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c. myers live – Building a Strong Leadership Team

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We’re hearing from many CEOs about how the outside world is changing much faster than their team is able to change themselves.  In this c. myers live, we discuss ways to move into action to build or cultivate a strong leadership team, and why it is perhaps the most important initiative for organizations to take on. 

About the Hosts:

Sally Myers

sally myers headshotSally is a founder of c. myers corporation and one of five owners. Driven by a deep commitment to helping financial industry leaders and regulators for more than two decades, her guidance has shaped c. myers’ focus on helping clients create opportunities and approach problem solving from a scalable perspective. She has also been a strategic force behind the development of c. myers’ financial models.

Learn more about Sally

Charlene Leland

Charlene LelandSince joining c. myers in 2004, Charlene has become one of the most diverse facilitators within the industry, especially with regard to helping credit unions of all sizes address three necessary business objectives: relevancy, differentiation, and sustainability. Over the years, she has honed her skills for facilitating various types of sessions, including Strategic Planning, Strategic Implementation, Member Journey and Experience Improvement, and Strategic Financial Planning.

Learn more about Charlene

Other ways to listen to c. myers live:

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Vendor and Partner Relationships: Signs You Should Be More Strategic

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5 minute read – The following blog post was written by c. myers and originally published by CUES on August 16, 2021.

Vendor and partner relationships are essential to credit unions.  Taking a strategic approach to these important relationships can better position the organization for future moves, boost performance, save resources, and maybe even lessen the total number of relationships required.  Optimizing these relationships helps add value for your members and employees, yet the complexity and sheer volume of relationships can be overwhelming.  As the industry continues to evolve, institutions will have to rely even more on third parties, which means this challenge is growing.  Taking action, sooner rather than later, will help.

Most have an objective of leveraging vendor and partner relationships to their fullest advantage for the benefit of the membership, employees, and other key stakeholders.  Many have systems in place for contract management, due diligence, and managing/monitoring third party risk.  While those foundational functions are critical, there is far more opportunity to leverage relationships for higher performance and efficiency.

Here are a few signs that opportunities are being missed:

  • Contracts are renewed even though the partner has no plans to offer key capabilities that you will soon need to support your strategy
  • Multiple pieces of software or service providers are performing the same function in different areas of the credit union. Downstream effects are compounded when you’re left managing extra relationships and updating more software than is needed
  • Features and capabilities that are planned for implementation are never made available because they were postponed during a complicated rollout with the best intentions to go back and activate them later
  • Desired features and capabilities are added by the vendor but not implemented. It’s possible no one knows they’re available, and it’s not uncommon for software to be branded “no good” or “out of date” because it was not updated regularly or features were not implemented
  • Products or services are contracted, but training is minimized. This is often due to time constraints, making the new products or services far less effective and beneficial

It’s important to understand your partners clearly, just like you would your employees.  Are they bringing the minimum requirements to the table or are they true extensions of your staff?  How forward-thinking are they?  How quickly do they adapt?  How does their strategy support your strategy?

As vendor and partner relationships grow in number and importance, determining how you will approach them going forward will provide clarity.

Here are a few questions we’re asking our clients as they shift to a strategic approach:

  • What is your strategic position on vendor and partner relationships?
  • Who owns the overall vendor and partner relationship process?
  • If the process is broken down into categories, such as software and non-software, who owns the different categories?
  • Who owns the individual relationships? If a vendor provides multiple products or services, is there a single owner or multiple owners?
    • The owner of the relationship is the person responsible for paying attention to what’s happening with the company, their software or service, their plans for the future, their representatives, etc. This includes understanding and choosing whether to implement updates and new features
    • Relationship ownership is a strategic decision. Why are the owners chosen?  How well do they understand the business and organizational priorities?  How well do they build relationships and drive results?
  • What should the relationship owner know about each vendor in order to understand how well their strategic positioning aligns with your strategy? For example:
    • If you are interested in banking as a service/embedded finance in the future, is the vendor planning to support those capabilities?
    • If you’re utilizing the cloud for some services, is it important for this partner’s services to be cloud-based?
    • What does this vendor’s development roadmap include, and how can you assess their ability to deliver on that roadmap?
    • What other products and services do they offer that may help you move forward strategically?
  • Is your organization using the products or services at the desired level (include upgrades, features, training)?
  • What type of customer do you want to be to your vendors, and what level of service do you expect in return? How difficult or easy are you to work with?  How difficult or easy are they to work with?
  • How should specific vendor/partner relationships be prioritized for the organization?
  • How much resource should you dedicate to ensuring that these integral relationships are optimized?

Strengthen your approach to vendor and partner relationships to meet today’s and tomorrow’s needs.  These relationships will only become more necessary, complex, and further ingrained in the fabric of your business.  Investing intentional effort in this area brings organization and efficiency, and a strategic approach helps leverage the institution’s relationships for optimal performance.

 

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Considerations for Profitable Used Auto Lending

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Used Autos6 minute read – If you have shopped for a vehicle recently, you know supplies are tight and prices are high.  Used auto values increased roughly 40% from July 2020 to July 2021, and while the rate of increase slowed dramatically in July of this year, used auto prices are still extremely high by any measure.  This has created a unique environment for lending, and it could be changing the credit risk landscape for a period of time.

No one knows what will happen with used auto values over the next year or two, but it is certainly possible that the price of used autos could decrease substantially, especially if the supply of new vehicles begins to catch up.  Loans being made at such high market values creates the potential for larger losses if values come back down and loans are charged off.

Many of the institutions that we work with do not anticipate an increase in the probability of default, but believe that if defaults happen, the losses could be much larger.  This is NOT a suggestion to stop booking used auto loans, but rather that the risks need to be clearly identified, tested, and communicated to decision-makers.

Questions to address include:

  • Are used auto loans priced effectively for the risk we’re taking?
  • How much could losses increase before used autos are no longer profitable?
  • How does the marginal ROA contribution compare to other alternatives such as investments?

Consider an example comparing the marginal return on assets (ROA) of used autos at a 3% average yield with “expected” credit risk of 25 basis points (bps), to the same pool of used auto loans but where the credit risk is doubled (increasing to 50 bps).  Not surprisingly, the higher provision for loan loss (PLL) reduces average profitability by about 25 bps across all simulated rate environments.  The used autos with the lower provision would remain profitable until market rates hit 6%, compared to market rates at 5% for the loans with higher losses.

Comparison of Marginal ROAComparison of Marginal ROA Example 1

Note:  the 4-digit codes across the bottom of the graph represent different market rate environments.  The first 2 digits represent short-term government rates (3-month Treasury), while the last 2 digits represent long-term rates (10-year Treasury)

Compared to an investment with a similar average life, even the used autos with the higher PLL are still much more profitable.  The following report compares marginal profitability of the used autos with the higher PLL to a 2-year Treasury.  Note that even with PLL at 2X the base level, the marginal ROA of the autos is more than 126 bps higher than a 2-year Treasury.  And PLL would have to increase to a total of about 175 bps before the autos are breakeven with the 2-year Treasury.

Comparison of Marginal ROA

Comparison of Marginal ROA Example 2

Note:  the 4-digit codes across the bottom of the graph represent different market rate environments.  The first 2 digits represent short-term government rates (3-month Treasury), while the last 2 digits represent long-term rates (10-year Treasury)

There are other considerations, such as:

  • Loan losses on used autos often start to appear within 12-18 months of issuing the loan. If used auto prices fell further, and faster than normal, some borrowers might make an economic decision about whether to continue paying and that could impact when loan losses start.   Also consider whether this would necessitate doing anything differently from a monitoring and collections standpoint.
  • Given the potential for increased credit risk exposure, maintaining a higher allowance for loan loss could help cover the potential for credit risk for those loans being made today and could help smooth out earnings over time.
  • Discuss whether this should cause your institution to rethink loan-to-value requirements. Even if you decide to not change a thing because of your desired competitive positioning, there is tremendous value in the discussion. Regardless of what decisions you make, it is a good idea to document your rationale, as memories can be short.
  • What other loan categories are being impacted by these trends? For some institutions, RVs are also becoming a loan type that is getting extra attention for many of the same reasons.
  • Finally, consider a broader discussion with your team about other lending or revenue opportunities your institution could contemplate in this unique environment.

Anytime the market changes this much, in a relatively short period of time, it is a good idea to step back and consider the impacts these trends could have today and going forward.  External forces continue to evolve rapidly, which creates the necessity to have these types of discussions more often.  This helps decision-makers proactively balance being competitive today with having strategic flexibility in the future.

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c. myers live – Powerful Discussion on the Difficult Topic of Talent

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Talent is currently top of mind for many organizations.  In this c. myers live, we focus on things to consider when discussing the topic of talent, and the importance of acquiring, appropriately developing, and retaining the right type of talent.

About the Hosts:

Sally Myers

sally myers headshotSally is a founder of c. myers corporation and one of five owners.  Driven by a deep commitment to helping financial industry leaders and regulators for more than two decades, her guidance has shaped c. myers’ focus on helping clients create opportunities and approach problem solving from a scalable perspective.  She has also been a strategic force behind the development of c. myers’ financial models.

Learn more about Sally

Dan Myers

Dan MyersSince joining c. myers, Dan has worked with scores of credit unions helping them to develop quick and efficient processes, as well as organize and manage portfolios of projects to maintain relevancy, keep costs down, and create more rewarding member and employee experiences.  Credit unions that have benefited from Dan’s expertise have ranged from $90 million to over $5 billion in assets.

Learn more about Dan

Other ways to listen to c. myers live:

listen on google podcasts listen on spotify listen on apple podcasts

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Multipronged Approach to Process Improvement

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Process Improvement

3 minute read – Strategic initiatives that include process improvement as a key component are highly prevalent.  Some institutions set out to use process improvement to build a more efficient organization, better customer and staff experiences, or higher loan funding ratios.  In addition to improving specific processes and metrics, more and more organizations are working to create a culture of continuous process improvement so the efficiencies, experiences, and ratios they’ve achieved continue to improve into the future.   

Attaining an organizational culture that is focused on ever-better processes requires more than a few isolated efforts toward process improvement.  Teams that are working to establish the practices that will lead to a culture of continuous process improvement should consider consistently using a combination of the approaches below to gain the most traction, rather than a singular approach: 

  • Quick Wins – When processes need obvious tweaks, isolated improvements can be made without reviewing the entire process if vetted carefully for unintended domino effects to the upstream and downstream parts of the process.  The ideas for these tweaks are often the result of someone identifying a pain point, either through the normal course of business or by polling employees for their ideas, which is a good way to uncover previously unknown process weaknesses and give employees a voice.  Improvements that are suited for the quick wins approach are simple changes that are welcome or won’t invite resistance.   
  • Comprehensive – This is a more holistic approach that includes reviewing and improving an entire process from beginning to end.  This is most effective as a collaborative effort that brings in people involved in all phases of the process to pool their knowledge, identify issues, design creative solutions together, and champion the resulting improvements.  Viewing an entire process reveals a bigger picture that makes it easier to accomplish the objectives of the process improvement, and will often lead to more and higher impact improvements than when doing bits and pieces.  This approach requires good facilitation led by in-house personnel or consultants.   
  • Transformative – This is a variation of the comprehensive approach that is used when truly new thinking is called for, such as when an entirely new process is being created or an existing process is opened up for a complete redesign.  The team is asked for not only creativity, but altogether new ways of thinking about the process in order to meet identified objectives.  Good candidates for the transformative approach are processes surrounding a new core system, to avoid projecting old thinking onto the new system.  This is also an ideal approach for newly digitized processes, instead of simply adjusting the old process and missing potential gains from the new technology. 

Consistent efforts and consciously choosing and using a combination of approaches as appropriate for various circumstances will improve the chances for success.  It will help build a mindset where employees think about processes from new perspectives and are always looking for ways to strengthen them.  When talent throughout the institution embodies this mindset, they will embrace and help drive a culture of continuous process improvement and the organization can realize all the benefits that come with it. 

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