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Improving Your Effectiveness As a Credit
Union Official
NCUMA 2015 Hawaii Conference
November 7, 2015
Ron Parker [email protected]
1-520-275-5043
Develop a Watch List
Watch list
a list of items/things to be monitored
in order to prevent loss, damage, etc
Watch ListAREAS OF POSSIBLE/REAL
CONCERN
AREAS OF REAL/POTENTIAL LOSS
REMINDERS
AREAS OF POSSIBLE CONCERN--Industry
• Taxation
• Rising costs of regulatory compliance
• Non-bank competitors
• Relevancy as a provider of financial services
• Data/IT security issues—cyber security
• Volunteer system and succession
• Capital—supplemental and risk based
• Business model—reliance on net interest margin/fee income
• Demographics of membership
• Appropriate Products, Services and Delivery
• Effective Planning
• Risk Management
• Governance and oversight
CU CEO financial and risk management priorities Address regulatory compliance requirements
Improve lending policies and processes for improved risk management
Consider how to replace NSF/OD income with other fee income
Improve capital ratio
Establish an enterprise risk management (ERM) function
Clean up the balance sheet/improve credit quality
Address fraud and information security concerns
Improve investment and ALM policies
Lower cost of funds
IT/Data Security
Increase loans
Improve overall examination scores
Other CU executives’ concerns
Fraud management/mitigation
Successfully launching new projects
Getting maximum value from existing technologies/vendor relationships
Too many projects; too few resources
Information security issues/compliance
Delivering quality support to users
Vendor management issues/ compliance
IT staff retention and development
54%
53
53
47 12%
32
38
45
45%
Weak economy/ loan demand
70%
Interest-rate environmentRegulatory
burden
53%
19% 18% 12%
Membership growth
Credit quality/ problem loans
Growing fee income
CEOs Concerns
WHAT CAN CAUSE OUR CREDIT UNION
SIGNIFICANT LOSSES AND/OR THREATEN
OUR FUTURE EXISTENCE!
WHAT ARE CONCERNS OR
CHALLENGES FOR YOUR CREDIT UNION
OR THE CREDIT UNION INDUSTRY?
Watch List Areas
WHAT ARE MINOR
PROBLEMS AND WHAT ARE BOAT
SINKERS?
Watch List Areas
WHERE DO WE NEED TO IMPROVE?
WHERE DO I NEED TO IMPROVE?
Gain an Understanding
of Effective Governance
Observations of Boards
• Increased focus on ethical conduct
• Increased emphasis on improving corporate governance
• Challenges in succession
• Increased understanding of general credit union finances and risks
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1. Establish expectations: What is the board and management responsible for; what do we expect from management, staff and ourselves.
2. Clearly stated responsibilities and authority: To the CEO, staff, committees etc. Doing so will allow the board to hold these groups accountable for meeting board-stated expectations.
Policy Governance ModelBy John Carver
Avoid any and all actual or
appearance of conflict of interest;
unethical or inappropriate
conduct!
No Official nor Family Member Should Ever Profit in any
manner from their position as a Credit Union Volunteer!
• In which areas do WE as a Board need to focus our attention?
• Where do I as an individual Board member need to focus my attention?
• What do my fellow Board members expect from me?
Characteristics of Effective Officials
• Has a Passion for the Position
• Understand the Duties, Authorities and Responsibilities of the Position
• Understand effective Corporate Governance Principles and Practices
• Right Personnel and Rewards
• Effective Evaluation of Management and Board
Characteristics
• Avoids any and all actual or appearance of Conflict of Interest or Unethical Conduct
• Understands type of Risks of Loss and how they are monitored, measured and MANAGED
• Have effective Planning Processes in place
• Have well-defined Succession Plans for Board and Key Management positions
Characteristics• Understands Key Financial Information
• Understands Accounting Fundamentals
• Understands managements assessment of the Needs of the Membership—
products, services and delivery systems
• Understands Key Regulatory Requirements and Areas of Focus
Have a Passion for the Position
–Attends all Meetings
–Has Read and Studied all items to be discussed—i.e. is PREPARED
–Asks Questions, Expects
Understandable Answers
2011 Letters to Federal Credit
Unions
11-FCU-02 Duties of Federal Credit Union Boards of Directors
Key Provisions1.Responsible for the credit
union’s general direction and control
2. Carry out duties in good faith, in the best interests of the membership
3. Administer affairs fairly, impartially, and without discrimination
4.Maintain a working familiarity with basic finance and accounting practices
5.Direct operations in conformity with Federal Credit Union Act, NCUA Rules and Regs, other laws, and sound business practices
6.Rely on information prepared or presented by employees or consultants to be reliable and competent
George Marshall's Leadership Principles
• Candor Speak honestly and responsibly
• Commitment Faithfully adhere to what is right
• Courage Be bold in speech and deed
• Integrity Speak and act with honor
• Selflessness Service above self-interest
Evaluate Performance
Management, Board of Directors and
major Committees (How many
Committees do we need?)
HAVE WE ESTABLISHED WELL DEFINED MEASUREABLE GOALS AND PROVIDED MANAGEMENT
WITH THE NECESSARY RESOURCES TO COMPLETE OUR
GOALS?
DO WE HOLD RESPONSIBLE PERSONNEL
ACCOUNTABLE…DO WE REWARD THEM
APPROPRIATELY
New Directors on the Board
Source: Filene Research Institute
Our board should have term limits
Our board should have a mandatory retirement age
From Good to Great—
You can’t achieve great things without great people!
When in doubt, don’t appoint—keep looking.
When you know you need to make a people change, act.
CEO Succession Planning
If you had to name someone as CEO immediately (not on an interim or emergency basis), could you?
Source: Stanford University, Heidrick & Struggles (2010)
If you have an emergency candidate to replace the CEO, is this person also a
succession candidate?
Seven Steps To A Board Succession Plan
Assess your credit union’s needs.
List required attributes.
Assess current board members.
Provide opportunities for development.
1
2
Develop a process to anticipate voluntary board member departures.
Build a list of potential members and start to orient them to the credit unions.
Develop a formal board member succession policy.
3
4
5
6
7
Determine if We Have the Right Management
Personnel
DO WE HAVE THE RIGHT MANAGEMENT TEAM IN
PLACE TO PROVIDE CURRENT AND FUTURE
LEADERSHIP—
BALANCE OF MANAGERS AND LEADERS
Who are our Leaders and Managers—
Where will future leaders come
from?
Leadership Vs. Management• Leaders climb
trees and determine the direction we should go to get out of the jungle.
• Managers cut down the
trees in the most efficient and effective manner.
We need Managers when it’s business as usual!
We need Leaders when we need to make changes!
ARE WE PERFORMING APPROPRIATE PLANNING
PROCESSES—
STRATEGIC, BUSINESS, TECHNOLOGY AND
CAPITAL
NO ONE CAN PREDICT THE FUTURE BUT EVERYONE CAN
SAY WHAT IF? AND PLAN ACCORDINGLY!!
HOPE IS NOT A STRATEGY!
Merger Strategy Plans• Up stream and down stream criteria
and guidelines
• Change in ownership provisions in management contracts
• Fundamentals---Best interest of membership and staff short and long term!
“There will be fewer than 1,200 credit unions in 2030, and the vast majority of them will be over $1 billion in assets and a substantial number will be over $10 billion.
Any credit union under $100 million in assets will be referred to as ‘tiny.’”
CU System OverviewSystem Concentration
• The trend towards the “mega-Credit Union will continue:– By 2014 the U.S. CU system is projected to have
well over 200 CUs with assets greater than $1 billion
– The billion dollar CUs will control:• Over half of total CU system assets
– An additional 1,000 CUs will have between $200 million and $1 billion in assets• Approx. 35% of total CU system assets
Succession Planning
• Does the plan address both retirement and extended absences of key Credit Union personnel?
Is there a Board of Directors succession plan?
DO WE HAVE A COMMON VISION FOR THE FUTURE? IS OUR VISION REALISTIC
AND IN THE BEST INTEREST OF OUR
MEMBERSHIP?
GAIN AN UNDERSTANDING OF KEY FINANCIAL INFORMATION
Credit Union Financial Reminders
IF WE WANT TO INCREASE NET INCOME??
WHAT ARE OUR ONLY TWO OPTIONS:
Revenue/Income - What we Earn
What are our sources of Income?
• Loans-Loan Income• Investments – Investment Income
• Fees, Charges and Other Income
Costs/Expenses• Cost of funds--Dividends
• Provision for loan losses
• Operating expenses
Net Income
Total Income less
Total Expenses =
Net Income or loss!
Income Statement
Income– Loan interest– Investment interest
Dividends
Margin/Spread
Income StatementMargin/Spread
Fees and Other Income
Costs and Expenses–Provision for Loan Losses–Operating Expenses
NET INCOME
ROA--Return on Assets (or Return on Average Assets)
• It is a standard measure of profitability in financial institutions
NET INCOME/ASSETS
Assets - What we OwnEarning
Cash and equivalentsLoans
InvestmentsNCUSIFOther
Non-EarningCash
NCUSIFProperty and equipment
Other
Liabilities - What we Owe
To Members
SHARES
To Others
Liabilities - What we Owe
What portion of our Assets are funded by
borrowed funds?
All but Member’s Equity (Capital)
What is Capital?Capital is not cash
• It is the accumulated earnings and losses since you started the credit union.
• Tells you what portion of your assets belong to your members (collectively) and what part is dedicated to your depositors and other creditors
Net Worth and Earnings
A Credit Union’s only source ofCapital is
SUPPLEMENTAL/ALTERNATIVE SOURCES??
Member’s Equity (Capital)
Capital Ratio=Capital/Assets
How can you increaseyour Capital ratio?
HAVE A PASSION FOR YOUR POSITION!!
Have a Passion for the Position
–ALWAYS, puts the Best Interest of the Credit Union and its Stakeholders ahead of own Best Interest.
–Continually Try to Improve your ability to more effectively Govern
–Knows When to Retire