Transcript Slide 1

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 Report
 Board Election Results
 Adjourn
Chairman’s Comments
Turning Up the Volume
From the Perspective of Your Board Chair
Your Board
Ray Ward
Dean Wilson
Vickie
Schmitzer
Dave Wright
Dave Ohman
Joni Shinn
Chris Butler
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
2008 CUSO of the Year
 First CUSO ever to win
NACUSO’s top award twice
 The award’s actual name is
CUSO Collaboration
and Innovation Award
 Companies don’t collaborate,
people do
 It all starts with your members
and comes together through
your focus
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
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
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 Models
Can 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 engage
more 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 scale
 Projecting a larger persona than a standalone organization
 Challenging us to diversify our focus
 Enabling us to participate in more initiatives
 Inspiring a competitive advantage
 Amplifying 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 Companies
CUSOs: The Hubs of an Industry
Point to Point
We Sold Our Vision of Network Companies
CUSOs: The Hubs of an Industry
Point to Point
What is the
opportunity,
and where is it
focused?
We Sold Our Vision of Network Companies
CUSOs: The Hubs of an Industry
A Hub
We Sold Our Vision of Network Companies
CUSOs: The Hubs of an Industry
A Hub
What is the
opportunity,
and where is it
focused?
We Sold Our Vision of Network Companies
CUSOs: The Hubs of an Industry
A Network
We Sold Our Vision of Network Companies
CUSOs: The Hubs of an Industry
A Network
What is the
opportunity,
and where is it
focused?
We Sold Our Vision of Network Companies
CUSOs: 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 allencompassing 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 thirdparty observer might your biggest
problem
The Revenue Picture Continues to Change
The 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
Net Income & Patronage Dividends
What do shareholders get, and what are we putting away for our future?
Before Consolidation
1,400,000
1,200,000
1,000,000
800,000
600,000
$1.305M
400,000
200,000
0
$265K
-200,000
-400,000
2003
2004
2005
Net Income before Patronage Dividends & Taxes
2006
2007
2008 (Proj.)
Patronage Dividends
$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 Investment
How 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
2007 Class A Stock Dividends Paid
2007 Class B Stock Dividends Paid
2007 Interest Paid Credit Unions on Loans
Total Revenue Returned to Credit Unions
$ 200,000
86,515
22,304
520,788
(4.00%)
(4.00%)
(~9.00%)
$ 829,607
Return Per Total Dollars Received: $0.0833
$830K  $9,964K (excludes vendor pass-throughs) = $ 0.0833 return per CU*A $ received
Glass 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 Value
After 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
$200
$160
$171.64
$183.98
$186.08
$168.65
$156.00
$137.61
$120
$80
The eDOC Innovations Years
$40
$0
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
Shareholder Value Projection for 2008
New 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 Innovations
Summarizing 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
1,000,000
900,000
800,000
700,000
600,000
500,000
821,000
400,000
300,000
635,000
898,000
903,457
2006
2007
985,000
699,000
200,000
100,000
0
2003
2004
2005
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, CFO
[email protected]
800-327-3478, ext. 142
Conclusion
(Randy just has to have the last word)
Good night!