Auto Workers Community Credit Union. Membership Information Meeting December 14, 2010

Transcription

1 Auto Workers Community Credit Union Membership Information Meeting December 14, 2010

2 2 Agenda AWCCU profile Economic performance Recognizing New Economic Reality Mitigating Recession Risk Motivation for Organizational Change President s Remarks Your Comments and Questions

3 3 AWCCU s Corporate Profile 100% owned by 14,000 Members 36% of Members active or retired CAW; 64% of Members from broader community Volunteer Board of Directors; democratically elected by Members. Majority of Directors have lifelong ties to organized labour. Governed under the Credit Unions Caisses Populaires Act, 1994 (Amendments made in 2007 proclaimed on October 1, 2010) and AWCCU By-Laws

4 4 AWCCU Profile con t $291 Million in Member Assets 2 Branches Oshawa and Bowmanville 44 employees (37 full-time Staff, 7 Managers) Unionized staff represented by COPE Local 343 with long history of stable labour relations Current collective agreement between AWCCU and COPE Local 343 has a 3 year term which began on February 19, 2010.

5 5 Powers and Duties of the Board Ref: Credit Union and Caisses Populaires Act, Sec 104(1) and (2) The board shall manage or supervise the management of the business and affairs of the credit union and shall perform such additional duties as may be imposed under this Act, the regulation, the by-laws of the Corporation respecting credit unions or the by-laws of the credit union. The board, a committee of the board or a director shall not directly manage, or be involved in, the day to day activities of the credit union.

6 6 Economic Reality Since 2007 Worst economic crisis since 1930 s. Plummeting markets Rising employee, pension and benefit costs. Members hit hard with job loss, layoffs, reduced income. Increased bankruptcy and loan delinquency. Local plants and business closures. Interest rates at historical lows/shrinking margins. Fierce competition from other Financial Institutions. Aging/declining membership.

7 7 Motivation for Organizational Change Change driven by necessity lack of profitability Recognition of need to improve for long-term sustainability. Commitment to improve financial performance in order to protect Member s assets New International Financial Reporting Standards (IFRS) as of Jan 1/11 that will significantly impact Retained Earnings

8 8 Mitigating Recession Risk Expense Control & Revenue Generation Closed an unprofitable branch at 5 Points Mall Discontinued Credential Securities Inc (CSI) (stocks, bonds, mutual funds) Interim Appointment of new CEO who maintains Commercial Manager responsibilities during first year Kept Management salaries in bottom 50% of credit union peer group Reduced discretionary expenses (conference, seminars, overtime)

9 9 Mitigating Recession Risk (continued) Increased efficiencies streamlined processes, eliminated duplication of effort and services/products that were not adding value to Members Loan quality improvements in both retail and commercial Managing commercial portfolio with tremendous rigour Worked closely with Members in delinquency to recover and reduce loan losses Greater focus on selling and promoting value added products and services to our Members Floored AWCCU Prime Rate at 3% when competition was 2.25%

10 10 Economic Performance Financial Margin $8,549,663 $ 7,475,778 $ 7,819,593 $ 7,391,700 (spread between deposits and loans) Net Income $173,564 -$ 1,271,791 $ 38,063 $ 1,001,515 Capital % 7.90% 8.00% 7.35% 7.28% (DICO Minimum is 4%) Wage/Benefits $5,190,495 $ 5,300,259 $ 4,737,272 $ 4,128,886 (All employees/ Management and Staff)

11 11 Economic Performance (continued) Total Change in Full-time Equivalent Employee Numbers Managers Full-time Staff Part-time Staff Total Employees Wage/Benefits $5,190,495 $ 5,300,259 $ 4,737,272 $ 4,128,886

12 12 Economic Performance (continued) Future Post Retirement Benefit $4.7MIL $4.01MIL $5.12MIL $5.38M Obligation/Liability Pension $12.7 $11.4MIL $12.9MIL $12.7MIL Obligation/Liability

13 13 Impact of International Financial Reporting Standards (IFRS) on Retained Earnings Despite all of the cost saving measures and controls since 2007, our Retained Earnings will be hit hard from IFRS as of Jan 1, Projected Retained Earnings as of Dec 31, 2010 $ 7,055,960 January 1, 2011 must account for: Defined Benefit Pension Deficit of -$ 2,722,380 Future Post Retirement Benefits of -$ 479,128 Retained earnings as of January 1, 2011 $ 3,854,452

14 14 Impact on AWCCU Regulatory Capital Projected Nov 30/10 Jan 1/11 Retained Earnings $6,016,376 $6,054,439 $7,055,960 $7,055,960 Transition Adjustments to IFRS - $2,722,380 Pension Plan-unamortized losses Future Benefits unamortized losses - $ 479,130 Retained Earnings Jan 1, 2011 $ 3,854,450 Membership Shares $ 162,528 $ 149,837 $ 140,950 $ 140,950 Investment Shares $ 9,946,614 $ 10,038,403 $ 9,575,989 $ 9,734,657 Patronage Shares $ 4,701,385 $ 4,332,417 $ 4,108,551 $ 4,122,817 $20,826,903 $20,575,096 $20,881,450 $ 17,852,874 Capital - % of total assets 8.00% 7.35% 7.28% 6.13% DICO Minimum is 4.0%. Credit Union of our size should be at 8.0%

15 15 Options Considered by Board and Management Option 1 Do Nothing Ignoring the problem is not an option At risk of falling close to or below minimum Regulatory Capital requirements set by DICO Adversely affects long-term success, ability to grow, provide ongoing and new products and services, and our lending limits Conclusion Unacceptable

16 16 Options Considered (continued) Option 2 Close Bowmanville Branch $ 48 Million in on book assets 2431 Members hold accounts at Bowmanville Service and location valued by Members Growth Potential Staff impact of 6 full-time equivalents Generates a modest profit Conclusion Unacceptable adverse impacts on our membership

17 17 Options Considered (continued) Option 3 Increase Member Shares from $10 to $50.00 Transfers burden onto Membership One time increase to Capital only no positive impact on the bottom line Potential loss of membership and ability to attract future members Requires a by-law change with majority vote from Members Does not address lack of profitability Conclusion Unacceptable impact on membership

18 18 Options Considered (continued) Option 4 Transfer Mutual Fund to Credential Financial Strategies (CFS) Cost of AWCCU providing service escalating year over year 2009 Annual cost of providing service $530,000 (wages/benefits, training and licensing) Service provided by 6 full-time staff equivalents Service provided to 1100 or approximately 7% of Members No affect on Credit Union on-book assets No change in Mutual Fund Dealer still is Credential Asset Management (CAM)

19 19 Option 4 (continued) Mutual Fund Sales through CFS Change in Member s Rep No change in location Members may now purchase insurance Potential for AWCCU to receive insurance commissions increase revenue CFS has a proven track record in providing services to Members at 15 Ontario credit unions, including several unionized credit unions Implementation results in layoff of 5.4 full-time equivalents

20 20 Option 4 (continued) Mutual Fund Sales through CFS Beginning in 2011: Labour Cost savings $ 530,000 Expected Commissions 85,000 Net Savings to Credit Union $ 615,000 Conclusion Minimal impact on Members, significantly improves Credit Union s financial position

21 21 Why Not Get Out of Commercial Lending? Commercial Lending Portfolio CAM Portfolio $37 MIL on book assets 3 employees required Average annual commissions of $200,000 Average annual Interest Income of $1,500,000 Average Net Income of $900,000 (after expenses and write-offs) $40MIL off book assets 6 employees required Annual average commission of $200,000 No interest income Average annual Net Income after expenses -$440,000

22 22 Charge Off Statistics Actual 2007 to 2010 COMMERCIAL Year Charged Off Recovered Net Charge Off 2007 $ 731,093 $ 31,905 $ 699, $ 63,316 $ 39,421 $ 23, $ 1,551,905 $ 160,944 $1,390, $ 780,190 $ 38,543 $ 741,647 TOTAL $3,126,505 $ 270,815 $2,855,689 RETAIL Year Charged Off Recovered Net Charge Off 2007 $ 154,116 $ 29,530 $ 124, $ 347,235 $ 27,923 $ 319, $ 532,638 $ 22,128 $ 530, $ 297,529 $ 71,833 $ 225,696 TOTAL $1,331,520 $151,414 $1,200,005

23 23 Facts About Commercial Lending AWCCU enters into Commercial Lending in 2004 In 2004 and 2005 approximately $12MIL in Commercial Loans were written February 2006 replaced the Commercial Manager Judged that $ 5MIL of $12MIL portfolio was potentially at risk Reported monthly to Board of Directors After almost 5 years, $2.8MIL has been written off Commercial Business has grown to $37MIL Commercial borrowers pay an average of $200K per year in fees and incur higher interest rates Commercial s annual cost of delivery is 3 full-time equivalents or $300K per year (vs. Retail credit which requires 16 full-time equivalents or a $1.4MIL per year)

24 24 Facts About Commercial Lending (continued) The contention that Commercial loses millions of dollars every year is categorically not true. Truth of the matter is that without Commercial lending as part of our product offering over the last 4 years our profit margin would have been slimmer and our financial position much worse.

25 25 AWCCU Board of Directors and Management Respond to Concerned Members Delegation Statements Made by Concerned Members The outsourcing of Mutual Funds is a direct result of Management not being able to dismantle the Collective Agreement during the bargaining process and this decision to outsource work that has been traditionally done for the past 17 years by unionized workers of AWCCU is nothing more than retaliation. Response from AWCCU Management never had any interest in dismantling the collective agreement. Given our financial picture we were seeking certain concessions with respect to pensions, benefits and wages. We were not successful and the current collective agreement was rolled over for 3 more years. From the very beginning we were extremely candid with the Union bargaining team and served written notice in the clearest possible terms that we would be assessing all options, including restructuring in order to shore up our future. The Concerned Members assertion that this is nothing more than retaliation is preposterous. Board and Management s only motivation is ensuring the immediate and long-term financial security and stability of this Credit Union. If the Credit Union is consistently making profits, why would they outsource the work of the unionized employees of the Credit Union to a non-union company, especially when the commission from this service was part of the profit? We have made a profit each month for 2 years this did not happen by accident. Over the last 2-3 years we have taken very significant steps to make this happen (refer to page 8 and 9 of presentation). The sale of mutual funds has never made a profit for this Credit Union.

26 26 Management boasts of reducing the number of management, the fact is that they have added four commercial consultants and a Risk consultant at a cost to the credit union of $ 15,000 per month. At the same time the number of unionized positions has reduced from 58 in 2008 to 37 in Management enjoys the same defined benefit pension plan, post retirement benefits and health benefits. The new accounting standards for reporting affect all companies around the world as well, the credit union s position is no different after January, 2011 than it was before. Rather than hire a full-time Commercial Manager, we engaged part-time commercial specialists who work the equivalent of 1 Management position. The cost averages $10K per month. By using consultants we do not incur pension and health benefit costs or future benefit costs, which save us $20K per year. In 2001, the Credit Union engaged an Interest Rate Risk consulting company. The Credit Union Act requires that we monitor our Interest Rate risk and the impact interest rate changes have on our financial margin. This is part of proper due diligence. The number of unionized positions in 2008 was 53 (not 58) broken down by 40 full-time staff and 13 part-time staff. No full-time employee has been laid-off. Reductions in full-time staff have been through attrition. Reductions in part-time staff have been through a combination of attrition and layoffs. Absolutely true. All employees both bargaining unit and Management Group employees enjoy pension and benefits at no cost to employees. International Financial Reporting Standards (IFRS) come into effect on January 1/11 for Canadian public enterprises. (Already in Europe not yet in U.S.) The greatest impact IFRS has on the Credit Union is the requirement to account for our Defined Benefit Pension deficit and Future Post Retirement Benefits. The significance is that on Jan 1/11. our Retained Earnings will be reduced by $3.1 MIL which negatively impacts our Capital position.

27 27 Did the Board and Management act in a fiscally responsible way? If so what has been done to address the commercial losses rather than outsourcing services? Board and Management have been fiscally responsible. Refer to Pages 22, 23 and 24 for specific actions. Outsourcing mutual funds is not the best course of action members have over $40 million invested; it s a product offered for members investment option. Mutual Funds is still a product offered to our investing Members. Nothing has changed. Again, selling mutual funds has never generated a net profit for this credit union. During the last 2 years we began selling extra products i.e. Creditor Insurance and MasterCards. These products generate revenue and the cost of delivery is minimal. The cost savings that come from the Credit Union s restructuring is direct result of laying off 9 part-time employees. Yes 9 part-time employees working 22.5 hours per week were laid-off. This is equivalent to 5.4 full-time employees. The recent retirement of full-time Manager has resulted in additional cost savings.