ALSO INSIDE From 1 to 102 in 90 Years 2021 Annual Report JULY–AUGUST 2022
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3 THE NAFCU JOURNAL JULY–AUGUST 2022 20 14 FEATURES 14 Filling the Financial Literacy Gap for Younger Generations NCUA Says Credit Unions Have Unique Opportunity to Educate Their Communities 20 From 1 to 102 in 90 Years Successful Expansion Requires Thoughtful Strategy & Commitment to Members 23 2021 Annual Report COLUMNS 5 Conferences 6 From the Chair 8 Washington and Industry Briefs 10 The Bottom Line 36 Inside NAFCU Services 38 Management Insight 40 Executive Spotlight 42 Leadership Download 44 Compliance Central 46 From the President’s Desk National Association of Federally-Insured Credit Unions ANNUAL REPORT 2021 23 JULY–AUGUST 2022 • VOLUME 47, NUMBER 4 The NAFCU Journal (ISSN 1043-7789) is published bimonthly every other month. July–August 2022, Volume 47, Number 4. Published by the National Association of Federally-Insured Credit Unions, 3138 10th Street N., Arlington, VA 22201-2149. Periodicals Postage Paid at Arlington, VA, and at additional mailing offices. POSTMASTER: Send address changes to The NAFCU Journal, NAFCU, 3138 10th Street N., Arlington, VA 22201-2149. The opinions and ideas appearing in this magazine are not necessarily representative of policies of NAFCU. Manuscripts and advertisements are welcome, although NAFCU reserves the right to edit manuscripts and refuse advertisements. Contact publisher for advertising information and rates. Appearance of an advertisement does not imply endorsement or guarantee of the advertiser’s claims. For subscription or advertising information, call 800-336-4644 or 703-522-4770. Email: nafcu@nafcu.org; website: www.nafcu.org. ©2022 National Association of Federally-Insured Credit Unions, all rights reserved.
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5 THE NAFCU JOURNAL JULY–AUGUST 2022 CONFERENCES 2022 Calendar of Events Summer 2022 Risk Management Seminar (Virtual) Aug. 16–18 Congressional Caucus Sept. 11–14, in-person in Washington, DC Fall 2022 CFO Summit Sept. 20–22, in-person in Annapolis, MD Regulatory Compliance & BSA Seminar Sept. 27–29, in-person in Louisville, KY Management and Leadership Institute Oct. 17–21, in-person in Annapolis, MD Lending Conference Nov. 8–10, in-person in Greenville, SC Spring 2023 Strategic Growth Conference Mar. 21–23, in-person in Nashville, TN Board of Directors and Supervisory Committee Conference Apr. 17–20, in-person in Savannah, GA For more information about NAFCU’s conferences, go to www.nafcu.org/conferences. Looking for more educational opportunities? NAFCU’s Online Training Center has been redesigned to give credit union professionals easier access to the association’s training programs and library of webinars. For information and the current schedule of upcoming webinars, visit www.nafcu.org/ onlinetraining. Topics and dates subject to change. DIRECTORS Thomas W. DeWitt, Chair State Farm FCU (IL) Gary A. Grinnell, Vice Chair Corning FCU (NY) Brian T. Schools, Treasurer Chartway FCU (VA) Karen Harbin, Secretary Commonwealth CU (KY) Melanie Kennedy Southwest Financial FCU (TX) James A. Kenyon Whitefish CU (MT) Frank Mancini Connex CU (CT) Lonnie Nicholson EECU (TX) Jan N. Roche State Department FCU (VA) Keith Sultemeier Kinecta FCU (CA) EXECUTIVE STAFF B. Dan Berger President/CEO Anthony Demangone Executive Vice President/COO Meghan Burris Vice President of Communications and Media Relations Greg Mesack Senior Vice President of Government Affairs Randy Salser President of NAFCU Services Corporation MAGAZINE STAFF Haley Schmitz Editor LLM Publications Editorial Services and Design ADVERTISING sales@nafcu.org www.nafcu.org/advertise
6 THE NAFCU JOURNAL JULY–AUGUST 2022 my advice to you is to seek ways to embrace the future of our industry. I know credit unions are in good hands with NAFCU. Because of this confidence, I am able to embrace a new chapter for myself and step away from the industry knowing it is on a path to greater success. You will continue to build on the momentum of the past several years and I know that what sets us apart today will lead us to a brighter tomorrow—because we are adaptable in times of change. Tom DeWitt is president and CEO of State Farm Federal Credit Union in Bloomington, IL. FROM THE CHAIR EMBRACING CHANGE IS ESSENTIAL TO THE CREDIT UNION MISSION By Tom DeWitt, NAFCU Board Chair While my time on the NAFCU Board of Directors will soon come to an end, I remain grateful for the opportunity to help steer the organization toward success. As I retire from the credit union industry, I can’t help but reflect on the great strides you, my colleagues, have made on behalf of American families and businesses across the country. I remain humbled by the mission that drives us and am honored to have served the members of State Farm Federal Credit Union. I could not be prouder of our industry's ability to adapt, course correct, and modify for the better and I leave you with a final parting piece of advice: it is important, now more than ever, to be open to change. When facing operational, emotional, and personal challenges, our industry stepped up to the table and worked even harder for our members. We put the needs of our employees, members, and communities above all else. During this time, we found new, innovative solutions to both re-occurring and new problems because we were forced to adapt. Some of the proudest moments of my time in the credit union industry have surprisingly come during the pandemic. Our ability to change course and accommodate at the drop of a dime could not have been possible without strong communication with our board, our employees, and our members. When we listen to our members and employees with the goal of understanding, rather than replying, change becomes an organization-wide decision and can be welcomed with open, trusting arms. When you create the space to address concerns with change directly, you let your employees know that their voice matters. This trust, which all financial institutions desire, must be earned and backed up by consistent action and respect. The first step to implementing change must always be to listen. Whether you are deciding on new partnerships with fintechs, adding a new branch, or even making small changes to company policies—change can be unavoidable. But when we are open to evolving for the better, change can lead to unyielding success. We all know that competitiveness is unavoidable in the financial services industry. This fact is even more apparent with the introduction of new technologies and an increasing pace in digital evolution. Change is not going anywhere. The credit union industry will again and again be faced with the important choice of whether to acclimate or reject—and “I could not be prouder of our industry's ability to adapt, course correct, and modify for the better and I leave you with a final parting piece of advice: it is important, now more than ever, to be open to change.”
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8 THE NAFCU JOURNAL JULY–AUGUST 2022 WASHINGTON AND INDUSTRY BRIEFS In late April, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra was grilled by lawmakers during the Bureau's semi-annual report to Congress, and NAFCU raised several concerns about the Bureau’s recent actions and inaction ahead of the hearings. From inquiries sent to large tech firms regarding their payment services and associated data collection and expansions of the CFPB unfair, deceptive, and abusive acts or practices (UDAAP) authority to shots across the bow on fees charged by institutions (aka January’s Request for Information (RFI) on “Junk Fees”), Director Chopra has made quite the splash in the public eye. Since being sworn in late last year, Director Chopra has quickly returned the agency to something reminiscent of the Obama Administration, when former Director Richard Cordray was at the helm, pursuing regulation by enforcement and using inflammatory language to publicly shame institutions for allegedly violating consumer protection laws. But Director Chopra has only filed a handful of enforcement actions and consent orders and hasn’t done much on the regulatory front, so now that his tenure is beyond six months, you may be wondering what to expect from the CFPB in terms of rulemaking and changes to its supervision process. The answer: not much…yet. This will be a slow, but powerful burn. WHAT TO EXPECT Overdraft Focus The biggest item on the CFPB’s near-term agenda is revisiting the rules regarding overdraft protection, as evidenced by the focus placed on this product in the RFI on “junk fees.” Of course, NAFCU continues to publicly push back on the mere insinuation that overdraft fees or any of the fees charged related to deposit accounts, credit cards, and mortgage lending, among other products and services mentioned in the RFI, are the type of hidden, surprise fees the Bureau is defining as “junk fees.” But that likely will not change the course of the CFPB’s path toward re-evaluating the overdraft rule. Although overdraft fees are subject to and limited by state law and therefore cannot currently be capped by the CFPB, the Bureau may require additional disclosures to consumers and attempt to limit the number of fees that may be charged within a certain period. Above all else, the Bureau will use its enforcement authority to monitor overdraft practices. Late last year Director Chopra told reporters that ALL BARK AND NO BITE? PERSPECTIVES ON CFPB DIRECTOR CHOPRA AND THE FUTURE OF THE BUREAU By Ann Petros, NAFCU Vice President of Regulatory Affairs institutions that have a “higher share of frequent overdrafters or a higher average fee burden for overdrafting” will receive increased supervisory attention. The Bureau will also rely on the consumer complaint process to coordinate with the NCUA for those institutions under $10 billion in assets. This is all being pursued under the guise of fostering greater competition in the financial services marketplace, but we at NAFCU know it threatens to fundamentally change credit union fee income structures. “You may be wondering what to expect from the CFPB in terms of rulemaking and changes to its supervision process. The answer: not much… yet. This will be a slow, but powerful burn.”
9 THE NAFCU JOURNAL JULY–AUGUST 2022 Unfinished Business: The Dodd-Frank Act In terms of other rulemaking, unfinished business from the Dodd-Frank Act will be the focus. The CFPB will continue to forge ahead with its Section 1071 rule on small business data collection and the Section 1033 rule on consumer access to personal financial data, also referred to as the Bureau’s foray into making open banking a reality for consumers sooner rather than later. We’ve heard that the Section 1033 rulemaking, has been bogged down, understandably, by concerns surrounding data privacy and protection. Pushing the UDAAP Boundaries As referenced above, the CFPB in March announced changes to its examination procedures to target non-credit discrimination outside of the scope of the Equal Credit Opportunity Act as it claims this sort of discrimination may be an “unfair” act or practice. We fully anticipate the Bureau will continue to push the bounds of its UDAAP authority through similar pronouncements to advance the Biden Administration’s priorities regarding equity, inclusion, and access to financial services. Bottom line is, so far, we at NAFCU are not overly concerned by what Director Chopra has done, but we have every right to be worried about what may be headed our way soon. With all of their direct messaging through blog posts, RFIs, and appearances on CNBC, the past few months have been an exercise in laying the groundwork for what’s to come. I do not mean to frighten you, but I am warning you that this will be no walk in the park. Never hesitate to reach out to NAFCU’s Regulatory and Compliance teams should you have any questions or concerns. We’re here to serve you and will continue to be a strong advocate for you in Washington. NAFCU has a complimentary, memberonly online community exclusively for leaders involved in examinations at NAFCU member credit unions above $5 billion in assets. Learn more about the NAFCU ONES + CFPB Supervision Network at www.nafcu.org/ones-network.
10 THE NAFCU JOURNAL JULY–AUGUST 2022 HOME PRICE APPRECIATION AND REMOTE WORK By Curt Long, NAFCU Chief Economist and Vice President of Research THE BOTTOM LINE The rise in home prices since the onset of COVID-19 is without recent historical precedent. Based on the Case-Shiller Index, home prices grew by 34% in the two years since February 2020, which is the strongest growth over any two-year period of the index since its inception in 1987. Various explanations have been offered, including supply shortages, demographic trends as Millennials age into their prime homebuying years, economic stimulus, low mortgage rates, and the rise of remote work arrangements. Two recent studies have shed some light on the last item of that list, suggesting that remote work has been a critical factor behind the historic levels of home price appreciation. Last year two researchers from the University of Stanford, Arjun Ramami and Nicholas Bloom, observed that in metro areas, the prices of homes in suburbs and exurbs were rising much faster than those closer to city centers.1 The so-called “donut effect” tracked closely with migration patterns away from central business districts since the start of the pandemic. As a result, suburbs saw “price growth divergence from their city centers of almost 15 percentage points” by early 2021. Ramami and Bloom find that the donut effect is much stronger in the largest metro areas than in mid-sized or smaller metros. This result likely points to greater availability of work-from-home opportunities in larger cities, and more expensive housing in their core areas. While Ramami and Bloom find strong evidence of within-metro migration, they find little evidence of migration between metro areas. Earlier this year, researchers from the Federal Reserve Bank of San Francisco and the University of California San Diego, John Mondragon and Johannes Wieland, used a different approach to investigate the impact of remote work on residential home prices.2 They studied patterns in remote work adoption since the start of the pandemic at the metro level as reported in the Census Bureau’s American Community Survey and compared them with home price growth in those areas. Consistent with Ramami and Bloom, Mondragon and Wieland find that cities with larger increases in remote work rates pre- and post-pandemic saw higher home price appreciation. As of the end of 2021, Mondragon and Wieland estimate that remote work explains over half of the total rise in home prices since the end of 2019. One effect of this pattern is in relocating residential construction. Many observers have bemoaned the slow response of home builders to complete new inventory. However, aggregate data may miss the ways in which builders are addressing areas in greatest need. According to the National Association of Home Builders, over the two years ending in December 2021, residential construction was stronger in suburban and outlying areas than in metro cores.3 This was particularly true of multifamily housing, where for large metro areas, construction in outlying areas was up 27% versus December 2019 compared to just 14% in cores. Similarly, small metros saw a 58% increase in outlying areas versus 34% growth in metro cores. “If remote work truly does explain so much of recent housing market dynamics, it requires any housing market forecast to wrestle with future developments in remote work. If present arrangements hold, price growth should return to a more normal level as construction in outlying areas catches up with the one-time jolt in demand.”
11 THE NAFCU JOURNAL JULY–AUGUST 2022 References 1. Ramani, Arjun and Bloom, Nicholas, The Donut Effect of COVID-19 on Cities (May 22, 2021). Available at SSRN: https://ssrn.com/ abstract=3850758 or http://dx.doi.org/10.2139/ssrn.3850758 2. Mondragon, John and Wieland, Johannes, Housing Demand and Remote Work (May 2022). NBER Working Paper No. w30041, Available at SSRN: https://ssrn.com/abstract=4110744 3. https://www.nahb.org/news-and-economics/housing-economics/indices/home-building-geography-index These findings have implications for credit unions. First, it should ease fears of a residential housing bubble poised to burst. As Mondragon and Wieland put it, “Our results suggest that the increase in house prices over this period largely reflect fundamentals rather than a speculative bubble.” Credit unions that serve suburban areas, and especially those that make loans to finance multifamily residential housing, stand to benefit. There is already some evidence that credit unions have capitalized on the donut effect; commercial loans outstanding for multifamily housing have grown by over 60% since the end of 2019. If remote work truly does explain so much of recent housing market dynamics, it requires any housing market forecast to wrestle with future developments in remote work. If present arrangements hold, price growth should return to a more normal level as construction in outlying areas catches up with the onetime jolt in demand. But the recent surge in prices could retrace itself if businesses ultimately reject or scale back on remote work. Alternatively, if emerging employers focusing on full-time rather than hybrid remote work succeed, there could be another shock to the housing market as workers find greater freedom to move between metros rather than simply within them.
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14 THE NAFCU JOURNAL JULY–AUGUST 2022 NCUA Says Credit Unions Have Unique Opportunity to Educate Their Communities By Sheryl S. Jackson Protecting the credit union system is one of the core goals of the National Credit Union Administration (NCUA), but Chairman Todd M. Harper wants credit unions to know that the NCUA is more than just a safety and soundness regulator. “We have consumer financial protection responsibilities and part of that work is promoting financial literacy— which is a core component of a credit union's mission,” said Harper.
15 THE NAFCU JOURNAL JULY–AUGUST 2022 In 2021, the National Financial Educators Council asked 7,246 people in all 50 states to test their current financial knowledge. The results were broken down into various age groups, with 70% considered a pass. Of particular note were the scores for younger generations: 10- to 14-yearolds averaged 57.41%, 15- to 18-year-olds averaged 65.82%, and 19- to 24-year-olds averaged 71.11%.1 These results demonstrate the lack of financial literacy in younger generations as they approach and prepare for their young adult years. Harper wants to change that. “An educated member is the best member,” said Harper. “When credit union members have a solid foundation of personal finance, they can make smarter financial decisions and that forms the basis of a more resilient credit union system.” Those educated consumers are better able to determine what is a safe, fair, and affordable financial product, he added. Personal finance has been a focus for Harper throughout his life, and he maintains that it is never too early to start teaching children good financial habits. “When I was 7-years-old, my family moved to a new house and there was a candy store around the corner,” he said. “I received a weekly allowance of $2, which was a lot of money for a 7-year-old in 1974.” After spending all of his earnings on candy, he realized that there was nothing left to buy Christmas gifts for his parents. Rather than just giving Harper the money, the “bank of Mom and Dad” offered him a no interest loan for the money, and he paid it off at the rate of 50 cents per week for six months. “I am so grateful to my parents for teaching me about money at an early age,” he said. “When I was in school, we all had to take a personal finance class before graduation,” said Harper. “We learned how to balance a check book, fill out a tax form and other day-to-day financial tasks we needed as adults.” While many states have some financial education incorporated into the curriculum, the lessons are often a small part of another class. Only seven states mandate personal finance classes as a graduating requirement. Things are looking up, though, as 21 states have bills before their 2022 legislatures to teach financial literacy as a standalone course.2 The lack of home-based, real-world lessons and formal financial literacy classes in schools provides an opportunity for credit unions to fill the gap, said Harper. Because consumers who have a strong foundation in personal finance are essential to a healthy credit union system, NCUA has created a number of financial education resources that include videos, activities and apps, worksheets, publications and lesson plans. “All of these resources are available for credit unions to use in their community education programs,” he said. (See “resources” on pg. 18) Preparing Young People for the Real World Whether a credit union uses NCUA resources or creates their own, the secret to success is to tailor the program to the community served by the credit union. Mission to $AVE is a savings program offered by Mission Federal Credit Union for elementary schools, youth organizations and youth within the community that teaches students to learn how to save and to understand the value of money. More than 4,300 student savers at 44 local schools have participated in the “ An educated member is the best member. When credit union members have a solid foundation of personal finance, they can make smarter financial decisions and that forms the basis of a more resilient credit union system. ” TODD M. HARPER, CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION
16 THE NAFCU JOURNAL JULY–AUGUST 2022 program. Once parents set up a savings account, children can add to or withdraw from their account at the elementary school “branch,” which, prior to the coronavirus pandemic, often was a table or booth on the playground that was staffed once a week by local Mission Fed employees. The pandemic changed this, but the schoolyard branches are slowly starting again as schools allow. “It’s amazing how quickly deposits of quarters and nickels add up,” said Debra Schwartz, president and CEO at Mission Fed. “We currently have 14,312 Mission to $AVE Accounts with total balances at $19,130,609!” Students receive swag, such as mini piggy banks, when they open the account and, as balances increase, they see how much their account has grown. An added incentive for parents and other family members to deposit into the account is the 5% interest paid on the first $500 saved until the child turns 13. “Branches choose their school partners, which is often decided based on locations near the branch, or schools attended by employees’ children and of course, school administration’s willingness to participate,” said Schwartz. “Once the student turns 18, the account transitions into a regular savings account.” While the Mission to $AVE program is focused on educating children 7- to 8-years-old, the credit union’s involvement with Junior Achievement of San Diego County ( JA) has created a financial literacy course that includes 6 to 13 sessions on financial literacy for high school students that culminates with a visit to the Mission Fed JA Finance Park. The Finance Park is a simulation exercise in which students are guided through adult life simulations that allow them to put the budgeting, saving and spending lessons they’ve learned into practice for themselves and their virtual families. “We donated $1 million to JA as seed money to build the facility because it teaches students lessons they need to know to prepare themselves for the real world,” said Schwartz. A student might receive a real-world virtual life scenario, for example that he is a 32-year-old single man with a good job and salary, and then he has to determine how he will spend, save and budget his money. “The first reaction might be to buy a new Mustang, but then he has to budget for car and insurance payments along with rent, groceries, taxes, meals out and other expenses and savings.” A long-time Mission Fed partnership with Girl Scouts San Diego promotes financial education through a “Money Madness” Financial Literacy patch scouts can earn by completing requirements that teach them how to make good decisions with money. “Community involvement is important to us, as well as identifying meaningful opportunities to promote financial literacy,” said Schwartz. Staff is involved in organizations and on various nonprofit boards, which give them the chance to hear what is needed and come up with solutions that make sense. Building Literacy and Membership When SkyPoint Federal Credit Union looked at enhancing financial literacy education for the communities it serves, the focus was on high school and college students. “Not everyone has the opportunity or the interest in going to college, so high school is ideally the opportune time to catch young adults before they step out into the real world,” said Audra Pettus, community relations director for SkyPoint. “While algebra and geometry are important subjects, many of us do not ever use these subjects again beyond high school, but do you know what every person needs to know?” she asked. “Knowing how to “ Community involvement is important to us as well as identifying meaningful opportunities to promote financial literacy. ” DEBRA SCHWARTZ, PRESIDENT & CEO, MISSION FED
17 THE NAFCU JOURNAL JULY–AUGUST 2022 build credit responsibly, how to create a healthy banking relationship, how to rent an apartment, how to purchase a car and how to budget are critical skills.” If these skills are taught at the high school and college-level ages, a young person can avoid a decade of financial damage and repair down the line, she said. As Pettus and her team evaluated the types of financial education available, they looked for a different, more engaging way to teach common, but sometimes complicated financial concepts to the young adult audience. “I wanted an interactive platform that would engage students and encourage participation and real-world decision-making,” she explained. After researching and seeing demonstrations of content, marketing and uses of the platforms from several companies, they chose Banzai as their partner. The interactive platform supplements the five core seminars offered by the SkyPoint staff: ■ Financial Wellness 101, which teaches financial basics like having a responsible banking relationship, developing good spending and savings habits, and creating a plan to achieve long-term and short-term financial goals. ■ Credit-Building, SkyPoint's most popular seminar, which explains in detail what information is on a credit report, how a credit score in generated, and how to improve or repair your score. ■ Path to Homeownership, which breaks down the steps to take in preparation for becoming a homeowner. ■ Life Insurance and Retirement, which places emphasis on the importance of properly preparing and ensuring future security. ■ Entrepreneurship, which is a walkthrough of completing market research on your product(s) and potential consumers, creating a business entity, and funding a small business. “We rely on and fully utilize Banzai for popular content outside of our core seminars, including but not limited to investing, filing a tax return and completing a Free Application for Federal Student Aid (FAFSA®),” said Pettus. “All of our four schools have engaged in Banzai by ordering the course workbooks for their students and implementing the interactive digital content into their classroom curriculum.” SkyPoint’s community development staff provides demonstrations and tabling seminars upon request. The four initial schools in SkyPoint’s Banzai partnership are Montgomery College, Frederick Community College, University of the District of Columbia and Gaithersburg High School. “We concentrated on colleges for our initial sponsorship because they are typically more expensive to sponsor and we wanted to create membership opportunities, which we would be unable to accomplish with high school students due to their age,” explained Pettus. “We also wanted to select schools from our credit union charter areas.” The Montgomery County high school was selected when a fourth college sponsorship did not pan out. “We researched high schools based on size, graduation rates at 80% or below and demographics, because we wanted to address majority Black and Brown student populations,” said Pettus. “The program launched at Gaithersburg High School in early 2022 with 80 students.” Engaging Digital Natives One study shows that 89% of Gen Zers said it’s a priority for them to learn about personal finance, and 75% are interested in taking personal finance classes. While only 36% have ever taken a personal finance class, 38% report receiving financial advice, including long- and short-term savings and budgeting tips from TikTok.3 As credit unions look for ways to reach younger audiences with products and services that include financial education as well as checking and accounts with low balance requirements and no fees or credit cards for those who are still in school, it is important to evaluate technology that connects the credit union with younger generations. “Digital services are critical to reaching and maintaining this audience because it is their way of life,” said Pettus. “Technology is how they learn, how they connect, how they socialize and engage, and how they conduct business. Gen Z does not and will not bank in the same manner that Gen X banks.” She added, “They open accounts online, apply for credit online, and get their banking tips from social media, apps, and online ads. So, it is imperative to meet them where they are to provide the proper tools, resources and information to equip them for good financial decision-making.” NCUA provides resources to aid credit unions with enhancing financial literacy for all ages and all communities, but Harper noted that one area that presents the greatest opportunity for credit unions to fill the gap is the education of the “ Not everyone has the opportunity or the interest in going to college, so high school is ideally the opportune time to catch young adults before they step out into the real world. ” AUDRA PETTUS, COMMUNICATIONS DIRECTOR, SKYPOINT
18 THE NAFCU JOURNAL JULY–AUGUST 2022 young adult population. Credit unions can look to the NCUA's YouTube channel for shareable videos that are short, to-the-point and provide actionable tips. “[Young adults] experience their first job or move away from home to attend college, and are making financial decisions for the first time,” he said. “If they know how to access financial institutions and know how to make these decisions, they’ll make fewer mistakes.” He added, “And, if they do make mistakes, they will be able to recover more easily, learn and make better decisions in the future.” NCUA Initiatives to Watch NCUA's Advancing Communities through Credit, Education, Stability and Support (ACCESS) initiative is one way the agency is working to assist credit unions on their quest to provide financial services and financial literacy resources to communities across the country. “Board Member Rodney Hood started the ACCESS initiative, the basis of which is focused on how to provide more services and better services to the unbanked and the underbanked.” Harper explains one of the goals of the initiative is also to help credit unions understand how they can remain competitive and to make a credit union charter easier to obtain. “We've just announced that we are shortening the amount of time and the number of steps it takes to get a credit union charter,” said Harper. “We're also looking at how to change field of membership rules to allow credit unions to serve more members.” NAFCU is supportive of legislative efforts to expand credit union field of membership to underserved areas and has urged Congress to act on it. NCUA Resources for Financial Literacy 1.The NCUA Financial Literacy Resource Center [https://www.ncua.gov/consumers/financial-literacy-resources] is a compilation of all resources and tools that credit unions can use to build financial literacy programs, provide community education or share with members who ask for information on specific topics. Two of the interactive financial education tools and games that appeal to young children are: ■ Hit the Road [https://www.mycreditunion.gov/financial-resources/hit-road-financial-adventure] is a cross-country trip with friends to collect experience badges and budget for gas, food, supplies and surprise expenses. ■ World of Cents https://www.mycreditunion.gov/financial-resources/world-cents is a fun and engaging, kid-friendly game for ages 5 and up designed to help teach the value of money through the concepts of earning, saving and spending money, while incorporating basic math concepts. 2.The NCUA consumer website, MyCreditUnion.gov [https://www.mycreditunion.gov/] includes information on home ownership, credit cards, going to college and other topics in an easy-to-read format. 3. A new Consumer Tips page [https://www.mycreditunion.gov/financial-resources/consumer-tips] offers short videos that answer questions most frequently asked of the NCUA Consumer Assistance Center. 4. NCUA’s YouTube Channel [https://www.youtube.com/user/NCUAchannel/playlists] includes a wide range of educational and NCUA news videos. 5. NCUA’s Advancing Communities through Credit, Education, Stability and Support (ACCESS) initiative. “Far too many Americans are unprepared for an emergency financial need,” said Harper. “As an agency, as a society, as a credit union system, we need to help Americans understand why they need reserves and help them to figure out how they can build them. Credit unions can help members get those basics for their financial lives and need to help them get it earlier in their financial life.” References 1. National Financial Educators Council National Financial Literacy Test Results. https://www.financialeducatorscouncil. org/national-financial-literacy-test/ 2. Smith KA. These States Now Require Students To Learn About Personal Finance. Forbes. April 1, 2022. https://www.forbes. com/advisor/personal-finance/statesmandating-personal-finance-in-school/ 3. Tallo. Tallo Data: Generation Z + Personal Finances. March 11, 2021. https://tallo.com/ blog/tallo-data-gen-z-personal-finances/
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20 THE NAFCU JOURNAL JULY–AUGUST 2022 FROM 1 TO 102 IN 90 YEARS Successful Expansion Requires Thoughtful Strategy & Commitment to Members By Sheryl S. Jackson
21 THE NAFCU JOURNAL JULY–AUGUST 2022 It may not have made sense to many people to hear that a credit union was opening a new branch or acquiring new locations in the midst of a pandemic, due to limited services at branch offices and increased reliance on technology for a wide range of transactions. However, expand is what many credit unions did. According to data from the National Credit Union Administration, in September 2020, 745 credit unions had plans to add branches or expand facilities. One of these credit unions was Mountain America Credit Union. Founded in the 1930s, Mountain America started with one location in Utah. Now, in 2022, the 102nd branch opened recently, and the credit union has branches in six states— Arizona, Idaho, Montana, Nevada, New Mexico, and Utah. “We never put expansion plans on hold,” said Sterling Nielsen, president and CEO of Mountain America Credit Union. “Construction shortages slowed some our renovations and construction but they did not stop us.” The growth of Mountain America has been a mixture of mergers and new construction to add branches where needed in new markets. “Mergers provide a base of membership that we can grow by providing services that members in the market need,” explained Nielsen. “In Idaho, mergers with three different credit unions provided an established membership, then we expanded after we identified a need for more locations to serve members.” The credit union has found that overlapping branch service areas by building branches within three to five miles of each other provides multiple touchpoints for members, which increases the opportunity to conduct business in-person. However, staffing for some services may not be full-time. For example, each branch may not have a dedicated investment advisor or loan officer but will have them in the branch on certain days or by appointment. Limitations of in-person branch services at all credit unions during the pandemic increased the adoption of technology by members, but Mountain America knows
22 its members well and has found that when a new branch opens, people flock to it for the in-person experience. “We have found that members may use online tools for convenience, but they want the whole relationship—which includes nearby branches they can visit,” said Nielsen. “During the pandemic, in-person transactions dropped but within weeks of re-opening branches, in-person transactions were back up to our pre-pandemic levels.” Even with the desire for personal relationships with their credit union, members are more mobile and use digital tools and the contact center more often than prior to the pandemic, said Nielsen. This does not mean that the credit union won’t continue increasing its physical presence but the organization may not expand as quickly as in the past, he said. Expansion as an Art Successfully merging two organizations is an art that starts with a strong culture to member service. “We look for credit union teams that can complement our organization,” said Nielsen. Mountain America team members also have opportunities to move to new locations to help train branch staff, lead branch operations and increase membership. Blending staffs from both organizations leads to a smoother transition, said Nielsen. Connecting with communities is another way that Mountain America builds its brand and reputation in new markets. Involvement ranges from branches supporting and brand that can be expanded to other areas. When possible, existing branch buildings are renovated and updated to reflect the Mountain America brand. Staff members of acquired organizations are oriented to Mountain America’s philosophy, vision, and commitment. In addition, the organization creates beneficial partnerships with local organizations, from allowing a community theatre to use the corporate headquarters parking lot after hours for ticketholders, to sponsorship of the local athletic and entertainment event spaces such as the Mountain America Community Iceplex at Arizona State University and the Idaho Falls Mountain America Center. Building a strong team and connecting with local organizations is an important step to overcome a community’s unfamiliarity with the benefits and services of a credit union. “Credit unions have a huge identity crisis in some states,” admitted Nielsen. “People in Utah and Idaho understand credit unions but other markets require more education. We look for the best way to reach people and have found that word-of-mouth is often the most effective.” THE NAFCU JOURNAL JULY–AUGUST 2022 Underserved communities have supported some of Mountain America’s most successful branches, said Nielsen. “As soon as we opened the doors of a new branch in an underserved community in Salt Lake City, it was successful, and we ended up adding four branches in the community,” he said. “They all stay busy, mostly due to word-of-mouth from existing members.” Although Mountain America’s expansion strategy has been very successful over the years, not everything was perfect, admitted Nielsen. “We have made a few mistakes, such as opening a location that didn’t take off as expected,” he said. “It’s important to ask why, and it’s okay to close the branch and re-locate to a new location that is more beneficial to members.” Sometimes 'the why' is as simple as the wrong manager at the time, changes in demographics or other reasons, but the best strategy is to admit that it is time to pivot, he added. Even though the pace of expansion may have slowed for Mountain America, it has not stopped, reiterated Nielsen. “We are always looking for opportunities to continue a slow, methodical growth in markets where there are options to increase credit union representation.” “ As soon as we opened the doors of a new branch in an underserved community in Salt Lake City, it was successful, and we ended up adding four branches in the community. They all stay busy, mostly due to word-ofmouth from existing members. ” STERLING NIELSON, PRESIDENT & CEO, MOUNTAIN AMERICA CREDIT UNION
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27 THE NAFCU JOURNAL JULY–AUGUST 2022 NAFCU 2021 Annual Report 4 NAFCU is committed to securing regulatory relief and flexibility for credit unions and in 2021 the industry made great strides toward overcoming the operational challenges and economic struggles stemming from the coronavirus pandemic. NAFCU’s bold advocacy strategy secured several legislative and regulatory wins to ensure credit unions and their 130 million members were not plagued with unnecessary roadblocks on the path to continued economic recovery. WORKING CLOSELY WITH CONGRESS NAFCU led efforts to oppose several burdensome legislative policies, including a proposal to enhance IRS account reporting in fiscal year 2022. While the intent of the proposal was to identify tax fraud, the efficacy of the proposal’s requirements was unclear. NAFCU highlighted not only the compliance burdens this proposal would impose on credit unions but also the privacy risks it would create for credit union members. In addition to directly sharing opposition ADVOCACY FIGHTING FOR INDUSTRY RELIEF AND GROWTH of this proposal with Members of Congress, NAFCU engaged in grassroots efforts to garner support from members to elevate and strengthen the credit union voice in Washington. NAFCU also staunchly opposed a provision to grant the Small Business Administration (SBA) with additional direct lending authority as the provision would undermine existing, successful public-private partnership SBA loan programs while potentially limiting access to capital for small businesses from credit unions. Throughout 2021, NAFCU also supported several pieces of legislation that would have a positive impact on the industry. The association sought and led the charge in advancing the Credit Union Government Modernization Act, which modernizes the Federal Credit Union Act’s provisions related to member expulsion in order to keep credit unions, their members, and staff safe from illicit behavior. NAFCU President and CEO Dan Berger and SBA Administrator Isabella Casillas Guzman signed a new Strategic Alliance Memorandum aimed at strengthening credit unions’ ability to fund loans for small businesses.
28 THE NAFCU JOURNAL JULY–AUGUST 2022 5 NAFCU’s award-winning advocacy team also fought for the extension of temporary rules on prompt corrective action and participation loans to provide continued relief amid the pandemic. As part of the Biden Administration’s American Rescue Plan, NAFCU worked closely with the Community Development Financial Institution (CDFI) Fund to help secure an additional $10 billion in funding for CDFIs. At the time of passage, NAFCU President and CEO Dan Berger noted that the association “has consistently advocated for more PPP funds to be set aside for CDFIs and MDIs to ensure low-income and underserved communities have the financial resources needed to weather the pandemic. This decision will allow emergency capital to reach the communities that need it the most during this difficult and uncertain economic period.” NAFCU member credit union witnesses testified before Congress twice in 2021. Once before the House Financial Services Committee on the need to level the playing field with FinTechs and once before the House Small Business Committee on Paycheck Protection Program (PPP) loan forgiveness. NAFCU’s testimony before the Financial Services committee was critical in highlighting to lawmakers that as technology companies expand, and new charters emerge to compete in the financial services marketplace, it is important that they compete on a level playing field of regulation and supervision. The testimony reiterated NAFCU’s stance that while many credit unions embrace innovations in technology in order to improve member relationships, it is important for regulators like the NCUA to ensure that credit unions have the proper authority in this space under their charters. NAFCU’s testimony before the House Small Business Committee on the status of PPP forgiveness was critical in highlighting how credit unions have gone above and beyond throughout the pandemic as borrowers relied heavily on their credit unions to assist them through every phase of the PPP process, including forgiveness. The testimony highlighted that credit unions were continuing to grapple with simultaneously processing loan forgiveness applications while meeting the routine needs of their small business members. These first-hand accounts of credit union experiences played an essential role in NAFCU’s advocacy efforts to secure much-needed wins for member credit unions. As digital assets became a large policy focus throughout the year, the NAFCU advocacy team prioritized efforts to ensure a level playing field exists for all financial institutions and FinTech companies. Successful engagement led to: DIGITAL ASSETS ADVOCACY Advising the NCUA to acknowledge the authority of credit unions to partner with third party broker-dealers to offer certain digital assets services. Encouraging the NCUA to foster strong FinTech partnerships to help credit unions provide the products and services members want and need. Following NAFCU’s efforts, the Office of the Comptroller of the Currency also initiated a review of special purpose charters, which has slowed the chartering of non-FDIC insured crypto banks. Ensuring the establishment of Federal Reserve guardrails for access to the payment system that hold underregulated institutions to a higher standard of due diligence. Securing passage of a resolution of the Congressional Review Act, overturning a rule that allowed non-banks to use banks to avoid certain lending regulations.
29 THE NAFCU JOURNAL JULY–AUGUST 2022 NAFCU 2021 Annual Report 6 The NAFCU regulatory compliance team works daily to assist credit unions with all facets of compliance and ensures they have the tools and resources to tackle emerging issues. In 2021, the team answered more than 5,800 member questions through our direct compliance assistance program. In addition to our compliance hotline, NAFCU developed and shared valuable blogs, articles, charts, guides and other tools for members. NAFCU continues to prioritize extreme member service, answering all compliance questions within one business day. The compliance team remained committed to helping credit unions adjust to COVID-related regulations expiring and being further extended. Last year, the compliance team answered numerous questions, with the most frequent topics addressing the Bank Secrecy Act, Regulation Z, and Regulation E. Part of these questions stemmed from various regulatory and legislative changes. Additionally, NAFCU continues to track litigation efforts related to regulatory compliance and notifies members through blogs and network posts. NAFCU’s compliance team continues to provide tools and resources to help credit unions remain compliant and tackle all their compliance needs. The team will continue to provide timely updates to ensure NAFCU members have the most up-to-date information. COMPLIANCE CRITICAL RESOURCES IN AN EVOLVING INDUSTRY
30 THE NAFCU JOURNAL JULY–AUGUST 2022 NAFCU 2021 Annual Report 7 NAFCU’s education team provides credit unions with the best training opportunities available for employees and volunteers at any level. The educational offerings are timely and incorporate the trends and changes affecting the industry today and into the future. In 2021, NAFCU offered 13 conferences and events, delivering forwardthinking content – designed to equip credit unions with the tools needed to grow and serve members – straight to attendees. Of these 13 events, NAFCU leaders connected virtually, in-person, and a hybrid of both, attracting more than 3,300 registrants and connecting the credit union industry with key experts. In addition, the association virtually met with more than 1,300 credit union executives during the 2021 State of the Industry conference covering key issues as a result of the pandemic. NAFCU’s Online Training Center continues to be highly utilized, offering weekly live and on-demand webinars on the most important issues. It remains a valuable opportunity for credit union staff to stay up-to-date on the latest trends. In fact, throughout the year, over 5,400 credit union industry professionals streamed more than 18,000 hours (about 2 years) of content. In 2021, NAFCU was proud to introduce the New Staff Training modules designed to bring member credit union new hires up to speed on industry knowledge. EDUCATION PROVIDING TOP-RATED TRAINING
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34 THE NAFCU JOURNAL JULY–AUGUST 2022 NAFCU 2021 Annual Report 11 NAFCU AND AFFILIATES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 12 . 31 . 2021 & 2020 Liabilities and Net Assets LIABILITIES ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 2,765,193 $ 2,657,037 DEFERRED REVENUE 11,584,086 10,661,385 TENANT DEPOSITS 14,349 14,349 DEFERRED COMPENSATION LIABILITY 455,958 328,640 TOTAL LIABILITIES $ 14,819,586 $ 13,661,411 NET ASSETS WITHOUT DONOR RESTRICTIONS $ 14,858,354 $ 13,337,090 WITH DONOR RESTRICTIONS 2,882,626 2,491,347 TOTAL NET ASSETS $ 17,740,980 $ 15,828,437 TOTAL LIABILITIES AND NET ASSETS $ 32,560,566 $ 29,489,848 Activities without donor restrictions REVENUE AND SUPPORT MEMBERSHIP DUES $ 12,862,783 $ 11,497,650 MEMBERSHIP EDUCATION AND TRAINING 3,203,011 2,268,934 SERVICE FEES 2,596,311 2,525,792 ADVERTISING 137,430 112,931 INTEREST AND DIVIDEND INCOME, NET OF FEES 212,623 301,619 RENTAL INCOME 194,247 191,364 OTHER 353,022 150,351 PRODUCTS AND SERVICES 101,369 77,716 NET ASSETS RELEASED FROM RESTRICTIONS 695,165 496,495 TOTAL REVENUE AND SUPPORT $ 20,355,961 $ 17,622,852 2021 2020 CASH AND CASH EQUIVALENTS $ 7,110,582 $ 4,178,548 ACCOUNTS RECEIVABLE 471,151 598,902 PREPAID EXPENSES AND OTHER ASSETS 477,422 436,961 INVESTMENTS 18,649,343 18,892,842 DEFERRED COMPENSATION INVESTMENTS 376,399 221,425 PROPERTY AND EQUIPMENT, NET 2,862,894 2,560,969 OTHER ASSETS 2,612,775 2,600,201 TOTAL ASSETS $ 32,560,566 $ 29,489,848 Assets
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