Taking Investments To The Next Level

A Minnesota credit union relies on its board’s diversity and desire for education to enhance its performance.

 
 

TruStone Financial Federal Credit Union ($907.7M, Plymouth, MN) was chartered nearly 75 years ago by a group of Minneapolis schoolteachers. The cooperative stayed true to its educational heritage as it grew and merged with credit unions serving similar fields of membership. Before it converted to a community charter, TruStone Financial was able to serve any teacher, or family member of a teacher, in the state. Its conversion to a community charter in 2004 opened membership to those who live, work, or worship in the cities of Minneapolis and St. Paul, and TruStone Financial now serves more than 78,000 members through a branch network that includes 13 locations.

Here, CFO Dan Zaczkowski discusses the credit union’s governance model and how TruStone turned board education into an opportunity to earn a better return on investments.

What is the structure of TruStone Financial’s board of directors?

We have seven individuals with a range of backgrounds on our board. We have two CPAs, an attorney, a professor and two retired school teachers, a real estate professional, and a couple of business owners. Some of these overlap; for example, we have a former school teacher who also owns a small business.

Has the board’s composition changed over time?

Yes, the board composition has changed significantly over the past five to seven years as our strategic vision has evolved to foster growth and serve the broader community while at the same time continuing to serve educators.  

How have these changes positively impacted the credit union?

Our board members are more representative of the entire membership today and possess the skills necessary to lead a credit union. Importantly, we still have a number of board members with ties back to our original membership group, so we still benefit from their experience and deep understanding of the credit union’s history.

Can you give me an example of how you use the individual skills of the board members?

They are each able to draw on their own expertise and professional networks to give advice or help us make connections if we’re facing a challenge. They all bring some kind of value to the equation. One board member owns an IT company and has been helpful in ensuring that our disaster recovery efforts are on the right path. Our two board members that are certified public accountants bring deep financial understanding and ensure we have the right auditors in place. Our attorney uses his networks to help find counsel with the right legal expertise for various situations. The board members don’t get involved in the details unless necessary but are able to ask the right questions and make sure we’ve thought through all the potential scenarios.

Does your board have term or age limits?

No.

How do you find new board members?

The board annually appoints a nominating committee that strongly encourages members to become involved in the credit union, either as associate directors, members of the supervisory committee, or members of the board. We always notify the membership of open seats, and we have a process to share information about the credit union once we identify candidates. We hold an informational meeting at one of our newer branches to show candidates where we’re going and give them a taste of the new technology and the look and feel of the branch. Participation on the supervisory committee is sometimes a step to becoming a board member.    

How much interaction does the senior executive team have with the board?

Our CEO and chairman interact frequently. For the rest of the senior team, our interaction is primarily through the board meetings, but there are sub-committees where there can be more interaction. The credit union’s ALCO [asset-liability committee] has a couple of board members, for example. We also have a properties committee that meets when we’re adding branch locations. The properties committee is less active today as we are building fewer branches and the committee input over time has raised the skill levels of management in this area.

What type of ongoing educational activities do the board members participate in?

We have all the typical forms of training that need to happen at the board level — whether it has to do with information security or other types of compliance — scheduled throughout the year. We bring in an outside speaker for asset liability management training once a year as well. We try to vary the speakers for ALCO training to get different viewpoints on this complex subject. Additionally, each board member has a budget and will typically use it to attend an appropriate conference. They write up notes and share them at the following board meeting with a short verbal report.  

On the investment side, what have you done to expand board education?

Five years ago, Trustone was only investing in CDs, a corporate credit union account, and some agency debt. As we were in the midst of historically low rates and investment returns along with low loan-to-share ratios, the board members wanted to understand all of their investment options. Management put together a series of presentations to give the board members the information they needed to understand different types of bonds — what they are, why you’d want to own them, and what the potential risks were. Once the board members were comfortable and liked what they heard, we would go back and rewrite the financial management policy to include such an investment along with appropriate guidelines. This allowed the board to be more comfortable with management taking advantage of better opportunities as they came along. Through this process we were able to introduce the board to agency mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, and municipal bonds. When we compare our portfolio with other organizations, we see we’re taking a similar amount of interest rate risk but earning a better return. You end up leaving a lot of income on the table if you’re not willing to look at other sectors, but to do that responsibly you need to educate your board members and have their buy-in. We also provide a one-page monthly investment strategy update to the board members to keep them informed.    

What lessons would you share with other credit unions that want to help their board members expand their investment knowledge, or other expertise, to take advantage of new opportunities?

Keep education materials concise and use common language rather than industry buzzwords. Also, truly listen to the board’s feedback and concerns and adapt your investment strategy where necessary.  

 

 

 

Aug. 12, 2013


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