LAS VEGAS — The outlook for credit unions in 2014 is generally positive, according to industry insiders and analysts.
Dr. Brandi Stankovic, partner at credit union consultancy Mitchell, Stankovic & Associates, predicts "optimism" in the community as credit unions are starting to see growth.
"The numbers were pretty strong in 2013 and they project well in 2014," she said. "A lot of credit unions have turned the corner with their net worth ratios, meaning regulators are not leaving enormous checklists."
This improvement should have a profound effect on day-to-day operations at credit unions, Stankovic continued, as management wants to focus on sustaining positive momentum. She said the teams running credit unions will be examining the "bench strength" in their respective institutions. If the financials are good, she predicted, there will be dollars to invest back in to operations.
"This allows retention and engagement of the staff, putting some dollars into recruiting efforts," she said. "In a related development, credit unions are doing more with social responsibility. They do not think the crisis is completely over, but they do see the smoke is clearing. People have more optimism. They are doing team-building exercises that get staffers involved in the community, such as work at Children's Miracle Network Hospitals."
HR Will Be Busy
Healthcare will be "the big issue" of credit union operations due to all the changes in insurance due to the introduction of the Affordable Healthcare Act, also known as Obamacare. Stankovic noted healthcare benefits used to be a differentiator for credit unions-CUs were considered "special" because they offered such great benefits.
"Now, there is a gap in the industry," she said. "Healthcare has become so complex, and no one knows what it is going to look like in the next few years, benefit advocacy is not where it used to be."
The healthcare budget line item probably is going to increase, Stankovic predicted, meaning credit unions will have to reexamine and get creative.
She suggested that credit unions might have to implement proactive wellness programs, such as those involving yoga or exercise.
"A lot of credit unions are ready for 2014, but the individual mandate is causing credit unions to investigate 2015," she said. "Most credit unions cover staffers 100%, and some even cover their families. But the cost may be going up. The so-called 'Cadillac' programs will come with a 40% excise tax in 2018, meaning a company that spends too much on healthcare will be penalized."
Different Ways To Save
Steve Stryker, chief operating officer for $922 million Scott CU, Edwardsville, Ill., said his credit union is "not much different" from many CUs in the U.S. in that it is dealing with what was a long-term, low-rate environment.
"A lot of institutions are back in the lending game, which thins the pie, so we are looking to save money on operations," he said. "We look at every process we do, from replacing a lost or stolen debit card to sending a wire. Any multi-step process that involves the back office increases the important of performance improvement software."
Stryker, who is secretary/treasurer for the CUNA Operations, Sales and Service (OpSS) Council, said becoming paperless is a primary goal for his credit union going forward, as doing so yields savings in multiple areas. In 2013 Scott CU cut out 70% of what it does on paper, he noted, "and in 2014 we will focus on getting as close to 100% as possible."
Other money-saving tips from Stryker included keeping a close eye on vendor management. Scott is examining every contract to make sure it is best as possible.
"We look at everything from taking competitive bids to examining the necessity of paying for a service we might be able to take in house," he said.
At Scott management does not like to lay people off, but Stryker said it uses attrition to adjust the headcount. If someone leaves, the position is evaluated to determine if hiring a replacement is necessary.
"We are looking at branch culture change-another trend that is not unique to Scott Credit Union," he said. "Transactions are moving out of the branch thanks to remote deposit. People just do not need to see the tellers as much. So we are training our staff to take advantage of every opportunity when someone comes into a branch, this means cross-sales and deepening relationships."
Eye On Volunteers
Tony Ferris, managing partner for Rochdale Group, Overland Park, Kan., said in 2014 CUs will be investing in the improvement of their governance.
"This is absolutely necessary for credit unions going forward," he declared. "At many credit unions there are groups of volunteers that have extremely long tenures, while complexity has grown. In a lot of instances, they do not have the expertise to understand both the risks and the strategies of the organization."
Ferris said Rochdale Group is seeing CUs beginning to implement processes with their boards that are similar to succession planning for management positions. Some are bringing in advisory councils that are active in the process.
"This helps bring in new talent, younger board members, and getting them acclimated to what the credit union is about while using those individuals' technical expertise," he said.
Another tool CUs will be using in 2014 is the enterprise risk management process. Ferris said CU boards are requiring implementation of these processes so the directors "really understand" risk.
The deployment of an enterprise risk management process is a "culture and a culture change," he noted. The goal is to identify the largest risks across the organization, and then add up the risks in dollar terms and connecting them to better management.
"Boards are liable for risks within the organization, so they are now understanding the need to leverage different tools to bring that information to them," he said.
Other operational issues cover data management. Ferris said understanding and putting data management at the fingertips of management, from risk management to sales and marketing will be vital.
"Everyone talks about big data, but credit unions have a lot of data already," he said. "There is an inability to truly leverage the data we do house and compiling it into usable intelligence. Many credit unions are talking about advancing the concept of a data warehouse, extracting it from the location it resides and putting it into a place it can be used. The solutions are technical, but it also comes down to the wherewithal to know where the information resides and what management would do with it."
Time To Install LOS
Michael Croal, senior director at Cornerstone Advisors, Scottsdale, Ariz., noted the mortgage refi boom is "pretty much over" from a volume standpoint, and "when that dried up so did profits." He said credit unions need to reduce their costs, but not at the expense of giving bad member service.
"They are looking at loan origination systems to improve their processes," he said. "It had been difficult to replace a system with 50 applications a day coming in the door, but now is the time."
While it is difficult to say what the next driver of mortgage volume will be-perhaps rent prices will go up, causing consumers to seek to buy-but Croal said credit unions need to be prepared to do something other than just hire a bunch of temporary employees.
He said it is important to note there is not an incremental difference between someone who is good at mortgage originations and someone who is bad at it-the gap can be 2 to 1.
When it comes to process improvement, Croal said not a lot of attention is paid to the process itself. While many people look at numbers, he said few consider the fact the same document may end up being scanned four times.
"There are so many people involved in the process, the managers are just are trying to keep things flowing," he said. "But with volumes down it is time to look at the process. We go to credit unions to examine what their needs are. Many clients are on legacy systems that were built to put data on to a form. The mortgage process is extremely paper intensive if you allow it to be. Some credit unions can build document management capabilities into the process. And some vendors can make imaging part of the system. If paper is eliminated, a lot of jobs are changed."
Croal noted there is a wide gap in automated applications. He said a 75th percentile CU is processing 66% of its applications from the Internet, compared to a 25th percentile CU processing 6%.
"Best practice No. 1 is getting paperless up to the closing table," he said. "We are just now seeing county courthouses getting onboard with electronic signatures, but certainly for pre-closing activities there is no reason to not have a paperless process."
Croal pointed out there is two-times high-low performance gap in mortgage processing performance at credit unions. Although this is an origination efficiency, he added there are similar two-times gaps on underwriting and processing benchmarks as well.
"The upcoming regs and ongoing compliance burden-and who gets really good at dealing with that burden-are likely to widen this gap," he said. "This gap translates into very significant differences in member experiences and credit union spending, especially on staffing."
Staffing inefficiency is going to be a "very big deal" going into 2014, Croal emphasized, because with the shift on emphasis to new purchase mortgages, more efficient shops will have more resources to put into new initiatives with realtors, builders, branches, and analytics.
Croal's No. 2 best practice is for CUs to look at the three components of lending, starting with the Web, then the secondary marketing piece, and the processing system. He recommended CUs have a system that combines all three.
"When the member keys in name, address and Social Security number, he should not have to do so again. The member also should be able to upload statements rather than sending Fed Ex packages. From what we can tell, members like automation."
The more CUs can unchain originators from the desk, the more they can be on the streets finding deals and generating mortgages, Croal said. While most credit unions have been told more than once they need to develop relationships with Realtors, Croal said they need to be involved with builders and other "centers of influence," such as attorneys and title companies. He suggested SEG-based credit unions can help themselves drive mortgages. As they know when someone is being hired and moving, those members should be referred to the credit union's mortgage department.
"Realtors will only keep referring clients to credit unions if they deliver. They need to do loans fast and with few errors. Realtors continue to be the first place to look for mortgages."
Women in Leadership
According to Stankovic, many institutions are taking a look at the value of having women on the board and in leadership positions.
"There is a real push in the credit union movement for more diversity," she said. "Credit unions are better than most industries as far as women in leadership, but it still is not 50-50. WOCCU's Global Women's Leadership Network is trying to connect women around the world and engage them in their own development and education. Credit union women learn from their peers how they can make a difference."
