Correlation doesn’t always equal causation, but community service sure does seem to pay off. The power of that kind of engagement was a recurring theme at several sessions during the 49th annual NAFCU Conference & Solutions Expo this week in Nashville, TN.
One of those sessions was Wednesday, where the CEOs of three credit unions told the stories of their dramatic turnarounds, including Scott Duszynski of Keys Federal Credit Union ($127.9M, Key West, FL).
Keys recently came out from under NCUA supervision after six years of receivership it entered voluntarily when its bottom line was battered by loan losses caused first by Hurricane Wilma in 2005 and then the Great Recession.
Duszynski was already CFO when the NCUA asked him to become CEO in 2011. Sharp cuts in expenses followed, as well as such measures as cleaning up the loan portfolio and bringing the credit card program back in-house. Since then, profitability has been restored amidst lending growth that Duszynski says has corresponded with his team’s deep commitment to community involvement.
He’s talking, for instance, 588 hours of involvement from 41 FTEs in 2015, and that’s just time spent at credit union-sponsored events. That does not include active participation in civic life on their own time, such as Rotary and sports teams and more.
“Actions speak louder than words. That’s why community service is so successful and important,” Duszynski says. “Banks are about having to sell you this product. We’re about being involved in the community, involved in members’ lives.” That also includes making the kind of loans that change people’s lives for the better, especially when others wouldn’t.
That makes sense to Dan Berger. The NAFCU CEO says he’s seen that kind of correlation, and even measurable ROI, from other credit unions, and that “such community involvement and engagement often seems to be the secret sauce for credit unions who’ve seen massive growth or recovery.”
Why? “Because it shows you care about individuals and communities, and that makes people want to do business with you,” Berger says. He adds that millennials are especially attracted to that ethos, but that for any age group “you have to have the products and delivery channels that they need and want.”
So, does correlation equal causation? “I’m not sure,” Duszynski says. “But I can overlay a graph showing our volunteer hours onto one showing our consumer loan growth, and they’re both growing at the same rate.”
Giving CECL Their ALLL
CECL might not be the sexiest topic in the world, but one speaker at a Wednesday session on the accounting standards changes did advise spending time with models.
That’s what Chuck Kelly, a CPA with CliftonLarsonAllen, called the templates that should become available for financial institutions to test their readiness to comply with the Current Expected Credit Loss standards expected to be announced later this year by the Financial Accounting Standards Board.
A sort of delayed reaction to the financial crisis that took hold in 2008, the CECL standards are not expected to kick in until 2020, but since they’re based on calculations of risk and reward going back several years, now’s the time to start getting ready.
Kelly says ideas about what has become CECL have been kicked around since 2012, and as the new standards come closer to reality concern has been building about how much institutions will have to increase their Allowance for Loan and Leases on their financial statements.
Kelly says those fears may be a bit unfounded. While the new standards will be heavily focused on predicting the future in ways not now used to calculate reserves, Kelly doesn’t expect them to account, say, for losses during all 30 years of a fixed-rate mortgage. More like five to 10 years or however long the credit union’s average mortgage actually is in place.
However, the forward-looking requirements call for institutions to consider economic factors going forward, too. “You ask 50 economists for their forecasts and you could get 50 different answers, or more,” Kelly says.
But not to worry. “They really just want you to understand the relationship between your credit losses and whether we’re heading into a recession or recovery,” the CliftonLarsonAllen accountant says. “The expectation is that most credit unions will need to alter their current ALLL estimate methodology. But there won’t be one right way to do CECL.”
Instead, watch for a consensus to emerge when the time comes, at least one broad enough for a credit union to show it’s thinking about it. Models that credit unions — or their hired guns —can use to test assumptions also are expected to emerge soon.
David Milligan, chief risk officer at Heritage Federal Credit Union ($516.6M, Newburgh, IN), says data collection will be a big challenge in his shop, probably more than the impact of loading up on allowances for loan losses.
Milligan says he and his colleagues have already been reading up on CECL and attending conferences and webinars on it but are in a wait-and-see mode as far as how and when to adjust data collection and forecasting processes.
“Our delinquencies historically have been low and our credit quality high, so we see minimal impact as far as loan reserves,” he says. “But there’s so much more info involved now, so we’ll be working to understand the requirements and building a system to report on it.”
Models can help. Especially those that can deal with the complexity of multiple credit impairment scenarios, not to mention non-homogenous specific loan reserves.
Who’s On Deck?
Ida Bowen has been head of her credit union for about a year now, but she’s already grooming her eventual successor, who may well be one of the people passed over for the job she has now.
Bowen is CEO of Deepwater Industries Federal Credit Union ($87.5M, Deepwater, NJ), a SEG-based institution that Bowen served as a board member before leaving a long career in human resources and project planning for local manufacturers to take the top job at her South Jersey credit union.
A certified behavior analyst, Bowen says she focuses on finding the right fit and empowering goals for her staff of 17, including the five managers who are her direct reports. They include one manager who put in for the CEO job. “She knew she wasn’t ready, but she has a lot of experience here and we’re going to invest in her development,” Bowen says.
That manager and other key people are part of the succession plan that Bowen put together, both to satisfy NCUA requirements and her own desire to make sure such eventualities are properly prepared for while she and her team work to turn the operation around.
“One key to succession planning,” she says, “is to remember that anyone can learn a skill, but we all have our own behavior traits, so it has to be about fit, too.”
There’ll be lot of room for fits. Credit unions are gearing up for the retirement wave forming as an estimated 10,000 Americans reach age 65 a day, says Peter Myers of DDJ Myers, the executive recruiting and management development and strategy consultancy. “There’s going to be a vacuum to fill,” Myers says.
Indeed. With boomers going bye bye and millennials typically not yet seasoned, that leaves lots of opportunity for Gen Xers to step up as critical pieces in the multi-year planning process and development and transfer of intellectual capital and institutional memory.
Berger, the NAFCU CEO, also says there are a “huge amount” of CEOs and other senior managers retiring soon and that management development and secession planning offerings are regular sellouts for his trade group.
Also At NAFCU:
Mortgages, Millennials, And Military Matters