Invest in Your Emerging Leaders

By: Peter Myers, Senior Vice President, DDJ Myers. 

The landscape the credit union industry navigates in is changing every day. As we all know, some of the changes are easily anticipated while others are more difficult to predict. One of the most common, yet largely unaddressed, challenges the industry will go through over the next decade is the mass retirement of C-level talent.

There are 10,000 baby boomers reaching retirement age every day in our country, and our industry is not immune to this phenomenon. Boards and CEOs are waking up to the reality that succession planning can no longer be considered a single hiring decision when retirement is announced. Implementing a strategic succession plan includes mapping the long-term talent needs of the organization.

Succession determination by tenure cannot be credit unions’ practiced strategy any longer.

Development of the next generation of leaders and establishing a leadership program plays an integral part of strategic succession planning and talent management strategy for credit unions.

Leadership development programs accelerate the readiness of the next generation of executives and high-performing teams.

The advancement of mid-management’s strategic orientation and tactical execution has to match, if not advance beyond, your current executives’ capabilities.

In addition to individual development, focusing on leadership advancement and the skills needed to be a great leader dramatically increases the quality of communication throughout the organization and coordination within and across teams.

This in turn, builds a common framework, language, and bond that will be utilized for decades to come.

ddj podcastInvesting in the leadership development of your credit union staff produces more leaders who have a greater focus and strategic vision for the success of your credit union long into the future.

For more information about how your credit union can start investing in your emerging leaders, and why it is imperative that you do so now, listen to the full podcast here: It’s Critical to Invest in Your Emerging Leaders Today.

Click here to learn more about DDJ Myers’ Emerging Leaders Program (a recipient of the 2013 NAFCU Services Innovation Award).

ddjmyerslogoDDJ Myers is the NAFCU Services Preferred Partner for Leadership Training, Executive Search and Recruitment Services.

More educational material and contact information can be found at

Funding Strategies for a Fluctuating Market

By: Dan Brenton, Senior Relationship Manager, and Todd Wacker, Regional Sales Coordinator, for Federal Home Loan Bank of Atlanta.

Interest rate volatility, persistent net interest margin pressures, and continued global economic weakness highlight the critical need for credit unions to evaluate their balance sheets and establish a strategy for the future.

So how can credit unions prepare for whatever the economic environment brings them? At the Federal Home Loan Bank of Atlanta, we collaborate with our members to develop strategies based on their institution’s profile and strategic goals.

In our most recent webinar, we talked through four real customer profiles and the customizable advance structures that helped them manage interest-rate risk, compete for lending opportunities, and boost profitability:

Profile 1: Incremental Hedgingprofile-1

A credit union with more than $4 billion in assets achieved double-digit mortgage growth over a four-year period through heavy advertising and a low-cost pricing strategy. The credit union’s mortgage portfolio included 15- and 30-year fixed-rate mortgages, with weighted-average life of 5 years and 6.5 years, respectively, as well as ARMs up to 10/1. The institution was seeking to hedge the interest-rate risk of holding fixed-rate mortgages in portfolio, while continuing their track record of growth.

Solution: Provide a ladder of Fixed Rate Credit (FRC) advances with maturities of three, five, and seven years. With an initial blended funding cost of 1.59 percent and weighted-average life of 5.8 years, the FRC ladder provided an incremental hedge to the institution’s fixed-rate loan production. When each advance matured, the credit union could roll over the advance or pay it off, based on the payoff behavior of the mortgage portfolio and volume of new originations.

Benefits of FRC advance:

  • Manage risk with fixed-rate funding through stated maturity
  • Maturities of one week to 20 years
  • Alternative to issuing CDs

profile-2Profile 2: Minimize Hedge Cost

A credit union with more than $5 billion in assets and a growing residential mortgage portfolio was seeking ways to obtain interest-rate risk protection while minimizing hedging costs. The institution used a combination of CDs, brokered deposits, advances, swaps, and caps to hedge balance sheet risk. With a liquidity ratio of 22 percent, the institution was not seeking to add funding to the balance sheet immediately.

Solution: Provide a five-year Fixed Rate Credit Hybrid advance with a two-year forward starting period. With this advance, the credit union could lock in a fixed interest rate on the advance immediately without taking on funding or paying interest costs until after year two. This structure reduced total interest costs compared to a seven-year FRC Hybrid that funded immediately while still providing an effective hedge against a potential rise in rates in the future.

Benefits of forward starting FRC Hybrid advance:

  • Fixed rate determined today
  • Interest payments begin after forward starting period ends
  • Symmetrical prepay – ability to capture positive net present value in an up-rate scenario

Profile 3: Matching Off Risk of Long-term Loans

Our third scenario involved a credit union with assets between $500 million and $1 billion with loan growth between four percent and 14 percent over the past five quarters. The credit union serves an affluent customers base and has an average loan size of more than $300,000. They were seeking a funding strategy to match-fund portfolio mortgages while reducing interest-rate risk.

Solution: Deliver a 15-year fully amortizing advance at a rate of 1.97 percent, enabling the institution to match projected principal reductions and lock in the interest rate spread over a 15-year term. To manage payoff risk, the amortizing advance can also be structured with a one-time call option.

Benefits of amortizing advance:

  • Match loan amortization schedule
  • Flexible amortization: straight-line, mortgage style, or custom; interest-only periods and balloons available
  • Add call option for even more flexibility and pass the cost of the call to the customer

profile-4Profile 4: Managing Liquidity Needs

Our final scenario centered on a $2 billion credit union with an 8.5 percent liquidity ratio and loan-to-assets ratio of 82 percent. The institution wanted to improve its liquidity ratio while minimizing funding costs.

Solution: Deliver a Callable Fixed Rate Credit Floater advance, which is a term advance that resets periodically to a predetermined FRC rate (monthly, quarterly, semiannual, or annual). The structure reduces borrowing costs by providing long-term funding at short-term interest rates. See below for an example:

Benefits of Callable FRC Floater advance:

  • Reduce costs by accessing term funding at short-term rates
  • Maximize balance sheet flexibility with the callable feature

As the market continues to fluctuate and economic realities affect your strategic plans, work with FHLBank Atlanta to ensure your funding strategies match your institution’s profile and strategic outlook.

For more information on “Funding Strategies for a Fluctuating Market” and to hear real customer case studies, watch the full webinar here.

FHLBank of Atlanta is the NAFCU Services Preferred Partner for Credit Union Liquidity and Financing Services. More information and education resources can be found here

ERM Strategy for Credit Unions

By: William Hord, Vice President of Enterprise Risk Management Services for Quantivate.

When tackling an ERM strategy, your board and management must discuss and articulate your credit union’s risk management attitude and risk appetite. Both need to fully agree on the level of risk that the credit union is willing and able to take in the pursuit of their ERM strategic objectives. In the absence of this understanding, it is difficult for management to achieve the desired results and for the board to effectively fulfill its risk oversight responsibilities.

When your credit union’s management develops a formalized risk management processes, it is possible to successfully act upon risks at an enterprise level- in relationship to the strategic objectives you are seeking to achieve.

When these enterprise level risks are uncovered and openly discussed, management and the board can efficiently determine whether they are in line with their risk appetite.

Since risks for the credit union are always evolving, having an understanding of the most significant risks and their related responses will provide timely and quality risk information across the credit union. In turn, the addition of key risk indicators will help to identify emerging risks that may ultimately impact the achievement of strategic objectives.

When property executed, enterprise risk management will assist executives and boards in strengthening risk management in their credit union. Ultimately, this enhances the board’s risk oversight capabilities and provides a more robust credit union for the membership.

For a deeper dive into questions that credit unions need to know in order to implement an ERM structure strategically and successfully, listen to ERM Strategy for Credit Unions, the last installment of the podcast series, “A 360 View of ERM.”

You can catch up on the previous sessions by listening to them here: Part 1 – Getting Down to the ERM Basics or Part 2 – How to Create a Successful ERM Program.

Logo for Quantivate  Quantivate is the NAFCU Services Preferred Partner for Vendor and Contract Management Software. More educational resources are available

Finding New Ways to Serve the Nation’s Underbanked

By: Lawrence Pruss, Senior Vice President and Payments Expert, Strategic Resource Management.

According to the Federal Deposit Insurance Corporation, approximately 27 percent of all American households are unbanked or underbanked – that’s 50 million individuals.

For purposes of this article, unbanked refers to individuals who don’t have a bank account and underbanked refers to those who supplement their bank account with alternative financial services like check cashers. Both underbanked and unbanked households are typically forced to rely on nonbank financial or high-rate lending solutions such as payday lending, tax refund, and settlement loans.

How did we get here? Why are so many people in the United States outside of traditional banking security in 2016? There are several reasons why, with many people falling into more than one category. This article addresses these issues and provides solutions your credit union can offer to serve the underbanked and help them become members of your credit union.

Case One: During the Great Recession from late 2007­— early 2009, many people with previously good credit had their credit history tarnished. Most financial institutions now exclude these individuals with a record of bounced checks, overdrafts, or delinquencies.

Solutions: Offer second-chance checking accounts, debit or prepaid solutions, and credit building tools generally available at local banks or credit unions.

Case Two: A significant portion of the immigrant population is underbanked. They often arrive to our country with a distrust of traditional banking systems, and depending on legal status, avoid traditional banks that require government issued identification. Increasingly stringent Know Your Customer (KYC) and other anti-money laundering regulations have exacerbated this situation.

Solutions: Develop easy account applications and use alternative identification solutions like individual taxpayer identification numbers (ITIN). The IRS issues ITIN numbers to non-citizens who are working in the U.S., but are not eligible for a Social Security number. Develop inexpensive money transfer solutions which can help alleviate high fees typically associated with transfers, and consider alternative lending scores to help qualify these individuals for financial products.

Case Three: Approximately half of the 80 million millennials in America (those between 18 and 29) are unbanked or underbanked. The 2009 Credit CARD Act put strict limits on how credit cards are marketed and issued, and an inherent skepticism of large money-making institutions and Wall Street means many young adults are hesitant to pursue credit cards and other traditional banking products. In fact, more than one-third of that population has never had a credit card.

Additionally, because of their digital communication preferences and desire for fee and pricing transparency, companies that offer clear debit, prepaid, or increasing alternative financing solutions are winning over this segment. Examples include PayPal, Google, and some of the more creative credit unions with “young and free” efforts geared toward the younger generation.

Solutions: Establish your institution as a trusted, tech-savvy brand to build loyalty with this consumer group, locking them in as future, long-term members.

Case Four: While the official unemployment number is at 5 percent, or 7.9 million people, an estimated 30 million Americans are still out of work or underemployed – an audience typically avoided by banks.

Solutions: Develop lending based on an individual’s potential. Many of these individuals have returned to school or pursued further training while being un- or underemployed. This offers a great opportunity for establishing lifelong loyalty for those institutions willing to take a chance on their future success.

The number of un- and underbanked individuals in the United States is larger than the total populations of many countries. As such, it offers a huge opportunity for American financial institutions willing to better understand “why” they are underbanked and then find ways to support them and help them reach their unique needs.

Strategic Resource Management is the NAFCU Services Preferred Partner for Vendor Cost Benchmarking and Negotiation Services.

Building a Third Party Risk Management Program

By: Jake Olcott, VP of Business Development at BitSight Technologies.

When looking at cyber security threats to your credit union systems, it is no longer sufficient to enlist the best practices for your institution without evaluating the practices of all your vendors and partners. In consideration of some high profile cases of cyber breaches in the past few years— including major corporations such as Target, American Express, and Experian—it is evident how serious third party breaches can be.

These breaches cost a great deal to the companies and customers affected. It is critical that credit unions move forward with plans to evaluate and mitigate the risks posed by vendors and other business partners. In light of this growing need, BitSight Technologies recently hosted a webinar entitled “How to Build a Third Party Risk Management Program” for credit union executives around the nation.

Legal Implications of Ineffective Third Party Risk Management

Third party risk management programs are more than an obligation to your customers; these programs are being brought to the forefront and scrutinized by those conducting oversight. During BitSight’s webinar, credit union executives participated in a poll indicating that 85 percent of them had been asked by regulators about their third party risk management practices. In fact, regulators are starting to pursue actions for failure to properly implement programs to prevent third party cyber risk.

What are the Immediate Steps to Ensure Appropriate Third Party Cyber Security?
There are four key steps to take for a top-notch security program:

  1. Identify and Tier Third Parties: A working group including IT, IT security, procurement, and legal should identify and classify vendors. Vendors handling data that is regulated or confidential should be prioritized as critical.
  2. Assess Security: There are a number of methods credit unions can use to assess security. In BitSight’s webinar poll, the most common tool utilized by credit union executives was audits and requests for documentation, with nearly all respondents already doing these. In addition, about a quarter of executives involved in the webinar said they were conducting onsite visits or desk assessments- 38 percent of managers are currently using vulnerability scans and penetration tests, and 43 percent of the webinar poll respondents were also using questionnaires.
  3. Negotiate Contractual Terms: Existing contracts need to be reviewed to ensure they reflect the level of security you expect. Use “point in time” tools to evaluate third parties.
  4. Ongoing and Continuous Monitoring: This involves constant oversight integrated into the lifecycle of the security assessment process, and leverages the use of automated feeds.

The Vendor Risk Management Maturity Curve

This curve represents each step of the security process as outlined above. When asked which level on the vendor risk management curve their credit unions fall, 16 percent of executives at BitSight’s webinar said they were at level one,  just over half of all executives were at level two, 30 percent were at level three, and two percent were at level four. One of the problems many executives have in reaching levels three and four pertains to small organizations: the process can become costly and require extensive manpower.

The entire webinar slide deck with in-depth graphics, tips, techniques, and tools your credit union can leverage is available for download here.

BitSight Technologies is the NAFCU Services Preferred Partner for Cybersecurity Ratings for Vendor Risk Management and Benchmarking. More educational resources and partner contact information are available at