We`re all by a common thread.

2011 Annual Report
connected
We’re all
by a common thread.
together
It ties us
despite different backgrounds.
Different jobs. Different lifestyles.
Chairman’s Report...............................................2-3
Supervisory Committee Report............................ 4
Treasurer’s Report.................................................. 5
Independent Auditor’s Report............................... 6
Financial Statements and Notes....................7-16
2
Chairman’s Report
If there is one thing we have learned in the world of finance, it is that we are all connected.
This past year has been challenging for Honda Federal Credit Union. But even though
successful loan demand is down, deposits are up. The end result is we find ourselves in
the unusual position of having excess liquidity.
To address loan demand, HFCU is now an authorized small business lender. With insightful
leadership from our management team and Honda support, we will soon be introducing
“HondaPower Financing” for motorcycle dealerships.
Carl R. Coe
Not only will this create lending opportunities for HFCU, it will help position us as a trusted
advisor for motorcycle dealerships, strengthen the relationship with Honda and dealers selling
Honda products, and enhance the profitability and efficiency of those businesses.
Additionally, last fall HFCU introduced the very popular 15-year Advantage mortgage product.
In August we broadened the program with the introduction of 30-year Advantage mortgage
loans. To help create interest and remain competitive in a tough market, our 15-year Advantage
mortgage rates recently have been at or below 3.5%.
Our Marketing Department has been working vigorously to introduce new mobile banking
options. This new feature will allow easy access to HFCU from your mobile device through
a mobile web browser, an iPhone/iPad application, an Android application, a Blackberry
application, or through texting (SMS). Rollout is planned for October 2011.
In January we added the Perks Point Mall to our Rewards Points offerings. When members
purchase items on their HFCU Gold Card through the Perks Point Mall (located on the HFCU
website), they earn 3-5 additional points for every dollar they spend. Participating merchants
range from Best Buy to Walmart and a host of others.
We will also be adding a new feature to eZ Deposit. From your scanner you will be able to
scan checks for deposit through internet banking. This will add new member convenience and
provide a great alternative to visiting a credit union office to make a deposit, using an ATM, or
mailing in a check.
3
Chairman’s Report (cont.)
To assist with Honda’s training efforts during reduced production, HFCU provided Balance Workshops in Ohio, Alabama, and Indiana. To assist members
with improved service, in April we initiated 24/7 phone support for VISA card troubleshooting. In addition, general toll-free phone service was
implemented in May for Japan, Germany, Mexico, and the United Kingdom.
And HFCU continues to grow. Assets increased by $18.5M last year to $555,292,583. Membership grew to 56,407.
Nationally, mortgage defaults are an ongoing concern. As the financial industry continues to work through the mortgage crisis, first mortgage
delinquency rates nationwide are at 5.82%, while bank card defaults are at 5.64%, and auto default rates are at 1.27%.
With that said, through sound management and the strength of our sponsor company, our current mortgage default rate is a mere 0.28%. Our overall
default rate for the year just ended was 0.52%.
The HFCU board and management team places the sound management of your finances and providing superior member service as our most important
mission. Because of this approach, we continue to help members finance their dreams, offer sound and safe banking options, while striving to provide
“exceeds expectations” member service.
In response to assistance from our Contact Center staff, a member recently sent the following note: “Thank you for being a bright spot in a dark patch.
You made such a positive difference!” Another member commented: “Once again I can’t tell you how much you have truly helped my family. We are
very grateful to you.”
On behalf of the Board of Directors and the HFCU management team, thank you for your continued confidence as we chart a sound and connected
financial future together.
4
John Kaufman
Supervisory
Committee Report
The Supervisory Committee is an essential part of the credit union’s management.
A supervisory committee is required by the Federal Credit Union Act and most state
credit union laws. The Supervisory Committee’s major responsibilities are to ensure
that internal and annual audits are performed and that any findings are resolved and
appropriate changes are implemented in a timely manner. It also oversees periodic
member account verifications at least once every 2 years and is responsible for reviewing
the performance of the officials and employees, and making recommendations to the
Board of Directors for improvement in the safety and soundness of the credit union.
In short, the Supervisory Committee is responsible for ensuring that practices and
procedures are in place, which safeguard and protect the interest of the members and
the assets and financial soundness of the credit union.
In order to carry out its responsibilities, the Supervisory Committee employs certified public
accountants and other qualified persons to perform audits and account verifications.
The Supervisory Committee is pleased to report that the results of audits performed
and reviews of Honda Federal Credit Union’s practices and procedures during the 2011
fiscal year, would support that the credit union is being managed and operated in a
financially safe and sound manner.
5
Treasurer’s Report
ock
eri Bull
Sh
Economic conditions continue to be a major factor in the strategic decisions made
by both the Board of Directors and the management team as we strive to operate as
efficiently as possible while maintaining financial stability. The focus of operating as
a “well capitalized” credit union while continuing to offer appropriate services to our
members and the Honda Companies is a core strategy.
The management team and your Board continue to concentrate on the fundamentals:
controlling operating expenses, managing risk effectively, and managing capital in a
disciplined manner, all while dealing with changes in the regulatory environment and
the economy. This requires a unique balance within the management of the credit
union which has served the team well to enable the credit union to achieve positive
financial results over the last year.
HFCU will continue to strive to meet the range of member needs for our field of
membership. We realize that maintaining a high level of member service and adding
new services when possible is crucial to our continued success. Members of HFCU
are part of a family and the credit union staff and Board are committed to continue to
strive to meet the needs of the entire membership in the most effective and efficient
manner possible. Your Credit Union continues to be safe and strong!
company.
It’s not just because we’re all part of the same
Independent
Auditor’s Report
Board of Directors and Supervisory Committee
Honda Federal Credit Union
Torrance, California
We have audited the accompanying statements of financial condition of
Honda Federal Credit Union as of June 30, 2011 and 2010, and the related
statements of income, members’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Credit
Union’s Management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by Management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Honda Federal Credit
Union as of June 30, 2011 and 2010, and the results of its operations and
its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Respectfully,
RICHARDS & ASSOCIATES
Certified Public Accountants
Michael E. Richards, CPA
Yorba Linda, California
September 28, 2011
support
It’s more the fact that we
7
each other’s
financial successes.
Statements of Income
Statements of Financial Condition
2011
Loans
2010
Investments (Note 3) Loans receivable, net of allowance
for loan losses (Note 4) $139,541,909 $98,902,598
20,522,700
27,196,300
392,317,818
7,753,304 7,926,204
890,713 1,061,260
Share insurance deposits (Note 13) 4,855,852 4,979,675
Prepaid expenses and other assets (Note 12)
4,480,259 4,362,250
Accrued interest receivable TOTAL ASSETS $555,292,583
$536,746,105
LIABILITIES AND EQUITY
Members’ share and
savings accounts (Note 6)
Accounts payable and other liabilities $477,666,988
$457,422,475
$23,080,729 $25,427,680
474,662 335,601
23,555,391
25,763,281
4,087,817 5,702,011
—­­­ 103,327
INTEREST EXPENSE
Members’ share and savings accounts
Borrowed funds
377,247,846 Property & equipment (Note 5) Investments TOTAL INTEREST INCOME
ASSETS
Cash and cash equivalents (Note 2) 20112010
INTEREST INCOME
4,087,817 5,805,338
NET INTEREST INCOME
Provision for loan losses
TOTAL INTEREST EXPENSE
19,467,574 3,210,000 19,957,943
3,579,999
Net interest income after
Provision for loan losses
16,257,574 16,377,944
NON-INTEREST INCOME
Service charges and other income
9,221,141 9,511,865
TOTAL NON-INTEREST INCOME
9,221,141 9,511,865
Compensation and benefits
9,617,948 10,196,192
6,437,059
NON-INTEREST EXPENSE
General and administrative expenses
31,749,041 36,659,207
509,416,029 494,081,682
Office operations
6,491,742 Appropriated (regular reserve)
$8,322,208
$8,322,208
Other expenses
4,772,894 4,662,078
Unappropriated (undivided earnings)
37,554,346 34,342,215
Total non-interest expenses
20,882,584 21,295,329
TOTAL MEMBERS’ EQUITY
45,876,554 42,664,423
NCUSIF share insurance premium and Temporary
Corporate Credit Union stabilization expense
$555,292,583
$536,746,105
TOTAL LIABILITIES
Members’ equity, substantially restricted
TOTAL LIABILITIES AND
MEMBERS’ EQUITY
NET INCOME
1,384,000 922,229
$3,212,131 $3,672,251
8
Statements of Members’ Equity
2011
2010
APPROPRIATED - REGULAR RESERVE
Beginning / Ending Balance
$8,322,208 $8,322,208
34,342,215 30,669,964
3,212,131 3,672,251
UNAPPROPRIATED - UNDIVIDED EARNINGS
Beginning Balance
Net income
Ending Balance
TOTAL MEMBERS’ EQUITY
Statements of Cash Flows
37,554,346 34,342,215
$45,876,554 $42,664,423
20112010
CASH FLOWS FROM OPERATING ACTIVITIES Net income
$3,212,131 $3,672,251
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses
3,210,000 3,579,999
Depreciation and amortization
1,150,723 1,117,497
868,030 —
NCUSIF share insurance premium and Temporary
Corporate Credit Union stabilization expense
Changes in operating assets and liabilities
Statements of Cash Flows (cont.)
Decrease in accrued interest receivable 170,547 26,897
(Increase) Decrease in prepaid expenses
and other assets (118,009) 8,579,739
Decrease in notes payable
123,823 (345,813)
(5,778,196) 5,789,234
(373,082) 18,747,553
Decrease (Increase) in share insurance deposits
(Decrease) Increase in accounts payable
and other liabilities
Total adjustments
Net cash provided by operating activities
2,839,049 22,419,804
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collection, net of loans granted
Proceeds from sale or maturing of securities
Acquisition of securities
Decrease (Increase) in deposits in financial institutions Purchase of property and equipment,
net of disposals
Net cash provided by (used in) investing activities
20112010
CASH FLOWS FROM investing ACTIVITIES $11,859,972 $20,886,909
12,083,600 65,000
(27,000,000) —
21,590,000 (25,384,000)
(977,823) (578,825)
17,555,749 (5,010,916)
Net increase (decrease) in members’ share
and savings accounts $20,244,513 $(64,457)
—
(6,100,000)
Net cash provided by (used in)
financing activities
20,244,513 (6,164,457)
NET INCREASE IN CASH AND
CASH EQUIVALENTS
40,639,311 11,244,431
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
98,902,598 87,658,167
CASH AND CASH EQUIVALENTS AT
END OF YEAR
$139,541,909 $98,902,598
SUPPLEMENTAL DISCLOSURES
Cash received during the year from
interest on loans and investments
Cash paid during the year for dividends
Cash paid during the year for
operating expenses
$23,725,938 $25,790,178
$4,087,817 $ 5,702,011
$20,313,108 $19,134,883
9
Notes to Financial
Statements
NOTE 1: ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
Organization: Honda Federal Credit Union (Credit Union) is organized under
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 bylaws.
Nature of business: The Credit Union provides a variety of financial services to its
members, most of whom are employees or former employees of American Honda
Education Corp., American Honda Finance Corp., American Honda Foundation,
American Honda Motor Co., Inc. (AHM), Calhac, Celina Aluminum Precision
Technology (CapT), Clark Trucking, Honda of America Manufacturing, Inc. (HAM),
Honda Manufacturing of Alabama, LLC (HMA), Honda South Carolina (HSC), Honda
Trading America Corp. (HTA), Honda Power Equipment (HPE), Honda Research of
America, Honda North America (HNA), Honda Performance Development, Inc.,
Honda Access America, Honda Aero, Inc., Honda Aircraft, Honda Manufacturing
Indiana (HMIN), Honda Precision Parts of Georgia, Honda Federal Credit Union,
Honda Transmission Manufacturing (HTM), Honda Kaihatsu Kogyo USA, Inc., Honda
Engineering, NA, Inc. (EGA), Honda Patents & Technologies North America LLC (HPT),
Honda Lock (HL-A Co., Inc.), Komyo America Co., Inc., Midwest Express Inc. (MEI),
One Solution Logistics, South East Express of South Carolina, New South Express,
One World Logistics, and their qualifying family members. The Credit Union’s primary
source of revenue is interest from loans and investments.
Use of estimates: The preparation of financial statements, in conformity with
generally accepted accounting principles, 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 financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. A material estimate that is
particularly susceptible to significant change in the near term relates to the
determination of the allowance for loan losses.
Cash equivalents: For purposes of the statements of financial condition and cash
flows, the Credit Union considers investments with original maturity of three months
or less to be cash equivalents.
Investments: Certificates of deposit are generally non-negotiable and nontransferable, and may incur substantial penalties for withdrawal prior to maturity.
In July 2010, the $250,000 maximum federal deposit insurance level was made
permanent upon the adoption of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
In a letter to federally-insured credit unions (NCUA Letter No. 09-CU-02) issued on
January 28, 2009, the National Credit Union Administration (NCUA) stated that the
corporate credit union system is now facing unprecedented strains on its liquidity
and capital due to credit market disruptions and the current economic climate. As
a result, the NCUA is offering a voluntary temporary NCUSIF guarantee of member
shares in corporate credit unions through December 31, 2010. The guarantee
will cover all shares, but does not include paid-in capital and membership capital
accounts. Subsequently, this temporary guarantee was extended to December 31,
2012 with the option for quarterly extensions thereafter.
Negotiable securities are classified in accordance with the Credit Union’s asset/
liability management and investment policies. The following is a description of the
accounting procedures used for investments:
vailable for sale: Investments that are not purchased principally to be
A
sold in the near term nor with the positive intent and ability to hold until
maturity and those without a defined maturity and could be sold in response
to rate changes, prepayment risk, liquidity, availability of and the yield on
alternative investments and other market and economic factors are classified
as available for sale. These securities are marked to market, with unrealized
gains or losses not affecting earnings but shown as a separate component
of the equity portion of the balance sheet. Unrealized gains and losses on
securities available for sale are recognized as direct increases or decreases
in other comprehensive income.
Held to maturity: Investments that are purchased with the positive intent
and ability to hold until maturity are reported at cost, adjusted for amortization
of premiums and accretion of discounts with no market adjustments.
The Credit Union does not maintain a trading portfolio.
Loans receivable and allowance for loan losses: Loans receivable are stated
at unpaid principal balance and loan origination costs net of fees, less an allowance
for loan losses. Interest on loans is recognized over the term of the loan and is
calculated using the simple-interest method on principal amounts outstanding.
Loan fees and certain direct loan-origination costs are deferred, and the net fee 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.
The Credit Union’s allowance for credit losses is the sum of various components
recognized pursuant to FASB Accounting Standards Codification (ASC) 450,
Contingencies (formerly Statement of Financial Accounting Standards No. 5)
(for pools of loans) and FAS ASC 310-10-35 for impairment of loans (formerly
Statement of Financial Accounting Standards No. 114). The allowance for loan
losses is increased by charges to income and decreased by charge-offs (net of
recoveries). Loans are charged against the allowance when Management believes
that the collectability of the principal is unlikely. The allowance is an amount that
Management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible. Management’s periodic evaluation of the adequacy
of the allowance is based on the Credit Union’s past loan-loss experience, known
and inherent risks in the portfolio, specific impaired loans, adverse situations
that may affect the borrower’s ability to repay, estimated value of any underlying
collateral, and current economic conditions.
Share insurance deposit: In July 2010, the $250,000 maximum federal deposit
insurance level was made permanent upon the adoption of the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
The Credit Union considers a loan impaired when, based on current information or
factors, it is probable that the Credit Union will not collect the principal and interest
payments according to the loan agreement. Management considers many factors in
determining whether a loan is impaired, such as payment history, value of collateral,
and changes in the employment of the member. Past due status is determined
based on contractual terms. Loans that are delinquent for less than two months are
generally not considered impaired, unless the member has claimed bankruptcy or the
Credit Union has received specific information concerning the loan impairment. The
Credit Union measures impairment on a loan-by-loan basis by either using the fair
value of collateral or the present value of expected cash flows.
Individual deposits in excess of the NCUSIF insured limit are insured by a private
insurance company, American Share Insurance Corporation (ASI), subject to their
policy limit of $250,000. There is no limitation as to the number of accounts a
member can have under ASI’s coverage. ASI requires the maintenance of a deposit
by each insured credit union in an amount equal to 1% to 1.3% of a credit union’s
total shares, depending upon the credit union’s rating with state regulators.
Accrual of interest on a loan is discontinued when Management believes,
after considering economics, business conditions, and collection efforts that
the borrower’s financial condition is such that collection of interest is doubtful.
Uncollectible interest previously accrued is charged off directly to interest income.
Income is subsequently recognized only to the extent cash payments are received
until, in Management’s judgment, the borrower’s ability to make periodic interest
and principal payments is back to normal, in which case the loan is returned to
accrual status.
Property and equipment: Land is carried at cost. Other fixed assets are carried at
cost, less accumulated depreciation and amortization. Fixed assets 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
lesser of the terms of the related leases or their useful lives.
Each member’s share and savings account is insured up to $250,000 by the National
Credit Union Share Insurance Fund (NCUSIF). The deposit in the NCUSIF is in
accordance with regulations set forth by the National Credit Union Administration
(NCUA), which require the maintenance of a deposit by each insured credit union in
an amount equal to one percent of its 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. The Credit Union is required to pay
an annual insurance premium equal to one-twelfth of one percent of its total insured
shares, unless the premium is waived or reduced by the NCUA Board.
Members’ share and savings accounts: 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 in the event of liquidation. Interest on share and savings
accounts is based on available earnings at the end of an interest period and is
not guaranteed by the Credit Union. Interest rates on share and savings accounts
are set by the Board of Directors, based on an evaluation of current and future
market conditions.
Restricted 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.
Income taxes: The Credit Union is exempt, by statute, from federal and
state income taxes.
10
11
Comprehensive income: FASB Accounting Standards Codification (ASC) 220,
Comprehensive Income (formerly Statement of Financial Accounting Standards (SFAS)
No. 130) provides accounting standards pertaining to the reporting and display of
comprehensive income in a financial statement. Comprehensive income consists of
net income and other comprehensive income. Accumulated other comprehensive
income presented in the accompanying Statements of Members’ equity consists of the
accumulated net unrealized gain (loss) on available-for-sale investments. The adoption
of ASC 220 had no impact on net income or members’ equity.
Presentation of comparative financial statements: To more clearly illustrate
the financial condition of the Credit Union and the results of its operations, the
current year financial information is presented along with the previous year.
Financial information presented for the previous year may be classified differently
than originally disclosed. These reclassifications, which do not affect the auditor’s
report on those financial statements, were made for purposes of comparison.
NOTE 2: CASH AND CASH EQUIVALENTS
Cash and cash equivalents, investments with original maturity of three months
or less are as follows:
June 30, 2011
June 30, 2010
Cash on hand and in banks
$21,856,892 $8,929,026
Deposits in federally insured
financial institutions
117,685,017 $139,541,909 89,973,572
$98,902,598
The Credit Union administers a dealer incentive program for the sponsor company.
Cash equivalents totaling $18.7 million and $25.2 million are designated for the
payment of benefits under that program as of June 30, 2011 and 2010, respectively.
NOTE 3: INVESTMENTS
The carrying and estimated fair values of investments are as follows:
CERTIFICATES OF DEPOSIT
June 30, 2011
June 30, 2010
$3,890,000 $25,480,000
NEGOTIABLE SECURITIES June 30, 2011
Gross
Gross
Amortized UnrealizedUnrealized
Cost
Gains
Losses
Fair
Value
Available for sale:
Capital stock, at
Federal Home
Loan Bank
Capital stock,
credit union
service corporation
$1,602,700
—
—
$1,602,700
30,000
—
—
30,000
$1,632,700
—
—
$1,632,700
Gross
Gross
Amortized UnrealizedUnrealized
Cost
Gains
Losses
Fair
Value
Held to Maturity:
Securities guaranteed
by government
sponsored enterprises $15,000,000
$16,780
$1,140 $15,015,640
$15,000,000
$16,780
$1,140
$15,015,640
NOTE 4: LOANS RECEIVABLE
June 30, 2010
GrossGross
Amortized UnrealizedUnrealized
Cost
Gains
Losses
The composition of loans receivable is as follows:
Fair
Value
Available for sale:
Capital stock, at
Federal Home
Loan Bank
Capital stock,
credit union
service organizations
$1,686,300
—
—
$1,686,300
30,000
—
—
30,000
$1,716,300
—
—
$1,716,300
There were no investments classified as held to maturity as of June 30, 2010.
Gross unrealized losses and fair values by length of time that the securities have been
in continuous unrealized loss positions are as follows:
June 30, 2011
Fair
Value
Continuous Unrealized
Losses Existing for:
Less than
More than
12 months
12 months
Total
unrealized
losses
Held to Maturity:
Securities guaranteed
by government
sponsored enterprises
$2,998,860
$1,140
—
$2,998,860
$1,140
—
$1,140
$1,140
A summary of investments by contractual maturity is shown below. Expected maturity
will differ from contractual maturity because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
June 30, 2011
June 30, 2010
Within one year
$1,700,000
$25,000,000
One to five years
17,190,000
480,000
18,890,000 1,632,700 $20,522,700 25,480,000
1,716,300
$27,196,300
Subtotal
Investments without a defined maturity
Accrued interest receivable on investments amounted to $48,358 and $15,875 at June
30, 2011 and 2010, respectively.
June 30, 2011
June 30, 2010
Real estate
$168,199,264 $ 178,234,870
Automobile
122,430,633 123,344,901
Home equity lines of credit 22,408,901 23,426,521
Credit cards
55,523,858 56,481,435
Consumer type
13,011,423 14,139,670
476,045 382,050,124 490,086
396,117,483
4,802,278 $377,247,846 3,799,665
$392,317,818
Loan origination costs, net of fees Less: Allowance for loan losses
Accrued interest receivable on loans amounted to $842,355 and $1,045,385 at June
30, 2011 and 2010, respectively. The Credit Union had non-accrual loans of $1,796,513
and $2,228,143 at June 30, 2011 and 2010, respectively. If interest on these loans had
been recognized at the original interest rates, interest income would have increased
by approximately $56,000 and $50,000 for the years ended June 30, 2011 and 2010,
respectively.
Participation loans sold consist of residential real estate loans. The Credit Union
is the lead lender and responsible for the administration of these loans, including
the collection of payments, record keeping, and collection procedures, if necessary.
The Credit Union holds a security interest in the underlying collateral. In the past,
participation loans were sold through Western Bridge Corporate Federal Credit Union
although the Credit Union did not sell any participation loans for the years ended June
30, 2011 and 2010.
Participation loans through Western Bridge Corporate Federal Credit Union totaled
approximately $3.8 million and $6.3 million as of June 30, 2011 and 2010, respectively.
The Credit Union administers corporate credit card for employees of the sponsor
company. The sponsor company guarantees the entire line of credit on each card
and pays the outstanding balances as the employees submit their expense reports.
The outstanding loan balances under this agreement totaled to $3.4 million and $4.5
million as of June 30, 2011 and 2010, respectively. The total credit card limit under
this agreement is $42.1 million and $42.6 million as of June 30, 2011 and 2010,
respectively.
13
A summary by maturity of members’ share and savings accounts is as follows:
June 30, 2011 June 30, 2010
$308,344,616 $282,540,156
108,063,250 131,829,995
One to three years
33,676,066 23,583,622
Over three years
27,583,056 19,468,702
$477,666,988 $457,422,475
No contractual maturity
Allowance for Loan Losses: The Credit Union estimates the amount of losses
that will be sustained on loans receivable. The allowance for loan losses represents
Management’s estimate of losses not yet sustained on loans currently outstanding.
A summary of the activity in the allowance for loan losses is as follows:
Beginning balance
Provision for loan losses
Loans charged off
Recoveries from charged off loans
Ending balance
June 30, 2011 June 30, 2010
$3,799,665 $2,660,891
3,210,000 3,579,999
(2,517,811) (2,675,465)
310,424 234,240
$4,802,278 $3,799,665
June 30, 2011
June 30, 2010
$150,207 $150,207
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Land
Building and improvements
Furniture, fixtures, and equipment
Leasehold improvements
Subtotal
7,514,007 7,509,592
12,609,906 11,654,938
804,563 786,123
21,078,683 20,100,860
Less: Accumulated depreciation
and amortization
13,325,379 12,174,656
$7,753,304 $7,926,204
Depreciation and amortization expenses amounted to $1,150,723 and $1,117,497 for the
years ending June 30, 2011 and 2010, respectively.
NOTE 6: MEMBERS’ SHARE AND SAVINGS ACCOUNTS
Share and savings accounts are summarized as follows:
June 30, 2011
June 30, 2010
Share drafts
$59,981,660 $54,133,007
Share savings
141,901,409 127,719,523
Other deposits
275,783,919 $477,666,988 275,569,945
$457,422,475
The aggregate amount on uninsured members’ share and savings accounts in excess of
both NCUSIF and ASI coverages was approximately $26.3 million and $24.7 million as
of June 30, 2011 and 2010, respectively.
Within one year
Interest rates are set by the Board of Directors, based on an evaluation of current and
future market conditions.
NOTE 7: BORROWED FUNDS
The Credit Union currently has lines of credit with Western Bridge Corporate Federal
Credit Union, an NCUA conserved Corporate Credit Union. The total lines of credit with
Western Bridge Corporate Federal Credit Union are $58 million at June 30, 2011 at
an interest rate determined by the lender’s board of directors. Under this agreement
the credit union has no outstanding balance at June 30, 2011. The borrowing can be
a term loan collateralized with existing certificate of deposits or by thirty and fifteen
year in-house mortgage loans secured through Western Bridge Corporate Federal
Credit Union.
NOTE 8: 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.
The principal commitments of the Credit Union are as follows:
Lease agreements: At June 30, 2011, the Credit Union is obligated under noncancelable operating leases for office spaces. These leases contain escalation clauses
providing for increased rentals based primarily on an index described in the lease
agreements. Net rent expenses under these operating leases totaled $311,148 and
$335,985 for the years ended June 30, 2011 and 2010, respectively.
The required minimum rental payments under the terms of the leases at June 30, 2011
are as follows:
Minimum Payments 2012 2013 253,651
2014 261,220
2015 268,788
Subsequent Years
$249,867
418,635
$1,452,161
financial institution.
We’re not just a
And you’re not just someone
who banks here.
Loan commitments: At June 30, 2011 and 2010, the Credit Union had outstanding
commitments for unused lines of credit agreement totaling approximately $200
million and $205 million, respectively that are not reflected in the accompanying
financial statements.
Financial instruments with off-balance sheet risk: The Credit Union is a party
to financial instruments with off-balance sheet risk in the normal course of business
to meet the financing needs of its members and to reduce its own exposure to
fluctuations in interest rates. These financial instruments are commitments to extend
credit. Those instruments involve, to varying degrees, elements of credit and market
risk in excess of the amount recognized in the statement of financial condition. The
contract or notional amounts of those instruments reflect the extent of involvement
the Credit Union has in particular classes of financial instruments.
The Credit Union’s exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is represented by
the contractual notional amount of those instruments. The Credit Union uses the same
credit policies in making commitments as it does for on-balance sheet instruments.
These financial instruments include commitments for home equity and unsecured lines
of credit. The contractual amount of commitments to extend credit is approximately
$200 million. 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.
Since many of the commitments are expected to expire without being drawn upon, the
total commitments do not necessarily represent future cash requirements. To minimize
credit risk, the Credit Union evaluates each member’s credit worthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by the Credit Union
upon extension of credit, is based on Management’s credit evaluation of the counter
party. Interest rate risk associated with loan commitments is addressed in the Credit
Union’s asset/liability management policies.
Financial instruments with concentration of credit risk: The Credit Union’s
lending activity is with its members, most of whom are employees or former
employees of American Honda Education Corp., American Honda Finance Corp.,
American Honda Foundation, American Honda Motor Co., Inc. (AHM), Calhac,
Celina Aluminum Precision Technology (CapT), Clark Trucking, Honda of America
Manufacturing, Inc. (HAM), Honda Manufacturing of Alabama, LLC (HMA), Honda
South Carolina (HSC), Honda Trading America Corp. (HTA), Honda Power Equipment
(HPE), Honda Research of America, Honda North America (HNA), Honda Performance
Development, Inc., Honda Access America, Honda Aero, Inc., Honda Aircraft, Honda
Manufacturing Indiana (HMIN), Honda Precision Parts of Georgia, Honda Federal Credit
Union, Honda Transmission Manufacturing (HTM), Honda Kaihatsu Kogyo USA, Inc.,
Honda Engineering, NA, Inc. (EGA), Honda Patents & Technologies North America
LLC (HPT), Honda Lock (HL-A Co., Inc.), Komyo America Co., Inc., Midwest Express
Inc. (MEI), One Solution Logistics, South East Express of South Carolina, New South
Express, One World Logistics, and their qualifying family members.
A substantial portion of the cash equivalents portfolio is comprised of deposits in
Western Bridge Corporate Federal Credit Union. In July 2010, the $250,000 maximum
federal deposit insurance level was made permanent upon the adoption of the DoddFrank Wall Street Reform and Consumer Protection Act. As further explained in Note
#1, all deposits at Western Bridge Corporate Federal Credit Union are guaranteed by
the NCUSIF through December 31, 2012.
15
NOTE 9: RELATED-PARTY TRANSACTIONS
Loans to Credit Union officials and senior executive staff were made with interest
rates, terms and collateral requirements comparable to those required of other
members. The outstanding loan balance to Credit Union officials and senior executive
staff amounted to approximately $38,000 and $44,000 as of June 30, 2011 and 2010,
respectively. The aggregate amount of these loans is not significant to the financial
statements. Officials of the Credit Union provide management and consulting services
on a voluntary basis.
American Honda Motor Company, Inc. and Honda of America Manufacturing, Inc.
provided financial support and services, including office space at reduced rates,
to offset the cost of the Credit Union operation.
Employees of the Credit Union are compensated by American Honda Motor Company,
Inc. Benefits including retirement which are offered to employees of the sponsor and
are also provided to the Credit Union staff. The Credit Union reimburses the sponsor
for these costs.
On April 1, 2010, some Credit Union employees that had been assigned to the
following Honda affiliates in Ohio (HAM), Alabama (HMA), and South Carolina
(HSC) were converted to California (AHM). There were 45 (HAM) employees,
6 (HMA) employees, and 1 (HSC) employees that were separated and reassigned
for administrative purposes to California. Employee’s compensation, benefits,
and career level designation were impacted.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Accounting Standards Codification (ASC) 825, Financial Instruments (formerly
Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value
of Financial Instruments), requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is practicable
to estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments. ASC
825 excludes certain financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the credit union.
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement
of financial condition for cash and cash equivalents approximate the fair value
of those instruments.
Certificates of deposit: Fair values for certificates of deposit are estimated using a
discounted cash flow analysis that applies to the portfolio interest rates currently being
offered on new certificates of similar amounts and remaining maturities. The carrying
amount of accrued interest receivable on certificates of deposit approximates fair value.
Loans to members, net of allowance for loan losses: For variable-rate loans
that reprice frequently and with no significant change in credit risk, fair values
are based on carrying amounts. Fair values of fixed-rate real estate loans are estimated
using quoted market prices where available, or quoted market prices
of comparable instruments.
The fair values for other loans are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Loan fair value estimates include judgments
regarding future expected loss experience and risk characteristics. The carrying
amount of accrued interest receivable approximates fair value.
Members’ share and savings accounts: The fair values disclosed for demand
deposits, including regular shares, share drafts and money market accounts, are by
definition, equal to the amount payable on demand at the reporting date (that is,
their carrying amounts). The fair values for share certificates are estimated using a
discounted cash flow analysis that applies to the portfolio interest rates currently
being offered on new share certificates of similar amounts and remaining maturity.
Other balance sheet financial instruments: The carrying amount of other balance
sheet financial instruments such as the share insurance deposit, accounts receivable
and accounts payable is a reasonable estimation of fair value.
Off-balance sheet financial instruments: The fair value of unused lines of credit
with members is the contractual amount of these commitments. Fair values of
corporate lines of credit with other financial institutions used by the credit union for
short term liquidity purposes is the maximum credit limit.
The estimated fair values of financial instruments where the estimated fair value
is different from the carrying value and is not disclosed elsewhere in the Notes to
Financial Statements are as follows:
June 30, 2011
Carrying Amount
Fair Value
$3,890,000 $3,913,000
Balance Sheet Financial Instruments:
Certificates of Deposit
Loans Receivable
377,247,846 381,143,000
Members’ share and savings account
477,666,988 465,788,000
16
June 30, 2010
NOTE 13: REGULATORY ACTION
On January 29, 2009, the National Credit Union Administration (NCUA) announced
their plan to stabilize the troubled corporate credit union system. The plan calls for
the natural-person credit unions to take on the cost of this stabilization plan. While
the NCUA action came as a surprise to most people, the underlying problem had been
known for the past few years.
Carrying Amount
Fair Value
Balance Sheet Financial Instruments:
Certificates of Deposit
$25,480,000 $25,491,000
Loans Receivable
392,317,818 396,633,000
Members’ share and savings account
457,422,475 446,616,000
NOTE 11: REGULATORY CAPITAL
The Credit Union is subject to various regulatory capital requirements administered
by the National Credit Union Administration. Failure to meet minimum net worth
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 financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Credit Union must meet specific net worth
guidelines that involve quantitative measures of the Credit Union’s assets and liabilities,
as calculated under generally accepted accounting principles.
Quantitative measures established by regulation to ensure capital adequacy require the
Credit Union to maintain minimum ratios (set forth in the table below) of net worth (as
defined in the regulations) to assets (as defined). Management believes that as of June
30, 2011, the Credit Union meets all capital adequacy requirements to which it is subject.
As of June 30, 2011, the Credit Union’s net worth is categorized as well-capitalized
under the regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Credit Union must maintain a minimum net worth ratio at
June 30, 2011 as follows:
AmountRatio
Actual
$45,876,554 8.3%
For Capital
Adequacy Purposes
$33,317,555 6.0%
To be Well Capitalized
per Prompt Corrective
Action Provisions
$38,870,481 7.0%
NOTE 12: FORECLOSED AND REPOSSESSED ASSETS
Included with other assets is real estate, automobile, and other assets obtained
through foreclosures and repossession. The total foreclosed and repossessed assets
are valued at $380,064 and $299,255 as of June 30, 2011 and 2010, respectively.
Some of the large corporate credit unions invested in private-label, mortgage-backed
securities, so when the real estate market collapsed and credit markets froze up, the
value of these securities plummeted. As a result, the corporate credit unions involved
began to disclose substantial unrealized losses on their investment portfolios. Because
they classified those troubled investments as “available for sale”, accounting rules
allowed them to show the unrealized losses on the balance sheet while not affecting
the income statement. Some corporate credit unions went even further, moving the
unrealized loss completely off their financial statements and relegating the issue to
footnote status.
Federally insured credit unions are required to maintain a deposit in the National
Credit Union Share Insurance Fund (NCUSIF) equal to 1% of their insured shares. That
deposit, carried as an asset, is periodically adjusted based on the total amount of
insured shares at each reporting period. To cover the funds injected into the corporate
credit union system and provide for the related guarantees made by the NCUA, the
NCUSIF fund was significantly impaired.
In May of 2009, federal legislation was enacted lifting the impairment on the NCUSIF
fund and creating the new NCUA Corporate Credit Union Stabilization Fund. This new
fund will be financed with a $5.9 billion loan from the United States Treasury to be
repaid over a period of seven to eight years. In September 2009, the Credit Union
was assessed 15 basis points of insured shares totaling $674,401 for NCUSIF share
insurance premium and Temporary Corporate Credit Union Stabilization expense. This
assessment was paid in December 2009. In June 2010, the Credit Union was assessed
13.4 basis points of insured shares totaling $584,176 for Temporary Corporate
Credit Union Stabilization expense. This assessment was paid in August 2010. In
September 2010, the Credit Union was assessed 12.42 basis points of insured shares
totaling $537,460 for NCUSIF share insurance premium. This assessment was paid
in November 2010. In August 2011, the Credit Union was assessed 25 basis points
of insured shares estimated at $1,129,000 for Temporary Corporate Credit Union
Stabilization expense. This assessment is payable on September 27, 2011. As of June
30, 2011, the Credit Union also accrued $1,168,365 for future assessments.
NOTE 14: SUBSEQUENT EVENTS
The Credit Union has evaluated subsequent events through September 28, 2011,
which is the date the financial statements were available to be issued. There were no
significant subsequent events through September 28, 2011.
17
stronger
The connection
between us is
than money.
18
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fam
We’re
www.hondafcu.org • www.hondafcu.mobi
Branch Office
Locations
Lincoln, AL
(800) 634-6632
FAX: (205) 355-5820
Torrance, CA
(800) 634-6632
FAX: (310) 781-6615
Greensburg, IN
(800) 634-6632
FAX: (812) 222-6500
Anna, OH
(800) 634-6632
FAX: (937) 498-5618
East Liberty, OH
(800) 634-6632
FAX: (937) 644-6768
Marysville, OH
(800) 634-6632
FAX: (937) 642-5184
Marysville Community, OH
(800) 634-6632
FAX: (937) 642-0064
Russells Point, OH
(800) 634-6632
FAX: (937) 843-4624
Timmonsville, SC
(800) 634-6632
FAX: (843) 346-6100
ATM Locations
ALABAMA
Lincoln
HMA – Northwest side of the office
HMA – Line 2 at Associate Entrance
HMA – Line 2 Upstairs at Associate Entrance
HMA – Welcome Center
CALIFORNIA
Torrance
AHM – Torrance Building 100
Vending Core
AHM – Torrance Branch Office
Indiana
Greensburg
HFCU Lobby and Drive-Up
HMIN – 2755 N. Michigan Ave. cafeteria
OHIO
Anna
AEP – Anna South Entrance
AEP – Anna West Entrance
Bellefontaine
200 E. Sandusky Ave. (Village Pantry)
1138 N. Main St. (Village Pantry)
Celina
7059 Staeger Rd.
(CAPT - Not available to the public)
East Liberty
ELP – East Liberty Cafeteria
ELP – East Liberty Plant Entrance
Kenton
350 S. Main St. (Village Pantry)
Marysville
HFCU –17655 Echo Drive (Lobby and Drive Thru)
HFCU – 19775 S.R. 739 (Lobby and Drive Thru)
HAM – 23800 Honda Parkway (North Cafeteria)
HAM – Main Auto Entrance
HAM – South Cafeteria Entrance
HAM – Motorcycle South Entrance
303 E. Fifth St. (Downtown Marysville –Village Pantry)
1301 W. Fifth St. (Village Pantry)
700 Milford Rd. (Community Market)
Raymond
HRA – Associate Entrance
Russells Point
HTM – Associate Entrance
209 S.R. 708 (Indian Lake Plaza)
St. Marys
1115 Celina Rd, St Marys OH 45885
(Pump and Pack Shell Station)
NORTH CAROLINA
Swepsonville
HPE – Associate Cafeteria
SOUTH CAROLINA
Timmonsville
HSC – Associate Entrance
HSC – NE Corner Cafeteria
Administrative Office
19701 Hamilton Avenue, Suite 130 • Torrance, CA 90502-1352
Phone: 1-800-634-6632 (1-800-63-Honda)
FAX: (310) 217-8211