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More and More Leagues Offering Vendor-type Services for Additiaonl Revenue. DALLAS – Between the demands of members seeking more tech-savvy services, the general uptick in operational expenses, and the loss of dues income from mergers, it’s not surprising that chief executives of state Leagues are finding more gray hair these days. “Of course, it hurts a lot when you average a merger every 10 days and then there are the conversions,” confides Richard Ensweiler, president/chief executive of the Texas Credit Union League and CUNA Chairman. Like his peers in the League system-and their boards – Ensweiler is grappling with a host of what some see as mounting challenges in 2005 trying to balance the books amidst falling dues revenue while also keeping income-producing subsidiaries sustaining and profitable. “It is tougher,” he acknowledges as individual Leagues seek to cope with local conditions and share services “but all of us are having to sharpen our pencils a little more,” as he characterizes the current business of running a state League. For one thing, League CEOs agree their staffs collaborate frequently and do more exchanging information and ideas than ever before. As for income sources, League managers-and their CU leadership-strive, as Eugene Foley, chairman of the Massachusetts League puts it, to “maintain a healthy mix between dues and new services” provided to members under the traditional fee structure. “We don’t want to be competing with existing vendors in the market and yet we have to find a way to provide needed services for those small credit unions that can’t afford what’s out there,” declared Foley, who also is president/CEO of Harvard University Employees Credit Union of Cambridge, in describing the League balancing act. And then there are the bank attacks which in some locales have sapped dues revenue to pay for costly TV advocacy/image campaigns. California and Utah are obvious cases in point with the California/Nevada Leagues opting last November for a mandatory $6 million dues assessment to pay for expensive, blanket TV advertising in 2005 carrying a pro-CU message highlighting the differences between banks and CUs. So far the California League said it is “very pleased” with a 90% signup rate of its 465 members with just a few days before the March 1 deadline when non-paying CUs become “disaffiliated.” All 29 CUs in Nevada have paid up. At the time and still now, California’s mandatory dues rule has been labeled a bold and courageous move in the industry but so far no other League has publicly announced its intention to follow suit perhaps in fear of losing too many members or lacking the same sense of urgency. Scott Simpson, president/CEO of the Utah League, which for a decade has spent untold thousands of dues dollars for media buys to thwart banker attacks, said his organization “sees no need to do that yet” adding that “I feel that if we produce a media product that CUs want to be a part of, then the financing will follow. If not, then we might not have the right campaign.” The last dues increase for the Utah League was in the fall of 2003 under a formula that included a “growth index” so that dues would increase along with the expansion of each CU. While the adoption of dues formulas – often complicated and sometimes Byzantine in detail – can stir angry and emotional internal dissension among big and small CUs, in California the leadership was delighted that a dues package was amicably worked out after “town meetings” were held last summer to get CUs on board. And member approval came despite a doubling of dues for some of the largest CUs in the state to help fund the TV blitz which debuted in January. Overall, dues formulas vary widely across the U.S. with the California formula based on flat rate fees for four categories of CUs keyed to a percentage of assets plus a 36 cents fee for CUs over $30 million. Elsewhere, the schedules run the gamut from dues based on gross income and number of members to ones with caps, floors or limits on annual increases as well as cost of living allowances. And a popular new one used by Colorado, Oregon and Kentucky is keyed to a “square root of total assets” multiplied by a set factor. And then there is Michigan -considered by far the healthiest financial League in the U.S. – reducing its dues 24% last November. League CEOs express both admiration and envy regarding the Michigan League because of what its management readily agree is its “sheer good fortune” in making some wise investment and business decisions in the `80s and `90s regarding its servicing operations. In particular, the Michigan League with an extraordinary capital base of $41 million-believed to be one of the largest of any U.S. trade group its size-reaped a financial windfall some seven years ago in the stock sale of its charter investment in an ATM network to NYCE Corp. plus earlier sales of insurance units to CUNA Mutual. Since 2001 it has managed to slash dues on several occasions and give rebates as well. But David Adams, president/CEO of the Michigan League is particularly proud of the participation of its members-its 92% affiliation rate-and the support League directors have given management in adopting a flexible investment policy on its portfolio of stocks and bonds “that consistently beats the S&P averages.” Adams admits that his League is fortunate to work with a $40 million reserve but at the same time directors have allowed “us to take business risks” that have paid off. The Michigan CEO said he hoped other League Boards would allow their staffs similar latitude instead of always relying strictly on outside advice. John Annaloro, president/CEO of the Washington League, said his League like others has over the years shed business lines in its service corporation as member CUs start providing wholesale services to others. “We’re not about to compete with our own members,” he said noting the Washington League continues to put considerable emphasis on the growth of its foundation as a vehicle for outreach in assisting small CUs with scholarship funds. “The foundation is more important to us than ever before” in building volunteer participation, he said. One other big concern for CEOs in 2005 has been what some fear as CUNA Mutual’s reduced financial role with some Leagues in connection with incentive programs on mortgages and other products. It was pointed out that some Leagues rely on the CUNA Mutual income stream as a key source of revenue and as Kevin Chandler, president/CEO of the Minnesota System pointed out, it can be “difficult to budget ahead” when there is uncertainty on that front, referring to the recent change of CUNA Mutual leadership. CUNA Mutual declined to discuss the specifics of any of its League “partnerships” but said it “continues to financially support the entire credit union system” with all components “focused on sustaining the health and viability of credit unions and their members, CUNA Mutual’s only market.” CUNA Mutual pointed out that it is an active supporter of Leagues’ advocacy efforts which include “fighting off banker attacks, UBIT challenges and various legislative issues.” Regarding dues, one League chairman, Paul Williams, of Oregon who also is president/CEO of Clackamas Community CU of Oregon City, acknowledged the “very challenging” financial environment faced by Leagues. “We’ve changed our League dues three times in the last 10 years,” to come up with added revenue, he said, while on the service side the League has “cut our mortgage operations, closed our lending center” and made reductions elsewhere as CUSOs offer similar services. “We’re not out there to harm CUSOs or take away business from them,” said Williams, recalling also the League staff used to number 30 “and now I think we’re down to 14.” Whatever the level of member service extended by Leagues, local conditions and circumstances, dominate, League CEOs agree and on that point, Daniel F. Egan Jr., president/CEO of the Massachusetts League which also manages New Hampshire and Rhode Island, noted that dues in those states “while a sensitive issue” have remained fairly stable over the last five years. Only in Maine did the League there institute a dues increase effective Jan. 1 to help fund an advocacy campaign and on its formula directors agreed to removing caps to provide more income and equity. Egan of Massachusetts notes also that New England has been spared the major battles with banks “but on that you never know” when that could prompt a dues reassessment. Similarly, the Florida League said only minor changes have been made to dues formula over the years “but this is not California with that Congressman William Thomas out there and the credit unions fighting blood and guts in the trenches.” That was a reference to the Republican chairman of the House Ways and Means Committee who has hinted at holding hearings on the tax exempt issue. The tax issue has not surfaced strongly before the Florida League, said Mark Ivester, vice president of communications, adding “Remember this is Florida where the Republican Party is in control and they’re looking for ways to cut taxes not raise them.” As for income streams, Wendell Lyons, president/CEO of the Kentucky League admits “we all are wrestling” to make sure revenue flows from the business partnerships whether it be “shared branching, CUNA Mutual, CSSI or USA Financial.” The League managements, he said, “want to give value to their members and I think belonging to a League is still good value” a point shared by the chairman of the Maine CU, League, Ralph Ferland who summed it up this way: “that’s what this movement is all about – retaining close ties and working together.” “We simply can’t do our own thing and reinvent the wheel,” concluded Ferland, the president of Eastern Maine Medical Center of Bangor. -

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