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ALBANY, N.Y. – The $4.9 billion Empire Corporate FCU is located in a quiet, almost sleepy part of Albany, N.Y. The modest Albany airport is a few miles down the road and Empire itself is situated in a predominantly residential area. But once inside the offices of 1021 Watervliet-Shaker road, the scene is much different than the serene surroundings. It is a fast-paced, energetic environment driven by a fired up group of 124 full-time and 38 part-time staffers. From an item processing operation that can take in a couple hundred thousand checks a day and process them in just six hours, to a trading desk executing transactions for its 1,000-plus members, the three-floor, 66,000 square foot Albany headquarters is a fluid environment. Credit Union Times recently spent a day on-site and two things were very clear – the management and staff are excited about what they are doing for credit unions and there is a feeling that no one area of the corporate overshadows any other. Concentrating on Continuity Empire was the corporate most affected by the 9/11 attacks – it’s safe to say disaster recovery is not what it used to be here. For starters, disaster recovery is out and business continuity is in. This is an initiative that has strong support from the top. “Disaster recovery had been focused on IT recovery, getting systems back up and running. We’ve shifted our mindset from a narrow IT focus, to a broad holistic approach,” said Christopher Duwe, director of business continuity and project management for the corporate. Duwe himself is an example of Empire’s shift in focus. He used to be within the IT department, but was moved out of IT to become his own department. Nancy Virkler, SVP of Operations for the corporate is dogged on the need for an enterprise-wide business continuity plan. “We used to ensure parts of the corporate would have power in an outage, but every department here is important,” said Virkler, pointing to a wall that houses the corporate’s new uninterruptible power supply (UPS). Taking that theme further, a trip outside shows this commitment in a more vivid way. There is a generator about the size of a small school bus that can supply the entire building with power. It is an 800kw diesel-powered unit with a fuel tank capacity to provide 23 hours of service. It is tested once a month and to Virkler’s delight there is barely a flicker when the generator takes over for 30 minutes as per regulation. It’s during the few seconds while the generator is kicking in that the UPS system ensures no system crashes. “We have showers, bathrooms, beds. We can house everyone here if we had to,” said Virkler, who almost seems to be hoping for a snowstorm to try out that notion. Virkler is extremely proud of how Empire reacted during 9/11, but the corporate did learn you can’t count solely on third-party hot sites to provide back-up. The corporate has completely replicated its systems at another location that it runs – not a third-party vendor – making it much more self-sufficient in a crisis. Virkler did not want the location published. Virkler also led the charge to ensure top executives don’t travel together so in the case of a tragedy, there would still be continuity at the top. She’ll have to get used to a bit more risk with Empire Corporate CEO Joe Herbst, who is pursuing his pilot’s license. Organized Chaos On the first floor is one of Empire’s four item processing sites. The door leading into the room is always locked, requiring a pass code to enter. Security is vital for item processing, given the sensitive information being processed. The main processing room is rocking – literally. Loud music cranks over the humming of the sorters, as three young gentlemen, who even have a rocker look, work at a feverish pace. The rock n’ roll atmosphere is indicative of the item processing process – organized chaos. From checks flying through the sorters, and data entry employees ripping out data on their keyboards, it seems hectic, but in fact is very organized, said Virkler. “Nothing new here. Aside from a few variances this is how every other financial institution in this business does it,” she said. She does point out a few highlights. The building was built for Empire and there is about a 12-inch “well” as she describes it under the item processing floor that allows the corporate to run all its wires and ensure the processing room doesn’t require a raised floor like many do. The big advantage? There’s no ramp leading into the room, so carts of thousands of checks flow smoothly from one room to the next, without putting a strain on anyone. Inclearing Operations Coordinator Jason Barrios demonstrated the lifecycle of a check once it enters the building. From the green bags that come in from the couriers, to the “trunc” (short for truncation) room where checks wind up, in the end it’s all about balance – the cash sheets have to match the items, and everyone is happy. Usually there is some investigating and hand entry that comes into play to strike that perfect balance. There are challenges with checks. Some are ripped or crinkled and don’t make it through the sorter. These are repaired, bagged and tagged. Some checks have images that need to be fixed before they are stored on optical disk. Credit union checks eventually land in the “trunc” room where they are kept for 48 days. The checks have already been imaged on optical disk, so when checks are pulled from this room it is usually for a situation such as a CU working on tracking down a fraud scheme. The “trunc” room is actually not the final resting place of a processed check. After its 48 days are up, a shredding truck comes to Empire to shred the checks. The whole process is monitored on closed circuit TV. Barrios also showed how different it is for credit unions that don’t truncate. One large New York CU, who will go nameless, has its own shelf where its items are placed as they are quickly returned to the CU so it can send out to members, while the other CUs’ checks are stored in the “trunc” room. Empire, like other corporates, is gearing up for image exchange, though Virkler doesn’t want to be too far ahead of the game. “I haven’t chased it,” she said, noting that in this early stage image exchange actually causes Empire to create more paper by producing substitute checks. Once all institutions are on board, this step will fade away. She said the reason the move to electronic exchange didn’t come sooner is because institutions have become so efficient at item processing. As for a fire, the bane of an item processing operation, Virkler points above to sprayers that are charged with FM 200, a chemical that is made to suppress fire in the room. Virkler, with over 30 years financial experience, said Empire has sort of been a rebirth for her. She joined the corporate seven years ago at 50 years old and has been able to dive into every aspect of operations. “I have a passion for operations,” she said. The Touchpoint On the second floor you’ll find Mitzy Vivenzio, vice president of member services, who doesn’t appear to have many bad days. Vivenzio describes her relationship with members as that of family. “We get to know them so well, if they are having a baby or marriage, we all know about it, and they know about us,” said Vivenzio, who with 27 years under her belt is Empire’s longest tenured employee. She started as a secretary and worked in a number of departments before landing in member services where her admitted love for people obviously fits. Vivenzio’s department is unique in that the member service reps have to know about everything the corporate does. They may have to talk about CDs, an upcoming conference, item processing, and on and on. About two years ago there was a change in the department that some feared – the dreaded “s” word (sales). For customer service reps, having to “sell” their callers can be a nightmare. Vivenzio said it’s not a hard sell environment in the least. “We look at what can benefit our members. We see what’s going on in the world and determine what might help them,” said Vivenzio. It could mean telling a member about a financial strategies conference coming up to help them deal with the continued rate hikes. As Empire’s SVP of Member Sales & Service Victor Vrigian, who has a sales background, put it, it’s not a hard sale environment, but a “qualified sales” environment. It still is a sales environment. A colorful dry erase board displayed prominently holds some of the sales goals, and staffers are awarded tickets for certain accomplishments. Later those tickets can be used as points for an auction of various goodies. Vivenzio’s 18-person staff of member service reps have the benefit of flex time. “We try to match employees with their family life. If someone wants to be home for their kids getting home we work with that,” said Vivenzio. It’s worked. The department has part-time reps who’ve been there for over 10 years, not common in a so-called call center environment. Flex-time and part-time work extends throughout the corporate. Vivenzio’s department also has to deal with fraud. Just as the interview was set to start, Vivenzio was on the phone with a bank trying to help track a fraudulent wire. “We do our due diligence. If we can’t get the money stopped, we want to try and stop the ring, stop the process,” said Vivenzio. Investing Options The second floor houses the investment staff. A trip to Bart Salazar’s office provided an update on what Empire’s members are doing on the investment side. “Many investments are inside of a year. The last couple of months three to six months out is yielding 4%,” said Salazar, noting that’s not bad given fed funds is at 3.25%. Salazar said there are some 5% yields out there five years out, but the yield curve remains very flat and credit unions seem to be committed to staying short. Salazar heads Empire’s Member Advisory Service CUSO. Currently it has 15 CU clients (with a commitment from a few others yet to be announced) and between $200 to $250 million under management. He said the CUSO’s sweet spot is the mid-sized CU, which is too small to have a portfolio managed by a CFO or SVP of Finance, but too large to have funds managed by the CEO as occurs in many small CUs. The CUSO right now remains non-discretionary, as opposed to discretionary where it could initiate transactions on its members’ behalf. Salazar is a proponent of credit unions not overdoing it with callable securities, which have become very popular in the industry. “We believe in a smaller allocation (of callables), and having a well-structured portfolio where you know when securities are maturing. It’s more responsible and pays dividends over the long term,” said Salazar. Salazar’s take on all the Fed rate hikes is that Greenspan and Co. may actually go a few hikes too far, and wind up pulling in rates quicker than normal. Not only does Empire manage assets via Member Advisory Services, it provides brokerage services with its Member Trade CUSO, also housed on the second floor. The trading floor is complete with a clock showing times throughout the world, similar to what is found in a big brokerage house. As for Empire’s own investments, VP of Investments Dan Haglund says there are more options out there. Empire has more asset-backed options such as packages of auto loan receivables, auto leases, privately insured CMOs, hybrids, and anything else the market can put together. These of course can be more risky. If you want to talk risk, step in to the office of Bob McMillen, Empire’s Vice President, Risk Assessment. McMillen said risk management can also be a fast paced game. If the investment department is being pressured by a broker to purchase a certain security with a more exotic asset-backed mix, it’s up to McMillen to try and give a proper assessment of risk. McMillen is going to be even busier this year with Empire looking at getting Part III and Part IV investment powers. His department has to start acting as it already has these powers before it even applies to NCUA to show the regulator it has the in-house expertise. Empire recently moved to a more sophisticated modeling system from QRM and plans to fill open slots with employees who may already have derivatives experience (related to Part IV), for example, to make the transition to the new powers smoother. The Corner Office A visit to the corner office on the third floor finds the executive office of CEO Joe Herbst. Herbst has led Empire since 1995 and has been with the corporate since 1986. Herbst’s office is peppered with Yankee paraphernalia, including a picture with current and sure to be Hall of Fame manager Joe Torre. A clear strategic area for Empire right now is a focus on balance sheet management, said Herbst. “That’s a renewed focus. About 26% of CUs’ investible funds are with corporates. We want to offer different, more flexible products,” to help increase that percentage said Herbst. As already highlighted, there are two investment focused CUSOs at Empire, and it is pursuing more investment powers from NCUA – all factors for enhancing its balance sheet management. Herbst said he leads by putting the right people in place and letting them do their jobs. He joked that even though he once managed the corporate’s item processing operations years ago, now they won’t let him near it because it’s so far over his head. As for the corporate network, Herbst said the big change today from yesteryear is that competition from other corporates is now the norm. “As time passes, it’s more acceptable.” But it’s also a cooperative network. He said for corporates to replicate when they don’t have to is a waste of resources. That’s why Empire joined other corporates in the CU Business Group CUSO when it wanted to get into business services. Herbst is a proponent of credit unions being politically active. Empire Corporate has done more of CUNA’s Hike the Hill visits with lawmakers than any other corporate. He highlighted New York state charters’ recent victory in getting parity with FCUs on sales tax as an example of what political involvement can do. Speaking of politics, Empire may soon lose one of its execs to it. SVP and General Counsel Gigi Hyland’s name keeps resurfacing as a potential Democratic appointee to the NCUA Board. Hyland, the former executive director of the Association of Corporate CUs, would not comment. She did comment on the progress corporates have made with compliance with the Bank Secrecy Act, a major source of concern at the start of the year. She said a corporate working group, and good communication with NCUA, has finally given corporates a better picture of their BSA responsibility. Chief Strategic Services Officer Charlie White talked strategy with Credit Union Times. This is a new area for White, who spent most of his career in IT. White echoed what Herbst and others said about balance sheet management being a key focus for the corporate. He cited Empire’s recent move to transition its overnight account from a tiered account to a flat rate account and changed its money market account from flat rate to tiered, to give CUs more higher yielding options. He also noted the continued evolution in payments systems and the need stay on top in that area. Internally, White said Empire is looking for ways to keep expenses down and increase net income. He said one way to do that is to keep staffing steady. If the corporate loses an employee to attrition, it evaluates whether that position needs to be filled. [email protected]

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