Essentials

 

 …to help all of Delaware’s credit unions exist, compete, and prosper 
                                                                        FALL/WINTER, 2003          

SMALL CAN HAVE IT ALL

“Nobody joins a small credit union because they have only basic needs,” says CUNA Mutual’s Steve Goldberg, a longtime advocate for small credit unions. “Small credit union members’ needs are just as complex as everyone else’s.” To compete with larger financial institutions, small credit unions can level the playing field with the power of the Web, Goldberg says.

CUNA’s small credit union resources:  Get help building a Web site, do some networking, read about legal issues, check out links to member newsletter content, and more.  
www.cuna.org/initiatives/small_cu/ 

NCUA’s small credit union program: Specialists assist very small credit unions by offering technical and financial experience under this federally funded program.
www.ncua.gov/org/orgchart/SCUP/index.html 

CUNA Mutual’s small credit union resources: Advice on such things as finding a mentor, developing a mortgage lending program, and locating technology partners. Go to www.cunamutual.com, click on “Resources,” then “Small CU.”

Take advantage of your opportunities, says Mike Schenk, vice president of Economics and Statistics and staff liaison of CUNA’s Small Credit Union Committee: “Small credit unions face many challenges, but the resources are there to help."


NCUA’s New Accounting Manual

NCUA has rewritten its Accounting Manual for FCUs to assist credit unions with less than $10 million in assets with their accounting and financial reporting practices.

“Accurate financial statements of any size enterprise are vital. Many recent changes to Generally Accepted Accounting Principles (GAAP) are burdensome to many credit unions,” said Scott Waite, chairman of CUNA’s CFO Council and Accounting Task Force, and senior vice president and CFO of Patelco CU in San Francisco. “Those credit unions under $10 million in assets have been afforded some important relief and valuable accounting guidance in the form of NCUA’s revised Accounting Manual. It’s worth noting that over 5,100 of the nation’s 10,000 credit union fall into this category.”

In the manual, NCUA aims to streamline and simplify its guidance on regulatory accounting practices (RAP).  The Manual was also updated to reflect the Credit Union Membership Access Act’s Prompt Corrective Action approach for financial reporting.

Among other things, the Manual notes that:

·     Required transfers to Regular Reserve are dependent on the net worth ratio calculation and related net worth classification.  (NCUA rules state that a credit union must determine its net worth category classification at the end of each calendar quarter and subsequently set aside accumulated earnings in its Regular Reserve account.)

·     FCUs must design their own chart of accounts.

·     Shares are still classified as equity in the Statement of Financial Condition.

As CUNA recommended in its comments to the agency, NCUA has incorporated into the Manual its final Interpretive Ruling and Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for FCUs.

Credit unions with $10 million or more in assets are required to follow GAAP in the call reports they file with NCUA.  CUNA advises that these credit unions should follow GAAP rules issued by the Financial Accounting Standards Board and the American Institute of Certified Public Accountants. 

To order the revised NCUA Accounting Manual, contact NCUA at 703.518.6340 and ask for publication #8022.  The cost of the Manual is $35.


PCA Checkup  

    

Is fast asset growth causing your net worth to decline? Is your credit union over-capitalized? Undercapitalized? CUNA's PCA Checkup helps you answer questions like these and helps guide strategic capital management decisions.

PCA Checkup is the ideal planning tool and/or board education tool. Your PCA Checkup calculates your credit union's net worth ratio and uses a series of tables and graphs to summarize the interactions between earnings, asset growth and net worth over time. Your 13-page, full-color report contains calculations and forecasts specific to your credit union.

 

The PCA Checkup gives your credit union:

bulletits net worth ratio using PCA definitions;
bulletits "complexity" status & calculates any applicable risk-based net worth requirement according to NCUA's proposal;
bulletits PCA net worth category;
bulletforecasts for potential changes in net worth ratio using five scenarios;
bulletdata on how changes in asset growth rates affect net worth ratio over time; and
bulletdata on how changes in earnings rate affect net worth ratio over time.

The PCA Checkup costs only $40 for credit unions over 10 million in assets, $25 for credit unions under 10 million. It's available by writing Sara Kegel at skegel@cuna.com or calling her at (800) 356-9655, ext. 4146.

 


Managing Risk*

*continued from Spring, 2003.

IDENTIFYING RISKS
Credit unions are exposed to a multiple of risks. Each is a potential source of financial loss. Risk identification is a conscious attempt to identify and measure all exposure to potential loss resulting from credit union activity. You must look at specific risks and deal with them appropriately. Some common classifications of risk are as follows: 

Property Hazards.  This is the possibility of loss to the credit union by damage to the building or equipment that you own or occupy. This damage could be caused by fire, earthquake, flood and various other types of natural or man-made disturbances. 

Theft.  This is a well-known risk incurred by all financial institutions. While the threat of robbery and theft cannot be totally avoided, credit unions should make every effort to take adequate security precautions. It is important to train your staff how to handle themselves during a robbery or in the event a theft takes place.

Embezzlement.  This is theft from within the credit union. It is not usually accomplished with the actual removal of cash.   False accounting entries is the method commonly used by embezzlers.

Liability losses resulting from work related injuries and negligent acts by credit union employees that cause injury or loss to others is also a risk. It is critical that you identify those risks so that they can be controlled.

MEASURING AND EVALUATING RISKS
One aspect of risk measurement is the number of times a loss-causing event (such as fire, theft, or natural disaster) may occur within a given time period. When the event happens the loss that results is called the loss severity measure. Projections about loss severity and frequency are based on past experience, intuitions and expectation about the future.

Since much of risk management is based on individual expectation and intuition your credit union will want to make generalized assumptions about loss frequency and severity. Describing them as high or low may be sufficient. For example: suppose you have identified a possible loss due to an employee taking home pens and pencils. The frequency may be high, but the severity of loss is quite low. As a result, the measurement decision suggests that the credit union ignore this type of risk or loss. On the other hand, embezzlement is relatively infrequent, but the severity and resultant loss to the credit union is quite high so such a risk should not be ignored.

TOOLS OF RISK MANAGEMENT
 After risks have been identified, measured and evaluated, the next step is to act to control the risk and/or to finance the expected losses using the following tools.

Loss Prevention and Reduction. Most credit unions would undoubtedly consider the potential loss from fire to have a high severity and low frequency characteristics. Most managers elect to transfer this risk by purchasing a fire insurance policy. In addition to this transfer and a possible condition of the policy, credit unions employ various fire prevention techniques. These may include periodic maintenance of electrical and heating systems, installation of smoke alarms, sprinkler systems and fire walls.

Separation of Exposure. Keeping a duplicate set of records off site is an example of separation of exposure.

Combination. A credit union may expand its scope of operation in an effort to stabilize and protect its earnings. For example: if a credit union makes only one type of loan, any decrease in the profitability of that loan type will directly affect the earnings of the credit union. By diversifying or offering more loan types, poor performance is one area that will be offset by favorable conditions in another.

Risk Avoidance. An example if risk avoidance would be to not make mobile home loans because declining resale values may undermine the collateral serving as security.

Risk Transfer. The most common example of risk transfer is through an insurance contract. A credit union pays a premium as an inducement to accept a risk or loss. By paying a premium, a credit union is certain that if an insured peril causes a loss, the insurer will repay the credit union for its loss. 

Because potential losses from crime have high severity and low frequency characteristics, the credit union will typically protect itself by purchasing blanket bond insurance. The bond usually covers losses from theft, fraud, forgery and employee dishonesty. The cost of this coverage is determined by the asset level of the credit union, past loss experience and the quality of loss prevention systems the credit union has in place. CUNA Mutual Group can assist you in establishing a loss prevention system. 

 

PLEASE PASS THE TORCH

 

The Delaware League is asking credit unions to offer the Torch Card to their members to raise funds for Children’s Miracle Network. What is a Torch Card? The Torch Card is a discount entertainment and travel card that members may use at merchant locations nationwide. 

Instead of carrying around a bulky coupon book, this slim, plastic card the size of a credit card fits easily in purses and pockets. When members present the Torch Card, they receive instant discounts on items such as meals, hotel rooms, auto services, recreation and much more. For a listing of the participating Torch Card merchants, go to www.torchdeals.com and click on activate card. Then, enter a zip code.

The more they save, the more they have to invest, save or pay bills. And, the more they will appreciate yet another advantage their credit union membership has brought them!

What is involved in offering the Torch Card to your members? Simply market the card in your statements, newsletters and lobbies. There is no upfront cost to the credit union. No inventory to maintain. We will fulfill all the orders and mail the cards directly to the members. 

Your credit union will earn 25% of the proceeds from the sale of the Torch Cards to your members. 5-10% of all proceeds will benefit the Children’s Miracle Network. So, if you’re keeping track, it’s like this – your members benefit, your credit union benefits and The Children’s Miracle Network benefits!

Call us today and begin offering this beneficial discount card to your members. Contact Jane Bailey at 302.322.9341, 800.292.7875 or jane@dcul.org.

 

  Keys to Success: A Reference for Smaller Credit Unions

 

 

Keys to Success is a resource for smaller credit unions that face the same challenges their larger counterparts face: finding a niche in the increasingly competitive financial services marketplace. It draws on the experiences of many similar-sized credit unions with limited resources. They have found a way to reach their potential, and are not merely surviving, but flourishing. This indispensable tool:

bulletcontains ready-to-use work sheets, an organizational self-assessment tool, a driving forces questionnaire, and an outline to differentiate staff and board roles and responsibilities;
bulletoffers innovative solutions to recruiting and retaining staff;
bulletprovides simple but effective marketing tools, and proven techniques for managing time and stress;
bulletsuggests strategies for making the most of technology;
bulletproposes suggestions for forming partnerships with credit unions and other organizations;
bulletincludes a resource list with suggested World Wide Web sites, service providers, and additional printed materials beneficial to small credit unions.

Stock #23128                $31.95 each

 

2003 E-Scan's Small CU Staff Salary Survey

CUNA E-Scan's 2003 Small CU Staff Salary Survey is created exclusively for small credit unions. This essential report details base salary, incentive, bonus, total cash compensation, and salary range statistics for the most common positions in credit unions with $20 million or less in assets. New for 2003! More credit union positions, more value! This year's report includes data tables for part-time positions, in addition to the most common full-time positions at credit unions with less than $20 million in assets.

 

Stock #25130                $55.00

To order these books, go to www.cuna.org and click on “Small CU Resources” or call CUNA at 800.356.9655.