May 2023 | Page 17

AUXIER FOCUS FUND INVESTOR CLASS SHARES PERFORMANCE UPDATE

May 2023 THE CHARBONNEAU VILLAGER 17

Charbonneau Financial Oversight Committee

By JOHN MCLAIN

Don ’ t forget the balance sheet

In past decades , the Charbonneau Country Club Board of Directors and residents had a primary focus on the income statement that funded annual operations and contributed

MCLAIN to reserves for replacements and major maintenance . The one-year-budget for the following year determined the level of dues assessments for residents .

In the past several years , the board developed plans for significant capital improvements based on the Vision document approved by previous boards . An additional separate fund was developed for these improvements , and the use of bank loans was included to provide funding . Now , income statements and balance sheets are where the future annual cashflows are discussed and adjusted to result in a budget for the following year , as well as a forecast of what might occur in the following four years . This five-year budget / forecast process is where the board decides the level of annual dues assessed to each residence to support the three separate funds : operations , reserves and capital improvements .

My purpose in this article is to bring a little focus on the balance sheet , which for me has become an equally important financial statement . The decision to utilize debt ( i . e . a bank loan ) to fund capital projects requires the board to monitor the risks associated with the use of debt . These are some of the same questions about risks that that residents make in their personal or business use of debt : � How much debt is too much ? � Can I make the payments over the long run ? � Should I pay down this debt early ? It is comforting to me , and perhaps many residents , that the bank has already done an analysis of risk from their viewpoint and indicated that a debt load of about $ 10,000,000 is a reasonable amount and risk “ for the bank ” to lend to CCC . However , as a Board and residents , we also need to

examine and establish some guidelines on use of debt that meets our own level of comfort for the risk of debt . Here are some numbers from the balance sheet that provide some perspective :

As of 2 / 28 / 23 $ 14,381,133 $ 7,833,638 $ 6,547,495 55 %

CCC Total Assets Total Debt Total Equity Ratio Debt / Assets

As of 9 / 30 / 19 $ 4,473,330 $ 254,678 $ 4,218,652 6 %

The debt / assets ratio ( includes 6.7 million long term bank loan ) of about 55 % is a big change from just four years ago at only 6 %. In our personal and business experiences , this doesn ’ t yet seem to be a level of too much concern compared to buying a home or car with a 20 % equity down and 80 % loan . The loan is paid down , slowly , over a period of years . For the industry that I worked in for decades ( electric utilities ) the balance sheet target was 50 % debt . This was deemed a reasonable risk because the long-term revenue stream of customers and revenues was assumed to be very reliable and predictable . This is a reasonable comparison with an HOA , which has been in business for almost 50 years and likely to be in business for another 50 years — future revenues are relatively reliable and predictable to cover loan payments . So , the debt / equity ratio of 55 % for a $ 14 million set of HOA assets is certainly something that is worthy of watching and reporting to residents . Debt is reasonable as long as there are adequate reserves for replacements and major maintenance , accompanied by :

� annual budget / forecast reviews of future revenues , expenses and balance sheet items to avoid or minimize surprises .

� insurance policy reviews to minimize any unforeseen damages or payments that would require expenditures beyond reserves ( i . e ., avoid special assessments ).

The current five-year budget / forecast suggests another $ 4-5 million of growth in assets will likely be funded with another $ 3 million in debt . A review of the ratios , reserves and insurance coverages together can support board decisions for a prudent level of debt and associated risks . Future board members can also decide to reduce debt risks by “ paying down ” the debt faster than required by the bank .

Financial statements simplified :

See FINANCE / 18

AUXIER FOCUS FUND INVESTOR CLASS SHARES PERFORMANCE UPDATE

3 Month Cummulative

March 31 , 2023

1 Year Annualized

5 Year Annualized

10 Year Annualized

AUXIER FOCUS FUND GROWTH OF $ 10,000

INTEGRITY • KNOWLEDGE • COMMITMENT

The Auxier Difference

Annualized Since Inception ( July 9 , 1999 )

Cumulative Since Inception ( July 9 , 1999 )

Auxier Focus Fund 0.70 % -3.77 % 7.71 % 7.86 % 7.38 % 442.08 %

S & P 500 Index 7.50 % -7.73% 11.19 % 12.24 % 6.62 % 358.01 %

Performance data quoted represents past performance and is no guarantee of future results . Current performance may be lower or higher than the performance data quoted . Investment return and principal ��

��

www . auxierasset . com • 1-800-835-9556 15668 NE Eilers Road • Aurora , OR 97005

��