Deposit Insurance Corporation of Ontario Leadership - Stepping Up To The Challenge September 19, 2001 Credit Union Managers’ Association

2 Overview n Key Messages n Quick Updates n Future Challenges n Questions & Dialogue

3 Key Messages n System is in relatively good shape n DICO ahead of plan n Can’t be complacent - challenges in future

4 Quick - System Condition at 2Q01 (   from 2Q00) n 310 institutions  23 n 7 under capitalized (  11) n Average size $52 M  from $45 M n System Assets $16.1 Billion  7.9% n System Capital 6.6%  6.7% n Liquidity 17.5%  from 17.8% n Commercial loans  23% n Overall Risk Level  appears stable

5 Quick System Performance at 2Q01 (   from 2Q00) n Margins  from 3.19% to 3. 25% n Non-interest expenses  stable at 3.49% n Non-interest income  by.02% n Loan Costs  from.14% to.17% n Gross Delinquency  1.34% to 1.40% n ROA 39 bp  from 41bp n Overall performance  stable

6 Quick - DICO Plan n DICO 2001 estimated financial results –new insurance losses to date, negligible –gross operating expenses 6.8% below budget –estimated fund of up to $25 million by December 31 n Plans for 2002 –average premium just over $1 –actuarial review of target fund size

7 Reserve Fund Projections

8 Differential Premium System n How to Improve Risk Rating –Quantitative measures –OSVs - wait for next OSV or engage inspector to review corporate governance score n Review Procedures for DPS Rating: –Level I - with staff –Level II - with Risk Management Committee of the Board of DICO

9 Distribution of Assets By Risk Category 2Q01

10 Differential Premium System Some Issues: n premium levels & fund size n measuring earnings - after taxes & distributions n measuring corporate governance (management) through OSVs n measuring interest rate risk - shock test

11 Quick - DICO Operational On-Site Verifications (OSVs) n 125 completed/in progress as of August 31, 2001 n 68% still rate credit management as requiring improvement n Guide to DICO’s OSV Process & OSV Manual available on DICO’s Web site n Regional presentations

Summary of OSV Findings * to July 31, 2001

13 Summary of Corporate Governance (Management) Scores as at 2Q01

14 Quick - DICO Operational On-Site Verifications (OSVs) Some issues: n exit interviews n are standards too tough? n Suppliers - CUCO withdrawing

15 Quick - DICO Operational Intervention Programs n 28 on Watchlist - mostly resulting from OSVs n 13 under Supervision n 6 pending Supervision n Sustained non-compliance

16 Future Challenges n DICO loan guarantee n FSCO/OSC merger n possible legislative review n Ontario/BC Central merger n Federal Act - new competition n uncertain economic environment - ie. interest rate risk, credit risk

17 Key Messages n System is in relatively good shape n DICO ahead of plan n Can’t be complacent - challenges in future