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Directors Go Back to School

Directors are moving from the boardroom to the classroom as NCUA raises expectations of their financial knowledge.

November 01, 2011
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In-house training

Time and expense typically are the biggest barriers to providing training for new directors, says Tabitha Garvin, PhD, chief operating officer, business development, for the Montana Credit Union Network (MCUN). For example, Garvin says leaving Montana for a three-day event typically means spending a minimum of $1,000 for travel alone.

MCUN removes these barriers through its Smart MOVES program, which delivers training for directors at their credit unions. To date, Garvin has visited 15 of Montana’s 57 credit unions to provide two-hour financial reports and management training sessions, typically offered before or after a board meeting. The network also offered financial skills training at its annual conference and links credit unions to training resources on its website.

A Smart MOVES financial training session costs $480 plus mileage for MCUN member credit unions with assets of less than $20 million, with scholarships available to cover up to half the fee. Larger credit unions pay $740. Garvin has driven more than six hours one way to present financial training.

She says the investment in training pays off when directors gain confidence in assessing financial issues.

“We’ve had tough economic situations and yet some credit unions have improved their net worth after being on a downhill slide for years,” Garvin says. “Their boards have made some amazing decisions that helped them grow not only their assets but their net worth.”

Some credit unions follow the financial sessions with additional training on topics such as evaluating the CEO. Strategic planning sessions are also popular.

Multiple training sessions helped one board cope when its chairman resigned due to illness, while another board that replaced almost half of its board at one time was able to quickly help new directors get up to speed.

Risk assessment

Gordon Sam, CCUV, board chairman at $346 million asset Pearl Harbor Federal Credit Union, Waipahu, Hawaii, has attended financial skills training presented by the Hawaii Credit Union League, NCUA, and a CPA firm. Earlier, he completed graduate-level courses that covered financial reports to obtain a master’s in business administration.

Sam says NCUA expects directors of larger, more complex credit unions to obtain additional training that prepares them to tackle more complicated issues.

“Looking only at the balance sheet and the income statement won’t be sufficient for most credit union boards,” Sam says. “You need to understand risk and set limits for risk.”

NCUA Letter No. 11-FCU-02, “Duties of Federal Credit Union Boards of Directors,” says directors must understand credit, liquidity, interest rate, compliance, strategic, transaction, and reputation risk.

In addition, directors must have a firm grasp of the internal controls that limit and control these risks. Sam says meeting that standard at a large credit union in an area such as office operations could require tracking 40 to 50 sub-items, with the board and management determining how many items are tracked and selecting the tracking method.

“NCUA will make risk assessment an issue,” he says. NCUA is expected to scrutinize interest-rate risk due to concerns that a rapid increase in interest rates could create losses for credit unions with long-term, fixed-rate loans or long-term investments.

Other areas that deserve additional scrutiny include credit risk and concentration risk, especially in fixed-rate real estate loans, participation loans, indirect lending, and member business loans.

Sam notes that the agency’s website offers a two-page summary of each credit union’s financial performance with a review of key ratios and trends for the previous five quarters. This information can be combined with the 5300 Call Report, which delivers details on the percentage of shares in interest-sensitive accounts, categories of loans with the highest delinquencies, and the amount held in long-term real estate loans and investments over five years.

People’s Trust Federal experienced NCUA’s focus on risk assessment this spring when examiners asked for the development of an enterprise-wide risk management policy rather than relying on existing, separate policies for specific types of risk.

“It was a semantic difference but it was an important difference for the examiner,” Read says. People’s Trust Federal has since created a single, all-encompassing policy addressing all risk areas.

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