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New corporate structure proposal shifts business model

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LAS VEGAS (7/15/10)--The National Credit Union Administration’s (NCUA) proposal to change the corporate system structure will affect corporates’ business model and its expectations of credit unions, according to a panel at The 1 Credit Union Conference, which ended Wednesday in Las Vegas. Corporates can thrive in the future under a different model. The system will need acceptable business models, and the issue of how legacy assets will be treated needs to be resolved before credit unions will contribute more capital, said Bill Hampel, chief economist at the Credit Union National Association (CUNA). “Corporates will require both net interest income and fees to cover expenses,” he said, adding the move to a small balance sheet will require more efficient processing and higher fees. Mike Mercer, president/CEO of the Georgia Credit Union Affiliates, gave a history of the corporate system, saying this past year’s crisis is the third encountered by the corporate system. “NCUA will require corporates to have a smaller default rate, confine interest rate risk, and will tolerate very little liquidity risk,” he said. Everything will be off the balance sheet, but risk will transfer from the corporates to credit union balance sheets. “Examiners will be more focused on how you invest and balance your risk,” Mercer said. Brad Miller, CEO of Southeast Corporate FCU and former CEO of the Association for Corporate Credit Unions, said the challenge for corporate credit unions is that they haven’t been able to quantify their value to credit unions. Corporates will need to focus on effectiveness and efficiency. Miller would favor a collaborative business model but said the system is “so dyamic it would be hard to collaborate.” However, centralizing some back office functions would improve efficiency. If U.S. Central survives, it wouldn’t be as a wholesale credit union but as a retail. “The big issue with the business model is that we moved a lot of risk to USC but we didn’t move enough capital,” Miller said. And even bigger issue is legacy or “toxic” assets. “We’re still seeing losses,” he said. Frank Mitchell, president of Allied CU, Calif., said he would like to see a credit union-owned solution to the problem. “For most , having the Fed settle is not an alternative. You cannot separate settlement from short-term investments and short-term liquidity.” The proposal, he said, “takes out U.S. Central. Those credit unions that depend on U.S. Central “would have the capital but no infrastructure to provide settlement and processing.” The ramifications, said the panel, are:
* The expectation of increased internal investment expertise; * Concentration of risk required will flow to natural person credit unions, especially to those with high concentrations of investments through corporates; * Corporates will be treated as a third party, requiring vendor due diligence.
CUNA Associate General Counsel Mary Dunn moderated the panel.

Ordinary wont change the world--says keynoter Carroll

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LAS VEGAS (7/15/10)--Kevin Carroll has been beating the odds all his life. He briefly gave an account of his childhood to attendees at a general session Wednesday at the 1 Credit Union Conference in Las Vegas. He was abandoned by his father when he was an infant. His mother abandoned him and his two brothers when he was 6 years old. Carroll
Click to view larger image Kevin Carroll challenged attendees at the 1 CU Conference on Wednesday to turn their dreams and ideas into reality. His company--Kevin Carroll Katalyst--is committed to elevating the power of sport and play around the world. (Photo provided by the World Council of Credit Unions)
and his brothers then went to live with their grandparents in Philadelphia. When Carroll says, “Your circumstances do not dictate your destiny,” he knows whereof he speaks. Carroll went on to graduate from college, get a master’s degree, serve in the Air Force as a translator, work as a trainer for the National Basketball Association’s Philadelphia 76ers, write three successful books, work for Nike as its “creative change agent,” and he now runs his own company, Kevin Carroll Katalyst. Carroll has been a credit union member since 1980, when he joined 1st Community FCU in San Angelo, Texas. He said he always felt an affinity for the credit union mission. When Carroll was working for Nike in Beaverton, Ore., he met the staff of First Tech CU, also located in Beaverton. “The staff of First Tech believed in me and my vision for elevating the power of sport and play around the world,” said Carroll. “They gave me a line a credit so I could be spontaneous, like building soccer fields and basketball courts in countries around the world. They helped me be extraordinary and do extraordinary things, because they understood that ordinary won’t change the world. “I’ve leant my voice to a lot of causes that I feel passionate about, most recently an organization called Alliance for a Healthier Generation,” said Carroll. “What are you lending your voice to? What are you being a catalyst for?” He challenged attendees to never lose their sense of wonder. “Adults often lose their sense of wonder,” he said. “Have you ever noticed how an adult walks down the street—hunched over with eyes downcast. Compare that with how kids walk down the street—upright with eyes looking all around. “Your job is to look around and see opportunities in financial services,” he said. “Be extraordinary, because ordinary won’t change the world.” The conference, which ended Wednesday, was presented jointly by the Credit Union National Association and the World Council of Credit Unions.

U.S. could become fraudsters paradise by 2012

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LAS VEGAS (7/15/10--“In an effort to combat fraud, chip-card technology is becoming the standard in every country but the U.S.,” Mark Sievewright, corporate senior vice president for Fiserv, told attendees Wednesday morning at the 1 CU Conference in Las Vegas. “But the U.S. has been reluctant to make the conversion to chip cards,” says Sievewright. “So, by 2012, the U.S. will stand alone as
The U.S. is reluctant to make the conversion to chip cards, which will make the U.S. a “fraudsters’ paradise,” said Mark Sievewright , corporate senior vice president for Fiserv, Wednesday morning at the 1 CU Conference in Las Vegas. He conducted a breakout session on “Positioning Credit Unions for Fast-Growth Economies.” (Photo provided by CUNA)
the only major country without this technology, which will make it a fraudsters’ paradise.” Another challenge credit unions will face in the future is having an inverted business model, according to Sievewright. “During recent history, loan growth has always exceeded savings growth,” he said. “Now and for the foreseeable future, however, savings growth will exceed loan growth. Credit unions need to figure out how to succeed in that environment.” Shifting demographics will present another challenge. “Different age groups want different financial products, services and delivery channels,” he said. “Credit unions will have to provide a wide variety of products and services--and they’ll have to provide them through a variety of delivery channels. “The Apple iPad--or something like it--could become the branch of the future,” said Sievewright. “Your members will expect to be able to access your credit union from their offices, briefcases, or homes through these remote devices. “In the U.S., people over age 80 represent the fastest growth demographic group,” he said. “It’s obvious these people will be interested in income generation, but they’ll also have loan demands. Your credit union needs to be in a position to serve these octogenarians,” says Sievewright.

Census Bureau Minority-owned businesses on the rise

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WASHINGTON (7/15/10)--The number of minority-owned businesses increased by 45.6% to 5.8 million between 2002 and 2007, more than twice the national rate of all U.S. businesses, according to the U.S. Census Bureau. This could have implications for credit unions’ member business lending (MBL). Also, the number of women-owned businesses increased 20.1% during the same period. The total number of U.S. businesses increased between 2002 and 2007 by 18% to 27.1 million (LoneStar Leaguer July 14). The new data come from the Preliminary Estimates of Business Ownership by Gender, Ethnicity, Race and Veteran Status: 2007, from the U.S. Census Bureau's 2007 Survey of Business Owners. The preliminary report released is the first of 10 reports on the characteristics of minority-, women-, and veteran-owned businesses and their owners scheduled for release over the next year. Increases in the number of minority-owned businesses ranged from 60.5% for black-owned businesses to 17.9% for American Indian- and Alaska Native-owned businesses. Hispanic-owned businesses increased by 43.6%. Receipts of minority-owned businesses rose 55.6% to $1 trillion between 2002 and 2007. Increases ranged from a high of 62.9% for Native Hawaiian- and Other Pacific Islander-owned businesses to 28.3% for American Indian- and Alaska Native-owned businesses. Over the same period, receipts of Hispanic-owned and women-owned businesses increased by 55.5% and 27% respectively. Receipts of all U.S. businesses increased by 33.5% to $30.2 trillion. Respondents to the 2007 Survey of Business Owners were asked to report the percent of ownership by gender, ethnicity, race and veteran status for up to four primary owners (Hispanics may be of any race). Business ownership is defined as having 51% or more of the equity, interest or stock in the business. The Credit Union National Association is supporting current legislation being considered in Congress to lift the cap on credit unions’ MBL to 27.5% of total assets from the current level of 12.25%. For more information, use the link.

CMG MI issues white papers for CU mortgage lenders

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SAN FRANCISCO (7/15/10)--CMG Mortgage Insurance Company (CMG MI) has developed three new white papers, including one that offers guidance to credit union mortgage lenders feeling overwhelmed by current volume levels and seeking practical advice on how to improve their efficiencies. “Managing Production Challenges Resulting from Unexpected Increases in Volume,” was created by the Mortgage Insight Panel, an advisory group of credit union executives sponsored by CMG MI that focuses on ways to support credit unions seeking to begin providing mortgage lending services to members. Mortgage volume for credit unions has increased significantly in recent years, especially as credit unions moved to fill the space vacated by banks and other originators. Many have experienced considerable stress on their operations and staff as a result of the unprecedented demand. “The solutions proposed in this paper to the challenges of processing, pipeline management, communication plans, technology and simply transitioning from a refinance market to a purchase market are the result of shared best practices and success stories from around the country,” said panel member Denine Messersmith, vice president for real estate lending with NRL FCU, Oxon Hill, Md. “By implementing them, credit unions can take control of their mortgage lending operations and maximize their opportunities.” The white paper is available on the CMG MI Web site. Use the link. The Mortgage Insight Panel has also completed two more white papers on the topic of loss mitigation, “Loan Modification vs. Loan Refinance” and “Success Stories on Loss Mitigation.” “Even as the housing market continues to improve, loss mitigation remains an important focus for credit unions,” said panel member Deborah Atherton, vice president of real estate lending at Anheuser-Busch Employees CU, St. Louis. “One of the white papers we have developed around this topic offers success stories that can serve as models for credit unions seeking advice on best practices. The other paper assists them in reviewing various scenarios and determining whether a refinance or a loan modification would be the best option for the member and the credit union.” “The Mortgage Insight Panel exemplifies the values of the credit union movement--education, shared knowledge, and a community focus,” said Joe Dillon, senior vice president and general manager of CMG MI. “As part of our commitment to that movement, we support the panel and the work they do to equip credit unions with the understanding and tools to successfully embrace mortgage lending. This newest white paper is a great example of how credit unions work collaboratively to benefit the broader goal.”

CUNA makes MBL case on IFox BusinessI

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LAS VEGAS (7/15/10)--Credit unions have a “long and storied” history of making loans to small businesses since their inception 100 years ago, and could help businesses even more if their member business lending caps were raised, a Credit Union National Association (CUNA) economist told Fox Business Wednesday. “We have continued to lend through the economic downturn,” Mike Schenk, CUNA vice president of research and statistics, told Fox. “Member business lending (MBL) portfolios are growing faster than any other segment, and credit unions have reported double digit gains [in MBLs] in each of the past 12 years.”
Credit unions have increased their business loan portfolios by 10% in the past year, while commercial banks have seen a contraction of 10%. March 2010 data also indicates that loan loss rates at credit unions are “one-third of what we see in the commercial banking sector,” he said. Many small businesses cannot get loans, Schenk continued. “We have data from the [Federal Reserve Board] that shows commercial banks have changed their underwriting criteria, making it more difficult for those loans to be made.” CUNA and credit unions are lobbying to raise their lending cap--currently at 12.25%. Sen. Mark Udall (D-Colo.) has introduced an amendment that is before Congress that would lift the cap to 27.5%. “We believe that [raising the cap] would help credit unions inject another $10 billion into the economy and create another 100,000 new jobs,” Schenk said.

Ten tips aim to make technology more efficient for CUs

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Rudy Pereira, senior vice president operations and technology at Alliant CU, Chicago, during a Wednesday morning breakout session at The 1 Credit Union Conference in Las Vegas. (Photo provided by CUNA)
LAS VEGAS (7/15/10)—“Information technology is the third top expense—behind staffing and facilities—for credit unions. With nearly half of credit unions having negative earnings last year, 2010 should be a year of automating tasks and work processes to drive efficiency.” So says Rudy Pereira, senior vice president operations and technology at Alliant CU, Chicago, who addressed 10 tips for increasing technology and operational efficiency--best practices from the CUNA Technology Council--during a Wednesday morning breakout session at The 1 Credit Union Conference in Las Vegas. The conference was presented by the Credit Union National Association and the World Council of Credit Unions Sunday through Wednesday. The 10 tips are:
* Automated work flow. Enterprise content management will drive making processes more efficient, Pereira said, noting that often a member’s phone call request is forwarded on and not followed through with a single call; * Integration. Integration of platforms and information from departments “lets you go from technology victim to leader,” he said. An integrated platform can handle 90% of calls from members. * Virtualization. By consolidating and lowering the number of servers, Pereira’s credit union saved 60% in costs—and reduced energy used. * Cloud computing. Linking a large group of servers via high speed networks to create a massive data storage system is in the future. By 2012, nearly 80% of Fortune 1,000 companies will engage in cloud computing. It will bring these benefits, Pereira said: scalability, skilled vendors, reduced cost, flexibility, quality of service, security and privacy. Small companies and start ups are at the front of the trend because they haven’t invested in legacy systems that would need replaced. * Task automation. This would include job scheduling, lock box, log reviews and allows the tech staff to work on meaningful projects. * Member self-service. Members making transactions themselves will increase. At Pereira’s credit union, 32% of members were online in 2005 and 60% in 2009. Among the hot new self-service options: ATMs with check image catchers and phones that take photos of a check and can deposit its image instead of the check. * Continuous process improvement. By breaking through patterns of “the way it’s always been done,” credit unions can improve service, ensure quality and reduce expenses. * Fraud analysis tools for online banking ATM and self-service phones. In 2005, credit unions saw significant budget losses beyond their insurance deductibles, with Pereira’s credit union losing $700,000 on its $208,000 deductible. Insurers have put more responsibility on credit unions to manage their fraud losses. * Single sign-ons. Having a single password to log into all the credit union’s systems will reduce help desk calls, save employees time waiting to reset passwords, reduce risk of the password being written down, add layered security, and engage employees. * Collaboration. More credit unions are beginning to consider partnering with other credit unions to use the same core system and staff. “The key is standardization (among vendors). It can drive up efficiency,” Pereira concluded.

Security Service FCU to acquire Colorado-based CU

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SAN ANTONIO, Texas (7/15/10)--Security Service FCU, San Antonio, Texas, has entered into a management agreement to acquire a Colorado-based credit union. The board of Norbel CU, Fort Collins, Colo., decided that the credit union should be acquired by another credit union. “They talked with several credit unions and selected Security Service,” John Worthington, Security Service vice president, told News Now. The two entered into a management agreement June 18 for the acquisition, which is subject to regulatory approval. Security Service has several staff members currently overseeing operations at Norbel. Security Service will have 19 locations in Colorado with Norbel’s five branches. Security Service has 36 service centers in Texas. “We’re already in Denver, Colorado Springs, and Pueblo,” Worthington said. The acquisition will expand Security Service’s presence in its “mountain region,” he added. Security Service has $5.6 billion in assets. Norbel has assets of $129 million.

Filene adds 19 i3 innovators

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MADISON, Wis. (7/15/100)--The Filene Research Institute has selected 19 credit union executives to join the institute’s i3 (Ideas, Innovation, Implementation) program, which fosters the development of new ideas and innovations for credit unions. Each member will serve a two-year term and participate in semi-annual meetings arranged by Filene. The next meeting will be held October 12-15 in Berkeley, Calif. Currently i3 members are partnering with other non-profit organizations and several cooperatives to develop new ideas around housing, retirement savings, and tapping synergies between credit unions and other cooperatives. i3’s most recent pilot is a successful loan feature that rewards members for making loan payments on-time by reducing their interest rate. Filene received more than 60 applications from qualified credit union executives. The selection process evaluated innovative aptitude, experience, and other key factors including present position, leadership abilities, motivation, geography, and type of credit union. “Innovation is a people business,” says Denise Gabel, Filene’s chief innovation officer. “Having such a rich talent pool in these challenging economic times illustrates the industry’s strong commitment to building a better tomorrow.” The new members are:
* Douglas Adams, president/CEO, Muna CU, Meridian, Miss.; * David Birky, director, strategic development, Interra CU, Goshen, Ind.; * Robert Chavez, executive vice president and chief operating officer, Sandia Laboratory FCU, Albuquerque, N.M; * Chris Chippindale, vice president, enterprise initiatives, Ent FCU, Colorado Springs, Colo.; * Paul Farmer, innovation officer, Veridian CU, Cedar Falls, Iowa; * Carlene Frimer, corporate trainer, United Communities CU, Ontario, Canada; * Sharon Gaugler, vice president, lending, A+ FCU, Austin, Texas; * Michael Hostetler, E-Commerce and market research manager, Finance Center FCU, Indianapolis; * Shannon Huot, marketing manager, Educators CU, Racine, Wis.; * Kathy Martin, senior vice president, development and support, Directions CU, Sylvania, Ohio; * Lisa Palma, vice president, member services, TruStone Financial FCU, Plymouth, Minn.; * Betsy Sommers, vice president, staff development, Seasons FCU, Wethersfield, Conn.; * Nick Talley, assistant vice president, branch lending, Chetco FCU, Brookings, Ore.; * Lauren Vance, vice president, strategic development and product delivery, Christian Financial CU, Roseville, Mich. * Joni Walker, senior vice president, Missoula (Mont.) FCU; * Michael Warrell, senior vice president, member service, Smart Financial CU, Kingwood, Texas; * Corina Watts, senior manager, marketing, University FCU, Austin, Texas; * Derrik Wynkoop, vice president, retail delivery, Hudson Valley FCU, Poughkeepsie, N.Y.; and * Stacie Wyss-Schoenborn, vice president, member solutions, Boeing Employees CU, Seattle.
For more information, use the link.

CU System briefs (07/14/2010)

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* ROCKVILLE, Md. (7/15/10)--MCT FCU has awarded four student members $1,500 each in college scholarships. The Bill Teel Memorial Scholarship was created to honor a former employee who helped bring innovative technology to the credit union in the 1970s and 1980s. Teel is remembered as a model employee with a strong work ethic. The four members receiving scholarships include Tiara Cobbin, University of Maryland College Park; Deborah Cooke, Montgomery College; Kara Karpman, Duke University; and Josiane Tossa, University of Maryland College Park ... * ALBANY, N.Y. (7/15/10)--Sperry Associates FCU, New Hyde Park, N.Y., received the 2010 Ralph W. Hillman Marketing Award from Universal Sharing Network (UsNet). The award recognizes a participating credit union for exemplifying the spirit and enthusiasm consistently exhibited by the late Hillman in his support and marketing of the shared branching network. Sperry Associates FCU has $372 million in assets. UsNet is a credit union service organization owned by New York credit unions. Pictured is Andrew Kernan, Sperry director of business services and corporate development. (Photo provided by the Credit Union Association of New York) ...

Coping with a growing compliance burden

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LAS VEGAS (7/14/10)--Every financial crisis in the past has led to more regulation, but “this one’s a doozy,” with 61 regulatory pronouncements made in 2009 and more expected in 2010, said Alan Cameron, president/CEO of the Idaho Credit Union League, and chairman of the Credit Union National Association’s (CUNA) Consumer Protection subcommittee.
At The 1 Credit Union Conference, a Monday breakout session on coping with the increasing burden of compliance told credit unions that 61 regulatory changes were promulgated during 2009. Speakers at the breakout were, from left, Alan Cameron, president/CEO of the Idaho Credit Union League and chairman of the Credit Union National Association’s (CUNA) Consumer Protection subcommittee; Donna Chardeen, director of compliance and fraud mitigation at SEFCU, Albany, N.Y., and Kathy Thompson, CUNA senior vice president for compliance and legislative analysis. (Photo provided by CUNA)
Cameron was one of three panelists who spoke about coping with a growing compliance burden in a breakout session Monday at The 1 Credit Union Conference in Las Vegas. Others were Donna Chardeen, director of compliance and fraud mitigation at SEFCU, Albany, N.Y., and Kathy Thompson, CUNA senior vice president for compliance and legislative analysis. Regulations help avoid crisis, help organizations follow the straight and narrow, protect consumers, help them shop for services and ensure fair competition, Cameron said. However, they bring an immense burden in learning and costs. Regulations mean credit unions are looking at new compliance software, forms, and training, and all these cost money that would go to the members. “It takes the focus away from service,” he said. The complexity of regulations can create a chilling effect on attracting new board members. “It puts a premium on hiring a senior manager with compliance knowledge” who survives day to day, instead of a visionary, Cameron said. The credit union needs to create a culture of compliance. “Get the big picture,” he said. “Understand the effect of laws and the fiduciary duty to comply. Make time for compliance in every board meeting. Make compliance part of the job description and ensure staff is fully trained.” Those sentiments were echoed by Chardeen, who said, “Compliance is 100% of my job. I have staff, expertise and training, and attend conferences. The credit union board supports this. Knowing the credit union understands the importance of compliance means I don’t have to sell it. Actual resolution (getting staff to follow new regulations) is more challenging. We have compliance requirements for all individuals on staff. Compliance is built into their job descriptions.” She also noted that the board agenda often covers compliance. “The topics are built in over 12 months so the board’s not tackling all the new rules all at once.” Thompson agreed that a best practice is to get in a regular review cycle. “The examiner wants to see the credit union is on top in compliance.” She advised credit unions to monitor the National Credit Union Administration’s (NCUA) letters to credit unions. The letters indicate what NCUA is thinking about and examiners will often monitor the issues discussed. She also recommended reviewing annual reports and “Compliance Matters” section of Credit Union Magazine. “Boards should ask really great questions,” Thompson said. “The piercing question is the best service you can give, showing you were on top of the compliance issues.” The panel also discussed Regulations E and DD, ATM and one-time debit card rule changes, Reg Z on disclosures under the credit card act, opting in rules for overdrafts, and interchange fee changes.