We began 2012 with guarded optimism. In 2011 we had seen our first positive operating result in three years; our capital position was nearing "well-capitalized" territory as defined by our regulator; and the quality of our loan portfolio was improving.
Now that 2012 is over, we can say with confidence that the optimism was not misguided! We had another strong year in terms of net income ($44.5 million); we achieved the designation of "well-capitalized" with net worth of $123.7 million (9.53 percent of assets); and loan delinquency fell by more than 55 percent. Such positive results could only come as the result of loyal member participation, outstanding staff efforts to serve members' needs, and unwavering commitment on the part of our volunteer Board of Directors and Supervisory Committee. To each of these groups I offer my sincere thanks, and congratulations on the health and success of this cooperative that all of Us call our own.
A principles-based organization
As we moved through 2012 and worked to continue the progress we'd seen the previous year, your Board and staff took the opportunity to reflect upon our cooperative structure and the foundational ideas upon which it is based. These ideas, known as the Seven Cooperative Principles, were first articulated in 1844 by the Rochdale Society of Equitable Pioneers, a British cooperative. With themes such as Voluntary and Open Membership, Democratic Member Control and Members' Economic Participation, they create the foundation for all cooperatives and provide the guidelines within which all cooperatives are designed to operate.
Reflecting on these principles led to the realization that while we knew we'd successfully applied these principles in many aspects of our operation, we hadn't successfully communicated them to our members. We knew why we did the things we did, and what was important in operating as a not-for-profit financial cooperative; but we couldn't say with any confidence that our members - all of Us - understood these principles and how they set us apart from other financial service providers. As a result, a minority of Us saw ourselves as full-fledged, contributing members of a cooperative, while the rest were more likely to think of Arizona Federal as a bank, and of themselves as customers with little stake in its health and success.
That realization led to the decision to refocus our ongoing conversation with members, placing primary emphasis on the fact that we are a cooperative, and that both the organization and its individual members are accountable for ensuring that we fulfill our promise. Each of Us is expected to support the cooperative by utilizing its products and services fully and appropriately, and will share in its success proportionate to our level of participation. And each of Us would be required to invest financially in the cooperative through the payment of membership dues, with the expectation of a return on that investment.
In with the new
We began applying this new emphasis - including the dues assessment, and the requirement to have and use a new combined checking/savings "Everything" account - in new member initiations starting in August of 2012. The result was overwhelmingly positive; more than 80 percent of those who listened to our message decided to join after hearing what membership entailed, and the quality of these new member relationships far exceeded anything we'd ever seen. With that experience in mind, we applied these conditions to all members effective January 1, 2013, and we communicated this to members via various forms of media in late 2012.
PLUs as a starting point
One important aspect of our cooperative structure is the notion that members who participate in the cooperative ought to share in any capital surplus when the cooperative does well. We've always believed this, as evidenced by the $20 million we'd returned to members over a previous 14-year period. So we were very glad to be in the position to renew that practice in 2012, paying $3 million to over 77,000 members in what we now call PLUs (Payback for Loyalty to Us ). Our Board's leadership and courage was evident in the decision to make this payment in a year that started with the credit union not yet considered "well-capitalized" and the memory of loan losses and dwindling capital so fresh in everyone's mind.
But the payment of PLUs only scratches the surface of our commitment to deliver value to all of Us. We continue to work hard at developing and delivering products and services that meet and exceed the needs and desires of our members, from Everything accounts that combine easy access to funds with money market-like returns to affordable loans for nearly every purpose, and from comprehensive identity protection provided for all members and their families at no extra cost to convenient technology such as mobile banking apps that allow the depositing of checks from a mobile device. And judging by the renewed loan volume and rapid mobile banking adoption rates we saw in 2012, our efforts are hitting the mark.
More to come
With a renewed sense of purpose shared by loyal and active members, we're excited to see what we'll accomplish together in 2013 and beyond. We'll improve our technological infrastructure by moving to a newer, more robust computer system; we'll develop and refine products including home equity loans to meet resurgent member demand; and we'll enter new service areas where we'll bring the value of membership to even more people who see the benefit of being part of a principles-based financial cooperative ... who want to become one of Us.
Again and as always, I offer my thanks to our Board, Supervisory Committee, staff and members for all you've done to contribute to the success of Arizona Federal. Together, we truly embody and exemplify the power of Us.
Ronald L. Westad
President & CEO