A.Philosophy Re: Collaborations Collaborations are an essential element in the operations of the Credit Union. Collaborations enable the Credit Union to be able to provide services more efficiently and effectively and to provide valuable financial services to members that cannot be offered through the traditional credit union model. The benefits of collaboration are such that the Credit Union will first look to determine whether a service solution is provided by an existing collaboration. If an existing satisfactory existing collaborative solution is not available, the Credit Union will determine if a new collaboration can provide the service solution. If a new satisfactory collaborative solution is not possible, then the Credit Union will consider a service solution without collaboration.

B. Background and Purpose
The purpose of the Collaboration Policy is to provide guidance to the Credit Union in considering, selecting, implementing, monitoring and managing collaborations in order to enhance the success of the collaborations. Collaborations that provide services to the Credit Union are considered Service Providers and will be subject to the Service Provider Policy. There will be some overlap in the Service Provider Policy and Collaboration Policy but the Collaboration Policy is intended to cover issues that arise from CUSOs and joint ventures with other credit unions and other parties.

C. Definitions
1. Collaboration Manager: A senior staff position who reports directly to the President and works with the staff and board to help identify, select, implement, monitor and manage the Credit Union’s collaboration relationships.
2. Collaboration Partner: A party with whom there is a co-ownership of a CUSO or who acts in concert with the Credit Union in a joint venture. The Collaborative Partner may or may not be a credit union or CUSO.
3. Subject Matter Expert. The Credit Union staff that is knowledgeable about the subject matter of the collaboration in question and works with the Collaboration Manager in identifying, selecting, implementing, monitoring and managing the specific collaboration.
4. Service Provider: A third party service provider which may or may not be a credit union or CUSO.

D. Goals of Collaborations
1. To leverage economies of scale, lower operational costs, increase efficiencies and/or provide greater staff expertise.
2. To manage the costs and risks of new operation and financial services by sharing them with Collaboration Partners.
3. To provide non-traditional financial services to increase non-interest income and service opportunities to members.
4. To provide an entrepreneurial culture to foster greater growth opportunities.
5. To provide additional career paths to attract and retain valuable staff members.

E. Parameters for the Selection of Collaborations
1. In selecting Collaboration Partners, the Credit Union shall consider the following factors:
a. Does the Collaboration Partner have goals compatible with the Credit Union’s goals?
b. Does the Collaboration Partner have a compatible risk tolerance for the business risks associated with a collaboration?
c. Does the Collaboration Partner have successful experiences with other collaborations?
d. Do the Credit Union staff and board have a good relationship with and trust in the Collaboration Partner’s staff and board?
e. Does the Collaboration Partner have the financial ability to meet its commitments of the collaboration?
f. Does the Collaboration Partner have the full support of its board and staff to meet its commitments?
g. Does the Collaboration Partner have the ability to make timely decisions?
h. Do you trust the Collaboration Partner to timely meet its commitments?
i. Does the Collaboration Partner have an entrepreneurial culture?
j. Is the Collaboration Partner open to new solutions to achieve its goals?
2. If there are preferences with regard to the geographic location, size or other characteristics for a Collaboration Partner in a particular collaboration, these should be identified.
3. When co-investing with others in CUSOs, the Credit Union shall establish its goals for the collaboration which could include:
a. Production of minimum levels of non-interest income over time;
b. Establishing greater member service penetration;
c. Lowering operational costs;
d. Increasing efficiencies and expertise of services; and/or
e. Attracting and retaining staff.
f. When co-investing with others in CUSOs, the Credit Union shall structure the CUSO in a manner consistent with its goals which include attention to ownership, profit and loss and management issues. Unless there are compelling interest to justify a variance, the agreements should have the following characteristics:
i. The Credit Union shall have management control over the CUSO at least commensurate with its relative capital contribution.
ii. Profit and loss should be shared commensurate with the Credit Union’s relative capital contribution and/or patronage component (percentage of business brought to the CUSO).
iii. Tax issues and flexibility of structure should be considered in selecting the type of CUSO entity.
iv. There should be clear procedures for Collaboration Partners desiring to enter or exit the CUSO.
v. All Collaboration Partners shall be users of the services of the collaboration.
vi. There shall be procedures for Collaboration Partners to be compelled to leave the collaboration if they are not fully supporting the efforts of the collaboration.
4. The Board shall approve all collaborations in which the Credit Union makes an investment.

F. Administration of Collaboration Policy
The President shall appoint a Collaboration Manager. The duties of the Collaboration Manager shall be to implement the Credit Union’s Collaboration Policy. The Collaboration Manager will work with the Subject Matter Expert as may be designated for a specific collaboration. The Collaboration Manager’s duties include:

1. Identification of Collaborative Opportunities
a. Acquiring knowledge of collaboration opportunities.
b. Networking with professional colleagues to determine the experience of other credit unions with collaborations.
c. Bringing to the attention of the senior staff collaboration opportunities, especially those collaborations that will enhance and promote the strategic goals of the Credit Union.
d. Supporting the senior staff and the board in the strategic planning process as strategic direction and service solutions are considered.
e. Identification of operational and regulatory risks associated with the collaboration.
f. Evaluating the potential collaborations in accordance with the issues identified in this Policy
2. Selection of Collaborative Partners and Service Providers
a. Administering selection process for collaborations.
b. Coordinating the due diligence on Collaboration Partners and the collaboration.
c. Acting as liaison between the Credit Union and Collaboration Partners.
d. Presentation of results to staff and/or board.
3. Implementation of Collaborations
a. Negotiation of agreements with Collaboration Partners consistent with the Collaboration Policy and the needs identified by the Subject Matter Expert.
b. Coordinating the integration of the collaboration with the Credit Union, including the education of the Credit Union’s staff on the purpose and value of the collaboration.
c. Reviewing and recommending to the President the performance incentives to the Credit Union staff to incent them to support the success of the collaboration.
d. Coordinating the resolution of any implementation and operational issues between the Credit Union staff and the Collaboration Partner staff.
4. Monitoring Collaborations
a. Collecting performance reports from the Collaboration Partner and conducting review sessions with them on no less than a quarterly basis.
b. Providing the performance reports to the Credit Union senior staff and board.
5. Managing Collaborations
a. Marking recommendations to the President regarding actions to improve the collaboration.
b. Counseling the Credit Union staff and the Collaboration Partner on remedial actions to address issues and, if not satisfactorily resolved, recommend to the President in writing actions to hold persons or organizations accountable, a copy of such recommendations shall also be provided to the board.
c. Coordinating the implementation of procedures to manage the operational and regulatory risks
d. Interaction with the regulators and the Credit Union retained professionals regarding collaborations.
e. Coordinating the termination and transition of collaborations.

G. Considerations in Determining Collaboration Opportunities
The Collaboration Manager shall perform due diligence to assist the Credit Union in evaluating potential collaborations. The issues to be considered include the following:

1. Member Benefits
a. Will new product or service be offered that will bring value to members?
b. Will the members have better pricing?
c. Will there be greater convenience to the member?
d. Will there be both actual and perceived member benefit?
e. Will this be a better means or process to provide an existing service?
f. Will this be a service that is complementary to an existing service?
g. Will the collaboration be innovative?

2. Viability
a. Who are our competitors in this service and what are their weaknesses and strengths?
b. Are there other credit union collaborations in this service and if so, what is the reason(s) why are not collaborating with one of them?
c. What is our business proposition that will make this service a success?
d. What is the effect of this service on retaining and growing the penetration of other services?
e. What will success look like for this service?
f. Is there an exit strategy for a successful or unsuccessful venture?

3. Financial
a. Will we acquire additional capital in the transaction?
b. Will we grow revenue/capital?
c. Is there a potential to gain access to capital markets?
d.. Will this result in efficiencies/economies of scale?
e. Will this result in increased market share for the Credit Union?
f. Will there be CU industry benefits/implications?
g. Will this result in increased credit union industry market share?
h. Will the Return on Investment exceed cost of capital?
i. What is payback period?
j. Will acquisition lower cost more than if the Credit Union grew organically?

4. Regulatory Issues
a. What is the impact on the Credit Union’s Investment/Loan limitations for CUSO’s?
b. Is this a permissible activity for credit unions or CUSOs?
c. Are there non-credit union laws and regulations that apply?
d. What is the time and money cost of compliance?

5. Partnership Issues
a. Have the proposed partners demonstrated favorable characteristics such as compatibility with the goals of the Credit Union regarding fiscal responsibility, trustworthiness, meeting commitments and timely decision making?
b. Will partnership help mitigate risk?
c. Will partnership offset regulatory limitations?
d. Is the partner a cultural fit?
e. Will partnering create stickiness to customer/client base?

6. People Issues
a. Are there internal champions for the service in the Credit Union and there other collaborators?
b. Are there any people in the Credit Union who would resist the implementation of the service?
c. Can incentives and accountability be provided to the Credit Union staff to insure timely acceptance and integration of the services?

7. Miscellaneous
a. Are there systems compatibility issues?
b. How will the Credit Union’s brand be used?
c. How will the collaboration affect the Credit Union brand?
This is the work product of the law firm of Messick & Lauer P.C. in Media, PA www.cusolaw.com. This Policy is illustrative and not meant to be used without legal review for the specific client situation. You may obtain permission and legal advice in the use of this Policy by contacting us at 610-891-9000 or gmessick@cusolaw.com .