2014 Annual Report - FAIRWINDS Credit Union

Transcription

Vision
Members financially secure and
economically successful and responsible.
Mission
Improve members’ financial well-being.
Values
Advocacy
Good Stewardship
Caring Environment
Honesty and Integrity
Cooperative Principles
Community Commitment
Exceptional Service and Value
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FAIRWINDS Credit Union
“Setting up my account was easy, and the tellers at my local branch are always super nice.
I haven’t had a single problem with my account and couldn’t be happier with the service
you’re providing! I buy a lot of stuff online, too, and all of my purchases have gone through
smoothly. Thank you!”
- JOSEPH D.
Annual Report 2014
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“Thank you for caring for the member, me, and of course so many others.
We are not merely a dollar sign or a number, but a person.”
- FAIRWINDS MEMBER
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Contents
Chairman’s and President’s Report 6
Our Story in 2014 8
By the Numbers: Looking Back on 2014 10
2015: What Lies Ahead 12
Treasurer’s Report 14
Audit Committee Report 16
Consolidated Financial Statements 18
Board of Directors 20
Management Team 22
Independent Auditor’s Report 24
Audited Financial Statements 26
Annual Report 2014
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Chairman’s and
President’s Report
“Most Americans are one paycheck away from the street.”1
It’s been several years since the Great Recession, and the picture of
Central Florida is one of hope and innovation. Our economy continues
to grow and develop as more job opportunities are being created each
day. With the opening of the new Dr. Phillips Center for the Performing
Arts, the construction of a new Major League Soccer Stadium, and the
Dan McNutt
Chairman
expansion of Medical City in Lake Nona, it truly is an exciting time to live
and work in Central Florida.
There is another picture of Central Florida that is easy to overlook. It’s the
picture of thousands of Central Floridians, including our own friends and
neighbors, who struggle with financial security every day. Even with a
healthy economic forecast, many continue to find they are unable to save
for something as basic as an emergency fund.
Larry F. Tobin
President/CEO
FAIRWINDS Credit Union was built upon the philosophy of “people
helping people.” It’s a simple concept, but a powerful one. Our mission is
to help every member to improve their financial well-being, to help them
achieve financial freedom. And it all begins with saving.
Wherever you are in life, wherever you are with your financial well-being,
it’s never too late to begin saving for a debt-free future. Whether you
prefer one-on-one financial planning with our experts or like to use our
online and mobile tools to stay on track, we provide every FAIRWINDS
member with an arsenal of resources for savings success.
Part of helping you work to achieve financial freedom includes offering
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“Keep up the good work! Not very many companies care about their customers anymore.
Nice to get good old customer service.”
- JILL R.
products, services, and technologies that help you save. In 2014, the
Credit Union National Association (CUNA) reported that FAIRWINDS
provided $9.6 million in direct financial benefits to our members
through our loan, deposit, and insurance solutions. Thanks to the loyal
participation of our members, and the tremendous financial performance
in 2014, we continue to be well-positioned to provide members with
even greater savings in 2015.
We recognize that ensuring every FAIRWINDS member has a plan for
savings success is a challenge. But it’s a challenge we gladly accept,
simply because we see success stories, big and small, happen every day.
More important, we look forward to painting a future picture of Central
Florida, one where living paycheck to paycheck is obsolete, where every
person is financially secure and economically responsible. It all starts with
the simple step of helping you save.
Source: www.marketwatch.com, 1/10/2015
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Annual Report 2014
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Our Story in 2014
FAIRWINDS is made up of more than 177,000
members, and every one of them has a story.
See how their stories shaped ours in 2014.
8
“Love, love, love the customer service! Not to mention the knowledge they all have about their programs.
Banking doesn’t get any better than FAIRWINDS. You are the best. Thank you for the service.”
- BERNADETTE B.
“I purchased a car on Friday and found out at the last minute that financing
fell through. I called FAIRWINDS in a panic (my friend suggested you guys),
hoping that there would be something you could do. Laurie answered the
phone and was a tremendous help the whole way through. She kept me
informed throughout the day, was very knowledgeable and professional,
and understood the time constraint I was under. I was able to close on
my loan Saturday morning because of her efforts. Thank you again for the
“With today’s economy where everything had increased except
phenomenal service! “
my pay ... I was considering bankruptcy. With help from [your
crewmember] Sarah, I now can see the light at the end of the
- ALECE
tunnel. People like her are why I choose FAIRWINDS as my bank.
Thanks for the help, Sarah.”
“It is so nice to go into my local FAIRWINDS
branch and be greeted by name.
It means so much to this seventy-nine-yearold lady. Thank you! “
- ROSE C.
- KEVIN B.
“I willingly admit I am NOT easy to deal or work with. Although you probably already know [your
crewmember] Jacqueline is amazing, I wanted to let you know that customers (especially difficult
to deal with ones like myself) are lucky to have her working with them through all their financial
matters. I know if I were in her shoes - working with someone like myself - I wouldn’t have been able
to act with the integrity, dignity and class that she did.”
- ROSE H.
“Robert was extremely helpful and this was one of the best experiences I have had with any bank. I came in with a lot of
cash and change from fundraising. Instead of making me put all the change in rolls, he took the time to count it all out for
me and double check that I got all the same numbers as he did, to avoid any problems. Just wanted to take the time to
say how helpful Robert was, and wonderful at his job. Thank you!”
- BRITTANY
Annual Report 2014
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By the Numbers:
Looking Back on 2014
Your credit union had a tremendous year in 2014, thanks to you, our
members. Below is just a sample of some of the highlights, by the
numbers, that FAIRWINDS experienced last year.
We continued to be well-capitalized with a net worth ratio of
9.59% and ended the year with a return on assets of 0.83%.
Our net income increased by 21% from 2013 with a year-end net
income of $14.7 million.
We disbursed our one millionth loan in 2014, reinforcing our
commitment to provide affordable financing to our members.
The new Cash Rewards Visa® Credit Card was a welcome addition
to our suite of credit card solutions, with perks like earning 2.00%
on gas and groceries.
Two new credit cards, the FAIRWINDS Business Rewards Visa and
the FAIRWINDS Business Cash Visa, launched, giving business
members two great choices, both with unlimited earning power.
Our business checking solutions were redesigned and enhanced
with three new account choices: Innovate, Optimize, and Grow.
We were selected as the Official Credit Union for the Orlando
City Soccer Club. As part of our partnership, we introduced the
exclusive FAIRWINDS Orlando City Soccer Club debit card to eager
fans.
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“One of the biggest reasons I avoided purchasing a car was because I did not want to deal with the hassle of working with
salesmen. FAIRWINDS Car Concierge came through for me ... You took what could have been a stuffy business approach
and made it a relaxed and friendly experience.”
- DAN R.
We reaffirmed our partnership with the Orlando Solar Bears. In
addition to the exclusive FAIRWINDS Orlando Solar Bears debit
card, members enjoy special benefits like FAIRWINDS Fridays,
giving the first 100 FAIRWINDS members pairs of tickets for Friday
night home games.
The Credit Union Journal named FAIRWINDS as one of the top
five “Best Credit Unions to Work For” in the $1 billion in assets
category. We were also named the “Best Place to Work – Large
Category” by the Orlando Business Journal.
More than $11,000 was raised to support the American Heart
Association as we participated in the 2014 Greater Orlando Heart
Walk.
We raised more than $7,500 for the Children’s Miracle Network
Hospitals and introduced the FAIRWINDS Children’s Miracle
Network Hospitals Visa Credit Card. A donation is made with
each retail purchase to benefit the UF Health Shands Children’s
Hospitals and Arnold Palmer Hospital for Children.
Annual Report 2014
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2015:
What Lies Ahead
2014 was a great year, and we’re even more excited about what’s in store
for 2015. Take a look…
A complete redesign of our website and mobile site will be
unveiled in early 2015. The new sites will provide a more robust
and personalized experience for the end-user, truly helping you
find the right solutions wherever you are in life.
The ultimate in convenience, Apple Pay, went live in January
2015. Members can enjoy single-touch payments right from their
phones at thousands of retailers around the globe.
Taking your safety and security to a whole new level, FAIRWINDS
will provide EMV chip protection on all debit and credit cards
in late 2015. Through EMV (Europay, MasterCard, and Visa), you
will receive enhanced security against card fraud and increased
convenience by removing the need for a signature to complete
transactions.
Adding to our rich suite of debit cards, a new music-themed card
will become the newest choice for members, giving patrons of
the arts the opportunity to show their passion wherever they are.
Convenience is paramount, and we’re excited to offer two new
convenience enhancements: pre-paid and reloadable debit
cards.
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“My friend highly recommended opening an account at FAIRWINDS, and I am so happy I did!
You offer so many great deals ... it’s like having Christmas all year long!”
- MILENA Z.
Technology enhancements will continue to develop, including
innovations with new account openings. Members opening new
accounts may receive immediate pre-approvals for auto loans
and credit cards, providing a more seamless experience.
Our partnership with the University of Central Florida as the
Official Student Banking Services Provider continues to flourish.
We look forward to providing more educational opportunities for
both students and faculty.
Our partnership with Universal Orlando Resort continues to
grow and thrive. As the Official Financial Institution for Universal
Orlando Resort Team Members, we are excited to welcome
thousands of new Team Members to FAIRWINDS in 2015, helping
them work toward achieving financial freedom.
The first phase of the renovation of our Administration
and Operations building in East Orlando is on schedule for
completion later this year. Annual Report 2014
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Treasurer’s Report
2014 proved to be an exceptional year for FAIRWINDS Credit Union. I
am pleased to report that your credit union continues to be a leading
financial institution in the market, providing you with the solutions,
technology, and resources to help you achieve financial freedom.
We reached new accomplishments in 2014. Below are some of these key
accomplishments, demonstrating that your credit union’s performance
Kelly Leary
Treasurer
not only is on target, but stronger than ever.
Soundness and Asset Quality
• FAIRWINDS experienced strong earnings performance, with net
income increasing from $12.2 million in 2013 to $14.7 million in
2014. We ended the year with a Return on Assets of 0.83%.
• The Net Worth Ratio, one of the strongest indicators of a financial
institution’s soundness, increased to 9.59%, well above the National
Credit Union Administration’s standard of 7.00%.
• Delinquency continued on a downward trend, decreasing from
2.30% in 2013 to 1.51% in 2014.
• Charge-offs remained at some of the lowest levels the credit union
has seen since the recession, decreasing from 1.44% in 2013 to
0.66% in 2014.
Prudent and Responsible Lending
• More than $524 million in loans were disbursed last year, a
testament to the financial strength of our credit union and
members.
• The loan portfolio grew 13.98% in 2014, a significant increase from
the previous year.
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“Dealing with FAIRWINDS is such a contrast in dealing with my former bank which ... finds ways to
charge fees for everything. I am so happy to have found FAIRWINDS.”
- BARBARA L.
• Mortgage rates reached historic low levels in 2014, helping to
generate more than $100 million disbursed in mortgage loans.
• The business lending portfolio grew 18.28% to $89.5 million.
Assets Under Management and Investments
• More than $64.7 million was invested with our Retirement Planning
division, which now oversees a portfolio of $347 million in assets.
Based upon the favorable performance in 2014 and positive growth
indicators in the market, we are poised to achieve new records in 2015.
With ongoing, prudent lending practices, careful cost management,
and strategic investment decisions, you can count on FAIRWINDS to be a
safe, secure, and trusted financial partner, helping you achieve financial
freedom, now and into the future.
Annual Report 2014
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Audit Committee Report
The Audit Committee for FAIRWINDS Credit Union serves as an
independent entity to ensure the ongoing financial and operational
safety and soundness of the cooperative. Internal and external resources
are utilized to determine whether the appropriate internal controls are in
place to protect the credit union and its members.
Each year the Audit Committee engages a third-party accounting firm
Lisa Snead
Audit Committee Chairman
to conduct an unbiased audit of the credit union’s financial condition.
In 2014, Doeren Mayhew, CPA, an independent audit firm, rendered an
unqualified opinion in its report to the Audit Committee for the credit
union’s financial statements as of September 30, 2014.
Results of the audit report state that the credit union’s financial
statements are sound and free from material misstatements. Results of
the audit report also support that FAIRWINDS continues to demonstrate
its commitment to operate at the highest levels of safety and soundness.
Based upon these independent external audits and ongoing internal
audits conducted by our Internal Audit department, on behalf of the
Audit Committee, I can confidently state that FAIRWINDS Credit Union
continues to be well-managed, at the highest levels of financial safety
and soundness. Members can rest assured that their money and financial
information at FAIRWINDS is protected.
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FAIRWINDS East Orlando Campus
A sneak peak!
In 2014, the vision for an innovative and re-designed FAIRWINDS East Orlando
Campus was born. And in 2015, construction begins! With the goal of bringing
modernity, creativity, and productivity together, we are transforming our former
Administration headquarters on North Alafaya Trail from just a workplace to an
enriching collaborative environment for all of our crewmembers. These early
renderings showcase the exciting new features to come.
Annual Report 2014
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Consolidated
Financial Statements
Assets
2013
Net Loans to Members
$
841,980,416
$
966,629,238
Cash & Due from Banks
$
51,416,737
$
91,129,011
Government & Agency Securities
$
659,017,398
$
581,344,499
Other Investments
$
7,135,648
$
7,638,256
Fixed Assets
$
72,359,850
$
70,098,230
All Other Assets
$
60,065,511
$
59,206,126
$
1,691,975,561
$
1,776,045,360
Total Assets
Liabilities & Members’ Equity
2013
2014
Accounts Payable & Liabilities
$
88,124,514
$
89,321,822
Members’ Shares & Deposits
$
1,465,198,310
$
1,520,531,281
Reserves & Undivided Earnings
$
138,652,737
$
166,192,257
Total Liability and Members’ Equity $
1,691,975,561
$
1,776,045,360
Statement of Income
2013
2014
Interest on Loans
$
40,775,240 $
42,085,029
Investment Income
$
13,016,596 $
12,292,377
Other Income
$
38,039,697 $
37,128,077
Total Income
$
91,831,533 $
91,505,483
Operating Expenses
($58,771,265)
($66,931,788)
Provision for Loan Losses
($7,446,775)
($1,717,153)
Non-Operating Gains
($5,816,851)
($829,267)
Dividends
($7,630,476)
($7,282,845)
($79,665,367)
($76,761,054)
Total Expenses
Reserves
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2014
$
12,166,166
$
14,744,429
Vital Statistics
2013
Number of Members
Number of Loans Granted
$$$ of Loans Granted
$
2014
163,924
175,455
9,426
12,995
424,504,394 $ 523,691,031
Number of Loans Granted Since Organized
989,834
$$$ of Loans Granted Since Organized
1,002,829
$ 7,698,740,116 $ 8,222,431,147
Interest
on Loans
Services
Income
46%
41%
Sources of Income
Interest on Loans
$
42,085,029
Investments
$
12,292,377
Services Income
$
37,128,077
$
91,505,483
Total
Loan Losses
Investments
13%
2%
Reserves
16%
Dividends
8%
Operations
74%
Distribution of Income
Loan Losses
$
1,717,153
Reserves
$
14,744,429
Dividends
$
7,282,845
Operations
$
67,761,056
$
91,505,483
Total
Annual Report 2014
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Board of Directors
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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
New Cards in 2014
FAIRWINDS
Business Cash Visa®
Credit Card
FAIRWINDS
Business Rewards
Visa® Credit Card
FAIRWINDS Cash Rewards
Visa® Credit Card
FAIRWINDS Orlando City Soccer
Club Debit Card
Annual Report 2014
21
Management Team
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Larry F. Tobin
President/CEO
Kathy A. Chonody
Senior Executive VP/CFO
Phillip C. Tischer
Senior Executive VP/COO
Charles S. Lai
Executive VP/CIO
James D. Adamczyk
Executive VP - Lending
Mathy M. Hogan
Executive VP - eBusiness
Dianne K. Owen
Executive VP - Marketing
Cathy M. Hertz
Daniel T. Bock III
Senior VP - Finance
Executive VP - Human Resources
John J. Coffey
Senior VP - Risk Managment
Jorge Font
Senior VP - Business Services
TJ Huddleston
Senior VP - Investment Services
Michelle K. Klima
Senior VP - Controller
Bryan Meizinger
Senior VP - Retail Lending
James M. Thornberry
Senior VP - Branch Services
Annual Report 2014
23
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, 2014 and 2013, and the related consolidated
statements of earnings, comprehensive income (loss),
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.
24
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 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, 2014 and 2013, 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.
DOEREN MAYHEW
January 6, 2015
Troy, Michigan
Annual Report 2014
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FAIRWINDS CREDIT UNION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
September 30,
2014
$
Cash and cash equivalents
2013
96,978,305
$
44,590,077
Investment securities (note 2)
Available-for-sale
594,167,793
680,895,433
Held-to-maturity
1,099,843
1,528,861
4,898,900
5,372,600
932,127,741
825,320,513
5,238,233
5,355,659
71,374,324
72,771,803
NCUSIF deposit (note 1)
14,254,708
13,927,862
Assets acquired in liquidation of loans (note 1)
14,376,585
19,125,008
Deferred compensation assets (note 12)
21,727,531
21,641,362
6,379,535
8,250,527
FHLB stock (note 1)
Loans to members, net of allowance for loan
losses (note 3)
Accrued interest receivable
Property, equipment and leasehold improvements
(note 4)
Other assets (notes 1 and 4)
$
Total assets
1,762,623,498
$
1,698,779,705
LIABILITIES AND MEMBERS’ EQUITY
Liabilities
Members' shares and savings accounts (note 6)
$
Borrowed funds (note 5)
$
1,470,726,251
75,000,000
75,000,000
Accounts payable
3,562,427
3,606,950
Other accrued liabilities (notes 1 and 12)
9,506,729
9,425,586
1,603,396,343
1,558,758,787
-
-
159,227,155
140,020,918
Total liabilities
Commitments and Contingent Liabilities (note 9)
Members' Equity - Substantially Restricted (note 7)
Total liabilities and members' equity
26
1,515,327,187
$
1,762,623,498
$
1,698,779,705
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended
September 30,
2014
2013
Interest Income
Loans receivable
$
41,412,171
$
41,123,654
12,705,441
12,938,735
54,117,612
54,062,389
4,432,932
4,777,741
2,945,495
2,945,476
7,378,427
7,723,217
46,739,185
46,339,172
1,033,235
6,822,059
45,705,950
39,517,113
937,494
1,096,213
37,847,972
39,896,725
38,785,466
40,992,938
Compensation and benefits
35,271,968
32,748,075
Office operations
13,251,371
10,915,341
Occupancy
6,366,193
6,245,006
Operating expenses
9,687,683
9,174,179
-
1,152,798
1,886,074
7,651,486
Investment securities
Total interest income
Interest Expense
Interest and dividends on members' shares and savings
accounts
Interest on borrowed funds
Total interest expense
Net interest income
Provision For Loan Losses
Net interest income after provision for loan losses
Non-Interest Income
Market value increase on deferred compensation assets
Fees and charges
Total non-interest income
Non-Interest Expenses
TCCUSF premium assessment (note 1)
Losses on sales and write-downs of assets in liquidation
Total non-interest expenses
Net Earnings
Annual Report 2014
$
66,463,289
18,028,127
$
67,886,885
12,623,166
27
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Year Ended
September 30,
2014
Net Earnings
2013
$18,028,127
$12,623,166
1,178,110
(19,287,403)
$19,206,237
$(6,664,237)
Other Comprehensive Income (Loss)
Net changes in unrealized holding gains
(losses) on investments classified as
available-for-sale arising during the
period
Comprehensive Income (Loss)
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013
Accumulated
Non-
Other
Appropriated
Compre-
Undivided
Undivided
hensive
Earnings
Earnings
Income (Loss)
Appropriated
Statutory
Members' Equity - October 1, 2012
$ 14,459,893
Comprehensive Income (Loss)
Members' Equity - September 30, 2013
Comprehensive Income
$
-
$
123,702,689
$
Total
8,522,573
$ 146,685,155
-
-
12,623,166
(19,287,403)
(6,664,237)
14,459,893
-
136,325,855
(10,764,830)
140,020,918
-
-
18,028,127
1,178,110
19,206,237
(9,586,720)
$ 159,227,155
Members' Equity - September 30, 2014
(note 7)
28
$
14,459,893 $
- $
154,353,982
$
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
2014
2013
Cash Flows From Operating Activities:
Net earnings
$
18,028,127
$
12,623,166
Adjustments:
Depreciation
3,814,645
3,434,127
Provision for loan losses
1,033,235
6,822,059
292,092
1,988,135
(937,494)
(1,096,213)
1,886,074
7,651,486
1,526,678
1,492,839
-
258,890
117,426
166,552
1,829,243
316,884
(44,523)
(5,912,719)
81,143
(44,785)
9,598,519
15,077,255
27,626,646
27,700,421
Net amortization of investment securities
Increase in market values of deferred compensation
assets
Losses on sales and write-downs of assets
in liquidation
Recoveries on charged-off loans
Other-than-temporary impairment on investment
securities
Changes in assets and liabilities:
Decrease in accrued interest receivable
Decrease in other assets
Decrease in accounts payable
Increase (decrease) in other accrued liabilities
Total adjustments
Net cash provided from operating activities
Annual Report 2014
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
2014
2013
Cash Flows From Investing Activities:
Increase in loans to members (net)
$
Decrease in loans held-for-sale
(115,968,634)
$
(20,466,876)
-
1,364,387
Proceeds from maturities and sale of investment securities
112,879,520
228,500,527
Purchases of investment securities
(24,795,095)
(329,152,666)
Redemption of SERP investments
851,325
-
Redemption of FHLB stock
473,700
375,100
(2,417,166)
(2,107,540)
Proceeds from sale of assets in liquidation
9,463,842
15,000,954
Increase in NCUSIF deposit
(326,846)
(639,525)
(19,839,354)
(107,125,639)
44,600,936
52,581,643
Net Increase (Decrease) in Cash and Cash Equivalents
52,388,228
(26,843,575)
Cash and Cash Equivalents - Beginning
44,590,077
71,433,652
Acquisition of property and equipment
Net cash used in investing activities
Cash Flows From Financing Activities:
Increase in members' shares and savings accounts (net)
Cash and Cash Equivalents - Ending
$
96,978,305
$
44,590,077
Interest and dividends paid
$
7,378,427
$
7,723,217
Assets acquired in the settlement of loans
$
6,601,493
$
7,862,746
Supplemental Information
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013
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 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 2014 and 2013.
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 2014 and 2013.
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 the Federal Deposit Insurance Corporation (FDIC) 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 amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Annual Report 2014
31
Note 1 - Nature of Business and Significant Accounting Policies - Continued
Investment Securities
Generally accepted accounting principles require 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, 2014 and 2013 are classified and
accounted for as follows:
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 (loss).
Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are otherthan-temporary are reflected as realized losses. In estimating other-than-temporary impairment, management
considers: (1) the Credit Union’s intent to sell the debt security prior to recovery and, (2) whether it is more likely
than not that it will not have to sell the debt security prior to recovery, the security would not be considered otherthan-temporarily impaired unless there is a credit loss. When the Credit Union does not intend to sell a security,
and it is more likely than not, the Credit Union will not have to sell the security before recovery of its cost basis, it
will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the
remaining portion in accumulated other comprehensive income (loss).
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 completed 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 and Premium
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 of the
fund are transferred from the NCUA Board. The NCUSIF deposit is required to be reviewed for impairment,
32
including consideration of the refundability of the deposit.
The NCUA assessed all federally insured credit unions premiums of 0.08% for 2013 of insured shares for the
repayment of the funds borrowed from the Treasury Department by the Temporary Corporate Credit Union
Stabilization Fund (TCCUSF). The Credit Union recorded expenses related to the TCCUSF of approximately
$1,153,000 for the year ended September 30, 2013. As of the date of the audit report, no assessment has been
made for the 2014 calendar year.
Premiums for the NCUSIF were not assessed during the years ended September 30, 2014 and 2013.
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
Annual Report 2014
33
Allowance for Loan Losses - Continued
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.
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, 2014 and
2013, the Credit Union owned 48,989 and 53,726 shares of non-marketable participation stock for $4,898,900 and
$5,372,600, respectively, with quarterly stock and/or cash dividends.
34
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
2010 - 2014.
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 2014
35
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, 2014, 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 6, 2015, which is the date the consolidated financial statements were available to be issued.
36
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, 2014 are as follows:
Gross
Unrealized
Gains
Amortized
Cost
Gross
Unrealized
(Losses)
Fair
Value
Securities available-for-sale
Federal agency securities
$
Collateralized mortgage obligations
237,269,373
$
382,839
$
(5,016,725)
$
232,635,487
274,034,324
1,208,101
(6,640,822)
268,601,603
Mortgage-backed securities
52,271,927
504,723
(130,697)
52,645,953
Corporate bonds
40,200,279
185,607
(101,136)
40,284,750
Total available-for-sale
$
603,775,903
$
2,281,270
$
(11,889,380)
$
594,167,793
$
1,099,843
$
90,103
$
-
$
1,189,946
Securities to be held-to-maturity
The amortized cost and estimated market value of debt securities, at September 30, 2014, by contractual maturity,
are shown below.
Securities Available-For-Sale
Amortized
Cost
Due in less than one year
$
Due in one year to less than five years
5,000,787
Securities to be Held-To-Maturity
Fair
Value
$
5 ,012,050
Amortized
Cost
$
Fair
Value
-
$
-
184,991,344
184,487,400
-
-
Due in five years to ten years
37,507,857
36,505,280
-
-
Due in greater than ten years
49,969,664
46,915,501
-
-
274,034,324
268,601,609
-
-
52,271,927
52,645,953
1,099,843
1,189,946
Total
Annual Report 2014
$
603,775,903
$
594,167,793
$
1,099,843
$
1,189,946
37
Note 2 - Investment Securities - Continued
Unrealized losses as of September 30, 2014 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
Losses For Less Than
12 Months
Description
of Securities
Federal agency
securities
Fair
Value
$
Continuing Unrealized
Losses For 12 Months
or More
Unrealized
Losses
- $
Fair
Value
- $ 172,339,237 $
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
(5,016,725)
$ 172,339,237
$
(5,016,725)
Collateralized
mortgage obligations
23,262,953
(132,002)
182,765,595
(6,508,820)
206,028,548
(6,640,822)
Mortgage-backed
securities
23,247,475
(86,546)
9,786,292
(44,151)
33,033,767
(130,697)
-
-
9,895,000
(101,136)
9,895,000
(101,136)
(11,670,832)
$ 421,296,552
$ (11,889,380)
Corporate Bonds
Total
$ 46,510,428 $ (218,548) $ 374,786,124 $
The Credit Union routinely conducts periodic reviews to identify and evaluate each investment security to
determine whether any other-than-temporary impairment (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.
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 Credit Union recognized OTTI losses of $-0- and $258,890 for the years ended September 30, 2014 and 2013,
respectively related to expected credit losses on collateralized mortgage obligations.
38
Note 2 - Investment Securities - Continued
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, 2013 are as follows:
Gross
Unrealized
Gains
Amortized
Cost
Gross
Unrealized
(Losses)
Fair
Value
Securities available-for-sale
Federal agency securities
$
295,860,522
$
613,957
$
(7,600,020)
$
288,874,459
320,836,594
1,409,204
(5,687,439)
316,558,359
34,657,561
657,062
(118,608)
35,196,015
Corporate bonds
40,368,731
79,805
(181,936)
40,266,600
Total available-for-sale
$
691,723,408
$
2,760,028
$
(13,588,003)
$
680,895,433
$
1,528,861
$
108,983
$
-
$
1,637,844
Securities to be held-to-maturity
Annual Report 2014
39
Note 3 - Loans to Members
The composition of loans to members is as follows:
September 30,
2014
Automobiles
$
$
176,549,031
Mortgages
252,843,798
205,968,282
Home equity
272,170,228
291,062,577
Other secured
10,845,110
13,180,207
Unsecured
21,315,245
19,792,098
Credit cards
46,466,150
45,602,284
Commercial loans
87,608,380
73,454,588
Participation loans
11,395,030
18,055,958
3,453,828
2,240,307
947,047,420
845,905,332
14,919,679
20,584,819
Net deferred loan origination fees/costs
Total
Less: allowance for loan losses
Total loans to members
40
240,949,651
2013
$
932,127,741
$
825,320,513
Note 3 - Loans to Members - Continued
Allowance for Loan Losses and Recorded Investment in Loans
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by
portfolio segment and based on impairment method at September 30, 2014:
Commercial
First
Mortgages
$
4,309,300
$ 9,146,167
Charge-offs
(81,995)
(3,224,205)
Recoveries
31,027
Provision
Home
Equity
Secured
Unsecured
Total
766,216
$ 2,305,233
$ 20,584,819
(1,819,873)
(776,947)
(2,322,033)
(8,225,053)
189,117
559,625
282,972
463,937
1,526,678
(945,307)
1,327,059
(634,163)
243,867
1,041,779
1,033,235
Ending balance
3,313,025
7,438,138
2,163,492
516,108
1,488,916
14,919,679
Ending balance
individually evaluated
for impairment
1,366,734
5,877,649
617,455
-
-
7,861,838
Ending balance
collectively evaluated $
for impairment
1,946,291
$ 1,560,489
$ 1,488,916
$
Ending balance
individually evaluated $ 24,187,864
for impairment
$
-
$ 84,448,956
Allowance for Loan
Losses:
Beginning balance
$
$
4,057,903
$
1,546,037
$
516,108
7,057,841
57,442,412
2,818,680
$
-
64,121,126
371,847,737
94,550,436
264,744,571
67,334,594
862,598,464
207,334
1,162,284
294,715
501,616
810,693
2,976,642
$ 88,516,324
$430,452,433
$ 97,663,831
$265,246,187
$ 68,145,287
$ 950,024,062
Loans:
Ending balance
collectively evaluated
for impairment
Accrued interest
receivable
Total recorded
investment in loans
Annual Report 2014
41
Allowance for Loan Losses and Recorded Investment in Loans - Continued
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by
portfolio segment and based on impairment method at September 30, 2013:
First
Mortgages
Commercial
Home
Equity
Secured
Unsecured
Total
Allowance for Loan
Losses:
Beginning balance
$
5,816,604
$
10,887,301 $
5,408,263 $
960,641 $
3,564,849 $
26,637,658
Charge-offs
(473,810)
(5,412,235)
(4,347,777)
(919,725)
(3,214,188)
(14,367,735)
Recoveries
(12,400)
202,358
546,490
240,442
515,947
1,492,837
(1,021,094)
3,468,743
2,450,927
484,858
1,438,625
6,822,059
Ending balance
4,309,300
9,146,167
4,057,903
766,216
2,305,233
20,584,819
Ending balance
individually evaluated
for impairment
2,611,963
6,304,309
896,822
-
-
9,813,094
Ending balance
collectively evaluated $
for impairment
1,697,337 $
2,841,858 $
3,161,081 $
766,216 $
2,305,233 $
10,771,725
55,446,374 $
4,492,932 $
- $
- $
82,409,146
Provision
Loans:
Ending balance
individually evaluated $
for impairment
22,469,840
Ending balance
collectively evaluated
for impairment
51,570,821
331,903,178
106,454,644
208,404,464
65,729,194
764,062,301
156,580
988,406
550,363
304,452
808,688
2,808,489
Accrued interest
receivable
Total recorded
investment in loans
42
$
$
74,197,241 $ 388,337,958 $ 111,497,939 $ 208,708,916 $ 66,537,882 $ 849,279,936
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, 2014:
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
-
$ 12,007,298
Interest
Income
Recognized
With No Related Allowance
Recorded:
Commercial
$
First Mortgage
Home Equity
11,679,333
$
11,679,333
$
$
-
10,613,300
10,613,300
-
6,779,546
-
218,560
218,560
-
470,376
-
1,366,734
$ 11,321,554
With An Allowance Recorded:
Commercial
$
First Mortgage
Home Equity
12,508,531
$
12,508,531
$
$
-
46,829,112
46,829,112
5,877,649
47,792,535
-
2,600,120
2,600,120
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
$
$
-
Annual Report 2014
3,626,816
43
Impaired Loans - 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, 2013:
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
-
$ 13,809,572
Interest
Income
Recognized
With No Related Allowance
Recorded:
Commercial
$
First Mortgage
Home Equity
12,335,263
$
12,335,263
$
$
52,262
6,776,714
6,776,714
-
6,829,283
-
780,172
780,172
-
901,950
-
With An Allowance Recorded:
Commercial
$
First Mortgage
Home Equity
10,134,576
$
10,134,576
$
2,611,963
$
9,992,517
$
-
48,669,660
48,669,660
6,304,309
51,060,695
-
3,712,760
3,712,760
896,822
4,003,720
-
Total:
Commercial
$
22,469,839
$
22,469,839
$
2,611,963
$ 23,802,089
$
52,262
First Mortgage
$
55,446,374
$
55,446,374
$
6,304,309
$ 57,889,978
$
-
Home Equity
$
4,492,932
$
4,492,932
$
896,822
$
$
-
4,905,670
Credit Quality Indicators
The Credit Union categorizes member business 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 member business loans individually by classifying the loans as to credit risk. This analysis is limited to
member business loans. 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 financial institution. 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.
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 your financial
institution could sustain some loss if the deficiencies are not corrected.
44
Credit Quality Indicators - Continued
Doubtful and Loss - The lowest risk ratings of “doubtful” and “loss” indicate increased loss potential. Such
loans should have been 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, 2014 and 2013 and based on the most recent
analysis performed, the risk category of loans by class of loans is as follows:
September 30, 2014
Special
Mention
Pass
Commercial
$
72,146,453
$
8,342,076
Substandard
$
4,906,378
Doubtful
$
3,121,417
Loss
$
Total
-
$
88,516,324
September 30, 2013
Special
Mention
Pass
Commercial
$
63,248,470
$
1,724,010
Substandard
$
5,366,540
Doubtful
$
3,826,867
Loss
$
31,354
Total
$
74,197,241
The Credit Union considers the performance of the loan portfolio and its impact on the allowance for loan losses.
The following table presents the recorded investment in residential and consumer loans based on payment activity
as of September 30, 2014 and 2013:
September 30, 2014
First Mortgages
Performing
$
$
10,403,706
Non-Performing
Total
420,048,727
Home Equity
$
430,452,433
Secured
97,306,625
$
357,206
$
97,663,831
$
Unsecured
Totals
265,151,183
$ 67,546,738
$ 850,053,273
95,004
598,549
11,454,465
265,246,187
$ 68,145,287
$
861,507,738
September 30, 2013
First Mortgages
Performing
$
Annual Report 2014
$
14,487,365
Non-Performing
Total
373,850,593
Home Equity
$
388,337,958
Secured
111,497,939
$
$
11,497,939
$
Unsecured
Totals
207,392,448
$ 65,730,944
$ 758,471,924
1,316,468
806,938
16,610,771
208,708,916
$ 66,537,882
$
775,082,695
45
Age Analysis of Past Due Loans
The following table presents the aging of the recorded investment in past due loans at September 30, 2014:
September 30, 2014
31-60 Days
Past Due
Unsecured
$
Secured
671,777
Greater
Than 90
Days
61-90 Days
Past Due
$
510,071
$
Total Past
Due
Current
Total
Financing
Receivable
598,549
$ 1,780,397
$ 66,364,890
$ 68,145,287
Recording
Investment
>90 Days
and
Accruing
$
-
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
-
Mortgages
306,875
1,791,151
10,403,706
12,501,732
417,950,701
430,452,433
-
Commercial
56,718
30,358
1,167,721
1,254,797
87,261,527
88,516,324
-
$ 3,287,117
$ 2,979,375
$12,622,186
$ 18,888,678
$ 931,135,384
$950,024,062
Total
$
-
The following table presents the aging of the recorded investment in past due loans at September 30, 2013:
September 30, 2013
31-60 Days
Past Due
Unsecured
$
Secured
$
460,239
Greater
Than 90
Days
$
Total Past
Due
Current
806,938
$ 2,075,261
$ 64,462,621
Total
Financing
Receivable
Recording
Investment
>90 Days
and
Accruing
$ 66,537,882 $
-
1,425,975
147,180
1,316,468
2,889,623
205,819,293
208,708,916
-
976,173
477,984
-
1,454,157
110,043,782
111,497,939
-
Mortgages
69,912
3,721,787
14,487,365
18,279,064
370,058,894
388,337,958
-
Commercial
558,137
121,206
484,783
1,164,126
73,033,115
74,197,241
-
3,838,281
$ 4,928,396
$ 17,095,554
$ 25,862,231
$823,417,705
$ 849,279,936 $
-
Home Equity
Total
46
808,084
61-90
Days Past
Due
$
Troubled Debt Restructurings
The following table presents loans by class which were modified as troubled debt restructurings during the year
ended September 30, 2014:
Pre-Modification
Outstanding Recorded
Investment
Number of
Contracts
Post-Modification
Investment
Mortgages
39
Home Equity
12
380,551
358,363
8
73,573
67,581
Pre-Modification
Investment
Post-Modification
Investment
Vehicle
$
Number of
Contracts
6,592,156
$
6,318,737
Troubled Debt Restructurings that
Subsequently Defaulted
Mortgages
22
$
3,378,389
$
907,801
Home Equity
6
215,947
190,099
Vehicle
9
155,487
65,588
The following table presents loans by class which were modified as troubled debt restructurings during the year
ended September 30, 2013:
Pre-Modification
Investment
Number of
Contracts
Post-Modification
Investment
Mortgages
101
$
17,876,596
$
18,745,998
Commercial
3
2,722,925
2,609,148
Home Equity
41
1,568,539
1,648,315
Vehicle
26
219,257
236,456
Pre-Modification
Investment
Number of
Contracts
Post-Modification
Investment
Troubled Debt Restructurings that
Subsequently Defaulted
Mortgages
29
Commercial
2
113,937
36,163
Home Equity
18
1,132,888
964,094
5
93,943
43,566
Vehicle
Annual Report 2014
$
5,867,111
$
1,551,585
47
Note 4 - Property, Equipment and Leasehold Improvements
The principal categories of property, equipment and leasehold improvements may be summarized as follows:
September 30,
2014
Land and improvements
$
2013
23,072,565
$
23,072,565
Building and improvements
49,701,014
49,616,807
Furniture and equipment
33,361,509
32,628,507
Leasehold improvements
10,194,013
10,192,013
334,598
680,972
116,663,699
116,190,864
45,289,375
43,419,061
Construction-in-process
Total cost
Less accumulated depreciation
Undepreciated cost
$
71,374,324
$
72,771,803
Construction-in-process amounts relate to site development costs for future branching. No agreements or material
commitments exist at September 30, 2014.
48
Note 5 - Borrowed Funds
The Credit Union has outstanding borrowed funds and these notes mature and carry interest rates as follows:
September 30,
2014
2013
Fixed Rate Note with the Federal Home Loan Bank of Atlanta bearing
interest of 4.386%, interest is payable monthly and principal is
payable with a single payment on August 28, 2017
$
payable with a single payment on August 29, 2017
25,000,000
25,000,000
payable with a single payment on January 30, 2018
25,000,000
25,000,000
Total borrowed funds
$
25,000,000
75,000,000
$
$
25,000,000
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, 2014 and 2013. There were
no outstanding advances as of September 30, 2014 and 2013.
The Credit Union maintains a line-of-credit with the Federal Home Loan Bank of Atlanta at a variable rate of interest,
guaranteed by mortgage loans, maximum credit available of $262,712,986 at September 30, 2014. At September
30, 2014 and 2013, the Credit Union had advanced $75,000,000 against this line-of-credit agreement in the form of
term notes.
As of September 30, 2014, the Credit Union has pledged $262,712,986 in first mortgage loans as collateral against
the term loans held with the Federal Home Loan Bank of Atlanta.
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, 2014.
Annual Report 2014
49
Note 6 - Members’ Shares and Savings Accounts
September 30,
2014
Share draft accounts
$
2013
104,994,338
$
96,175,938
Shares and equivalents
562,749,020
498,610,117
Money market accounts
530,324,042
534,012,780
42,907,625
41,823,564
274,352,162
300,103,852
Individual retirement accounts
Certificates of deposit and IRA certificates
Total members’ shares and savings accounts
$
1,515,327,187
$
1,470,726,251
At September 30, 2014, scheduled maturities of certificates of deposit and IRA certificates are as follows:
Year Ending
September 30th:
2015
$
181,543,955
2016
41,850,837
2017
32,730,734
2018
13,736,555
2019
4,490,081
Total
$
274,352,162
The aggregate amount of time deposit accounts in denominations of $100,000 or more at September 30, 2014
were $88,774,652.
50
Note 7 - 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, 2014 and 2013 was 6.8%
and 7.5%, respectively. The minimum ratio to be considered complex under the regulatory framework is 6.0%.
Management believes as of September 30, 2014 and 2013, that the Credit Union meets all capital adequacy
requirements to which it is subject.
As of September 30, 2014 and 2013, 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
Actual
Amount
Ratio
Amount
Ratio
September 30, 2014
Net worth
$
168,813,875
9.58%
$
123,383,645
7.00%
September 30, 2013
Net worth
$
150,785,748
8.88%
$
118,914,579
7.00%
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, 2014 and 2013 are loans of $5,087,851 and $4,408,834, 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 2014
51
Note 9 - Commitments and Contingent Liabilities
The principal commitments of the Credit Union are as follows:
Lease Commitments
At September 30, 2014 and 2013, 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 $2,443,924 and $2,366,054 for the years ended September 30, 2014 and 2013,
respectively.
The projected minimum rental payments under the terms of the leases at September 30, 2014 are as follows:
Year Ending
September 30th:
2015
$
2,270,139
2016
1,572,355
2017
425,837
2018
187,475
2019 and thereafter
143,198
Total
$
4,599,004
Loan Commitments
At September 30, 2014, 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
$
Lines-of-credit
Credit cards
47,085,078
21,281,051
176,240,793
Overdraft privilege program
46,924,617
Commercial
15,890,835
Total
$307,422,374
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 amounts of those instruments reflect the extent of
involvement the Credit Union has in particular classes of financial instruments.
52
Note 9 - Commitments and Contingent Liabilities - Continued
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
$
244,446,461
Commitments to extend credit, home-equity secured
47,085,078
Commitments to extend credit, commercial lending
15,890,835
Total
$
307,422,374
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.
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.
Annual Report 2014
53
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.
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
54
Note 10 - Fair Values of Financial Instruments - Continued
Fair Value Hierarchy - Continued
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.
Deferred Compensation Assets
Fair values are based on quoted market prices, where available; if quoted market prices are not available,
fair values are based on quoted market prices of similar instruments.
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 2014
55
Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis at September 30, 2014 and 2013 are summarized as
follows:
Fair Value Measurements at September 30, 2014, Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Other Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale
securities
$
-
$
594,167,793
$
-
$
594,167,793
Deferred compensation
assets
$
-
$
21,727,531
$
-
$
21,727,531
Total
Carrying
Value
56
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Other Significant
Observable
Inputs (Level 2)
Available-for-sale
securities
$
-
$
Deferred compensation
assets
$
-
Significant
Unobservable
Inputs (Level 3)
Total Carrying
Value
680,895,433
$
-
$
680,895,433
$21,641,362
$
-
$
21,641,362
Assets Measured at Fair Value on a Non-Recurring Basis
Assets measured at fair value on a non-recurring basis at September 30, 2014 and 2013 are summarized as
follows:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Other Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Other real estate owned
$
-
$
14,114,266
$
-
$
14,114,266
Impaired loans
$
-
$
-
$
84,535,253
$
84,535,253
Total
Carrying
Value
Annual Report 2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Other Significant
Observable
Inputs (Level 2)
Other real estate owned
$
-
$
18,989,397
$
-
$
18,989,397
Impaired loans
$
-
$
-
$
82,409,145
$
82,409,145
Significant
Unobservable
Inputs (Level 3)
Total Carrying
Value
57
The carrying amounts and estimated fair values of the Credit Union’s financial instruments at September
30, 2014 and 2013 are as follows:
September 30,
2014
Carrying
Amounts
2013
Fair
Value
Carrying
Amounts
Fair
Value
Financial Assets
Cash and cash equivalents
$
96,978,305 $
96,978,305 $
44,590,077 $
44,590,077
21,727,531
21,727,531
21,641,362
21,641,362
Investment securities
595,267,636
595,357,739
682,424,294
682,533,277
Loans receivable, net of
allowance for loan losses
932,127,741
951,856,000
825,320,513
837,272,000
Deferred compensation assets
$
1,646,101,213 $
1,665,919,575 $
1,573,976,246 $ 1,586,036,716
$
1,515,327,187 $
1,460,949,486 $
1,470,726,251 $ 1,475,033,719
75,000,000
81,713,000
$
1,590,327,187 $
1,542,662,486 $
Commitments to extend credit $
- $
307,422,374 $
Financial Liabilities
Members’ shares and savings
accounts
Borrowed funds
75,000,000
84,272,000
1,545,726,251 $ 1,559,305,719
Unrecognized Financial
Instruments
58
- $
277,105,634
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, 2014 and 2013
amounted to approximately $956,000 and $907,000, respectively.
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, 2014 and 2013 was
approximately $178,200 and $711,000, 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, 2014 and 2013, the obligation
to the executives was $3,460,629 and $2,615,441, respectively. The SERPs were established to provide two benefit
payment dates for each executive to be paid when they reach the age of 55 and 65. The payment at age 55 is a
lump-sum payment while the payment to be made at age 65 is determined based on the five 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 30th:
2015
$
-
2016
500,000
2017
500,000
2018
-
2019
$
1,000,000
The Credit Union has invested in assets, which consist of life insurance and annuity contracts, to informally fund
the deferred compensation plans. As of September 30, 2014 and 2013, the Credit Union had assets valued at
$21,727,531 and $21,641,362, respectively, related to these plans. The assets would be available to general creditors
in the event of liquidation of the Credit Union’s assets.
Annual Report 2014
59
Note 13 - Servicing Portfolio
The Credit Union was servicing $146,859,140 and $162,009,863 of unpaid FNMA mortgage balances at September
30, 2014 and 2013, respectively.
Servicing fee income related to these portfolios was approximately $390,000 and $406,000 for the years ended
September 30, 2014 and 2013, 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, 2014
and 2013 was $2,028,776 and $2,069,382, respectively.
Note 14 - Mortgage Servicing Rights
The following is an analysis of the change in capitalized originated mortgage servicing rights:
September 30,
2014
Balance - beginning
$
Capitalized servicing rights
Amortization expense
Balance - ending
$
2013
1,136,427
$
1,164,458
202,757
270,380
(315,311)
(298,411)
1,023,873
$
1,136,427
At September 30, 2014 and 2013, 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, 2014 and 2013.
60
Annual Report 2014
61

2014 Annual Report - FAIRWINDS Credit Union

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