2015 Annual Report - FAIRWINDS Credit Union

Transcription

Annual Report
2015
Vision
Members financially secure
and economically successful
and responsible
Mission
Improve members’ financial
well-being
2
FAIRWINDS Credit Union
Values
Advocacy
Good Stewardship
Caring Environment
Honesty and Integrity
Cooperative Principles
Community Commitment
Exceptional Service
and Value
Annual Report 2015
3
been
“I’ve
a member for
over ten years
and i always
appreciate the
friendly service
and a big
bright smile
from the associates.”
Wink
4
Contents
6
Chairman’s and President’s Report 2015: A Look Back
8
12
Treasurer’s Report 14
Audit Committee Report 15
Consolidated Financial Statements 17
Board of Directors 18
2016: A Look Ahead
Management Team 20
Annual Report 2015
Independent Auditor’s Report 22
Audited Financial Statements 24
5
Chairman’s and President’s Report
Dan McNutt
Chairman
Larry F. Tobin
President/CEO
2015 was an extraordinary year.
million in commercial and business loans, the highest
performance the business portfolio has experienced
It was a year of peak performance, innovation, and
to date. Our business members have the confidence
transformation.
knowing that FAIRWINDS will provide solutions that
will help their business grow and thrive.
Simply put, it was a year of making an impact.
How did we make an impact in 2015?
By pruning…
Part of making an impact means pruning for future
By performing…
growth. We realigned two of our branches to merge
FAIRWINDS continues to be a leading financial in the
with newer locations in Leesburg and Metrowest,
Central Florida market, closing the year with a net
helping us maintain a strong and active footprint in
income of $15.8 million and asset growth of $149.9
our market with the right branches in the right places.
million. This growth is balanced with safety and
soundness. Net worth climbed to 9.66% while the
By transforming…
delinquency ratio continued on a downward trend
With the goal of bringing modernity, creativity, and
decreasing to 1.00%, well below credit union peers in
productivity together, we began the transformation
the market.
of our former Administration headquarters on
North Alafaya Trail from just a workplace to an
Mortgage rates reached an all-time industry low in
enriching collaborative environment for all of our
2015, and a record number of members reached
crewmembers. Phase One demolition of the
out to FAIRWINDS for home buying and refinancing
re-designed East Campus was completed in 2015 and
solutions. More than $216 million in mortgage
will re-open its doors in 2017.
loans were disbursed, helping members to secure
affordable financing.
By innovating…
While many of our members count on our branches
6
We continued to make an impact on the Central
for their needs, our network of delivery channels and
Florida small business community by disbursing $52
self-service options continued to expand at a rapid
pace. Enhancements to our mobile banking suite,
including Touch ID, Apple Pay, and the Apple Watch,
give members the power to safely choose how, when,
and where they want to access their information.
A complete redesign of our website debuted in
2015, providing a more robust and personalized
experience, helping every member to find the right
solution, wherever they are in life.
By looking ahead…
For more than 65 years, we’ve challenged ourselves
every day to make an impact on our members, our
community, and our fellow crewmembers. We are
excited for the new innovations and transformation
that lie ahead in 2016 and beyond, and are even more
excited to continue to share the journey with you. We
most look forward to continuing to making an impact
on you, our loyal members.
Annual Report 2015
7
2015:
A Look Back
2015 was a year of making an
impact. Here are some of the
highlights we experienced in 2015.
8
2015: A Look Back
The New FAIRWINDS website was completely
providing you with convenient, real-time alerts.
redesigned and launched in May. The new site
Credit Card e-Alerts can be sent via text, email, or
includes responsive design technology, making
both, based upon your preference, helping you enjoy
it easy to view and access fairwinds.org from any
peace of mind.
device, wherever you are.
Deepening our relationship with the University of
As part of the new FAIRWINDS website, a Ratings
Central Florida, we partnered with the College of
and Review section launched, providing members
Business to introduce The Exchange Presented by
the opportunity to rate their experience and share
FAIRWINDS Credit Union, providing a new space
feedback about the products and services they
for thought-provoking discussions and business
use at FAIRWINDS. Transparency is one of the four
relationships. The Exchange is used daily by faculty
components of advocacy, and the Ratings and
and students and speakers include employers,
Reviews section can help members and potential
faculty, students, and alumni, and cover a variety of
members to make the best choice for their needs,
topics. The space also offers continued opportunities
based upon direct feedback from those that have
for FAIRWINDS crewmembers to present financial
accessed or utilized a particular product or service.
literacy workshops.
Apple Pay™ debuted in January 2015. Apple Pay
FAIRWINDS crewmembers demonstrated their
allows you, with a supported Apple device, to
generosity by collectively pledging more than
add your FAIRWINDS debit and credit cards to
$25,000 to the Heart of Florida United Way in less
your Passbook App and easily make single touch
than two weeks.
payments directly from their device. FAIRWINDS
mobile access from the Apple Watch soon followed.
Members, crewmembers, and our valuable partners
worked together to help raise more than $30,000
EMV Chip Card technology was introduced for
in donations for the Greater Orlando Children’s
personal and business cards. Already established
Miracle Network Hospitals. An additional $8,914
in over 130 countries, financial institutions in the
was contributed as a result of Shop for Miracles
U.S. are making chip cards available to consumers
Day, where $0.15 of every purchase made with a
because of the extra layer of protection the
FAIRWINDS credit or debit card on October 15, 2015
technology provides to cardholders.
was donated to CMN.
Mobile banking became even more convenient with
We teamed up with the Seminole County Sheriff’s
the launch of Touch ID for members with an iPhone
Office to collect gifts for the Seminole County
5 or newer. Through Touch ID, you can log in to the
Christmas Village. Every year, more than 700 children
FAIRWINDS Mobile Banking app using fingerprint
and their families are invited to the Christmas Village,
identification.
where they are treated to rides, games, food and
Santa’s Toy Shop. Parents and guardians then select
e-Alerts for personal and business credit cards
holiday gifts for their children.
became available within FAIRWINDS Online,
Annual Report 2015
9
“After selling
my home, I had
ideas of what I
wanted to do,
but needed help
to make it a reality.
FAIRWINDS did
it for me. I feel
I am in good hands.”
TrailTrekker
10
recently
“Werefinanced
our auto loan.
The prompt,
professional
service was
outstanding.”
Ceejay
Annual Report 2015
11
2016:
A Look Ahead
We are excited to make 2016 another
year of impact for our members.
Here is a snapshot of what you can
expect and look forward to this year.
12
2016: A Look Ahead
Recognizing the opportunity to provide more rich
As part of our ongoing technology enhancements, a
and robust credit card solutions to our members
new commercial online platform will launch in 2016,
looking for a more upscale experience, the new
ensuring that our business members will be able to
FAIRWINDS Preferred Visa Signature® Credit Card will
run their operations seamlessly and more efficiently.
launch in February. The card offers around-the-clock
concierge services, premium rewards, and enhanced
Phase II of the renovation of the Administration and
benefits and VIP experiences.
Operations building in East Orlando is scheduled to
be completed in the spring. Phase III will immediately
Enjoy the convenience of on-demand pre-approval
follow with an anticipated East Campus re-open date
offers available within FAIRWINDS Mobile and Online
of early 2017.
Banking beginning in February. With the push of
a button, choose the right loan solution for your
We are honored to be able to help our Central Florida
needs, on your time, wherever you are.
community and neighbors in need. We look forward
to continuing to pledge our support to many worthy
The ultimate in self-service, we will provide the
organizations, including the Heart of Florida United
convenience of online appointment scheduling for
Way, the Greater Orlando Children’s Miracle Network
your mortgage, consumer loan, business services,
Hospitals, and A Gift For Teaching.
and retirement planning needs. Meet with our
experts on your schedule, not ours.
Our partnership with the University of Central Florida
as the Official Student Banking Services Provider is
Encouraging our members to save is paramount, and
growing and thriving. We look forward not only to
a redesign of our personal checking solutions will
continuing to educate and support current students
provide you with more value and savings, helping
and faculty, but also working with graduating
you in your journey toward achieving financial
students to help them successfully transition into the
freedom.
next financial stages of their lives.
Annual Report 2015
13
Treasurer’s Report
Kelly Leary
Treasurer
In a year met with challenges for some financial
$216 million in mortgage balances. Consumer loan
institutions, FAIRWINDS’ financial performance in
demand also hit record numbers with $349 million
2015 was remarkable, resulting in multiple “all-time
disbursed to members.
highs” for the credit union.
Overall member loans outstanding increased by
Net Worth, the best measure of the credit union’s
21.6% to $1,192,879,688. At the same time, member
ability to meet its commitment to members today
loan credit quality improved again in 2015. The
and well into the future, grew $15.7 million in 2015
delinquency ratio dropped to 1.00% while the charge
reaching $186,092,925 while total assets grew
off ratio dropped to .29% demonstrating FAIRWINDS’
$149.7 million to $1,925,920,706. Financial regulation
prudent lending.
requires institutions to hold net worth equal to 7.00%
of total assets to be well capitalized. FAIRWINDS’ net
Deposit growth was also healthy as we encouraged
worth is a healthy 9.66% of assets. Strong net worth
members to #save4something in 2015. Members
not only protects the credit union and its members
added $118 million to their savings accounts more
from economic uncertainty; it allows the credit union
than doubling the growth from 2014. Members also
to enhance its competitiveness by offering cutting
invested through FAIRWINDS’ Retirement Planning
edge technology, additional layers of security,
division adding $56 million to their investment
and a portfolio of products that bring value to the
accounts.
members.
FAIRWINDS’ financial performance in 2015
14
In 2015, a record number of members looked to
demonstrates how the credit union continues
their credit union for financial solutions. A favorable
to operate as a safe, sound, and secure financial
rate environment and a healthy housing market
cooperative. We look forward to another successful
contributed to member demand for mortgage
year serving our members needs and helping them
refinance and purchase. FAIRWINDS disbursed
on the path to financial freedom in 2016 and beyond.
Audit Committee Report
Lisa Snead
Audit Committee Chairman
Each year the Audit Committee for FAIRWINDS Credit
to demonstrate its commitment to operate at
Union, serving as an independent entity, engages a
the highest levels of safety and soundness. Fraud
third-party accounting firm to conduct an unbiased
prevention and detection controls are a priority issue
audit of the credit union’s financial condition. The
for the audit committee in order to mitigate risk and
audits include the annual financial statement audit,
prevent losses.
information systems review, and internal controls
review.
On behalf of the Audit Committee, based upon these
independent external audits and ongoing internal
Once again, Doeren Mayhew, CPA has issued an
audits conducted by our Internal Audit department it
unqualified opinion that the financial statements
is with confidence that I report that FAIRWINDS Credit
fairly, in all material respects, represent the financial
Union’s operations remain safe and sound. Members
position of the credit union as of September 30,
can have peace of mind knowing that their money
2015.
and financial information at FAIRWINDS is protected,
safe, and secure at all times.
Further auditing of the credit union’s information
technology confirms that FAIRWINDS continues
Annual Report 2015
15
have been
“Wemembers
for
over 10 years
and its like
we have our
own personal
loan and credit
advisor!”
longtimemember
16
Consolidated Financial Statements
Assets
2014
2015
Net Loans to Members
$966,629,238
$1,181,821,075
Cash & Due from Banks
$91,129,011
$57,427,037
$581,344,499
$542,279,641
$7,638,256
$8,149,433
Fixed Assets
$70,098,230
$72,404,581
All Other Assets
$59,206,126
$63,838,939
Total Assets
$1,776,045,360
$1,925,920,706
Government & Agency Securities
Other Investments
Sources of Income
Services
Income
Interest
on Loans
40%
48%
Investments
Liabilities & Member's Equity
2014
2015
$89,321,822
$104,841,428
$1,520,531,281
$1,639,172,946
Reserves & Undivided Earnings
$166,192,257
$181,906,332
Total Liabilty and Member's
Equity
$1,776,045,360
$1,925,920,706
Accounts Payable & Liabilities
Members' Shares & Deposits
Statement of Income
2014
2015
Interest on Loans
$42,085,029
$46,492,286
Investment Income
$12,292,377
$11,146,214
Other Income
$37,128,077
$38,642,455
$91,505,483
$96,280,955
($66,931,788)
($72,779,974)
($1,717,153)
($24,987)
($829,267)
($947,104)
($7,282,845)
($6,745,471)
($76,761,054)
($80,497,537)
$14,744,429
$15,783,418
2014
2015
175,455
169,435
12,995
15,497
$523,691,031
$748,868,490
1,002,829
1,018,326
$8,222,431,147
$8,971,299,637
Total Income
Operating Expenses
Provision for Loan Losses
Non-Operating Gains
Dividends
Total Expenses
Reserves
Vital Statistics
Number of Members
Number of Loans Granted
$$$ of Loans Granted
Number of Loans Granted Since
Organized
$$$ of Loans Granted Since
Organized
Annual Report 2015
12%
Sources of Income
Interest on Loans
$46,492,286
Investments
$11,146,214
Services Income
$38,642,455
Total
$96,280,955
Distribution of Income
Reserves
16%
Dividends
7%
Operations
77%
Loan Losses
0%
Distribution of Income
Loan Losses
$24,987
Reserves
$15,783,418
Dividends
$6,745,471
Operations
$73,727,078
Total
$96,280,955
17
Board of Directors
B. Daniel McNutt, Jr.
Chairman
Jason Albu
Vice Chairman
Carol F. Denton
Secretary
Kelly D. Leary
Treasurer
Richard Leigh
Director
Mack R. Perry
Director
Lisa Snead
Director
18
“So happy
I switched
to FAIRWINDS.
The regular
checking account
makes things
easy to understand.
It’s all black and white,
no surprises.”
Awanda01
Annual Report 2015
19
Management Team
Phillip C. Tischer
Senior Executive VP/COO
Larry F. Tobin
President/CEO
Kathy A. Chonody
Senior Executive VP/CFO
James D. Adamczyk
Executive VP Lending
Charles S. Lai
Executive VP/CIO
Derek Drake
Senior VP Risk Management
Bryan Meizinger
Senior VP Retail Lending
20
Mathy M. Hogan
Executive VP eBusiness
Cathy M. Hertz
Executive VP Human Resources
Dianne K. Owen
Executive VP - Marketing
Jorge Font
Senior VP - Business Services
Daniel T. Bock III
Senior VP - Finance
Michelle K. Klima
Senior VP Controller
James M. Thornberry
Senior VP Branch Services
is true
“ This
personal
banking.
FAIRWINDS
Employees build
relationships
with their
members.”
CharlesC
Annual Report 2015
21
Independent
Auditor’s Report
22
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and Audit Committee of
FAIRWINDS Credit Union and Subsidiaries
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of FAIRWINDS Credit Union and Subsidiaries,
which comprise the consolidated statements of financial condition as of September 30, 2015 and 2014, and the related
consolidated statements of earnings, comprehensive income, members’ equity and cash flows for the years then ended,
and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated 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 consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of FAIRWINDS Credit Union and Subsidiaries as of September 30, 2015 and 2014, and the
results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Troy, Michigan
January 4, 2016
Annual Report 2015
23
Consolidated Statements of Financial Condition
September 30, 2015 and 2014
2015
2014
Assets
Cash and cash equivalents
$ 36,116,880 $ 96,978,305
Investment securities (note 2):
Trading (note 12) 12,114,225
8,104,395
Available-for-sale
581,988,621
594,167,793
Held-to-maturity 808,682 1,099,843
FHLB stock (note 1)
6,061,000 4,898,900
Loans held-for-sale (note 1)
397,951 Loans to members, net of allowance for loan losses (note 3) 1,137,804,744 932,127,741
Accrued interest receivable
5,652,611 5,238,233
Property, equipment and leasehold improvements (note 4) 71,256,590 71,374,324
NCUSIF deposit (note 1) 14,795,031 14,254,708
Assets acquired in liquidation of loans (note 1) 12,673,597 14,376,585
Investments in life insurance contracts (note 12) 13,383,236 13,623,136
Other assets (notes 1 and 4)
6,378,562 6,379,535
Total assets
$1,899,431,730
$1,762,623,498
Liabilities and Members’ Equity
Liabilities:
Members’ shares and savings accounts (note 6)
$1,597,016,486 $1,515,327,187
Borrowed funds (note 5) 105,000,000 75,000,000
Accounts payable 3,628,622 3,562,427
Other accrued liabilities (notes 1 and 12)
10,481,859 9,506,729
Total liabilities 1,716,126,967 1,603,396,343
Commitments and contingent liabilities (note 9)
Members’ equity - substantially restricted (note 7)
183,304,763
Total liabilities and members’ equity
$1,899,431,730 $1,762,623,498
24
159,227,155
Consolidated Statements of Earnings
Years ended September 30, 2015 and 2014
2015
2014
Interest income:
Loans receivable
$ 45,271,382 $ 41,412,171
Investment securities
11,307,499 12,705,44
Total interest income 56,578,881 54,117,612
Interest expense:
Interest and dividends on members’ shares and savings accounts
3,907,094
4,432,932
Interest on borrowed funds
2,961,403 2,945,495
Total interest expense
6,868,497 7,378,427
Net interest income 49,710,384 46,739,185
Provision for loan losses
2,222,349
Net interest income after provision for loan losses
1,033,235
47,488,035
45,705,950
Non-interest income:
Market value increase on trading securities and investments
in life insurance contracts
22,495
937,494
Fees and charges
38,072,271 37,847,972
Total non-interest income 38,094,766 38,785,466
Non-interest expenses:
Compensation and benefits 38,613,668 35,271,968
Office operations 14,923,214 13,251,371
Occupancy 8,190,061 6,366,193
Operating expenses 10,061,147 9,687,683
Loss on disposals and write-downs of fixed assets
943,287 (Gains) losses on sales and write-downs of assets in liquidation
(80,567) 1,886,074
Total non-interest expenses
72,650,810 66,463,289
Net earnings
Annual Report 2015
$12,931,991
$18,028,127
25
Consolidated Statements of Comprehensive Income
2015
2014
Net earnings
$ 12,931,991 $ 18,028,127
Other comprehensive income:
Net changes in unrealized holding gains on investments classified as
available-for-sale arising during the period
11,145,617
1,178,110
Comprehensive income
$24,077,608
$19,206,237
Consolidated Statements of Members’ Equity
Non-Accumulated
Appropriated Other
Undivided Comprehensive Statutory Earnings Income (Loss) Total
Members’ equity - October 1, 2013
$
-18,028,1271,178,11019,206,237
Members’ equity - September 30, 2014
14,459,893 $ 136,325,855 $ (10,764,830) $ 140,020,918
14,459,893 154,353,982 (9,586,720)
159,227,155
-12,931,991 11,145,617 24,077,608
Members’ equity - September 30, 2015 (note 7)
$14,459,893 $167,285,973 $1,558,897 $183,304,763
26
Consolidated Statements of Cash Flows
2015
2014
Cash flows from operating activities:
Net earnings
$
12,931,991$
18,028,127
Adjustments:
Depreciation 5,467,606 3,814,645
Provision for loan losses
2,222,349 1,033,235
Net amortization of premiums on investment securities
1,292,702 292,092
Increase in market values of investments in trading securities and
life insurance contracts (22,495) (937,494)
(Gains) losses on sales and write-downs of assets in liquidation
(80,567)
1,886,074
Loss on disposals and write-downs of fixed assets
943,287
Recoveries on charged-off loans
1,562,774 1,526,678
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable
(414,378)
117,426
(Increase) decrease in other assets
(1,992)
1,829,243
Increase (decrease) in accounts payable
66,195 (44,523)
Increase in other accrued liabilities
975,130 81,143
Total adjustments
12,010,611 9,598,519
Net cash provided from operating activities 24,942,602 27,626,646
Annual Report 2015
27
Consolidated Statements of Cash Flows
2015
2014
Cash flows from investing activities:
Increase in loans to members (net)
$(213,331,426) $ (115,968,634)
Increase in loans held-for-sale
(397,951)
Increase in non-negotiable certificates of deposit
-
Proceeds from maturities and sale of investment securities 87,531,163 113,179,520
Purchases of investment securities (68,976,589) (24,795,095)
Redemption of investments in life insurance contracts
24,204 551,325
(Purchase) redemption of FHLB stock (1,162,100)
473,700
Acquisition of property and equipment (6,293,159)
(2,417,166)
Proceeds from sale of assets in liquidation
5,652,855
9,463,842
Increase in NCUSIF deposit
(540,323) (326,846)
Net cash used in investing activities (197,493,326)
(19,839,354)
Cash flows from financing activities:
Increase in members’ shares and savings accounts (net) 81,689,299 44,600,936
Increase in borrowed funds
30,000,000 Net cash provided from financing activities
111,689,299
44,600,936
Net (decrease) increase in cash and cash equivalents (60,861,425)
52,388,228
Cash and cash equivalents - beginning
96,978,305
44,590,077
Cash and cash equivalents - ending
$36,116,880
$96,978,305
Interest and dividends paid
$6,868,497
$7,378,427
Assets acquired in the settlement of loans
$3,869,300
$6,601,493
Supplemental Information
28
Notes to Consolidated Statements of Cash Flows
September 30, 2015 And 2014
Note 1 - Nature of Business and Significant Accounting Policies
Nature of Business
FAIRWINDS Credit Union’s (the “Credit Union”) operations are principally related to holding deposits for and making loans
to individuals who qualify for membership. The field of membership consists of persons living or working in Lake, Orange,
Osceola, Seminole, Volusia, Brevard, or Polk counties in the State of Florida, those who work for one of the Credit Union’s
preferred business partners, are active or retired military personnel or dependents receiving military benefits and immediate family members of current members.
FAIRWINDS Financial Services, L.L.C. is a wholly-owned subsidiary of the Credit Union. FAIRWINDS Financial Services, L.L.C.’s
operations represent less than 1% of the consolidated totals for 2015 and 2014.
FAIRWINDS Insurance Services, L.L.C. is a wholly-owned subsidiary of FAIRWINDS Credit Union created to provide insurance
products for members of the Credit Union. FAIRWINDS Insurance Services, L.L.C.’s operations represent less than 1% of the
consolidated totals for 2015 and 2014.
Principles of Consolidation
The consolidated financial statements included the accounts of the Credit Union and its wholly-owned subsidiaries,
FAIRWINDS Financial Services, L.L.C. and FAIRWINDS Insurance Services, L.L.C. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
The consolidated statements of cash flows classify changes in cash or cash equivalents (short-term, highly liquid
investments readily convertible into cash with an original maturity of three months or less) according to operating,
investing or financing activities. Financial instruments which potentially subject the Credit Union to concentrations of
credit risk consist principally of cash and temporary cash investments. At times, cash balances held at financial institutions
were in excess of federally insured limits. The Credit Union places its temporary cash investments with high-credit, quality
financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Credit Union
believes no significant concentration of credit risk exists with respect to these cash investments.
Estimates
The preparation of the consolidated 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 consolidated financial statements and the reported mounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Annual Report 2015
29
Note 1 - Nature of Business and Significant Accounting Policies (Continued)
Investment Securities
Generally accepted accounting principles requires that management determine the classification of individual investment
securities as trading securities, investments available-for-sale or investments held-to-maturity.
The Credit Union’s investments in securities for the years ended September 30, 2015 and 2014 are classified and accounted
for as follows:
Trading Securities
Trading investments of various mutual funds and are carried at their fair values. Realized and unrealized gains and
losses on trading securities are recognized in the consolidated statements of earnings as they occur.
Held-to-Maturity Securities
Securities for which the Credit Union has the positive intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using
the straight-line method, which materially approximates the interest method, over the period to maturity.
Available-for-Sale Securities
Securities available-for-sale consists of securities not otherwise classified as trading securities or as securities to
be held-to-maturity and are recorded at fair value, with unrealized gains and losses excluded from earnings and
reported in other comprehensive income.
Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are other-thantemporary are reflected as realized losses. In estimating other-than-temporary impairment (OTTI), management
considers: (1) the length of time and the extent to which fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, and (3) the intent and ability of the Credit Union to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Property, Equipment and Leasehold Improvements
Land is carried at cost. Property and equipment are stated at cost, less accumulated depreciation. Depreciation
is computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements
are stated at cost, less accumulated amortization. Amortization is computed on the straight-line method over the
length of the lease term. Assets classified as construction-in-process are not depreciated until the asset has been
completed and placed into service.
NCUSIF Deposit
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with National Credit
Union Administration (NCUA) regulations, 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
30
of the fund are transferred from the NCUA Board. The NCUSIF deposit is required to be reviewed for impairment,
including consideration of the refundability of the deposit.
Loans to Members
Loans the Credit Union has the intent and ability to hold for the foreseeable future are stated at unpaid principal
balances, less an allowance for loan losses and net deferred loan origination fees and discounts. Interest on loans
is recognized over the term of the loan and is calculated using the simple-interest method on principal amounts
outstanding.
The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is wellsecured and in the process of collection. Credit card loans and other personal loans are typically charged-off no
later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are
placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against
interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
Certain direct loan origination costs are deferred and recognized as an adjustment to interest income using the
straight-line method over the contractual life of the loans. The straight-line method, which is not in accordance
with generally accepted accounting principles, is not materially different from the interest method, which is
required under generally accepted accounting principles.
The Credit Union may be exposed to credit risk from a regional economic standpoint because a significant
concentration of its borrowers work or reside in the Orlando, Florida metropolitan area. The Credit Union
continually monitors the Credit Union’s operations, including the loan and investment portfolios, for potential
impairment.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan
losses charged to earnings. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available.
Annual Report 2015
31
The Credit Union’s allowance for loan losses is that amount considered adequate to absorb probable losses in
the portfolio based on management’s evaluations of the size and current risk characteristics of the loan portfolio.
Such evaluations consider prior loss experience, the risk rating distribution of the portfolios, the impact of current
internal and external influences on credit loss and the levels of non-performing loans. Specific allowances for
loan losses are established for large impaired loans on an individual basis as required by generally accepted
accounting principles. The specific allowances established for these loans is based on a thorough analysis of the
most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s
estimated market value, or the estimated fair value of the underlying collateral. General allowances are established
for loans that can be grouped into pools based on similar characteristics as described in generally accepted
accounting principles. In this process, general allowance factors are based on an analysis of historical charge-off
experience and expected losses given default derived from the Credit Union’s internal risk rating process. These
factors are developed and applied to the portfolio in terms of loan type. The qualitative factors associated with the
allowances are subjective and require a high degree of management judgment. These factors include the credit
quality statistics, recent economic uncertainty, losses incurred from recent events and lagging data.
The following loan portfolio segments have been identified: commercial, first mortgages, home equity, secured,
and unsecured.
A loan is impaired when full payment under the loan terms is not expected to be received. Real estate loans
for which the terms have been modified and for which the borrower is experiencing financial difficulties, are
considered troubled debt restructurings and are classified as impaired. Troubled debt restructurings are measured
at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled
debt restructuring is considered to be a collateral dependent loan or management chooses to consider the
collateral value of the loan in the evaluation of the allowance, the loan is reported, net, at the fair value of the
collateral. Large groups of smaller balance homogenous loans, such as auto, other secured and unsecured loans,
are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment
disclosures.
Loans Held-for-Sale
Loans held-for-sale consists of residential real estate loans and is recorded at the lower of cost or market value.
Market price is determined on an aggregate basis based on commitments from investors to purchase such loans
and prevailing market rates.
Federal Home Loan Bank Participation Stock
The Credit Union is a member in the Federal Home Loan Bank of Atlanta (FHLB). At September 30, 2015 and
2014, the Credit Union owned 60,610 and 48,989 shares of non-marketable participation stock for $6,061,000 and
$4,898,900, respectively, with quarterly stock and/or cash dividends.
32
Income Taxes
The Credit Union and its Subsidiaries are exempt from most federal, state and local income taxes under the
provisions of the Internal Revenue Code and state tax laws.
The Credit Union is a state-chartered credit union as described in Internal Revenue Code (“IRC”) Section 501(c)(14).
As such, the Credit Union is exempt from federal taxation of income derived from the performance of activities
that are in furtherance of its exempt purposes. However, IRC Section 511 imposes a tax on the unrelated business
income (as defined in Section 512) derived by state-chartered credit unions. Many states have similar laws. The
specific application of Section 512 to the various activities conducted by state-chartered credit unions has been an
issue for many years. In 2007, the Internal Revenue Service (“IRS”) issued a series of Technical Advice Memoranda
(“TAM”) to a number of state-chartered credit unions located throughout the country. In these TAMs, the IRS
ruled certain products and services to be subject to taxation as unrelated business income. In light of the TAMs,
the Credit Union has assessed its activities and any potential federal or state income tax liability. In the opinion of
management, any liability arising from federal or state taxation of activities deemed to be unrelated to its exempt
purpose is not expected to have a material effect on the Credit Union’s financial condition or results of operations.
The Credit Union’s income tax filings are subject to audit by various taxing authorities and open tax periods include
2011 - 2015.
Members’ Shares and Savings Accounts
Members’ shares are subordinated to all other liabilities of the Credit Union upon liquidation. Interest on members’
shares 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 members’ shares accounts are set by the Board of Directors, based on an
evaluation of current and future market conditions.
Assets Acquired in Liquidation of Loans
Assets acquired in liquidation of loans represent collateral used to secure members’ loans that have been acquired
by the Credit Union in an effort to settle the members’ loan and are recorded at the lower of cost or market less
costs of liquidation.
Upon acquisition, the Credit Union determines fair value of the collateral and any losses are charged-off through
the allowance for loan losses. The Credit Union continues to review these properties for subsequent impairment
and any subsequent declines in fair value are recorded through current period earnings.
Risks and Uncertainties
The Credit Union invests in various investment securities. Investment securities are exposed to various risks such
as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at
least reasonably possible that changes in the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the consolidated statements of financial condition
and consolidated statements of earnings.
Annual Report 2015
33
Mortgage Servicing Rights
The cost of mortgage loans for which there is a definitive plan to sell are allocated to the loan and rights to service
mortgage loans based on their relative fair values. The cost of capitalized mortgage servicing rights is amortized
proportionately over the period of estimated net servicing revenue. The Credit Union has pooled certain mortgage
servicing rights together based on certain risk characteristics and is amortizing these servicing rights over the
estimated average life of those loans. As of September 30, 2015, the carrying value approximates the fair market
value of the mortgage servicing rights.
For measuring impairment, mortgage servicing rights are stratified based on predominate risk characteristics of
the underlying loans. These characteristics include loan type, loan size, interest rate, date of origination, loan term
and geographic region. The fair value of mortgage servicing rights used in measuring impairment is based upon
quoted market prices. Impairment of capitalized servicing rights is recognized through a valuation allowance for
each stratum, as necessary.
Subsequent Events
The consolidated financial statements and related disclosures include evaluation of events up through and
including January 4, 2016, which is the date the consolidated financial statements were available to be issued.
Reclassification/Presentation
Certain information in the 2014 consolidated financial statements has been reclassified to conform to the 2015
presentation.
34
Note 2 - Investment Securities
The carrying amounts of investment securities as shown in the consolidated statements of financial condition of the Credit
Union and their approximate fair values at September 30, 2015 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Securities available-for-sale:
Federal agency securities
$ 262,177,036$
1,554,909$
(675,280)$ 263,056,665
Collateralized mortgage obligations
221,079,569
1,291,179
(1,627,705)
220,743,043
Mortgage-backed securities
42,050,968
768,594
-
42,819,562
Corporate bonds
55,140,576272,522(43,747) 55,369,351
Total securities available-for-sale
$580,448,149$3,887,204$(2,346,732) $581,988,621
Securities to be held-to-maturity:
$808,682$61,600$-$870,282
The amortized cost and estimated market value of debt securities, at September 30, 2015, by contractual maturity, are
shown below.
Securities
Securities to be
Available-for-Sale
Held-to-Maturity
Amortized FairAmortized Fair
Cost Value Cost Value
Due in less than one year
$
Due in one year to less than five years
35,287,766 $ 35,375,050 $
232,057,853 233,662,365
- $
-
-
-
Due in five years to ten years
-
-
-
-
Due in greater than ten years
49,971,993
49,388,601
-
-
221,079,569
220,743,043 -
-
42,050,968 Total
$580,448,149 $ 581,988,621$808,682$870,282
Annual Report 2015
42,819,562808,682 870,282
35
Note 2 - Investment Securities (Continued)
Trading securities are carried at fair value and consist of mutual funds that have no contractual maturity. The mutual funds
had a fair value of $12,114,225 and $8,104,395 as of September 30, 2015 and 2014, respectively.
Unrealized losses as of September 30, 2015 have not been recognized into income because they are not considered to be
other-than-temporary. Management considers the unrealized losses to be market driven, rather than credit driven and no
loss will be realized unless the securities are sold.
Continuing Unrealized
Continuing Unrealized
Losses For Less Than
Losses For 12 Months
12 Months
or More
Total
FairUnrealized FairUnrealized FairUnrealized
Description of Securities
Value Losses Value Losses Value Losses
$9,994,600$
(5,400)$
37,330,120$ (669,880)$
47,324,720$ (675,280)
Collateralized mortgage
obligations
-
-
126,181,331(1,627,705)
126,181,331(1,627,705)
Mortgage-backed
securities -----Corporate bonds
10,079,950 (13,372) 4,956,850 (30,375) 15,036,800 (43,747)
Total
$20,074,550 $(18,772) $168,468,301 $(2,327,960) $188,542,851 $(2,346,732)
The Credit Union routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether any OTTI has occurred. Economic models are used to determine whether an OTTI has occurred on these
securities. While all securities are considered, the securities primarily impacted by OTTI testing are collateralized mortgage
obligations, specifically collateralized mortgage obligations issued by non-governmental agencies. For each private
collateralized mortgage obligation in the investment, including but not limited to those whose fair value is less than their
amortized cost basis, an extensive, regular review is conducted to determine if an OTTI has occurred. Various inputs to the
economic model are used to determine if an unrealized loss is other-than-temporary. The most significant inputs are the
default rate and the loss severity rates of the underlying collateral of the securities.
Other inputs may include the actual collateral attributes, which include geographic concentrations, credit ratings and other
performance indicators of the underlying assets.
36
Note 2 - Investment Securities (Continued)
To determine if the unrealized loss of these securities is other-than-temporary, the Credit Union projects total estimated
defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value
upon sale in the marketplace (severity) in order to determine the impact on cash flows. If the Credit Union determines that
a given position will be subject to a write-down or loss, the Credit Union records the expected credit loss as a charge to
earnings while the non-credit portion is recorded to other comprehensive income.
The carrying amounts of investment securities as shown in the consolidated statements of financial condition of the Credit
Union and their approximate fair values at September 30, 2014 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Securities available-for-sale:
$ 237,269,373$
382,839$ (5,016,725)$ 232,635,487
274,034,324
1,208,101
(6,640,822)
268,601,603
52,271,927
504,723
(130,697)
52,645,953
Corporate bonds
40,200,279185,607(101,136) 40,284,750
$603,775,903$2,281,270$(11,889,380) $594,167,793
Total securities available-for-sale
Securities to be held-to-maturity:
Annual Report 2015
$1,099,843$90,103$- $1,189,946
37
Note 3 - Loans to Members
The composition of loans to members is as follows:
Commercial loans
2015
2014
$ 111,906,106
$ 88,308,990
First mortgages
534,433,053
427,992,727
Home equity80,241,54197,021,299
Secured
346,576,139
263,189,791
Unsecured71,830,79367,080,785
Net deferred loan origination fees/costs
5,332,500
3,453,828
Total
1,150,320,132
947,047,420
Less: allowance for loan losses
12,515,388
14,919,679
Total loans to members
$1,137,804,744
$932,127,741
Impaired Loans
Loan impairment is measured by estimating the expected future cash flows or by valuing the underlying collateral.
The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2015:
Recorded
Investment
With no related
allowance recorded:
Commercial
First mortgage
Home equity
$ 11,303,389
Unpaid
Principal Balance Related
Allowance $ 11,303,389 $
- 8,781,996
10,411,576
499,029
771,331
Average
Recorded
Investment $
Interest
Income
Recognized
11,491,361$
309,245
-
10,512,438
249,218
-
494,946
10,688
Total:
Commercial
$ 16,461,768
$ 16,461,768
$
338,407
$
20,324,816
$
First mortgage
$ 51,771,039
$ 53,179,545
$
4,855,661
$
55,310,978
$ 1,360,033
Home Equity
$ 2,061,264
$ 2,333,566 $
625,785
$
38
2,567,123 $
517,949
19,137
Note 3 - Loans to Members (Continued)
Loan impairment is measured by estimating the expected future cash flows or by valuing the underlying collateral. The
following table presents loans individually evaluated for impairment by class of loans as of September 30, 2014:
Recorded
Investment
With no related
allowance recorded:
Commercial
First mortgage
Home equity
$ 11,679,333
Unpaid
Principal Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ 11,679,333 $
- $ 12,007,298
$
-
10,613,300
10,613,300
-
6,779,546
-
218,560
218,560
-
470,376
-
With an allowance recorded:
Commercial
First mortgage
Home equity
$ 12,508,531
$ 12,508,531 $
1,366,734
46,829,112
46,829,112
2,600,120
2,600,120
$
11,321,554 $
-
5,877,649
47,792,535
-
617,455
3,156,440
-
Total:
Commercial
$ 24,187,864
$ 24,187,864
$
1,366,734
$
23,328,852
$
-
First mortgage
$ 57,442,412
$ 57,442,412
$
5,877,649
$
54,572,081
$
-
Home Equity
$ 2,818,680
$ 2,818,680 $
617,455
$
3,626,816 $
-
Credit Quality Indicators
The Credit Union categorizes commercial loans into risk categories based on relevant information about the ability of the
borrower to service their debts such as current financial information, historical payment experience, credit documentation,
public information, and current economic trends, among other factors. The Credit Union analyzes commercial loans
individually by classifying the loans as to credit risk. The Credit Union uses the following definitions for classified risk rating:
Special Mention - The loan has potential weaknesses, such as negative financial trends, a limited financial history,
a serious documentation flaw, or inadequate control on the part of the Credit Union. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects for the asset. However, a loan rated
“special mention” is considered fully collectible.
Annual Report 2015
39
Substandard - A loan is “substandard” if there is the potential for loss. Such loans have well-defined weaknesses
and are not fully protected either by the paying capacity of the borrower or the value of the secondary source of
repayment. These loans are characterized by the distinct possibility that the Credit Union could sustain some loss if
the deficiencies are not corrected.
Doubtful and Loss - The lowest risk ratings of “doubtful” and “loss” indicate increased loss potential. Such loans
should have already been recognized and, more than likely, charged-off.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered
to be prime or pass rated loans. At September 30, 2015 and 2014 and based on the most recent analysis performed, the
risk category of loans by class of loans is as follows:
Pass
Special
Mention Commercial
$
99,291,171 $ 4,708,238
Pass
Commercial
$
September 30, 2015
Substandard $
5,303,214 $ 2,805,434
Loss $
Total
- $ 112,108,057
September 30, 2014
Special
Mention 72,146,453 $ 8,342,076
Doubtful Substandard $
Doubtful 4,906,378 $ 3,121,417
Loss $
Total
- $ 88,516,324
The Credit Union considers the performance of the loan portfolio and its impact on the allowance for loan losses. The
following tables present the recorded investment in residential real estate and consumer loans based on payment activity
as of September 30, 2015 and 2014:
Performing
First Mortgages
$
Non-Performing
$
40
537,334,043 $
$
420,048,727 $
10,403,706
$
Home Equity 80,518,568
541,463
81,060,031
Secured
$ 350,121,226
Unsecured $
168,097
$ 350,289,323
72,242,260
Totals
$1,032,977,651
542,170 $
8,490,176
72,784,430 $1,041,467,827
September 30, 2014
First Mortgages
Non-Performing
Total
530,0095,597 $
7,238,446
Total
Performing
September 30, 2015
430,452,433 $
Home Equity Secured
97,306,625 $ 265,151,183
357,206
97,663,831
Unsecured $
95,004
$ 265,246,187
$
Totals
67,546,738 $ 850,053,273
598,549 11,454,465
68,145,287 $ 861,507,738
Age Analysis of Past Due Loans
The following table presents the aging of the recorded investment in past due loans at September 30, 2015:
September 30, 2015
Recorded
Total
Investment
30-59 Days 60-89 Days Greater Than
Total Financing >90 Days and
Past Due Past Due 90 Days Past Due Current Receivable Accruing Unsecured $ 635,001 $ 261,717 $
542,170 $ 1,438,888 $ 71,345,542 $
Secured
2,065,918
307,212
168,097
2,541,227
347,748,096
350,289,323
-
Home equity
739,426
220,865
541,463
1,501,754
79,558,277
81,060,031
-
First mortgages
85,670
989,584
7,238,446
8,313,700
529,020,343
537,334,043
-
859,710
111,248,347
112,108,057
-
Commercial 365,247
22,463
472,000
72,784,430 $
Total
$3,891,262 $ 1,801,841 $ 8,962,176 $ 14,655,279 $ 1,138,920,605 $ 1,153,575,884 $
-
-
The following table presents the aging of the recorded investment in past due loans at September 30, 2014:
September 30, 2014
Recorded
Total
Investment
30-59 Days 60-89 Days Greater Than
Total Financing >90 Days and
Past Due Past Due 90 Days Past Due Current Receivable Accruing Unsecured $ 671,777 $ 510,071 $
598,549 $
1,780,397 $
66,364,890 $
68,145,287 $
-
Secured
1,520,818
170,436
95,004
1,786,258
263,459,929
265,246,187
-
Home equity
730,929
477,359
357,206
1,565,494
96,098,337
97,663,831
-
First mortgages
306,875
1,791,151
10,403,706
12,501,732
417,950,701
430,452,433
-
1,254,797
87,261,527
88,516,324
-
$ 950,024,062 $
-
Commercial
56,718
30,358 1,167,721
Total
$3,287,117 $ 2,979,375 $12,622,186 $ 18,888,678 $ 931,135,384
Annual Report 2015
41
Troubled Debt Restructurings
The following table presents loans by class which were modified as troubled debt restructurings during the year ended
September 30, 2015:
Number of
Contracts Pre-
Modification
Outstanding
Recorded
Investment PostModification
Outstanding
Recorded
Investmest
Troubled debt restructurings:
First mortgages
18
Home equity
Vehicle
$
2,585,446
$
2,549,445
4
219,845
$
215,235
4
42,791
42,428
The following table presents loans which were modified and subsequently defaulted on modified terms during the year
ended September 30, 2015:
Number of
Contracts Troubled debt restructurings
that subsequently defaulted:
Pre-
Modification
Outstanding
Recorded
Investment First mortgages
9
Commercial
1
Home equity
1
51,104
Vehicle
1
6,274
42
$
1,742,391
PostModification
Outstanding
Recorded
Investmest
$
1,178,163
404,661
695,721
$
47,088
2,899
The following table presents loans by class which were modified as troubled debt restructurings during the year ended
September 30, 2014:
Number of
Contracts Pre-
Modification
Outstanding
Recorded
Investment PostModification
Outstanding
Recorded
Investmest
Troubled debt restructurings:
First mortgages
39
Home equity
Vehicle
$
6,592,156
$
6,318,737
12
380,551
$
358,363
8
73,573
67,581
The following table presents loans which were modified and subsequently defaulted on modified terms during the year
ended September 30, 2014:
Number of
Contracts Troubled debt restructurings
that subsequently defaulted:
First mortgages
22
Home equity
Vehicle
Annual Report 2015
Pre-
Modification
Outstanding
Recorded
Losses
Investment Recorded
$
3,378,389
$
907,801
6
215,947
$
190,099
9
155,487
65,588
43
Note 4 - Property, Equipment and Leasehold Improvements
The principal categories of property, equipment and leasehold improvements may be summarized as follows:
2015
2014
$ 22,572,565
$ 23,072,565
Land and improvements
Building and improvements
49,727,550 49,701,014
Furniture and equipment
32,164,178
33,361,509
Leasehold improvements
9,820,758
10,194,013
Construction-in-process
2,834,368
334,598
Total cost
117,119,419
116,663,699
Less accumulated depreciation
45,862,829
45,289,375
Undepreciated cost
$71,256,590
$71,374,324
Construction-in-process amounts relate to a renovation project at one of the Credit Union’s branches. As of the date of the
audit report, a contract has not been finalized and there are no further commitments.
44
Note 5 - Borrowed Funds
The Credit Union has outstanding borrowed funds and these notes mature and carry interest rates as follows:
2015
2014
$ 15,000,000
$
Fixed Rate Note with the Federal Home Loan Bank of Atlanta bearing
interest of 0.31000%, interest is payable monthly and principal is
payable with a single payment on January 22, 2016
-
interest of 0.32000%, interest is payable monthly and principal is
payable with a single payment on November 12, 2015
15,000,000
-
25,000,000
25,000,000
25,000,000
25,000,000
interest of 4.386%, interest is payable monthly and principal is payable
with a single payment on August 28, 2017
with a single payment on August 29, 2017
with a single payment on January 30, 2018
25,000,000
25,000,000
Total borrowed funds
$105,000,000
$75,000,000
The Credit Union maintains a line-of-credit with Corporate One Federal Credit Union at a variable rate of interest,
guaranteed by all assets, maximum credit available of $100,000,000 at September 30, 2015 and 2014. There were no
outstanding advances as of September 30, 2015 and 2014.
The Credit Union maintains a credit agreement with the Federal Home Loan Bank of Atlanta, maximum credit available of
$273,097,213 at September 30, 2015. At September 30, 2015 and 2014, the Credit Union had advanced $105,000,000 and
$75,000,000, respectively, against this line-of-credit agreement in the form of term notes. Interest rates on advances from
the FHLB are determined at the time of the advances and collateral in the form of mortgage securities are pledged at the
time of the advance.
As of September 30, 2015, the Credit Union has pledged $273,097,213 in first mortgage loans as collateral against the term
loans held with the Federal Home Loan Bank of Atlanta.
Annual Report 2015
45
Note 5 - Borrowed Funds (Continued)
The Credit Union is authorized to borrow from the Federal Reserve discount window. The Credit Union may borrow funds
up to amounts collateralized by Credit Union assets including investment securities. The Credit Union has no outstanding
borrowings at September 30, 2015.
46
Note 6 - Members’ Shares and Savings Accounts
2015
2014
$ 113,974,786
$ 104,994,338
Share draft accounts
Shares and equivalents 656,503,260 562,749,020
Money market accounts 539,774,910 530,324,042
Individual retirement accounts
Certificates of deposit and IRA certificates
240,229,763
274,352,162
Total members’ shares and savings accounts
$1,597,016,486
$1,515,327,187
46,533,767
42,907,625
At September 30, 2015, scheduled maturities of certificates of deposit and IRA certificates are as follows:
Year Ending
September 30:
2016
$
171,657,015
201739,931,805
201817,482,228
2019 4,930,735
2020 6,227,980
Total
$240,229,763
The aggregate amount of time deposit accounts in denominations of $250,000 or more at September 30, 2015 were
$11,901,715.
Annual Report 2015
47
Note 7 - Members’ Equity
Regulatory Capital
The Credit Union is subject to various regulatory capital requirements administered by its primary federal regulator, the
NCUA. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Credit Union’s consolidated
financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Credit Union must meet specific capital regulations that involve quantitative measures of the Credit Union’s assets,
liabilities, and certain off-balance sheet items as calculated under generally accepted accounting practices. The Credit
Union’s capital amounts and net worth classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Credit Union to maintain minimum
amounts and ratios of net worth to total assets. Credit unions are also required to calculate a Risk-Based Net Worth
Requirement (RBNWR) which establishes whether or not the credit union will be considered complex under the regulatory
framework. The Credit Union’s RBNWR ratio as of September 30, 2015 and 2014 was 6.7% and 6.8%, respectively. The
minimum ratio to be considered complex under the regulatory framework is 6.0%. Management believes as of September
30, 2015 and 2014, that the Credit Union meets all capital adequacy requirements to which it is subject.
As of September 30, 2015 and 2014, the Credit Union was 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
as follows:
To Be Well Capitalized
Under the Prompt
Corrective Action
Actual Provision
Amount Ratio Amount Ratio
September 30, 2015
Net worth
9.57% $
132,960,221
7.00%
$168,813,875
9.58% $
123,383,645
7.00%
September 30, 2014
Net worth
48
$181,745,866
Note 8 - Related Party Transactions
The majority of employees and all members of the Board of Directors have member accounts at the Credit Union, including
share, deposit and loan accounts. The terms of transactions involving these accounts (i.e., rates charged and paid) are
comparable to other members.
Included in loans receivable at September 30, 2015 and 2014 are loans of $5,193,225 and $5,087,851, respectively, to
directors and officers of the Credit Union. Such loans are made in the ordinary course of business at normal credit terms
including interest rates and collateralization.
Annual Report 2015
49
Note 9 - Commitments and Contingent Liabilities
The principal commitments of the Credit Union are as follows:
Lease Commitments
At September 30, 2015 and 2014, the Credit Union had outstanding commitments under noncancellable operating leases
for office space for several branch locations. Net rent expenses under the operating leases, included in expenses, were
$2,681,137 and $2,443,924 for the years ended September 30, 2015 and 2014, respectively.
The projected minimum rental payments under the terms of the leases at September 30, 2015 are as follows:
Year Ending
September 30:
2016
$2,274,556
2017 927,889
2018 449,414
2019 322,310
2020 and thereafter
285,358
Total
$4,259,527
Loan Commitments
At September 30, 2015, the Credit Union had outstanding commitments for unused lines-of-credit that are not reflected in
the accompanying consolidated financial statements, as follows:
Home equity
$
51,891,709
Lines-of-credit21,446,713
Credit cards
196,167,031
Overdraft privilege program49,976,469
Commercial21,220,186
Construction 3,134,163
Mortgage
2,463,916
Total
$346,300,187
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
include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the consolidated statements of financial condition. The contract or notional
50
Note 9 - Commitments and Contigent Liabilities (Continued)
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 nonperformance by the other party to the financial instruments
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.
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit, generally unsecured
Commitments to extend credit, home-equity secured
Commitments to extend credit, commercial lending
Total
$ 270,724,376
54,355,625
21,220,186
$346,300,187
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 termination clauses or fixed expiration dates. Since many of
the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Credit Union evaluates each member’s 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 member and classification of loan.
Annual Report 2015
51
Note 10 - Fair Values of Financial Instruments
The Credit Union uses fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. The fair value of a financial instrument is 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. Fair value
is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for
the Credit Union’s various financial instruments. 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. Accordingly, the fair value estimates may
not be realized in an immediate settlement on the instrument.
The definition of fair value focuses on exit price in an orderly transaction between market participants at the measurement
date under current market conditions, other than in a forced liquidation or distressed sale. If there has been a significant
decrease in the volume and level of activity for the asset or liability, a change in the valuation technique or the use of
multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market
participants would transact at the measurement date under current market conditions depends on the facts and
circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is
most representative of fair value under current market conditions.
Fair Value Hierarchy
The Credit Union groups its financial assets and financial liabilities generally measured at fair value into three levels, based
on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair
value. The three levels of the fair value hierarchy are described below:
Basis of Fair Value Measurements
Level 1 - Valuation is based on quoted market prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally
include debt and equity securities that are traded in an active exchange market. Valuations are obtained
from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuation is based on inputs other than quoted market prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. The valuation may be based on 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 asset or liability.
Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined by using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which determination of fair value requires significant
management judgment or estimation.
52
Note 10 - Fair Values of Financial Instruments (Continued)
A financial instrument’s categorization with the valuation hierarchy is based on the lowest level of input that is significant to
their fair value measurement.
The following methods and assumptions were used by the Credit Union in estimating fair value disclosures for financial
instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short-term nature of these instruments.
Investment Securities
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable instruments.
Loans Receivable
Fair value is based on the discounted value of future cash flows expected to be received for a loan or group
of loans using current rates at which similar loans would be made to borrowers with similar credit ratings and
the same remaining maturities. This method considers interest rate changes and credit risk changes within the
discount rate chosen. A single discount rate is applied to homogeneous categories of loans such as credit cards
and automobile loans.
Members’ Savings Accounts
The fair value disclosed for shares, share draft and money market accounts are, by definition, equal to the amount
payable on demand at the reporting date. Fair values for fixed-rate share certificates are estimated using a
discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on shares and certificates.
Borrowed Funds
The fair value of fixed maturity borrowings is estimated using the rates currently offered for borrowings with similar
remaining maturities.
Investments in Life Insurance Contracts
Fair values are based on amounts that could be realized at the consolidated statement of financial condition date.
Commitments to Extend Credit
The estimated fair value of the commitments to extend credit represents the Credit Union’s potentially unfunded
commitments under such lines-of-credit.
Annual Report 2015
53
Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis at September 30, 2015 and 2014 are summarized as follows:
Fair Value Measurements at September 30, 2015, Using
Quoted Prices in Other
Active MarketSignificantSignificant
for Identical Observable Unobservable Total
Assets Inputs Inputs Carrying
(Level 1) (Level 2) (Level 3) Value
Trading securities
$-$12,114,225$-$12,114,225
Available-for-sale securities
$-$581,988,621$-$581,988,621
Investments in life insurance contracts $-$13,383,236$-$13,383,236
for Identical Observable Unobservable Total
Trading securities
$- $8,104,395$-$8,104,395
Available-for-sale securities
$-$594,167,793$-$594,167,793
Investments in life insurance contracts $-$13,623,136$-$13,623,136
54
Assets Measured at Fair Value on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis at September 30, 2015 and 2014 are summarized as follows:
for Identical Observable Unobservable
Total
Other real estate owned
$-$12,673,597$-$12,673,597
Impaired loans
$-$5,564,970$16,123,361$21,688,331
for Identical Observable Unobservable
Total
Other real estate owned
$-$14,114,266$-$14,114,266
Impaired loans
$-$7,694,937$22,821,130$30,516,067
Annual Report 2015
55
The carrying amounts and estimated fair values of the Credit Union’s financial instruments at September 30, 2015 and 2014
are as follows:
2015
2014
Carrying Fair Carrying Fair
Amounts Value Amounts Value
Financial assets:
Cash and cash equivalents
$
Investment securities
36,116,880 $ 36,116,880 $ 96,978,305 $
594,911,528 594,973,128 603,372,031
13,383,236
13,383,236
96,978,305
603,462,134
Investment in life insurance contracts
13,623,136
13,623,136
Loans receivable, net of allowance for loan losses 1,137,804,744 1,143,132,000 932,127,741
951,856,000
Financial liabilities:
Members’ shares and savings accounts
$1,597,016,486 $1,534,633,840 $1,515,327,187 $1,460,949,486
Borrowed funds
105,000,000 111,616,400
75,000,000
81,713,000
Unrecognized financial instruments:
56
Commitments to extend credit
$-$346,300,187$-$307,422,374
Note 11 - 401(k) Profit Sharing Plan
The Credit Union has a 401(k) profit sharing plan that covers substantially all employees. Contributions by the Credit
Union included in the determination of net earnings for the years ended September 30, 2015 and 2014 amounted to
approximately $1,098,000 and $956,000, respectively.
Annual Report 2015
57
Note 12 - Deferred Compensation Plan
The Credit Union has a deferred compensation plan covering certain management employees which will be payable upon
the employees retirement or termination. The liability at September 30, 2015 and 2014 was approximately $146,600 and
$178,200, respectively and is included in other accrued liabilities on the consolidated statements of financial condition.
The Credit Union has three Supplemental Executive Retirement Plans (SERPs) that guarantee specific payments be made to
key executives once eligibility requirements are met. As of September 30, 2015 and 2014, the obligation to the executives
was $4,357,737 and $3,460,629, respectively. The SERPs were established to provide periodic benefit payments for each
executive to be paid when they reach certain ages. The amounts are paid as a lump-sum, with the final payment to be
made at age 65 determined based on the 5 highest years of compensation paid to the executive between the date the
agreements were signed and retirement age.
The Credit Union anticipates payments under the terms of the SERPs to be as follows:
Year Ending
September 30:
2016
$ 500,000
2017 500,000
2018
-
2019
-
2020
-
5 years thereafter
3,911,755
$4,911,755
The Credit Union has invested in assets, which consist of mutual funds, life insurance and annuity contracts, to informally
fund the deferred compensation plans. As of September 30, 2015 and 2014, the Credit Union had assets valued at
$25,497,461 and $21,727,531, respectively, related to these plans. The assets would be available to general creditors in the
event of liquidation of the Credit Union’s assets.
58
Note 13 - Servicing Portfolio
The Credit Union was servicing $139,070,771 and $146,859,140 of unpaid FNMA mortgage balances at September 30, 2015
and 2014, respectively.
Servicing fee income related to these portfolios was approximately $361,000 and $390,000 for the years ended September
30, 2015 and 2014, respectively. These amounts are included in fees and charges on the consolidated statements of
earnings.
Custodial funds in escrow represent member payments for principal and interest, as well as for taxes and insurance. These
amounts are held in escrow, with a corresponding liability recorded until the date that such funds are released by the Credit
Union for their intended purpose. The total amount of escrow funds at September 30, 2015 and 2014 was $2,099,195 and
$2,028,776, respectively.
Annual Report 2015
59
Note 14 - Mortgage Servicing Rights
The following is an analysis of the change in capitalized originated mortgage servicing rights:
2015
2014
$
$
Balance - beginning
1,023,873
Capitalized servicing rights
Amortization expense
(144,373)
(315,311)
Balance - ending
$1,264,520
$1,023,873
385,020
1,136,427
202,757
At September 30, 2015 and 2014, the fair value of the mortgage servicing rights approximated its book value. Mortgage
servicing rights are included in other assets in the consolidated statements of financial condition at September 30, 2015
and 2014.
60
Annual Report 2015
61

2015 Annual Report - FAIRWINDS Credit Union

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