Moving Cornerstone - Cornerstone Credit Union

Transcription

Cornerstone Credit Union
2012 Annual Report
Moving Cornerstone
Forward
CONTENTS
3
Vision, Mission & Values
4
Welcome Message
7
Our Company
8
Community Investment
13
Operational Review
14
Corporate Structure & Governance
18
Management Discussion & Analysis for 2012
19
Our Business Environment
20
2012 Performance Measurement
20
Balanced Scorecard
21
2012 Financial Performance Review
21
Growth
21
Deposit Growth
21
Loan Growth
21
Investments
22
Credit Quality
22
Liquidity
22
Capital Management
23
Profitability
23
Patronage
24
Enterprise Risk Management
24
Credit Risk
25
Liquidity Risk
25
Market Risk
25
Strategic Risk
25
Operational Risk
25
Legal and Regulatory Risk
25
Capital Risk
26
Summary
26
Credit Union Market Code
27
Co-operative Principles
29
Auditors’ Report
30
Summarized Financial Statements
2012 was all about moving forward.
We provided our members with more
electronic service options, such as
launching a new website, introducing
mobile web, and implementing INTERAC
e-mail transfers+. We continued our
focus on ‘MemberFirst’ and elevating
the member experience in every
aspect. Cornerstone Credit Union
supported over 450 community
groups, events and organizations in
2012 by investing over $248,000
back into the communities we serve.
And to top it all off, 2012 was declared
International Year of Co-operatives
(IYC) by the United Nations! We
celebrated by hosting IYC events in
communities throughout our region.
Moving Our Service
Forward>>
Cornerstone Connect
Financial services over the phone?
Cornerstone Connect makes it
possible wherever you are! It
combines the convenience of
telephone banking with our
friendly and knowledgeable staff,
ready to help on the other end
of the line. Cornerstone Connect
offers everything from basic
information, to loans, to personal
and secure transactions, and
anything else you may need.
All over the phone!
2
➜
our Vision
We are a leader in providing quality, innovative and full financial
solutions to our members. We are known for our integrity and
commitment to people and communities.
our Mission
Partnering in our members’ financial success, Enriching the communities
we serve, demonstrating Excellence and Innovation in all we do.
our Values
Values are the high road that we take.
Values are the cornerstone of our interactions, our decision making
and our steps forward. We value trust, integrity, leadership, excellence,
community and our co-operative principles. These values reflect who
we are as a credit union. Helping each other to succeed is not just how
we do things, it is who we are. We are a family and we work together
for common goals and successes. We constantly learn. We grow from
our experiences. We always take the high road.
Trust
We continue to earn the trust of our
members, our communities and our staff.
People are treated with honesty and
respect. We are their trusted financial
services provider.
Integrity
We have high standards, ethics and personal
accountability. We adhere to our values.
Leadership
We demonstrate and inspire leadership
in our people. We are empowered to
make decisions and are responsible and
accountable in our actions.
Community
Community creates a sense of belonging,
regardless of geographical and tangible
boundaries. We accept our responsibility
for the economic and social well being
of our communities. We are a good
corporate citizen.
As a credit union we are distinct among
financial institutions by our commitment
to the co-operative principles.
As a member-owned organization,
we partner with our members, our
community and the credit union system.
Excellence
We are recognized for our excellence.
“Being good enough” is not acceptable.
We add value to our members’ experience.
Cornerstone Credit Union | 2012 Annual Report
3
Welcome Message
We thank you,
our members for
your continued
business and
support to
Cornerstone Credit
Union in 2012!
On behalf of the Board of Directors,
Management and staff of Cornerstone
Credit Union we are pleased to present our
2012 Annual Report.
Cornerstone Credit Union is the fifth largest
credit union in Saskatchewan, with
$986 million in total managed assets.
Cornerstone Credit Union employs
199 people, serves over 25,000 people and
operates branches in 15 communities within
our region.
The past year was significant as 2012 was
declared International Year of Co-operatives
(IYC) by the United Nations. Credit Unions
and co-operatives celebrated the
co-operative movement across
Saskatchewan and around the world.
Co-operatives have a significant impact
in our province both on the economy and
in our communities. Cornerstone Credit
Union celebrated International Year
of Co-operatives and demonstrated our
commitment to Saskatchewan by hosting
IYC events in our communities throughout
our region. Staff of Cornerstone Credit
Union participated in the Saskatchewan
Co-operative Week of Volunteering,
resulting in lasting benefits for many of
our communities.
Left to right:
Larry Malinowski, President
and Kevin Lukey, CEO
4
As we reflect on the past year we have made
significant improvements to our service
delivery platform providing our members
with more electronic service options, such as
launching a new website, introducing mobile
web and implementing INTERAC e-mail
transfers+; thereby enhancing services for
the added convenience of our members.
With our continued focus on ‘MemberFirst’
we have a dedicated focus on elevating the
member experience at every opportunity
with every member. We aim to provide the
products and services necessary to meet the
changing needs of our members. We invest
in our people by providing training and
resources necessary for them to perform their
job and to provide the best service possible to
our members.
Cornerstone Credit Union remains committed
to the communities we serve; we believe that
investing in our communities is an investment
in our members’ future. We give back with
more than financial support. Our staff
invested over 6,100 hours of their own time
volunteering for numerous groups, events and
organizations.
The business and economic environment we
operate in continues to present challenges for
our organization. Cornerstone Credit Union is
focused on serving the needs of our members
in Saskatchewan however the economic and
business conditions in Canada and abroad
have a direct impact on our credit union
and our financial position. As parts of
the world economy continue to struggle,
Saskatchewan is somewhat insulated
from the impact of the global woes. The
economy in Saskatchewan continues to
remain strong and has been a contributing
factor to the growth Cornerstone Credit
Union has experienced throughout the past
year. Considering the low interest margin
environment we continued to face in 2012,
we were able to manage operating costs,
resulting in profitability (income before
patronage, taxes and other comprehensive
income) for the year of $5.8 million (an
increase from $5.1 million in 2011).
Cornerstone Credit Union is pleased to once
again share the success of our credit union
with our members. Based on the successful
year Cornerstone Credit Union had in 2012,
the Board of Directors is pleased to declare
a patronage allocation of $1 million that will
be paid back to our members and owners.
This payment results in a bonus or rebate
of 3% on interest paid and interest earned
and a refund of 10% of eligible service fees
paid back into the hands of our members,
and owners. Changes to how the member
ownership program will be paid for the 2012
allocation results in more money being put
back into the hands of you, our members.
Cornerstone Credit Union is very proud
of our accomplishments over the past year.
We would not have had the success we did,
without our many stakeholders. We thank
our staff for the dedication, commitment
and the contributions they continue
to provide to Cornerstone Credit Union each
and every day. To the Board of Directors, we
thank them for the guidance, leadership and
direction they provide to our organization.
And we thank you, our members, for your
continued business and support throughout
2012 – you continue to be the reason for
our existence. It is the commitment and
support of all our stakeholders that makes
Cornerstone Credit Union the successful
organization it is today. We truly appreciate
your business and look forward to working
with you and for you for many years to come.
Larry Malinowski
President
Kevin Lukey
CEO
With our continued focus on MemberFirst,
we have a dedicated focus on elevating the
member experience at every opportunity
with every member.
5
Moving Our Community
Forward>>
we invest in the community
Cornerstone Credit Union understands
community leadership is about more
than financial support, it is about leading
the way. We show our support not only
financially but also with the support
of our staff and directors being involved
in various community organizations
and community projects. Cornerstone
Credit Union employees volunteer
thousands of hours each year, and are
leaders in our communities.
6
OUR COMPANY
Cornerstone Credit Union is a locally owned and controlled financial organization.
It is organized and operated on the co-operative philosophy of “One Member - One Vote”.
Cornerstone Credit Union currently serves over 25,000 members with total managed assets
of approximately $986 million. Cornerstone Credit Union serves 15 communities with branches
located in Archerwill, Bjorkdale, Elfros, Kelliher, Ituna, Lestock, Rhein, Rose Valley, Saltcoats,
Springside, Theodore, Tisdale, Wishart, Wynyard and Yorkton.
Cornerstone Credit Union is a regional credit union focused on becoming the primary
financial institution for the people of our region. At Cornerstone Credit Union, it is our vision
to be a leader in providing quality, innovative and full financial solutions to our members.
We are known for our integrity and commitment to people and communities.
Cornerstone Credit Union is a full financial service solutions provider offering core banking
services, financial planning and estate planning services to our members.
Credential Financial Strategies
Credential Financial Strategies offers a variety of protection and investment plans that
complement the financial planning services offered by Cornerstone Credit Union.
Credential Financial Strategies representatives operate in association with all branches
of Cornerstone Credit Union, with office locations in Yorkton and Tisdale.
Credential Financial Strategies Inc. is a member company under Credential Financial Inc.
offering financial planning, life insurance and investments to members of credit unions
and their communities.
Royal LePage Premier Realty
Royal LePage Renaud Realty
Cornerstone Credit Union Financial Group operates two
real estate agencies; Royal LePage Premier Realty, located
in Yorkton and Royal LePage Renaud Realty, located
in Tisdale with a satellite office in Hudson Bay.
The real estate services offered through the professional,
licensed agents at Royal LePage help clients realize their
home buying dreams and secure their future.
Renaud Insurance
Renaud Insurance based in Tisdale provides protection for the things that matter most.
Whether you are looking for protection for your home, property, individual or health
insurance, Renaud Insurance has the coverage you are looking for. Renaud Insurance
is a licensed Wawanesa and GMS insurance agency.
7
COMMUNITY INVESTMENT
Cornerstone Credit Union Community Investment Program
Cornerstone Credit Union is proud to be a community-minded credit union. We believe that
corporate responsibility and social responsibility go hand in hand – we are dedicated
to being good corporate citizens in the communities in which we live and do business.
Cornerstone Credit Union is a proud
supporter of the Tisdale Fat Cat picnic.
At Cornerstone Credit Union, everything we do is about helping our members – and the
communities they live in – thrive and prosper. This is demonstrated through the numerous
donations and contributions that are made throughout the region each year through our
Community Investment Program. In 2012, Cornerstone Credit Union supported over
450 community groups, events and organizations by investing over $248,000 back into the
communities we serve. Cornerstone Credit Union’s community investment program supports
a wide range of initiatives including youth, education, sports, agriculture, arts and culture,
health care, economic development, non-profit organizations and charitable donations.
Volunteering in our Communities
Cornerstone Credit Union believes community leadership goes
far beyond just providing financial support; it is about leading
the way and making a difference in our communities. What
happens in our towns and cities matters to us as a business
and it matters to us as people. It only makes sense that we roll
up our sleeves and get involved in the communities we serve;
it’s an essential part of who we are! Cornerstone Credit Union
employees volunteer thousands of hours each year, and are
leaders in our communities. In 2012, Cornerstone Credit Union
employees demonstrated this commitment by investing over
6,100 hours of volunteer time to worthwhile local community
organizations and initiatives.
Yorkton was a proud supporter
of Movember in 2012!
8
Member Research
Cornerstone Credit Union has a continued
focus on delivering the best service possible
to our members and owners. Through our
MemberFirst initiative, Cornerstone Credit
Union strives to elevate our service to create
a positive member experience each and every
time our members do business with us. The
best measure of how well we are doing is
by asking for feedback directly from you,
our members.
In 2012, Cornerstone Credit Union engaged
a third party supplier to conduct a research
project to determine the Net Promoter Score
(NPS) for Cornerstone Credit Union. NPS
research provides a measure of customer
loyalty, based on the fundamental perspective
that every company’s customers can be
divided into three categories: Promoters,
Passives and Detractors. By identifying and
tracking these categories, it provides us with
a better measurement of our performance
through the eyes of our members and owners.
The Net Promoter Score for Cornerstone Credit
Union for 2012 was 7.7%. The results from the
2012 survey decreased from 27.2% in 2011. Net
Promoter Score is market related therefore
results can be impacted by the competition,
the market and the environment around
us. While this year’s Net Promoter Score did
not meet our target, we were pleased to see
improvements in our key attribute areas.
The premise for NPS research is based on
respondents rating the importance of 20 key
attributes. The respondents then rate the
performance of Cornerstone Credit Union
on those same attributes. In regards to the
overall attributes, Cornerstone Credit Union
rated very well indicating that we are doing
a number of things right. Based on the rating
of the key attributes, we do not believe
the customer experience and member
satisfaction levels have declined to the extent
that the NPS indicate; however this does
require further analysis.
The Saskatchewan Credit Union system
conducts provincial market research
focusing on public opinion and market
data as it relates to banking habits, needs
and expectations. This year’s provincial
study indicated that consumers were
generally very happy with the overall level of
service provided by their primary financial
institution; however satisfaction ratings have
fallen since 2010. This is consistent with other
industry studies that have shown a drop
in overall satisfaction and a widening of
the gap in satisfaction between credit unions
and banks.
There is a lot to learn from the results
of the 2012 NPS study, and we are not taking
the results of this year’s ratings lightly.
These scores are derived from feedback
provided from our members, so we need to
better understand what they are telling us.
The results of the NPS study will be further
analyzed to better understand the results
so that we can develop strategies to improve
our member experience.
Fat Cat getting a hug at
the Bjorkdale Fat Cat Picnic!
Theodore Staff after a day of planting
and beautifying the town.
9
ipsos Best Banking Awards reveals consistent strength of credit unions
For an eighth consecutive year, Canadians ranked credit unions first in overall Customer
Service Excellence among all financial institutions in the 2012 Ipsos Best Banking Awards.
Credit unions also took sole honors in two other categories: Branch Service Excellence for
the 8th year in a row and Values My Business for the 5th year in a row. Canadian credit unions
also tied for first place among all financial institutions for Financial Planning & Advice
and Telephone Banking Excellence. The above mentioned honours are the same five award
categories credit unions were recognized for in 2010 and 2011.
The results of the Ipsos Customer Service Index reaffirm what Cornerstone Credit Union and
other Canadian credit unions have always believed to be true; while the products and services
we offer are an integral component of our business, the most important focus continues to
be our dedication and focus on our members and owners.
Launched in 1987, the Ipsos (formerly Synovate) Customer Service Index (CSI) quarterly survey
generates the winners of the annual Best Banking Awards. The Ipsos 2012 Best Banking
Awards are based on quarterly Customer Service Index (CSI) survey results. Sample size for
the total 2012 CSI program year ended August 2012 was 43, 202 completed surveys yielding
63,570 financial institution ratings.
International Year of Co-operatives
2012 was declared the International Year of Co-operatives (IYC) by the United Nations. IYC was
a once-in-a-lifetime opportunity worldwide to celebrate and recognize the enormous impact
that co-operatives have in our communities. With over one million memberships held in
co-operatives in Saskatchewan, and billions of dollars generated each year, co-operatives
are a thriving and powerful force in our province.
In celebration of 2012 being International Year of Co-operatives there were a range of local,
provincial and national initiatives planned to promote the value of co-operatives and to leave
a lasting legacy to mark the year. Cornerstone Credit Union is proud to be part of a credit
union system serving 188 million members worldwide, in 53,000 credit unions across
100 countries.
Co-operative Facts:
• There are well over one million
memberships in financial and non-financial
co-operatives held by residents
of Saskatchewan.
• In Canada, four of every ten Canadians,
or 18,000,000 people, are members
of at least one co-operative.
• Canada has the highest per-capita credit
union membership in the world with
33% of Canadians being members of at
least one credit union.
• There are over 1,000 co-operatives in
Saskatchewan, including 60 credit unions.
• Co-operatives provide jobs for over
10,000 people in Saskatchewan.
10
Cornerstone Credit Union joined other co-operatives to celebrate the economic and social
successes of people working together. To celebrate this and demonstrate our co-operative
principle of concern for community, all co-operatives in Saskatchewan were encouraged
to participate in the Saskatchewan-wide Co-operative Week of Volunteering, May 28 – June
3, 2012. During this week, Cornerstone Credit Union employees volunteered in their local
communities doing a wide range of activities such as town clean ups, planting flowers
to beautify the town, volunteering at the Soup Haven, and partnering with other local
co-operatives to host community barbecues and donating the proceeds. Co-operative
Week of Volunteering brought co-operatives together to strengthen our communities
while building relationships and highlighting the contributions of the co-operative
community. The work completed by these groups was a legacy of International Year
of Co-operatives in our communities.
A focus for IYC was to engage our members; we even engaged our youth by providing the
opportunity to our local schools to submit a video on the topic of what a co-operative means
to them. During Co-op Week, October 14 – 20, 2012 each branch of Cornerstone Credit Union
hosted an in-branch event in celebration of Credit Union Day (October 18). Members were
also encouraged to enter our “12 Great Reasons to be a Member of Cornerstone Credit Union”
contest. The reasons submitted were overwhelming, and proved that Cornerstone Credit
Union is doing its part to build a better world.
12 Great Reasons to be
a Member of Cornerstone
Credit Union
At Cornerstone Credit Union, we work hard to be a financial
institution that understands the needs of Saskatchewan
people. With 25,000 members and growing, we’ll continue to
keep your needs and the good of the community at heart.
1. Members always come first.
At Cornerstone Credit Union, good service is not enough –
we strive for excellence! We focus on better services and the
personal touches that matter.
2. We invest in 3. When we profit,
the community.
We don’t just talk the
talk. We support local
groups, clubs and
events that contribute
to the well-being of our
communities.
you profit.
At Cornerstone Credit Union,
any profits we make go back
to members in the form of
dividends, improved services,
financial reserves and
community donations.
4. We know our stuff.
Our team of professionals are always willing to share
their knowledge and expertise to help you achieve your
financial goals.
Moving Cornerstone
Forward>>
5. We care.
We’re not only your financial
institution; we’re your friends
and neighbours. We live here
and volunteer thousands
of hours to our communities
each year.
6. One-stop shop.
We’ve got the people and
services to take care of
all your financial needs.
Everyday banking, insurance,
investments, estate planning,
real estate and more — there’s
no need to go anywhere else.
7. We’re local.
Decisions are made right here at home because
we understand the financial needs of
Saskatchewan people.
8.
You elect the Board
of Directors.
The Credit Union is democratically owned and
controlled by its members on the basis of one
member, one vote. They are your representatives
and are available to you whenever the need arises.
9. Your voice matters.
As a member and an owner, your feedback helps
us set policy and continually improve our products
and services.
10.
We’re
committed to you.
We have families that have
been Cornerstone members
for generations. We appreciate
their loyalty and in return, will
do everything we can to keep
that trust.
11. 100% secure.
Credit union members know that
their money is as safe as it gets
with the 100% deposit protection
with Credit Union Deposit
Guarantee Corporation. We keep
your money safe.
12. 2012 is International Year of Co-operatives!
There has never been a better time to join Cornerstone Credit Union. We
partner in your financial success, enrich the communities we serve, and
demonstrate excellence and innovation in all we do.
11
Moving our Technology
Forward>>
NEW WEBSITE
& MOBILE BANKING
to providing our members with the service they
want and deserve; our electronic service delivery
platforms were enhanced significantly in 2012. A new
member-friendly website was launched in early 2012.
Following the website, mobile web was launched
offering the same online banking functionality that
is available through MemberDirect online banking
but optimized for a small screen on a mobile phone.
12
2012 Operational Review
Cornerstone Credit Union serves
approximately 25,000 members
through a network of 15 branches,
employing 199 staff with total managed
assets of $986 million.
to providing our members with the service
they want and deserve; our electronic service
delivery platforms were enhanced significantly
in 2012. A new member-friendly website
was released in early 2012. Following the
website, mobile web was launched offering
the same online banking functionality
that is available through MemberDirect
online banking but optimized for a small
screen on a mobile phone. AccountPlus was
implemented allowing MemberDirect online
banking users to link investment accounts
into MemberDirect, and a single sign on to
Credential Direct. Interac e-Transfers+ were
introduced in the fall, allowing members to
send or receive money to or from anyone with
an email address or mobile phone number and
a Canadian financial institution account.
Our electronic service delivery has advanced
significantly in the past year.
Cornerstone Credit Union was thrilled to
partner with seven other credit unions in
Saskatchewan to increase branch connectivity
for our members. A new service called, Credit
Unions Connect ensures members will have
access to the services they need and deserve,
regardless of where they are located. Members
of Cornerstone Credit Union now have the
added convenience of visiting any branch of
Advantage, Conexus, Diamond North, Horizon,
Innovation, Synergy or Weyburn Credit
Unions to conduct their financial transactions
without any additional costs. Through this
extensive branch network, our members
can now receive service in 135 credit union
branches in 115 different communities across
Saskatchewan. Our hope over the next year is
to expand this network through partnerships
with other credit unions to make Credit Unions
Connect a provincial service in an effort to
serve you even better!
While electronic channels are becoming an
increasingly popular way for members to
conduct their affairs, personal relationships
are still important at Cornerstone Credit
Union. 2012 marks the first full year of service
provided through Cornerstone Connect, our
new contact centre. Cornerstone Connect
has grown from 5 contact centre service
representatives at the beginning of 2012 to
7.5 representatives at the end of 2012. While
there have been growing pains with this new
and expanding service, we are responding
to over 5,000 inbound calls per month. The
contact centre provides financial services
to our members six days a week, with service
offered beyond our regular branch hours
of operation. The contact centre is the largest
service delivery enhancement that has
been implemented since our inception as
Cornerstone Credit Union.
Cornerstone Credit Union has a continued
focus on MemberFirst; with an effort to
provide the best service possible to our
members while meeting the changing needs
of our members. In 2012, we introduced
REACH, our new laddered investment
strategy providing a preferred investment
solution to help members maximize their
investment returns. As well, significant
time and resources were dedicated to staff
education and staff product training to
improve the level of service we provide
to our members.
In an industry that has undergone major
transformation in recent years, particularly
with the heightened use of technology; the
physical branch office is the last of service
offered in the traditional form. The branch
service channel continues to be important;
however, similar to every other facet of
the finance industry, the branch service
channel has changed considerably and we
must understand the changing environment
to prepare for the next evolution in retail
service delivery. A thorough branch review
process was conducted in 2012, resulting
in tough decisions having to be made.
The announcement was made to close the
Rhein and Wishart branches and to reduce
the level of branch service to three days
per week in Bjorkdale, Elfros and Lestock
branches; all changes take effect February
4, 2013. The volume of business, as well as
transaction volumes, in these branches has
steadily decreased over the past number
of years. Many of our relationship services
are being dealt with by specialists from a
different branch location. We are making
these changes to our branch service delivery
as the current volume of business does not
justify a full service branch. As a community
based organization, we understand the impact
these changes have on our communities. The
intent of the changes is to deploy our people
more effectively, to meet the new service
expectations of members and potential
members by directing the right resources to
the right places at the right time…it’s about
organizational MemberFirst.
Cornerstone Credit Union implemented an
innovation strategy with an increased focus
on finding efficiencies and innovative ways
to do things throughout the organization. We
have challenged staff to stop and ask “why are
we doing things this way” or “is there a better
way this could be done” to find new ways to
do things that may save time or money to
make us a more efficient organization. With
a focus on cost containment and internal
efficiencies, the organizational operating costs
have improved in 2012 in relation to total
assets, operating expenses ended 2012 at
3.04% of assets compared to 3.11% of assets in
2011. These efficiencies are being reinvested
back into MemberFirst, in order to elevate the
service that is provided to you, our members.
13
The governance of Cornerstone Credit Union is anchored in the co-operative principle of democratic
member control. Cornerstone Credit Union’s philosophy on corporate governance is to practice transparency
in operations and maintain a professional approach and accountability in dealing with our members. The
Credit Union has always focused on maintaining the highest standards by conducting its affairs ethically and
lawfully and by sustaining a culture of integrity and professionalism.
BOARD OF DIRECTORS
MANDATE AND RESPONSIBILITIES
The Board of Directors of Cornerstone
Credit Union is responsible for the strategic
oversight, business direction and supervision
of management of Cornerstone Credit Union.
In acting in the best interests of the Credit
Union and its members, the board’s actions
adhere to the standards set out in The Credit
Union Act 1998; the Credit Union Regulations,
1999; Standards of Sound Business Practice;
Credit Union bylaws and policy; and other
applicable legislation.
The board directs the affairs of the Credit
Union and maintain policies which are
responsive to their needs and the needs of the
Credit Union for sound operations.
The key roles of the board include formulation
of strategic business plans; setting goals,
evaluating the performance of the CEO;
approving corporate mission, vision and values;
monitoring corporate performance against
strategic business plans; overseeing operations;
ensuring compliance with laws and regulations;
keeping members informed regarding plans,
strategies and performance of the Credit
Union; and other important matters. During the
financial year 2012, the Board of Directors held
eleven meetings.
Board of Directors
Pictured in the photo from top, left to right:
Val Hvidston, James Knudson, Larry Malinowski,
David Bone, Robert Wilson, Lorne Tarasoff,
Ken Sherwin
Pictured in the bottom, left to right: Jack Powell,
Cheryl Denesowych, Harold Sigfusson,
Bonnie Derkatz-Olson
Missing: Lonnie Kaal
The Board of Directors elected for the terms and districts in 2012, as set forth in the Credit
Union bylaws are as follows:
District One – Tisdale / Archerwill / Bjorkdale / Rose Valley
David Bone, Bonnie Derkatz-Olson, Val Hvidston, James Knudson, Robert Wilson
District Two – Wynyard / Wishart / Lestock / Kelliher / Ituna / Elfros
Harold Sigfusson, Lorne Tarasoff
BOARD COMPOSITION
The board is comprised of twelve individuals
elected on a district governance structure.
Terms are three years in duration. In
accordance with the bylaws, the Governance
Committee is responsible for the nomination
process and election of directors. Voting is
by paper ballot during in-branch elections and
election results are announced at Cornerstone
Credit Union’s annual general meeting.
14
District Three – Yorkton / Theodore / Rhein / Saltcoats / Springside
Cheryl Denesowych, Kevin Elmy (Resigned position May 2012), Lonnie Kaal (October-Present),
Jack Powell, Ken Sherwin, Larry Malinowski
In 2010-2011, the Board of Directors reviewed the governance structure to determine the
appropriate size of the board best suited to fulfill the board’s responsibilities. At the
2011 Annual General Meeting, the membership approved a revision to Cornerstone Credit
Union Bylaws, which included the reduction of 14 board members to 12 board members
and a reallocation of district representation through a transition process in 2012-2013.
The following reflects the changes to Directors in the Districts.
District 20122013
*Following AGM
*Following AGM
District One: Tisdale, Archerwill, Bjorkdale, Rose Valley
5
4
District Two: Wynyard, Wishart, Kelliher, Lestock, Ituna, Elfros
2
3
District Three: Yorkton, Theodore, Rhein, Saltcoats, Springside
5
5
Total
12 12
BOARD COMMITTEES
The responsibilities of the board of a modern financial services
organization involve an ever-growing list of duties. Cornerstone Credit
Union maintains a number of committees comprised of directors. This
partitioning of responsibilities enables a clear focus on specific areas
of activity vital to the effective operation of the Credit Union.
Cornerstone Credit Union has four standing committees to assist
in fulfilling board responsibilities:
• The Executive Committee, which met twice in 2012, is comprised
of the President, 1st Vice-President, 2nd Vice-President and
an elected board member at large. The purpose of the Executive
Committee is to assist the Board of Directors in discharging its
oversight responsibilities relating to board and board committee
oversight; compensation oversight; overseeing matters related
to the employment of the CEO; CEO performance management;
and succession planning oversight. The Executive Committee also
acts in the capacity of, and on behalf of the Board of Directors
between regular or special board meetings on all board matters
except those which the board may not, in compliance with legislative
requirements, delegate.
Attendance
Board Service 2012
Director
Board Meetings
Committee Meetings
David Bone
10 of 11 (91%)
9 of 9 (100%)
Cheryl Denesowych
Governance Chair
10 of 11 (91%)
6 of 6 (100%)
Bonnie Derkatz-Olson
*1 missed due to technology issue
7 of 8 (81%)
4 of 5 (80%)
*elected to the Board in March
• The Audit and Risk Committee, which met six times in 2012,
is comprised of five members from the board at large. The purpose
of the Audit and Risk Committee is to ensure an independent review
of the Credit Union’s operation on areas deemed necessary
to maintain the integrity of financial data, adequacy of internal
controls and adherence to requirements of The Credit Union Act,
1998, The Credit Union Regulations, 1999, The Credit Union Insurance
Business Regulations, and the Standards of Sound Business Practice.
The committee will also ensure that the Credit Union’s enterprise risk
management framework is appropriate to optimize liquidity, market,
credit, legal and regulatory, operational, and strategic risk for
the protection and creation of shareholder value.
Kevin Elmy
1 of 6 (17%)
*Resigned May 2012
0 of 2 (0%)
Les Hayward
*Retired March 2012
2 of 3 (67%)
0 of 1 (0%)
Val Hvidston
Audit & Risk Chair
9 of 11 (82%)
5 of 6 (83%)
Lonnie Kaal
2 of 2 (100%)
2 of 2 (100%)
*appointed to the Board in October
James Knudson
Conduct Review Chair
10 of 11 (91%)
Larry Malinowski
11 of 11 (100%)
Board Chair
3 of 3 (100%)
Ex-Official 9 of 9 (100%)
• The Governance Committee, which met three times in 2012,
of the Governance Committee is to ensure that an appropriate
governance system is in place through corporate governance
policies, the nominations and election process, the board committees
structure, and board assessment and development processes.
Winston Newman
*Retired March 2012
3 of 3 (100%)
1 of 1 (100%)
Jack Powell
9 of 11 (82%)
7 of 8 (88%)
Ken Sherwin
9 of 11 (82%)
8 of 9 (89%)
*1 missed due to technology issue
Harold Sigfusson
11 of 11 (100%)
6 of 6 (100%)
Lorne Tarasoff
10 of 11 (91%)
5 of 6 (83%)
Lester Willerton
*Retired March 2012
3 of 3 (100%)
2 of 2 (100%)
Robert Wilson
10 of 11 (91%)
6 of 6 (100%)
• The Conduct Review Committee, which met twice in 2012,
of the Conduct Review Committee is to ensure that all proposed
related party transactions with the Credit Union are fair to the Credit
Union and that best judgment is exercised in all matters of related
party relationships. The committee also ensures that an appropriate
Credit Union Code of Conduct is maintained.
5 of 8 (63%)
(NOTE: Re-organization of committees took place in April 2012.)
15
The Asset Liability Management
Committee (ALCO) is comprised
of executive management and select senior
management of Cornerstone. The ALCO
Committee is responsible for understanding
and monitoring liquidity risk, interest rate
risk, credit exposure and overall balance
sheet structure of the Credit Union.
The Committee ensures balance sheet
activities and measures are within acceptable
limits included, but not necessarily limited
to capital adequacy, lending and investment
limits, liquidity risks, and interest rate
risk. Furthermore, the committee sets
and approves balance sheet operational
strategies with a focus on achieving financial
targets, managing market and liquidity risk
and optimizing the use of capital.
Executive Management
Pictured in the photo from left to right: Doug Jones, Carissa Yaholnitsky, Cliff Trombley, Kevin Lukey,
Corvyn Neufeld, Lori Walsh, Bryan Furber
DIRECTOR TRAINING
EXECUTIVE MANAGEMENT
It is the policy of the Board of Directors
to provide necessary opportunities for
personal and professional self-development
of the board. Cornerstone Credit Union
has a Director Development policy in place
that pertains to the training, education,
and development of Directors. This may be
obtained by attending meetings, conferences
and educational sessions that will provide
training and understanding of both broad
and technical issues, which will assist in the
development or operation of the Credit Union.
Cornerstone Credit Union has an experienced
executive management team. Executive
management is responsible to oversee the
operations of the credit union within the
context of strategies and policies approved
by the board, and for developing processes
that identify, measure, monitor and control
risks. Management reports performance
in key areas to the board on a regular basis.
In 2012, five board members attended
the 2012 Canadian Credit Union Conference
held in Vancouver, BC. Five board members
also attended the Build a Better West
Conference for Co-operatives in Saskatoon, SK.
A number of directors also completed Credit
Union Director Achievement and CUSource
courses. In 2012, 34 courses were completed
by the Board of Directors.
The Executive Management team
is comprised of the following:
Kevin Lukey
Chief Executive Officer
Cliff Trombley
ice President of
V
Corporate Services
& Support
Bryan Furber
Vice President of Finance
Corvyn Neufeld
ice President of Human
V
Resources
Lori Walsh
ice President
V
of Marketing & Strategic
Solutions
Doug Jones
(Sept-present)
ice President
V
of Retail Services
Betty Bauhuis
(Jan-Sept)
ice President
V
of Retail Services
EVALUATION
The Board of Directors conducts an evaluation
bi-annually to assess the effectiveness of board
operations; there was not a formal evaluation
conducted in 2012, however there is one
scheduled to take place in January of 2013.
Carissa Yaholnitsky Executive Assistant
16
The ALCO Committee met three times in 2012
and was provided quarterly reports which
included trend analysis of all risk measures
and policy comparisons.
The Information Technology Governance
Committee (ITGC) is comprised of executive
management and the AVP of Technology.
The ITGC Committee plans, approves,
prioritizes, and directs Cornerstone Credit
Union IT initiatives. The ITGC Committee
ensures that internal and external customer
needs and expectations for IT solutions are
met, IT risks are identified and mitigated,
and best value is secured as measured
by functionality, efficiency, timing, and cost
to meet both business and IT needs. The
IT Governance Committee met three times
in 2012.
It is the policy of the
Board of Directors
to provide necessary
opportunities
for personal
and professional
self-development
of the board.
memberfirst
Moving Our Members
Forward>>
Cornerstone Credit Union has a continued focus on
delivering the best service possible to our members,
and owners. Through our MemberFirst initiative,
Cornerstone Credit Union strives to elevate our service to
create a positive member experience each and every time
our members do business with Cornerstone Credit Union.
The best measure of how well we are doing is by asking for
feedback directly from you, our members.
Management
Discussion & Analysis
for 2012
18
Management Discussion and Analysis for 2012
This Management Discussion & Analysis (MD&A) is presented
to enable readers to assess material changes in the financial
condition and operating results of Cornerstone Credit Union
(the Credit Union) for the year ended December 31, 2012,
compared with prior years. This MD&A is prepared in conjunction
with the Consolidated Financial Statements and related Notes for
the year ended December 31, 2012, and should be read together.
Unless otherwise indicated, all amounts are expressed
in Canadian dollars and have been primarily derived from
the Credit Union’s annual Consolidated Financial Statements
prepared in accordance with International Financial Reporting
Standards (IFRS).
This MD&A may contain future-looking statements concerning
Cornerstone Credit Union’s future strategies. These statements
involve uncertainties in relation to prevailing economic,
legislative and regulatory conditions at the time of writing.
Therefore, actual results may differ from the future-looking
statements contained in this discussion.
OUR BUSINESS ENVIRONMENT
Although Cornerstone Credit Union is focused
on serving the needs of its members
in Saskatchewan, the economic and business
conditions in Canada and abroad can impact
the trading area of the Credit Union and its
financial position. National and international
economic conditions can impact currency
rates, interest rates, and monetary policy
of the Bank of Canada. These factors,
combined with fluctuations in capital markets
and competition, can impact the market share
and price for the Credit Union’s products and
services and, in turn, affect its performance.
The world economy continues to struggle.
Financial woes continue in Europe, with
banks struggling to survive and countries
struggling to overcome recession and
the fiscal difficulties associated with it.
Numerous European countries have had
their debt downgraded by rating agencies.
Asia is also struggling with recession
in Japan and a slow-down in China. Canada
is impacted not only because these countries
are our trading partners, but also because
international monetary policy is changing
as a result and Canada, and its financial
institutions, will have to follow suit.
The economic climate in North America
is slightly better off than that in much
of the rest of the developed world. The
U.S. economy continues to improve, albeit
at a snail’s pace. Unemployment fell over
the course of the year from 8.5% to 7.7%
and housing starts have been positive.
Uncertainty has become a large part
of financial life in the States. The looming
“fiscal cliff” has caused much angst in the
economic community and there is little
doubt that “fiscal belt tightening” will
be the focus for government for some years
to come. Continued high unemployment
and lackluster consumer confidence leave
significant room for improvement. Given
the stated position of the U.S. Federal
reserve that rates will remain low while
unemployment rates remain above 6.5%,
it is unlikely that rates in the U.S. will increase
prior to 2015.
Canada’s federal monetary policy
continues to be greatly influenced by what
is happening in the global marketplace.
Canada experienced periods of relatively
strong growth and periods of weaker
growth throughout the year. Consumer debt
continues to expand as Canadians become
complacent with the low interest rate
environment. The strength of the Canadian
dollar also causes concern. While of benefit to
cross border shoppers, the high dollar can be
detrimental to our manufacturing and export
businesses. Because of these concerns, it
is likely that Canada will eventually break
away from the strong tie to the U.S. fiscal
policy and begin to raise interest rates prior
to a comparable increase south of the border.
Even so, significant changes to our interest
rate environment are not expected before
late 2013 or into 2014.
Saskatchewan continues to be somewhat
insulated from the impact of the global
woes. The province’s population continues
to grow, with associated increases in housing
starts. Strong retail sales growth and low
unemployment rates continue to make this
province an attractive place to call home.
While there has been some pull back /
slow-down in the investment in potash mines
due to lack of demand globally, it is still
expected that natural resource commodity
prices will remain at attractive levels
and continue to support economic activity
in Saskatchewan throughout 2013
and beyond. Investment in areas like
the Bakken oil fields and the potash mines
around Esterhazy is expected to continue
throughout 2013. While 2012 was not
as positive a year agriculturally as 2011, it
was still a positive year for most of our
farming members and indications for 2013
are also positive. This is welcome news
for the credit union as agriculture is still
a major driving factor in our trading areas.
19
2012 PERFORMANCE MEASUREMENT
Cornerstone Credit Union uses a balanced scorecard framework
to measure and monitor our progress towards achieving our
strategic objectives. The scorecard utilizes both financial
and non-financial measures along four strategic themes: Culture,
People and Community; Member and Client Solutions; Organizational
and Financial Strength; and Business and Management Processes.
2012 Balanced Scorecard
Strategic Themes
Culture, People and
Community
Member & Client
Solutions
Organizational
and Financial Strength
Business and
Management Processes
Performance Measures
Actual
5.23%
Target
3.00%
Volunteer Time Hours
6125
5000
Employee Cultural Assessment
(Average response out of 5)
4.23 / 5.00
4.00 / 5.00
• Be the financial solutions service provider of choice
• Ensure that we demonstrate a member-centric approach through
service excellence and providing solutions that fit the member
• Build and strengthen relationships with our members and clients
• Ensure the organization is proactively positioned to pursue
emerging business lines
Deposit Growth%
4.10%
6.50%
Loan Growth %
10.06%
11.50%
Retail Off Balance Sheet Growth
16.03%
10.00%
• Ensure a balanced approach for the long term growth and
viability of Cornerstone
• Manage enterprise risk
• Ensure the organization has a capital position that enables it to
implement the business plan
Operating Return on Average Assets
0.78%
0.70%
Tier 1 Capital %
7.82%
7.40%
Delinquency %
0.15%
< 1.25%
• Ensure service excellence
• Demonstrate management excellence
• Ensure corporate effectiveness
• Ensure organizational competencies are in place to implement
the business plan
Efficiency Ratio
79.46%
80.00%
Employee understanding of
direction & effective internal
communication
4.24/5
4.00/5
Audit Reports (Rating)
Acceptable +
Acceptable
• Be recognized as the employer of choice
• Develop an organizational constructive culture that fosters innovation
and diversity
• Provide an environment where members are able to succeed
• Develop people (members, employees, board)
• Empower people and support leadership
• Instill a sense of engagement, ownership and pride in the work
we do for the benefit of our members
• Contribute to and strengthen our communities
Community Investment
(% Pretax)
(Actual calculations are performed by using internal financial reporting.)
Total assets under administration by
the credit union at December 31,
2012 were approximately
$986 million.
20
2012 FINANCIAL PERFORMANCE REVIEW
Growth
Cornerstone Credit Union ended December
31, 2012 with on book assets of $807 million
compared to $764 million in 2011, representing
growth of 5.56%.
Total assets under administration by the
Credit Union at December 31, 2012 were
approximately $986 million, representing
annual growth of approximately 8%. This
includes on book assets, wealth management
assets, credit union owned investments
managed through our branch of Credential
Securities and interest rate swaps. Off book
wealth management assets grew at an annual
rate of 16% to $116 million and the notional
value of interest rate swaps doubled from
$25 million to $50 million.
growth rate. Consumers grew term and
demand savings type deposits due to
a strong desire to keep investments safe
in the current economic environment.
The slower than average on book growth
attributed to the improved market for
off-balance sheet deposits.
The Credit Union’s on book deposits are
100% guaranteed by the regulator of credit
unions in Saskatchewan, Credit Union
Deposit Guarantee Corporation (CUDGC).
Loan Growth
Accounting for more than 77% of total onbook assets, loans amounted to $625 million
at December 31, 2012; an increase of
$57 million or approximately 10% over
prior year. The following illustrations show
the breakdown of our total loan portfolio
by sector.
Consolidated Loans by Sector
Asset Growth
$1000m
$986m
$700m
$625m
$912m
$900m
$568m
$800m
$800m
$525m
$486m
$751m
$442m
$712m
Loans totaled
$700m
$350m
$600m
$500m
10.44%
15.37%
Investments
Investments totaled $132 million at December
31, 2012, a decrease of $11 million or 8%
from prior year. The decrease was due to
strong loan demand. The majority of the
Credit Union’s investments are held with
SaskCentral or Concentra Financial Services
(a credit union company). Credit unions are
required by CUDGC to maintain on deposit
with SaskCentral for the Provincial Liquidity
program an amount equal to 10% of their
member deposit liabilities. In addition
to these Statutory Liquidity Investments,
the Credit Union maintains a high quality,
liquid pool of investments to satisfy payment
obligations and protect against unforeseen
liquidity events. In addition to its securities
held with SaskCentral and Concentra
Financial Services, investments are also
largely held in securities that are guaranteed
by the Government of Canada, Provincial
Governments and the “big five” charted banks.
$175m
2008 2009
2010
2011
2012
On Mortgage
Book Assets
Ag
Consumer
Mortgage
Off Book Assets
Commercial Mortgage
Deposit Growth
26.98%
Ag Non-Mortgage
The Credit Union’s
liabilities consist primarily
of member deposits.
Deposits
totaled
Consumer
Non-Mortgage
$728 million at December 31, 2012, an increase
Commercial Non-Mortgage
of 4% from prior year. Deposit growth lagged
expectation due to weaker than anticipated
agricultural economics (production related)
and a slower than anticipated commercial
2009 2010
2011
2012
Ag Mortgage
Consumer Mortgage
Commercial Mortgage
Ag Non-Mortgage
Consumer Non-Mortgage
$625
million
at December 31, 2012,
an increase of
$57 million from
prior year.
21
Credit Quality
Income before
allocations
(Income Tax
& Member
Patronage)
for the year was
$5.8 million,
an increase from
$5.1 million
in 2011.
As a credit granting organization, credit
quality is a key risk management area
of Cornerstone Credit Union. Despite the
potential impacts of the ongoing financial
crises and economic conditions, the Credit
Union’s standard credit quality measures
have remained very strong. Delinquency
greater than 90 days was .15% of loans at
December 31, 2012, a decrease from .31% in
the prior year. This compares very favorably
to the 4.00% maximum standard established
by CUDGC. The Credit Union monitors
its exposure to potential credit losses and
maintains both specific and collective loan
allowances accordingly. Specific allowances
are reviewed regularly by examining
the individual loans and estimating the
likelihood of realizing the full carrying value.
Collective allowances are calculated using
management’s judgment while considering
current economic conditions and historical
losses. The quality of the credit portfolio was
also confirmed by both internal and external
audit processes conducted in 2012.
Liquidity
One of Cornerstone Credit Union’s primary
objectives is to prudently manage liquidity
to ensure that the Credit Union is able
to generate or obtain sufficient cash
or cash equivalents in a timely manner
and at a reasonable price, to meet
commitments as they come due, even
under stressed conditions.
The Credit Union has developed a liquidity
plan in support of its liquidity policy and
regulatory guidance. The liquidity plan
undergoes regular reviews and is approved
by the Board of Directors. As per the plan, the
Credit Union maintains a stock of liquid assets
while regularly measuring and monitoring
its available liquidity, and performs stress
tests to identify sources of potential liquidity
strain. The Credit Union also maintains
external borrowing facilities to complement
its liquidity management process. During
2012, the Credit Union became an approved
issuer under the National Housing Authority
Mortgage Backed Securities (NHA MBS)
Program and an approved seller under the
22
Canada Mortgage Bond Program. These
approvals basically grant the Credit Union the
right to pool and sell loans to the public. The
Credit Union uses these programs both to aid
in managing its liquidity and to help manage
interest rate risk. In the last half of the year,
two issuances were completed under the
NHA MBS program. As a result, the Credit
Union incurred securitized debt. The balance
outstanding at December 31, 2012 was
$9.5 million.
The Credit Union’s liquidity is measured
by an operating liquidity ratio which
considers projected cash inflows as a
percentage of projected cash outflows.
This ratio fell further in 2012. At December
31, 2012, the ratio was 74%; for 2011 fiscal
year end it was 90%. Throughout 2012, loan
demand was funded primarily by deposits
from credit union members and to a lesser
extent by maturing investments and the
entrance into the NHA MBS marketplace.
The Credit Union maintains a line of credit
with SaskCentral in the amount of $10 million
to manage clearing and settlement and
unforeseen funding needs. At December 31,
2012 this credit facility was not in use.
Capital Management
One of the primary measures of financial
strength of any financial institution is
its capital position. Credit unions measure
capital adequacy using two measures.
The first is a simple comparison of Tier
1 Capital to total assets (leverage test)
and the second compares eligible Capital
to risk weighted assets (risk based test).
Credit unions operate in a highly regulated
environment where CUDGC sets regulatory
guidelines to which credit unions must
adhere. The guideline requires that each
credit union hold a minimum Tier 1 Capital
ratio of 5% and a minimum risk weighted
ratio of 8%. During 2009, CUDGC issued a
statement indicating that, during this period
of economic uncertainty and low interest
rate environment, credit unions would be
considered adequately capitalized with a
Tier 1 ratio of 7% and a risk weighted capital
ratio of 10%. CUDGC is currently reviewing
its standards and it is anticipated that changes Tier 1 Capital
in this area will be introduced in 2013. CUDGC
8%
will be bringing its standards in line with
the revised international financial industry
7.82%
7.8%
7.75%
requirements. Management and the Board of
7.66%
Directors believe the anticipated changes will
have minimal impact to the Credit Union both
7.6%
7.58% 7.5%
because the existing CUDGC requirements
were more stringent than those in many
7.4%
other jurisdictions and the Credit Union has
always maintained a strong capital position.
7.2%
Cornerstone Credit Union manages capital
in accordance with its capital management
plan and board approved capital policies.
The capital plan is developed in accordance
2008 2009 2010 2011 2012
with the regulatory capital framework and
is regularly reviewed and approved by the
Board of Directors. Capital is managed in
Retained Earnings
accordance with the capital plan with a goal
(Including Contributed Surplus
to achieve and exceed regulatory minimums,
& Member Held Equity)
maintain an optimal level of capital, meet
operational requirements, absorb unexpected
$63.9m
losses, implement long term strategic plans
$59.3m
$60m
and signal financial strength.
The Credit Union relies on profitability to grow
its capital position and holds the majority
of its total capital in retained earnings. Both
balance sheet growth and profitability
affect the Credit Union’s Tier 1 capital ratio.
The Credit Union retains a portion of its
annual earnings in order to meet its capital
objectives. Once these capital objectives
are met, additional earnings are allocated to
members through the Credit Union’s member
ownership program. The member ownership
10.44%
program allocates13.90%
earnings to members’
equity accounts based on usage of services.
Member equity accounts are included in the
determination
17.71% of capital adequacy for internal
and regulatory purposes. This is an area
where changes are expected to the
CUDGC standards. As a result, the Credit
Union has amended its member ownership
program in 2012.
15.40%
15.37%
For the year ended December 31, 2012,
the Credit Union’s Tier 1 capital was 7.82%
compared to 7.66% in 2011. Risk weighted
capital ended 2012 at 11.45% compared
to 11.36% in 2011. The increased profitability in
2012 was sufficient that both capital measures
increased over prior year.
$53.5m
$51.0m
$50m
$46.6m
$40m
Income Before allocations
$6m
$5.8m
$5.6m
$5.1m
$5m
$4.2m
$4m
$3.3m
$3m
$2m
$1m
2008 2009
2010
2011
2012
Patronage
The Board of Directors declared a patronage
allocation of approximately $1 million to be
credited to members’ equity and deposit
accounts. The distribution of patronage will
be based on the amount of loan interest paid,
deposit interest earned and eligible service
fees paid by each member during the year.
Members will receive a 3.0% rebate or bonus
on interest paid and interest earned. They
will also receive a refund of 10.0% of eligible
service fees paid. Payments will be made
to member equity accounts in the first half
of 2013.
$30m
2008 2009
2010
2011
2012
Retained
Earnings
Ag
Mortgage
Consumer
Mortgage
Member Equity
26.98%
Commercial Mortgage
Ag Non-Mortgage
Profitability
Income before allocations
(Income
Consumer Non-Mortgage
Tax & Member Patronage) and other
comprehensive income for the year was
$5.8 million, an increase from $5.1 million
in 2011. For 2012 our return on assets (ROA)
before income tax and patronage allocations
was .71%, compared to .67% in 2011.
The Board of
Directors declared
a patronage
allocation
of $1 million
to be credited to
members’ equity
and deposit
accounts.
23
Gross Financial Margin – includes total
interest revenue less total interest expense.
For 2012, financial margin was 2.89%
compared to 2.86% in 2011.
Despite the
challenges we
encountered
throughout
the past year,
we were still
able to grow our
organization,
expand the
service delivery
provided to
our members
and make an
allocation
to member
patronage.
24
The Credit Union’s profitability is largely
dependent on interest margins. The Credit
Union continues to be asset-sensitive, which
ultimately means that profitability will
increase as interest rates rise. It is expected
that interest rates will remain relatively low
throughout 2013 and into 2014.
Other Income – includes fixed asset revenue,
commissions and service charges as well
as gross commissions from real estate and
insurance subsidiaries. Non-interest revenue
ended 2012 at $6.9 million compared to $6.9
million in 2011. Although total non-interest
revenue remained approximately the same
in 2012 in terms of dollars, as a percentage
of assets, it dropped from .91% in 2011 to
.86% in 2012.
Operating Expenses – includes various
operating expenses such as personnel,
occupancy, security, governance, community
development and general business.
Operating expenses ended 2012 at 3.04%
of assets or $24.5 million compared to 3.11%
of assets or $23.8 million in 2011. Increases
occurred in every category except general
business costs in 2012; however, it should
be noted that operating costs in relation
to total assets improved during 2012 as
evidenced by the decrease in operating
expense ratio noted above. The increase in
personnel costs related mainly to salary and
training costs. Salary levels increased for cost
of living adjustments. Member security and
organization costs increased as a function
of growth. As deposits and membership
grow, the fees assessed to ensure the overall
health of the Saskatchewan credit union
system also grow. Occupancy costs increased
as a result of expanded operations related
to prior years’ growth. The decrease in
general business cost resulted primarily from
the Credit Union’s strategic desire to contain
discretionary spending.
ENTERPRISE RISK MANAGEMENT
Each year Cornerstone Credit Union
spends significant resources measuring
and assessing risks and ensuring we
are adequately prepared to serve
our communities now and in the future.
This process is called enterprise risk
management (ERM) and is mandated by
CUDGC as a requirement of all credit unions
in Saskatchewan.
As a financial institution, Cornerstone Credit
Union is exposed to a variety of risk. Risk
is the downside that exists in almost every
component of the Credit Union’s activities.
Risk represents the potential negative impact
to the Credit Union’s ability to achieve
important goals. Risk can also cause financial
loss and harm to a credit union’s reputation.
Managing, or appropriately balancing, risk
with business opportunities is the top priority
for the Board of Directors and Management
of Cornerstone Credit Union. Building sound
policies and operational processes, risk based
audit practices and capital and liquidity
management strategies, all supported
by strong human resources, is the heart
of our strategic objectives. The following risk
categories form part of the Credit Union’s
overall ERM approach:
Credit risk
Cornerstone Credit Union is exposed to credit
risk, which is the risk of financial loss resulting
from a borrower or counterparty’s inability
to meet its obligations. Due to the relative
size of our internal loan portfolio,
the majority of this risk derives from
our direct lending activities. We are also
exposed to credit risk through our holdings
of investment securities and purchased
loans (credit product purchased, but not
administered by the Credit Union).
Lending and credit risk management
is performed in accordance with approved
policies, procedures, standards and controls.
Risk concentration limits have been designed
to reflect our risk tolerance. Surplus liquidity
is invested in accordance with investment
policy and regulatory approved investment
criteria. Credit risk is further mitigated through
in-depth and ongoing training of loans
personnel and independent adjudication of
larger, potentially higher risk loan applications
and regular monitoring and reporting.
The Credit Union’s credit portfolio and lending
practices undergo regular and ongoing
independent assessment through external
audit, internal audit and regulatory reviews.
Reports are provided to Management
and the Board of Directors through the Audit
and Risk Committee.
Liquidity Risk
Liquidity risk is the risk of having insufficient
cash resources or equivalents to meet demand
for loans or depletion of deposits. Liquidity
risk arises from general funding activities
and through managing assets and liabilities.
The Credit Union’s liquidity risk management
strategies seek to maintain sufficient liquid
resources to continually fund our balance
sheet commitments and to ensure we can
meet the day to day cash needs and growing
loan demands of our members.
Liquidity risk management requirements
are defined by policies and regulatory
standards and limits. The Asset Liability
Management Committee (ALCO) and the
finance team oversee liquidity risk exposure
and management.
Cornerstone’s liquidity risk management
framework operates under approved policies
and processes. We monitor actual and
anticipated inflows and outflows of funds
daily. We assess the adequacy of liquidity
using potential outflow modeling and stress
testing and report results to management
and the Board of Directors monthly. We hold
a portfolio of liquid assets and have
established borrowing facilities with
SaskCentral. We also research, make
recommendations and enter into alternative
sources of funding when appropriate.
Market Risk
Market risk is the risk that financial position
or earnings will be adversely affected by
changes in market conditions such as interest
and foreign exchange rates. Cornerstone’s
market risk arises primarily from movements
in interest rates.
The Credit Union employs comprehensive
management processes around our market
exposures and risk taking activities. We
have defined policy around numerous risk
measures which we actively monitor and
upon which we regularly report to ALCO,
the Board of Directors and system regulators.
We employ dynamic modeling and income
simulation for scenario and stress testing
based on changes in interest rates.
We implement mitigation strategies,
including the use of interest rate swaps
where and when deemed necessary to
strategically manage risks.
Operational risk is managed through
the use of policies and procedures, controls
and monitoring. The Credit Union mitigates
operational risk through internal audit
programs, business continuity planning,
appropriate insurance coverage and secure
technology solutions.
Legal and Regulatory Risk
Legal and regulatory risk is the risk
of loss arising from potential violation
of, or nonconformance with, laws, rules,
regulations, prescribed practices, or
ethical standards.
Cornerstone Credit Union operates
in a heavily regulated environment. Our
structure, policies, and procedures aid us
in complying with laws and regulations.
Compliance managers are in place to manage
and report on compliance on a regular basis.
We also undergo regular review by internal,
external and regulatory audit.
Strategic Risk
Strategic risk is the risk that adverse decisions,
ineffective or inappropriate business
plans or failure to respond to changes in
the competitive environment, customer
preferences, product obsolescence or
resource allocation will impede the ability
of the Credit Union to meet its business
objectives. The Credit Union has formal
planning processes which result in a strategic
business plan and a balanced scorecard that
focus on strategic objectives. The Credit
Union also uses a comprehensive reporting
process to monitor performance relative
to plans.
Operational Risk
Operational risk is the risk of loss resulting
from inadequate or failed internal
processes, people and systems or external
events. Exposure to this risk arises from
deficiencies in internal controls or employee
integrity, technology failures, human error
or natural disasters.
Capital Risk
Capital risk is the risk that the Credit Union
maintains insufficient capital to satisfy
regulatory requirements, absorb unexpected
losses, implement long term strategic plans
and signal financial strength. Capital levels
can be negatively impacted by high levels
of growth, accompanied by insufficient
profitability to sustain adequate capital
or through losses incurred in any of the other
key risk areas.
In the event that a credit union does not
maintain adequate capital, the regulator,
CUDGC, can intervene and oversee the
operations of that credit union to ensure
capital adequacy is restored.
The Credit Union maintains a capital
management plan and establishes capital
policies to ensure capital adequacy is
maintained. Capital measures are regularly
reported to and reviewed by the Board
25
Co-operatives
are democratic
organizations
controlled by
their members,
who actively
participate
in setting their
policies and
making
decisions.
26
of Directors, Audit and Risk Committee
and ALCO. Annual and long term operating
forecasts are developed and reviewed
regularly with results stress tested
and compared to capital plans and policies
to ensure proactive management and capital
planning is ongoing. The Credit Union’s
operations undergo regular independent
assessment through external audit, internal
audit and regulatory reviews to ensure
that key risks are being mitigated and
any potential impacts to capital are
reported accordingly.
Summary
2012 was a challenging year and we are
proud of the accomplishments
of Cornerstone Credit Union. While we
continue to focus on serving the needs
of our members, the economic and business
conditions we face have an impact to the
performance of our Credit Union. Despite
the challenges we encountered throughout
the past year, we were still able to grow our
organization, expand the service delivery
provided to our members and make an
allocation to member patronage.
Thank you to our Board of Directors
and Staff for the commitment and hard
work put forth over the past year. We also
wish to acknowledge and show appreciation
to our members for their continued support
as our organization evolves. We look forward
to meeting all of your financial needs in
the future.
Credit Union Market Code
Cornerstone Credit Union voluntarily adheres
to the Credit Union Market Code. This code
has been jointly developed by Saskatchewan
credit unions, SaskCentral and Credit Union
Deposit Guarantee Corporation to ensure
the protection of credit union members.
The code sets forth guidelines for the
following areas:
• Complaint handling, which outlines the
process for dealing with all complaints
regarding the service, products, fees or
charges of Cornerstone Credit Union.
• Fair sales by outlining the roles and
relationship of staff to all member/clients
and in accordance with the financial
services agreement.
• Financial planning process to advise
member/clients on the risks and benefits
associated with financial planning services.
• Privacy to protect the interests of those who
do business with Cornerstone Credit Union.
Privacy is the practice to ensure all member/
client information is kept confidential
and used only for the purpose for which
it was gathered.
• Professional standards to preserve a positive
image of Cornerstone Credit Union among
our members, clients and communities.
• Capital management to ensure our capital
structure aligns with our risk philosophy.
• Financial reporting to adhere to business
and industry standards.
• Governance practices to adhere to the
intent and stipulation of our corporate
bylaws, which are approved by the
membership of Cornerstone Credit Union.
• Risk management to ensure all risks
are measured and managed in an
acceptable fashion.
As a true co-operative financial institution,
Cornerstone Credit Union acts in accordance
with internationally recognized principles
of co-operation:
Voluntary and Open Membership
Co-operatives are voluntary organizations,
open to all persons able to use their services
and willing to accept the responsibilities
of membership, without gender, social, racial,
political or religious discrimination.
Democratic Member Control
Co-operatives are democratic organizations
controlled by their members, who actively
participate in setting their policies and
making decisions. Men and women serving
as elected representatives are accountable
to the membership. In primary co-operatives
members have equal voting rights (one
member, one vote) and co-operatives
at other levels are also organized
in a democratic manner.
Member Economic Participation
Members contribute equitably to, and
democratically control, the capital of their
co-operative. At least part of that capital
is usually the common property of the
co-operative. Members usually receive limited
compensation, if any, on capital subscribed as
a condition of membership. Members
allocate surpluses for any or all of the following
purposes: developing their co-operative,
possibly by setting up reserves, part of which
at least would be indivisible; benefiting
members in proportion to their transactions
with the co-operative; and supporting other
activities approved by the membership.
Autonomy and Independence
Co-operatives are autonomous, self-help
organizations controlled by their members.
If they enter into agreements with other
organizations, including governments,
or raise capital from external sources, they
do so on terms that ensure democratic
control by their members and maintain
their co-operative autonomy.
Education, Training and Information
Co-operatives provide education and training
for their members, elected representatives,
managers, and employees so they can
contribute effectively to the development
of their co-operatives. They inform the
general public - particularly young people
and opinion leaders - about the nature and
benefits of co-operation.
Co-operation among Co-operatives
Co-operatives serve their members most
effectively and strengthen the co-operative
movement by working together through
local, national, regional and international
structures.
Concern for Community
Co-operatives work for the sustainable
development of their communities through
policies approved by their members.
As a true co-operative
financial institution,
acts in accordance with
internationally recognized
principles of co-operation.
27
Auditors’ Report on Summarized
Financial Statements to the members
of Cornerstone Credit Union
Financial Group Limited
28
Auditors’ Report
The accompanying summary consolidated financial statements, which comprise the summary
consolidated statement of financial position at December 31, 2012, the summary consolidated
income statement, summary consolidated statements of comprehensive income, changes
in members’ equity and cash flows for the year then ended are derived from the audited
consolidated financial statements of Cornerstone Credit Union Financial Group Limited for
the year ended December 31, 2012. We expressed an unmodified audit opinion on those
consolidated financial statements in our report dated February 13, 2013.
The summary consolidated financial statements do not contain all disclosures required by
International Financial Reporting Standards. Reading the summary consolidated financial
statements, therefore, is not a substitute for reading the audited consolidated financial
statements of Cornerstone Credit Union Financial Group Limited.
Management’s Responsibility for the Summary Financial Statements
Management is responsible for the preparation of a summary of the audited consolidated
financial statements in accordance with International Financial Reporting Standards.
Auditors’ Responsibility
Our responsibility is to express an opinion on the summary consolidated financial statements
based on our procedures, which were conducted in accordance with Canadian Auditing
Standard (CAS) 810, “Engagements to Report on Summary Financial Statements.”
Opinion
In our opinion, the summary consolidated financial statements derived from the audited
consolidated financial statements of Cornerstone Credit Union Financial Group Limited for the
year ended December 31, 2012 are a fair summary of those consolidated financial statements,
in accordance with International Financial Reporting Standards.
February 13, 2013
800 - 119 4th Avenue South
Saskatoon, Saskatchewan
S7K 5X2
Chartered Accountants
Full financial statements can be obtained upon request
from any branch of Cornerstone Credit Union
or by visiting www.cornerstonecu.com
29
summarized consolidated statement of Financial position
December 31 ($ thousands)
20122011
Assets
Cash and cash equivalents
35,73238,286
Investments
131,678143,115
Member loans receivable
624,831567,858
Other assets
Property, plant & equipment
1,6181,632
12,74413,246
806,603764,137
Liabilities
Member deposits
727,841699,723
Securitized debt
9,504
Other liabilities
5,3255,072
Membership shares
-
8,6108,119
751,280712,914
Members’ equity
Retained earnings
Contributed surplus
Accumulated other comprehensive income
52,33948,232
2,3792,379
605612
806,603764,137
summarized consolidated income statement
and comprehensive income
Year Ended December 31 ($ thousands)
Interest income
32,89531,853
Interest expense
9,6009,964
Gross financial margin
Recovery of impaired loans
Net financial margin
Other income
23,29521,889
(41)(8)
23,33621,897
6,9326,946
Net interest and other income
30,26828,843
Operating expenses
24,51023,758
Patronage refund
Income before income taxes
Income taxes
Net income
Total other comprehensive loss for the year
Total comprehensive income for the year 30
20122011
9851,323
4,7733,762
666433
4,1073,329
(7)(333)
4,1002,996
summarized consolidated statement of
changes in members’ equity
Accumulated Other
RetainedContributed
Comprehensive
EarningsSurplusIncomeTotal
Balance, December 31, 2010
44,903
-
945
45,848
3,329
-
-
3,329
Other Income
(333)
(333)
Net income
Contributed surplus
on transfer of business
-
2,379
-
2,379
48,232
2,379
612
51,223
4,107
-
-
4,107
-
-
(7)
(7)
52,339
2,379
605
55,323
Net income
Other comprehensive loss
summarized consolidated statement of cash flows
20122011
Cash flows provided by (used in) the following activities:
Operating activities
Financing activities
5,5067,521
38,284
83,626
Investing activities
(46,344)(67,978)
Net increase (decrease) in cash resources
(2,554)23,169
Cash resources, beginning of year
38,28615,117
Cash resources, end of year
35,732
38,286
31
Credit Unions Connect
Get Local Service From
Across Saskatchewan!
An extensive branch network designed
to serve you better.
Saskatchewan credit unions are working together to
increase connectivity for our members. Cornerstone
Credit Union is thrilled to partner with the following
credit unions to offer Credit Unions CONNECT, a
convenient way for credit union members to conduct
their financial transactions at any participating credit
union branch without additional costs:
• Advantage Credit Union
• Conexus Credit Union
• Cornerstone Credit Union
• Diamond North Credit Union
• Horizon Credit Union
• Innovation Credit Union
• Synergy Credit Union
• Weyburn Credit Union
cornerstonecu.com

Moving Cornerstone - Cornerstone Credit Union

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