First West Credit Union 2012 md&a
Comprehensive Financial Analysis
First West credit union 2012 MD&A
Comprehensive Financial Analysis
Balance Sheet Management
Total Assets
Total assets increased $428 million or 7.8% in 2012 compared with 7.4% in 2011. The improved performance was primarily the result
of an increase in personal and commercial loans to members ($421 million or 8.9%). Investments and other assets grew $92 million
or 19.7%.
Loans
Total loans to members increased $424 million or 8.9% compared with 2011. The increase occurred primarily in residential mortgages,
which rose $203 million, or 8%, and commercial mortgages, which increased $139 million or 12%.
Deposit gathering activities
Member deposits increased $405 million, or 8.8%, during 2012. The increase was primarily due to our focus on attracting term deposits,
which increased 7.5% and short-term demand deposits, which increased 10.7%.
At the end of 2012, total borrowings were $464 million, which were comprised of $350 million in third party borrowings, and $112
million in structured borrowings from securitizations in 2011.
Credit Quality
Allowance for credit losses
Our combined balance sheet allowance for credit losses as of December 31, 2012 was $10.2 million compared to $12.1 million in 2011,
a decrease of $1.9 million, or 15.8%.
The year-end allowance for credit losses represents 0.20% of total loans and accrued interest, compared with 0.25% a year earlier.
We believe that the total allowance for credit losses is adequate based on current economic factors and our analysis of the loan
portfolio as of December 31, 2012. In addition to maintaining a collective allowance of 0.13% of loans for losses incurred but not
specifically identified, specific allowances are evaluated monthly on an account-by-account basis. A complete analysis of our allowance
for credit losses, including impaired loans, is provided in Note 9 of the consolidated financial statements.
Capital Management
As of December 31, 2012, the credit union had a capital ratio of 13.4% on a risk-weighted basis. This compares favourably with the
prescribed minimum ratio of 8% of total risk-weighted assets. A complete analysis of our capital management objectives and policies
is provided in Note 5 of the consolidated financial statements.
one
First West credit union 2012 MD&A
$6,000,000,000
$5,500,000,000
$5,000,000,000
$5,500,000,000
$4,500,000,000
$5,000,000,000
$4,000,000,000
$4,500,000,000
$3,500,000,000
$3,000,000,000
$4,000,000,000
$2,500,000,000
$3,500,000,000
$2,000,000,000
$3,000,000,000
$1,500,000,000
$2,500,000,000
$1,000,000,000
$2,000,000,000
$500,000,000
05
06
07
08
09
10 11
05
12
06
07
08
09
10
11
Personal
$5,000,000,000
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
05
06 07
08
Demand
two
09 10
11
12
12
First West credit union 2012 MD&A
Income Statement
Net interest income
In 2012, net interest income—interest and investment income earned on assets less interest incurred on deposits and borrowings—
decreased $1.8 million, or 1.4% to $123.9 million from a year earlier. Net interest income as a percentage of average assets decreased
from 2.39% in 2011 to 2.18% in 2012. First West’s margin remains one of the best in the credit union system in British Columbia.
We are in an era of unprecedented financial margin pressure. Additionally, market competition has increased. These three factors—the
low interest rate environment, flat yield curve and competitive pricing for loans and deposits—have left us with little opportunity to
increase financial margin.
Dividends paid to members by First West remained the same at $1.0 million, compared with 2011.
Non-interest income
Our strategy includes diversifying non-interest income, which comprises all income other than net interest income. A key strategic
focus is on our lines of business that provide insurance, wealth management and automotive financing services.
In 2012, non-interest income made up of fee and commission income and other income decreased $6.3 million, or 7.9%, to
$73.0 million primarily because of lower mortgage renewals fees and loan fees, lower securitization revenue and the elimination of
services and billed fees through inUnison Technology to a third party. Our competitive position offsets the impacts of lower margins,
and our non-margin income is offset by our reduction in operating expenses. As a result, our diversified portfolio has helped us
mitigate the impacts of declining margin and non-interest income.
Operating expenses
Operating expenses in 2012 remained constant at $161 million compared with 2011. Personnel expenses increased $2.1 million,
or 2.3%, to $94.9 million because of higher compensation rates, offset by a reduction in data processing costs which decreased
$2.0 million, or 17.0%.
With our increase in assets and expenses remaining constant, our expense ratio improved to 2.84% from 3.06%. This ratio is calculated
by dividing the expenses by our average assets. It is a critical measure of how well we are able to manage our expenses as we grow our
balance sheet and the credit union.
Operating efficiency
Operating efficiency is the ratio of operating expenses to revenue and is a key measure of our ability to remain economically viable.
In the short-term, operating efficiency gives us the flexibility to respond effectively to competitive pressures in a dynamic marketplace.
Longer term, operating efficiency allows us to maximize financial performance so we can expand into new markets, add new financial products
and services and pay a sustainable dividend to members. These activities also require that we sustain strong asset and deposit growth.
In 2012, our operating efficiency declined to 83.8% from 80.5% in 2011. This resulted from no increase in operating expenses, and a
4.0% decrease in revenue (net interest income and non-interest income combined).
three
First West credit union 2012 MD&A
Income Statement continued
Although we faced challenges in 2012, management is focused on positioning First West to take advantage of opportunities as they arise.
With this in mind, we are decreasing our expenses, including salaries, consulting fees and general administration costs, and investing
strategically in areas that will enable us to better serve our members in the future. Our strategic investments include new branches to better
serve our growing membership, innovative banking technologies that improve access, and additional products that deliver on our brand
promise—Keeping it Simple™—for our members.
Net (After-Tax) Return on Assets
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
05
06
07
08
09
10
ROA (Percentage)
11 12
Membership Growth
Valley First achieved 119%
Envision Financial achieved 111%
four
05
06
07
08
09
10
11
12
First West credit union 2012 MD&A
5-Year Overview - Financial Highlights
($ in thousands)
% growth
Unaudited, Proforma combined
AuditedAuditedAudited
historical performance
2012
2011
2010
2009
2009
Consolidated Balance Sheet
Cash resources
(44.9)%
111,590 202,522
Personal loans
Business loans
Accrued interest
Allowance for credit losses
7.3% 3,721,049 13.1% 1,447,530 7.6%
8,815 (15.8%)
(10,193) 3,467,433
1,280,109
8,194 (12,102) 3,252,189 2,951,517 2,813,739
1,207,186 1,108,077 1,125,981
7,569 7,008
7,391
(12,636)
(16,419)
(17,716)
Total Loans
8.9% 5,167,201 4,743,634 4,454,308 4,050,183 3,929,395
Investments and other
Premises and equipment
TOTAL ASSETS
7.8% 5,886,683 5,458,946 5,080,819 4,672,803 4,524,526
Demand Deposits
Term Deposits
Registered savings plans
Class A shares
Accrued interest and dividends
10.7% 1,432,256 7.5% 2,761,223 10.4%
770,480 (1.0%)
6,455 7.1%
37,034 1,294,388
2,569,089
697,824
6,522
34,588 1,202,024 1,203,954 1,087,668
2,541,308 2,377,079 2,353,032
648,019 573,319
574,727
7,116 7,554
7,422
39,628 34,439
49,943
Total Deposits
8.8% 5,007,448 4,602,411 4,438,095 4,196,345 4,072,792
TOTAL LIABILITIES
Equity shares
Accumulated & other comprehensive income
Contributed Surplus
Retained earnings
43,891 463,848 51,065 445,868
8.2% 5,515,187 5,099,344
(8.1%)
(48.5%)
0.0%
10.8%
40,381 10,688 57,957 262,470 43,961 20,756 57,957 236,928
7.8% 5,886,683 5,458,946 61,363 261,310 376,073
52,478
195,127
466,452 46,338 (14.0%)
4.0%
500,624 48,583 194,069
558,453 49,439 Payables and accruals
Borrowings
19.7%
6.7%
77,304 48,384
146,296
351,404
48,600
70,180
139,716
4,760,768 4,391,025 4,282,688
48,300 9,830 57,957 203,964 52,368
6,351
–
223,059
5,080,819 4,672,803
37,694
12,359
–
191,723
4,524,464
Allowance for Credit Losses
Opening balance
Less: write-offs
Plus: provision
(4.2%)
32.1%
0.0%
12,102 5,659 3,750
12,636
4,284
3,750
11,883 3,189 3,942 17,716
4,271
2,974
13,172
1,504
6,048
Closing balance
(15.8%)
10,193 12,102
12,636 16,419 17,716
five
First West credit union 2012 MD&A
($ in thousands)
% growth
Unaudited, Proforma combined
AuditedAuditedAudited
h
istorical performance
2012
2011
2010
2009
2008
Consolidated Statements of Income
Interest income
Interest expense
Net interest income
0.1%
1.7%
(1.4%)
219,586
95,672
123,914
219,823
94,094
125,729
207,168 80,537 126,631 195,259
101,363
93,896 218,478
137,426
81,052
Provision for credit losses
Non-interest income
Operating margin
0.0%
(7.9%)
(4.0%)
(3,750)
73,028
193,192
(3,750)
79,315
201,294
(3,942) 83,087 205,776 (2,974)
89,773
180,695 (6,048)
80,734
155,738
Operating expense
Net income before income taxes
Income taxes
0.3%
(21.5%)
19.3%
161,799
31,393
4,823
161,314
39,980
5,978
162,241 43,535 10,923 143,518
37,177 5,232
135,051
20,687
2,786
Net income
(21.9%)
26,570
34,002
32,612 31,945 17,901
Financial Statistics (expressed as %)
Asset growth
Loan growth
Deposit growth
Operating efficiency
7.8
8.9
8.8
84.1
7.4
6.5
3.7
80.5
8.7
10.0
5.8
79.2
3.3
3.1
3.0
79.8
5.3
3.8
7.8
87.2
Percent of average assets
Net interest income
Other income Operating expense
Operating return on assets
Net (after-tax) return on average assets
2.18
1.29
2.85
0.55
0.47
2.39
1.51
3.06
0.76
0.65
2.60
1.70
3.33
0.89
0.67
2.04
1.95
3.12
0.81
0.69
1.84
1.83
3.06
0.47
0.41
Other Statistics
Retail branches
39
37
37
37
36
Insurance offices
28
28
30
30
29
Mutual funds under administration ($ in thousands) 1,058,918
969,865
923,512 790,128 669,880
Loans under administration ($ in thousands)
107,222
186,014
252,733 510,171 859,617
Book of business ($ in thousands)
11,340,789 10,501,924 10,068,648 9,533,229 9,514,922
Average assets ($ in thousands)
5,672,815
six
5,269,883
4,876,811 4,598,665 4,411,333
First West Credit Union
6470 201 Street
Langley B.C. V2Y 2X4
604.501.4260
www.firstwestcu.ca
Envision Financial, a division of First West Credit Union
Valley First, a division of First West Credit Union
6470 201 Street
3rd Floor, 184 Main Street
Langley B.C. V2Y 2X4
Penticton B.C. V2A 8G7
604.539.7300
250.490.2720
www.envisionfinancial.ca
www.valleyfirst.com