NAFCU ANNUAL: A Bridge To Credit Union Possibilities

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A bridge has a single purpose. It connects one location to another by providing travelers safe passage over challenging and potentially dangerous waters. For the credit union industry, much of the financial turmoil of the past few years is behind us, but there still looms a quagmire of increased regulation and the uncertainty of a shaky economy. A promising future appears to be within reach. The tricky part is getting there.

Enter NAFCU’s 44th Annual Conference and Exhibition, held June 28–July  2 in San Francisco. Fittingly themed “Bridging people, ideas and solutions,” the conference was essentially a bridge for 1,700 credit union representatives that allowed them to come face to face with regulators, industry experts and glean fresh ideas for moving forward.

During the general session addresses, credit unions heard from NCUA Board members as they detailed what the industry could expect to see in the near future in the way of rulemaking. NAFCU’s Defense Credit Union Summit, which took place in conjunction with the Annual Conference, featured Holly Petraeus, who heads the Consumer Financial Protection Bureau’s Military Servicemembers Office. She informed credit union representatives of her office’s goals and main priorities. The event’s keynote addresses shared inspirational comeback stories of a business on the brink of collapse as well as tips for building exceptional teams.

In all, NAFCU’s Annual Conference gave credit unions exactly what they needed to cross over the uncertainties in today’s marketplace and realize the successes that lie before them.


On the regulatory front
In her address, NCUA Chairman Debbie Matz discussed recent regulatory actions and how they’ve mitigated much of the risk in the corporate credit union system. She also spoke of the success NCUA has had in securitizing $50 billion in corporate credit union legacy assets with NCUA Guaranteed Notes.

Matz explained that NCUA needed to raise nearly $30 billion to restore the corporate credit union system. In the end, the agency managed to raise $28 billion. “It may not be lemonade, but it’s better than the lemons we were handed,” Matz told the conference attendees.

“We can now begin to wind down the bridge corporates, and you can move your money where it makes the most sense for you,” she said. Indeed, NCUA wrote U.S. Central Bridge Corporate FCU and Western Bridge Corporate FCU in July and detailed the steps the agency will take to wind down the entities.

NCUA Board Member Gigi Hyland discussed NCUA’s voluntary stabilization assessment prepayment program. Applications for the program were due to the agency July 29. [In early August, NCUA announced that the number of pledges it received for the voluntary program fell short of $500 million goal. With no prepayment this year, NCUA is expected to set this year’s stabilization assessment at 24.9 basis points.]

She also informed credit unions that they could look forward to rulemakings regarding interest-rate risk, derivatives and credit union service organizations. In fact, the agency has since issued proposed rules in all of these areas.


A peek at CFPB
After witnessing the financial challenges that military service members and their families go through, Holly Petraeus, who heads the CFPB’s Military Servicemembers Office, told defense credit unions during NAFCU’s Defense Credit Union Summit that it’s important for military servicemembers to have a strong advocate.

Petraeus said her office seeks to educate and empower military servicemembers, monitor any complaints they may have and coordinate with regulatory agencies on military matters. She also announced that the CFPB would sign an agreement with the judge advocate generals of the Army, Marine Corps, Navy, Air Force and Coast Guard with key principles for providing stronger consumer financial protections for military members and their families. That agreement was signed shortly following the NAFCU Annual Conference.

The CFPB assumed its regulatory authority on July 21. NAFCU continues to keep the new bureau apprised of the credit union industry’s perspective on its rulemakings and enforcement duties.


Keys to organizational success
During his June 30 keynote address, Gordon Bethune gave credit union representatives a stirring comeback story. The Continental Airlines former CEO shared with the audience the strategy he implemented that that revived the once-floundering airline and turned it into one the nation’s top carriers.

He noted that developing a plan is only one part of turning around a struggling business. The real challenge is motivating the employees to get on board with executing it, he said.

The first part of his plan — “fly to win” — could be renamed: Give the people what they want. He suggested that credit unions take an introspective look at current offerings and weigh them against what members truly desire. He also spoke of the way he changed the culture at Continental by rewarding employees when they helped ensure the company’s objectives were met. “Successful companies have people who want to work for them,” Bethune maintained.

Pat Williams, senior vice president of the NBA’s Orlando Magic, tied his keynote remarks on effective team building to the overall theme of the Annual Conference.

Williams told the audience that the most important component of fostering a team is talent. Above all else, he said, that talent must be teachable.

The Magic’s marketing and promotional wizard also pointed out the importance of respect. Respect leads to trust, and when you have respect, you have power, he said. “I pass you the ball and trust you to pass it back to me if I’m more open than you are,” he said. Trust then leads to loyalty, and that in turn leads to love and ultimately to friendship. “When [friendship] happens on a team, that is magical,” he said.

Chrisalyn Santos is NAFCU’s staff writer.

Breakthrough Breakouts

Packed house for board and supervisory training
NAFCU’s board and supervisory committee track sessions were presented to standing-room only crowds, attracting up to 300 credit union professionals per session.

During the July 1 presentation, “Financial Statements in Plain English,” Dan Clark of Dan Clark Associates, LLC, discussed the kinds of balance sheets credit union boards may come across. He urged participants to keep one thing in mind: “Net income feeds net worth.”

Clark also discussed other topics such as depreciation, acquiring assets, the allowance for loan-and-lease losses, income or performance statements and more.

Credit union volunteers who completed courses designed for boards and supervisory committees were provided with a NAFCU certificate of completion. More than 1,600 volunteers have earned certificates from the association so far.


Assessing business models
As the financial services industry continues to change and evolve, many credit unions are revisiting their business models to assess their viability in the years to come. Bill Goedken, president and CEO of Goedken Consulting Group, LLC, noted that the enactment of the Dodd- Frank Act is among the factors that will pave the way for different business models to emerge within the credit union industry. But, he said, credit unions shouldn’t expect a single approach to be a silver bullet.

As they face a future where much is uncertain — except for increasing regulatory burden and less fee income — credit unions will find that there is more than one way to adjust their business model to meet today’s challenges, Goedken explained. For example, he said, credit unions could move into a model that emphasizes member contacts and personal service. This approach relies on maximizing delivery channels, shared branching and a robust website.

Another model he discussed relies on robust investments in technology in order to enhance efficiency. Many of the administrative functions would be outsourced, and the credit union would maintain a low number of branches.

In the end, he said, credit unions pondering their next move regarding their business strategies will have to make the right choice for their members.


The story of a turnaround
When an institution is going in the wrong direction, it can be challenging for it to find the correct path. However, with the right leadership and an effective strategy, returning to a healthy state can be a reality for any struggling credit union. That was certainly the case with GTE Federal Credit Union. After experiencing multi-million-
dollar losses since 2008, the rebuilding of GTE Federal is a turnaround story worth telling.

During the NAFCU Annual Conference, GTE CEO Joe Brancucci and Chairman Brad Hines described the steps they took over the past year to improve GTE’s performance.

Hines and Brancucci said that they have forged a board-CEO relationship of mutual respect and solidarity that they believe is crucial to the success of any credit union, but especially for one going through difficult times.

Hines said that “when we decide on a direction, there’s 100 percent commitment to it, and the board and management move together as a whole.”

Brancucci noted that the relationship between CEOs and boards is a work in progress. The health of the relationship should be reassessed on a quarterly or even monthly basis. “The point is the relationship — the partnership — has to work for the credit union to run well and serve its members,” he said.


Small CUs talk concerns
Credit unions with $75 million or less in assets gathered for a Small Credit Union Roundtable during the NAFCU conference. They touched on a number of topics during the town-hall style session, including compliance, examinations, lending, the corporate credit union system and their take on the cooperative spirit within the industry.

Participants indicated that compliance remains one of their most daunting challenges. For example, no one among the credit union professionals said they were a certified compliance officer. Many said they rely on NAFCU for assistance and NAFCU’s Compliance Blog. Another roundtable attendee suggested that smaller institutions could look to larger credit unions for assistance with their compliance duties. Several talked about pooling resources through shared branching and CUSOs. Others noted they have been assisted by larger credit unions.


Debt Protection & Credit Insurance Benchmarking Survey Results
A Solutions Theater presentation from NAFCU Services and Securian detailed credit unions’ experiences with adding debt protection services to their array of products. The Debt Protection and Credit Insurance Benchmarking Survey found that 20 percent of the 121 NAFCU- member executives said they offer debt protection services to their members, while 79 percent offered credit insurance.

Overall, 81 percent of the executives said they were satisfied with the debt protection program due to its flexible design and accurate program pricing. In addition, the study showed that debt protection programs harness greater fee income for credit unions.


Study of payment trends and member preferences
Since only one in four members hold a credit card from their credit union, credit unions have a great opportunity to expand their penetration in the credit card arena, according to Kevin O’Donnell, vice president of Discover Financial Services.

O’Donnell provided credit unions at the conference with an overview of a 2011 study of payment trends and credit union member preferences related to debit and credit cards.

The survey found that more credit union members are paying off their credit card balances at the end of the month. It also highlighted card features that are of importance to members, such as no annual fee, fraud prevention, strong reward programs and low annual percentage rates. O’Donnell noted that these features could provide opportunities for credit unions to lead more of their members to their card services.


Legislative update panel
During a legislative update panel, Brad Thaler, NAFCU’s vice president of legislative affairs and Dan Berger, the association’s executive vice president of government affairs, thanked credit unions for their support of legislation that would have delayed the Federal Reserve’s debit interchange rule. Between the personal visits, phone calls, e-
mails and other correspondence, NAFCU estimates that credit unions and their members made more than 100,000 contacts to lawmakers. Thousands of these contacts were made via SaveYourDebitCard.com, which was launched earlier this year by NAFCU to facilitate credit union communications with decision makers on the Hill.

While the bill did not pass, the Fed did delay the implementation date to Oct. 1. The Fed’s final rule caps debit interchange fees at 21 cents per transaction plus five basis points. The NAFCU panelists noted that there is a small-issuer exemption for institutions with $10 billion or less in assets; however, it remains to be seen whether the exemption will be effective.

The panel also updated credit unions on the latest developments regarding member business lending, housing finance reform, data security and more.