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Vancity - 2014 to 2016 Three Year Plan


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Our Three Year Plan is a roadmap that charts a course for us as we work toward redefining wealth.

We hope that you're interested in joining us on this journey to make values-based banking a growing force for lasting positive change. We invite you to read our Plan and share it.

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Vancity - 2014 to 2016 Three Year Plan

  1. 1. 1 of 23 Three Year Plan Accelerating Impact
  2. 2. 2 of 23 Message from the Board Each year, Vancity produces an integrated annual report that summarizes our financial, social and environmental performance over the past year. This gives our members, communities and partners an opportunity to see what we have achieved and whether or not we did what we said we would do. This year, we decided to do something different. In addition to producing an integrated annual report, we wanted to share our Three Year Plan with you. This plan speaks to what we intend to do over the next three years. It is a look forward rather than a look back. Throughout the year, the Board and management engage members and community partners to understand how the real economy is impacting individuals, families and communities. We see the unique opportunity that Vancity has to make a positive difference and want to ensure that the credit union is putting our members’ assets to their highest and best use in service of helping communities thrive and prosper. As you read this plan, we hope you see what makes us different. We hope you see a credit union that is listening and responding to real needs. This plan is not about taking what the market will give us, but about building relationships, deepening our connection in community and gaining deeper insight into opportunities to create sustainable impact for our members and the communities in which they live and work. The guiding principles for building healthy communities that the Board developed in 2012 are embedded throughout this plan and speak to the commitments we have made to put our whole balance sheet in service of helping our communities thrive and prosper. We want to be bold and we believe the goals and strategies outlined in this plan are important next steps to achieving our vision.
  3. 3. 3 of 23 Executive summary We are excited to share our 2014-2016 Three Year Plan – Accelerating Impact – with our members, communities, partners and stakeholders. When I joined Vancity in September 2007, Vancity had just approved a new Five Year Plan in the fall of 2006. The goals of this plan were quite different from what you will see in this plan. This is not because our core values have changed – in fact, I believe our 1946 founders would have found resonance with the vision we unveiled in 2008 to redefine wealth. What did change was our view of how best to achieve our values. In 2007, we believed that the best way for us to contribute to community and environmental sustainability was to compete with conventional financial institutions – banks – on their own terms. We shied away from doing things differently from banks in our daily business. But November 2008 marked an important turning point. In the midst of the financial crisis, our Board approved a new vision for redefining wealth as well as a new Three Year Plan that set the stage for our transformation journey. Since that time, we have been working hard to leverage our unique strengths as a financial cooperative to redefine what we do and how we do it in service of accelerating impact and building healthy communities. We have focused on embedding our values and guiding principles in everything we do and becoming a leader in values-based banking in our sector. We are pursuing opportunities to uncover new markets, exploring ways to better serve those who are underserved, looking at ways to invest our members’ money more sustainably, emphasizing our cooperative roots as a source of future strength and resilience, seeking partners primarily for a values fit, and connecting our members more directly to our core difference as a financial co-operative through our marketing and advertising. We have come a long way in five years, but as you will see in this plan, our transformation is not yet complete. We are transforming the way we do business and this requires moving people together to a new way of thinking and working. We cannot forget, however, that few are following our path. We are creating a roadmap not following one. We are measured against our peers and the regulatory environment and we have set a high bar. In order to reach it, we must ensure that the change we seek inside Vancity is deeply held and permanent. We can expect to see competition intensify as financial institutions look for ways to differentiate themselves in a tough market. However, we believe that what we are doing cannot be easily replicated. We are achieving growth in a sustainable way and are allowing our members to grow with us. As you read this plan, I hope that you are inspired as much as we are to redefine wealth. I hope that you see that the opportunity to achieve sustainable growth and profitability while building healthy communities is more than a good idea. And finally, I hope that you are interested in joining us on this journey to make values-based banking a growing force for lasting positive change. Tamara Vrooman President & Chief Executive Officer Vancity
  4. 4. 4 of 23 What is the opportunity to redefine wealth? We take a long term view of what is happening in the economy by looking beyond the financial markets to the production of goods and services that impact people’s daily lives. This is the real economy and the context within which we are redefining wealth and building healthy communities. By deeply understanding the needs of the real economy, we see our members and communities differently. While traditional economic outlooks focus exclusively on what the market gives, we are asking a different question. What is the size of the opportunity through which we can redefine wealth and accelerate impact? Where are the needs that are not being met and what is the opportunity for Vancity to develop innovative solutions to meet those needs? Vancity’s view A natural growing economy is an economy that is self-generating and self-sustaining. It is an economy that is growing at its potential as its productive capacity expands. In September 2013, the governor of the Bank of Canada reported that an economy that was generating natural growth would have an inflation rate of 2 per cent and a bank rate of almost 3 per cent; income growth would be above 3 per cent and mortgage rates likely over five per cent. Since then, the Bank of Canada has adopted Vancity’s view – very slow growth, for a much longer time. Population growth and job creation are both forecast to be below 1 per cent marking the slowest growth phase in BC since the early 2000s. The unemployment rate in BC will drop to 6.3 per cent in 2015 and average 5.5 per cent in 2016 and 2017. Slow growth conditions dictate tepid labour market performance through 2015. Tempered growth in both the economy and a slack labour market will keep a lid on upward wage pressure through 2015. House prices are more sensitive to job losses than interest rate increases. Given that the forecast period has stable – though stagnant – employment, our insight is that any house price drop would be from a local imbalance of too many houses for sale relative to too few eligible buyers. Although house prices have dropped in Squamish, Whistler, Fraser Valley etc., the offshore market has been buying up properties in the Metro Vancouver area, which has been given greater density, which then has a ripple effect pushing up house prices across the region. The fundamentals, nevertheless, point to a drop in house prices. Sustainable regional growth requires that the benefits of economic growth are shared across all income scales. Current income inequality is likely to continue limiting a broad based recovery. BC is a small open economy where 80 per cent of exports are in resources and 80% of employment is in services; as such the province has been failing to create quality jobs since 2007. One in five workers in BC work for resource exports and have an above average wage. One in five workers in BC in 2008 earned below $12 per hour, versus a current living wage of $19.62 per hour. A healthy community has access to: affordable housing and rental units, early childhood development and nutrition, access to health care, job creation and poverty reduction, and greenhouse gas reduction. These speak to Vancity’s guiding principles which are now driving our transformation agenda. International and local events show that alternative economic models are gaining momentum. At the same time, there is a growing awareness of the need to limit the pattern of boom and bust cycles in favour of stronger community-based and sustainable economic activity. All this suggests that Vancity’s vision and our 2014-2016 Three Year Plan are both relevant and timely responses that are speaking to the needs of the real economy.
  5. 5. 5 of 23 What makes us different? In our view, the role of banking is to finance positive change for people and society. We are working to ensure the banking sector is inclusive, transparent and sustainable through our values-based banking approach. The core assumption underlying our vision and the Three Year Plan is that Vancity is uniquely positioned to meet the needs of the real economy and that we can do so, better, stronger and faster than traditional financial institutions. The question is why. What makes us different? First and foremost, we have a clear view of the role that financial institutions must play in society. Banking plays a critical role in preserving and redistributing capital – serving individuals, families, businesses, governments and civic institutions. It does this by enabling savings and investment, providing protection from risks and supporting the creation of new jobs and businesses. These functions are critical to enabling society to operate in a stable, sustainable way. To be effective, banking cannot operate in isolation of the people it serves but must act in the best interests of all stakeholders and of society as a whole. This requires looking beyond financial transactions to see a bigger picture. Banking must be deeply connected to community, to the many systems that are operating in community, and to how they work together to impact the health of the community. This is Vancity’s purpose – to help communities thrive and prosper by using financial tools in innovative ways that make society better for more people (inclusive), for better outcomes (well-being) and for greater sustainability (environmental outcomes). We don’t leave this work to others and/or see it outside of our core business. It is our core business. This is the essence of our business model – member-led innovation. Being a financial cooperative both demands and enables this role and perspective. Our members see that how we do business sets them up for longer term success by looking at their long-term well-being. This requires that we do business differently – as we do (or we will). As a member-owned, community-based financial institution, we do things that other financial institutions cannot do – or will not do. For example, we are able to extend credit in ways that traditional financial institutions cannot or will not. We can do this because we understand how needs that are not being met are being translated on the ground. We see gaps that others don’t see by looking beyond transactions to a broader and deeper definition of wealth. At the same time, the community trusts us more deeply because they see supporting their interests as part of our vision. As a result, we are able to mobilize a network of connections and partnerships to deliver solutions that meet real needs. This is the “social capital multiplier effect” that allows us to create value in ways that others cannot. Working this way also means we are able to limit our risks because others are willing to share in it. And we don’t leave externalities out of the equation; we build them into our model. It is our connectivity as well as our commitment to continuously engage our members and communities in redefining wealth that enables us to continually improve what we are doing and stay relevant in the eyes of our members. Because of this connectivity and the goodwill of people that allow us to do business this way, we are able to mobilize our leadership capital, not only through the day-to-day business of helping members make Good Money™, but through our leadership, be it conveyed through our executive, directors or other leaders. We are able to open doors that others cannot and have the opportunity to influence the public view, business practices, political will as well as advocate for positive social change in ways that others cannot.
  6. 6. 6 of 23 What does all this mean? What makes us different are our unique strengths as a financial cooperative. We exist for the sole benefit of our members. We understand the needs of the real economy – the context in which our members live and work – and we understand how conventional financial tools need to be translated in service of them to enhance well-being. We do this by not only leveraging financial capital but by leveraging our social capital. This gives us opportunities for innovation that are greater than what is possible by simply taking what the market gives us. We do this in a way that builds trust, confidence and momentum that is significantly different as well as consistently needed. And by doing this, we are able to demonstrate that if we do the right thing for our members, the profitability and sustainable growth will come. This is what makes us different. This is what our members want and believe we need to do – but it is not how we are doing business at our core – at least not yet. We are on a journey to transform what we do – to place our whole balance sheet in service of building healthy communities and even though we have not yet arrived, we remain confident that we are on the right path.
  7. 7. 7 of 23 What outcomes do we expect? Our insights into what is happening in the real economy are emerging and while we have more work to do to fully understand the size of the opportunity, it is clear that the real economy is underserved. Rather than setting goals that will cause us to move into areas that are not aligned with our values (e.g. growth without impact), we want to respond to the real needs of our members and communities. Thus, our balance sheet growth cannot outpace the growth of the real economy. We will hit our targets, grow our membership and reputation as a values-based banking cooperative, and increase our confidence in the strength of our business model so that more of what we do is in service of building healthy communities: • We will be bigger – more members will want to do business with us and we will put more of our assets in service of creating more impact. • We will be stronger – our earnings will grow, we will have the capital we need to invest in building healthy communities, and more of our employees will be engaged in bringing our vision to life. • We will be better – we will translate insights into impact faster, our network of influence will grow as more partners join us on our journey of transformation, and we will have the leadership we need to achieve our transformation agenda. Our targets for the 2014-2016 plan are summarized below. Organizational Targets for the Three Year Plan Outcome Definition 2013 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) Impact Enhanced Member Well-Being(Q) 51.2% 1 in 2 Members (>50%) >50% New Composite Index in place New Composite Index1 % Community Impact Loans(Q) 50.7% 41%2 45% New Composite Index in place New Composite Index Confidence New Members to Vancity(Q) 24,631 27,000 29,000 31,000 Return on Members’ Equity(Q) 6.65% 5% 5% 5% Integrity Diversity (labour rate)(A) 3.1% 4.5% > 5.8% > 5.8% 1 We will be introducing new composite indices for measuring impact in 2015. 2 Based on Internal Audit recommendation, adjustments were made to this calculation so that all impact loans are measured when the first funding happens for the full approved amount. Q = reported quarterly A = reported annually Planning targets
  8. 8. 8 of 23 Impact Measuring impact is pioneering work. A growing number of organizations are talking about how to quantify and track impact as business models are evolving from maximizing financial returns to delivering blended value (e.g. people, profit, and planet) but few are actually doing it. As far as we know, Vancity is the only financial institution in Canada that is actively measuring impact as a result of our business model. Impact measurement is key to our ability to pursue scale and demonstrate effectiveness. We need to be able to show that our efforts to enhance member well-being and build healthy communities are creating positive change in members’ lives. Enhanced member well-being In February 2012, we introduced post-transaction interviews with members to assess “enhanced member well-being”. This measure is intended to capture the degree to which we help our members build resilience and engage them in activities that create impact. The benchmark for this measure is based on members’ rating Vancity as 9 or 10 out of 10 on a post-transaction survey. As of September of 2013, more than 50% of our members or approximately one out of every two members strongly agreed that their relationship with Vancity improved their well-being. This outcome underscores the fact that the work we are doing to create impact has been recognized by our members. We expect this to continue in 2014. Vancity’s financial literacy seminars are evolving to meet the growing demand. This is a foundational part of our impact work. Financial literacy is essential to building the prosperity of our members by increasing their knowledge, skills and confidence to make financial decisions that will help them meet their personal goals and enhance their quality of life. The development of financial plans in Sustainable Wealth Management and the Good Money Plan initiative within Community Member Services are also creating impact opportunities to meet members where they are and actively collaborate with them to find solutions that enhance their long term well- being. In addition, we continue to find new opportunities to use our financial tools in innovative ways, such as our enhanced Visa statements, which have made our enviro™ Visa* more transparent and easier for cardholders to understand. Our credit card financial literacy video educates members about the benefits of paying off balances sooner and our reward point redemption program encourages members to use their points to achieve financial goals, such as increasing their savings versus take on more debt. We are also mobilizing our leadership experience in socially responsible investing to provide expertise in the use of shareholder resolutions as an opportunity to advocate for investments that support building healthy communities. All of the above represent the commitment and creativity of our people to continually look for ways to share our Good Money story and create impact based on the insights we are gaining as we focus on delivering a differentiated member experience – one that not only meets the basic banking needs of our members quickly and efficiently, but that is accessible and inclusive, community-based, transparent, trust- building and credible, and empowering. % Community impact loans Last year, we introduced “percentage community impact loans” as a measure of how much of our capital is being allocated to build healthy communities. In 2013, 51 per cent of our non-retail lending was put in service of impact in a variety of ways including:
  9. 9. 9 of 23 • supporting aboriginal communities, • affordable housing, • building our local green economy, • promoting a viable and sustainable local food system, • social purpose real estate, • the development of social enterprises and social ventures from early planning, to start-up and launch, right through to sustainability and expansion, and • supporting non-profit organizations and cooperatives. This year our target for the per cent of community impact loans that make up our total business lending portfolio is 41 per cent and will increase to 45 per cent in 2015. Community Business: We believe there is an opportunity for impact lending in small and medium-sized businesses. With Canadian household debt now sitting at 163 per cent of disposable income, we know that consumer lending is saturated and hitting a tipping point. Small business is an important part of our economy in creating jobs in impact segments and increasing wages to support consumers to reduce their debt. In addition, research published by Central 1 regarding the Canadian Business Owners Strategy shows that business owners have a preference for credit unions over traditional banks. We have work to do in 2014 to set up the structure to support the continuing growth of this market but we believe this is a key market focus for us because it is an imperative engine for community well- being. As we complete foundational work in Community Business, we will be moving to a stronger focus on impact and are targeting an increase in both year-over-year impact lending as well as an increased percentage of impact loans of the total loans. Commercial Real Estate: We have gained expertise and credibility in the market over the past two years on “green” commercial or residential buildings that exceed current environmental and zoning standards (i.e. LEED’s or Build Green). We have demonstrated expertise and become trusted advisors in this sector by financing a significant number of these projects. We are taking the next step to drive impact further by influencing our existing members and incenting them to upgrade older commercial buildings in terms of energy efficiency. Existing commercial buildings are the largest source of greenhouse gas emissions of more than 50 per cent in the Vancouver area, and we want to assist our members in decreasing emissions by offering a financing plan that works for them. The affordable housing market is very limited in both the Greater Vancouver and Victoria areas due to a combination of the high cost of land and construction, government cutbacks and lack of funding for these programs. However, we are addressing the need by building staff expertise in this market, working with Community Investment to develop creative solutions and focusing resources on actively pursuing impact opportunities. Microfinance: Our microfinancing will continue to be responsive to the needs of the real economy, actively supporting small business and start-ups. In particular, we see opportunities to support the financial inclusion of new Canadians by providing access to microfinance that enables many to become economically productive.
  10. 10. 10 of 23 Confidence Redefining wealth is a cooperative effort. It is linked to growth in the real economy which means that our financial outcomes are consistent with the needs of the real economy. Our members, stakeholders and community partners help us understand how we can achieve the greatest impact in service of building healthy communities. They do this not only because they have developed relationships with us based on trust. They actively participate with us because we have demonstrated that our business model is robust – that it is possible to achieve sustainable growth and profitability without making trade-offs. The result is a healthy capital base and a growing base of support for redefining wealth. We measure confidence in two ways: membership growth and return on member equity (ROME). If our members, community partners and stakeholders have confidence in what we are doing, they will want to do more business with us and are more likely to recommend us to others which, creates new opportunities to invest our capital in building healthy communities and in turn, more opportunities to achieve impact. New members to Vancity In the 2014-2016 plan, we are recommending a new confidence indicator – the number of new members to Vancity – and at the same time, we will continue to track other management indicators of our membership growth. Our brand is resonating and as more people learn about Good Money and experience what makes Vancity different, we expect to see the number of new members continue to increase. That said, we are in a mature market. While we anticipate continuing momentum, we do not expect our rate of growth to be as dramatic as previous years given our aging membership base. The real prize will be in attracting younger members who can renew our membership base – those who are values- aligned and represent the future leaders of impact businesses. Our data show that we are now starting to attract a younger demographic who are bringing more assets with them. At the same time, our member activation program is increasing activity among inactive members. Through this program, Member Services Centre (MSC) outbound phone team agents are connecting with members and offering relevant and timely financial advice and services that are making a difference. In 2014, we will continue building on the strength of our brand and anticipate seeing 27,000 new members join Vancity by focusing on bringing scale to our successes in connecting directly with members and leaning into community to respond to the unique needs of our younger members. Return on members’ equity There is a significant opportunity for Vancity to be a counterbalance to the current trend of increasing debt load and poverty. Our industry has proven again in 2013 as it did in 2012 that financial institutions will continue to make borrowing a highly available commodity in the coming year placing the long term financial health of consumers and communities at risk. While economists are predicting a housing sales market growth rate of four to seven per cent in the next year and a continuous acceleration in property values of one to three per cent with a markedly slower recovery in the economy in 2015-2016, we believe that a more prudent way of managing our balance sheet is to expect a conservative growth rate that is more aligned to the needs of the real economy. We expect to redirect our capital towards more purposeful investments that make a difference for small businesses. We will moderate our growth expectations not only from our retail portfolio but also from the more capital intensive business portfolios, which will help us maintain a healthy capital base (13 per cent capital adequacy ratio) and ensure that our concentration in non-retail lending portfolios is prudent.
  11. 11. 11 of 23 We are assuming a loan growth rate at four per cent and a four per cent to five per cent growth rate for member deposits. The one exception to slower, purposeful growth will come from our wealth management business. As our services have not yet been fully leveraged by our members, we expect to see a growth rate that allows us faster penetration among our membership in the next three years including seven per cent growth in assets under administration next year. Based on the above scenario, in 2014 ROME will be held flat at five per cent, aligned to asset growth to allow us to grow capital at a healthy rate and build discipline based on insights needed to support long term sustainable growth. By way of comparison, excluding one-time gains, 2013 ROME would be 5.45 per cent. To calculate ROME, we factor in the 30 per cent of annual net earnings we share with members and communities through our Shared Success program. If we didn’t, our ROME would be higher. Integrity Last year we acknowledged that finding the right indicator was difficult and that improving the labour rate for persons with disabilities would be a proxy for recognizing the importance of diversity in fully understanding, connecting and responding to the needs of our members and communities. We focused on eliminating barriers for two under-represented groups: persons with disabilities and people of Aboriginal descent. While we made significant progress, we also gained a deeper understanding of the role of diversity in bringing our vision to life. Diversity is about much more than representation. It is a system of beliefs and behaviours that demonstrate that a more diverse workforce is better equipped to capture and translate insights into actions that drive member and community well-being. Diversity brings a depth of understanding, engagement and innovation to our work that cannot be found any other way. In 2014, we expect to continue to evolve our diversity work so that it is more than a set of activities, but a core part of our transformation agenda. We will exceed the labour rate not because of our programs, but because our values and beliefs about diversity are deeply embedded in who we are and how we do our work. Our diversity strategy will be embedded in our thinking whether related to recruitment, marketing, governance, our differentiated member experience or the replacement of our core banking system. When we reach the point that our workforce reflects the communities we serve, our connectivity with members will grow even deeper, allowing us to gain insights and develop solutions that enhance member well-being and build healthy communities. Summary The outcomes included in the 2014-2016 Three Year Plan are based on what we have learned from our members and communities and represent a realistic multi-year view. There are real needs and we have an opportunity to apply our financial tools in innovative ways to meet them. Our path to profitability will continue to come from investing in sustainable solutions that enhance the well-being of our members. This requires that our way forward is both informed and thoughtful, which is what is reflected in the goals we have set out.
  12. 12. 12 of 23 What will we do to achieve these outcomes? We have a strong plan that continues to evolve as we learn more about what is required to innovate for impact. We have started to tell a more complete story about our members in the context of their communities but we need to be more intentional about what we are activating outside the organization to accelerate impact. At the same time, we cannot respond to the needs and opportunities around us without being able to activate member-led innovation inside the organization. Our transformation agenda must become our core work. How will we get there? The 2014-2016 Three Year Plan has two overarching goals: • Accelerate impact already underway • Increase our capacity to innovate for impact (and get ready to do more) The first looks outward at what we need to continue doing to build healthy communities. The second looks inward at how we need to change the way we work so that we can fully activate our business model in service of achieving our vision. Together, these goals describe how we will achieve our targets, grow our membership and build the confidence of our members, community partners and stakeholders that values- based banking is a scalable alternative to traditional banking. • Accelerate impact already underway This plan targets five key strategic priorities through which we will accelerate impact. They focus on building relationships and engaging members, communities, partners and stakeholders in order to deepen our understanding of the real economy and uncover hidden opportunities to achieve impact at scale. Deliver a differentiated member experience In February this year, we defined our differentiated member experience in terms of six key dimensions: accessible and inclusive, community-based, transparent about values and commitments, trust-building and credible, empowering and convenient. Delivering a differentiated member experience is how we bring our Good Money promise to life for our members and inspire their trust and confidence. The following activities highlight key opportunities through which we will continue building our differentiation and meeting the long term needs of our members. Becoming trusted advisors: We will take what we have learned through our experiences in the prototype branches as well as the vision catalysts we introduced in 2011 to create a member experience that truly operationalizes our differentiation. Accelerate impact already underway • Deliver a differentiated member experience • Meet the needs of underserved in our community • Extend our reach into community • Activate community investment • Leverage our networks of influence
  13. 13. 13 of 23 Using the Good Money Plan: We will also be extending the use of the Good Money Plan – a unique financial advice-giving tool that delivers on our Good Money promise and helps our staff fulfill their role as “trusted advisors” to our members. Connecting more deeply: We will also be fully operationalizing our member assignment strategy this year which will allow us to respond to the more complex financial needs of our members quickly and effectively. Engaging in proactive conversations: In the Member Services Centre we are targeting 26,000 proactive outbound conversations over the year across our member base (assigned and unassigned members). Offering accessible investment solutions: We have addressed many of the inefficiencies that were holding back our Sustainable Wealth Management team and now have the capacity to grow further. Building financial literacy: At the same time, we will continue to deliver our financial literacy programs to build the knowledge and confidence of our members to make informed decisions about their money. Our financial literacy programs are rooted in who we are as a cooperative (principle five, member education), contributing to our work on financial inclusion as well as offering our members the self-help tools to build their self-reliance. Leveraging our prototypes: We will also be looking for opportunities to replicate two key elements of our prototype branches across our network – the approach to community outreach and the creation of teams of retail, business and sustainable wealth management managers to provide holistic solutions to members. Connecting with small and medium-sized business: In 2014 we will work towards validating what we believe these businesses need, building the capability in our employees to serve that need and providing the tools to make them successful. Increasing our presence among first time home buyers: Our insights reveal that our own members have a significant interest in home ownership, but these members are challenged by personal and market circumstances. As a member-owned cooperative, extending financial inclusion for home ownership is an important priority. Keeping our commitment to Dockside Green: Dockside Green is a mixed-use residential and commercial real estate development in Victoria through which Vancity is creating a blueprint for healthy buildings and healthy communities. Now, as a Master Developer, Vancity will have the ability to sell land parcels to third party builders. Meet the needs of underserved in our community In 2013, we observed that there was a growing need to increase access to those in our community who are underserved by traditional banking and other types of financial institutions. To further our principle of financial inclusion, we will explore ways of supporting those who have unmet banking needs. Our research in 2013 was robust and highlighted the need to dig deeper to determine the best approach to meet the needs of our members and our community. As a starting point for this work, we have identified several concepts that will increase access to funds and enable members to build their credit histories in a way that is inclusive and sustainable. We will pilot this with our existing members with the goal of gaining insights. This is foundational work that will help set the stage for more development in the mobile space.
  14. 14. 14 of 23 Extend our reach into community The 2014-2016 Three Year Plan will be more intentional around how we engage members and communities. Our community advisory committees in the Fraser Valley, Victoria and Surrey will be fully activated this year and as these groups evolve, they will provide an invaluable resource from which to draw upon. For example, we want to show them how we measure impact, share what we are trying to do and then get their feedback and input. Our youth community advisory committee will have an expanded online component to increase access and build greater connectivity. Activate community investment In 2014, our Community Investment team will work with Community Member Services to develop a more fulsome retail focused community investment plan. Oriented around our guiding principles for building healthy communities and the actual demographic and economic conditions of the branch communities and developed with senior CMS staff, the plan will identify impact areas which will be the focus of an integrated approach to impact business development. This work will include the creation of four prototype plans to direct and support the understanding and delivery of impact in four branch clusters. Leverage our networks of influence Bologna Cooperative Studies Program and the Cooperative Sector: As a result of the Bologna program, we now have a critical mass of employees who understand and are excited about using cooperative principles to support building a more resilient economy. In 2014 and beyond, we will be looking for ways to leverage this resource by engaging these employees in a variety of initiatives such as our seniors’ cooperative work and our work to support consumer coops. The Credit Union System: Vancity must continue to have a strong voice in Central 1 discussions regarding the role of the centrals and the provision of services to member credit unions including the work of the Information Technology Committee which will have a significant impact on the credit union system. In addition, the emergence of federal cooperative charters may redefine credit union economies of scale. This requires that we remain active in researching and monitoring the evolution of the federal credit union legislation and its impacts and implications for our members, for Vancity as well as the health of the larger credit union system. Redefining wealth is not something that we can do alone. We need to be engaged not only with our members and communities but our partners and stakeholders in the credit union system, the sector and industry at large. This is because our vision requires more than the transformation of individuals – it requires the transformation of business as a whole. • Build our capacity to innovate for impact and get ready to do more Generating insights and uncovering hidden markets is necessary but not sufficient to redefine wealth. We need to translate our insights into action by making sure we have the people and the infrastructure we need to achieve impact at scale.
  15. 15. 15 of 23 The 2014-2016 plan includes five strategic priorities through we will increase our capacity and make transformation our core work. Implement a people plan to enable our transformation Our transformation begins and ends with our people. We innovate for impact if we leverage the knowledge, skills and passion of our people. In 2013, we developed a talent framework that summarized the key assumptions that would inform our approach to developing talent: • Build a strong foundation for talent – we need to develop the talent required for the organization to deliver on our promise to members. • Differentiate through leadership – we need to develop the leadership talent required to transform the way business is done both inside the organization as well as in industry and in the communities we serve. The first phase of this work will focus on gathering insights from our people on what they experience. Rather than relying on the employee engagement survey to build our understanding, we need to connect with our people on the ground, leverage our leaders to see and hear what is happening first hand, and look for innovative ways to understand what is getting in the way of releasing the creativity and commitment of our people. We have an opportunity to listen more deeply and test our assumptions about how we need to work differently. By doing so, we will uncover hidden opportunities and strengths in the organization that we can better leverage in service of our vision. The second phase of the people plan will focus on eliminating key barriers. As a result of this work, we expect to create more opportunities for our employees to participate in bringing our vision to life. We also expect to develop the transformational leaders we need to build a culture based on continuous learning, collaborative teamwork and cooperative principles and practices – one that is comfortable with the unknown, courageous, smart about risk, diverse and resilient. In 2014, we will continue with our immersion training for all employees as it is building greater awareness and interest among employees to participate in our transformation agenda. Fifty per cent of our employees will complete the program by the end of the year. We will also begin work on aligning scorecards and compensation by digging deeper into how they impact employee engagement. The sooner we can achieve this alignment, the faster we will ignite the commitment of our people. Align our financial plan with strategy We see bankable opportunities differently than other financial institutions and therefore we have different opportunities; however we are not yet able to fully measure the value of the impact we are creating. In 2014, we will be looking for new ways to measure and incorporate impact into our decision making and reporting so that we can see the results of our vision. Build our capacity to innovate for impact and get ready to do more • Implement a people plan to enable our transformation • Align our financial plan with strategy • Define our risk • Accelerate the pace of innovation • Renew our core banking system
  16. 16. 16 of 23 Define our risk In 2013, we put in place a Risk Management Committee (RMC) with a mandate to provide a comprehensive enterprise view of Vancity’s risk capacity, appetite, tolerance and limits. In 2014, we will continue this work by further defining the amount of risk we are willing to take to support our strategy for accelerating impact. On the operational side, we will be reviewing and refining our credit practices, processes and policies to create more room for thoughtful impact consistent with our differentiated member experience. Accelerate the pace of innovation To get closer to our vision, we need to accelerate the pace of change. In 2014, we will be activating a new decision making structure that will allow us to move things through the organization faster. In addition, we will be implementing a resource reallocation initiative that will give us greater flexibility so we can redeploy resources – primarily our people – to respond quickly to opportunities to innovate. We will also continue our work to build our analytic systems and tools to consolidate what we are learning about the real economy and the opportunities for impact. Renew our core banking system An implementation plan for renewing our core banking system will be going to the Board for consideration in early 2014. Summary The link between our plan and the work we do everyday is getting stronger. We are already seeing the translation of our strategy in a meaningful way into more specifics that are allowing us to execute better with better clarity. The strategies outlined here are not discrete projects that will be assigned to individual leaders to execute. They represent a fully integrated transformation agenda that will drive the work of the whole organization. We know that we cannot accelerate impact in silos. In the same way, we understand that we cannot redefine wealth alone. We need to work with our members, communities, partners and stakeholders to build healthy communities. As we learned from this year’s Bologna cohort, “if you want to go fast, go alone. If you want to go far, go together.” The strategies outlined here reflect the breadth and depth of relationships that we must continue to cultivate in order to accelerate impact. We are learning from our partners and they from us and together, we will create the critical mass of support we need to transform the banking system within which we operate.
  17. 17. 17 of 23 How will we allocate resources to achieve these outcomes? Our sustainable growth model provides insight into the capital and asset growth requirements needed to execute the 2014-2016 Three Year Plan. The rate at which we accumulate capital must be sufficient to support achieving impact at scale in a prudent manner. At the same time, in order to enable the flexibility and responsiveness that our business model requires, we need to make the shift from “resource ownership” to resource sharing and leverage. Align our resources with our strategies We have more work to do to free up existing resources and mobilize the organization to respond quickly to emerging opportunities. Our people plan will play an important role in helping us build the collaboration and reciprocity needed to do this. Equally important to making this change is the resource reallocation initiative that will begin in 2014 as well as the innovation-strategy-risk decision making structure – both of which are intended to breakdown divisional silos and build a more integrated approach to doing business. Rather than a management philosophy based on whom ever “owns” the resource “controls” the resource, we will use these strategies to place greater emphasis on the flexibility to deploy our resources to meet members’ needs regardless of where the resources reside. Leverage existing talent A core assumption of our financial plan is that we will optimize the allocation of our people resources to support the achievement of our transformation agenda. We have the talent we need to get work done. Therefore, we will limit the addition of new FTEs and focus on fully leveraging the knowledge and skills of our staff through redeployment and training while controlling expenses at the same time. Funding Unlike traditional financial institutions where the proportion of the total balance sheet devoted to client lending and funded by client deposits is much less, our source of capital is the community because we lend to meet the needs of the real economy. Not only does this ensure the member engagement and connectivity we need to build healthy communities, it gives us the autonomy we need to fund our impact ambitions. In turn, we are less susceptible to the systemic risks that traditional banks face because they are more dependent on more volatile funding sources. In 2014-2016 we expect to see more deliberate lending growth based on the real needs of the economy. This translates into reduced growth expectations from both retail and business portfolios which will allow us to preserve capital for a later period when the stagnant economic period is over and reinvestment in our communities can be accelerated. The lending forecast in the plan has been set at $582MM. 2013 has been a successful year in terms of member deposit growth. We expect to maintain the same level of growth over the next three years with a target set at $505MM for 2014. The return we expect to generate on our members’ equity ensures that we will earn enough profit to support our growth without over-leveraging ourselves in the process. We will also maintain at least 13 per cent liquidity as well as a 13 per cent capital adequacy ratio.
  18. 18. 18 of 23 2014 – 2016 Fiscal Framework Targets $ million 2013 2014 Plan (unaudited) 2015 Plan (unaudited) 2016 Plan (unaudited) Operating Income $ 408 $ 401 $ 417 $ 442 Operating Expenses $ 315 $ 322 $ 329 $ 349 Net Earnings $ 61 $ 48 $ 50 $ 54 Members Loan Growth $ 689 $ 582 $ 650 $ 650 Members Deposit Growth $ 691 $ 505 $ 520 $ 520 CAR 13.33% 13.00% 13.00% 13.00% Liquidity Asset to Capital Multiple 13.03% 13.18% 13.21% 13.38% 18.70 18.31 18.15 18.02 ROME 6.65% 5.00% 5.00% 5.00% We will continue to invest in our daily operations in order to ensure long term sustainability. This includes investments in maintaining our premises, IT infrastructure and training. Consolidated Statement of Operations $ million 2013 2014 Plan (unaudited) 2015 Plan (unaudited) 2016 Plan (unaudited) Net Interest Income $ 341 $ 350 $ 367 $ 383 Loan Impairment Expense 7 19 20 20 Fees and Other Income 74 70 70 79 Total Operating Income 408 401 417 442 Operating Expenses 315 322 329 349 Net Earnings from Operations 93 79 88 94 Distribution to Members 10 8 9 9 Distribution to Community 10 8 8 9 Net Earnings before tax 73 63 71 76 Income tax 12 15 21 22 Net Earnings 61 48 50 54 Summary Our financial plan focuses on preserving our capital in a weaker economic climate and leaning further into community to support longer term sustainable growth. We do not want our balance sheet to outpace the real economy. If we apply our resources with the right discipline – based on insights – we are confident the market will come. Planning targets Planning targets
  19. 19. 19 of 23 How will we measure our progress? A strong plan needs a clear roadmap and key markers to measure progress. These management indicators show how we will achieve the impact, confidence and integrity we need to redefine wealth. 2014 Target (unaudited) 2015 Target (unaudited) 2016 Target (unaudited) Impact % Community Impact Loans % Community Business Impact Loans(Q) 30% 36% 45% % Community Real Estate(Q) 55% 58% 62% % Microfinance(Q) 100% 100% 100% % of Increase of Impact Treasury Investments (Q) 20% 20% 20% Member Well-Being # People Assisted with Financial Education (Q) (financial dimension) 10,000 11,000 12,000 # Community-Minded Organizations with Increased Capacity(Q) (economic dimension) 450 475 500 # of People Assisted in Poverty Reduction, Credit Access and Repair (Q) (social dimension) 6,000 6,900 7,500 Estimated Energy Reductions or Green Energy Productions Funded (Q) (environmental dimension) 900 tonnes 950 tonnes 1000 tonnes Confidence New Members to Vancity # Distinct Services per Member – the average number of products each member holds with Vancity (Q) 3.20 3.24 3.28 Asset Base per Member – total funds managed per member(Q) $60,700 $63,000 $65,000 Return on Members’ Equity (ROME) Operating Efficiency (Q) 79% 77% 75% New Growth Funding Ratio – calculated as the % of member deposit growth over member loan growth (Q) 80% 80% 80% Integrity Greenhouse Gas (GHG) Emissions Usage (A) 5100 tonnes 5000 tonnes 4900 tonnes # Living Wage Campaign Information Sessions hosted for Employers (A) 6 9 12 Ethical Principles for Business Partnerships (Q) Integrated into Quarterly Board Reports Q = reported quarterly A = reported annually Planning targets Planning targets Planning targets Planning targets Planning targets
  20. 20. 20 of 23 What are the risks we need to understand? No strategic plan is complete without a balanced view of the risks attached to the plan. Rather than being constrained by a risk adverse culture, we see risk as an opportunity to create and ignite opportunities to achieve impact at scale. Based on this view, there is a much greater awareness of the need to build our understanding of risk so that we are able to make the right decisions from an “eyes wide open” perspective. What is our tolerance for risk? Our overall approach to managing risk is to have a low risk appetite in some areas so that we can take on more risk in other areas. We have a low risk appetite for legal and regulatory, business, talent, technology and liquidity risks, but we are willing to be bolder in areas where we can differentiate ourselves in the market and in the communities we service. This includes reputation, strategic, market and credit risk. Surrounding all these is systemic risk, which includes the external forces within which we operate and have a low appetite for risk. Systemic risk Our tolerance for systemic risk is low. There are profound external forces at play including internal trends of debt deleveraging and non-interest rate credit rationing that are impacting the local real estate market. While Vancity cannot control these systemic risks, we will continue to closely monitor them by staying connected to the real economy and basing our performance on the needs of the real economy not the interest rate economy. We will adopt a more proactive approach to informing regulators and other stakeholders within the system about the unique strengths and sustainability of our values-based banking model. In addition, we will play an increasing proactive leadership role through our Chief Economist and a stronger advocacy voice so that the risks to communities are understood and policy responses are aligned. Legal and regulatory risk Our tolerance for legal and regulatory risk is low. The current risk environment is becoming more complex as evolving information and capital requirements are demanding more of financial institutions. As a result, we are doing more stress-testing against regulatory regimes, testing against the highest regulatory requirements including BASEL III and OSFI (Office of the Superintendent of Financial Institutions). Strategic risk Our tolerance for strategic risk in 2014 is medium but we aspire to move this to a high risk tolerance in 2015 as we build our capacity to be bold and innovate. By high risk, we are referring to the conventional banking standard not ours although we understand that others might see it this way. As a financial cooperative, our source of capital is the community. The more we connect with the community in order to pursue growth with impact, the deeper our insights into member and community well-being and in turn, the more we understand the risk profile of the source of our capital. The greater our understanding of the risk profile the greater our ability to manage our assets. Simply put, because the structure of our balance sheet is connected to the real economy, we are able to achieve more stable returns and lower the real risk.
  21. 21. 21 of 23 Business risk Our tolerance for business risk is low. In order to be bold and innovative, we must deliver on our Good Money promise to members. A key strategy in our plan focuses on delivering a differentiated member experience by integrating our lines of business and leveraging synergies so that we can make sure we bring the right people together to meet the diverse needs of our members. In addition, we will be activating a new decision making structure that will allow us to move things through the organization faster as well as integrate risk earlier into our innovation activities so we can benefit from the insights we are gaining. Reputational risk Our tolerance for reputational risk is medium. Because of how we see our reputation, we see risk differently. We will make decisions in service of who we are and what we represent. For example, in the case of Dockside, a bank would have sold off this investment but we made a commitment to this community and to our values. We made the decision to stand by the community even though it creates some risk. We see reputation as an asset that we need to use effectively while not spending it unwisely. Our partnership with the Global Alliance for Banking on Values (GABV) gives us confidence that where others see risk, if we take action that is consistent with what our members want, we will never take a risk. We will leverage our networks of influence and look to strengthen our leadership voice through our advocacy work to influence public policy and engage with stakeholders around the importance of values-based banking and the role of finance as a key driver of positive social change. Talent risk Our tolerance for talent risk is low. Our people are key to activating the innovation that will differentiate Vancity and enable us to achieve our goals and be competitive in the market. We need to develop talent quickly at all levels of the organization and build our bench strength so we have the people we need to bring our vision to life in the short-term and ensure Vancity is well-positioned to continue building healthy communities for the long term. Talent loss could lead to a significant capacity and skills gap, a loss of change momentum, and/or a disruption in succession planning. For this reason, our people plan is a key strategic priority. We will look to this work to identify and eliminate engagement barriers, allowing employees more opportunities to participate in our transformation agenda. We will also leverage the work we have already done through Better Decisions Better Results to define roles broadly so that it is easier to move talent across the organization. Our immersion program will continue in 2014 giving employees a much deeper connection to our vision. At the same time, we will be expanding our Talking Talent program below the director level in order to build a robust internal talent pool of future leaders. Technology risk Our tolerance for technology risk is low. We need to build our capacity to innovate at scale and are making investments in technology that will minimize these risks such as the Banking Applications Renewal (BAR) program and our Loans Origination System (LOS) project. As a member of the Direct Banking Strategy Committee of Central 1 we will continue to provide our insights and expertise for the evolution of our online banking platform through which we deliver our differentiated member experience. We will also invest time in understanding how risk works in the mobile space.
  22. 22. 22 of 23 Market risk Our tolerance for market risk is medium. Average household debt is over-levered. If interest rates continue to be low, our members may face increasing pressure to take on more debt. This scenario highlights the need for us to do more for our members at a time when the forces of the external marketplace are working against us. In the current low growth environment, we are targeting a growth rate that is aligned to our values and does not stretch our capital unnecessarily. At the same time, we are willing to take some interest rate risk in order to mitigate the pressures on members to take on increasing debt load in a low interest rate environment. Credit risk Our tolerance for credit risk is medium. We are going into the 2014-2016 Three Year Plan with sustainable financial solutions as a principle. This means we will not provide solutions or advice to members that put them in a position of taking on debt they cannot afford. While we may say ‘no’ to a credit application because the level of credit risk is too high, we are more likely to say ‘not right now’ and provide alternative solutions to help them achieve their goals. While we will stay with our discipline in credit, we can be more inclusive at the same time. This means while we will be in the conservative end of competitive parity for conventional loans, we will have more open underwriting for impact loans and we can be more inclusive without taking on more credit risk. This translates into having good quality actual risk in credit relative to an appetite/capacity for more impact lending. Liquidity risk Our tolerance for liquidity risk is low. This is because, as a trusted advisor, we will always want liquidity to meet our members’ needs all the time. We maintain a $1 billion buffer comprising excess liquidity from investments, diversified borrowings and incremental securitization so that we can accommodate liquidity demands during periods of excessive loan growth or weak deposit volumes. We ensure liquidity is prudent within our Three Year Plan by a reserve of 12 per cent or higher of our total member deposits and we will strive to fund the majority of our member loans with member deposits. Summary While we have more work to do to quantify our total risk appetite and build the tools we need to understand how we are using our risk capacity, this year’s Three Year Plan represents a significant step forward in the evolution of our thinking around risk appetite and risk tolerance. As a result, we are confident in the robustness of the strategies outlined in the plan and the opportunities we have to accelerate impact.
  23. 23. 23 of 23 Our 2014-2016 Three Year Plan contains a number of forward-looking statements and projections. These include, but are not limited to, our financial performance objectives, vision and strategic goals. The 2014 Budget has been approved by the Board and the 2015-16 information represent planning targets. The information we’ve provided here is intended to help the reader understand our vision, objectives and goals. Forward-looking statements by their nature require us to make assumptions and are subject to change. Make Good Money (TM), Good Money (TM) and enviro (TM) are trademarks of Vancouver City Savings Credit Union. *Visa Int./Vancity, Licensed User. Closing thoughts The greatest gift this work will give us is the opportunity to meet the needs of the real economy as well as the understanding of what it takes to build communities that are resilient, rich, whole and healthy in truly transformative ways. Perhaps the most powerful example of this in 2013 was our work with Reconciliation Canada. Our experience provided a tangible demonstration of what our vision and business model describe – that when we do the right thing, the profitability and sustainable growth will come. When we reach into community, community reaches out to us. In turn, this gives us a unique opportunity to find innovative ways to enhance our members’ well-being as well as that of the communities in which they live and work. We have prepared a plan that invests heavily in our transformation, in gaining the insights needed to drive our work and in growing our capital base in order to do more purposeful lending. We have defined the levers of change that we need to activate to achieve our goals. We have tested the robustness of our strategies and we have the talent as well as the membership and community engagement we need to accelerate impact. We are ready for the next chapter of the journey.