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Chairman's Report 2018-19

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Scott Martin, Chairman of the Board for LCU, presents his annual report for the 2018/19 financial year. 

2019 has been another year of very healthy growth and pleasing financial performance in all areas:

  • Reflecting another year of careful cost control, LCU achieved a net interest margin (the average difference between lending and borrowing rates) of 1.92%, which compares to 1.95% in 2018, and an industry average of 2.5%
  • Despite keeping LCU fees and charges at sector-leading low levels, our 65th consecutive pre-tax surplus was both pleasing at $1,005,583, compared with $1,040,704 in 2018. This surplus grows LCU member total capital to $13,922,440 million, and generating a healthy Return on Assets of 0.40% (similar to 2018’s 0.42%);
  • Our critical financial resilience metrics remain within our target comfort zones and well in excess of prudential requirements: Capital Adequacy was 16.14% (cf 16.2% 2018) and Minimum Liquid Holdings 16.62% (cf 16.16% 2018).
  • After the unusually strong loan growth experienced in 2018, this year we have achieved a more normal level of loan growth of 1.5%, which combined with 8.4% deposit growth.

These excellent financial results rest on long-established foundations.  Prudent and frugal operations lie at the core of LCU’s ability to offer industry-leading value and still return earnings to boost capital. LCU’s cost base is improved by having a single branch, by having efficient and engaged staff cross-trained over multiple functions and through the effective use of technology. However, the inexorable cost of technology is a factor that LCU will always be exposed to as one of the smallest players in the prudential sector.

In summary, LCU has delivered another excellent result from strong financial fundamentals, which place us well entering the 2019 year.

A Year of Fewer Distractions

In comparison with 2017-18, with its array of compliance and IT upgrades, 2018-19 was thankfully less frenetic – the only major system changes being LCU’s new banking app (building on the previous year’s banking system upgrade), migration of the website to Azure and preparations for online PIN change.

LCU staff were able to devote more time engaging with the business communities in our localities, which included supporting the Northern Sydney Science Hub in their Science Week celebrations at Ryde Library, a presentation on fraud awareness at Ryde Library, North Ryde Women’s Network and Macquarie Business District to mention a few.

LCU continued to explore innovative ways to deploy member deposits in excess of those required to fund member borrowing. With two successful years of placing funds with SocietyOne, LCU made a similar investment with RateSetter. These both enable LCU to extend more into the personal lending market – this being a relatively small component of LCU’s lending portfolio historically. Both investments allow LCU to determine the quantity of funding as well as the relative risk/reward profile.

This year LCU established a business relationship with R&D Capital Partners[1], which assists technology start-up companies by advancing quarterly loans against their Research and Development (R&D) Tax Incentive[2]entitlements. The government R&D tax payments are made once a year like the individual tax return/rebate, meaning waits of up to 12 months to receive the benefit, creating cash-flow challenges for small companies with little or no revenue income. LCU is proud that member funds are being used to help tech start-ups while making a reasonable return for members in the process.

Despite the low interest rate environment and LCU’s continuingly low net interest margin (NIM – the difference between interest earned and interest paid) we continue to cover operational costs and return the surplus required to keep stride with capital requirements. This past year, however, our costs as a percentage of income have increased from 71.4% in 2018 to 73.2% – and as a traditionally frugal business, this is something that we must be ever vigilant of. Like all other small credit unions, we are suffering under the burden of increasing compliance and IT costs – both of which we have virtually no power to influence. It is only by joining forces with other credit unions as members of the SAM Group (Small Australian Mutuals) and COBA (the Customer Owned Banking Association) that we can bring to bear pressure on price setters and regulators to alleviate the pressure.


LCU proudly continued its Tertiary Scholarship Program to eleven highly deserving young people: William Ballico, Malathi Waller, Nicholas Kot, Anna Churchill, Ryan James, Jayden Kelly, Hannah Wrigley-Carr, Joy Van Schie, Sophie Harte, Jack Bonwick and Hannah Allen. In their inaugural year, the Don Pendergast award went to Jayden Kelly and the McDonald Clark Award recipient was Hannah Wrigley-Carr.

Our Tertiary Scholarship ceremony was combined with the CSIRO Alumni Scholarship ceremony in February, with plans to make this a permanent merger. LCU has been a significant contributor to the CSIRO Alumni Scholarship and joining the two occasions brings our tertiary recipients in contact with the research community including the inspiring recipients, past and present, of the CSIRO Alumni Scholarship. The 2020 ceremony planning is underway for February 2020.

In 2019, Matthew Rendell was the CSIRO Alumni Scholarship recipient. At the ceremony attended by Dr Cathy Foley, CSIRO’s Chief Scientist, Matthew described his planned trip to the QUTech group at TU Delft in the Netherlands to develop ultra-high-quality germanium heterostructures. Naomi Paxton, the 2018 recipient provided an update on her work on biofabrication and tissue morphology.

Since the inception of the CSIRO Alumni Scholarship in Physics in 2015, LCU has been the major sponsor, in the memory of Drs Gerry Haddad, Tony Farmer, John Dunlop and Don Price. As an ex-colleague of these fine gentlemen at CSIRO Lindfield I am particularly proud of the support LCU provides to this prestigious award. LCU director Dr Tony Murphy and former directors Dr Warren King and Dr Robert Steele (NSW President of CSIRO Alumni) were members of the selection panel for the scholarship.

Board and Staff

I would like to thank my fellow Directors, Allison Smart (Deputy Chair), Anita Andrew (Chair of the Board Risk Committee), Frank Benito de Valle, Tony Murphy, Peter Steele, John Stephens (Chair of the Board Audit Committee) and Paul Swan for their valuable contribution to the governance of LCU over the past year. I would also like to thank our Associate Directors Gordana Papic and Amber O’Connell, who attend Board meetings by invitation and provide invaluable service and views to the Board.

The Board gratefully acknowledges the friendly service and commitment of our staff Leanne Harris, Eileen Thoms, Lyn Slatter, Kerrie Griffiths, Susanne Tran-Lowder, Nalini Mannie, Matthew Thoms, Joanne O’Donnell, Betty Ho, Tejas Daulat, Sally Boswell and Theresa Luzon. Personal service and member value are the cornerstones of LCU’s success.

Scott Martin

Chairman 18 September 2019

[2] Refundable tax offset of 43.5% of eligible R&D costs.