Like many of my friends (Seahawks fans) last Sunday we just hoped for an entertaining game. Super bowl commercials have become so innovative because historically Super Bowl games are a snooze fest. Never has a Super Bowl game gone into overtime and more often then not it’s a blowout (Seahawks beat the Broncos 43-8 in 2014).
Boy oh boy we were not disappointed on Super Bowl Sunday. Brady set all kinds of records in Houston. In case you were out of the country, the Patriots overcame a 25-point deficit midway through the third quarter to pull out the 34-28 win in the first ever Super Bowl overtime, and in the process set or tied enough records to all but confirm this was the greatest Super Bowl in NFL history. 24 records were set and another seven records were tied.
There are only a few human beings that might have the athleticism, skill and tenacity to break Brady’s record in our lifetime. Tom Brady officially passed Dan Marino’s all time passing record of 62,361 yards by 221 yards. Dan Marino is now 5th on that list. So in NFL terms, Tom Brady is a “better quarterback” than Dan Marino.
But Plato said “The measure of a man is what he does with power.” When you are a high profile sports celebrity you have all kinds of “power,” including the ability to influence others. That’s why so many companies offer endorsement deals to them, to convert that power into a stronger brand and sales.
While there is abundant data in other areas of credit unions’ critical functions, such as loans, strategy, marketing, and regulation, accounting is a grey mist on the horizon.
We have found there is little to no industry data compiled in this area, and many credit unions are left wondering if their accounting team is staffed appropriately as well as whether they should outsource various functions, such as ATM balancing.
Debra Templin, CFO of CU Service Network, manages the company’s Outsourced Accounting Service, which assists many credit unions across the country. “The most frequent question we are asked is ‘are we overstaffed?’ That is a difficult question to answer without knowing the type of positions and activities that are performed within the accounting department.”
The accounting function mystery is so difficult to crack because it is three-fold. Not only do credit unions need data on how many employees are staffed in credit unions’ accounting departments, but secondly, they need more data on what accounting functions are being managed. And thirdly, are their resources appropriately aligned in their asset class. Without these three pieces of information available concurrently, the individual data is basically irrelevant.
As you can imagine, obtaining all of this data from credit unions can be difficult. However, the need for this type of information couldn’t be more critical. We find credit union managers are frustrated and unsure of whether they need to grow or scale back their accounting team. Are they inefficient? Wasting money? Overstaffed? Understaffed? They have nowhere to go to compare.
The recent highly publicized news about unauthorized account openings by staff members at a large national bank reminds us of the benefits of an experienced and empowered Enterprise Risk Management (ERM) practice. A more risk-informed company is better able to protect itself. The collection and analysis of a company’s risk environment also keeps it aware of potential hazards now and in the future.
Benefits of a Strong ERM Function
The proper implementation and application of ERM practices carry numerous benefits for multiple stakeholders within an organization.
- A company’s strategic plan can introduce new elements of risk beyond those presented in the context of day-to-day tactical operations. ERM can identify potential risk in a strategic plan and develop the appropriate mitigation processes to help maintain an acceptable level of risk exposure and ensure the successful execution of the company’s strategic objectives.
- The ERM discipline is critical to informing the decisions a company makes with respect to its investments in infrastructure and technology. A regimen of ERM oversight on mission-critical business plans and due diligence activities can be invaluable when evaluating the merits of particular investment ideas.
- A formal and highly visible ERM function heightens awareness among employees about the role individuals play in defending the enterprise against risk. The combination of employee training on risks that are specific to the business, with proactive monitoring of the work environment by all staff for anomalies or suspicious behavior, can lead to early detection and avoidance of risk. A broadly promoted “See something, say something” campaign can empower an army of employees to take an active role in protecting the organization from potential harm.
- Credit union partners of an organization committed to a world-class ERM practice benefit from higher levels of security around the data they entrust to the organization, along with the increased focus the enterprise places on regulatory compliance which, when missing, can negatively impact the organization and its clients.
In the current low-interest-rate environment, credit unions are exploring new sources of revenue to augment deposit and non-interest revenue. One new market that has emerged in recent years is state-legalized marijuana, which has created opportunities for credit unions willing to service marijuana-related businesses (MRBs). This is intended as the first in a series of articles about the challenges and opportunities associated with banking MRBs.
The first thing to understand is that, as of the date of this article, it is permissible under federal policy for credit unions to provide banking services to MRBs. This policy is reflected in a pair of memos issued by the Department of Justice (DOJ) and FinCEN on February 14, 2014 that collectively set forth the parameters by which banks and credit unions can service MRBs consistent with their anti-money laundering (AML) and BSA obligations. The memos identify eight priority factors that guide federal enforcement of AML and BSA laws with respect to the banking of MRBs in states where marijuana has been legalized. So long as financial institutions and their MRB customers avoid implicating any of the eight priority factors, they are effectively immune from federal enforcement action.
While initially met with skepticism, it has become increasingly clear over the last three years that financial institutions can rely upon the DOJ and FinCEN memos to service MRBs. As marijuana legalization has expanded to over half the states, banks and credit unions across the country have been responsibly and profitably servicing MRBs with no interference from DOJ or FinCEN. In fact, I am not aware of any DOJ or FinCEN enforcement actions against a bank or credit union in compliance with the respective memos.
The mortgage loan has been originated. Now comes the hard part – beginning the long and arduous task of carrying out all the functions required to service the loan. Although the majority of lenders and servicers elect to perform servicing functions in house, huge benefits are to be gained by outsourcing the responsibilities to a trusted subservicer. These benefits include lower costs, more robust servicing technology and assistance with regulatory compliance (this help alone is often worth the move). Why, then, is there hesitation? This article addresses the 5 biggest misunderstandings about outsourcing mortgage loan servicing and what lenders and servicers need to consider and assess before opting to keep the servicing in house.
Misunderstanding #1 – Our credit union has the same per-loan cost to service in house as an outsourcing company.
Clarification – The real question here is what the credit union’s per-loan cost includes. More often than not, in-house servicers fail to calculate a comprehensive, fully loaded per-loan cost to service and therefore are not making like comparisons. For example, they exclude many fixed and variable costs (such as staff salaries, benefits and training, licensing fees, office supplies, postage, etc.) that are standard and customary when servicing a mortgage. Default costs and costs that stem from servicing mistakes – compensatory fees, etc. – are also typically excluded from their calculation. Let’s consider an industry perspective. Annually, trade organizations publish survey results of the typical cost to service based on loan portfolio sizes. According to the latest survey, financial institutions can expect to incur an average cost of $312 a year per loan for in-house servicing. Now compare the $312 in-house average to the average $75 annual per-loan price point of a leading outsourcer. True comparisons of actual per-loan costs for in-house versus out-of-house servicing reveal that substantial savings are gained by moving to an outsourced servicing strategy.
While sitting on my mythical mountaintop with my mythical beard flowing, some mythical predictions for 2017 have come to me and I feel compelled to share them (Denise told me I had to).
The New MBL Rule
For credit unions that have experienced business lenders, the new MBL Rule will enable them to customize their loan offerings that will make them very competitive with the community banks and annoy the banks even more. For credit unions that do not have experienced business lenders but still make business loans, there will be many deer in the headlight moments as the credit unions try to explain why they made a loan to a member who convinced the credit union that the pet rock business was coming back and no security and guarantee was needed for the loan.
The community bankers trade association’s law suit against NCUA will fail but not before the trade association receives increased dues to fund their Don Quixote mission and not before their attorneys upgrade their boats from the fees earned.
The New Membership Rule
This also is a loser for the community bankers. The current rule is less expansive than the membership rule enacted during the time Dennis Dollar was Chair of NCUA and the bankers lost that court battle. I need to get to know the attorneys for the community bankers. They are going to have really nice boats.
Dan Marino, Hall of Famer
Last year our keynote speaker, Erik Wahl brought music, painting and words of inspiration to kick off the event. This year we are excited to bring sports legend Dan Marino to the main stage, courtesy of Mastercard. Rather than hearing a speech, Dan has agreed to a more casual Q & A setting where you’ll get to hear how leadership, teamwork, intense preparation and perseverance creates champions and winners.
A first-round draft pick by the Miami Dolphins in 1983, Marino became an instant NFL sensation, setting the standard for quarterback excellence. He became the only rookie quarterback ever to start in the Pro Bowl (1983) and was named the NFL’s Most Valuable Player in his second season (1984). The nine-time Pro Bowler (1983-87, 1991-92, 1994-95) played in18 playoff games and led the Dolphins to the Super Bowl in 1985 against San Francisco.
Upon retirement, Dan held 25 NFL regular-season quarterback records and was tied for five others, quarterbacked Miami for 17 years, positioning the Dolphins as perennial championship contenders throughout his career. One of three players ever to do so, he twice won the Dolphins’ Community Service Award (1996 and 1998), and was named the NFL Man of the Year in 1998. Dan was inducted into the Pro Football Hall of Fame in August 2005 and in 2010 he was ranked number 25 on the NFL’s Top 100 Greatest Players list.
I have been working with credit unions a long time. For years I have accepted without question the concept that credit unions may only admit members who qualify as being within the credit union’s field of membership; be it a common occupation or association or a common defined community. But with the issuance of the proposed NCUA changes to the field of membership rules, I ask myself, in the land of the free and the home of the brave where freedom of choice is sacrosanct, why does this odd notion continue to exist? Yes I know it is in the Federal Credit Union Act but it is an outdated concept.
When the Federal Credit Union Act was passed in 1934, all financial services were locally provided through local branches. There was no Internet and home banking software. A member had to walk up to a teller to do his or her business. Common bonds served as a means to locally organize a group of people to make a financial institution viable. Today, if a credit union has the necessary technology tools, the credit union can serve anyone in the country. Many members are well served by their credit unions without ever stepping into a branch.
I am a strong supporter of NCUA’s recent efforts to define fields of membership as broadly as possible but there are some old concepts that NCUA has permitted to linger. The notion that a community cannot be adequately served if a branch is not within 25 miles is a concept that needs to be retired. What is the magic of 25 miles? Is 25 miles the distance that a horse and buggy can travel in a day? Having arbitrary limits on the number of persons that can constitute a community also makes no sense.