CU*Answers Annual Stockholders Meeting
June 18, 2008

 Call to Order
• Review 2007 Minutes
• Review Financial Reports
 Chair of the Board: Year In Review
• Welcome New Owners
 Election
• Board Members
 CEO Report
• Turning Up the Volume: What it means as more and more people sing along (planning for the evolution of a network)
 CFO Report
 Board Election Results
 Adjourn

Turning Up the Volume
From the Perspective of Your Board Chair

Ray Ward
Dean Wilson
Vickie
Schmitzer
Chris Butler
Dave Wright
Dave Ohman
Joni Shinn
These people start every day with no time to spare in just running their credit unions...and somehow they find the time to work hard at ensuring the future of this CUSO

 First CUSO ever to win
NACUSO’s top award twice
 The award’s actual name is
 Companies don’t collaborate, people do
 It all starts with your members and comes together through
your focus

Could Randy’s head get any bigger?


• Clawson Community CU
(Clawson, MI)
• Kensington Valley Community CU
(Highland, MI)
• Great Lakes Members CU
(Dearborn, MI)

Let’s hear from the candidates and get to the voting...

Turning Up the Volume:
What it means as more and more people sing along
Planning for the evolution of a network

 During today’s presentation, two things were evident
• Since the last time we met, CU*Answers has enjoyed a great deal of success and recognition from the marketplace
• A theme of ownership and the need for the constant focus on what sets us apart as a network of businesses, owned by our customers and clients
 These two ideas can actually be in conflict with each other, and we must plan for the evolution of our network

 Nothing challenges a mission more than the concepts of growth, success, and diversity
• To be successful in carrying out your mission, you must grow, which is the first signal of success
• With success comes those attracted to success, and a growing diversity of ideas about where to go, how to get there, and the expected returns
• With growing diversity comes the anguish over the mission and the future direction of the firm
 Some would call this simply growing pains, but it’s more problematic for a cooperative than for most businesses
• Think about credit union-to-mutual savings banks conversions and what it means as owners begin to challenge what it’s all about

 Cooperative or not, the cycle is real and we must all recognize the challenges as we stay committed to the mission
• We must embrace the diversity of our partners
• We must respond positively to the inevitable demand that we change with the marketplace
• We must remain respectful of our need to be answerable, not only to our owners, but to our clients and to an industry
• We must remain committed to being different and true to a collaborative framework
• We must stay committed to what is timeless about our traditions, without remaining stuck in the past
The “We” here is not a group without faces, people without names, or organizations that cannot be called on ... it is us
When it’s time to call BS on our direction, we will be the ones who step up with the plan

 As we grow, it is easy to confuse our day-to-day tasks with our big-picture mission
 Twice within the last 60 days, Evie Rasmussen’s challenges have reminded me of our big-picture mission
 Evie’s challenge to every business that claims to be a partner:
“Before you claim to be my “partner” make sure you truly are. Don’t just sell me what your business needs to have sold – it needs to benefit my CU too. Do you really need to charge every
CU for setting up with your company? Once the platform has been built with whatever processor, why continue the huge charges? So, we’ve got a Catch-22 – we can’t afford many of your services and yet we can’t afford not to and be competitive. The only way we can succeed is to lower the boundaries, roll up your sleeves and collectively use your minds to figure out how to help this fading industry.”
From a blog posting dated June 4, 2008, at www.nacuso.org
Build a business that is about the ultimate success of its clients and their futures

 Evie is a CU*NorthWest Board member, and therefore a partner to every owner in this room
 My response to the challenge:
“For all of us to win in the future, network leaders must be free to change the financial models that drive their organizations in partnering with credit unions...
“Once credit union investors free the firm to attack the challenges of the market with a new mindset, then it will be up to the leaders of the networks to step up. First, by ensuring that network businesses are free of designs that define their value by contract revenue flows, income
redistribution models, and by secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than the asset value of the
participants. The question will be, once free to redesign themselves, will network leaders be able to truly call BS on the models of yesterday?”
From a blog posting dated June 5, 2008, at www.nacuso.org
You are the investors in these networks; you are the future network leaders...we all might need a new mindset about business

Can We Agree That We’re a Different Kind of Business?
 We must distribute our financials to owners and to the NCUA in order to be compliant
 But more important than being compliant is the responsibility we all have to understand the economics of our CUSO and how our performance and returns are based on our commitment to our mission
 In 2008, I was happy that people started to engage more than ever before around our numbers...
... I just wonder if was the result of endeavoring to better understand the mission, or simply a reaction to some blips on the radar, or even a temporary response to due diligence tasks

Can We Agree That We’re a Different Kind of Business?
 Since we last met, we have been busy talking about how collaboration and network business design might be the key to redesigning our entire industry and the business processes related to building credit unions
 Working on a new mindset

 We’ve even started selling the concept to credit unions as a good marketing program for consumers
• The network advantage, direct to members
 “Movement” ...what does that say to members?
 “Industry” ...what does that say to members?
 “Network” ...what does that say to members?
We think there is more to this than simply marketing to consumers
But consumers are beginning to see the power in networks

Business network design driving us to:
 Play where members play
...Re-map your business processes to reach members
 Focus inside-out and outside-in simultaneously
...Re-map your business processes to distribute work
 Respond to vested external innovators
...Re-map your business processes to drive innovation
 Expand your HR pool by leveraging peers
...Re-map your business processes to capture the power of talent
 Consider a new set of network pricing concepts
...Re-map your business processes for earning engines

It’s working for CU*Answers:
 Capturing the benefits of scale
 Projecting a larger persona than a standalone organization
 Challenging us to diversify our focus
 Enabling us to participate in more initiatives
 Inspiring a competitive advantage
 Amplifying the cooperative effect and aligning with our market
We are selling it not only for
CUSOs but as a process for every business leader

CUSOs: The Hubs of an Industry

CUSOs: The Hubs of an Industry
What is the opportunity, and where is it focused?

CUSOs: The Hubs of an Industry

CUSOs: The Hubs of an Industry
What is the opportunity, and where is it focused?

CUSOs: The Hubs of an Industry

CUSOs: The Hubs of an Industry
What is the opportunity, and where is it focused?

CUSOs: The Hubs of an Industry
 Which is bigger?
The opportunity of one, or the opportunity of all?
 A network multiplies the work of one into an opportunity for all of its participants
A vision where Evie’s opportunity is embedded and is equally important as all of the network’s opportunities...a true partnership

Working Under the Best Contracts
 At the 2007 CEO Strategies event, CU*Answers took the next step in making sure that your balance sheet and asset valuations were paramount to our own
 Contract changes that said we were about ongoing operations and execution more than our sale value
• Assignment
• Cancellation clauses
• Anxiety about CU*Answers selling out
“...secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than the asset value of the participants”

 All of the things we presented to the marketplace since we last met might make CU*Answers confident that we are walking the talk, but what do they say to you?
 You are the ultimate judge...Are we on mission?
• If not, I hope you’ll speak up right now and add your voice to figuring out how this CUSO should get there
• If so, I hope you will speak up and carry that message to the rest of the credit union industry, so that even more will join this effort next year
“...secondary counter norms that claim to lift the participants and ultimately fund the asset value of the network ownership more than the asset value of the participants”

 Someone I admire very much said to me recently, “It’s not fun to debate with you, Randy.”
 After a little soul searching, I worried that for all my passion, zealousness, and absolute drive to be understood and allencompassing in my explanations, I end up discouraging you from digging deeper and adding your voice where it is so needed
 In 2009, I will work hard to make sure that the experience is based more on the bedside manner of Dr. Jekyll than the demeanor of Mr. Hyde
We are listening...I am listening

Understanding how it all adds up dollars- and cents-wise is a little bit more complicated these days
And explaining it to a casual thirdparty observer might your biggest problem

The Chance to Earn Comes From a Growing Market Influence
 CU*Answers direct revenues continue to evolve with new processes, internal capabilities, and new offerings
• Projected for 2008: $25.090M
 Just as important, CU*Answers’ influence through partnering with other CU*BASE networks and investing in new initiatives is starting to really add up
• Xtend projected for 2008: $595K (- $40K)
• eDOC projected for 2008: $3.056M (+ $500K)
• CU*NW projected for 2008: $927K (- $10K)
• CU*S projected for 2008: $231K (+ $2K)
• Processing Alliance proj. for 2008: $475K (- $8K)
Gotta watch out for Enron type hocus-pocus here...the important number is how many members we participate with (over 6 million)
How relevant we can be to 6 million people is the big question in our future

What do shareholders get, and what are we putting away for our future?
Before Consolidation
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
-400,000
$1.305M
$265K
2003 2004 2005 2006 2007 2008 (Proj.)
Net Income before Patronage Dividends & Taxes Patronage Dividends
$1.305M includes an accrued expense for an eDOC Intangible
Asset Write-off of $840K, netting $465K in GAAP net income
(for details, check out Note 5 – Intangible Assets on the audited financials)

 Let’s take a second to talk about what events create a need for us to have an intangible asset write-off
 What is different about eDOC than past events that created similar kinds of expenses?
If this gets you going, think about tracking sales tax, income tax, and other miscellaneous taxes in 14 states
Diversity definitely has an upside and a downside when it comes to accounting

How did things work out in 2007?
2007 Gross Income Submitted by Owners to CU*Answers
(Includes all vendor pass-throughs)
2007 Patronage Dividends Paid
2007 Class A Stock Dividends Paid
2007 Class B Stock Dividends Paid
2007 Interest Paid Credit Unions on Loans
$ 200,000
86,515
22,304
520,788
$ 15,284,983
(4.00%)
(4.00%)
(~9.00%)
Total Revenue Returned to Credit Unions $ 829,607
$830K

$9,964K (excludes vendor pass-throughs) = $ 0.0833 return per CU*A $ received
Glass half full: “All this, and great investment in our future through eDOC, too!”
Glass half empty: “Pretty good, but that shareholder value drop of $31.04 dampers my enthusiasm.”

After the 2008 dividend, what shape is your investment in?
 In 2006, we invested to jump to the future with a new endeavor
 Depending on when you bought in, your perspective might be different
Ownership price 1985: $10, 1991: $59.31, 2000: $176, 2005: $460, 2008: $460
$200
$183.98
$186.08
$160
$171.64
$168.65
$156.00
$120 $137.61
$80
$40
$0
The eDOC Innovations Years
2003 2004 2005 2006 2007 2008 (Proj.)
The delta is the additional capital paid in to participate as an owner, paid so as not to dilute the ownership value of the pioneers before you

New Math For a Company Extending Itself By Investment
 Very rough numbers, and very simple concepts
For the details, you need to understand the fine print of the
Audited Consolidated
Financial Statements you receive every year

Summarizing the Process
 Quarter after quarter, year after year, CU*Answers has reported positive financial performance, and everyone has become accustomed to the trend
 Then, wham! ...a dip, a drop, a left-hand turn, almost overnight
(well, kind of, if you consider 2 years to be overnight)
 But it certainly got people wondering about the investment and how it worked
 This document is to give you a little history and a quick summary of the process

 2008 has been a great conversion and sales year – we go into
2009 with new clients waiting for their conversion date
 The numbers below represent CU*Answers alone, and these days, that’s not the whole story...keep your eye on cuasterisk.com
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
635,000
2003
699,000
2004
821,000
2005
898,000
2006
903,457
985,000
2007 2008 (Proj.)

 Remember Randy’s earlier challenge to all of us to remain respectful of our need to be answerable, not only to our owners, but to our clients and to an industry
 Our Board is always ready to talk about their role in leading this firm – reach out to Chris
 Randy is always ready to talk about our team’s accountability and what that means to you – reach out to Randy
 I am always available to give you the dollars and cents background – reach out to me
Bob Frizzle, CFO bfrizzle@cuanswers.com
800-327-3478, ext. 142

Good night!