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Turning Up the Volume
CU*Answers Annual Stockholders Meeting
June 18, 2008
Agenda
Call to Order• Review 2007 Minutes• Review Financial Reports
Chair of the Board: Year In Review• Welcome New Owners
Election • Board Members
CEO Report• Turning Up the Volume: What it means as more and more
people sing along (planning for the evolution of a network)CFO ReportBoard Election ResultsAdjourn
Chairman’s Comments
Turning Up the Volume From the Perspective of Your Board
Chair
Your Board
These people start every day with no time to spare in just running their credit unions...and somehow they find the time to work
hard at ensuring the future of this CUSO
Dave Ohman
Vickie Schmitzer
Ray Ward
Dean Wilson
Chris Butler
Joni Shinn
Dave Wright
2008 CUSO of the Year
First CUSO ever to win NACUSO’s top award twice
The award’s actual name is
Companies don’t collaborate, people do
It all starts with your members and comes together through your focus
CUSO Collaboration and Innovation AwardCUSO Collaboration
and Innovation Award
Supporting NACUSO
Could Randy’s head get any bigger?
Get to Know Our New Owners
New Stockholders Since Last Year’s Meeting• Clawson Community CU
(Clawson, MI)
• Kensington Valley Community CU(Highland, MI)
• Great Lakes Members CU(Dearborn, MI)
Board Elections
Let’s hear from the candidates and get to the voting...
CEO Report
Turning Up the Volume:What it means as more and more
people sing along
Planning for the evolution of a network
Growth, Success, Diversity, and Mission
During today’s presentation, two things were evident• Since the last time we met, CU*Answers has enjoyed a
great deal of success and recognition from the marketplace
• A theme of ownership and the need for the constant focus on what sets us apart as a network of businesses, owned by our customers and clients
These two ideas can actually be in conflict with each other, and we must plan for the evolution of our network
Growth, Success, Diversity, and Mission
Nothing challenges a mission more than the concepts of growth, success, and diversity
• To be successful in carrying out your mission, you must grow, which is the first signal of success
• With success comes those attracted to success, and a growing diversity of ideas about where to go, how to get there, and the expected returns
• With growing diversity comes the anguish over the mission and the future direction of the firm
Some would call this simply growing pains, but it’s more problematic for a cooperative than for most businesses
• Think about credit union-to-mutual savings banks conversions and what it means as owners begin to challenge what it’s all about
Planning for the Evolution of a Network
Cooperative or not, the cycle is real and we must all recognize the challenges as we stay committed to the mission
• We must embrace the diversity of our partners• We must respond positively to the inevitable demand
that we change with the marketplace• We must remain respectful of our need to be
answerable, not only to our owners, but to our clients and to an industry
• We must remain committed to being different and true to a collaborative framework
• We must stay committed to what is timeless about our traditions, without remaining stuck in the past
The “We” here is not a group without faces, people without names, or organizations that cannot be called on ... it is us
When it’s time to call BS on our direction, we will be the ones who step up with the plan
Mission
As we grow, it is easy to confuse our day-to-day tasks with our big-picture mission
Twice within the last 60 days, Evie Rasmussen’s challenges have reminded me of our big-picture mission
Evie’s challenge to every business that claims to be a partner:
“Before you claim to be my “partner” make sure you truly are. Don’t just sell me what your business needs to have sold – it needs to benefit my CU too. Do you really need to charge every CU for setting up with your company? Once the platform has been built with whatever processor, why continue the huge charges? So, we’ve got a Catch-22 – we can’t afford many of your services and yet we can’t afford not to and be competitive. The only way we can succeed is to lower the boundaries, roll up your sleeves and collectively use your minds to figure out how to help this fading industry.”
From a blog posting dated June 4, 2008, at www.nacuso.org
“Before you claim to be my “partner” make sure you truly are. Don’t just sell me what your business needs to have sold – it needs to benefit my CU too. Do you really need to charge every CU for setting up with your company? Once the platform has been built with whatever processor, why continue the huge charges? So, we’ve got a Catch-22 – we can’t afford many of your services and yet we can’t afford not to and be competitive. The only way we can succeed is to lower the boundaries, roll up your sleeves and collectively use your minds to figure out how to help this fading industry.”
From a blog posting dated June 4, 2008, at www.nacuso.org
Build a business that is about the ultimate success of its clients and their futures
Mission
Evie is a CU*NorthWest Board member, and therefore a partner to every owner in this room
My response to the challenge:
“For all of us to win in the future, network leaders must be free to change the financial models that drive their organizations in partnering with credit unions...
“Once credit union investors free the firm to attack the challenges of the market with a new mindset, then it will be up to the leaders of the networks to step up. First, by ensuring that network businesses are free of designs that define their value by contract revenue flows, income redistribution models, and by secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than the asset value of the participants. The question will be, once free to redesign themselves, will network leaders be able to truly call BS on the models of yesterday?”
From a blog posting dated June 5, 2008, at www.nacuso.org
“For all of us to win in the future, network leaders must be free to change the financial models that drive their organizations in partnering with credit unions...
“Once credit union investors free the firm to attack the challenges of the market with a new mindset, then it will be up to the leaders of the networks to step up. First, by ensuring that network businesses are free of designs that define their value by contract revenue flows, income redistribution models, and by secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than the asset value of the participants. The question will be, once free to redesign themselves, will network leaders be able to truly call BS on the models of yesterday?”
From a blog posting dated June 5, 2008, at www.nacuso.org
You are the investors in these networks; you are the future network leaders...we all might need a new mindset about business
Understanding New Financial ModelsCan We Agree That We’re a Different Kind of Business?
We must distribute our financials to owners and to the NCUA in order to be compliant
But more important than being compliant is the responsibility we all have to understand the economics of our CUSO and how our performance and returns are based on our commitment to our mission
In 2008, I was happy that people started to engagemore than ever before around our numbers...
... I just wonder if was the result of endeavoring to better understand the mission, or simply a reaction to some blips on the radar, or even a temporary response to due diligence tasks
Can We Agree That We’re a Different Kind of Business?
By Working Together, Can We Inspire Others?Since we last met, we have been busy talking about
how collaboration and network business design might be the key to redesigning our entire industry and the business processes related to building credit unions
Working on a new mindset
Dump the Movement, Start a Network
We’ve even started selling the concept to credit unions as a good marketing program for consumers
• The network advantage, direct to members
“Movement” ...what does that say to members?“Industry” ...what does that say to members?“Network” ...what does that say to members?
We think there is more to this than simply marketing to consumers
But consumers are beginning to see the power in networks
We Presented cuasterisk.com as a Template
Business network design driving us to:
Play where members play...Re-map your business processes to reach members
Focus inside-out and outside-in simultaneously...Re-map your business processes to distribute work
Respond to vested external innovators...Re-map your business processes to drive innovation
Expand your HR pool by leveraging peers...Re-map your business processes to capture the power of talent
Consider a new set of network pricing concepts...Re-map your business processes for earning engines
We Presented Our Success as an Example For Others
It’s working for CU*Answers:Capturing the benefits of scaleProjecting a larger persona than a standalone
organizationChallenging us to diversify our focusEnabling us to participate in more initiatives Inspiring a competitive advantageAmplifying the cooperative effect and aligning with
our market
We are selling it not only for CUSOs but as a process for every
business leader
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
Point to Point
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
Point to Point
What is the opportunity,
and where is it focused?
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
A Hub
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
A Hub
What is the opportunity,
and where is it focused?
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
A Network
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
A Network
What is the opportunity,
and where is it focused?
We Sold Our Vision of Network CompaniesCUSOs: The Hubs of an Industry
Which is bigger? The opportunity of one, or the opportunity of all?
A network multiplies the work of one into an opportunity for all of its participants
A vision where Evie’s opportunity is embedded and is equally important as all of the network’s opportunities...a true partnership
We Sold Our Role In a National Scene
We Sold Our Role In a National Scene
We Made the Commitment Be Different Working Under the Best Contracts
At the 2007 CEO Strategies event, CU*Answers took the next step in making sure that your balance sheet and asset valuations were paramount to our own
Contract changes that said we were about ongoing operations and execution more than our sale value
• Assignment• Cancellation clauses• Anxiety about CU*Answers
selling out
“...secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than
the asset value of the participants”
Walkin’ the Talk
All of the things we presented to the marketplace since we last met might make CU*Answers confident that we are walking the talk, but what do they say to you?
You are the ultimate judge...Are we on mission? • If not, I hope you’ll speak up right now and add your
voice to figuring out how this CUSO should get there• If so, I hope you will speak up and carry that message to
the rest of the credit union industry, so that even more will join this effort next year
“...secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than
the asset value of the participants”
Remaining Respectful of Our Need to be Answerable
Someone I admire very much said to me recently, “It’s not fun to debate with you, Randy.”
After a little soul searching, I worried that for all my passion, zealousness, and absolute drive to be understood and all-encompassing in my explanations, I end up discouraging you from digging deeper and adding your voice where it is so needed
In 2009, I will work hard to make sure that the experience is based more on the bedside manner of Dr. Jekyll than the demeanor of Mr. Hyde
We are listening...I am listening
A Look at The Numbers
Understanding how it all adds up dollars- and cents-wise is a
little bit more complicated these days
And explaining it to a casual third-party observer might
your biggest problem
The Revenue Picture Continues to ChangeThe Chance to Earn Comes From a Growing Market Influence
CU*Answers direct revenues continue to evolve with new processes, internal capabilities, and new offerings
• Projected for 2008: $25.090M
Just as important, CU*Answers’ influence through partnering with other CU*BASE networks and investing in new initiatives is starting to really add up
• Xtend projected for 2008: $595K (- $40K)
• eDOC projected for 2008: $3.056M (+ $500K)
• CU*NW projected for 2008: $927K (- $10K)
• CU*S projected for 2008: $231K (+ $2K)
• Processing Alliance proj. for 2008: $475K (- $8K)Gotta watch out for Enron type hocus-pocus here...the important number is how many
members we participate with (over 6 million)How relevant we can be to 6 million people is the
big question in our future
$1.305M
$265K
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2003 2004 2005 2006 2007 2008 (Proj.)
Net Income before Patronage Dividends & Taxes Patronage Dividends
Net Income & Patronage DividendsWhat do shareholders get, and what are we putting away for our future?
Before Consolidation
$1.305M includes an accrued expense for an eDOC Intangible Asset Write-off of $840K, netting $465K in GAAP net income
(for details, check out Note 5 – Intangible Assets on the audited financials)
Intangible Asset Write-offs
Let’s take a second to talk about what events create a need for us to have an intangible asset write-off
What is different about eDOC than past events that created similar kinds of expenses?
If this gets you going, think about tracking sales tax, income tax, and other miscellaneous taxes in 14 states
Diversity definitely has an upside and a downside when it comes to accounting
Return on InvestmentHow did things work out in 2007?
2007 Gross Income Submitted by Owners to CU*Answers$
15,284,983 (Includes all vendor pass-throughs)
2007 Patronage Dividends Paid $ 200,0002007 Class A Stock Dividends Paid 86,515 (4.00%)
2007 Class B Stock Dividends Paid 22,304 (4.00%)
2007 Interest Paid Credit Unions on Loans 520,788 (~9.00%)
Total Revenue Returned to Credit Unions$ 829,607Return Per Total Dollars Received:
$0.0833$0.0833$830K $9,964K (excludes vendor pass-throughs) = $ 0.0833 return per CU*A
$ received
Return Per Total Dollars Received: $0.0833$0.0833
$830K $9,964K (excludes vendor pass-throughs) = $ 0.0833 return per CU*A $ receivedGlass half full: “All this, and great investment in our
future through eDOC, too!”Glass half empty: “Pretty good, but that shareholder
value drop of $31.04 dampers my enthusiasm.”
Projecting Shareholder ValueAfter the 2008 dividend, what shape is your investment in?
In 2006, we invested to jump to the future with a new endeavor
Depending on when you bought in, your perspective might be different Ownership price 1985: $10, 1991: $59.31, 2000: $176, 2005: $460, 2008: $460
$137.61
$183.98$171.64
$156.00$168.65
$186.08
$0
$40
$80
$120
$160
$200
2003 2004 2005 2006 2007 2008 (Proj.)
The delta is the additional capital paid in to participate as an owner, paid so as not to dilute the ownership
value of the pioneers before you
The eDOC Innovations YearsThe eDOC Innovations Years
Shareholder Value Projection for 2008New Math For a Company Extending Itself By Investment
Very rough numbers, and very simple concepts
For the details, you need to understand the fine print of the
Audited Consolidated Financial Statements
you receive every year
Investing in eDOC InnovationsSummarizing the Process
Quarter after quarter, year after year, CU*Answers has reported positive financial performance, and everyone has become accustomed to the trend
Then, wham! ...a dip, a drop, a left-hand turn, almost overnight
(well, kind of, if you consider 2 years to be overnight) But it certainly got people wondering about the investment
and how it worked This document is to give you a little history and a
quick summary of the process
Members Served
2008 has been a great conversion and sales year – we go into 2009 with new clients waiting for their conversion date
The numbers below represent CU*Answers alone, and these days, that’s not the whole story...keep your eye on cuasterisk.com
903,457898,000821,000
699,000635,000
985,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
2003 2004 2005 2006 2007 2008 (Proj.)
We Can Help With That Casual Third-Party Observer
Remember Randy’s earlier challenge to all of us to remain respectful of our need to be answerable, not only to our owners, but to our clients and to an industry
Our Board is always ready to talk about their role in leading this firm – reach out to Chris
Randy is always ready to talk about our team’s accountability and what that means to you – reach out to Randy
I am always available to give you the dollars and cents background – reach out to me
Bob Frizzle, [email protected], ext. 142
Conclusion(Randy just has to have the last word)
Good night!