A Good Judge of Risk

Contributing Writer

5 minutes

When it comes to defining and navigating risk, growth-oriented credit unions need strong and capable leaders to ensure they make safe and sound decisions on behalf of their members. $1.1 billion TwinStar Credit Union in Olympia, Wash., has such a leader: Chief Risk Officer Scott Daukas, CSE.

Daukas, who was named the 2016 CUES Exceptional Leader in October at CEO/Executive Team Network in Savannah, Ga., has been instrumental in implementing a decision-making process at TwinStar CU based on a balanced assessment of risk vs. reward. This has come about largely through his ability to collaborate well with staff and his diligence in working with the CU’s board of directors to determine its appetite for risk.

“We’ve been able to make some investments in CUSOs over the last 12 to 18 months, and that was wholly predicated on the risk appetite of our board,” says the CUES member. “It’s been an exciting thing to watch come to fruition.”

In one case, Daukas was chair of a risk management CUSO and recognized the potential for merging it with a privately held competitor.

“After meeting their executives ... it became clear to me that we shared many cultural beliefs and complementary skill sets,” Daukas says. “For the next 18 months, I led from our side the initiative to blend these two companies ... including the merger of staff and bringing the cultures together.”

The resulting CUSO, CUES Supplier member Rochdale Paragon Group LLC, has subsequently spun off a separate CUSO that is launching risk management software.

In 2015, TwinStar CU also leveraged its judicious use of risk to directly better the lives of its 115,000 members while improving the CU’s financial position.

“We booked fixed-rate 15- and 30-year mortgages into our portfolio instead of selling them during a period of time when ‘standard’ thinking was to not,” he explains. “We booked approximately $20 million in those loans, which brought that additional yield into our income statement.

“Our NEV (net economic value) declined but, because we had enough room from where we were and with what our limits were, we were able to model the impacts and make that decision based on our data and ... risk tolerances,” he adds. “We could show that it offered the best risk/reward tradeoff when compared to other balance sheet strategies.”

Despite heightened regulatory focus on interest rate risk, the examinations went well. “It proves that if you have a holistic approach to risk, you can defend those types of decisions,” Daukas observes.

A Career Progression

Though Daukas exhibits impressive financial acumen, he didn’t originally expect to pursue a career in the financial sector. He worked for a bank for about a year before moving to Olympia at age 22 to marry his wife, Jessica. (They now have two daughters, 10 and 5). He earned a bachelor’s degree in political theory from Whitman College, figuring that being in the state’s capital might lead to a career in politics. Instead, he joined TwinStar CU 17 years ago and has been there ever since.

Eventually Daukas completed his master’s degree in management from Regent University. He continues to pursue industry education, having earned his Certified Senior Executive (CSE) designation from CUES (which today can be earned by completing CUES School of Applied Strategic Management). He also attended all three CEO Institutes and earned the Certified Enterprise Risk Management Executive designation from CUNA.

“I’m really passionate about learning and development—for myself and for my staff,” he says.

Daukas moved up the ranks at TwinStar CU from loan officer to branch manager to regional branch divisional manager, taking “a sudden shift to the left” in 2010 when he became chief operating officer. Most recently he was named chief risk officer.

“We consolidated risk under one executive, which I think has been a really great decision for us,” allowing the CU to build its holistic risk approach, he says. “It’s given us a really good view of our risk profile across the various risk areas, which has made our decision-making better and our strategic planning better.”

Under the new arrangement, the chief lending officer and CFO report to Daukas. “The three of us run the financial strategies,” he says. “Every month I lead our senior management through our balance sheet strategy, where we talk about risk and translate it into action.”

Daukas’ team also includes the AVP/risk and the compliance and internal audit departments.

A Collaborative Leadership Style

CLO Aaron Palmer has worked with Daukas for 12 years and has had the opportunity to observe his leadership. “There are three pillars that make Scott such a strong leader,” Palmer says. “He puts people first, he has strong intellectual curiosity, and he has a very strategic mind.”

A CUES member, Palmer is impressed by Daukas’ focus on collaboration and empowering others to achieve. “Scott is the epitome of someone who makes everyone around him better. He’s very quick to give credit and does what he can to enhance other people’s careers.”

Daukas is also a leader in the community, having served on the board or as a volunteer for various local organizations and fundraising events. He is the incoming treasurer for the Washington State Department of Transportation Memorial Foundation, which provides financial support to the families of fallen highway workers as well as to WSDOT employees who have a financial need. Daukas has a personal connection to this mission. “My wife has been a state employee for 18 years and my father-in-law retired from WSDOT after 30 years of service,” he explains.

Being 2016 CUES Exceptional Leader is more than recognition for individual achievement for Daukas. “We have a lot of talented executives who work well as a team, as well as a strong CEO and a progressive board that have allowed us the opportunity to take on new challenges and take risks that many other credit unions might not be willing to take. I think that’s had a big impact in what we as a credit union have been able to achieve.”

Diane Franklin is a freelance writer based in Missouri.

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