REACHING NEW HEIGHTS - Chartway Federal Credit Union

Transcription

REACHING NEW
HEIGHTS
REACHING
NEW HEIGHTS
2014 Annual Report
REACHING
NEW HEIGHTS
2014 Annual Report
Consolidated Financial Statements
Chartway Federal Credit Union and Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
Year Ended September 30, 2014
CONTENTS
Page
Independent Auditors’ Report ...............................................................................................................
1
Consolidated Financial Statements:
Consolidated Statement of Financial Condition .......................................................................
2
Consolidated Statement of Income ..........................................................................................
3
Consolidated Statement of Comprehensive Income ...............................................................
4
Consolidated Statement of Changes in Members’ Equity .......................................................
5
Consolidated Statement of Cash Flows ...................................................................................
6-7
Notes to Consolidated Financial Statements ........................................................................... 8-33
CliftonLarsonAllen LLP
www.CLAconnect.com
INDEPENDENT AUDITORS’ REPORT
Supervisory Committee
Virginia Beach, Virginia
We have audited the accompanying consolidated financial statements of Chartway Federal Credit Union
and Subsidiaries, which comprise the consolidated statement of financial condition as of September 30,
2014, and the related consolidated statements of income, comprehensive income, changes in members'
equity, and cash flows for the year then ended, and the related notes to the consolidated financial
statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Chartway Federal Credit Union and Subsidiaries as of September 30,
2014, and the results of their operations and their cash flow for the year then ended in conformity with
principles generally accepted in the United States of America.
a
CliftonLarsonAllen LLP
Boston, Massachusetts
January 31, 2015
An independent member of Nexia International
Page 2
Consolidated Statement of Financial Condition
September 30, 2014
2014
ASSETS
Cash and Cash Equivalents
Investments:
Securities - Available-for-Sale, at estimated fair value
Securities - Held-to-Maturity, at cost
Other
Loans Held-for-Sale
Loans, Net
Accrued Interest Receivable
Foreclosed Assets, Net
Property and Equipment, Net
National Credit Union Share Insurance Fund Deposit
Goodwill
Core Deposit Intangible
Other Assets
Total Assets
$
105,402,835
4,617,863
311,674,887
6,510,751
204,725
1,310,342,980
6,243,582
3,223,006
40,089,807
17,662,164
71,488,504
742,926
35,366,403
$ 1,913,570,433
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Members' Shares
Borrowed Funds
Accrued Expenses and Other Liabilities
Total Liabilities
$ 1,693,497,749
45,000,000
17,729,148
1,756,226,897
Commitments and Contingent Liabilities (Notes 10 & 11)
MEMBERS' EQUITY
Retained Earnings
Accumulated Other Comprehensive Income
Total Members' Equity
Total Liabilities and Members' Equity
157,311,413
32,123
157,343,536
$ 1,913,570,433
The accompanying notes are an integral part of these consolidated financial statements.
Page 3
Consolidated Statement of Income
2014
INTEREST INCOME
Interest on Loans
Interest on Investments and Cash Equivalents
Total Interest Income
$ 54,934,616
4,450,158
59,384,774
INTEREST EXPENSE
Dividends on Members' Shares
10,080,471
Net Interest Income
49,304,303
4,857,281
PROVISION FOR LOAN LOSSES
Net Interest Income After Provision for Loan Losses
44,447,022
NONINTEREST INCOME
Fee Income
Net Gain on Sale of Loans
Total Non-Interest Income
22,299,377
616,911
22,916,288
NONINTEREST EXPENSE
Salaries and Benefits
Operations
Occupancy
Other Operating
Total Non-Interest Expense
28,983,768
19,511,775
5,905,376
4,918,045
59,318,964
NET INCOME
$
8,044,346
Page 4
Consolidated Statement of Comprehensive Income
NET INCOME
$
OTHER COMPREHENSIVE INCOME (LOSS)
Available-for-Sale Securities
Unrealized Holding Gain Arising During the Period
Reclassification for Gains Included in Net Income
Total Other Comprehensive Loss
TOTAL COMPREHENSIVE INCOME
2014
8,044,346
17,132
(25,020)
(7,888)
$
8,036,458
Page 5
Consolidated Statement of Changes in Members’ Equity
Regular
Reserves
Unappropriated
Accumulated
Other
Comprehensive
Income
$ 18,529,735
$ 130,737,332
$
Net Income
-
8,044,346
Other Comprehensive Loss
-
-
$ 18,529,735
$ 138,781,678
BALANCES AT SEPTEMBER 30, 2013
BALANCES AT SEPTEMBER 30, 2014
Total
40,011
$ 149,307,078
-
8,044,346
(7,888)
$
32,123
(7,888)
$ 157,343,536
Page 6
Consolidated Statement of Cash Flows
Year ended September 30, 2014
2014
RECONCILIATION OF NET INCOME TO NET CASH
FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization
Amortization of Security Premiums/Discounts, Net
Amortization of Core Deposit Intangible
Provision for Loan Losses
Accretion of Acquired Loans, Net
Impairment Losses on Foreclosed Assets
Loss on Disposal of Assets, Net
Loss on Sale of Foreclosed Assets, Net
Changes in:
Loans Held-for-Sale
Other Assets
Accrued Expenses and Other Liabilities
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Securities
Available-for-Sale
Held-to-Maturity
Proceeds from Sales/Maturities of Securities
Available-for-Sale
Held-to-Maturity
Net Change in Other Investments
Principal Collected, net of Loans Originated
on Loans to Members
Increase in NCUSIF Deposit
Proceeds from Sales of Foreclosed Assets
Proceeds from Sales of Premises and Equipment
Purchase of Premises and Equipment
Net Cash Used by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Members' Shares
Advances of Term Borrowings
Net Cash Provided by Financing Activities
$
8,044,346
3,142,147
1,253,409
377,914
4,857,281
(3,168,090)
1,573,371
35,821
1,432,367
658,826
(975,336)
(4,374,739)
(5,039,852)
7,817,465
(5,035,764)
(48,303,941)
5,864,606
113,006,891
(959,148)
(227,832,349)
(528,882)
2,993,464
1,757,404
(6,175,881)
(165,213,600)
(74,694,904)
45,000,000
(29,694,904)
Page 7
Consolidated Statement of Cash Flows (Continued)
Year ended September 30, 2014
2014
NET DECREASE IN CASH AND
CASH EQUIVALENTS
$
Cash and Cash Equivalents at Beginning of Year
(187,091,039)
292,493,874
$
105,402,835
Members' Savings Interest Paid
$
10,081,007
Transfers of Loans to Foreclosed Assets
$
2,867,977
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Page 8
Notes to Consolidated Financial Statements
1.
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Chartway Federal Credit Union is a cooperative association holding a corporate charter under the
provisions of the Federal Credit Union Act. Participation in the Credit Union is limited to those
individuals who qualify for membership. The field of membership is defined in the Credit Union’s
Charter and Bylaws. Most of the Credit Union’s business activity is with its members who reside
in or are employed in the states of Virginia and Utah.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Chartway Federal
Credit Union and its wholly owned subsidiaries, CFS, Inc., and Newtown Associates, Inc.
(the “Credit Union”). These subsidiaries are engaged in related financial service activities,
including selling insurance and investment products, whose activities are insignificant to the
Credit Union as a whole. All significant intercompany balances and transactions have been
eliminated in consolidation.
Significant Accounting Policies
The Credit Union follows the accounting standards set by the Financial Accounting Standards
Board (“FASB”). The FASB establishes accounting principles generally accepted in the United
States of America, (“GAAP”) that are followed to ensure consistent reporting of the financial
condition, results of operations, and cash flows of the Credit Union. References to GAAP issued
by the FASB in these footnotes are to The FASB Accounting Standards Codification™ commonly
referred to as the Codification or ASC.
Use of Estimates in the Preparation of the Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term are the allowance for loan losses, fair value of
financial instruments, and goodwill.
Concentrations of Credit Risk
Most of the Credit Union’s business activity is with its members who reside in or are employed in
the states of Virginia and Utah. The Credit Union may be exposed to credit risk from a regional
economic standpoint, since a significant concentration of its borrowers work or reside in these
states. The loan portfolio is well-diversified; the Credit Union does not have any significant
concentrations of credit risk except unsecured loans, which by their nature increase the risk of
loss compared to those loans that are collateralized.
The types of lending that the Credit Union engages in are included in Note 3. The types of
securities that the Credit Union invests in are discussed in Note 2. Management believes that the
Credit Union does not have any significant concentrations in any customer or industry.
Page 9
1.
SIGNIFICANT ACCOUNTING POLICIES…continued
Fair Value
The Codification defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurement. The Codification also emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and sets out a fair value
hierarchy with the highest priority being quoted prices in active markets. Fair value measures are
disclosed by level within that hierarchy.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. Valuation techniques are to be consistent with
the market approach, the income approach, and/or the cost approach. Inputs to valuation
techniques refer to the assumptions that market participants would use in pricing the asset or
liability. Inputs may be observable, meaning those that reflect the assumptions market
participants would use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the reporting entity's own
assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances.
In that regard, the Codification establishes a fair value hierarchy for valuation inputs that gives the
highest priority to quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2 - Significant observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs that reflect a reporting entity’s own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
A summary of the Credit Union’s consolidated financial instruments, including methodologies and
resulting values, is discussed in Note 15 to these consolidated financial statements.
For the purpose of the consolidated statement of financial condition and the consolidated
statement of cash flow, cash and cash equivalents includes cash on hand, amounts due from
financial institutions, and highly liquid debt instruments classified as cash equivalents that were
purchased with maturities of three months or less. Amounts due from financial institutions may,
at times, exceed federally insured limits.
Page 10
1.
Investments
Investment securities that management has the positive intent and ability to hold to maturity are
classified as “held-to-maturity” and recorded at amortized cost. Trading securities, if any, are
carried at fair value, with unrealized gains and losses recognized in earnings. Securities not
classified as held to maturity or trading, including equity securities with readily determinable fair
values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and
losses excluded from net income and reported in other comprehensive income.
For other-than-temporary impairment of debt securities, the Credit Union determines whether it
intends to sell or is more likely than not that it will be required to sell a security before recovery of
the debt securities’ amortized cost basis less any current-period credit losses. In determining
whether other-than-temporary impairment exists, management considers many factors, including
(1) the length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer; (3) the current liquidity and volatility of
the market for each of the individual security categories; (4) the projected cash flows from the
specific security type; (5) the financial guarantee and financial rating of the issuer; and (6) the
intent and ability of the Credit Union to retain its investment in the issue for a period of time
sufficient to allow any anticipated recovery in fair value.
Purchase premiums and discounts are recognized in interest income using the interest method
over the terms of the investments. Gains and losses on the sale of investments are recorded on
the trade date and are determined using the specific identification method.
Other investments are classified separately and accounted for under the cost method. Other
investments consist of certificates of deposit in other financial institutions, member capital
accounts in corporate credit unions, and stock with the Federal Home Loan Bank of Seattle and
Atlanta (“FHLB”). If such investments are deemed to be impaired, the recorded cost is reduced by
the amount of impairment.
Federal Home Loan Bank Stock
The Credit Union, as a member of the FHLBs of Seattle and Atlanta, is required to maintain an
investment in capital stock of the FHLB which is based on the Credit Union’s total assets plus a
percentage of outstanding advances. No ready market exists for the FHLB stock and it has no
quoted market value. The stock qualifies as a restricted stock and as such is not subject to
investment security accounting treatment and is therefore reported at cost, subject to impairment.
Loans Held-for-Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower
of aggregate cost or fair value as determined by aggregate outstanding commitments from
investors or current investor yield requirements. All sales are made without recourse subject to
the customary representations and warranties.
Page 11
1.
Loans, Net
The Credit Union grants residential real estate, consumer and commercial loans to members, and
participates in loans with other financial institutions. The ability of the borrowers to honor their
contracts is dependent upon the real estate and general economic conditions of the area.
Loans that the Credit Union has originated with the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at their outstanding unpaid principal balances, less an
allowance for loan losses and net deferred origination fees and costs. Interest income on loans is
recognized over the term of the loan and is calculated using the simple interest method on
principal amounts outstanding.
In addition to originating loans, the Credit Union has acquired loans through acquisitions. Loans
acquired in acquisitions are recorded at fair value at the date of acquisition with no carryover of
the prior allowance for loan losses. Loans acquired for which it is probable at acquisition that all
contractually required payments will not be collected have resulted in a discount at the time of
acquisition. The discount on such loans consists of an accretable yield (the excess cash flows
expected to be collected over the fair value) and a nonaccretable difference (the amount of the
total contractual cash flows less the amount expected to be collected). The accretable yield is
recognized in interest income using the effective interest method. Because cash flows on these
loans are written down to an amount expected to be collected at the date of the acquisition, these
loans are not considered nonaccrual even though such loans may be contractually past due.
Subsequent to the acquisition, decreases in expected cash flows result in the establishment of an
allowance for loan losses through a provision for loan losses in the consolidated statement of
income. In contrast, increases in expected cash flows will generally result in an increase in
interest income over the remaining life of the loans. Prepayments are not considered in the
determination of contractual cash flows to be collected.
The accrual of interest income on loans is discontinued at the time the loan is 90 days past due,
unless the credit is well-secured and in the process of collection. Other personal loans are
typically charged off no later than 180 days past due. Past-due status is based on the contractual
terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if
the collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is
reversed against interest income. The interest on these loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all of the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is
recognized as an adjustment to interest income using the interest method over the contractual life
of the loans, adjusted for estimated prepayments based on the Credit Union’s historical
prepayment experience.
Page 12
1.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred though a
provision for loan losses charged to earnings. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance is likely. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of the underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are susceptible to significant
revision as more information becomes available. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Credit Union’s allowance for loan losses,
and may require the Credit Union to make additions to the allowance based on their judgment
about information available to them at the time of their examinations.
The allowance consists of specific and general components. The specific component relates to
loans that are individually classified as impaired.
The general component of the allowance for loan losses covers non-impaired loans and is based
on historical loss experience adjusted for current factors. The historical loss experience is
determined by portfolio class and is based on the actual loss history experienced by the Credit
Union over the most recent three years. This actual loss experience is supplemented with other
economic factors based on the risks present for each portfolio segment.
These economic factors include consideration of the following: levels of and trends in
delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in
volume and terms of loans; effects of any changes in risk selection and underwriting standards;
other changes in lending policies, procedures, and practices; experience, ability, and depth of
lending management and other relevant staff; national and local economic trends and conditions;
industry conditions; and effects of changes in credit concentrations.
When establishing the allowance for loan losses, management categorizes loans into risk
categories generally based on the nature of the collateral and the basis for repayment. These
risk categories and the relevant risk characteristics are as follows:
Residential real estate loans – This portfolio segment consists of wholly owned loans for
which the Credit Union possesses a senior or secondary lien on the underlying collateral.
Repayment is dependent on the borrower’s financial condition and real estate values.
Consumer loans – Generally these loans are smaller in size and are homogenous because
they exhibit similar characteristics. The Credit Union has identified two segments in this
category, including secured and unsecured.
Commercial loans – This portfolio class consists of commercial real estate secured and
unsecured loans. Repayment of these loans is expected from the cash flows of the business
and the value of the real property in cases where the loan is secured by real estate.
These portfolio classes are based on loan types and the underlying risk factor presented in each
loan type and are periodically reviewed by management and revised as deemed appropriate.
See Note 3.
Page 13
1.
Allowance for Loan Losses…continued
A loan is impaired when, based on current information and events, it is probable that the Credit
Union will be unable to collect all amounts due according to the contractual terms of the loan
agreement. Loans for which the terms have been modified resulting in a concession, and for
which the borrower is experiencing financial difficulties, are considered troubled debt
restructurings (“TDRs”) and classified as impaired. These concessions may include rate
reductions, extension of maturity date and other actions intended to minimize potential losses.
The Credit Union considers a TDR delinquent more than 90 days to be re-defaulted.
Factors considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding
the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower’s prior payment record, and the amount of the shortfall in relation to the principal and
interest owed.
Delinquent loans are individually evaluated for impairment once certain conditions have been
met. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net,
at the fair value of collateral. Large groups of smaller balance homogeneous loans, are
collectively evaluated for impairment, and accordingly, they are not separately identified for
impairment disclosures. TDRs are individually evaluated for impairment based on the present
value of expected cash flows.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Credit Union, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred assets,
and (3) the Credit Union does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity or the ability to unilaterally cause the
holder to return specific assets. During the year ended September 30, 2014, the Credit union
accounted for all transfers of financial assets as sales.
The Credit Union’s policy for repossessing collateral is that when all other collection efforts have
been exhausted, the Credit Union enforces its first lien-holder status and repossesses the
collateral.
The Credit Union has full and complete access to repossessed collateral.
Repossessed collateral normally consists of vehicles and real estate.
Assets acquired through, or in lieu of, loan foreclosure are held-for-sale and are initially recorded
at fair value less cost to sell at the date of foreclosure, establishing a new cost basis.
Subsequent to foreclosure, valuations are periodically performed by management and the assets
are carried at fair value less cost to sell. Revenue and expenses from operations and changes in
the valuation allowance are included in noninterest expenses.
Page 14
1.
Property and Equipment, Net
Land is carried at cost. Buildings, leasehold improvements, and furniture and equipment are
carried at cost, less accumulated depreciation and amortization and are depreciated using the
straight-line method over the estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the terms of the related leases.
Management of the Credit Union reviews property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying value may not be recoverable.
Goodwill and Core Deposit Intangible
The Credit Union recognized and measured goodwill and core deposit intangible arising from the
acquisitions of HeritageWest Federal Credit Union, Southwest Community Federal Credit Union,
and Utah Central Credit Union with effective acquisition dates of January 1, 2010, July 1, 2010,
and April 29, 2011, respectively. Goodwill is subject to at least an annual impairment test each
year by applying a fair-value-based test. Management of the Credit Union has elected June 30th
as its annual impairment test date. No impairment charge was recorded for the year ended
September 30, 2014. The core deposit intangible is amortized using the straight-line method over
the estimated useful lives, which range between five and eight years.
National Credit Union Share Insurance Fund (“NCUSIF”) Deposit and Insurance Premium
The deposit in the NCUSIF is in accordance with National Credit Union Administration (“NCUA”)
regulations, which require the maintenance of a deposit by each federally insured credit union in
an amount equal to 1 percent of its insured members’ shares. The deposit would be refunded to
the Credit Union if its insurance coverage is terminated, if it converts its insurance coverage to
another source or if management of the fund is transferred from the NCUA Board.
Legislation was passed by Congress to permit NCUA to create a temporary Corporate Credit
Union Stabilization Fund (“CCUSF”) to absorb costs and borrowings incurred by the Fund related
to the corporate credit union collapse. It was anticipated that the NCUA Board would assess
annual premiums to repay these stabilization costs through the year 2021 at its discretion. No
CCUSF premium was assessed in 2014 due to subsequent loss recovery settlements and gains
recognized by the Fund in recent years. NCUA currently anticipates no future premium
assessments.
Members’ Shares
Members’ shares are the savings deposit accounts of the owners of the Credit Union. Share
ownership entitles the members to vote in the annual elections of the Board of Directors and on
other corporate matters. Irrespective of the amount of shares owned, no member has more than
one vote. Members’ shares are subordinated to all other liabilities of the Credit Union upon
liquidation.
Dividends on members’ shares are based on available earnings at the end of a dividend period
and are not guaranteed by the Credit Union. Dividend rates are set by the Credit Union’s Board
of Directors.
Page 15
1.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Credit Union is exempt, by statute, from federal and state income taxes. The Credit Union’s
wholly owned subsidiaries, however, are subject to federal and state income taxes, which are
immaterial to the statements as a whole.
Management has evaluated the Credit Union’s tax positions and concluded that the Credit Union
had taken no uncertain tax positions that require adjustment to the financial statements.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of the members’
equity section of the consolidated statements of financial condition and as a component of total
comprehensive income.
Subsequent Events
Management of the Credit Union has evaluated subsequent events through January 31, 2015,
the date on which the financial statements were available to be issued.
2.
INVESTMENTS
Investments classified as available-for-sale as of September 30, 2014, consist of the following:
Gross
Unrealized
Gains
Amortized
Cost
U.S. Government
Obligation and Federal
Agency Securities
Federal Agency
Mortgage Backed
Securities
Money Market
Mutual Funds
$
3,884,967
$
710
444,213
255,850
$
4,585,740
35,858
Gross
Unrealized
Losses
$
4
5,734
$
41,596
Estimated
Fair Value
(Carrying
Value)
(3,835)
$
(5,638)
$
(9,473)
3,916,990
714
444,213
255,946
$
4,617,863
Page 16
2.
INVESTMENTS…continued
Investments classified as held-to-maturity as of September 30, 2014, consist of the following:
Amortized
Cost
(Carrying
Value)
U.S. Government
Agency Securities
Federal Agency
Mortgage Backed
Securities
$
275,773,077
Gross
Unrealized
Gains
$
35,901,810
$
311,674,887
525,908
Gross
Unrealized
Losses
$
14,032
$
539,940
$
Estimated
Fair
Value
(876,947)
$ 275,422,038
(181,638)
35,734,204
(1,058,585)
$ 311,156,242
Information pertaining to securities with gross unrealized losses, aggregated by investment
category and length of time that individual securities have been in a continuous loss position,
follows, as of September 30, 2014:
Less Than Twelve Months
Gross
Estimated
Unrealized
Fair
Losses
Value
Available-for-sale
U.S. Government
Agency Securities
Mutual Funds
Greater Than Twelve Months
Gross
Estimated
Unrealized
Fair
Losses
Value
$
(3,835)
(1,893)
$
2,694,964
89,189
$
(3,745)
$
98,285
$
(5,728)
$
2,784,153
$
(3,745)
$
98,285
Held-to-Maturity
U.S. Government
Agency Securities
Federal Agency
Mortgage Backed
Securities
$
(25,120)
$
15,974,880
$
(851,827)
$
92,865,581
Total Held-to-Maturity
$
Total Available-for-Sale
(26,080)
(51,200)
7,055,617
$
23,030,497
$
(155,558)
25,141,188
(1,007,385)
$ 118,006,769
Page 17
2.
At September 30, 2014, the investments portfolio included 22 investments with unrealized losses
existing for less than one year and 23 existing for greater than one year. Unrealized loss
represents less than one percent depreciation from the Credit Union’s amortized cost of the
related securities as of September 30, 2014. All of these securities are either guaranteed by
federal insurance or the U.S. Government. These unrealized losses relate principally to current
interest rates for similar types of securities. In analyzing an issuer’s financial condition,
management considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred, and the results of
reviews of the issuer’s financial condition. As management has the ability to hold securities until
maturity or the foreseeable future for those classified as available-for-sale, no declines are
deemed to be other-than-temporary.
In general, investments are exposed to various risks, such as interest rate, credit and overall
market volatility risk. Due to the level of risk associated with certain investments, it is reasonably
possible that changes in the values of the investments will occur in the near term and that such
change could be material.
Other investments at September 30, 2014 consist of the following:
Interest Bearing Deposits & Certificates of
Deposit in Financial Institutions
Member Capital Accounts in Corporate Credit Unions
Federal Home Loan Bank Stock
$
1,418,417
592,134
4,500,200
$
6,510,751
Certificates of deposit are generally nonnegotiable and nontransferable, and may incur
substantial penalties for withdrawal prior to maturity. The Credit Union intends to hold the
certificates until maturity.
Membership capital accounts in corporate credit unions are an uninsured equity capital account
and are redeemable only if called by the corporate credit unions.
The investment in Federal Home Loan Bank (FHLB) stock allows the Credit Union access to
other FHLB financial services. The stock qualifies as a restricted stock and as such is not subject
to investment security accounting treatment and is reported at cost.
Page 18
2.
Investments by maturity as of September 30, 2014, are summarized as follows:
Available-for-Sale
Estimated
Fair Value
(Carrying
Cost
Value)
Less Than One Year
One to Five Years
Five to Ten Years
After Ten Years
No Contractual Maturity
Held-to-Maturity
Cost
(Carrying
Value)
Estimated
Fair Value
Other
$
1,766,568
2,119,109
700,063
$
1,798,715
2,118,989
700,159
$
99,022,709
157,554,811
32,322,244
22,775,123
-
$
99,087,040
157,308,597
32,157,793
22,602,812
-
$
285,000
6,225,751
$
4,585,740
$
4,617,863
$
311,674,887
$ 311,156,242
$
6,510,751
Expected maturities of mortgage-backed securities may differ from contractual maturities
because the mortgage loans underlying the securities are subject to prepayment and are,
therefore, classified separately with no specific maturity date.
3.
LOANS, NET
2014
Residential Real Estate:
Mortgages
Equity Loans/Lines
Consumer:
Vehicle
Credit Cards
Other
Commercial:
Real Estate
Other, Unsecured
Total Loans Receivable
Net Deferred Loan Origination Costs
Allowance for Loan Losses
$
233,668,066
174,996,261
408,664,327
720,750,370
101,925,126
46,623,770
869,299,266
25,886,582
16,865,120
42,751,702
1,320,715,295
5,844,579
(16,216,894)
$ 1,310,342,980
Page 19
3.
LOANS, NET…continued
Loan participations purchased consist of vehicle and commercial loans originated by other credit
unions. All participation loans are carried on the Credit Union’s books at the unpaid principal
balance and are reduced monthly by the amount of principal repayment. These participation
loans are purchased without recourse, secured by vehicles and commercial property and
serviced by the originating institutions. Outstanding vehicle and commercial participation loans as
of September 30, 2014 are approximately $388,297,000.
As of September 30, 2014, loans receivable include loans acquired in business combinations for
which an accretable yield and nonaccretable difference were recorded and consist of the
following:
Remaining contractual payments
Remaining accretable yield and nonaccretable difference
Remaining carrying value
$
81,404,727
(12,126,146)
$
69,278,581
Contractual payments on acquired loans for the year ended September 30, 2014
Balance, beginning of the year
$ 101,595,579
Acquired loans foreclosed
Acquired loans charged off
Contractual principal payments received
Balance, end of year
(2,516,977)
3,791,332
(21,465,207)
(20,190,852)
$
81,404,727
Accretable yield and nonaccretable difference for the year ended at September 30, 2014
Balance, beginning of the year
$
Acquired loans charged off
Accretion
(17,700,580)
2,406,344
3,168,090
$
(12,126,146)
Management has evaluated the expected cash flows associated with the acquired loans and has
determined that certain loan pools have experienced changes in cash flows since the acquisition
date. At September 30, 2014, allowance allocations on loans acquired with deteriorated credit
quality totaled approximately $1,061,000.
Page 20
3.
The following table provides additional detail of the activity in the allowance for loan losses, by
portfolio segment, for the year ended September 30, 2014:
Residential
Real
Estate
Consumer
Commercial
Total
Allowa nc e for Loa n Losse s:
Balance at Beginning of Year
$
7,150,110
$
9,439,456
Provision for Loan Losses
(1,018,764)
5,440,401
Loans Charged- Off
(1,302,348)
(7,428,993)
$
316,945
$
435,644
16,906,511
4,857,281
(35,759)
(8,767,100)
Recoveries of Loans
Previously Charged- Off
Balance at End of Year
257,798
2,958,378
4,026
3,220,202
$
5,086,796
$
10,409,242
$
720,856
$
16,216,894
$
556,679
$
295,487
$
143,465
$
995,631
$
3,482,179
$
10,102,221
$
575,430
$
14,159,830
$
1,047,938
$
11,534
$
1,961
$
1,061,433
Tota l Allowa nc e for Loa n Losse s $
5,086,796
$
10,409,242
$
720,856
$
16,216,894
10,030,058
$
3,693,589
$
3,783,051
$
17,506,698
$ 351,268,355
$ 859,348,824
$
23,312,837
$ 1,233,930,016
$
$
6,256,853
$
15,655,814
$
$ 869,299,266
$
42,751,702
$ 1,320,715,295
Ending Balance: Individually
Evaluated for Impairment
Ending Balance: Collectively
Ending Balance: Loans
Acquired with Deteriorated
Credit Quality
Loa ns:
Ending Balance: Individually
$
Ending Balance: Collectively
Ending Balance: Loans
Acquired with Deteriorated
Credit Quality
Tota l Loa ns
47,365,914
$ 408,664,327
69,278,581
Page 21
3.
The Credit Union assigns a risk rating to commercial loans and periodically performs detailed
internal reviews of all such loans over a certain threshold to identify credit risks and to assess
the overall collectability of the portfolio. These risk ratings are also subject to examination by
the Credit Union’s regulators. During the internal reviews, management monitors and
analyzes the financial condition of borrowers and guarantors, trends in the industries in which
the borrowers operate and the fair values of collateral securing the loans. These credit quality
indicators are used to assign a risk rating to each individual loan. The risk ratings can be
grouped into the following major categories, defined as follows:
Pass: Loans classified as pass are loans with no existing or known potential
weaknesses deserving of management’s close attention.
Special Mention: Loans classified as special mention have a potential weakness
that deserves management's close attention. If left uncorrected, this potential
weakness may result in deterioration of the repayment prospects for the loan or of
the institution's credit position at some future date. Special Mention loans are not
adversely classified and do not expose the Credit Union to sufficient risk to warrant
adverse classification
Substandard: Loans classified as substandard are not adequately protected by the
current net worth and paying capacity of the borrower or of the collateral pledged, if
any. Loans classified as Substandard have a well-defined weakness or weaknesses
that jeopardize the repayment of the debt. Well defined weaknesses include a
borrower’s lack of marketability, inadequate cash flow or collateral support, failure to
complete construction on time, or the failure to fulfill economic expectations. They
are characterized by the distinct possibility that the Credit Union will sustain some
loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those
classified as substandard, with the added characteristic that the weaknesses make
collection or repayment in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable.
Loss: Loans classified as loss are considered uncollectible and anticipated to be
charged off.
The following tables show the commercial loan portfolio segments allocated by management’s
internal risk ratings:
September 30, 2014
Risk Rating:
Pass
Special Mention
Substandard
Doubtful
Loss
Total
Commercial Credit Risk Profile by Risk Rating
Commercial
Commercial
Real Estate
Other
Total
$
17,742,112
$ 11,351,449
$
29,093,561
702,511
4,144,270
4,846,781
1,418,875
359,837
1,778,712
3,268,529
840,318
4,108,847
2,754,555
169,246
2,923,801
$
25,886,582
$ 16,865,120
$
42,751,702
Page 22
3.
The following tables show the classes within the homogeneous loan portfolio segments allocated
by payment activity. Loans are deemed performing if they are less than 90 days delinquent and
still accruing interest.
September 30, 2014
Performing
Mortgages
Equity Loans/Lines
Consumer:
Vehicle
Credit Cards
Other
$
Non Performing
231,593,800
173,053,711
719,227,424
101,060,058
46,295,826
$ 1,271,230,819
Total
$
$
Total
2,074,266
1,942,550
$
233,668,066
174,996,261
1,522,946
865,068
327,944
6,732,774
720,750,370
101,925,126
46,623,770
$ 1,277,963,593
The allowance for loan losses is considered by management of the Credit Union as adequate to
cover probable losses inherent in the loan portfolio at September 30, 2014. However, no
assurance can be given that the Credit Union will not sustain loan losses that exceed the
allowance, or that subsequent evaluation of the loan portfolio, in light of then-prevailing factors,
including economic conditions, credit quality of the assets comprising the portfolio and the
ongoing evaluation process, will not require significant changes in the allowance for loan losses.
Included in the impaired loans with an allowance are troubled debt restructured loans of
approximately $17,507,000 at September 30, 2014. The associated allowance for troubled debt
restructured loan loans is approximately $996,000 at September 30, 2014.
The following presents additional information on loans that became trouble debt restructurings
during the year ended September 30, 2014:
Troubled Debt Restructurings
Troubled Debt Restructurings
That Subsequently Defaulted
Number of
Post- modification
Specific
Number of
Post- modification
Specific
Loans
Outstanding Balance
Reserve
Loans
Outstanding Balance
Reserve
Mortgages
Equity Loans/Lines
737,448
$ 58,996
2
10
8
$
388,857
31,109
-
$
108,161
-
$ 8,653
-
107
1,394,534
111,563
2
22,372
1,790
3
14,714
1,177
-
-
-
Consumer:
Vehicle
Credit Cards
Other
8
136
$
30,396
2,432
-
2,565,949
$ 205,277
4
$
-
-
130,533
$ 10,443
Page 23
3.
Troubled debt restructured loans consist of loans receiving a rate change, term extension or
combination of both. The Credit Union did not grant any principal forgiveness related to troubled
debt restructured loans during the year ended September 30, 2014.
Residential, consumer and commercial loans are assessed for credit quality based on the
contractual aging status of the loan and payment activity. Such assessment is completed at the
end of each reporting period. The Credit Union considers all nonaccrual loans and any loans over
90 days delinquent to be nonperforming. Loans require payments on a monthly basis in
accordance with loan terms. The Credit Union did not have any loans that were greater than 90
days delinquent and still accruing interest.
The following is an aging analysis of the recorded investment of past due loans as of
September 30, 2014:
Accruing Interest
Nonaccrual
30- 89
90 Days or
90 Days or
Total
Current
Days Past Due
More Past Due
More Past Due
Loans
229,395,817
$
$
-
$ 2,074,266
Mortgages
Equity Loans/Lines
$
2,197,983
$
233,668,066
169,569,537
3,484,174
-
1,942,550
174,996,261
Vehicle
711,327,435
7,899,989
-
1,522,946
720,750,370
Credit Cards
100,017,470
1,042,588
-
865,068
101,925,126
45,673,710
622,116
-
327,944
46,623,770
25,886,582
Consumer:
Other
Commercial
Real Estate
25,297,131
568,990
-
20,461
Other, Unsecured
13,612,215
3,128,572
-
124,333
16,865,120
$ 1,294,893,315
$ 18,944,412
-
$ 6,877,568
$ 1,320,715,295
$
Page 24
3.
The following table presents additional detail of impaired loans, segregated by class, as of
September 30, 2014. The unpaid principal balance represents the recorded balance prior to any
partial charge-offs. The recorded investment represents member balances net of any partial
charge-offs recognized on the loans.
Unpaid
Princ ipal
Balanc e
Rec orded
Investment
With No Related Allowanc e:
Commerc ial
Real Estate
$
2,661,107
$
Average
Rec orded
Investment
Related
Allowanc e
2,661,107
$
-
$
2,661,107
With An Allowanc e Rec orded:
Mortgages
Equity Loans/Lines
7,177,259
2,852,799
7,177,259
2,852,799
449,274
107,405
5,377,171
2,945,376
Consumer:
Vehic le
192,273
192,273
15,382
1,309,576
3,501,316
3,501,316
280,105
2,269,211
1,121,944
1,121,944
143,465
739,421
17,506,698
$ 17,506,698
995,631
$ 15,301,862
Credit Cards
Commerc ial
Real Estate
Total Impaired Loans:
4.
$
$
PROPERTY AND EQUIPMENT, NET
Property and equipment at September 30, 2014 are summarized as follows:
Estimated
Useful Lives
Land
Building
Furniture and Equipment
Leasehold Improvements
Construction in Progress
$
Less: Accumulated Depreciation and Amortization
$
9,709,501
39,034,976
30,576,824
4,056,314
487,776
83,865,391
(43,775,584)
20 years
5 years
Term of lease
40,089,807
The Credit Union leases several offices. The operating leases contain renewal options and
provisions requiring the Credit Union to pay property taxes and operating expenses over base
period amounts. All rental payments are dependent only upon the lapse of time.
Page 25
4.
PROPERTY AND EQUIPMENT, NET…continued
Minimum rental payments under operating leases with initial or remaining terms of one year or
more at September 30, 2014, are as follows:
Years Ending September 30:
2015
2016
2017
2018
2019
Thereafter
$
994,142
945,984
728,842
282,718
52,813
-
$
3,004,499
Rental expense for the year ended September 30, 2014, for all facilities leased under operating
leases totaled $1,342,737.
5.
FORECLOSED ASSETS, NET
Foreclosed assets are presented net of a valuation allowance. During the year ended
September 30, 2014, the Credit Union incurred expenses related to selling foreclosed assets in
the amount of $311,161.
Analysis of the foreclosed assets for the period ended September 30, 2014, are as follows:
Foreclosed assets:
Balance, beginning of year
Additions to foreclosed assets
Impairment on foreclosed assets
Loss on sale of foreclosed assets, net
Sales proceeds
6.
$
6,354,231
2,867,977
(1,573,371)
(1,432,367)
(2,993,464)
$
3,223,006
OTHER ASSETS
Included in other assets are several life insurance policies. The Credit Union is the owner and
beneficiary of these policies. The policies provide for investments in various unit investment
trusts administered by various life insurance companies. The cash surrender value of these
policies as of September 30, 2014 is $14,098,103.
Page 26
7.
GOODWILL AND CORE DEPOSIT INTANGIBLE
Goodwill of $71,488,504 was unimpaired as of September 30, 2014.
Core deposit intangibles at September 30, 2014 are summarized as follows:
Core deposit intangible
Accumulated amortization
$
$
2,327,859
(1,584,933)
742,926
For the year ended September 30, 2014, amortization expense of core deposit intangibles was
$377,914. Future amortization expense is estimated as follows:
2015
2016
2017
Subsequent years
8.
$
303,360
190,392
190,392
58,782
$
742,926
MEMBERS’ SHARES
Members’ shares at September 30, 2014 are summarized as follows:
Regular Shares Accounts
Share Draft Accounts
Money Market Accounts
IRA Share Accounts
Club Accounts
Certificates
$
426,852,889
360,212,085
295,244,791
51,966,686
25,772,545
533,448,753
$ 1,693,497,749
Page 27
8.
MEMBERS’ SHARES…continued
Shares by maturity as of September 30, 2014, are summarized as follows:
0-1 Year Maturity
1-2 Year Maturity
2-3 Year Maturity
3-4 Year Maturity
4-5 Year Maturity
Over 5 Years Maturity
$
341,869,135
105,000,726
30,105,956
34,343,054
21,718,904
410,978
$
533,448,753
Regular shares, share draft accounts, money market accounts, and individual retirement account
(IRA) shares have no contractual maturity.
The NCUSIF insures members’ shares and certain individual retirement and Keogh accounts up
to $250,000 on all members’ share accounts.
The aggregate amount of certificates in denominations of $100,000 or more at September 30,
2014, is approximately $208,112,000.
9.
BORROWED FUNDS
The Credit Union utilizes a demand loan agreement with the Federal Home Loan Bank of Atlanta
with a borrowing limit of $238,430,000. The terms of the agreement call for pledging certain
mortgages and certain investments held in safekeeping by the FHLB and a portion of the Credit
Union’s mortgage portfolio. There was an outstanding balance of $45,000,000 with interest rates
ranging from 0.21% to 0.25% as of September 30, 2014. This balance consists of three advances
of $15,000,000 each, which are all maturing within three months.
The Credit Union has a line of credit with Mid-Atlantic Corporate Federal Credit Union with a
borrowing limit of $5,000,000 as of September 30, 2014. The terms of the agreement call for the
security to be all of the Credit Union’s assets. As of September 30, 2014, the Credit Union had no
advances outstanding on this line. The line of credit is periodically evaluated by the lender.
The Credit Union is also eligible to borrow from the Federal Reserve Bank of Richmond discount
window (Federal Reserve). These borrowings require collateral and could be secured by a portion
of the Credit Union’s investment portfolio. The maximum borrowing limit is based on the value of
securities that are held for safekeeping by the Federal Reserve Bank. The interest rate is
determined by the Federal Reserve. At September 30, 2014, there were no borrowings under this
agreement.
Page 28
10.
OFF-BALANCE SHEET ACTIVITIES
The Credit Union is party to conditional commitments to lend funds in the normal course of
business to meet the financing needs of its members. These commitments represent financial
instruments to extend credit that includes lines of credit, credit cards and home equity lines that
involve, to varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the consolidated financial statements.
The Credit Union’s exposure to credit loss is represented by the contractual amount of these
commitments. The Credit Union follows the same credit policies in making commitments as it
does for those loans recorded in the consolidated financial statements.
Outstanding loan commitments at September 30, 2014, total approximately $4,670,000.
Unfunded loan commitments under lines of credit at September 30, 2014 are summarized as
follows:
Credit Card
Home Equity
Other Consumer
Overdraft Protection
Commercial
$ 198,798,837
111,058,424
11,855,725
59,873,724
2,481,486
$ 384,068,196
Commitments to extend credit are agreements to lend to a member as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Because many
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Credit Union evaluates
each member’s creditworthiness on a case-by-case basis. The amount of collateral obtained to
secure borrowing on the lines of credit is based on management’s credit evaluation of the
member.
Unfunded commitments under revolving credit lines and overdraft protection agreements are
commitments for possible future extensions of credit to existing customers. These lines of credit
are uncollateralized and usually do not contain a specified maturity date and ultimately may not
be drawn upon to the total extent to which the Credit Union is committed.
11.
COMMITMENTS AND CONTINGENT LIABILITIES
The Credit Union is a party to various legal actions normally associated with collections of loans
and other business activities of financial institutions, the aggregate effect of which, in
management’s opinion, would not have a material adverse effect on the financial condition or
results of operations of the Credit Union.
Page 29
12.
EMPLOYEE BENEFITS
The Credit Union has a 401(k) pension plan that allows employees to defer a portion of their
salary into the 401(k) plan. The Credit Union matches a portion of employees’ wage reductions.
Pension costs are accrued and funded on a current basis. The Credit Union contributed
$910,079 to the plan for the year ended September 30, 2014.
The Credit Union entered into deferred compensation agreements with members of the Executive
Management Team that provides benefits payable to these employees based on years of service
with the Credit Union as defined in the agreement. The estimated liability under the agreements
is being accrued on a straight-line basis over the remaining years until the eligible employees
attain age 65. The Credit Union has accrued $4,968,486 under these agreements for the year
ended September 30, 2014. Deferred compensation expense was $1,364,196 for the year ended
September 30, 2014.
13.
MEMBERS’ EQUITY
The Credit Union is subject to various regulatory capital requirements administered by the NCUA.
Failure to meet minimum capital requirements can initiate certain mandatory—and possibly
additional discretionary—actions by regulators that, if undertaken, could have a direct material
effect on the Credit Union’s consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Credit Union must meet specific
capital guidelines that involve quantitative measures of the Credit Union’s assets, liabilities, and
certain off-balance sheet items as calculated under GAAP. The Credit Union’s capital amounts
and classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Credit
Union to maintain minimum amounts and ratios (set forth in the table below) of net worth to total
assets. Further, credit unions over $10,000,000 in assets are also required to calculate a RiskBased Net Worth (RBNW) requirement that establishes whether or not the Credit Union will be
considered “complex” under the regulatory framework. The Credit Union’s RBNW requirement as
of September 30, 2014, was 4.95 percent. The minimum requirement to be considered “complex”
under the regulatory framework is 6.00 percent. Management believes, as of September 30,
2014, that the Credit Union meets all capital adequacy requirements to which it is subject.
As of September 30, 2014, the most recent call reporting period, the NCUA categorized the
Credit Union as “well capitalized” under the regulatory framework for prompt corrective action. To
be categorized as “adequately capitalized,” the Credit Union must maintain a minimum net worth
ratio of 7.00 percent of assets. There are no conditions or events since that notification that
management believes have changed the institution’s category including the acquisition
transactions that occurred during the year.
Page 30
13.
MEMBERS’ EQUITY…continued
The Credit Union’s actual capital amounts and ratios are presented in the following table:
September 30, 2014
Ratio/
Amount
Requirement
Amount needed to be classified as “adequately capitalized”
$ 114,814,226
6.00%
Amount needed to be classified as “well-capitalized”
$ 133,949,930
7.00%
Actual regulatory net worth
$ 151,783,372
7.93%
Because the RBNW requirement is less than the net worth ratio, the Credit Union retains its
original category. Further, in performing its calculation of total assets, the Credit Union used the
quarter-end balance option.
14.
RELATED-PARTY TRANSACTIONS
In the normal course of business, the Credit Union extends credit to Directors, Supervisory
Committee members and executive officers. Loans to related parties at September 30, 2014, are
approximately $133,000.
Deposits from related parties at September 30, 2014, are
approximately $3,022,000.
Page 31
15.
FAIR VALUE
As described in Note 1 to the financial statements, the following methods and assumptions were
used by the Credit Union in estimating fair values of financial instruments as disclosed herein:
The carrying amounts of cash and cash equivalents approximate their fair value.
Investments
Government sponsored enterprise securities, mortgage-backed securities, and mutual funds of
government sponsored enterprise securities are classified as either available-for-sale or held-tomaturity. The Credit Union obtains fair value measurements from various third-party pricing
sources. The inputs used to calculate fair value may include dealer quotes, market spreads, cash
flows, market consensus prepayment speeds, and a bond’s terms and conditions, among other
things.
Available-for-sale securities are reported at fair value utilizing Level 2 inputs.
Loans, Net
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair
values are based on carrying values. Fair values for certain mortgage loans (for example, one-tofour family residential) and other consumer loans are estimated using a discounted cash flow
calculation that applies interest rates currently being offered similar loans to a schedule of
aggregated expected monthly maturities of these loans. Fair values for commercial real estate
and commercial loans are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar credit quality. Fair
values for impaired loans are estimated using discounted cash flow analyses or underlying
collateral values, where applicable.
Loans Held-for-Sale
The carrying amount of loans held for sale approximates fair value.
Fair value is based on market prices of comparable properties, obtained in appraisals or as
obtained as part of a third party valuation at the acquisition date of the property.
Accrued interest receivable represents interest on loans and investments. The carrying amount
of accrued interest receivable approximates fair value.
Page 32
15.
FAIR VALUE…continued
Members’ Shares
The fair values disclosed for regular shares, share draft, money market, individual retirement
accounts are, by definition, equal to the amount payable on demand at the reporting date (that is,
their carrying amounts). The carrying amounts of regular shares, share draft, money market,
individual retirement accounts approximate their fair values at the reporting date. Fair values for
share certificates are estimated using a discounted cash flow calculation that applies interest
rates currently being offered on share certificates to a schedule of aggregated expected monthly
maturities on the Credit Union’s current share certificates.
Off-Balance Sheet Credit-Related Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently
charged to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties’ credit standing. The fair value for such financial instruments
is nominal.
Fair Value on a Recurring Basis
The table below presents the balances of assets measured and presented in the consolidated
statements of financial condition at fair value on a recurring basis as of September 30, 2013.
Level 1
Level 2
Level 3
Total
Available-for-Sale Securities:
U.S. Government
Agency Securities
$
-
$
3,916,990
$
-
$
3,916,990
Federal Agencies
Mortgage-Backed
Securities
Money Market
Mutual Funds
Total Assets
$
-
714
-
714
444,213
-
-
444,213
255,946
700,159
$
3,917,704
$
-
$
255,946
4,617,863
Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not
measured at fair value on an ongoing basis; however, they are subject to fair value adjustments
in certain circumstances, such as there is evidence of impairment or a change in the amount of
previously recognized impairment.
Page 33
15.
FAIR VALUE…continued
Net impairment losses related to nonrecurring fair value measurements of certain assets for the
years ended September 30, 2014 consisted of the following:
Carrying Value at September 30, 2014
Impairment
Level 1
Impaired Loans
Level 2
$
-
$
-
Foreclosed Assets
$
-
$
Level 3
-
$ 16,511,067
-
3,223,006
-
$ 19,734,073
Losses
$
(995,631)
(1,573,371)
$
(2,569,002)
The following table presents additional quantitative information about assets measured at fair
value on a nonrecurring basis for which the Credit Union has utilized Level 3 inputs to determine
fair value:
September 30, 2014
Impaired Loans
$
Fair
Valuation
Value
Unobservable
Range
Technique
Input
(Average)
16,511,067
Collateral
8.00%
3,223,006
Appraisal
Value
pp
Adjustment
Foreclosed Assets
Not Meaningful
Financial Instruments
The estimated fair value of the Credit Union’s consolidated financial instruments is summarized
as follows as of September 30, 2014:
Carrying
Amount
Financial Assets
Investments:
Available-for-Sale
Held-to-Maturity
Other Investments
Loans Held-for-Sale
Loans, Net
$
105,402,835
Fair
Value
$
105,402,835
4,617,863
311,674,887
6,510,751
204,725
1,310,342,980
6,243,582
4,617,863
311,156,242
6,510,751
204,725
1,329,243,000
6,243,582
1,693,497,749
$ 1,692,119,000
Borrowed Funds
45,000,000
45,000,000
Accrued Interest Payable
17,729,148
17,729,148
Financial Liabilities
Member's Shares
$
********
Supporting Our Communities
As the charitable arm of Chartway, HeritageWest, and SouthWest Community Credit Unions,
the We Promise Foundation is dedicated to making dreams come true for children in our
communities who battle with severe illness or tremendous hardship.
To donate, volunteer, or learn more, visit www.wepromisefoundation.org.
www.chartway.com
(757) 552-1000
(800) 678-8765
This credit union is federally insured by the National Credit Union Administration.
Membership eligibility subject to verification.

REACHING NEW HEIGHTS - Chartway Federal Credit Union

Transcription

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