The document discusses various financial metrics and ratios that are important to the Credit Union's strategic plan. It identifies metrics like capital/assets, ROA, delinquency, net charge-off, net interest margin/assets, operating expenses/assets, etc. For each metric, it provides an explanation of what the metric measures and why it is important. Historical data for the Credit Union's metrics are presented along with peer averages for comparison. The document aims to analyze the Credit Union's financial performance and risks.

2. The Credit Union has identified the following metrics (ratios)
because of their relationship to our strategic plan.
q Capital / Assets
q ROA
q Delinquency
q Net Charge-off
q Net Interest Margin / Assets
q Operating Expenses / Assets
q Operating Expenses / Gross Income
q Cost of Funds / Assets
q Fee and Other Operating Income / Assets
q Loan / Share
* Peer group data as of September-2013

3. q Also know as “Net Worth” or “Capital Adequacy”.
q Measures the amount of capital supporting the Credit Union’s
loans and other assets. The higher this ratio the more financial
secure the Credit Union.
q “well capitalized”-capital equal to or greater than 7%
q “adequately capitalized”- capital between 6 and 7%
q Capital cushions and provides protection against insolvency.
q A credit union’s only option to grow capital is though current
earnings.
q Deposit growth that outpaces the ability to generate sufficient
net income may reduce the overall strength of our net worth.
One of the most common sources of financial distress is
unprofitable rapid growth.
q If current earnings cannot support asset growth capital
deteriorates.
q The rate of capital growth should be commensurate with the
level of risk in the balance sheet and asset growth.

4. 11.31
10.91
10.13
11.27
12.14
11.12
9
9.5
10
10.5
11
11.5
12
12.5
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.
Capital

5. 54,177
58,348
64,758
76,774
78,529
11.3%
10.9%
10.1%
11.3%
12.1%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Thousands
Asset
Growth
rela1ve
to
NW
Growth
Assets
NW

6. q An earnings ratio measuring how efficiently the Credit
Union’s assets generate earnings.
q Primary indicator of profitability.
q It represents the bottom line.
q A positive ratio demonstrates that earnings cover the Credit
Union’s operating expenses and cost of funds.

7. Yield on Assets
– Cost of Funds
= Net Interest Margin
– Operating Expense
– Provision for Loan Loss
+ Fee/Other Income
= Return on Assets (ROA

8. GROWTH RATE
5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5% 25.0%
N 8.0% 0.39% 0.58% 0.76% 0.94% 1.12% 1.29% 1.45% 1.62% 1.78%
E 9.0% 0.44% 0.65% 0.86% 1.06% 1.26% 1.45% 1.64% 1.82% 2.00%
T 10.0% 0.49% 0.72% 0.95% 1.18% 1.40% 1.61% 1.82% 2.02% 2.22%
11.0% 0.54% 0.80% 1.05% 1.29% 1.53% 1.77% 2.00% 2.22% 2.44%
W 11.5% 0.56% 0.83% 1.10% 1.35% 1.60% 1.85% 2.09% 2.33% 2.56%
O 12.0% 0.59% 0.87% 1.14% 1.41% 1.67% 1.93% 2.18% 2.43% 2.67%
R 13.0% 0.63% 0.94% 1.24% 1.53% 1.81% 2.09% 2.36% 2.63% 2.89%
T 14.0% 0.68% 1.01% 1.33% 1.65% 1.95% 2.25% 2.55% 2.83% 3.11%
H 15.0% 0.73% 1.08% 1.43% 1.76% 2.09% 2.41% 2.73% 3.03% 3.33%
ROA TO MAINTAIN NET WORTH RATIO @ GIVEN GROWTH RATES

9. } Delinquent Loans / Total Loans
} Net Charge-off / Loans

10. q This metric measures the quality of the loan portfolio in
relation to our size. The ratio is an indicator of the
effectiveness of not only delinquency control but the quality
of the loan portfolio.
q The higher this ratio, the higher the probability the Credit
Union will face loan losses and reduced income. Accurate
delinquency data enables the board to monitor asset quality,
the adequacy of the ALL and lending standards.
q An increasing level of delinquencies, as well as failure to
collect delinquent amounts may be a warning sign that
economic conditions are deteriorating or the loan
underwriting or administration standards are either deficient
or not followed.

11. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
1.27
1.35
1.19
1.60
1.00
1.20
1.27
1.35
1.19
1.60
1.00
1.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

12. q This metric measures net charge-offs in relation to loans.
q The ratio is an indicator of the effectiveness of lending and
collection practices.
q A high ratio in relation to the peer ratio may indicate a higher
level of uncollectible loans relative to other credit unions in
its peer group.

13. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
0.53
0.22
0.41
0.27
0.56
0.48
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

14. q Net Interest Margins / Assets (NIM)
q Operating Expenses / Assets
q Operating Expenses / Gross Income
q Cost of Funds / (COF)
q Fee and Other Operating Income / Assets

15. q This metric impacts more than one risk area. This earnings
ratio measures whether income from loans and investments
sufficiently covers the cost of funds.
q Net interest margins reflects the Credit Union’s risk
management practices and is a factor in the assessment of
interest rate risk management , strategic risk, and planning.
q Generally, if the Credit Union properly matches assets and
liabilities, this ratio should remain constant in varying interest
rate cycles.
q A fluctuating ratio may indicate a change in loan rates
charged, a change in investment practices, or (in a rapidly
changing rate environment) a slow adjustment of dividend
rates paid.

16. q A combination of the following:
q Increasing the percentage of loans to shares;
q Moving to higher-yielding assets; and/or
q Moving to lower-cost funding sources.
All of these strategies involve taking on more risk and
therefore, they should be implemented with care.

17. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
4.00
3.61
3.00
2.68
3.00
3.09
4.00
3.61
3.00
2.68
3.00 3.09
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

18. q This ratio measures the cost of operations in relation to asset size. A
high cost of operations will be reflected in a high ratio and may reflect
operational inefficiencies.
q Other causes of a high ratio are strategies that:
q Stress non-interest income generation;
q Higher risk lending operations that result in higher underwriting
costs;
q Higher levels of fixed assets that produce depreciation and other
costs.
q Low operating expenses to average assets is typically the result of:
q An effective use of technology;
q An uncomplicated asset/liability strategy;
q An effective HR management and use of volunteers;
q Valuable assistance from an organizational sponsor; and/or
q Operations located in a geographic region with lower-than-average
wage and real estate costs.

19. q Employee Compensation and Benefits. Salaries, benefits, pension plan,
employer taxes.
q Travel and Conference Expense. Authorized expenses incurred by officers,
directors, and employees for travel, attendance at conferences and other
meetings.
q Office Occupancy Expense. Expenses related to occupying an office including
office rent, utilities (gas, electric, etc.), building depreciation, real estate
taxes, building maintenance, and amortization of leasehold improvements.
q Office Operations Expense. Expenses related to the operation of an office
including communications, stationery and supplies, liability insurance, bond
insurance, furniture and equipment rental and/or maintenance and
depreciation, bank charges.
q Educational and Promotional Expense. Advertising, publicity, and
promotions.
q Loan Servicing Expense. Collection expenses, recording fees, credit reports,
credit card program expenses, loan servicing fees.
q Professional and Outside Services. Legal fees, audit fees, accounting services,
consulting fees, and outside EDP servicing.
q Operating Fees. Annual operating/supervision fee assessed by NCUA.
q Miscellaneous Operating Expenses. Cash over and short, annual meeting
expenses, association dues.

20. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
5.94
5.02
4.66
3.88
3.72
3.71
5.94
5.02
4.66
3.88 3.72 3.71
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

21. q The relationship between operating expenses and income is driven by
several factors including membership demographics and our philosophy
towards products, service levels and technology.
q Credit unions that pursue a full service strategy with a wide variety of
products and services will generally have higher expense levels than
credit unions that limit their products and services.
q The income to expense ratio depends on our ability to generate income
from those products and services.
q Credit unions that have set high service level goals will also generally
have higher expense to income ratios.
q The cost of high service, additional employees, training costs, etc. does not generally
have a consistent correlation to income generation.
q The operating expense to income ratio can also be a measure of our
productivity.
q Managed investments in technology can, when managed successfully,
make significant contribution to productivity, which will lower expenses.
q Finally, on the income side of the equation, product-pricing strategies
have a significant impact on the ratio. Credit unions that price products
and services competitively and who neither lag nor lead the rate market
generally will have good income results and a good expense to income
ratio.

22. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
83.66
79.42
84.34
79.40
73.55
78.48
83.66
79.42
84.34
79.40
73.55
78.48
68.00
70.00
72.00
74.00
76.00
78.00
80.00
82.00
84.00
86.00
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

23. q Popular within the banking industry.
q Similar to the previous ratio.
q Essentially a metric that reveals how much operating expense is
required to create a dollar of revenue.
q Like a golf score the lower the better.
q Community credit unions operate at a 77% efficiency ratio.
q Community banks operate at a 73% efficiency ratio.
q All banks operate at a 65% efficiency ratio.
q A standard target is below 70%.
q Optimally somewhere between 60% and 65%.
q Our efficiency ratio as of Dec-2013 was 74%.
q Efficiency is important, but it needs to be balanced against other
strategic priorities such as member value, service quality, risk
management and growth.

24. q This metric is influenced externally by the overall rate environment
and internally by the makeup of our deposit portfolio and member
demographics.
q A deposit mix containing a higher portion of CDs and higher
balances on tier-priced products may drive up the cost of funds.
Credit unions with high checking account penetration will generally
have lower cost of funds.
q Calculated as the dividends paid to members or interest paid on
borrowed money, divided by the average outstanding shares and
borrowings.

25. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
0.67
0.42
0.34
0.22
0.16
0.41
0.67
0.42
0.34
0.22
0.16
0.41
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.

26. q This metric is driven by our fee strategy, which is a
function of our field of membership and overall financial
structure.
q A fee strategy is generally designed to fill in the
shortfall between the results of the other aspects of net
income and our ROA goal.
q Other issues include the field of membership’s
tolerance for fees, competitive pressures in our trade
area, and an indicator of member usage.

27. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
2.43
2.30
2.18
1.98
1.90
1.27
2.43
2.30
2.18
1.98
1.90
1.27
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.
Fee & Other Operating Income

28. q A measure of the asset utilization of the credit union.
q In general, the Credit Union strives to balance loan
demand with share availability. A credit union having a
high ratio will generally experience higher net interest
margin, higher gross income to average assets and
higher profitability.
q One of the biggest operating problems for any credit
union is finding an adequate supply of high-quality
profitable loans to invest loanable funds.
q A credit union having inadequate loan demand must
invest in investment securities which normally earn
interest rates that often barely cover the cost of funds.

29. q To increase loan demand:
q Adopting more competitive loan pricing strategies;
q Implementation of new lending programs;
q Implementing less conservative loan underwriting
standards; and
q Implementing more aggressive loan promotion programs.
Such policies do involve taking more risk and increased
expenses and should be implemented with caution.

30. Dec-­‐09
Dec-­‐10
Dec-­‐11
Dec-­‐12
Dec-­‐13
Peer
Avg.
61.77
57.81
52.21
53.79
60.34
60.27
61.77
57.81
52.21
53.79
60.34 60.27
46.00
48.00
50.00
52.00
54.00
56.00
58.00
60.00
62.00
64.00
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Peer Avg.
Loan to Share

31. Yield on Assets
– Cost of Funds
= Net Interest Margin
– Operating Expense
– Provision for Loan Loss
+ Fee/Other Income
= Return on Assets (ROA

32. Thank you
Questions