influencing regulations affecting your credit union, visit the compliance section of TCUL’s website at www.tcul.coop.
ProfessionalDevelopment
By Allison Griffin President Griffin Strategies, Inc.
Social Media vs. Traditional Media: Competing or Complementary Channels?
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emember when Americans got their news from the morning paper, a crackling radio report, or Walter Cronkite’s familiar face on the TV set? Back then, Americans got most of their information straight from the mouths of the well-respected news media. Fast forward a few decades. How do you get your information? Are you more likely to get the scoop from a newspaper or the nightly news, or do you hear it hours earlier from someone’s post on Facebook or Twitter? - For a growing number of Americans, the answer is the latter. The world of communication is changing rapidly, thrusting credit union marketing and PR professionals into a quandary: do we keep reaching out to people in the traditional ways or do we move to an entirely new approach? - The answer? Both.
The Communicator’s Quandary: Part II Interestingly, the Pew study found a significant difference in how news topics gleaned attention in traditional media vs. social media … and even within the social media category itself. Whereas traditional media invest more time covering politics and government, health and medicine, and the economy, Twitter users tend to post more stories related to technology. YouTube viewers share a lot of videos about foreign events, while blogs focus on stories that elicit emotion or involve individual or group rights. In other words, the same news stories did not garner the same amount of attention across the various news channels. So how do you tell your credit union’s story in all these different media channels?
More Americans rely on digital news sources According to a 2010 Pew survey, 61 percent of Americans seek out news online, and three-quarters said they get news forwarded via email or posts on social network sites. Meanwhile, a 2010 Gallup poll found that only one in four Americans said they have “a lot of confidence” in the mainstream media. Perhaps most compelling to communicators, 37 percent of the Pew respondents said they themselves have reported news, commented on an online story or shared stories on social media sites. The news experience has changed from a one-way delivery of information by journalists to an increasingly interactive information-sharing experience. In other words, your members don’t want to be talked “to,” they want to be talked “with.” Or at least most of your members.
Tailoring the Credit Union Story As credit union communicators, the job of figuring out where and how to tell your story is an art that requires creativity and experimentation: 1. Seek traditional media coverage for your credit union’s story. Remember, the more self-serving your story, the less likely it is to garner coverage. Focus on stories about how your credit union is helping real people, particularly a struggling family or a group of children. 2. Identify bloggers with an interest in consumer or education news. They tend to cover those topics twice as often as traditional media, and you also may gain more traction if you position your story as part of a larger trend. 3. Talk technology for Twitter. Share news about consumer-friendly tech updates or tips to help people protect themselves from cyber criminals, for example. 4. Turn on the creativity for YouTube. Show how your credit union serves people from all walks with a “day in the life of a teller” video. Or create a financial literacy video with some of the cute children your team is educating. (Be sure you have the right permissions and security guidelines in place, of course!) 5. Cross-promote your news on Facebook or use it to offer interactive challenges to drive your members to your website or the nearest branch. In today’s rapidly-changing environment, credit unions have more opportunities to tell their story. Measure your results and don’t be afraid to experiment. Invest time to identify your target media, tailor your approach and push out your story in tandem among the various media channels to connect the credit union story to those who ought to be members.
The Communicator’s Quandary: Part I With limited resources of both time and money, is it possible to strike a balance between traditional media and new media? - Absolutely. Though traditional outlets are losing ground to social media news delivery, Pew did find something very compelling. Some 80 percent of all social media links originate with traditional media sources. Journalists continue to serve as the backbone of news, which means they cannot and should not be ignored. Credit unions must continue to pursue traditional media to help tell your compelling story about the first-generation college student helped by the credit union’s financial literacy program because it is likely to spread far beyond the original media outlet where it appeared. And of course, you’ll also gain appreciation for the credit union story among all the Texans who still love their favorite news anchors and the feeling of a newspaper in their hands.
Allison Griffin is the president of communications consulting firm, Griffin Strategies, Inc., and a co-founder of SocialRise, a social media strategy and software firm. Learn more at www.griffinstrategies.com.
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By Tonya Farmer Vice President, Training & Education Texas Credit Union League
ProfessionalDevelopment
Making Time for Professional Development
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e’ve all heard, and probably used at one time or another, “there’s just not enough hours in a day.” Life/work balance can be a struggle for all of us, and I myself have been guilty in the past of putting off professional development opportunities due to time constraints. The challenges associated with “making time” to attend training and professional development are real. They are particularly evident in the current market where cutbacks and/or layoffs have resulted in many employees taking on even greater responsibilities and being asked to work smarter. Budget cuts are another reality – many training budgets have been squeezed in order to protect the bottom line. However, the fact is ongoing professional development contributes to higher performance and increased marketability. Therefore, we simply must make every effort to integrate professional development opportunities into our busy schedules. How can we use the professional development time we have most effectively? Pursue only those opportunities that are relevant to our overall training goals and objectives. I have just started my second year at Southwest CUNA Management School (SCMS). For those unfamiliar with SCMS, it is a three-year program focused on enhancing credit union leadership skills. It’s an intense program and the curriculum is challenging to say the least. And although it requires a three-year commitment on my part, I recognize that the benefits far outweigh the sacrifices. For some, making the commitment to ongoing and effective professional development may seem overwhelming when coupled with their duties and responsibilities to their employer and their commitment to family and friends. But we have to ask ourselves, “Can I continue to be of value to my organization and the members we serve if I have decided I’ve learned enough?” Professional development is not a one-time activity. It should be embedded into our professional lives. While it’s up to the employee to be proactive and seek out opportunities for professional and personal growth, employers also play a role. Employers should ask themselves: • Do we recognize the value in ongoing professional development? • Are we providing support for those employees seeking to engage in meaningful training and education? • Do we assist our employees in identifying the areas in which they would benefit from ongoing professional development so that they can more
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effectively fulfill their role in the organization? Are we proactive in incentivizing employees to take advantage of training programs that will help them develop personally and professionally? If an organization has determined that employee development should be a continuing priority, then it’s imperative that they foster an environment that supports and promotes employee development. This can be achieved in several ways: • Consider reimbursing employees for job related professional development and training. At TCUL we offer incentives to those employees that obtain 15 or more training hours per year and will reimburse employees for any approved out-of-pocket training expenses. • Provide flexible scheduling to accommodate offsite learning. Allow employees paid time-off so that they can attend conferences, seminars, workshops and other worthwhile training events. • Promote opportunities. Don’t wait for staff to identify training options. Keep them abreast of TCUL training events, including webinars, seminars, workshops and conferences that are pertinent to their jobs. • Celebrate learning. At TCUL we recognize those employees that have met (and exceeded) their training requirements at all-staff meetings. This type of recognition can also be done in a companywide email. As I noted above, finding time for professional development can be challenging, but it’s important that we not dismiss the importance of life learning, but instead find viable solutions. Ongoing professional development benefits not only the individual, but the organization as a whole, and more importantly, the members who placed their trust and confidence in your credit union. •
Regulatory&Compliance
Defending Against Ever-Evolving Security Threats
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ecurity threats are a topic all too familiar to credit unions. Moreover, the evolution of those threats is unmistakable, with organized criminals replacing computer whiz kids just looking for a thrill. New threats range from very technical in nature to tactics used by the most novice computer user, and defending against this diverse range of threats is daunting. The most fundamental approach to defend against these current security threats is to adopt a non-complacent attitude with a proactive approach to security. Complacency is caused by two major factors. The first and most detrimental factor is the adoption of the philosophy that compliance is equal to security. Credit unions should proactively identify vulnerabilities by performing a thorough security risk assessment, using industry standards, best practices and current security breach trends. The second factor that can lead to complacency is the threat of becoming numb to the substantial number of security breaches occurring. Breaches have now become com-
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monplace in headlines around the nation, and as a result, the stories convolute the severity of a data breach and the lessons to be learned. Credit unions should heed the warnings of the recent breaches and learn how to defend themselves against similar vulnerabilities. To best defend the credit union from security breaches, the credit union should develop a strong foundation in security by proactively performing a compressive risk assessment. The goal of the security risk assessment is to identify and eliminate risks that leave the credit union most vulnerable. (All remaining vulnerabilities should be monitored and managed.) The security risk assessment should contain four major components as it relates to physical, operational, and technical security. 1) Determine assets 2) Determine threats 3) Determine vulnerability 4) Determine current risk rating
Idrees Rafiq Assistant Vice President, IT Consulting Financial & Technology Resources
Although all areas should be evaluated in the security risk assessment, the current security trends suggest that credit unions place an emphasis on the following areas: 1. Multi-layered approach – A multi-layered security platform should be deployed physically, administratively, and technically to supplement the primary security. Technical examples include: firewalls configured with intrusion prevention systems; automated alerts; a secondary firewall configured with an automatic failover; and strong activity reporting features. 2. Rule of least privileges – The rule of least privileges should be adopted to limit access only to those individuals whose job responsibility requires access. Strong activity reporting and review also complements these security measures. Standards for data processing systems have established levels of access based on each employee’s role. This same methodology should be deployed to access software and networking components such as servers, firewall(s) and router(s). It is crucial that physical and administrative access controls also be in place to include limiting access to areas of the credit union containing confidential documents, such as file rooms, access to unlocked shred bins, server rooms, etc. 3. Employee training – Training all employees on security is vital, as they are the front line of defense against data breaches. Along with the credit union’s Security Policy and Program, examples of security training include: Social Engineering – This is a non-technical way of hacking, in which a perpetrator acts as someone else in order to manipulate credit union employees into either giving them access or divulging confidential information. An example would be an AT&T imposter troubleshooting a network outage in efforts to plant a virus via USB thumb drive in a credit union computer. Suspicious E-Mails – Training employees how to handle suspicious e-mails can be another vital step in protecting the credit union from a data breach. The first step is to train employees not to open or respond to e-mails when the sender cannot be identified. Even if the sender can be identified, employees should be cognizant of whether that person would send that particular message. The second step is to report it immediately. Other training tips would be never to click on a link to an external website. If the employee is interested in the link, he or she should open a web browser and manually type the URL in the web browser. 4. Member education programs – Data breaches can also be prevented by educating the members against fraud and identity theft. An effective program should be evaluated using measurements that include: 1) Tracking the number of members who report suspicious activity on their accounts. 2) Recording the number of member visits on the ‘information security link’ if available on the website. 3) Recording the number of statement stuffers or other direct mail communications to the members. 4) Tracking the dollar amount of losses relating to identity theft before and after the member education program begins. 5. Testing – Internal and external vulnerability assessment testing can play a vital role in preventing data security breaches. Although you can never eliminate all security vulnerabilities, it is imperative that credit unions take a proactive approach to minimizing and managing them. Bouncing back from a recession may prove to be easier than bouncing back from a loss of member confidence should a data breach occur. Demonstrating the management’s commitment to data security to both employees and members may be the most significant aspect of the credit union’s security posture.
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Regulatory&Compliance
You May be Richer than You Think Texans Owed Billions in Unclaimed Property
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oney that belongs to you just might be sitting in a state unclaimed property office, just waiting for you to claim it. In fact, one in four Texans reportedly has unclaimed property from a forgotten checking account, un-cashed checks, security deposits, etc. The States’ Unclaimed Property Offices are safeguarding over 117 million accounts worth $32.8 billion. Reportedly, $4.6 billion was received from business accounts where contact had been lost with the owners. Approximately $1.7 billion from 1,929 million accounts has been returned to the rightful owners. Why are we telling you this? Because credit unions are considered “Holders,” which are legal entities that are obligated to hold for the account of, deliver or pay to, the owner’s property that is subject to the Unclaimed Property Act. Property is presumed “dormant” if it is unclaimed by the owner for one year. Property is unclaimed if the owner has not indicated interest in the property and it has been unclaimed for the time specified in the Act (varies from state to state). Important update for Texas credit unions: HB 257 will amend the Texas Property Code and reduce the escheatment period on deposit accounts from five years to three years. The effective date will be Sept. 1, 2011. Unclaimed Property is reportable to the state of the owner’s last known address and if the address is unknown, the last known address of the owner is in a state that does not provide for reporting of that property type or the last known address of the owner is in a foreign country, property is reportable to the “holder’s” state of domicile. Examples of “Tangible Property” includes (but are not limited to) jewelry, silver/gold, stock certificates, monies (cash and coins), antiques, collectibles, or musical instruments or any contents of safe deposit boxes. Examples of
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“Intangible Property” include checking/savings, certificate/CD accounts, un-cashed checks/money orders, wages/ payroll checks, traveler’s checks, stocks and dividends, gift certificates/cards, escrow accounts, credit balances, accounts payable checks, matured life insurance policies, and refunds/rebates. To determine there has been no contact, verify that the owner: • Has not increased or decreased the account • Has not contacted the credit union concerning the property • Has not indicated an interest in the property • Does not own other active accounts Every state has unclaimed property laws which declare money, property, and other assets to be abandoned after a period of inactivity and varies from state to state. During this abandonment period those that hold the valuables are required to try to return them to their rightful owners. If they are unsuccessful, the holders then report and turn the property over to the state’s abandoned property division or unclaimed property office. According to a U.S. Supreme Court decision (Texas vs. New Jersey, 379 US 674, 1965), the unclaimed property is returned to the state of the property owner’s last known address. If no address is known, it is returned to the state in which the business holding the funds is incorporated. If the last known address is in a different state than the state which the business holding the funds is incorporated, the holder must follow the unclaimed property laws of that state and should file the report with that state. Some states in which a business is incorporated but has unclaimed property of another state, will automatically forward the property to the appropriate state based on the last known address. Most states update their materials on abandoned/ unclaimed property every year. Additional requirements and reporting guidelines are detailed on the websites of each states unclaimed property office or division. Property holders should contact the state office or division handling abandoned/unclaimed property for further clarification or for more information.
By Mark Arnold President On the Mark Strategies
OVERCOMING THE BRAND CHASM “The most innovative organizations fuse marketing and innovation into an integrated strategy for growth.” —Michael Schrage, MIT
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randing can change a credit union. The key word is “can.” Many times a credit union embarks upon a new brand or recreates an existing brand. Perhaps the board, management team or marketing department identifies key targets, develops a new look and even drafts a catchy tagline. But then the brand falls flat. Why? In many cases, the credit union has fallen into “the brand chasm.” WHAT IS BRANDING? Before explaining the brand chasm, let’s first define what branding is. A brand is not an icon. It’s not a logo. It’s not an identity. So what is branding? There are thousands of ways to define branding, including: • “The sum total of a person’s thoughts and feelings about an organization.” • “The process of determining your competitive advantages, building an institutional culture, a brand strategy and a business strategy to those advantages, and then communicating that brand effectively and consistently.”
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Ultimately, branding is “who you are.” Who you are as a credit union, who you are as a board, who you are as a management team, who you are as staff and who you are as members. Now that we know what branding is, then it’s easy to do, right? Not so much. Branding is not a one-time project we mark off our marketing director’s “To Do” list before we move on to the next project. If branding is not done well, then the brand chasm develops. BRAND CHASM The brand chasm is the tension between the operational nature of banking and the creative/strategic skills of branding. There can often be gaps between key areas of the credit union, gaps that can sometimes even turn into chasms. For example, there are possible brand chasms: • Between branding and strategy • Between branding and staff • Between branding and operations Below are the three main chasms that can exist when a credit union is working on its brand, as well as tips for overcoming those gaps. Chasm Between Branding and Strategy Branding is a strategic process. The brand plan must tie directly to the strategic plan and the strategic plan must incorporate the brand plan. There cannot be one without the other. As Marty Neumeir says in The Brand Gap, “The secret of a living brand is that it lives throughout the company, not just in the marketing department.” “It is rare for a breakaway brand to succeed without the commitment of senior management at the highest level of the organization,” adds Kelly Silverstein in The Breakaway Brand. Ultimately, no strategic decision in the credit union should be made without answering the question, “Will it help or hurt the brand?” □ Should you serve the underserved—does it help or hurt the brand? □ Should you market to Hispanics—does it help or hurt your brand? □ Should you open a branch in another county—does it help or hurt your brand? Those are examples of aligning strategic decisions with the brand. Tips to overcome the chasm between branding and strategy: 1. Review the strategic plan with the brand plan: are they aligned? 2. For every major strategic initiative ask “will it help or hurt the brand?” 3. Involve marketing in the strategic planning function and involve the management team in the branding process. Chasm Between Branding and Staff While marketing may put the public face on the brand, it is the staff that must live the brand every day. Great credit union brands are
built with a triangle approach, with management, staff, and members at each point. In an ideal word management leads the brand, staff lives the brand and members experience the brand. In many cases, effective brands fail at the staff level because of that chasm between the brand and staff. Successful brands involve staff at every level. Credit unions must conduct brand training with their staff and develop brand standards for their staff. One credit union that successfully built their brand is generations federal credit union ($397 million, San Antonio, TX). When they changed their name from San Antonio City Employees FCU a few years ago, they also went through a thorough re-branding project. Much of their efforts (and subsequent success) focused on staff. “We wanted to ensure we had strategic buy-in from everyone, from the corner office to the front-line staff, so before we even put pen to paper, we assembled an Internal Communications Team. The IC Team was comprised of a wide variety of individuals with varying tenure and skill sets,” said Chris Voigt, chief operations officer for the credit union. “This team was a crucial component of our rebranding strategy, as they served as a two-way conduit of information for all our staff members. They were the first to bring questions from staff, and at the same time they were the initial point of contact for staff members with questions.” One of the communication pieces developed by the IC Team was brand service standards, a set of ground rules for peer accountability. These standards, called e3 (engage, empower and extend follow-up), encompassed everything from member service to training to management strategies. “The brand standards were a platform for us that enabled us to provide staff with a concrete set of values and goals,” Voigt added. “It was an exciting time for us because the brand standards, in essence, leveled the playing field. Every staff member had to start from the same point, they had to become engaged, and they had to understand our values, our mission, and where we wanted to go as a credit union.” Tips to overcome the chasm between branding and staff: 1. Conduct brand training with all staff. 2. Develop brand standards for your credit union. 3. Ask your employees regularly, “What is our brand and how are you living it?” Chasm Between Branding and Operations Because branding is becoming more important than ever, it affects all areas of the organization. It is quite normal for a gap to exist between marketing and operations. Operational thinkers tend to be analytical, logical, linear, numerical and literal. On the other hand, creative thinkers tend to be intuitive, emotional, spatial, visual and conceptual. If a gap exists between the two in your credit union, your brand will suffer. What does your brand say about the account opening process, the hiring process, the loan approval process? Your brand is rubbish unless you bring it to life every day in your branches. For example,
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your tagline can’t be “we make it easy,” if it takes your members over 24 hours to get their loan approved. If your brand says, “we’re the friendliest credit union in town,” and your operator is rude, then your brand is rude. “One of the things we recognized 10 or 12 years ago was that of all the assets on our balance sheet, probably none was more important than the brand, even though it wasn’t capitalized at all,” said Fred Smith, CEO of Federal Express. Consider Neches FCU ($322 million, Port Neches, TX). They see their brand collaborating across all areas. “Our credit union marketing efforts are strongly tied with operations,” says Jason Duplant, vice president of marketing for Neches FCU. “Our President/CEO Jason Landry has a passion for marketing and how important those efforts are. As a result, we are able to create a dynamic working environment where we can share ideas and receive genuine feedback. This ultimate engagement results in open communication and collaboration for the entire team and our membership.” Neches even has a circle of commitment for their employees, which in turn guides them in the hiring process. Their circle of commitment – Signature Standards, Signature Service and Neches Pledge – includes respect, appearance, knowledge/service selling, teamwork, accountability, focus, confidentiality, communication and consistency and being proactive.
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“At some point nearly every facet of the credit union is touched by our branding efforts,” Duplant adds. Tips to overcome the chasm between branding and operations: 1. Develop a set of core values (no more than 10) that every employee will follow. 2. Ask branding-related questions in the hiring process (for example, “our brand is ______, what does that mean to you and how will you live it?”) 3. Emphasize how all departments impact the brand. The biggest threats to your brand come from within—many times in the form of a brand chasm. Your weakest link will destroy your brand. However, reinforcing the brand every day with your employees and bringing your brand to life in your operations and strategy will help you bridge those potential chasms. Mark Arnold, CCUE, is an acclaimed speaker, brand expert and strategic planner. He is also president of On the Mark Strategies, a consulting firm specializing in branding and strategic planning. Services include strategic planning, brand planning, leadership training, marketing planning and staff training. His web address is www.markarnold.com and his blog is blog.markarnold.com. You can also contact him at (214) 538-4147 or mark@markarnold.com.
PhilosophyinAction
By Doug Foister Director of Research Texas Credit Union League
Member Surveys Arm Credit Unions with Valuable Insights in Competitive Market
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uring World War II, Britain’s Royal Air Force Bomber Command initiated a project to inspect bombers returning from bombing raids over Germany. After the bombers were inspected and all shrapnel damage and bullet holes noted, the Bomber Command recommended that armor be added to the most heavily damaged areas. Before implementing the recommendation, however, a group of operations researchers was brought in to conduct a “confirmatory” analysis. Surprisingly, the researchers made the counterintuitive recommendation that additional armor be placed in the areas that were completely untouched by damage in the bombers that returned. They reasoned that the original analysis was biased, since it only included bombers that made it home. Actually, the undamaged areas of returning aircraft were probably the most vulnerable areas, which, if hit, would result in the loss of the aircraft. This true story contains a great lesson for credit unions: it is important to go beyond surface assumptions to obtain a realistic understanding of what members really want and need from their credit union. How is such information obtained? The answer is through systematic member research, such as a professionallyconducted membership survey. Recently, we contacted two credit union executives who regularly use the Texas Credit Union League (TCUL) to conduct membership surveys. We wanted to find out why these executives conduct their research and how they have benefited from it. Scott Rose, president/CEO of Kelly Community FCU in Tyler, explains the objectives of his surveys: “When we do a survey, we hope to accomplish two things: First, we want to get a sense from the membership of how we are performing, good or bad. Second, because we do a survey biennially, we want to see if the adjustments we made from the last survey are working or not.” Though her objectives are a little different, Kelly Gaines, vice president of marketing for Members Choice CU in Houston, explains: “We use the survey to determine the level of member service we are
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providing. In addition, a few components of the survey are used in our credit union-wide incentive plan. This helps to keep all credit union staff focused on service year around.” And how have the credit unions benefited from their membership surveys? Somewhat analogous to the lesson learned by the Royal Air Force when it undertook a deeper level of analysis, Rose says, “Awareness is the pearl of wisdom obtained from a survey. We cannot proactively promote or effectively correct anything if we are not aware of it.” The benefits of Gaines’ membership surveys also show parallels, as the surveys help to avoid the “shrapnel damage” of lost or dissatisfied members. She notes, “Since the survey contains some open-ended questions, we get invaluable feedback from members to improve service and the products and services we offer. We also find out if we are the primary financial institution and if not, who is…With a survey, if asked properly, you find out what is important to the member. Some of the things that we think are important turn out not to be.” TCUL conducts both online and mail surveys for its members. TCUL handles all aspects of the survey process, including questionnaire design, printing, data entry, statistical analysis, and a complete written report describing the findings. The final report includes color graphics, comparisons to peer data as well as previous surveys a credit union may have conducted, and a summary of strengths, weaknesses, and recommendations. Typically, the survey consists of two mailings, two weeks apart, to a random, scientifically reliable sample of between 2,000 and 2,500 members. This methodology yields average response rates of 24 percent. When asked what advice he had for other credit unions that are considering a membership survey, Rose offers encouragement. “Do it! You won’t know how you’re doing unless you ask,” says Rose. “Keep it short, but comprehensive. The results can help you plan better and hold you accountable if change is needed.” To discover what lies beneath the surface of their members’ real motivations and desires regarding financial services, credit unions will find value in sound member research. Well-conducted research can help a credit union to fly undamaged through the flak inherent in today’s competitive environment.
By Karen Houston-Johnson Vice President, OnBalance Credit Union Resources, Inc.
PhilosophyinAction
CEO Succession... It’s Not a Matter of If, But When
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redit unions across the country are weathering one of the toughest economic climates in the history of our industry. As a result, many credit union CEOs have delayed their retirements, not only to guide their credit unions through the storm, but also to rebuild their recession-ravaged retirement plans back to a position where they can retire. According to CUNA’s 2010-2011 Complete Credit Union Salary Survey, only 6.3 percent of credit union CEOs plan on retiring by the end of 2012. However that may change dramatically in the next 10 years, and considering that CUNA’s survey finds that 40 percent of credit unions do not have a formal succession plan in place, this could prove problematic. The Need Can Arise Unexpectedly Unfortunately, the need to recruit a CEO or another executive can arise quickly and with little advance warning, particularly when an accident or sudden illness removes the executive from the credit union. Are your directors and credit union prepared for a possible transition at the executive level? Is there a clear plan in place that will guide how the board defines and finds the “right” person for this critical job? If your board is like most, the answer to both questions is “no.” Failure to plan for succession well in advance of the executive search can result in chaos; cause costly delays in organizational momentum and progress, and needlessly create a sense of uncertainty on the part of members, volunteers, staff members and other stakeholders. Effective boards understand that while chief executive departures are often unexpected, executive leadership turnover is inevitable! To lay the ground work for a successful transition, boards should invest in the forethought and advance work of succession planning. Moreover, succession planning works best when the board members and the incumbent chief executive collaborate in a purposeful manner to create the conditions for a successful executive leadership transition – whether or not it is ‘expected’ in the near future. Benefits of a Succession Plan Among its benefits, the effective succession plan: • responds to emergencies by designating an executive or management team to run the credit union until the board names an interim CEO; • provides a step-by-step list of short-term and longterm board tasks;
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gives the board an assessment of the strengths and weaknesses of senior executives; guides the development of senior executives, with an emphasis on preparing them to fill the CEO’s position on either an interim or permanent basis; reflects the unique nature of every credit union’s market and membership; and reassures members and employees by enabling the board to quickly initiate a series of steps that ultimately will lead to naming a new CEO in a timely manner.
Roles and Responsibilities The CEO, the board, the human resources department, and other senior executives may all play a role in developing the succession plan: • The CEO may choose to write the plan or delegate that task to an independent third party or another employee working under the CEO’s direction. The CEO also typically keeps the plan up to date. • The board may drive the discussion about the need to create a plan for CEO succession, direct the CEO to use the plan to address leadership development, review the plan for approval, allocate leadership development funds, and create a policy to review the plan annually. • Human resources staff may research current succession practices, obtain sample plans, maintain current lists of search firms for emergency succession situations, create job descriptions and organizational charts, and tie annual evaluations to leadership development. • Senior executives may be asked to help write the plan. They can also be held accountable for their participation in leadership development. Planning Pays Off While plans don’t always work out as envisioned; going through the planning process helps leaders deal with unexpected changes and remain focused on achieving their organization’s mission. In this era of rapid change, a credit union’s success depends on quality leadership. Succession planning dramatically increases your credit union’s odds of obtaining the quality leaders now in scarce supply and ensuring your credit union remains on course, even when an unexpected change of leadership takes place.
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PhilosophyinAction
By Allison Griffin President Griffin Strategies, Inc.
History on the Horizon: DeWeese Developing Book on Women in CU Movement
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or Betty DeWeese, it all began in April. “I’m going to write a book,” DeWeese thought. DeWeese, the president and CEO of Telco Plus CU in Longview, was struck with inspiration as she sat in a Credit Union Development Educator (DE) training session in Madison, Wisconsin. “We were working on an exercise to match up the names of people in credit union history with what they had done,” DeWeese recalls. “As I looked at some of those names – Dora Maxwell, Louise Herring, Agnes Gartland – I realized how many women were among the early pioneers of the credit union movement. And I wondered how many more women were involved that we don’t even know about. “So I decided to make it the focus of my DE project,” she says. DeWeese is just beginning the research, interviews and travel to compile her story about women in the early credit union movement. Their story began nearly 100 years ago, even before women had the right to vote. One of the most well known women leaders in the fledgling U.S. credit union movement was Dora Maxwell. In her early 20s, she founded her first credit union at her New York church in 1920 – the same year that women secured the right to vote with the passage of the Nineteenth Amendment to the U.S. Constitution. She soon caught the attention of Roy Bergengren, the co-founder and leader of the Credit Union National Extension Bureau. He recognized her effectiveness and tapped her to organize credit unions, first in New York and then across the nation. She was a delegate to the Estes Park gathering and one of the signers of the CUNA constitution and bylaws, as well as a columnist for CUNA’s publication, The Bridge. More than 50 years after her retirement from the credit union movement, her leadership and service is honored with the Dora Maxwell Social Responsibility Community Service Award, CUNA’s program that recognizes credit union involvement in activities that make a difference in the community. “It’s my observation that credit unions offer women more opportunity to prove their value than at other financial institutions,” says DeWeese. “Women have a natural instinct to want to work with others to help them improve their lives. Our instincts and skills are a good fit for the credit union
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community. ‘People Helping People’ is not just a phrase thrown around, but a commitment and an way of life we gladly embrace.” That’s not to say that women have had a trouble-free time in the credit union movement. “In spite of her credentials, Dora Maxwell was blocked from serving in the highest management positions at CUNA because of pushback from some of the male members,” notes DeWeese. “And when Louise Herring was chosen to represent the Kroger Company at the 1934 CUNA organizational meeting in Estes Park, some of the men scoffed at her because she was too young and cute. She obviously proved herself over the next few decades!” DeWeese, who has been in the Texas credit union world for 28 years, says she is grateful for her own personal and professional growth opportunities in the credit union movement and credits the women credit union pioneers.
Keitha Nilson, Kay Stewart, Betty DeWessa and Michelle Muckleroy
“Hearing all these wonderful stories about how these great women have helped credit unions serve people here and abroad gives me ‘chills’ -- good chills -- and makes me realize what an honor it will be to put this book together,” says DeWeese. Betty DeWeese is a former board member of the Texas Credit Union League (TCUL) and currently serves as a trustee of TCUL PAC. She is a Credit Union Development Educator and alumna of the Southwest CUNA Management School. She also is a member of Financial Women in Texas.
HRCorner Motivating Employees with Incentives
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t has been shown that employees respond well to incentives when they have exhibited exceptional work. These studies show that employee performance increases by an average of 22 percent when they are rewarded for excellent work. Credit unions have to do their best to attract and keep good employees and ensure that members are receiving the best service. According to the TCUL 2010 Compensation Survey, 82 percent of all respondents said they offered individual incentive plans. The top two areas in which credit unions provide incentives are cross-selling and loan volume. Though all these credit unions are offering incentives, one might wonder how many are actually achieving increased performance from their staff. There are two options to increase employee performance. One is to enforce penalties for not performing. The other is to provide incentives to encourage your employees to perform. Not surprisingly, the discipline method usually does not work. Of the multitude of motivational theories out there, the Expectancy Theory is one that enhances the thought that employees are motivated by incentives. The basis of this
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theory is simple. Motivate people to do something by: • Showing them something desirable • Indicating how straightforward it is to get it, and • Supporting their self-belief that they can get there. Incentives are types of awards that are planned in advance. They are the carrots you can use to motivate employees to aspire to a performance goal. Are incentive programs right for your credit union? What kind of incentives and rewards really increase employee performance? These are common questions at many credit unions today. Some credit unions have had success with their programs, while some have paid many dollars to staff and have not seen results. What is the magic formula for developing incentive plans? If you are considering developing an incentive plan for your staff, the following are some areas to consider: 1. What are you trying to achieve with the incentive plan? Some organizations develop incentive plans that essentially do nothing more than pay employees more money. A true incentive plan should reward those who reach a higher level of performance. In what area are you trying to
By Susan Looney Vice President Credit Union Employment Resources
reach that higher level? Is your credit union’s strategic goal to increase income? Any incentive plan should increase the organizational results beyond what would have been achieved without the incentive. 2. Who are you going to incentivize? It may not make sense to incentivize all positions. There may be some positions that deal with members and may have some cross-sale goals. You want these staff members to assist in increasing income. Other positions handle the back-office functions, that while critical to the success of the credit union, do not have that direct connection with what you are trying to achieve in your identified goal. 3. How does an individual’s performance affect the ultimate goals of the credit union? For an incentive plan to work, those in the plan need to know what the goal is and they need to know how to get there. 4. Can reasonable goals be set with employees to achieve specific improvements? What are you trying to achieve with the incentive plan? Do you want to increase loan volume? Increase share draft accounts? The incentive goals should be a stretch from what is usually expected, but should also be reachable. If you set the goals too high, employees will get frustrated and will not strive to meet them. On the flipside, if you make them too easy, you are defeating the purpose of the plan.
5. How will performance be measured? Make your plan simple. Be sure the plan has subjective measurements or elements that are observable. Do not make your plan so cumbersome that it takes an employee hours to collect and report the measurements to calculate the incentives. 6. How much are you going to pay and for what result? Base compensation is used to pay employees who perform their functions to your performance expectations. Incentives are used to kick start or increase their level of performance…to go beyond the expectations. Make sure when you are putting together an incentive plan that you do not create an environment where employees will expect something extra for just doing their job. Incentives are more effective when they are paid frequently, the expectations on achievement have been communicated clearly, and the employee understands how they can get there. Incentives do not have to be costly. Base the amount of the reward on the effort required by the employee. Incentives also do not have to be cash. They can come in the form of gift certificates, trips, a day off, or other items that fits the employee and achievement. In summary, incentives should be fair. The rewards should match the accomplishments. They should reward only the good performers and they should be tied to success measurements that are tracked and communicated. When putting together your incentive plan, remember: the purpose of any incentive plan is to increase employee performance to achieve an organizational goal.
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By Kimberly Jones Human Resources Consultant Credit Union Employment Resources
HRCorner
HR Q&A
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any credit unions utilize consumer credit and investigative reports in the employment process. The Fair Credit Reporting Act (FCRA) is a federal law that governs how employers can obtain and use consumer credit and background checks. The FCRA is intended to address concerns relating to inaccurate and incomplete reports, which may cause applicants to be denied job opportunities. Credit unions should be aware of the following information about FCRA.
Q:
We utilize credit and background checks at my credit union. What are some of the requirements we must meet regarding the FCRA?
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Below are some keys to understanding your requirements under the FCRA: • Any employer that uses a third party, such as a consumer reporting agency (CRA), to obtain an individual’s credit or background check is subject to FCRA requirements. • The FCRA applies to a wide variety of consumer reports, including any oral, written, or other type of communication issued by a CRA bearing credit worthiness, credit standing, or credit capacity; character; general reputation; personal characteristics; or mode of living. Reference checks that are performed by a CRA may be considered investigative consumer reports. • Employers must obtain written authorization from the individual before requesting a report from a CRA. This disclosure must be in the form of a separate written document that notifies the individual that a consumer report may be obtained and used for employment purposes. • Before taking adverse action (this includes, but is not limited to denying employment to an applicant, terminating or reassigning employment, or denial of a promotion) based in whole or in part on a consumer report, employers must provide individuals with a copy of their consumer report, a preliminary notice of adverse action, and a copy of “A Summary of Your Rights under the Fair Credit Reporting Act.” • Once it has been decided that adverse action will be taken, the employer must provide a final notice to the individual. This notice should include: the action to be taken; the name, address, and phone number of the CRA that supplied the report; a statement that the CRA did not make the decision to take adverse action and is unable to give specific reasons for it; notification to the individual of his or her right to dispute the information the CRA furnished; and notifying the individual of his or her right to an additional report from the CRA upon request within 60 days. The FCRA does not specify the
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amount of time between the two adverse action notifications, but in an informal opinion letter, the Federal Trade Commission suggested that five days is a reasonable period of time between the two letters. • To prevent unauthorized access, employers should establish security protocols for background check information and train employees on who will have access to such information. Consumer report information must be retained in a secure confidential file, only accessible by those with a “need to know.” Consumer reports should never be placed in employee personnel files. • When disposing of consumer reports information, employers must take reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal. As outlined in federal regulations, examples of reasonable measures include, but are not limited to: burning, pulverizing, or shredding records; ensuring the destruction or removal of electronic media containing the information; or contracting with another company to dispose of the records in compliance with federal regulations. • Employers should check their state laws to ensure compliance with any restrictions pertaining to background checks. If your credit union has a question or needs assistance with HR needs, please contact Kim Jones or Susan Looney with CUER at (800) 442-5762, extension 6432 or 6431. Also, visit us online at www.cuer.coop.
By Dale Hansard President and CEO Caprock Federal Credit Union
Best Practice: Success in Lending
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arlier this year, I was reviewing last year’s numbers and looking at areas in which we achieved our strategic objectives and other areas in which we missed the mark. We had a target to achieve 10 percent growth in membership and 7 percent growth in new auto loans. I was disappointed to see that we achieved all of our strategic objectives except new auto loan growth. It was at a lackluster 4 percent. So I went to the loan officers and asked them what we should do better. I had several questions. Is the policy? Are loan to values the issue? Are we losing the deals to captive finance? I heard the comment that we needed more help, we needed someone to help take applications, and we needed to make loans faster. I understood that they were telling the truth. We needed all these things. We did grow used auto loans almost 36 percent in the same time without increasing the amount of “d” category members. Delinquency was also down. And loan yields were holding steady. But we still missed the mark on new auto loans. Why? About a week later I received a phone call from Thomas Cullen of Callahan’s and Associates, who started the conversation: “How did you do it?” He said that Caprock FCU grew new auto loans by 4 percent. I replied, “I know we had a goal of 7 percent, and I’m trying to figure out how to improve it.” He said that the industry average in new autos was down 16 percent. I didn’t know what to say. Maybe it is our market which has seemingly been constant during the recession. Maybe it is the competitive nature of our car buying membership. The one thing that I know for sure is that we still lend the old fashioned way, and that our loan officers had worked very hard. They cross sell the credit union. They talk with members about their long term financial goals, and they truly care about the success of our member’s. We pay attention to loan to value. We pay attention to debt ratio. We pay attention to charge-offs. We have a direct auto lending relationship with our membership. We talk about savings goals with our member’s. In addition, we also try to counsel our more troubled members into repaying other creditors bad debts with share secured loans from us. We have to help them clear up their credit situation. If they don’t improve their debt situation then who are we going to loan money too? There may not be a correlation with our traditional approach and the success. Especially, since we serve a group of members that range from the working poor on the South Plains of Texas to upper middle class. We are trying to make them more successful every day. I do know our loan officers are working hard paying attention to all those old fashioned ratios and indicators, and they need more help. So after writing this article I realize that this is an elaborate “Thank you” letter to our staff and more specifically to Linda Scott and Gloria Resendez for executing our approach to lending.
SmallCreditUnions
Getting to know all about... Eugenia Arington
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ell me about your role at Cochran County Schools FCU? The word Manager takes on a whole new meaning; because we are small it covers everything from the bottom to the top.
What is one thing you want people to know about you? I enjoy riding motorcycles with my husband.
What do you like best about your job? The thing I like best about my job is seeing the look on a young adults face when they get their first vehicle.
Family? Tim Arington, my husband of 15 years. We have five kids (one daughter and four sons), as well as five grandkids (two granddaughters and three grandsons).
What other experiences do you have? I grew up on a farm and farmed for myself for 12 years; I have worked as a bookkeeper for a cotton gin and an irrigation dealership, and even driven a truck with my husband while we had our own trucking business. What was your first job? My first official job for someone other than my parents was at the Dairy Queen while I was going to college.
What is your hometown? Maple, Texas
What is your favorite vacation spot? I would have to say anywhere in the mountains. What type of books do you enjoy reading? I like reading true stories, mysteries, and outdoor-based themes. About Cochran County Schools FCU: Located: Morton, Texas Assets: $3 million Members: 441
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ProductsandServices
By Robert Christini Vice President of Sales VINtek, Inc.
Texas Legislature Mandates Electronic Lien and Titles
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n the spring edition of LoneStar Perspectives, you read about the possibility of Texas passing legislation that would mandate the participation by automotive lenders in the Texas Department of Motor Vehicles’ electronic lien and title (ELT) program. Well the time has come and on May 25, Texas joined the ranks of Arizona, Pennsylvania, California and Louisiana in mandating the use of ELT with the passing of HB 2575. ELT provides lien holders with electronic vehicle titles instead of traditional paper titles from the DMV. Because Texas handles the second highest vehicle title volume in the country, the state implemented a voluntary ELT program in 2009 to help reduce DMV costs. The program became very popular and in 2010 VINtek, a provider of automotive collateral management and ELT solutions helped 50 financial institutions in Texas move to electronic titles. The company currently manages ELT for more than 200 financial institutions in Texas and 400 credit unions across the country. HB 2575 mandates ELT participation for certain categories of lien holders. Depository institutions receiving less than 100 notifications of a security interest in a motor vehicle in a
calendar year are exempt from being required to participate. The legislation goes into effect Sept. 1, 2011 and the TX DMV will finalize rules for compliance with the mandate. Credit unions which routinely finance more than 200 auto loans per year should sign up for the ELT program by Aug. 1, which is the next TX DMV implementation deadline. Credit unions financing less than 200 auto loans per year have through 2013 to comply. So how does the mandate affect credit unions in Texas? The most important change will be the significant operating cost reductions due to the automation of a currently manual, paper-intensive process. Paper titles require extensive resources including storage facilities, large amounts of paper, postage and the human capital needed for the process. ELT nearly eliminates all of these costs as the process becomes completely digital and a paper title is never printed by the credit union. A typical paper title can cost upwards of $12, while electronic versions cost less than half that amount – at least a 50-60 percent savings. Due to the electronic nature of this technology, titles also cannot be lost. This alleviates the need to apply for duplicate titles, as well as having to inform your member that their title has been lost and turning what was otherwise a strong lending relationship into one that ends in bad service. In addition, ELT drastically improves risk management. With less room for human error, lien perfection happens quicker. VINtek also hosts a system that incorporates the ELT business rules of each state thereby offering its Texas-based clients nationwide compliance, which is important when you consider your borrower can relocate to another state at any time. And most importantly, ELT helps credit unions avoid automotive lending fraud. Texas has seen an increase in fraudulent lien release letters being presented to DMVs over the past year. This fraud allows borrowers to falsely claim they have paid their loan in full and receive a clear title. In an ELT program only the lender can release the lien, eliminating the possibility of this type of fraud. Credit unions can also decrease their carbon footprint and promote “green” business practices with the elimination of paper in the titling process. In fact, ELT is one of few green technologies that requires minimal up front capital investment and produces immediate ROI. VINtek, the preferred product provider of electronic lien and title (ELT) services by Credit Union Resources.
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ProductsandServices
By Tom Hodge Senior vice president/Chief Sales Officer Credit Union Resources, Inc.
Like the Boy Scout Motto says, Be Prepared!
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loods on the Mississippi, wildfires in west Texas, earthquakes and tsunamis in Japan, and tornadoes in Tuscaloosa, Alabama and Joplin, Missouri-Disasters happen every day in every part of the world. It could be your part of the world next time. If that’s not enough to make you think, consider that most insurance companies refer to Texas as a disaster state. Why? It is because we have it all-tornadoes, hurricanes, floods, fire, wind and waves. In these uncertain times, no amount of preparedness is too much. Having a good disaster recovery plan is essential. Not only having a plan, but making sure everyone understands their individual role in it and that you test both the plan and the staff on that understanding on a regular basis. Don’t do it alone. Credit Union Resources, Inc. (Resources) can help you in your disaster recovery effort with products and services designed to assist your organization in being prepared. We offer assistance in writing policies and procedures dealing with disaster preparedness, reviewing or developing succession plans, providing temporary staffing for employees that were forced to flee the area, dealing with all compliance issues and evaluating technology needs for any disaster scenario.
In addition, if your physical locations sustain damaged or are destroyed, Resources has solutions for getting your branch operation back up and running through several business recovery and continuity services programs offered through some of Resources’ preferred product providers or CUNA. We not only help your credit union prepare for the worst, but also help your members prepare. We assist you in determining the best options for notifying your members about your plans, how to effectively use your services in the event of a disaster and finally, maintain access to members’ important accounts and information in the event of a catastrophe. Tornados can strike at any time of the year in Texas. Hurricane season started in June and goes until late fall. Severe weather is part of living in the great State of Texas, but remember, it is better to be safe than sorry. Thinking about these things after the event is too late, being prepared for every eventuality is impossible, but doing nothing is irresponsible given what we have already seen in 2011. If you have not taken some steps in this direction, take the time NOW, be proactive, do some planning and most of all, be prepared. Visit www.curesources.coop.
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