Catalyst Corporate Annual Report 2012

Transcription

2 0 1 2 A n n u a l R e p o rt
Texas
Georgia
California
Hawaii
6801 Parkwood Blvd.
Plano, TX 75024
214.703.7500
800.442.5763
6705 Sugarloaf Pkwy.,
Suite 250
Duluth, GA 30097
770.476.9704
800.768.4228
2855 E. Guasti Road,
Suite 600
Ontario, CA, 91761
214.703.7500
800.442.5763
1654 South King Street
Honolulu, HI 96826
214.703.7500
800.442.5763
Accelerating Success
Accelerating (verb) To cause faster or greater
activity, development, progress, advancement
Success (noun) The accomplishment of
one’s goals
These words, taken together, provide a good
idea of what Catalyst Corporate is all about –
accelerating the success of its member-owners.
During Catalyst Corporate’s first full year
of existence, the corporate delivered on its
promise to bring expertise and efficiency to
processes that support credit union operations.
By exceeding its business plan targets, Catalyst
Corporate accelerated its own success in ways
that translated directly into enhanced member
value. Building on this momentum, Catalyst
Corporate and its members are destined
to cover a lot of ground in the years ahead,
working together to drive aggregation and
innovation in the credit union movement.
2012 Annual Report | 1
Annual Report Guts Final.indd 1
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President’s Report
The theme of this year’s annual report –
Accelerating Success – speaks to the very
purpose of Catalyst Corporate’s existence, while
also describing the mode of operations in 2012.
Catalyst Corporate was formed in September
2011 for the sole purpose of providing value
to its member credit unions. By acting as a
cooperative aggregator, Catalyst Corporate
ensures that its members have access to
bedrock services at rock-bottom prices, and to
the technologies they need to be relevant in an
ever-changing financial services environment.
What better way to accelerate the success of
our member owners?
Upon joining Catalyst Corporate as CEO in
March of last year, one of my top priorities
was to deepen and expand member
engagement – reflecting a belief that this is
the best way to pursue maximum member
value. Accomplishing this objective is well
underway. Along with other members of
the management team, I attended dozens
of credit union events and visits in 2012. In
addition, the organization created an Executive
Vice President position whose sole focus
is member relations; executed its plan to
involve 36 member representatives in our
three regional Catalyst Councils; conducted
several satisfaction surveys; launched new
communication vehicles; and hosted member
events across the entire country.
I believe that an essential component of
effective engagement is transparency. From the
very beginning – when we shared our business
plan with hundreds of credit unions – Catalyst
Corporate has been deeply committed to
transparency. Throughout 2012, we published
not only financial results, but also a “score
card” demonstrating progress relative to a wide
range of business plan objectives. Taking this
initiative a step further, we rolled out the “Due
Diligence Report” in the second half of the year.
This quarterly publication was developed to
help members monitor performance closely by
providing and explaining financial statements,
key ratios, portfolio details, and operational
compliance information. In addition to the
“Due Diligence Report,” we created a “Progress
Summary” targeted to credit union volunteers
and instituted a periodic CEO Member Update,
wherein I personally share insights surrounding
strategic activities and issues affecting Catalyst
Corporate’s members.
Prior to our launch and ever since, Catalyst
Corporate has sought and acted on member
feedback. Three regional Catalyst Councils
met throughout 2012 to explore ways the
corporate might best use resources to maximize
service – through new offerings, enhancements
and communication efforts. Their feedback
was channeled into the introduction of a new
loan participation service, improvements to
TranZact and the decision to launch a member
satisfaction survey – among many other
ongoing projects.
The member satisfaction survey took place in
June, receiving 550 individual responses. With
these survey results, we knew that efforts to
provide member value had paid off, as more
than 94 percent of respondents indicated that
they would recommend Catalyst Corporate.
Moreover, Catalyst Corporate received a 63.7
percent “Net Promoter Score.” A Net Promoter
Score above 50 percent is considered to be
outstanding, as it measures the percentage
of stakeholders that are deeply loyal to the
organization. A close examination of the survey
results has provided Catalyst Corporate with
meaningful insights about what is important
to members – insights that are being used
to set organizational priorities.
Another way that Catalyst Corporate stays
abreast of issues affecting member credit
unions is through engagement with credit
union leagues – organizations that serve many
of the same stakeholders and that share our
cooperative ideals. These strong bonds are
reinforced through mutual support of key
initiatives and event participation as well as
through physical proximity. Catalyst Corporate
shares office space with several leagues,
including the branch offices in Georgia, Hawaii
and California. In 2012, Catalyst Corporate
began to realize the financial benefits of selling
a portion of the Plano facility to the Texas Credit
Union League. This arrangement has resulted
in operational expense reductions that are
passed on to members through optimal
pricing and rates.
Kathy L. Garner
…our ability to
accelerate our
members’ success
is the most important
measure of all.
There are numerous measurable attributes
that define organizational “success” – many of
which are reflected in the financial statements
included with this report. At Catalyst Corporate,
we believe that effective member engagement
is the most important driver of that success,
and that our ability to accelerate our members’
success is the most important measure of all.
So, as you review information about Catalyst
Corporate’s strong financial performance –
accelerating past all of the metrics laid out in its
ambitious strategic plan – I hope you will take
pride in your ownership and influence over the
achievement of these results.
Sincerely,
Kathy L. Garner
President/CEO
2 | 2012 Annual Report
3/21/13 9:56 AM
Chairman’s Report
The theme for this year’s annual report –
Accelerating Success – is certainly appropriate
as we look at all that was accomplished in
2012. Catalyst Corporate accelerated right past
many of the targets in its visionary business
plan as one metric after another was exceeded.
Membership growth during 2012 took Catalyst
Corporate from 900 member credit unions at
the beginning of the year to almost 1,300 by
the end. The greatest influence on this rapid
growth was the integration of Western Bridge
Corporate and FirstCorp, which also brought
Catalyst Corporate up to approximately $160
million in perpetual contributed capital and its
interim leverage ratio (retained earnings and
PCC less CUSO investments, divided by daily
average net assets) to 7.73 percent, versus
the NCUA requirement of 5.00 percent to be
considered “well capitalized.”
Catalyst Corporate has acknowledged its
expanding footprint by ensuring a local
presence in California, Georgia and Hawaii,
as well as by having member-facing staff in
Oregon, Washington, Oklahoma, Florida,
Utah and Idaho – individuals who also
provide coverage in the neighboring states
of Arizona, Nevada, New Mexico, Arkansas
and Louisiana. In all, Catalyst Corporate has
members in 21 states and boasts 17 percent
of all U.S. credit unions as members. It is safe
to say that the strategy for increasing efficiency
through scale is working.
Member representation is a key value for
Catalyst Corporate – one that was pursued
as the corporate expanded into new markets
during its first 16 months of operations.
Beginning with the consolidation of Southwest
Corporate and Georgia Corporate, Catalyst
Corporate had a nine-member board of
directors representing eight states and
similarly diverse ALCO, Supervisory,
Enterprise Risk Management and Technology
Steering committees, in addition to three
regional Catalyst Councils. Since then,
Catalyst Corporate created two new seats
on the board to accommodate representation
from former Western Bridge Corporate
member credit unions.
With each integration, management updated
the business plan to ensure there would
be sufficient member value to pursue
consolidation. In these new iterations of the
plan, which maintain the original objectives
shared with members in 2011, projections for
financial performance and efficiency improved
as additional credit unions began using
Catalyst Corporate’s products and services.
Proof of the positive impact of Catalyst
Corporate’s growth is evident in the financial
highlights for the year. On December 31, 2012,
Catalyst Corporate posted net income of
$13.9 million, which is well above the budgeted
amount of $8.2 million (and $342,000 higher
than budget after excluding a net gain that
represents an acceleration of future interest
income due to the early prepayment of term
loans). Operating expenses were below budget
by approximately $1.4 million, demonstrating
that the ongoing commitment to conservative
management of the expense structure has
not waivered despite better-than-expected
income. This commitment ensures maximum
value is returned to member credit unions.
Catalyst Corporate also closely monitors
its coverage ratio – or the proportion of
operating expenses covered through fee
income – which is an important measure of
efficiency. The coverage ratio for 2012 was
right in line with projections that reflected the
two consolidations, coming in at 88.0 percent
versus the budget of 88.8 percent. The board
of directors targets a coverage ratio in the
75-85 percent range on an ongoing basis,
which is well ahead of most of Catalyst
Corporate’s peers.
C. Lin Hodges
…none of the milestones
achieved by Catalyst
Corporate during
2012 could have
been accomplished
without the support of
member credit unions.
For additional details of Catalyst Corporate’s
financial performance, portfolio information
and risk profile, I strongly encourage you to
review the “Due Diligence Report” publication
enclosed with this annual report.
In closing, it is important to acknowledge that
none of the milestones achieved by Catalyst
Corporate during 2012 could have been
accomplished without the support of member
credit unions – from initial capitalization to
ongoing patronage and feedback. Momentum
from the early success continues into 2013,
and I look forward to sharing with you the
details of that success in the future.
Sincerely,
C. Lin Hodges
Chairman, Board of Directors
3/21/13 9:56 AM
Supervisory Committee’s Report
Maintaining organizational integrity requires constant supervision of checks and balances that
govern Catalyst Corporate’s critical processes. Annual audits performed by Catalyst Corporate’s
internal and external independent auditors and the National Credit Union Administration (NCUA)
examiners are designed to assist Catalyst Corporate in maintaining the highest standards of
accuracy in its accounting records and reports, and in complying with credit union regulations.
The Supervisory Committee has met with the external auditors to discuss the results of the
2012 external audit. Catalyst Corporate received an unqualified opinion on the audited 2012
financial statements.
Upon reviewing the findings of the internal and external auditors and the NCUA, your Supervisory
Committee believes that these audits and examinations provide us with a reasonable basis to
conclude that the financial statements of Catalyst Corporate for the year ending December 31, 2012
are fairly presented, and that Catalyst Corporate has complied with credit union regulations in all
material respects.
Kerry Parker
Sincerely,
Kerry Parker, CPA
Chairman, Supervisory Committee
2012 Performance Highlights
88.0%
Industry
Average
2012
Budget
2012
Actual
2012
7.73%
6.03%
Budget
2012
Actual
2012
Retained Earnings Ratio
.29%
88.8%
69.68%
Coverage Ratio
Actual
2011
.84%
Actual
2012
Actual
2011
.43%
Budget
2012
5.34%
$8,163,786
Actual
2011
Leverage Ratio
$13,903,132
$8,401,214
Net Income*
Budget
2012
Actual
2012
* $5.5 million of the 2012 net income represents an acceleration of future interest income due to the early
prepayment of term loans; without this gain, net income would have been $342,174 ahead of budget.
3/21/13 9:56 AM
Catalyst Credit Union
Membership Growth
1,227
1,160
1,199
1,200
1,248
State of Catalyst Corporate
1,000
800
9/2011
12/2011
3/2012
6/2012
9/2012
12/2012
Membership figures do not include credit union service organizations (CUSOs)
90
120
Member Credit Unions
By Asset Size
31
2%
Over $1 Billion
7%
$250 Million - $1 Billion
10% $100 Million - $250 Million
664
343
27%
$25 Million - $100 Million
53%
Under $25 Million
WA
70/109
OR
46/71
Member Credit Unions/
Total Credit Unions
By State
ID
34/52
NV
10/19
MD
1/101
NJ
1/203
UT
2/82
CA
223 /449
AZ
41/46
OK
54/71
NM
36/50
TX
413/526
AK
4/12
HI
47/81
NC
1/91
AR
51/62
AL
4/124
SC
1/73
GA
108/140
LA
103/212
FL
11/166
Membership figures do not include
credit union service organizations (CUSOs)
4 Catalyst Corporate Offices
3/21/13 9:56 AM
Salute to Volunteers
Catalyst Corporate Board of Directors
Chairman
Lin Hodges
President/CEO
Associated CU
Norcross, GA
Connie Cofer
SVP Finance/CFO
Communication FCU
Oklahoma City, OK
Vice Chairman
Rod Taylor
President/CEO
Barksdale FCU
Bossier City, LA
Syed Dinar
VP/CFO
Texas Bay Area CU
Houston, TX
Treasurer
Rick Hein
President/CEO
OSU FCU
Corvallis, OR
Secretary
Ayn Talley
President/CEO
Houston Police FCU
Houston, TX
Michael Hooper
President/CEO
La Capitol FCU
Baton Rouge, LA
John Papagno
CFO
Alive CU
Jacksonville, FL
Bill Before
VP/CFO
STCU
Liberty Lake, WA
Bobbie Threlkeld
President/CEO
Baptist Health FCU
Little Rock, AR
Trevor Tokishi
EVP
Valley Isle CFCU
Kahului, HI
Supervisory Committee
Candice Bracewell
SVP/CFO
LGE Community CU
Marietta, GA
Craig Atkinson
President/CEO
Houston Highway CU
Houston, TX
Kerry Parker
President/CEO
A+ FCU
Austin, TX
Asset/Liability Committee
Rick Hein
President/CEO
OSU FCU
Corvallis, OR
Syed Dinar
VP/CFO
Texas Bay Area CU
Houston, TX
Tony Budet
President/CEO
University FCU
Austin, TX
Sonya Jaynes
CFO
Red River Employees FCU
Texarkana, TX
Steven Stapp
President/CEO
San Francisco FCU
San Francisco, CA
Technology Steering Committee
Connie Cofer
SVP Finance/CFO
Communication FCU
Oklahoma City, OK
Arna Reynolds
President/CEO
Amarillo Community FCU
Amarillo, TX
Jim Ladner
SVP/CFO
Resource One CU
Dallas, TX
Enterprise Risk Management Committee
Michael Hooper
President/CEO
La Capitol FCU
Baton Rouge, LA
Jody Caraccioli
CFO/VP Risk
Neighbors CU
Baton Rouge, LA
John White
VP Risk Management
InTouch CU
Plano, TX
3/21/13 9:56 AM
Salute to Volunteers
Catalyst Council Central
Andrea Stocks
A+ FCU
Austin, TX
Diane Ward
Bossier FCU
Bossier City, LA
Troy Kyle
Capitol CU
Austin, TX
Derrick Peterson
Greater TEXAS FCU
Austin, TX
Marty Tressell
High Plains FCU
Clovis, NM
Keith Kearney
InvesTex CU
Houston, TX
Jared Johnstone
Mountain America CU
West Jordan, UT
Kathi Gill
Neighbors FCU
Baton Rouge, LA
Lisa Coen
Oklahoma Employees CU
Oklahoma City, OK
Drew Schmid
Randolph-Brooks FCU
Live Oak, TX
Linda Jeffery
TruService Community FCU
Little Rock, AR
Karyn Gonyea
Union Pacific of Arkansas FCU
N. Little Rock, AR
Catalyst Council East
Tim Bridges
Associated CU
Norcross, GA
Gary Kyle
Atlanta Postal CU
Atlanta, GA
Beverly Knutsen
Augusta Metro FCU
Augusta, GA
Walter Hobby
CDC FCU
Atlanta, GA
Issa Stephan
First Financial FCU
Wall, NJ
Kevin Hill
Five Star CU
Dothan, AL
Keith Pritchard
Georgia Florida United Methodist FCU
Marietta, GA
Mary Svoboda
Jax FCU
Jacksonville, FL
Sean Ferrell
LGE Community CU
Marietta, GA
Brian Akin
North Georgia CU
Toccoa, GA
Maggie Martinez
South Florida FCU
Miami, FL
Sam Whitehurst
Summit CU
Greensboro, NC
Catalyst Council West
Elizabeth Lipke
Bourns Employees FCU
Riverside, CA
Valerie Jensen
EW 401 CU
Reno, NV
Brian Hall
Foothill FCU
Arcadia, CA
Patrick Vaughn
Idaho Advantage CU
Boise, ID
Charles Papenfus
Inland Valley FCU
Fontana, CA
Mark Morrison
MountainCrest CU
Everett, WA
Roger Ballard
NuVision FCU
Huntington Beach, CA
Ron Neumann
Oregon Community CU
Eugene, OR
Bonnie Humphrey-Anderson
OSU FCU
Corvallis, OR
Scott Waite
Patelco CU
Pleasanton, CA
Doug Kileen
Safe 1 CU
Bakersfield, CA
Rick Hanan
SMW 104 FCU
San Leandro, CA
3/21/13 9:56 AM
Catalyst Corporate Products and Services
Payment and Correspondent Services
Advisory Service
o Mobile Banking (stand alone or with Mobile Capture)
o A
dvanced ALM Modeling
(see Asset/Liability Management Services)
o Mobile
Capture (stand alone or integrated with Catalyst
Corporate’s or another vendor’s Mobile Banking)
o Economic and Market Assessment
o Teller Capture
o Full Balance Sheet Strategic Consulting
o Branch Capture
o Investment Portfolio Management
o Member (Consumer) Capture
o Ongoing Education, Support, and Policy Review
o Business (Merchant) Capture
o ATM Capture
Asset/Liability Management Service
o Check Collection
o Comprehensive ALM Service (BancWare model)
o Domestic and International Collections
o Standard ALM Service (ALPS model)
arly Warning Services/Deposit Fraud Detection
o E
(real time and batch)
o ALM Validation
o Share Draft Processing
o Corporate Checking
o Mortgage Servicing Rights Valuations
Investment Services
o ACH Origination
o Brokerage Services through ISI
o ACH Receipt
o SimpliCD Program
o ACH Contingency
o Security Safekeeping
o Vault Cash
o Investment Accounting Reports
o International Currency and Drafts
o Wire Transfer – Domestic and International
o Western Union – Domestic and International
o Settlement
o Market & Investment Update Conference Calls
o Performance Tiered Account
o Cash Management Account
o Perpetual Contributed Capital Account
o Regulation D Reserve Funding
Lending Services
Card Services
o Agent Loan Participation Program
o ATM Cards and Debit Cards
o Central Liquidity Facility Loan Assistance
o CO-OP Network Access
o Letters of Credit
o ATM Terminals Driving
o Lines of Credit
o Merchant Card
o Term Loans
Communications
o C
atalyst Corporate and Catalyst Strategic
Solutions Websites − www.catalystcorp.org and
www.catalyststrategic.org
Other Services
o Sallie Mae Smart Option Student Loan
o TranZact Online Account Management
o Contingency Communications
o Economic News
o Monthly Print Newsletter
o Weekly Electronic Newsletter
Training & Education
o ALM Webinars
o Mobile Solutions, Fraud Prevention, Teller Efficiencies
o Payments Services Webinars
o Investment Services Webinars
o Conferences
o Financial Management Institute
For more information, visit www.catalystcorp.org
3/21/13 9:56 AM
6801 Parkwood Boulevard
Plano TX 75024
800.442.5763
catalystcorp.org
2012 Management Report
Statement of Management’s Responsibilities
The management of Catalyst Corporate Federal Credit Union (“ Catalyst Corporate”) is
responsible for preparing Catalyst Corporate’s annual financial statements in accordance with
generally accepted accounting principles; for establishing and maintaining an adequate internal
control structure and procedures for financial reporting, including controls over the preparation
of regulatory financial statements in accordance with the instructions for the NCUA 5310 –
Corporate Credit Union Call Report; and for complying with the Federal laws, if applicable,
State laws and regulations pertaining to affiliate transactions, legal lending limits, loans to
insiders, restrictions on capital and share dividends and regulatory reporting that meets full and
fair disclosure.
Management’s Assessment of Compliance With Safety and Soundness Laws
and Regulations
The management of Catalyst Corporate has assessed Catalyst Corporate’s compliance with the
Federal, if applicable, State laws and regulations pertaining to affiliate transactions, legal
lending limits, loans to insiders, restrictions on capital and share dividends and regulatory
reporting that meets full and fair disclosure during the fiscal year that ended on December 31,
2012. Based upon its assessment, management has concluded that Catalyst Corporate
complied with the Federal laws and, if applicable, State laws and regulations pertaining to
affiliate transactions, legal lending limits, loans to insiders, restrictions on capital and share
dividends and regulatory reporting that meets full and fair disclosure during the fiscal year that
ended on December 31, 2012.
Management’s Assessment of Internal Control Over Financial Reporting
Catalyst Corporate's internal control over financial reporting is a process effected by those
charged with governance, management, and other personnel, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of reliable financial
statements in accordance with accounting principles generally accepted in the United States of
America and financial statements for regulatory reporting purposes, i.e., NCUA 5310- Corporate
Credit Union Call Report. The institution's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Corporate; (2)
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally accepted
in the United States of America and financial statements for regulatory reporting purposes, and
that receipts and expenditures of Catalyst Corporate are being made only in accordance with
authorizations of management and directors of Catalyst Corporate; and (3) provide reasonable
assurance regarding prevention, or timely detection and correction of unauthorized acquisition,
use, or disposition of Catalyst Corporate’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or
detect and correct misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of Catalyst Corporate’s internal control over financial
reporting, including controls over the preparation of regulatory financial statements in
accordance with the instructions for the NCUA 5310 – Corporate Credit Union Call Report, as of
December 31, 2012, based on the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based upon its assessment, management has concluded that, as of December 31, 2012,
Catalyst Corporate's internal control over financial reporting, including controls over the
preparation of regulatory financial statements in accordance with the instructions for the NCUA
5310 – Corporate Credit Union Call Report, is effective based on the criteria established in
Internal Control--Integrated Framework.
Catalyst Corporate Federal Credit Union
Date: March 28, 2013
________________________________
_________________________________
Kathy Garner, Chief Executive Officer
Melissa Wardell, Chief Financial Officer
6801 Parkwood Boulevard | Plano TX 75024 | 800.442.5763 | catalystcorp.org
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
th
12060 SW 129 Ct. Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388
Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner
James A. Griner, CPA
Hugh S. Chakler, CPA, CFE, CITP, CISA
Lori J. Carmichael, CPA
John J. Murnane, CPA
Daniel C. Moulton, CPA
Jack D. Kenney, CPA
INDEPENDENT AUDITOR’S REPORT
March 28, 2013
To the Supervisory Committee of
We have audited the accompanying consolidated financial statements of Catalyst Corporate
Federal Credit Union and its subsidiary, which comprise the consolidated statements of financial
condition as of December 31, 2012 and 2011, and the related consolidated statements of
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 audit 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
To the Supervisory Committee of
Page 2
also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Catalyst Corporate Federal Credit Union and its
subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash
flows for the years then ended in accordance with accounting principles generally accepted in the
United States of America.
Orth, Chakler, Murnane & Co.
Orth, Chakler, Murnane & Company
Certified Public Accountants
Miami, FL
Consolidated Statements of Financial Condition
December 31, (in thousands)
2012
2011
$1,955,004
$1,119,236
507,937
807
4,113
280,640
6,245
3,734
230,654
11,944
11,282
3,005
2,304
$2,727,050
289,749
293,370
9,237
10,687
953
2,827
$2,016,678
$2,474,329
63,973
3,205
6,639
2,548,146
$1,535,841
363,625
8,584
6,616
1,914,666
159,547
18,836
521
178,904
$2,727,050
96,171
5,852
(11)
102,012
$2,016,678
Assets
Cash and cash equivalents
Investments:
Investments available-for-sale
Capital stock in Federal Home Loan Bank
Investments in credit union service organizations (CUSOs)
Certificates in U.S. Central Bridge Corporate Federal
Credit Union
Loans to members
Accrued receivables and other assets
Property and equipment, net
Goodwill and other intangible assets
NCUSIF deposit
Total assets
Liabilities
Members’ share accounts
Members’ share certificates
Members’ capital accounts (unamortized portion)
Accrued interest and other liabilities
Total liabilities
Commitments and contingent liabilities
Members’ Equity
Perpetual contributed capital
Undivided earnings
Accumulated other comprehensive income (loss)
Total members’ equity
Total liabilities and members’ equity
The accompanying notes are an integral part of the consolidated financial statements.
Page 3 of 27
Consolidated Statements of Comprehensive Income
Years ended December 31, (in thousands)
2012
2011
$11,144
2,925
2,198
928
911
18,106
$12,256
10,530
439
4,243
10,898
709
39,075
Interest expense
Interest on members’ share certificates
Interest on members’ share accounts
Total interest expense
Net interest income
4,343
1,848
6,191
11,915
13,757
9,991
23,748
15,327
Non-interest income
Share draft and depository processing fees
Other fee income
Total non-interest income
15,301
12,046
27,347
15,145
10,353
25,498
Non-interest expenses
Compensation and benefits
Information technology
Outside processing and service costs
Other operating expense
Professional fees
Office occupancy
Corporate credit union stabilization fund assesments
Total non-interest expenses
19,319
4,013
2,439
2,261
1,454
1,050
219
30,755
20,385
4,427
2,025
1,065
1,719
2,184
622
32,427
5,280
52
46
18
5,396
3
3
$13,903
$8,401
578
(8)
(46)
532
(3)
(11)
$14,435
$8,390
Interest income
Loans to members
Federal Reserve Bank
Certificates in U.S. Central Bridge Corporate Federal Credit Union
Notes receivable
Other
Total interest income
Other net gains
Net gain on loan prepayment
Bargain gain on acquisition
Net gain on sale of securities
Net gain on share certificate surrender
Total other net gains
Net income
Other comprehensive income (loss)
Net unrealized holding gains (losses) on investments
classified as available-for-sale
Reclassification adjustment for net gains included
in net income
Total other comprehensive income (loss)
Comprehensive income
Page 4 of 27
Consolidated Statements of Members’ Equity
For the years ended
December 31, 2011 and 2012
(in thousands)
Balance at January 1, 2011
Perpetual
Contributed
Capital
Accumulated
Undivided
Other
Earnings Comprehensive
(Deficits) Income (Loss)
Total
$-
($2,503)
$-
($2,503)
Net income
Perpetual contributed capital issued
Dividends paid on perpetual
contributed capital
Other comprehensive loss
Balance at December 31, 2011
96,171
8,401
-
-
8,401
96,171
96,171
(46)
5,852
(11)
(11)
(46)
(11)
102,012
Net income
Dividends paid on perpetual
contributed capital
Other comprehensive income
Balance at December 31, 2012
63,376
13,903
-
-
13,903
63,376
$159,547
(919)
$18,836
532
$521
(919)
532
$178,904
Page 5 of 27
Consolidated Statements of Cash Flows
For the years ended December 31, (in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Dividends paid on perpetual contributed capital
Depreciation
Gain on sale of investments available-for-sale
Amortization of net premiums and discounts on investments available-for-sale
Federal Home Loan Bank capital stock dividends
Net change in:
Accrued receivables and other assets
Accrued interest and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Net decrease in notes receivable
Net decrease in certificates in U.S. Central Bridge Corporate Federal Credit Union
Proceeds from sales of investments available-for-sale
Proceeds from maturities and repayments of investments available-for-sale
Investments available-for-sale (acquired through merger)
Purchases of investments available-for-sale
Federal Home Loan Bank capital stock (acquired through merger)
Net change in Federal Home Loan Bank capital stock
Investments in CUSOs (acquired through merger)
Investments in CUSOs
Net increase in investments in CUSOs
Net decrease in loans
Proceeds from sales of property and equipment
Property and equipment (acquired through merger)
Expenditures for property and equipment
Net increase in goodwill and other intangible assets
Net decrease (increase) in NCUSIF deposit
Net cash provided by investing activities
Cash flows from financing activities
Net increase (decrease) in members’ share accounts
Net decrease in members’ share certificates
Net (decrease) increase in members’ capital accounts (unamortized portion)
Net cash provided by/(used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid for:
Interest on members’ share accounts and certificates
Non-cash activity:
Change in unrealized gain (loss) on investments classified as available-for-sale
2012
2011
$13,903
$8,401
(919)
1,015
(46)
477
(9)
(46)
1,226
(3)
63
(17)
(2,707)
23
11,737
3,203
(1,863)
10,964
289,749
18,012
193,323
(438,531)
5,447
(379)
62,716
(1,610)
(2,052)
523
127,198
1,682,892
1,395,981
29,602
16,904
(185,220)
(141,997)
(3,181)
1,711
(1,493)
(100)
(348)
93,256
4,631
(61)
(14,592)
(953)
(128)
2,876,904
938,488
(299,652)
(5,379)
63,376
696,833
835,768
1,119,236
$1,955,004
(4,630,785)
(1,203,614)
8,584
96,171
(5,729,644)
(2,841,776)
3,961,012
$1,119,236
$7,401
$25,918
$532
($11)
Page 6 of 27
Notes to the Consolidated Financial Statements
1. ORGANIZATION
Catalyst Corporate Federal Credit Union (Catalyst Corporate) is the result of the combination of
Georgia Corporate Federal Credit Union (Georgia Corporate) and Southwest Bridge Corporate
Federal Credit Union (Southwest Bridge Corporate) on September 6, 2011 resulting from the
successful recapitalization effort of member credit unions to comply with the revisions to the
NCUA’s rules governing corporate credit unions (12 C.F.R. §704).
Catalyst Corporate is a federally chartered corporate credit union whose principal activity is to
provide investment, credit, payment, technology and correspondent services to its members.
Catalyst Corporate’s members can include federal and state-chartered credit unions, and other
credit union organizations throughout the United States.
Catalyst Corporate derives its authority to operate from the United States federal government
under the Federal Credit Union Act (the Act). The National Credit Union Administration
(NCUA) serves as the regulatory agency responsible for enforcement of the Act. Pursuant to
Section 122 of the Act, Catalyst Corporate is exempt from payment of federal and state income
taxes.
CUSOURCE, LLC (CUSOURCE) is a wholly-owned subsidiary of Catalyst Corporate which
provides investment advisory and asset-liability management services to credit unions on a
nationwide basis. CUSOURCE does business under the name “Catalyst Strategic Solutions.”
As a single member limited liability company, CUSOURCE is not subject to federal and state
income taxes.
2. ACQUISITIONS
Effective July 1, 2012, Catalyst Corporate acquired certain assets and liabilities of Western
Bridge Corporate Federal Credit Union (Western Bridge) from the NCUA. In addition, Catalyst
Corporate also acquired certain assets and liabilities of First Corporate Credit Union (FirstCorp)
from FirstCorp effective October 29, 2012.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Catalyst Corporate and its whollyowned subsidiary, CUSOURCE. All significant intercompany balances and transactions have
been eliminated in the Catalyst Corporate consolidated financial statements.
Page 7 of 27
Note: 3 (continued)
Consolidated financial statements /Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses for the periods then ended. Actual results could
differ from those estimates. Estimates that are particularly susceptible to change relate to the fair
value of financial instruments. The significant accounting principles and policies used in the
preparation of these consolidated financial statements, together with certain related information,
are summarized below.
Cash on deposit and amounts due from banks and the Federal Reserve Bank are included in cash
and cash equivalents in the consolidated statements of financial condition as of December 31,
2012. As of December 31, 2011, cash and cash equivalents also included deposits in U.S.
Central Bridge Corporate Federal Credit Union (USC Bridge). All deposits at USC Bridge were
transferred to the Federal Reserve Bank prior to liquidation of USC Bridge.
Federal Reserve Bank – Excess Balance Account Program
Catalyst Corporate, as agent, entered into an Excess Balance Account (EBA) agreement with
participating member credit unions and the Federal Reserve Bank, whereby the Federal Reserve
Bank opened EBA accounts for the benefit of the participants at the request of the agent. As
such, the balances in the EBA accounts are not reflected in the Catalyst Corporate consolidated
financial statements. These balances totaled approximately $6,215,452,000 and $3,767,415,000
as of December 31, 2012 and 2011, respectively. Neither the participating member credit unions
nor the agent may use the EBA for general payments or other activities. The aggregate balance
in the EBA represents a deposit liability of the Federal Reserve Bank solely to the participants.
Catalyst Corporate, as agent, is solely responsible for calculating and distributing the interest
payable to each participant on the participant’s excess balance and for damages owed to
participants for any inaccuracy in calculating the participant’s excess balance and interest.
Investments
Investments are classified into the following categories: available-for-sale and other.
Investment securities classified as available-for-sale are measured at fair value as of the
consolidated statements of financial condition date. Realized gains and losses on disposition, if
any, are computed using the specific identification method. Investments are adjusted for the
amortization of premiums and accretion of discounts over the term of the investment as an
adjustment to interest income on investments by a method that approximates the interest method.
Other investments include capital stock in Federal Home Loan Bank (FHLB), various
investments in CUSOs and as of December 31, 2011, certificates in USC Bridge.
Page 8 of 27
Note: 3 (continued)
Other investments are generally carried at cost, with the exception of certain investments in
CUSOs, which are accounted for using the equity method of accounting.
Catalyst Corporate is a member of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other factors, and may invest in additional
amounts. Capital stock may be redeemed after a five year written notice to the FHLB. Capital
stock in FHLB is carried at cost, classified as a restricted security, and periodically evaluated for
impairment based on ultimate recovery of par value. Cash and stock dividends are reported as
income. Stock dividends are reinvested in FHLB capital stock.
USC Bridge was a federally chartered financial services cooperative which operated for the
benefit of its members (primarily corporate credit unions) under the Federal Credit Union Act.
During 2009, U.S. Central Corporate Federal Credit Union (USC) was conserved by the NCUA
as part of the corporate credit union stabilization plan. As part of the stabilization plan, the
correspondent banking services were moved to the newly formed USC Bridge on November 1,
2010. USC Bridge was unable to find a merger partner or reform as a new corporate credit
union; therefore, the NCUA liquidated USC Bridge on October 29, 2012.
The principal activity of USC Bridge was to provide wholesale investment, liquidity, custody
and payment-system services to its member corporate credit unions. USC Bridge investments
were generally interest bearing with various maturity dates. The investments were carried at
cost. All investments at USC Bridge matured prior to liquidation.
Loans to members
Loans to members are stated at the amount of unpaid principal. Interest on loans is accrued daily
and is calculated using the simple-interest method on principal amounts outstanding. The
accrual of interest is discontinued when management believes the collection of interest is
doubtful. Catalyst Corporate reviews the loan portfolio for impairment on a regular basis.
Catalyst Corporate has not recorded an allowance for loan losses as the loans are generally short
term and are secured by members’ total assets or specific assets of the member such as securities
or an auto loan portfolio.
Allowance for loan losses
Catalyst Corporate’s loan portfolio consists only of loans to credit unions and CUSOs. Catalyst
Corporate has segmented the portfolio into two types of loans (open-end credit lines and term
loans). Each type of loan requires significant judgment to determine the amount of lines of
credit and term loans to extend to any one member. The following methodology is used by
management to determine the balance of the allowance for loan losses.
Credit quality indicators
Loans are evaluated on a loan-by-loan basis. All open-end credit lines and term loans to credit
unions and CUSO members are secured by either a general pledge of assets or a specific pledge.
Page 9 of 27
Note: 3 (continued)
Approximately one half of the dollar volume of open-end credit lines and term loans are secured
by a blanket lien on all assets. The remainder is secured by specific collateral. This collateral is
pledged by the member prior to Catalyst Corporate extending loan advances. Loans to members
can be offset against the members’ share accounts, if necessary.
If management determines that a loan is impaired, then impairment is recognized through an
allowance for loan losses. There were no impaired loans as of December 31, 2012 or 2011.
Additionally, none of the loans were past due or had been modified as of December 31, 2012 or
2011. Catalyst Corporate places loans on non-accrual status when the loan reaches 90 days past
due or when the collection of interest or principal becomes uncertain.
Property and equipment, net
Land is carried at cost. Property and equipment are carried at cost less accumulated
depreciation. Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets. Catalyst Corporate reviews property and equipment (longlived assets) for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Goodwill and other intangible assets
Goodwill and intangible assets acquired in a purchase business combination determined to have
an indefinite useful life is not amortized, but tested for impairment at least annually or more
frequently if events and circumstances exist that indicate that an impairment test should be
performed. Catalyst Corporate has selected December 31 as the date to perform the annual
impairment test and any impairment is recognized in the period identified. Intangible assets with
definite useful lives are amortized over their estimated useful lives to their estimated residual
values. Goodwill is the only intangible asset with an indefinite life on Catalyst Corporate’s
statements of financial condition. Other intangible assets consist of core deposit intangible assets
arising from acquisitions and are amortized over their estimated useful lives, which approximate
3 years.
NCUSIF deposit
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with
NCUA regulations, which require the maintenance of a deposit by each insured credit union.
The deposit would be refunded to Catalyst Corporate 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.
Corporate credit union stabilization fund assessments
During 2012 and 2011, the NCUA Board assessed a 9.5 basis point and a 25 basis point
corporate stabilization fund assessment on insured deposits as of June 30, 2012 and 2011,
respectively.
Page 10 of 27
Note: 3 (continued)
Members’ share accounts and certificates
Members’ share accounts and certificates are subordinated to all other liabilities of Catalyst
Corporate other than members’ capital accounts and perpetual contributed capital upon
liquidation. Interest rates on members’ share accounts and certificates are set by management
under the direction of the Board of Directors.
Members’ capital accounts (MCA’s)
MCA’s require a notification term of three years prior to their withdrawal from Catalyst
Corporate. In the event of Catalyst Corporate’s liquidation, and after the full depletion of
undivided earnings and perpetual contributed capital, MCA’s are payable only after satisfaction
of all liabilities of Catalyst Corporate, including uninsured share obligations to members and the
NCUSIF.
Perpetual contributed capital (PCC)
During 2011, Catalyst Corporate successfully recapitalized via the PCC program whereby the
member credit unions contributed one-time uninsured mandatory capital investments with no
stated maturity or withdrawal provisions. PCC is not negotiable or assignable but may be
transferable to another eligible member credit union under certain provisions. PCC may not be
pledged or used as security for borrowing. PCC dividends are determined based on net earnings
and the overall capital needs of Catalyst Corporate. Additionally, PCC dividends are not
guaranteed and may be suspended if earnings are negative and/or capital levels fall below
regulatory and/or policy minimum levels.
Subsequent events
Management has evaluated subsequent events through March 28, 2013, which is the date the
consolidated financial statements were available to be issued.
Federal and state tax exemption
Catalyst Corporate is exempt from most federal, state and local taxes under the provisions of the
Internal Revenue Code and state tax laws. The Income Tax Topic of the Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) clarifies accounting for
uncertainty in income taxes reported in the consolidated financial statements. The interpretation
provides criteria for assessment of individual tax positions and a process for recognition and
measurement of uncertain tax positions. Tax positions are evaluated on whether they met the
“more likely than not” standard for sustainability on examination by tax authorities. Federal
credit unions are tax-exempt under Internal Revenue Code sections 501(c) (14) (a) and 501(c) (1)
(a) (I). As such, Catalyst Corporate has no uncertain tax positions that qualify for either
recognition or disclosure in the consolidated financial statements. Additionally, no interest or
penalties have been recorded in the accompanying consolidated financial statements related to
uncertain tax positions.
Page 11 of 27
Note: 3 (continued)
Reclassifications
Some items in the prior year consolidated financial statements were reclassified to conform to
the current year presentation. Reclassification had no effect on prior year net income or
members’ equity.
Adoption of new accounting standards
In July 2012, the FASB amended existing guidance relating to testing indefinite-lived intangible
assets for impairment. The amendment permits an assessment of qualitative factors to determine
whether the existence of events and circumstances indicates that it is more likely than not that the
indefinite-lived intangible asset is impaired. If, after assessing the totality of events and
circumstances, it is concluded that it is not more likely than not that the indefinite-lived
intangible asset is impaired, then no further action is required. However, after the same
assessment, if it is concluded that it is more like than not that the indefinite-lived intangible asset
is impaired, then a quantitative impairment test should be performed whereby the fair value of
the indefinite-lived intangible asset is compared to the carrying amount. The amendments in this
guidance are effective for annual and interim impairment tests performed for fiscal years
beginning after September 15, 2012. The effect of adopting this standard did not have a material
effect on Catalyst Corporate’s operating results or financial condition.
In September 2011, the FASB amended existing guidance relating to goodwill impairment
testing. The amendment permits an assessment of qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. If, after assessing these events
or circumstances, it is concluded that it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is
unnecessary. The amendments in this guidance are effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. The effect of
adopting this standard did not have a material effect on Catalyst Corporate’s operating results or
financial condition.
In June 2011, the FASB amended existing guidance and eliminated the option to present the
components of other comprehensive income as part of the statement of changes in shareholder’s
equity. The amendment requires that comprehensive income be presented in either a single
continuous statement or in two separate consecutive statements. The amendments in this
guidance are effective for annual reporting periods ending after December 15, 2012, and interim
and annual periods thereafter. The adoption of this amendment changed the presentation of the
components of comprehensive income for Catalyst Corporate as part of the consolidated
statements of members’ equity.
Page 12 of 27
4. CASH AND CASH EQUIVALENTS
Catalyst Corporate acts as a pass-through correspondent for member credit unions that are
required to deposit reserves with the Federal Reserve Bank. Deposit reserves of $50,090,000
and $42,068,000 as of December 31, 2012 and 2011, respectively, are included in cash and cash
equivalents and members’ share accounts in the consolidated statements of financial condition.
Cash and cash equivalents at December 31, 2011 also includes deposits in USC Bridge of
$50,260,000. Catalyst Corporate transferred all deposits held at USC Bridge to the Federal
Reserve Bank prior to its liquidation.
5. INVESTMENTS AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of investments available-for-sale as of December 31
are as follows (in thousands):
Gross
Gross
Amortized Unrealized Unrealized
Fair
Cost
Gains
Losses
Value
2012
Federal agency securities
$28,828
$113
($-)
$28,941
Agency mortgage-backed securities
129,633
417
(2)
130,048
Asset-backed securities
348,955
188
(195)
348,948
Total
$507,416
$718
($197)
$507,937
2011
Total
Gross
Gross
Amortized Unrealized Unrealized
Cost
Gains
Losses
$29,345
$15
($22)
136,928
143
(71)
114,378
19
(95)
$280,651
$177
($188)
Fair
Value
$29,338
137,000
114,302
$280,640
Catalyst Corporate’s asset-backed securities are collateralized by the following asset types at
December 31 (in thousands):
2011
2012
Asset Type
Fair Value Fair Value
Student loan
$23,607
$161,775
Automobile
23,989
100,425
Credit card
64,206
63,738
Equipment
2,500
23,010
Total
$114,302
$348,948
Page 13 of 27
Note: 5 (continued)
The following tables represent regulatory concentration limits on investments available-for-sale
as of December 31, 2012 (in thousands):
By Security Type:
Student loan asset-backed securities
Automobile asset-backed securities
Credit card asset-backed securities
Equipment asset-backed securities
Total
By Issuer (top ten issuers):
CABMT 2010-1A
SLCLT 2004-1
HAROT 2012-4
COELT 2005-B
SLMA 2004-6
NAROT 2012-B
CHAIT 2004-A8
WSLT 2005-1
ALLYA 2012-5
SLMA 2004-9
Fair Value
$28,941
130,048
161,775
100,425
63,738
23,010
$507,937
Fair Value
$33,163
27,784
25,003
23,697
16,558
16,006
15,001
14,645
14,499
14,346
Capital Based
Limit
$1,742,700
1,742,700
1,742,700
871,350
871,350
871,350
Asset Based
Limit
$1,363,525
1,363,525
1,363,525
681,762
681,762
681,762
Regulatory
Limit
$87,135
43,568
43,568
43,568
43,568
43,568
87,135
43,568
43,568
43,568
The available-for-sale securities are included in the table below (in thousands) based on their
contractual maturity or on weighted average estimated lives for securities with principal balances
that are not due at a single maturity date. The structure of these securities may include the right
to call or prepay certain obligations without pre-payment penalties.
Within one year
One to five years
Five to ten years
Total
Amortized Cost
$137,287
366,266
3,863
$507,416
Page 14 of 27
Fair Value
$137,257
366,793
3,887
$507,937
Note: 5 (continued)
Sales of investments available-for-sale for the years ended December 31 are as follows (in
thousands):
2011
2012
Proceeds
$29,602
$18,012
Gross gains
$3
$51
Gross losses
$$5
The following tables show the gross unrealized losses and fair value of investments availablefor-sale as of December 31 (in thousands), aggregated by length of time individual securities
have been in a continuous unrealized loss position.
2012
Agency mortgage-backed
securities
Total
2011
Agency mortgage-backed
securities
Total
Continuous
unrealized
loss position
less than 12 months
Fair Unrealized
value
loss
$6,931
122,925
$129,856
$2
195
$197
Continuous
unrealized
loss position
less than 12 months
Fair Unrealized
value
loss
$24,924
$22
51,277
85,523
$161,724
Continuous
unrealized
loss position
12 months or greater
Fair Unrealized
value
loss
$$-
$$6,931
- 122,925
$- $129,856
Continuous
unrealized
loss position
12 months or greater
Fair Unrealized
value
loss
$$-
71
95
$188
$-
Total
Fair Unrealized
value
loss
$2
195
$197
Total
Fair Unrealized
value
loss
$24,924
$22
51,277
85,523
$- $161,724
71
95
$188
Catalyst Corporate evaluates each asset-backed security for other-than-temporary impairment by
considering Catalyst Corporate’s ability to hold each security for a sufficient time to allow for
recovery of unrealized losses. Catalyst Corporate also considers the credit rating of each security
as well as the tranche and underlying collateral in evaluating each security for other-thantemporary impairment. Management has the intent and ability to hold these securities to
recovery of fair value, which may be maturity.
Page 15 of 27
6. INVESTMENTS IN USC BRIDGE
There were no outstanding investments in USC Bridge as of December 31, 2012. All certificates
in USC Bridge matured prior to USC Bridge’s liquidation on October 29, 2012. Community
Investment Fund (CIF) shares at USC Bridge were withdrawn prior to liquidation of USC
Bridge.
Investments in USC Bridge as of December 31, 2011 included share certificates of
approximately $264,978,000 and CIF shares of approximately $24,771,000. CIF shares were
funds invested at USC Bridge in which the associated earnings from the shares were directed to
various organizations to promote the development of the credit union industry.
7. CAPITAL STOCK IN FHLB
Catalyst Corporate held capital stock issued by FHLB of Dallas of $807,000 and $4,251,800 as
of December 31, 2012 and 2011, respectively, and FHLB of Atlanta capital stock of $1,993,200
as of December 31, 2011. All FHLB of Atlanta capital stock was repurchased in 2012.
Catalyst Corporate has an advised line-of-credit of $152,963,000 with FHLB of Dallas as of
December 31, 2012, and $33,625,000 with FHLB of Atlanta as of December 31, 2011. There
were no outstanding borrowings from the lines of credit as of December 31, 2012 and 2011.
8. INVESTMENTS IN CUSOs
Investments in CUSOs are comprised of the following as of December 31 (in thousands):
Investment in Primary Financial LLC
Investment in CO-OP
Investment in CU Business Group
Investment in CU Investment Solutions LLC
Total
2012
$1,777
1,607
629
100
$4,113
2011
$1,572
1,499
563
100
$3,734
The investments in Primary Financial, LLC and CU Business Group are equity method
investments, and the investments in CO-OP and CU Investment Solutions, LLC are cost method
investments. Gains (losses) on equity method investments are included within other fee income
in the consolidated statements of comprehensive income.
Page 16 of 27
9. LOANS TO MEMBERS
The composition of loans to members is as follows as of December 31 (in thousands):
2012
Open-end credit lines
Term loans
Total
2011
Open-end credit lines
Term loans
Total
Weighted
Avg. Yield
0.71%
4.65%
Weighted
Avg. Yield
0.75%
4.04%
$30,638
200,016
$230,654
$28,797
264,573
$293,370
Term loan balances include fair value premiums totaling $637,000 and $- as of December 31,
2012 and 2011, respectively.
Open-end credit lines are provided at a variable interest rate and must be repaid within 12
months of the date of each advance or upon demand. All of these lines are backed by either a
general or specific pledge of the borrowing credit union’s assets.
Term loans are provided at a fixed interest rate and require payment on a fixed maturity date or
over a scheduled repayment term. These loans are backed by either a specific or general pledge
of the borrowing credit union’s assets. Term loans issued by Catalyst Corporate are subject to a
term limitation of 180 days.
The estimated principal payments on term loans based on contractual maturity as of December
31, 2012 are shown below (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
$52,000
23,151
24,560
68,839
24,633
6,833
$200,016
Catalyst Corporate has not established an allowance for loan losses as all outstanding loans are
secured either by a general or a specific pledge of the member credit unions’ assets.
There were no impaired loans as of December 31, 2012 and 2011. Additionally, none of the
loans were past due or had been modified as of December 31, 2012 and 2011.
Page 17 of 27
Note: 9 (continued)
Catalyst Corporate reviews all lines of credit on a semi-annual basis by reviewing the member
credit unions’ financial condition and key ratios. A watch list is created of member credit unions
that represent a credit risk to Catalyst Corporate. The following is used to determine whether a
loan will be placed on the watch list:
Credit Quality Indicators:
•
•
Current period negative Net ROA and/or,
Current period Net Capital below 5% (Net Capital is calculated by subtracting the
dollar amounts of the following from total capital; 10% of all foreclosed and
repossessed assets, 10% of loans 2 to 6 months delinquent, 50% of loans 6 to 12
months delinquent, 90% of loans more than 12 months delinquent, 0.5% of all
non-delinquent loans, 100% of loans subject to bankruptcy, 50% of all fixed
assets, 25% of other assets, and 5% of investments with maturities greater than 3
years).
Member credit unions placed on the watch list due to credit quality have lines of credit of
$249,579,000 and $191,099,000 and outstanding loan balances of approximately $303,000 and
$15,023,000 as of December 31, 2012 and 2011, respectively. Of the total lines of credit related
to credit unions on the watch list, $50,000,000 and $53,000,000 are guaranteed by the NCUA as
of December 31, 2012 and 2011, respectively. Of the total outstanding loan balances related to
credit unions on the watch list, approximately $- and $13,023,000 are guaranteed by the NCUA
as of December 31, 2012 and 2011, respectively. Lines of credit and loans are collateralized
100% or more by a general or specific pledge of the borrowing credit union’s assets.
In December 2012, Catalyst Corporate recognized a net gain of $5,280,000 related to the early
prepayment of $75,000,000 in term loans. The net gain on loan prepayment is included in other
net gains in the consolidated statements of comprehensive income.
10. PROPERTY AND EQUIPMENT, NET
A summary of Catalyst Corporate’s property and equipment is as follows as of December 31 (in
thousands):
2012
2011
Land
$1,300
$1,300
Building
7,792
7,792
Software
6,515
6,672
Hardware
6,379
6,842
Furniture and equipment
1,163
1,316
Leasehold improvements
6
23,149
23,928
Less: accumulated depreciation
(12,462)
(12,646)
Total
$10,687
$11,282
Page 18 of 27
Note: 10 (continued)
Catalyst Corporate purchased the land, building, and certain furniture and equipment from the
Southwest Corporate Asset Management Estate for $14,050,000 on October 12, 2011. On
December 28, 2011, Catalyst Corporate sold one-third undivided interest in the land and building
and certain furniture to Credit Union Resources, Inc. for $4,631,000.
11. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill of $953,000 was recognized related to the merger of Southwest Bridge Corporate and
Georgia Corporate effective September 6, 2011. This goodwill was reduced by $327,000
primarily related to the expiration of employment contract liabilities in April 2012.
Goodwill of $2,142,000 was recognized related to the purchase and assumption of Western
Bridge effective July 1, 2012. The table below presents the various components of the goodwill
as of December 31, 2012 (in thousands).
Fair value of business
Fair value adjustments:
Loans to members
Core deposit intangible
Less: Total fair value adjustments
Plus: Cash consideration
Plus: Contingent consideration
Goodwill
$2,037
253
(410)
1,880
2,472
1,550
$2,142
Catalyst Corporate made an initial payment to the NCUA of $2,472,000 upon the completion of
the purchase and assumption of Western Bridge. Catalyst Corporate has recognized a contingent
liability of $1,550,000 which will be paid over a 5 year period and is based on the capitalization
level and related fee income of original Western Bridge members.
A bargain gain of $52,000 was recognized related to the purchase and assumption of FirstCorp.
The bargain gain on acquisition is included in other net gains in the consolidated statements of
comprehensive income.
Page 19 of 27
There were no loans to members or members’ share certificates outstanding at FirstCorp on
October 29, 2012. Catalyst Corporate did not purchase FirstCorp capital, legacy investments or
undivided earnings. The components of the valuation are included in the following table (in
thousands):
Fair value of business
Fair value adjustments:
Core deposit intangible
Less: Total fair value adjustments
Plus: Cash consideration
Bargain gain
$52
52
$52
Catalyst Corporate engaged a third-party valuation consulting firm to perform the valuation of
loans to members and members’ share certificates at Western Bridge. The firm was also
engaged to provide a core deposit intangible valuation based on overnight members’ shares at
Western Bridge and FirstCorp. A total of $305,000 of core deposit intangible recognized in
these two acquisitions was each amortized over their estimate useful lives of approximately 3
years. Amortization of the core deposit intangible totaled $68,000 for 2012. As both
transactions were purchase and assumptions, there was no entity valuation assigned.
12. MEMBERS’ SHARE ACCOUNTS
Members’ share accounts are summarized as follows as of December 31 (in thousands):
2012
$1,973,347
249,161
251,821
$2,474,329
Cash management
Performance tiered
Other shares
Total
2011
$1,124,441
178,316
233,084
$1,535,841
Members’ share accounts are insured by the NCUSIF to a maximum of $250,000 for each
member. However, the NCUA has provided a temporary guarantee whereby all deposits in
excess of insurable limits, other than MCA’s and PCC, maintained at Catalyst Corporate are
guaranteed through December 31, 2012.
Page 20 of 27
13. MEMBERS’ SHARE CERTIFICATES
Members’ share certificates balances are $63,973,000 and $363,625,000 as of December 31,
2012 and December 31, 2011, respectively. The following is a summary of the members’ share
certificates balance as of December 31, 2012 by maturity (in thousands):
2013
2014
Total
$54,522
9,451
$63,973
Members’ share certificate balances as of December 31, 2012 and 2011 include fair value
premiums totaling $251,000 and $364,000, respectively. The aggregate amount of members’
share certificate balances in denominations of $100,000 or more was approximately $63,701,000
and $363,441,000 as of December 31, 2012 and 2011, respectively.
14. MEMBERS’ CAPITAL ACCOUNTS
Total MCA’s as of December 31, 2012 and 2011 were $11,740,000 and $20,226,000,
respectively, and all MCA’s are on notice. The unamortized portion of MCA’s was
approximately $3,205,000 and $8,584,000, and the amortized portion of MCA’s was
approximately $8,535,000 and $11,642,000 as of December 31, 2012 and 2011, respectively.
The amortized portion is included within members’ share accounts in the consolidated statements
of financial condition.
15. EMPLOYEE BENEFITS
Catalyst Corporate sponsors a defined contribution plan (the Plan) established under Section
401(k) of the Internal Revenue Code. The Plan allows employees to contribute up to the IRS
maximum allowable percentage of their compensation. Catalyst Corporate matches 100% of the
first 5% of each employee’s contribution to the Plan. In addition, Catalyst Corporate may elect
to make a discretionary contribution to the Plan annually. This election requires approval by the
Board of Directors. The Board of Directors approved a 1% discretionary contribution to be
funded in 2013 based on 2012 compensation. No discretionary contribution was made in 2011.
Catalyst Corporate’s total contribution to the Plan was approximately $758,000 and $568,000 for
the years ended December 31, 2012 and 2011, respectively.
16. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
Catalyst Corporate is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its member credit unions. These financial
instruments include commitments to extend credit. Catalyst Corporate issues lines of credit to its
members that are both uncommitted or “stand-by” and committed or “guaranteed.” The vast
majority of lines of credit issued by Catalyst Corporate are uncommitted in that through
provisions in its loan agreements, Catalyst Corporate is in no way obligated or committed to
make any loan advances under the “stand-by” lines of credit.
Page 21 of 27
In addition, these “stand-by” lines of credit are all secured by members’ total assets or specific
assets of the member such as securities or an auto loan portfolio.
Committed lines of credit at Catalyst Corporate are called guaranteed lines of credit. Catalyst
Corporate is committed by provisions of the loan agreement to advance this entire line of credit
amount. There are no guaranteed lines of credit issued as of December 31, 2012 or 2011.
Catalyst Corporate also issues letters of credit to its members in various amounts for various
purposes. When a letter of credit is issued for a member, the amount of the letter of credit is
subtracted from the member’s line of credit.
The face amount of the lines of credit represents the exposure to loss, before considering member
collateral or ability to repay. Such line of credit amounts are recorded when they are funded.
Catalyst Corporate has unused stand-by lines of credit issued to member credit unions of
approximately $7,246,732,000 and $4,097,649,000 as of December 31, 2012 and 2011,
respectively. Catalyst Corporate evaluates each member credit union’s creditworthiness on a
case-by-case basis. The amount of collateral obtained is based on management’s credit
evaluation of the member. Additionally, Catalyst Corporate has committed stand-by letters of
credit issued to member credit unions of $246,000 and $997,000 as of December 31, 2012 and
2011, respectively. The stand-by letters of credit, which are secured by either a general or a
specific pledge of the member credit union assets, are issued with a term of one to five years and
are generally used for various operational reasons.
17. REGULATORY CAPITAL
Catalyst Corporate is subject to various regulatory capital requirements administered by the
NCUA. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on Catalyst Corporate’s consolidated financial statements. Failure to meet
minimum capital requirements would require Catalyst Corporate to submit a plan of action to
correct the shortfall. Additionally, the NCUA could require an increase in capital to specific
levels, reduction of interest, and ceasing or limiting Catalyst Corporate’s ability to accept
deposits.
During 2010, the NCUA issued new regulations for corporate credit unions that became effective
in October 2011. These regulations require corporate credit unions to build retained earnings
(not effective until 2013) as well as established requirements to meet an interim leverage ratio,
tier-one risk based capital ratio, and a total risk based capital ratio.
Page 22 of 27
Catalyst Corporate’s actual and required capital ratios were as follows as of December 31:
Capital Ratio
RUDE ratio
Interim
leverage ratio
Tier-one risk
based capital
ratio
Total risk
based capital
ratio
Capital
Denominator
2012
Ratio
RE
DANA
0.86%
0.32%
RE+PCCCUSO
Investments
RE+PCCCUSO
Investments
RE+PCCCUSO
Investments
DANA
7.75%
4.94%
Minimum level to
be classified as
adequately
capitalized
No requirement
until 2013
4.00%
MANRA
31.26%
21.61%
4.00%
6.00%
MANRA
31.26%
21.61%
8.00%
10.00%
2011
Ratio
Minimum level
to be classified as
well capitalized
No requirement
until 2013
5.00%
RE = Retained earnings for regulatory ratios includes retained earnings acquired through business combination with Georgia
Corporate
PCC = Perpetual contributed capital
CUSO Investments = Investments in unconsolidated CUSOs
DANA = 12-month average daily net assets
MANRA = 12-month average net risk-weighted assets
On January 31, 2013, the NCUA notified all corporate credit unions that MCA’s should not have
been included in the supplemental capital ratio calculations. As a result, all corporate credit
unions amended their call reports to exclude MCA’s in the interim leverage ratio and total risk
based capital ratio calculations. As of December 2012, Catalyst Corporate no longer included
MCA balances in the supplemental capital calculations. The 2011 interim leverage ratio and
total risk based capital ratio have been restated to conform to this update. Catalyst Corporate
met the interim leverage ratio, tier-one risk based capital ratio, and total risk based capital
requirements as of December 31, 2012 and 2011, respectively.
18. RELATED PARTY TRANSACTIONS
Catalyst Corporate’s Board of Directors is made up of executive officers from several of its
member credit unions. These related parties maintained approximately $88,117,000 and
$177,739,000 on deposit at Catalyst Corporate in various deposit products as of December 31,
2012 and 2011, respectively. These totals include $11,030,000 and $8,121,000 of PCC as of
December 31, 2012 and 2011, respectively. Interest rates on these deposits are the same rates
paid to other member credit unions. Outstanding loan balances to related parties were
$1,698,000 and $- as of December 31, 2012 and 2011, respectively.
Page 23 of 27
Catalyst Corporate holds investments in various credit union service organizations. Members
of senior management serve on the Board of Directors of Primary Financial, LLC, CU
Investment Solutions, LLC, CU Business Group, and as principal of Catalyst Strategic Solutions.
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Fair Value Measurements and Disclosures Topic of the FASB ASC provides a framework
for measuring fair value that requires an entity to derive fair value from 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 within its principal market for the asset or liability, or in the
absence of a principal market, the most advantageous market for the asset or liability. To
increase consistency and comparability in fair value measurements and related disclosures, a
three-level hierarchy prioritizes the inputs to valuation techniques used to measure fair value
with the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1), inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly (Level 2), and the lowest priority to unobservable inputs (Level 3).
The methodologies and associated inputs used may produce a fair value calculation that may not
be indicative of net realizable value or reflective of future fair values. Furthermore, while
Catalyst Corporate believes its valuation methods and associated inputs are appropriate and
consistent with other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a different fair value
measurement.
The following table sets forth by level, within the fair value hierarchy, Catalyst Corporate’s
financial instruments at fair value (in thousands):
Total assets at fair value
Assets at Fair Value as of December 31, 2012
Level 1
Level 2
Level 3
$$28,941
$130,048
348,948
$$507,937
$-
Total
$28,941
130,048
348,948
$507,937
Total assets at fair value
Assets at Fair Value as of December 31, 2011
Level 1
Level 2
Level 3
$$29,338
$137,000
114,302
$$280,640
$-
Total
$29,338
137,000
114,302
$280,640
The estimated fair value amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required to interpret
market data to develop the estimates of fair value. Accordingly, the estimates presented are not
necessarily indicative of amounts that could be realized in a market exchange.
Page 24 of 27
The use of different assumptions and estimation methodologies may have a material effect on the
estimated fair value amounts. The following methods and assumptions were used to estimate
fair value of each of the financial instruments for which it was practicable to estimate.
The carrying amount is a reasonable estimation of fair value.
Certificates in USC Bridge
The fair value is determined by calculating the present value of expected future cash flows of the
certificates. The discounted rates used in these calculations are market rates as of the last
business day of the year.
The estimated fair value is determined based on a pricing service.
Capital stock in FHLB
The carrying amount is a reasonable estimation of fair value due to restrictions placed on its
transferability.
Loans to members
The fair value is determined by calculating the present value of expected future cash flows of the
loans. The discount rates used in these calculations are the replacement loan rates as of the last
business day of the year for loans with similar terms.
Accrued interest receivable
The estimated fair value is determined by calculating the present value of expected future cash
flows of the members’ share certificates. The discount rates used in these calculations are the
replacement share certificate rates as of the last business day of the year for members’ share
certificates with similar terms.
Page 25 of 27
Members’ capital accounts
MCA’s are uninsured deposits that require a three-year notice to redeem. These deposits would
be used to offset a net loss that exceeded the balance of undivided earnings and PCC.
As of December 31, 2011 and 2012, Catalyst Corporate was paying market interest rates on these
accounts, and the risk of loss is reduced due to positive undivided earnings and the PCC that was
raised during 2011 and 2012. Therefore, the fair value of MCA’s (unamortized portion)
approximated carrying value.
Accrued interest payable
Committed stand-by letters of credit
The fair value of the commitment is equivalent to the amount extended by the letters of credit
since Catalyst Corporate does not charge fees to enter into these agreements and the
commitments are not stated at fixed rates.
The carrying amount and estimated fair values of Catalyst Corporate’s financial instruments as
of December 31 are as follows (in thousands):
2012
Carrying
Amount
Financial assets:
Certificates in USC Bridge
Capital stock in FHLB
Loans to members
Accrued interest receivable
Financial liabilities and equity:
Members’ capital accounts
(unamortized portion)
Accrued interest payable
Unrecognized financial instruments:
Committed stand-by letters of credit
Fair
Value
2011
Carrying
Amount
Fair
Value
$1,955,004
$$507,937
$807
$4,113
$230,654
$626
$1,955,004
$$507,937
$807
$4,113
$244,508
$626
$1,119,236
$289,749
$280,640
$6,245
$3,734
$293,370
$725
$1,119,236
$290,022
$280,640
$6,245
$3,734
$307,963
$725
$2,474,329
$63,973
$2,474,329
$64,899
$1,535,841
$363,625
$1,535,841
$367,496
$3,205
$519
$3,205
$519
$8,584
$1,729
$8,584
$1,729
$-
$246
$-
$997
Page 26 of 27
20. INDUSTRY EVENTS
In January 2009, the NCUA informed federally-insured credit unions that it was taking actions to
enhance and support the corporate credit union system as well as the NCUSIF. During June
2009, legislation was created to establish a Temporary Corporate Credit Union Stabilization
Fund (Stabilization Fund) to absorb the corporate stabilization costs by borrowing money from
the U.S. Treasury. During September 2010, the NCUA received approval from the U.S.
Treasury to extend the life of the Stabilization Fund to June 2021. The funds borrowed from the
U.S. Treasury will be repaid from assessments authorized by the NCUA Board. The NCUA
Board has levied assessments during 2009 through 2012 to repay borrowed funds to the U.S.
Treasury. It is anticipated that the NCUA Board will be making annual assessments over the
next several years to cover costs associated with the corporate credit union system.
Page 27 of 27
2 0 1 2 A n n u a l R e p o rt
Texas
Georgia
California
Hawaii
6801 Parkwood Blvd.
Plano, TX 75024
214.703.7500
800.442.5763
6705 Sugarloaf Pkwy.,
Suite 250
Duluth, GA 30097
770.476.9704
800.768.4228
2855 E. Guasti Road,
Suite 600
Ontario, CA, 91761
214.703.7500
800.442.5763
1654 South King Street
Honolulu, HI 96826
214.703.7500
800.442.5763

Catalyst Corporate Annual Report 2012

Transcription

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