Asset Liability Management Policy

Asset Liability Management Policy

FARGO VA FEDERAL CREDIT UNION

POLICY MANUAL

ASSET LIABILITY MANAGEMENT POLICY

  1. Purpose and Objective

The purpose of this policy is to establish financial objectives and guidelines.

The objective of this policy is to:

  1. Manage the total funds so that sufficient income is maintained

during a fluctuating interest rate environment.

  1. Maintain sufficient liquidity to cover expected and unexpected

outflows of funds due to increases in loans or excessive

share withdrawals.

II.Responsibility

The Board of Directors is responsible for managing the assets and liabilities

of this Credit Union. All decisions will be made using the guidelines and limits set forth in this policy. The CEO is responsible for daily adherence to the policy and cash management.

III.Risks

There are risks associated with operating a financial institution including, but not limited to, interest rate risk, default risk, and market risk. By managing the rate sensitive assets based on the level of interest rate sensitive shares, we will minimize our risk of fluctuating interest rates. The CEO will determine our estimate of interest rate sensitive shares annually.

Questions to be considered are:

What percentage of total shares is in regular shares?

Is the Credit Union's share structure changing from regular shares to certificates?

Is the Credit Union paying market dividend rates for all share types?

What percentage of total shares have balances over $10,000?

Have there been any changes in the level of share deposits?

Using the share analysis, the Board of Directors will be able to make asset mix, loan prices, and dividend decisions.

IV.Financial Targets

The Credit Union's policies include limits that are consistent with providing the adequate liquidity and managing the assets and liabilities of this Credit Union. The investment policy limits the maturity of the investment portfolio to three years or less and the lending policy limits the maturity of all future loans to seven years or less.

Asset Liability Management Policy

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The annual budget prepared by CEO and approved by the Board of Directors will be consistent with achieving or maintaining the target ratios.

Capital:The net capital ratio target to maintain is 12%.

Earning:The target range is .50% to 1.00%.

A dividend bonus or loan rebate will be considered if over a 1.00% interest margin is achieved. Income and expenses will be reviewed if the margin falls below .50%.

Liquidity:The goal is to maintain a liquidity ratio of 20.00% to 30.00%.

V.Cash Mangement

The CEO is responsible for maintaining sufficient funds on a daily basis to meet normal liquidity needs of operating expenses, loan commitments, share outflows, and unexpected emergencies. Cash in excess of amounts needed reduces earning potential and increases risk of loss to the Credit Union.

The CEO should report to the Board of Directors and have recommendations for the following scenarios:

  1. Loan demand is exceeding the cash supply.
  1. Reduce lending
  2. Promote savings
  3. Temporarily borrow funds through line of credit at

Fifth Third Bank

  1. Cash supply greatly exceeds loan demand.
  1. Promote loans
  2. Reduce dividends on shares and interest rate on loans

VI. Reporting and Monitoring

The CEO will report compliance with this policy to the Board of Directors on a

monthly basis including current ratios compared to the target ratios set forth in the policy. Reasons for any ratios outside the minimums will be documented and, if appropriate, recommendations will be established to bring the ratios back to the target level. The annual share analysis will be reported to the Board of Directors in October beforethe annual budget is approved.

Approved by the Board of Directors: July 25, 2002

Reviewed: 6/03; 12/04; 6/06; 3/08; 4/11

Revised: 8/07; 3/11; 10/11

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