Chairman's Report

Operational Performance

Business Performance

For the 2008/2009 financial year, the Board forecast a decrease in net after tax operating profit from the previous year. Because of the Reserve Bank’s interest rate adjustments downwards and the pricing of capital generally, we expected: 

• the lag effect generated by interest rate movements on members’ deposits and loans would inevitably impact on the operating margin, returning a rate lower than the ‘standard’ levels achieved in less volatile years.

• revenue from the Credit Union’s treasury investment loans would be down significantly because of shrinking interest rates in the bulk funds’ market.

In a difficult economic environment where many organisations have reported substantial profit downgrades, your Credit Union achieved an excellent Net Profit After Tax result of $1.020M for the year (slightly ahead of budget).

The consistency of this result over time is best demonstrated in the graph (below).

* Note: The 2008 result represents the underlying profit prior to the write-off of the Diverseport loan (as reported in the last Financial Year).

The Credit Union’s profit has been growing at a conservative but relatively even rate. The profit stems primarily from revenues from core operating activities. There is very low reliance on fees as an “other revenue” source. 

The next graph (below) highlights these revenue positions.

Over the years members have been taking heed of fee minimisation advice particularly in relation to account transaction activities and card usage. Fee revenue has been declining while revenues from operating activities on our growing asset base have been increasing.

Overall, revenue growth remains steady and consistent.

I have included another graph which illustrates the Credit Union’s overall asset growth over the past 10 years (below).

Another steady and consistent growth pattern is evident.

Principal Performance Ratios

Two important ratios – Capital Adequacy (mandated by the Industry Regulator) and Cost to Income (a measure of operating efficiency) – measured at the end of the financial year indicate the Credit Union’s general health is excellent:

DEPOSITS AND LOANS

Deposits. Cash movements in and out were significant because of interest rate changes and the effect of the Government Deposit Guarantee. Some larger depositors were inclined to diversify their funds between varying institutions.

The term deposit market intensified in this financial year. The Credit Union responded by adjusting rates regularly to ensure we retained those depositors seeking certainty and a better longer term return on their funds while economic circumstances remained so uncertain.  

The next graph illustrates our deposits’ position (below).

The growth pattern remains consistent and steady.

Notwithstanding the cash movements and the turbulence bought on by the economic environment, the growth rate of about 6% for the year confirms the Credit Union’s deposit rates remain at the top end of the market.

Loans. Loan activity in this financial year was very volatile. Overall, our ‘average’ home mortgage lending was on a par with previous years. However, we experienced a shift of some of our larger secured loans to the banks in circumstances where refinancing offers were made to some professionals and businesses at concession rates where we could not sensibly compete.

Subsequently, the Credit Union’s loans’ portfolio contracted marginally this year.

Despite this contraction, the next graph illustrates the Credit Union’s loans’ growth pattern year to year remains steady and very consistent:

In the latter part of the financial year we noted signs that lending activity was returning to steadier levels which augurs well for the Credit Union meeting its growth targets for the next period.

Consistent with the results of the past ten years, no defaults were reported in any loan category this financial year. The consistent ‘nil default’ pattern reflects good loan settings and is the primary reason why our core revenues have been as equally as consistent over the same period.

Meeting Our Performance Commitment to Members

All of the graphs tell the same story; that is, the “steady as she goes” strategy endorsed by members over the years has been, and is still being, applied successfully. 

The Board remains committed to returning modest profits through consistent asset growth, consistent revenue growth, maintaining a basic user pays fees regime and operational efficiency. These outcomes will sustain the Credit Union and allow us to offer relevant products and services with competitive rates to the members in the future.

OTHER ACTIVITIES

Board Succession Plan Implementation

In 2005, the Australian Prudential Regulatory Authority (APRA) mandated that organisations such as ours had to commit to Board succession planning. The APRA regulation was designed to ensure Boards had the necessary skills to manage their entities in the long term.

In 2006, we commenced a wide ranging succession plan to reinvigorate the Board to consolidate our past successes. This plan was fully implemented in April 2009. In the period 2006-2009 we:

• adopted a Board Charter which gives long term  direction on the way the Board should manage the Credit Union

• restructured the Board from seven directors to five

• defined the skills’ balance desired for a  reduced but strategically focussed Board

• agreed a timetable for the phased replacement or retirement of long serving directors

• recently replaced two retiring directors with suitably credentialed professionals who bring an enhanced array of skills to the Board.  (The Board would like to acknowledge the long standing service provided to the credit union by our recently replaced two retired directors, Des Boyland and Ralph Donnet.)

The plan was implemented without disruption to operating activities. The Credit Union has in place a Board with the skills to deliver future outcomes consistent with those illustrated in the earlier graphs.

Changeover of CEOs

Paul Mc Grath, formerly our Finance and Compliance Manager, was appointed to the CEO’s position effective 1 July 2009 replacing Gordon Rutherford on his retirement. Gordon spent 27 years in the CEO’s job. He took the organisation from a fledgling and struggling non-taxpaying entity to the progressive corporate entity that it is today.

Our members should be unashamedly grateful Gordon and his team was able to work his way through many barriers over the years and retire knowing your Credit Union has, an immaculate Balance Sheet, a loans’ portfolio second to none, consolidated revenue streams guaranteed by our strong capital position and an enviable reputation within the Credit Union sector.

Gordon, in his roles as CEO and as a director on the Board, also helped facilitate the Board succession plan with an eye on ensuring the integrity of the organisation into the future. Gordon will serve on as a director for one more term for continuity purposes.

On behalf of all members and staff, I wish Gordon well in his retirement and I wish the very best for Paul Mc Grath as he starts his CEO’s appointment.

Management and Administrative Activities

Management and staff have been busy with a succession of tasks including:

• finalisation of Anti Money Laundering Legislation software upgrades and processes

• launching an updated website

• a consolidation of working space from two floors to one floor at our current location

• implementation of the new regulated ATM fee charging arrangements, and

• adoption of an Industry wide Mutual Banking Code of Practice

Acknowledgements

I would like to give my thanks to my fellow directors and the staff, particularly their commitment to you in providing a quality service second to none.

While there have been some momentous changes in the Board and staffing, the focus and service delivery has been maintained at previous high standards.

My continued thanks go to all our members for their loyalty in staying the distance with us in turbulent times. The Credit Union will continue to do its best to protect your interests in the future.

John Strachan

Chairman

To view the 2009 42nd Annual Report please click here.