AnnualReport - Purdue Federal Credit Union

Transcription

New mobile banking
introduced in 08.
Change in Leadership.
PEFCU reinforces its place
as a leader in the financial
services industry by becoming the first credit union in
Indiana and the first financial institution in Greater
Lafayette to launch a Webenabled mobile account ser-
Three generations of CEOs (L to R): Bob Falk, current president;
Bill Connors, 1996-2009; Gene Hills, 1990-1996.
2008 will be noted in the history
books of our future. The housing
bubble burst, global markets plummeted, and oil prices fell to below
$70 a barrel – the lowest in years.
vice called PEFCU2Go early
in 2008.
Through PEFCU2Go mem-
2008
PURDUE EMPLOYEES
FEDERAL CREDIT UNION
2008 PEFCU Volunteer Committees
Purdue Employees
Federal Credit Union
PO Box 1950
Membership Services Committee.
Robert W. Bain, Chair
Susan K. Aufderheide, Chair
Thomas E. Moore
Susan M. Smith
P. Greggory Williams
Mark M. Moriarty
James Schackmuth
Rick Bradley
John A. Schneider
Darren Cooper
2008 Highlights
West Lafayette, IN
Supervisory Committee.
Ted Hingst
47996-1950
Christiane Keck, Chair
Jayne Feathers
Stephen E. Brewer
Sharon Kraebber
765.497.3328
union’s reach by offering a shared
and acquired the Purdue Alumni
new president, PEFCU inducted a
branching and surcharge-free
Association affinity credit card
new leader as well.
ATM network to our members.
program with exclusive Purdue
www.purdueefcu.com
University card designs. Falk is
This credit union is federally insured by
the National Credit Union Administration.
New President & CEO
PEFCU Partners with PALS
Celebrate 40 Years.
800.627.3328
Rick Davis
In 1969 Purdue grad Neil
Marcus Rogers
Armstrong wasn’t the only one
Connors began his credit union
also responsible for developing
pay bills using their Web-
fourth president, Bill Connors.
career in 1970 and since that time
staff as true financial experts and
Purdue University a place where
enabled cell phone or other
Since joining PEFCU, Connors
he has been highly engaged in
initiating the credit union’s in-
they could save and borrow
mobile device. The mobile
focused on bringing the credit
more than 20 industry and com-
house mortgage servicing—a rar-
money safely, confidently and at a
service is safe and provides
union closer to its business part-
munity organizations. His credit
ity in the industry.
fair interest rate.
a consistent member experi-
ners with special attention to the
union knowledge and unique
ence with the existing online
credit union’s largest and origi-
leadership will be missed. We
Falk has 18 years of credit union
banking platform by employ-
nal partner—Purdue University.
wish him well in retirement with
experience. He previously served
ing the same multi-factor
Under his leadership PEFCU
special consideration for his golf
as account vice president for
became the exclusive provider
game.
CUNA Mutual Group, serving
of ATMs in campus residence
doors to provide employees of
Board of Directors
© 2009 Purdue Employees Federal Credit Union
A. Charlene Sullivan
Steve Brewer
Robert W. Bain
John O. Trott
Chair
Vice Chair
Treasurer
Secretary
I appreciate the trust that you have placed in PEFCU
Large banks, insurance companies and brokerage firms
during this time when it might be difficult to trust any
failed or were absorbed by other companies and the
financial institution. The PEFCU board and staff will do
From these humble beginnings
economy weakened dramatically under the pressure
everything possible to continue to earn your trust and
of a small office on the Purdue
that originated in the collapse of the housing market.
improve the value of your membership in the credit
serve our members throughout
During this storm of negative news and results, PEFCU
the financial needs of the largest
the Lafayette area. Since then,
protected your deposits with strong earnings and solid
halls and increased branching
New PEFCU President.
credit unions in Colorado, Kansas
and other member touchpoints
Assuming the position as the
and Utah, and as vice president
members’ needs and expectations
must already be enrolled
around the Greater Lafayette
credit union’s fifth CEO is Bob
of lending at the University of
in our quest to be your financial
in PEFCU’s online bank-
community. Connors also encour-
Falk. Since joining PEFCU in 2002
Colorado Federal Credit Union
partner for life. From the Age
ing. Simply enter the URL
aged the active involvement of
as vice president of lending, Falk
(now Elevations Credit Union) in
www.pefcu2go.com into
PEFCU and its employees in com-
has provided executive leader-
Boulder, Colo.
the browser of your Web-
munity affairs through time and
ship to mortgage, consumer
enabled mobile device and
financial contributions to Greater
and commercial lending as well
Lafayette United Way and other
deserving area nonprofits.
word. In no time you can
as marketing, business development, human resources and retail
branches.
union.
campus we’ve expanded to better
To use PEFCU2Go, members
Online username and pass-
Thank you for your trust in our credit union.
You are all familiar with the 2008 financial disaster.
we’ve stayed in tune with our
log in using your PEFCU
New Rewards for PEFCU Debit Cards
making history. PEFCU opened its
But first, we bid farewell to our
for mobile and online access.
Satisfaction Hits Record High
Lucia Anderson
ances, transfer funds, and
identification authentication
AnnualReport
Dan Heman
And while America was electing a
bers can check account bal-
Asset and Liability Committee.
Susan K. Aufderheide
Thomas E. Moore
Susan Smith
Mark Moriarty
Director
Director
Director
Director
Director
“We believe Bob’s most
valuable attributes are
his belief in creating
Executive Leadership
insurance. PEFCU continued taking deposits, dispensing
cash and making loans so you could conduct the normal
business of life. PEFCU continued to provide you with
Bob Falk
of Aquarius to the Digital Age,
the products and services to meet your short- and long-
President and CEO
we’ve grown to serve over 57,000
term financial services needs.
Purdue Employees Federal Credit Union
members in a safe, secure environment.
Throughout this period we kept you informed of our
financial results through town hall meetings and by
Under Falk’s leadership, the credit
union will continue to provide a
an excellent team and
posting our monthly financial statements directly on our
Web site. PEFCU had strong results in 2008 and we were
enjoy the safety and conve-
Throughout Connors’ 12-year ten-
nience of anywhere, anytime
ure as CEO, he positioned the
Under his management, the
account access.
credit union as a leading provider
credit union initiated new gold
our members’ financial
rate, as was its purpose when
the 2008 disaster by making loans to members that
of technology-based financial ser-
and platinum credit cards with
needs,” said Charlene
founded in 1969 by a group of
have been paying us back. It is the foundation that credit
vices and expanded the credit
a ScoreCard® Rewards program,
Sullivan, board chair.
Purdue employees. We look for-
unions were built on 100 years ago and it has stood the
ward to celebrating our success
test of time and more recently, the test of 2008.
www.pefcu2go.com
safe, fair place for members to
his focus on meeting
save and borrow money at a fair
Bob Falk
Gail Koehler
Brian Musser
Evelyn Royer
Bill Arnold
Jackie Hofman
Nikki Gaylord
President/CEO
Executive Vice President
Vice President Finance/CFO
Vice President Risk Management & Support Serv.
Vice President Information Technology
Vice President Human
Resources & Marketing
Vice President Lending
during 2009 and hope you will
join us.
pleased to share these results with you. We survived
New mobile banking
introduced in 08.
in 2008.
2008
PURDUE EMPLOYEES
Purdue Employees
PO Box 1950
Thomas E. Moore
Susan M. Smith
Mark M. Moriarty
James Schackmuth
Rick Bradley
John A. Schneider
Darren Cooper
2008 Highlights
West Lafayette, IN
Ted Hingst
47996-1950
Jayne Feathers
Stephen E. Brewer
Sharon Kraebber
765.497.3328
new leader as well.
www.purdueefcu.com
New President & CEO
Celebrate 40 Years.
800.627.3328
Rick Davis
Marcus Rogers
fair interest rate.
game.
Board of Directors
Steve Brewer
Robert W. Bain
John O. Trott
Chair
Vice Chair
Treasurer
Secretary
Boulder, Colo.
branches.
union.
Lucia Anderson
AnnualReport
Dan Heman
Thomas E. Moore
Susan Smith
Mark Moriarty
Director
Director
Director
Director
Director
Bob Falk
President and CEO
account access.
www.pefcu2go.com
Bob Falk
Gail Koehler
Brian Musser
Evelyn Royer
Bill Arnold
Jackie Hofman
Nikki Gaylord
President/CEO
join us.
Brees Dream
Foundation and
PEFCU Golf Outing
raises $50,000 for
local PALS camp.
Members Earn
Rewards with
Debit Cards.
Partnership with PALS.
Good money management
is an essential life skill.
Town Hall Meeting a Success.
That’s why we partnered with
The children applied the money
The older campers took this activ-
Purdue Athletes Life Success
management knowledge they had
ity to the next level using a com-
On the evening of October 14,
“Our typical order of business is trans-
government agency equivalent to
Program (PALS) to also provide
gained from PEFCU staff through
puter-based program. Based on
President and CEO Bob Falk hosted a
parency. We’re not afraid to talk about
the FDIC for banks—and Excess Share
financial literacy content and
age-based life-skills activities. The
their individual interests and cho-
complimentary Town Hall Meeting at
our operations now and we weren’t
Insurance (ESI)—a private insurance
activities during this year’s camp,
younger campers each received
sen education level, the computer
the Purdue Technology Center in West
afraid to talk about them before.”
company that offers additional cov-
over and above PEFCU’s monetary
a $100 “paycheck,”
generated a career
Lafayette. The 70 members and non-
donation.
which they had to
and salary for each
members in attendance learned about
As a credit union, PEFCU is a not-for-
PEFCU has strong financials and a
camper. Then they
the causes and effects of this year’s
profit financial cooperative that pro-
conservative business model that
chose to purchase
financial crisis and how PEFCU avoid-
vides an effective and viable alterna-
includes avoiding risky practices such
insurance, homes,
ed the crisis. Attendees then asked
tive to for-profit financial institutions.
as subprime lending and credit swaps.
vehicles, meals and
Falk questions about the strength of
For nearly 40 years, it has existed
If you were unable to attend the Town
so on at different
the credit union.
to serve its members, providing a
Hall Meeting, an event video is post-
safe place to save money and access
ed online at www.youtube.com. As
also had to “visit” their finan-
“The big difference between a credit
affordable loans. We now serve more
always, our financial statements are
cial institution in order to pay
union and a bank is that our share-
than 57,000 members and protect
posted online at www.purdueefcu.
off debts like mortgages, credit
holders are our owners, who are also
your deposits with insurance cover-
com.
cards and student loans. During
our members,” said Bob Falk, PEFCU
age from the National Credit Union
the game, each camper could see
president and chief executive officer.
Administration (NCUA)—a federal
deposit
“Whether we like it or not, economics has become the foundation of our entire culture,” said
Bill Harper, PALS director. “Kids
typically are not exposed to the
In June, PEFCU hosted its
complications of handling money
annual golf outing. More than
or differentiating between wants
200 golfers from nine dif-
and needs. This is an opportunity
ferent states joined football
to introduce kids to the reality of
celebrities Drew Brees, Bob
life in an informal setting.”
into
the
“credit union”. Then
they used a checkbook register to bal-
“Whether we like it
or not, economics has
become the foundation
of our entire culture,”
said Bill Harper, PALS
ance their “checking
accounts” according
to choices they made individually
between low-priced, mid-priced
and high-priced vehicles, food
and pets as well as unexpected
emergencies.
DeMoss, Travis Dorsch, Bernie
Flowers, Nick Hardwick, Mark
Herrmann, Leroy Keyes, Kyle
Orton and others on the
course. Following golf was
a cocktail reception where
unique sports memorabilia were auctioned off with
Brees serving as auctioneer.
director.
price levels. They
PEFCU Loss Mitigation Manager Dana Smith helps a camper create her computer
persona and practice the money management skills learned earlier in the week.
balances on savings and debts.
“The kids have already learned so
Membership satisfaction hits record high in 2008.
much about savings and they’ve
told me how they’re going to save
In three surveys sent to members dur-
at home. They’re very excited
ing second, third and fourth quarters of
about all they can do with money,”
2008, PEFCU realized record-high satisfac-
said Jill Freeland, PALS counselor.
tion scores. Banks report their financials
The event concluded with
In addition to its partnership with
the presentation of a $50,000
PALS, PEFCU works with local
check to PALS.
schools to teach money management skills to area youth in a number of local classrooms.
quarterly to their owners, the shareholders. Accordingly, it is important for PEFCU
to share this measurement with you, the
owner and member. Your satisfaction with
credit union products and the service you
receive from our staff is an essential ingredient to our success.
97+ %
Members are satisfied
with their credit union.
late points faster than they could
gram designed to reward mem-
with other programs. Through
bers for all their purchases—from
this generous rewards program,
As a member-owned cooperative
gasoline to groceries to vacations.
bonus points may be redeemed
we believe it’s our responsibil-
What makes it unique is that
on more than 600 brand-name
ity to help you choose earth-
ScoreCard® Rewards Bonus Points
merchandise items, airline tickets
friendly products and services
earned from PEFCU Visa® Debit
with limited or no blackout dates,
that save time, money and the
and Credit Card purchases can
or even cash back. Browse the
PEFCU introduced a new product
environment. Together we can
be combined before redemption
robust list of available rewards at
designed to provide members
make a difference.
allowing our members to accumu-
www.scorecardrewards.com.
with a savings program that
New Savings
Accelerator for
auto loans.
is easy and rewarding, called
erage for credit unions’ members.
his/her monthly income as well as
In 2008, PEFCU launched a pro-
On National Arbor Day (April
25, 2008), PEFCU partnered
with the West Lafayette Parks
Department and a Klondike
Elementary School first-grade
Savings Accelerator.
Harrison High
School Branch
Opens.
The premise of the account is
simple. When members open
their auto loans, they can
choose to open a special share
Save at least
class to plant trees donated
by PEFCU at the Celery Bog in
Last fall PEFCU opened the area’s
must also be enrolled in the
certificate at the same time.
22 trees
West Lafayette. Through this
second in-school financial insti-
twelfth-grade
Members select a monthly
event, we were able to show
tution with a 208-square-foot
Cooperative
our youth how small changes in
branch located at Harrison High
course at Harrison High School.
percent of their loan payment—
their everyday lives can lead to
School.
Students are selected as tellers
for the share certificate. Each
after submitting an application
time a loan payment is due, an
“We are pleased to have this
and being interviewed. They
automatic transfer makes the
partnership with PEFCU,” said Dr.
receive compensation as well as
loan payment and savings con-
Participants celebrated by plant-
Doug Lesley, Harrison High School
ICE course credits for their work.
tribution.
ing 22 trees – the same number
principal. “We believe it creates
Jefferson’s PEFCU @ School,
of trees PEFCU members helped
numerous educational opportu-
which opened in 2005, operates
By the end of the loan, the
save per month in 2007 by
nities for students and also pro-
in a very similar manner.
member could have substantial
choosing to receive eStatements
vides beneficial financial services
rather than traditional paper
to Tippecanoe School Corporation
PEFCU has provided Harrison High
ment on a new vehicle or vaca-
statements by mail. Staff mem-
employees.”
School with financial education
tion, or even earn more with
for two years and this in-school
another savings product.
each month by
switching to
eStatements.
big savings—for them and their
community.
ber Erin Moore was recognized
Interdisciplinary
Education
(ICE)
savings to use for a down pay-
for her leadership converting
Harrison’s PEFCU @ School is
branch solidifies our commitment
a large number of members
operated by two high-school-stu-
to the financial health of Greater
from paper statements to
dent tellers and a PEFCU supervi-
Lafayette’s youth. By helping teen-
eStatements during April. West
sor. Student tellers are expected
agers develop smart fiscal habits
Lafayette Mayor John Dennis
to meet the same qualifications
now, we are preparing them for a
was also in attendance and
as other PEFCU employees. They
bright financial future.
officially proclaimed the day as
Arbor Day.
contribution amount—up to 10
Brees Dream
Foundation and
PEFCU Golf Outing
raises $50,000 for
local PALS camp.
Members Earn
Rewards with
Debit Cards.
generated a career
donation.
which they had to
and salary for each
camper. Then they
chose to purchase
insurance, homes,
vehicles, meals and
so on at different
the credit union.
com.
deposit
into
the
emergencies.
director.
price levels. They
check to PALS.
97+ %
make a difference.
New Savings
Accelerator for
auto loans.
Harrison High
School Branch
Opens.
Save at least
22 trees
twelfth-grade
Cooperative
School.
tribution.
employees.”
each month by
switching to
eStatements.
community.
Interdisciplinary
Education
(ICE)
Arbor Day.
Brees Dream
Foundation and
PEFCU Golf Outing
raises $50,000 for
local PALS camp.
Members Earn
Rewards with
Debit Cards.
generated a career
donation.
which they had to
and salary for each
camper. Then they
chose to purchase
insurance, homes,
vehicles, meals and
so on at different
the credit union.
com.
deposit
into
the
emergencies.
director.
price levels. They
check to PALS.
97+ %
make a difference.
New Savings
Accelerator for
auto loans.
Harrison High
School Branch
Opens.
Save at least
22 trees
twelfth-grade
Cooperative
School.
tribution.
employees.”
each month by
switching to
eStatements.
community.
Interdisciplinary
Education
(ICE)
Arbor Day.
New mobile banking
introduced in 08.
in 2008.
2008
PURDUE EMPLOYEES
Purdue Employees
PO Box 1950
Thomas E. Moore
Susan M. Smith
Mark M. Moriarty
James Schackmuth
Rick Bradley
John A. Schneider
Darren Cooper
2008 Highlights
West Lafayette, IN
Ted Hingst
47996-1950
Jayne Feathers
Stephen E. Brewer
Sharon Kraebber
765.497.3328
new leader as well.
www.purdueefcu.com
New President & CEO
Celebrate 40 Years.
800.627.3328
Rick Davis
Marcus Rogers
fair interest rate.
game.
Board of Directors
Steve Brewer
Robert W. Bain
John O. Trott
Chair
Vice Chair
Treasurer
Secretary
Boulder, Colo.
branches.
union.
Lucia Anderson
AnnualReport
Dan Heman
Thomas E. Moore
Susan Smith
Mark Moriarty
Director
Director
Director
Director
Director
Bob Falk
President and CEO
account access.
www.pefcu2go.com
Bob Falk
Gail Koehler
Brian Musser
Evelyn Royer
Bill Arnold
Jackie Hofman
Nikki Gaylord
President/CEO
join us.
Purdue Employees Federal Credit Union ACCOUNTANTS’ REPORT and CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007 2008 Treasurer’s Report On behalf of your volunteer Board of Directors I am pleased to report that 2008 was another stable year of growth for Purdue Employees Federal Credit Union (PEFCU). Your cooperative organization remains financially strong. I trust this is comforting given all the negative economic and financial institution news that exists today. Nationally, 2008 saw the worst economic decline since the Great Depression of the 1930’s. The decline in housing value led to the collapse of Wall Street and subsequently a credit crunch that has exposed a near decade of abuses and greed surrounding illogical lending practices. Many financial institutions have directly experienced the negative impact of moving away from traditional common sense lending practices. While blame may not be shared by all, the unfortunate reality is all Americans are negatively impacted by the damage. In contrast to many financial institutions, your credit union completed another profitable year of responsible lending. No credit crunch at PEFCU, as the membership’s demand for loans, including home ownership, was met. While safe and sound lending practices are a strong foundation for PEFCU’s success, another is the stable economic base of Purdue University and the Lafayette community. While home foreclosures in the Lafayette community are increasing, the rate of growth has slowed vs the pace experienced in many parts of the country. National unemployment peaked at 7.1% at year end 2008 with Indiana reaching 8.1%. The Lafayette community remains lower at 6.2% but unfortunately has increased from last years 3.7%. The PEFCU board and management stand on a firm foundation for navigating what is expected to be a rocky 2009. Capital remains strong and is expected to support any indirect impacts the economy will throw at your credit union. PEFCU’s net loans outstanding grew by 12.4% or $48.3 million (M) in 2008. First Mortgage loans remained in strong demand by members with $117.2M in mortgage originations. Mortgage loans outstanding increased $35.5M (17.6%) for 2008. PEFCU completed a second calendar year offering the Purdue Alumni Association Visa affinity credit card program. The popularity of the affinity program is catching on as credit card balances grew another $4.3M (12.8%) for 2008. PEFCU’s commercial relationships grew in 2008 as well with Commercial loans outstanding increasing $9.2M (19%). The student lending landscape changed as Purdue University moved away from the FELP student loan program to Government Direct. As a result PEFCU no longer participates in the guaranteed student lending business. PEFCU’s balance sheet strength is grounded in a well‐diversified loan portfolio with strong credit quality. Many sectors of the financial industry are negatively impacted by poor lending practices, PEFCU’s credit quality remained strong with loan delinquency (0.36%) remaining well below our peer group average of 1.22%. The relatively low amount of loan losses positively contributed to the bottom line and benefited your credit union. Charge‐offs of .29% for 2008 compare favorably to our peer group average of .79% charge‐off. Loan funding is primarily drawn from member deposits and supplemented with institutional borrowings. Deposit growth was $58.0M (13.7%) in 2008. This was a strong improvement to the 4.4% growth of 2007. Overall member product usage showed continued strength. All deposit categories experienced growth with Money Market accounts growing the most at $27.3M (33.2%). Earnings for 2008 improved from the .34% return on average assets (ROA) experienced in 2007. Earnings of $2.204 million generated an ROA of .42% for the year. Member service investment decisions are showing positive revenue growth trends. Strong revenue growth from interest margin and mortgage production is improving profitability. Credit card program expansion continues as balances and transactions grew. Members with a credit card increased from 43.7% to 44.9% during 2008. Membership grew 1.8% for the year to 57,772, the strongest growth seen for many years. The board and management believe PEFCU’s core business model is strong and ready to counteract the negative impacts of this economy. Capital, or PEFCU’s regulatory net worth, ended the year at $44.3M or 8.6% of average assets. Stable earnings and capital enable PEFCU to make enhancements to products and services while also providing a cushion for future economic and marketplace uncertainties. The Board of Directors and management team appreciate the challenge of meeting your service expectations while balancing the income retention necessary for PEFCU’s long‐term financial health. Your member‐owned organization is working hard to provide you and your family with a “collective” financial service value exceeding that of any other local financial service provider. We look forward to continuing our quest to be your financial partner for life! Robert W. Bain Treasurer 2008 Supervisory Committee Report The Supervisory Committee is a volunteer group of PEFCU members, which is appointed by the Board of Directors to ensure that the financial condition of the credit union is accurately and fairly presented in the organization’s financial statements, and that the credit union’s management practices and procedures are in accordance with federal regulation and are sufficient to safeguard member assets and sensitive member information. Under the direction of the Supervisory Committee, an annual audit is performed by an independent, outside accounting firm with proven knowledge of credit union regulations and operations. This year that firm is BKD. The committee then works with the board and the credit union management team to address any areas of concern raised in the audit. After completion of this year’s external audit, BKD met with the Supervisory Committee on March 12th. The discussion items included a complete review of the financial statement and audit reports. BKD concluded with an unqualified opinion of no significant findings and no material misstatements in PEFCU’s financial reporting. All financials and required letters were reviewed with no major exceptions found. So once again this year the result of the audit is very positive news. The Internal Audit staff also reports to the Supervisory Committee. They carefully examine and monitor all procedures and financial statements. The internal audit and the information technology security audit programs assure the protection of your information and your assets that you have entrusted to the Credit Union. The Internal Audit staff is also responsible for compliance and meeting the industry’s ever greater demands of procedures and exams. Our clean audit from BKD reflects the good leadership and careful work of the Internal Audit staff of PEFCU. The Supervisory committee would like to acknowledge the outstanding support and professionalism exhibited by the Credit Union staff. We thank the management team for exhibiting exceptional care and high ethical standards during these challenging financial times. I would also like to acknowledge and thank all the members of the Supervisory Committee for volunteering their time and expertise. It is a pleasure to serve you, the members. Christiane E. Keck Supervisory Committee Chair April 7, 2009 Purdue Employees Federal Credit Union
Accountants’ Report and Consolidated Financial Statements
December 31, 2008 and 2007
Contents
Independent Accountants’ Report........................................................................................ 1
Consolidated Financial Statements
Balance Sheets.................................................................................................................................... 2
Statements of Income ......................................................................................................................... 3
Statements of Changes in Members’ Equity ...................................................................................... 4
Statements of Cash Flows .................................................................................................................. 5
Notes to Financial Statements ............................................................................................................ 6
Consolidated Balance Sheets
Assets
2008
Cash and due from banks
Interest-bearing demand deposits
Cash and cash equivalents
Interest-bearing deposits
Trading securities
Corporate credit union member shares and paid-in capital
Available-for-sale securities
Loans held for sale
Loans, net of allowance for loan losses of $1,872,550 and $1,429,711 at
Premises and equipment
National Credit Union Share Insurance Fund (NCUSIF) deposit
Federal Home Loan Bank stock, at cost
Interest receivable
Other
$
6,197,754
28,161,688
34,359,442
4,700,000
931,631
2,128,678
12,186,951
7,663,818
2007
$
439,221,866
13,760,290
3,901,002
2,023,100
1,563,746
5,355,694
5,315,030
1,300,824
6,615,854
1,000,000
1,338,690
1,500,000
16,306,366
94,467,851
389,532,345
13,810,182
3,599,699
2,023,100
2,731,879
4,978,884
Total assets
$ 527,796,218
$
537,904,850
Members' deposits
Short-term borrowings
Interest payable and other liabilities
Total liabilities
$ 480,033,815
3,343,557
483,377,372
$
422,068,948
66,430,000
7,419,554
495,918,502
Liabilities
Members’ Equity
Regular reserve
Undivided earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements
7,502,640
36,781,609
134,597
44,418,846
$ 527,796,218
7,502,640
34,577,319
(93,611)
41,986,348
$
537,904,850
2
Consolidated Statements of Income
Years Ended December 31, 2008 and 2007
2008
Interest income
Loans
Securities
Interest-earning deposits with other financial institutions
$
27,066,779
663,474
522,556
28,252,809
2007
$
25,967,737
1,059,947
760,634
27,788,318
Interest Expense
Members' deposits
Short-term borrowings
Total interest expense
10,315,318
581,679
10,896,997
10,576,627
1,424,965
12,001,592
Net Interest Income
17,355,812
15,786,726
1,779,800
1,155,000
15,576,012
14,631,726
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Other Income
Customer service fees
Income (loss) from trading securities
Net gains on loan sales
Gain on sales of securities
Other
6,623,778
(407,059)
962,112
17,690
491,577
7,688,098
Other Expenses
Salaries and employee benefits
Net occupancy expense
Office operations and equipment expense
Loan servicing
ATM expense
Advertising and marketing expense
Other
Total noninterest expense
Net Income
6,115,897
83,420
703,240
620,208
7,522,765
8,560,621
1,598,827
4,342,473
2,625,323
1,374,691
1,651,282
906,603
21,059,820
$
2,204,290
8,271,042
1,470,092
4,134,903
2,490,841
1,216,035
1,779,052
1,147,595
20,509,560
$
1,644,931
3
Consolidated Statements of Changes in Members’ Equity
Regular
Reserve
Balance, January 1, 2007
$
7,502,640
Undivided
Earnings
$
Net income
Change in unrealized gains on
available-for-sale securities
Comprehensive income
7,502,640
(512,725)
$
419,114
419,114
2,064,045
(93,611)
41,986,348
2,204,290
2,204,290
228,208
$
7,502,640
$
36,781,609
39,922,303
1,644,931
34,577,319
Net income
Change in unrealized gains on
available-for-sale securities, net of
reclassification adjustment of $17,690
$
Total
1,644,931
Balance, December 31, 2007
Balance, December 31, 2008
32,932,388
Accumulated
Other
Comprehensive
Income
(Loss)
$
134,597
228,208
2,432,498
$
44,418,846
4
Consolidated Statements of Cash Flows
2008
Operating Activities
Net income
Items not requiring (providing) cash
Depreciation and amortization
Provision for loan losses
Accretion and amortization
Gain on sale of available-for-sale securities
Gain on sale of loans
Loss on the sale of fixed assets
Proceeds from sales of loans held for sale
Originations of loans held for sale
Changes in
Trading securities
Interest receivable
Other assets
Interest payable and other liabilities
Net cash provided by (used in) operating activities
$
2,204,290
2007
$
1,644,931
1,753,518
1,779,800
(11,621)
(17,690)
(962,112)
4,680
154,147,606
(66,381,461)
1,695,504
1,155,000
99,673
(703,240)
133,116,358
(140,437,850)
407,059
1,168,133
(376,810)
(4,075,997)
89,639,395
(83,420)
2,478
(466,859)
1,201,165
(2,776,260)
Investing Activities
Proceeds from maturities of available-for-sale securities
Proceeds from sales of available-for-sale securities
Net change in interest-bearing time deposits
Net change in loans
Proceeds from sale of mortgage loans
Purchase of available-for-sale securities
Purchase of premises and equipment
Net change in NCUSIF deposit
Net change in corporate credit union paid-in capital
Net cash used in investing activities
7,464,716
2,015,079
(3,700,000)
(51,469,321)
(5,102,861)
(1,708,306)
(301,303)
(628,678)
(53,430,674)
16,101,966
(45,072,593)
2,660,739
(2,723,080)
(304,177)
(29,337,145)
Financing Activities
Net change in members' deposits
Net increase (decrease) in short-term borrowings
Net cash provided by (used in) financing activities
57,964,867
(66,430,000)
(8,465,133)
17,833,662
15,045,000
32,878,662
27,743,588
765,257
6,615,854
5,850,597
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
$
34,359,442
$
6,615,854
Supplemental Cash Flows Information
Interest paid
Transfer from portfolio loans to loans held for sale
$
10,976,402
-
$
12,027,944
2,645,577
5
Notes to Consolidated Financial Statements
Note 1:
Nature of Operations and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Purdue Employees Federal Credit
Union (Credit Union), and its wholly owned credit union service organization, CU Channels, LLC.
(CUSO). All significant intercompany accounts and transactions have been eliminated in
consolidation.
Nature of Operations
Purdue Employees Federal Credit Union (Credit Union) is a federally chartered credit union with
locations in Lafayette and West Lafayette, Indiana. The Credit Union offers a broad range of
financial services to its members. The Credit Union’s primary services include accepting
members’ deposits and making loans. The Credit Union grants loans to members who are
primarily individuals (including family members) employed at or attending Purdue University
campuses. The majority of its loans are collateralized by specific items, including consumer assets,
residential real estate and member share balances. Additional services include financial planning,
investment, trust and insurance services to Credit Union members through PEFCU Trust and
Financial Services, a third-party provider. The CUSO provides services to non-member Credit
Unions, primarily first mortgage loan origination and servicing for other credit unions. The CUSO
is a 14% owner of Passageways LLC, a software development company providing portal solutions
to credit unions.
Use of Estimates
To prepare financial statements in conformity with accounting principles generally accepted in the
United States of America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported and disclosed in the
financial statements, and future results could differ from those estimates. The collectibility of
loans, valuation and amortization of loan servicing rights and fair values of financial instruments
are particularly subject to change.
Cash Equivalents
The Credit Union considers all liquid investments with original maturities of three months or less
to be cash equivalents.
Trading Activities
The Credit Union has acquired certain investments which had a fair value of $931,631 and
$1,338,690 as of December 31, 2008 and 2007, respectively. Such investments are recorded at fair
value with changes in fair value included in earnings. Quoted market prices, when available, are
used to determine the fair value of trading instruments. If quoted market prices are not available,
then fair values are estimated using pricing models, quoted prices of instruments with similar
characteristics or discounted cash flows. Total security gains (losses) recognized on the income
statement were approximately $(407,000) and $83,000 for 2008 and 2007, respectively.
6
Securities
Available-for-sale securities, which include any debt security for which the Credit Union has no
immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized
gains and losses are recorded in other comprehensive income.
Amortization of premiums and accretion of discounts are recorded as interest income from
securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses
on sales of securities are determined on the specific-identification method.
Corporate Credit Union Member Shares and Paid-in Capital
Corporate credit union member shares and paid-in capital consists of the following at
December 31, 2008 and 2007:
2008
Members United paid-in capital
WesCorp member shares
2007
$
1,500,000
628,678
$
1,500,000
-
$
2,128,678
$
1,500,000
The paid-in capital with Members United Corporate Federal Credit Union (Members United)
represents a twenty-year deposit of $1,500,000 and has a floating rate, which was 1.00% at
December 31, 2008. The principal is due at the maturity date of June 25, 2023. The funds are
callable only at the option of Members United and only if Members United meets its minimum
level of required capital after the funds are called.
The member shares of Western Corporate Federal Credit Union (WesCorp) denote the Credit
Union’s ownership interest in WesCorp. Member shares are required for membership in WesCorp
and require a three-year notice for withdrawal. These shares are not subject to share insurance
coverage by the National Credit Union Share Insurance Fund and, in the event of liquidation of
WesCorp, are payable only after satisfaction of all other claims. The member share balance is
adjusted twice per year on a predetermined formula. As discussed in Note 12, WesCorp was taken
into conservatorship by the NCUA in March of 2009.
Federal Home Loan Bank (FHLB) Stock
FHLB stock is a required investment based upon predetermined formulas and is carried at cost.
The FHLB stock may only be sold to the FHLB at par value.
7
Loans Held for Sale
Mortgage and student loans originated and intended for sale in the secondary market are carried at
the lower of cost or fair value in the aggregate. Decrease in the amount of loans held for sale
between 2008 and 2007 is due to the discontinuation of student lending through the participation of
the Federal Family Education Loan (FFEL) program. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income. Loans sold in the secondary market are
primarily sold with the servicing of the loans being retained.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity
or payoff are stated at the unpaid principal balances, plus net deferred loan origination costs, less
an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of net deferred loan
fees and costs over the loan term. Interest income on loans is discontinued if management believes
collection of interest is doubtful. All interest accrued but not received for loans placed on
nonaccrual are reversed against interest income. Interest received on such 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 the principal and interest amounts contractually due are brought
current, and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan
losses are charged against the allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management
estimates the allowance balance required based on past loan loss experience, known and inherent
risks in the portfolio, information about specific borrower situations and estimated collateral
values, economic conditions and other factors. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more information becomes
available. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management’s judgment, should be charged-off.
Loans are considered impaired if full principal or interest payments are not anticipated. Loans
considered impaired are reduced to the present value of expected future cash flows or to the fair
value of the collateral, by allocating a portion of the allowance for loan losses to such loans. If
these allocations cause the allowance for loan losses to require an increase, such increase is
reported as a provision for loan losses. Larger-balance mortgage loans are evaluated individually
for impairment. All other loans are considered smaller-balance homogeneous loans and are
evaluated for impairment in total. Loans are individually evaluated for impairment when payments
are delayed, typically for 90 days or more.
8
Premises and Equipment
Premises and equipment are recorded at cost less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful lives of the related assets. These
assets are reviewed for impairment when events indicate the carrying amount may not be
recoverable. Leasehold improvements are amortized over the shorter of the estimated useful lives
of the related assets or the lease term.
NCUSIF Deposit
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is required by NCUA
regulations in an amount equal to 1 percent of the Credit Union’s insured shares. The deposit
would be refunded to the Credit Union if its insurance coverage is terminated, it converts to
insurance coverage from another source, or the operations of the fund are transferred from the
NCUA Board. As discussed in Note 12, the Credit Union expects to write off approximately
$2,795,000 of this deposit in 2009.
NCUSIF Insurance Premiums
A credit union is required to pay an annual insurance premium equal to one-twelfth of 1 percent of
its total insured shares, unless the payment is waived or reduced by the NCUA Board. The NCUA
Board waived the 2008 and 2007 insurance premium. As discussed in Note 12, the Credit Union
expects the NCUSIF insurance premium to be increased significantly in 2009.
Foreclosed Assets
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 the
lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in net income or expense from foreclosed assets.
Loan Servicing Rights
Loan servicing rights represent the fair value of retained servicing rights on loans sold. The
capitalized value of loan servicing rights is included in other assets on the consolidated balance
sheets and is amortized in proportion to, and over the period of, estimated net servicing revenues.
Fair value is based on market prices for comparable mortgage servicing contracts, when available,
or alternatively, is based on a valuation model that calculates the present value of estimated future
net servicing income. The valuation model incorporates assumptions that market participations
would use in estimating future net servicing income, such as the cost to service, the discount rate,
the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates
and losses. The Credit Union compares the valuation model inputs and results to published
industry data in order to validate the model results and assumptions. All classes of servicing assets
are subsequently measured using the amortization method which requires servicing rights to be
amortized into non-interest income in proportion to, and over the period of, the estimated future net
servicing income of the underlying loans.
9
Impairment of mortgage servicing rights is assessed based on the fair value of those rights as
compared to the carrying amount. For purposes of measuring impairment, servicing rights are
stratified based on predominant risk characteristics, including loan type, term, age and note rate.
Impairment represents the amount by which the amortized cost of an individual stratum exceeds its
fair value, and is recognized through a valuation allowance. Amortization and impairment
adjustments are recorded with net loan servicing fee income.
Members' Deposits
Members' deposits are subordinated to all other liabilities of the Credit Union upon liquidation.
Interest on members' deposits is based on available earnings and is not guaranteed by the Credit
Union. Interest rates on members' deposits are set by the board of directors, based on an evaluation
of a number of factors, including market conditions.
Members' Equity
The Credit Union is required by regulation to maintain a statutory reserve. This reserve, which
represents a regulatory restriction of retained earnings, is not available for the payment of interest
to members.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income or loss. Other
comprehensive income or loss includes unrealized gains and losses on securities available for sale,
which is recognized as a separate component of members’ equity.
Income Taxes
The Credit Union is exempt by statute from federal and state income taxes.
Current Economic Conditions
The current economic environment presents financial institutions with unprecedented
circumstances and challenges which in some cases have resulted in large declines in the fair values
of investments and other assets, constraints on liquidity and significant credit quality problems,
including severe volatility in the valuation of real estate and other collateral supporting loans. The
financial statements have been prepared using values and information currently available to the
Credit Union.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in
the financial statements could change rapidly, resulting in material future adjustments in asset
values, the allowance for loan losses, capital that could negatively impact the Credit Union’s ability
to meet regulatory capital requirements and maintain sufficient liquidity.
10
Reclassifications
Certain reclassifications have been made to the 2007 financial statements to conform to the 2008
financial statement presentation. These reclassifications had no effect on net income.
Note 2:
Securities
The amortized cost and approximate fair values of securities are as follows:
2008
Gross
Unrealized
Gains
Amortized
Cost
Mortgage-backed securities
$
12,052,354
$
Gross
Unrealized
Losses
140,410
$
(5,813)
Fair
Value
$
12,186,951
2007
Gross
Unrealized
Gains
Amortized
Cost
Federal agencies
Total investment securities
Gross
Unrealized
Losses
Fair
Value
$
3,996,723
12,403,254
$
1,842
$
(22,523)
(72,930)
$
3,974,200
12,332,166
$
16,399,977
$
1,842
$
(95,453)
$
16,306,366
Gross gains of $17,690 resulting from sales of available-for-sale securities were realized for 2008.
There were no gains or losses realized from maturities or calls of available-for-sale securities in
2007. No securities were sold during 2007.
Certain investments in debt securities are reported in the financial statements at an amount less than
their historical cost. Total fair value of these investments at December 31, 2008 and 2007 was
$2,846,249 and $14,979,507, which is approximately 23% and 92%, respectively, of the Credit
Union’s available-for-sale investment portfolio. These declines primarily resulted from changes in
market interest rates.
Based on evaluation of available evidence, including recent changes in market interest rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these securities are temporary.
Should the impairment of any of these securities become other than temporary, the cost basis of the
investment will be reduced and the resulting loss recognized in net income in the period the otherthan-temporary impairment is identified.
11
The following table shows the Credit Union’s investments’ gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2008 and 2007:
2008
Less than 12 Months
Fair
Unrealized
Value
Losses
Description of
Securities
$
1,887,231
$
(135)
12 Months or More
Fair
Unrealized
Value
Losses
$
959,018
$
(5,678)
Total
$
Fair
Value
Unrealized
Losses
2,846,249
$
(5,813)
2007
Less than 12 Months
Fair
Unrealized
Value
Losses
Description of
Securities
U.S. Agencies
$
Total investment
securities
Note 3:
-
$
834,676
$
834,676
-
12 Months or More
Fair
Unrealized
Value
Losses
$
(145)
$
(145)
3,974,200
$
10,170,631
$
14,144,831
(22,523)
Total
$
(72,785)
$
(95,308)
Fair
Value
Unrealized
Losses
3,974,200
$
(22,523)
11,005,307
$
14,979,507
(72,930)
$
(95,453)
Loans
2008
Consumer
Real estate
Home equity
Visa
Lines of credit
Commercial loans
Net deferred loan origination costs
Allowance for loan losses
$
65,675,802
236,642,584
40,000,068
38,215,926
1,422,739
57,649,062
439,606,181
1,488,235
(1,872,550)
$ 439,221,866
2007
$
64,214,179
201,177,238
40,068,088
33,882,891
1,623,145
48,458,898
389,424,439
1,537,617
(1,429,711)
$ 389,532,345
In the normal course of business, the Credit Union makes loans to directors, supervisory committee
members and executive officers. The aggregate dollar amount of these loans amounted to
$3,174,000 and $3,046,000 at December 31, 2008 and 2007.
12
Activity in the allowance for loan losses was as follows:
2008
2007
Balance, beginning of year
Provision for loan losses
Loans charged-off
Recoveries of loans previously charged-off
$
1,429,711
1,779,800
(1,662,549)
325,588
$
1,294,757
1,155,000
(1,450,736)
430,690
Balance, end of year
$
1,872,550
$
1,429,711
There were no loans individually classified as impaired during 2008 and 2007, respectively.
There were no accruing loans delinquent 90 days or more at December 31, 2008 and 2007. Nonaccruing loans at December 31, 2008 and 2007 were $1,145,000 and $1,330,000, respectively.
Note 4:
Premises and Equipment
2008
Land
Buildings
Furniture, fixtures and equipment
Leasehold improvements
$
2,358,090
12,691,434
14,244,357
597,079
29,890,960
(16,130,670)
$
2,350,862
12,107,943
14,364,367
673,233
29,496,405
(15,686,223)
$
13,760,290
$
13,810,182
Less accumulated depreciation
Note 5:
2007
Loan Servicing Rights
Mortgage loans serviced for others are not included in the accompanying consolidated balance
sheets. The unpaid principal balance of mortgage loans serviced for others was $118,257,096 and
$92,352,828 at December 31, 2008 and 2007, respectively.
Custodial escrow balances maintained in connection with the foregoing loan servicing, and
included in demand deposits, were approximately $815,907 and $401,117 at December 31, 2008
and 2007, respectively.
13
Activity in the balance of mortgage servicing rights was as follows:
2008
Amortized cost
Balance at January 1
Additions
Amortization
Balance at December 31
2007
$
679,911
334,114
(267,087)
$
535,108
304,434
(159,631)
$
746,938
$
679,911
The fair value of loan servicing rights was approximately $800,000 and $700,000 at December 31,
2008 and 2007. There was no valuation allowance established at December 31, 2008 or 2007.
Note 6:
Members’ Deposits
2008
Checking
Regular and IRA savings accounts
Money market accounts
Share and IRA certificate accounts
$
84,872,217
99,031,725
109,486,162
186,643,711
$ 480,033,815
2007
$
78,134,780
87,206,936
82,180,095
174,547,137
$ 422,068,948
Individual share certificates of $100,000 or more were approximately $65,827,000 and
$58,826,000 at December 31, 2008 and 2007.
At December 31, 2008, scheduled maturities of certificates for the next five years were as follows:
2009
2010
2011
2012
2013
$ 132,226,250
31,646,963
16,909,192
2,196,625
3,664,681
$ 186,643,711
Deposits from related parties held by the Credit Union at December 31, 2008 and 2007 totaled
$1,937,000 and $1,593,000, respectively.
14
Note 7:
Borrowings
At December 31, 2007, the Credit Union had a $66,430,000 line of credit advance from Members
United. Additionally, the Credit Union has a borrowing capacity of $150,000,000 under a line of
credit from Members United providing adequate collateral is available. The terms of the related
security agreement allow Members United the right to perfect an interest in Credit Union assets at
anytime with an exception of assets currently pledged elsewhere. As of December 31, 2008, there
were no amounts outstanding on this line of credit.
Note 8:
Retirement Plans
The Credit Union maintains a defined-contribution pension plan (401(k) Plan and Trust) plan with
covering substantially all employees who meet certain age and service requirements. The Credit
Union’s contribution and expense for the pension plan is 11% (reduced by forfeitures) of annual
wages for eligible employees and was approximately $558,000 and $509,000 in 2008 and 2007.
Note 9:
Disclosures About Fair Value of Assets and Liabilities
Effective January 1, 2008, the Credit Union adopted Statement of Financial Accounting Standards
No. 157 (FAS 157), Fair Value Measurements. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements.
FAS 157 has been applied prospectively as of the beginning of the year.
FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. FAS 157
also establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
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 for substantially the
full term of the assets or liabilities
Level 3
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities
15
Following is a description of the valuation methodologies used for assets and liabilities measured at
fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as
well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Trading and Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within
Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are
estimated by using pricing models, quoted prices of securities with similar characteristics or
discounted cash flows. Level 2 securities include all mortgage-backed securities and mutual funds.
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within
Level 3 of the hierarchy. No securities are classified within Level 3.
The following table presents the fair value measurements of assets and liabilities recognized in the
accompanying consolidated balance sheets measured at fair value on a recurring basis and the level
within the FAS 157 fair value hierarchy in which the fair value measurements fall at December 31,
2008:
Fair
Value
Trading securities
Available-for-sale securities
$
Fair Value Measurements Using
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable Unobservable
Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
931,631 $
12,186,951
931,631 $
-
- $
12,186,951
-
The following methods were used to estimate the fair value of all other financial instruments
recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash, Interest-bearing Deposits, Corporate Credit Union Member Shares and Paid-in
Capital and Federal Home Loan Bank Stock
The carrying amount approximates fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. Loans with similar characteristics were aggregated for purposes of the
calculations. The carrying amount of accrued interest approximates its fair value.
16
NCUSIF Deposit and Other Investments
The fair value of the NCUSIF deposit approximates the carrying value.
Interest Receivable
The fair value of interest receivable approximates the carrying value.
Members’ Deposits
Deposits include demand deposits, savings accounts and certain money market deposits. The
carrying amount approximates fair value. The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings
The carrying amount approximates fair value.
The following table shows the approximate carrying amount and fair value of financial instruments
held by the Credit Union at December 31:
2008
Carrying
Amount
Financial Assets
Cash and cash equivalents
Interest-earning balances
with financial institutions
Trading assets
Corporate credit union member
shares and paid-in capital
Securities available for sale
FHLB stock
Loans, net
NCUSIF deposit
Interest receivable
Financial Liabilities
Members’ share accounts
Borrowings
Interest payable
2007
Fair
Value
$ 34,359,442 $ 34,359,442
Carrying
Amount
$
Fair
Value
6,615,584 $
6,615,854
4,700,000
931,631
4,700,000
931,631
1,000,000
1,338,690
1,000,000
1,338,366
2,128,678
12,186,951
2,023,100
439,221,866
3,901,002
1,536,746
2,128,678
12,186,951
2,023,100
453,522,190
3,901,002
1,563,746
1,500,000
16,306,366
2,023,100
484,000,196
3,599,699
2,731,879
1,500,000
16,306,366
2,023,100
483,584,555
3,599,699
2,731,879
480,033,815
-
483,498,233
-
422,068,948
66,430,000
74,905
422,951,713
66,430,000
79,405
17
Note 10: Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and contingent liabilities, such
as commitments to extend credit, which are not included in the accompanying consolidated
financial statements. The Credit Union’s exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit is represented by the
contractual or notional amount of those instruments. The Credit Union uses the same credit
policies in making such commitments as it does for instruments that are included in the
consolidated balance sheets.
Financial instruments whose contract amount represents credit risk as of December 31 were as
follows:
Commitments to extend credit
2008
2007
$ 171,979,803
$ 152,971,356
The Credit Union has entered into noncancelable operating lease and other agreements. The leases
are for office space.
Future minimum commitments at year-end 2008 for all noncancelable lease and other agreements
are summarized as follows:
2009
2010
2011
2012
2013
Thereafter
$
1,354,187
1,290,025
1,161,992
1,045,282
522,320
2,420
$
5,376,226
The amount expensed for 2008 and 2007 related to the lease and other agreements was $1,342,000
and $1,323,000, respectively.
In the normal course of business, the Credit Union is subject to various legal actions. Management
believes that the results of these legal actions will not have a material adverse effect on the Credit
Union's financial position.
18
Note 11: Regulatory Capital
Credit unions are subject to regulatory capital requirements prescribed by a federal regulatory
agency. There are five classifications based on the combined result of quarterly net worth and riskbased net worth requirements: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are not used to
represent overall financial condition. The net worth requirement is based on net worth to total
assets. The risk-based net worth requirement requires net worth to exceed the sum of various asset
categories times risk factors for each category, and must be met (if this requirement exceeds 6%) to
be classified as well or adequately capitalized. If classified as adequately capitalized, net worth
and the regular reserve account must increase quarterly by .1% of assets. If undercapitalized, a net
worth restoration plan must also be filed and asset growth and business lending are restricted.
Additional regulatory actions may be taken at lower capital classifications such as restriction on
interest, required merger or liquidation. The Credit Union’s current capital classification is well
capitalized. There are no conditions or events since that notification that management believes
have changed the Credit Union’s category.
Actual and required capital amounts (in millions) and ratios as of December 31 are presented
below.
Actual
Amount
Ratio
Minimum
Required to be
Well Capitalized
Amount
Ratio
Risk-based
Requirement
Amount
Ratio
As of December 31, 2008
Net worth to total assets
Risk-based net worth
$
44.2
44.2
8.6% $
8.6%
36.0
-
7.0% $
-
33.5
6.5%
As of December 31, 2007
Net worth to total assets
Risk-based net worth
$
42.1
42.1
8.6% $
8.6%
34.2
-
7.0% $
-
30.8
6.3%
19
Note 12: Subsequent Events
During 2009, the National Credit Union Association (NCUA) announced the Corporate
Stabilization Program. Due to recent developments with corporate credit unions relating to
pending losses within these corporate credit union's investment holdings, the NCUA has notified
the Credit Union, as a natural person credit union along with all other NCUA-insured natural
person credit unions, the following actions will be taken. Under the Corporate Stabilization
Program, it is anticipated that the Credit Union, along with all natural person credit unions, will be
required to write off approximately 69% of its National Credit Union Share Insurance Fund
(NCUSIF) deposit as a charge to earnings in 2009, which is estimated to be approximately
$2,795,000. Additionally, the NCUA will seek to replenish the NCUSIF through an increased
assessment to all natural person credit unions. Under current regulations, it is expected that the
NCUSIF insurance premium assessed in 2009 for the Credit Union will be approximately
$1,215,000 to replenish the NCUSIF. The NCUA is currently reviewing alternatives whereby the
NCUA may not require the full assessment of $1,215,000 be recognized in 2009.
Additionally, during March 2009, the NCUA took U.S. Central Federal Credit Union and Western
Corporate (WesCorp) Federal Credit Union into conservatorship. At December 31, 2008, the
Credit Union had approximately $10.0 million in an interest-bearing deposit account, $1.5 million
in certificates of deposit and approximately $629,000 in membership capital with WesCorp. It is
anticipated the Credit Union will have to write off $629,000, which represents the membership
capital during 2009. All amounts other than membership capital accounts on deposit with a
corporate credit union are fully insured as a result of actions taken as part of the Corporate
Stabilization Program and will be fully recovered by the Credit Union.
20

AnnualReport - Purdue Federal Credit Union

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