Listserv Update for April-June, 2005

CUNA CFO Council
June 16, 2005

The Listserv is a centralized list of e-mail addresses that is used for group discussions by members of the CFO Council. Posting a question on the Listserv is a great way to get immediate feedback from other CFOs on just about any question. In case you don’t check the Listserv regularly at http://www.cunacfocouncil.org/listserv/idx_listserv.html, here are some subjects that have recently appeared and generated significant discussion.

Currently we do not give employees a certain amount of time off for sick leave. When someone is sick they just get paid. The supervisor is to monitor it and just make sure that they are not abusing the privilege. That right there comes with all sorts of problems in itself. What types of policies do other CUs have in place?

My supervisory committee is trying to put together an internal audit department. We have posted the position; however we have been receiving conflicting statements from our external and outsource internal auditors as to who this person can report to administratively—the CFO or the CEO. If you have an in-house internal audit department, whom does the internal auditor report to?

Out-of-State Loans

We do not have any branches outside of the state of Maine, but we do have members who live out of state. If they wanted a loan for a vehicle, would you give them one? There are a couple of lenders on staff who feel that we should not give the loan since it would be harder to collect on those loans should they default. Of course our collector is adamant that we do not grant loans to out-of-state members. My feeling is that if the qualifications for getting a loan are met, and they are low risk, then we would give the loan. I also feel that since our policy doesn't state that we will not give loans to members who live out of state, that it would be discrimination based on where they live. We have historically had a low delinquency ratio (.31%) and very low net charge-offs. What do other CUs do about out-of-state loans?

We currently offer both 401(k) and defined benefit retirement plans. We
recently made a substantial pre-payment to the DB plan so we're committed (at least for now!) to maintaining two plans. Just out of curiosity:

1. How many of you offer both DC and DB retirement plans?
2. Do you plan to continue offering both for the foreseeable future?
3. If not, which plan would you eliminate and why?
4. What thoughts do you have about the PBGC and its continued
ability to absorb the obligations of these companies?

I am looking at changing the amount needed to open a share account and was wondering what everyone’s per share amount is. We currently require a member to have $50 to open an account and I think it is too high. I have been here at the credit union for nine years and it has always been this amount, but in my former life as a league auditor the shares ranged from $5 up to $25. Also, if anyone has changed the amount of their basic share, did you just have the board approve it and notify members?

Accrued Interest and Fee Income

I am very interested to know how other credit unions are accounting for accrued interest and fee income on charged-off loans. I have found a common practice is to reverse the accrued interest and fee income rather than including it as part of the charged-off loan. I am questioning this practice. It seems to me that earned interest and fee income should not be reversed simply because it cannot be collected.

Standard of Conduct

Our auditors and examiners are harping on us to adopt an employee standard
of conduct policy and a whistle-blower policy. I would greatly appreciate
it if anyone has adopted such policies and would be willing to share details.

Unprofitable Members

A third-party study, from before my time, found that most of our single-service members were unprofitable. Now we are considering closing a number of low-balance, inactive, savings-only accounts. My own cost study finds they are much closer to breakeven. I’m guessing the third-party-allocated indirect costs that would just get reallocated to the remaining members.

Have you examined expelling members because they are unprofitable and /or inactive? What criteria did you use? Did you actually expel anyone? If so, in retrospect, was it the right thing to do?

Retirement Plans

The cost of our pension and 401(k) plans are hitting us pretty hard and
we're actually considering amending/eliminating our pension plan because
of the significant cost. Over the last four years we've seen the cost of
the pension plan raise from 8% of eligible salaries to 14% of eligible
salaries. The increase is primarily due to an increase in the number of
employees and salary levels, coupled with poor returns on plan assets.
Due to the increased cost on the pension we have been limited as to our
discretionary contribution on the 401(k) plan (down to 2% last year). In a
nutshell, our total cost for these two plans totaled about 12.2% of
total salaries last year. How are others dealing with this?

What do you offer your employees (no retirement, both pension and 401(k),
or 401(k) only)? If you offer 401(k) only, do you match contributions or is it discretionary contributions? How much do you match or what was the percentage of your discretionary contribution in 2004?

Branch Profitability

We've been having some lengthy discussion on how many years it should take for a branch to become profitable. In our case, the branches we are looking at would be leased space and not land being purchased. I am wondering if you look at each proposal independently and assess the time frame, or do you have a set time-frame such as 3, 4 or 5 years for a branch to be profitable?

Rate Matching

We are having an interesting discussion concerning rate matches and
decided maybe it would be informative to poll other credit unions as to
their practice. Do you match rates from the competition? Do you do this only for CDs, or for other products such as money markets?