2013 Accion Chicago Audit

Accion Chicago
FINANCIAL STATEMENTS
For the Years Ended
December 31, 2013 and 2012
Accion Chicago
Annual Financial Report
December 31, 2013 and 2012
Table of Contents
Independent Auditor’s Report ..........................................................................................................1 - 2
Financial Statements
Statement of Financial Position..................................................................................................3 - 4
Statement of Activities ....................................................................................................................5
Statement of Functional Expenses...................................................................................................6
Statement of Cash Flows ............................................................................................................7 - 8
Notes to Financial Statements ........................................................................................................9 - 25
Desmond &Ahern, Ltd.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
Independent Auditor’s Report
To the Board of Directors of
Accion Chicago
Chicago, IL
We have audited the accompanying financial statements of Accion Chicago (a nonprofit
organization), which comprise the statement of financial position as of December 31, 2013 and
2012, and the related statements of activities, functional expenses, and cash flows for the years then
ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audit. We
conducted our audit 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 financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the 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 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 financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
10827 S. WESTERN AVENUE, CHICAGO, IL 60643-3206 • PHONE 773-779-4720 • FAX 773-779-8310
www.desmondcpa.com
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Accion Chicago as of December 31, 2013 and 2012, and the changes in its net
assets and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.
June 16, 2014
Chicago, IL
2
ACCION CHICAGO
STATEMENT OF FINANCIAL POSITION
December 31, 2013 and 2012
2013
Assets
Current Assets
Cash and cash equivalents
Unrestricted
Designated for loan loss reserve
Restricted
Total cash and cash equivalents
Government receivables, net
Pledges receivable
Loans receivable, less allowance for loan losses
Other receivable
Accrued interest
Prepaid expenses and deposits
Total current assets
Property and equipment, less accumulated
depreciation and amortization
Other Assets
Loans receivable, less current portion
Security deposit
Total Assets
$
2012
978,684
67,034
1,078,272
2,123,990
$ 1,606,335
66,933
1,203,569
2,876,837
969,017
214,218
1,989,669
1,000
19,770
12,394
5,330,058
815,301
107,578
1,923,523
450
13,015
15,403
5,752,107
104,843
89,587
1,057,598
59,884
489,361
62,000
$ 6,552,383
$ 6,393,055
See independent auditor's report and notes to financial statements.
3
ACCION CHICAGO
STATEMENT OF FINANCIAL POSITION (CONT.)
December 31, 2013 and 2012
2013
Liabilities and Net Assets
Current Liabilities
Notes payable - current
Accounts payable
Accrued payroll and related costs
Accrued interest
Refundable advance
Funds held for others
Total current liabilities
Long-Term Liabilities
Notes payable, less current portion
$
414,227
137,755
266,895
13,250
832,127
2012
$
349,824
96,294
183,063
11,043
157,167
29,500
826,891
1,691,413
1,644,483
Total liabilities
2,523,540
2,471,374
Net Assets
Unrestricted
Temporarily restricted
333,709
3,695,134
327,449
3,594,232
Total net assets
4,028,843
3,921,681
$ 6,552,383
$ 6,393,055
Total Liabilities and Net Assets
See independent auditor's report and notes to financial statements.
4
ACCION CHICAGO
STATEMENT OF ACTIVITIES
For the Years Ended December 31, 2013 and 2012
Public Support and Revenue
Public Support
Contributions - corporations, foundations
and individuals
Institute sponsorship
Imputed interest contribution
Donated services
In-kind donations capitalized
Unrestricted
2013
Temporarily
Restricted
$
$
Governmental Agencies
Small Business Administration
U.S. Dept of the Treasury (CDFI)
City of Chicago, Department of Business
Affairs and Consumer Protection
Illinois Department of Commerce and
Economic Opportunity
Other
Special Events
Contributions
Ticket sales
Less direct benefit to donors
Other Revenues
Loan interest
Administrative loan fees
Late payment charges
Investment income
Participation income
Miscellaneous
Net assets released from restrictions
Total other revenues
901,381
125,000
52,961
5,000
37,500
40,500
-
Total
$
938,881
125,000
40,500
52,961
5,000
Unrestricted
2012
Temporarily
Restricted
$
$
912,293
75,950
24,045
187,500
-
Total
$
912,293
187,500
75,950
24,045
1,084,342
78,000
1,162,342
1,012,288
187,500
1,199,788
69,287
-
-
69,287
-
86,884
600,000
-
86,884
600,000
327,167
-
327,167
72,833
-
72,833
376,874
3,001
538,706
-
915,580
3,001
862,561
-
865,776
-
1,728,337
-
776,329
538,706
1,315,035
1,622,278
865,776
2,488,054
51,365
8,899
(16,238)
-
51,365
8,899
(16,238)
45,503
6,295
(11,203)
-
45,503
6,295
(11,203)
44,026
-
44,026
40,595
-
40,595
312,089
108,625
12,323
814
21,123
15,538
-
128,147
19,915
8,138
608
10,211
243,063
80,663
36,323
1,921
133
(243,063)
(124,023)
218,186
78,383
12,323
814
21,123
15,538
639,949
93,903
30,242
(639,949)
986,316
(515,804)
208,810
56,238
10,059
741
10,211
-
470,512
410,082
2,891,013
100,902
2,991,915
3,085,243
929,253
4,014,496
Expenses
Program services
Management and general
Fundraising
2,093,552
424,292
366,909
-
2,093,552
424,292
366,909
1,859,492
310,036
306,476
-
1,859,492
310,036
306,476
Total Expenses
2,884,753
-
2,884,753
2,476,004
-
2,476,004
6,260
100,902
107,162
609,239
929,253
1,538,492
Total Public Support and Revenue
Change in Net Assets
Net Assets, Beginning of Year
Net Assets, End of Year
$
327,449
3,594,232
3,921,681
333,709
$ 3,695,134
$ 4,028,843
(281,790)
$
327,449
See independent auditor's report and notes to financial statements.
5
286,059
2,664,979
2,383,189
$ 3,594,232
$ 3,921,681
ACCION CHICAGO
STATEMENT OF FUNCTIONAL EXPENSES
For the Years Ended December 31, 2013 and 2012
Program
Functional Expenses
Salaries and wages
Payroll taxes and fringe benefits
Credit and collection
Interest
Inputed interest through below
market rate loans
Provision for loan loss
Occupancy
Professional fees and consultants
Donated services
Telephone
Insurance
Equipment rental and maintenance
Supplies
Postage and delivery
Marketing
Event expense
Travel
Training
Information technology
Dues and subscriptions
Depreciation and amortization
Bad debt
Miscellaneous
Total Expenses
$
991,662
169,432
196,592
38,355
2013
Administrative Fundraising
$
80,516
205,500
82,172
131,320
52,961
10,339
8,354
9,768
8,534
2,710
26,518
20,307
18,687
12,455
4,226
20,269
2,875
$ 2,093,552
266,657
45,560
-
$
22,097
22,107
2,780
7,116
2,626
2,295
729
7,131
5,461
5,025
3,349
1,136
5,450
24,000
773
$
424,292
$
Total
Program
253,713
43,348
-
$ 1,512,032
258,340
196,592
38,355
$
831,416
123,464
186,267
34,019
21,023
5,030
2,645
2,137
2,499
2,183
693
6,784
6,690
5,195
4,781
3,186
1,081
5,186
735
80,516
205,500
125,292
158,457
52,961
15,764
17,607
14,893
13,012
4,132
40,433
6,690
30,963
28,493
18,990
6,443
30,905
24,000
4,383
45,270
201,306
87,301
171,005
20,950
9,190
9,195
9,448
5,784
2,217
18,244
15,402
36,565
10,743
8,734
18,269
14,703
366,909
$ 2,884,753
$ 1,859,492
See independent auditor's report and notes to financial statements.
6
2012
Administrative Fundraising
$
169,487
25,169
-
$
12,289
27,840
55,000
1,293
6,260
1,330
814
313
701
819
1,513
1,095
2,571
3,542
$
310,036
$
Total
172,029
25,546
-
$ 1,172,932
174,179
186,267
34,019
15,357
32,247
1,617
1,617
1,662
1,017
390
36,445
4,544
3,617
721
1,890
1,368
3,214
3,195
45,270
201,306
114,947
231,092
75,950
12,100
17,072
12,440
7,615
2,920
54,689
4,544
19,720
38,105
14,146
11,197
24,054
21,440
306,476
$ 2,476,004
ACCION CHICAGO
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2013 and 2012
2013
Cash Flows from Operating Activities
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided in operating activities
Depreciation and amortization
Bad debt expense
Loans charged-off
Provision for loan losses
Contribution revenue on below market interest loans
Interest expense on below market interest loans
Change in assets - (increase) decrease
Government receivables earned
Pledges receivable
Other receivables
Accrued interest receivable
Prepaid expenses
Security deposit
Change in liabilities - increase (decrease)
Accounts payable
Refundable advance
Accrued payroll and related costs
Accrued interest
Net cash provided (used) by operating activities
Cash Flows from Investing Activities
Increase in notes receivable, net of principal repayments
Recoveries on charged-off loans
Purchase of property and equipment
Net cash used by investing activities
$
107,162
2012
$ 1,538,492
30,905
24,000
(197,743)
205,500
(40,500)
80,516
24,054
(189,058)
201,306
(187,500)
45,270
(177,716)
(106,640)
(550)
(6,755)
3,009
2,116
(88,460)
67,626
254
(2,715)
6,154
(12,000)
41,461
(186,667)
83,832
2,207
50,978
161,667
75,288
(1,057)
(135,863)
1,690,299
(668,499)
26,359
(46,160)
(839,007)
41,503
(52,211)
(688,300)
(849,715)
See independent auditor's report and notes to financial statements.
7
ACCION CHICAGO
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2013 and 2012
2013
Cash Flows from Financing Activities
Principal repayment of notes payable
Proceeds from notes payable
$
Net cash provided by financing activities
(128,684)
200,000
2012
$
71,316
Net increase (decrease) in cash and cash equivalents
703,332
(752,847)
Cash and cash equivalents, beginning of year
(246,668)
950,000
1,543,916
2,876,837
1,332,921
Cash and cash equivalents, end of year
$ 2,123,990
$ 2,876,837
Supplemental Disclosure of Cash Flow Information
Interest paid
$
$
45,110
See independent auditor's report and notes to financial statements.
8
36,734
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies
Organization
Accion Chicago (the Organization) provides credit and other valued assistance services to small
business owners that do not have access to traditional sources of financing. By encouraging the
economic self-reliance of micro-entrepreneurs throughout Illinois and Northwest Indiana, the
Organization strives to help small business owners increase their incomes, create new jobs and
strengthen their communities. The majority of businesses receiving credit and other technical
assistance services are located in regions of low to moderate income levels.
Accion Chicago is committed to its mission of providing access to credit and technical assistance for
micro-entrepreneurs. The Organization continues to solicit operating grants from new sources and
maintains a line of credit for liquidity. The Organization strives to be self-reliant for training the
lending staff and facilitating underwriting decisions. The Organization has been successful in its
ability to refinance debt and extend maturities while converting certain debts to Equity Equivalent
Debt (see Page 12 – Equity Equivalent Debt). Management continues to pursue profitable
operations.
Income Tax Status
The Organization was granted an exemption from federal income taxes by the Internal Revenue
Service pursuant to the provisions of Internal Revenue Code Section 501(c)(3). The Organization
qualifies for the charitable contribution deduction under Section 170(b)(1)(A)(vi) and has been
classified as an organization that is not a private foundation under Section 509(a)(1). The tax
exempt purpose of the Organization and the nature in which it operates is described in the first
paragraph of Note 1. Management believes the Organization continues to operate in compliance
with its tax exempt purpose.
Accion Chicago annual informational returns filed with the federal and state governments are
generally subject to examination by the Internal Revenue Service for three years after filing. Thus,
returns for 2010, 2011, 2012, and 2013 remain open.
Basis of Accounting
The accounts and financial statements are maintained on the accrual basis of accounting and
accordingly, reflect all significant receivables and payables.
Basis of Presentation
The Organization reports information regarding its financial position and activities according to
three classes of net assets: unrestricted, temporarily restricted, and permanently restricted net assets,
as required by Generally Accepted Accounting Principles (GAAP).
9
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)
Use of Estimates
The preparation of financial statements in accordance 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 disclosure of contingent assets and liabilities, at
the date of the financial statements, and reported amounts of revenue and expenses during the
reporting period. Significant estimates used in the preparation of these financial statements include
the allowance for losses, discontinuance of accrual of interest on loans when certain conditions are
met, and allocations of general, administrative and other expenses to individual program activities.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash consists of bank deposits in federally insured accounts. At December 31, 2013 and 2012, the
cash accounts exceeded federally insured limits by $1,797,000 and $80,000, respectively.
For purposes of the Statement of Cash Flows, the Organization considers all highly liquid debt
instruments, if any, purchased with an original maturity of one year or less to be cash equivalents.
Loans Receivable
Loans receivable are stated at their unpaid principal balance, less an allowance for loan losses.
Interest on loans receivable is recognized over the term of the loan and is generally calculated using
the simple-interest method on principal amounts outstanding. A substantial portion of the loan
portfolio consists of loans made to entrepreneurs in the Chicagoland area. The ability of borrowers to
repay these loans may be dependent upon the general economic conditions in their local community
as well as in the general Chicagoland area.
The Organization discontinues the recording of interest when a loan becomes greater than ninety
days past due. Accrual of interest is resumed upon the collection of past due amounts. Past due or
delinquent status of loans is determined by the paid-through date according to the prescribed loan
terms. In all cases, loans may be placed on nonaccrual status 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 charge-off status 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 current accrual status. Loans are returned to
accrual status when all principal and interest payment amounts contractually due are brought current
and future payments are reasonably assured.
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 a
loan is delinquent more than 180 days, or management believes the uncollectability of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the allowance.
10
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectability of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision
as information becomes available.
The Organization’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
nonperforming loans.
General allowances are established for loans that can be grouped into pools based on similar
characteristics. In this process, general allowance factors are based on an analysis of historical
charge-off experience and expected losses given default derived from the Organization’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, and losses incurred from recent events.
Under certain circumstances, the Organization will provide borrowers relief through loan
restructuring. A restructuring of debt constitutes a troubled debt restructuring (TDR) if the
Organization, for economic or legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. TDR concessions can include
reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due,
or acceptance of other assets in full or partial satisfaction of the debt. The Organization considers all
aspects of the restructuring to determine whether it has granted a concession to the borrower. An
insignificant delay in payment resulting from a restructuring is not deemed to be a concession and
would not be considered to be a TDR.
The Organization has concluded that the impairment impact of troubled debt restructurings on its
loan portfolio (generally lower balance loans having original maturities of 60 months or less) is
insignificant to the financial statements. As such these impairments are not individually tracked but
rather are adequately included in the loss allowance provided on a pooled basis for the loan
portfolio.
The Organization maintains general valuation allowances for homogeneous portfolio segments.
These portfolio segments and their risk characteristics are described as follows:
11
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)
Microenterprise: Loans between $500 and $50,000 made to small business in Accion Chicago’s
service area. These loans represent term, balloon, start-up, and credit builder loans, which are
primarily unsecured. Economic trends, local unemployment rates, and other key economic
indicators are closely related to the credit quality of these loans.
Restructured: Loans originated as Microenterprise loans that had some level of difficulty and
have subsequently had payment terms adjusted in order to facilitate repayment. As such, they
represent greater risk than microenterprise loans.
Property and Equipment
Property and equipment are stated at cost, if purchased, or fair market value, if received by donation.
Depreciation and amortization are provided on the straight-line method, over the estimated useful
lives of the assets, generally 3 to 5 years. Expenditures for property and equipment in excess of
$500 are generally capitalized.
Equity Equivalent Debt
The Equity Equivalent Debt, or EQ2, is a capital product for community development financial
institutions and their investors. This special debt investment allows organizations like Accion
Chicago to strengthen their capital structure and increase lending and investing in economically
disadvantaged communities. It is a long-term subordinated loan, offered by regulated financial
institutions to fulfill their investment requirements by meeting the credit needs of the communities in
which they do business. Like permanent capital, EQ2 enhances the Organization’s lending
flexibility and increases its debt capacity by protecting senior lenders from losses. Unlike permanent
capital, it must eventually be repaid. To qualify as an EQ2, the obligation is not secured, is fully
subordinated, essentially cannot have accelerated repayment, carries an interest rate not tied to
income received by the Organization, and has a rolling term and, therefore, a relatively
indeterminate maturity. Such debt totaled $1,607,785 and $1,519,180 at December 31, 2013 and
2012, respectively. See Note 9 for detail of this Equity Equivalent Debt.
Pledges Receivable
Pledges receivable are recorded in the year the pledge is made and conditions, if any, are met. If
considered necessary, an allowance for uncollectible pledges receivable would be determined based
on specific pledges and experience. No allowance was deemed necessary as of December 31, 2013
and 2012.
Revenue Recognition
All contributions, including promises to give, are considered to be available for unrestricted use,
unless specifically restricted by the donor. Amounts received that are designated for future periods
or restricted by the donor for specific purposes are reported as temporarily restricted support, and
increases that net asset class. However, if a restriction is fulfilled in the same reporting period in
which the contribution is received, the Organization generally reports the support as unrestricted.
12
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)
Gifts of property and equipment are reported as unrestricted support, unless explicit donor
stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit
restrictions that specify how the assets are to be used, and gifts of cash or other assets that must be
used to acquire long-lived assets would be reported as restricted support. Absent explicit donor
stipulations about how long those long-lived assets must be maintained, the Organization reports
expirations of donor restrictions when the donated or acquired long-lived assets are placed in
service.
Certain Vulnerabilities and Concentrations
During 2013, the Organization received 31% and 11% of its revenue from the Illinois Department of
Commerce and Economic Opportunity and the City of Chicago, Department of Business Affairs and
Consumer Protection, respectively. Government receivables at December 31, 2013 consist of 94%
from the Illinois Department of Commerce and Economic Opportunity. Pledges receivable consists
of 58% from JP Morgan Chase and Chicago Community Trust at December 31, 2013, respectively.
Any negative change in the economy could have an impact on contributions, fundraising efforts, and
contracts, as well as government grants.
Donated Services
Contributions of services are required to be recognized if the services received (a) create or enhance
non-financial assets or (b) require specialized skills, are provided by individuals possessing those
skills, and would typically need to be purchased if not provided by donation. For the year ending
December 31, 2013, the Organization received donated legal services valued at $52,961. For the
year ending December 31, 2012, the Organization received donated human resource consulting and
legal services valued at $75,950.
In-Kind Support
In addition to receiving cash contributions, the Organization receives in-kind contributions from
various donors. In accordance with generally accepted accounting principles, the Organization
records the estimated fair value of certain in-kind donations as an expense in its financial statements,
and similarly records a corresponding donation by a like amount. For the year ending December 31,
2013, the Organization received donated event space valued at $5,000. For the year ended
December 31, 2012, the Organization received capital in-kind software and equipment valued at
$24,045.
Advertising
The Organization expenses the cost of advertising as incurred. Advertising and marketing expenses
were approximately $40,433 and $54,689 in 2013 and 2012, respectively.
13
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)
Functional Allocation of Expenses
The costs of providing the various programs and other activities have been summarized on a
functional basis in the Statement of Activities. Accordingly, certain costs have been allocated
among the programs and supporting services benefited.
Reclassifications
Certain items in the 2012 financial statements have been reclassified to conform to the 2013
presentation.
Note 2 – Restricted Cash
Restricted cash is summarized at December 31, as follows:
2013
Funding Source
Comm. Devel. Financial
Economic Development
Bank of America Foundation
Illinois DCEO
City of Chicago - CMI Institute
Metropolitan Capital Bank
Kankakee County
Private Bank and Northbrook Bank
Funding Purpose
Lending: Technical assist.
(1) $
Lending
(1)
SBA Loan Losses
(1) (2)
Lending: re-lend prime +
(1)
Lending: Chicago residents
(5)
Lending: Participation loans (4)
Lending: Kankakee County
(3)
Lending: Participation loans (4)
2,694
448,921
60,000
530,499
291
21,036
14,831
$ 1,078,272
2012
$
38,436
197,343
60,000
713,895
156,715
5,559
27,976
3,645
$ 1,203,569
(1) This represents the cash portion of temporarily restricted net assets.
(2) The Small Business Administration notes payable agreements requires cash to be maintained
in a separate, restrictive, account to cover 15% of outstanding notes receivable as a loan loss
reserve.
(3) The Kankakee County line of credit is restricted to loans in Kankakee County.
(4) The Organization collects payments, as a fiscal agent, on behalf of these banks (see Note 6).
These funds are payable as directed by these Banks and therefore are restricted.
(5) At December 31, 2012, City of Chicago – CMI Institute Advanced funds of $250,000. At
December 31, 2012 $93,285 was expended leaving the remaining balance of $156,715 to be
loaned to Chicago Residents. At December 31, 2013, all funds had been loaned to Chicago
residents.
14
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 3 – Cash Designated for Loan Loss Reserve
The Organization has established an additional cash account as a reserve for potential loan losses on
notes receivable associated with the Small Business Administration’s Notes Payable. This reserve is
in addition to the required 15% noted as restricted cash for the Small Business Administration. At
December 31, 2013 and 2012, the amount maintained in the designated cash account was $67,034
and $66,933, respectively.
Note 4 – Conditional Promises to Give
The Organization has received the following conditional promises to give that are not recognized as
assets in the statement of financial position as of December 31, 2013:
Grant
Amount
Term
Earned or
Advanced
as of
12/31/2013
Funding
Available
Conditional Promises to Give Upon Expenditure of Funds Including Awarding Loans:
U.S. Small Business Administration Microloan Program
7/01/13 to
6/30/14
U.S. Department of Treasury (CDFI)
9/24/13 to
12/31/16
$
92,576
$
41,313
847,000
$
939,576
$
$
51,263
847,000
41,313
$
898,263
Note 5 – Property and Equipment
Property and equipment are summarized by major classification at December 31, as follows:
Furniture and equipment
Leasehold improvements
Software
$
Less accumulated depreciation and amortization
$
2013
150,888
15,523
68,972
235,383
(130,540)
104,843
$
$
2012
104,727
15,523
68,972
189,222
(99,635)
89,587
Depreciation and amortization expense for the years ended December 31, 2013 and 2012 were
$30,905 and $24,054, respectively.
15
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 6 – Loans Receivable
Loans receivable at December 31, consist of the following:
2013
$ 2,625,697
586,428
203,181
148,126
3,563,432
(516,165)
$ 3,047,267
Term
Start-up
Balloon
Restructured
Less allowance for loan losses
2012
$ 2,180,633
484,205
156,727
73,368
2,894,933
(482,049)
$ 2,412,884
Current
December 31, 2013
Long-Term
Total
Principal amount
Reserve for loan loss
$ 2,326,688
(337,019)
$ 1,236,744
(179,146)
$ 3,563,432
(516,165)
Net notes receivable
$ 1,989,669
$ 1,057,598
$ 3,047,267
Current
December 31, 2012
Long-Term
Total
Principal amount
Reserve for loan loss
$ 2,307,807
(384,284)
$
587,126
(97,765)
$ 2,894,933
(482,049)
Net notes receivable
$ 1,923,523
$
489,361
$ 2,412,884
Expected repayment maturities of notes receivable are as follows:
Year
Principal
Amount
2014
2015
2016
2017
$ 2,326,668
930,983
289,087
16,694
$ 3,563,432
The loan portfolio weighted average interest rate at December 31, 2013 and 2012 was 9.8% and
8.8%, respectively.
16
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 6 – Loans Receivable (cont.)
The allowance for loan losses (ALL) activity is as follows:
Allowance for Loan Losses
Balance, January 1, 2012
Provision for loans losses
Loans charged-off
Recoveries of loans previously charged-off
Balance, December 31, 2012
Provision for loans losses
Loans charged-off
Recoveries of loans previously charged-off
Balance, December 31, 2013
Microenterpris
Restructured
$
$
403,522
191,442
(179,069)
39,468
455,363
166,331
(189,799)
25,380
$
457,275
24,776
9,864
(9,989)
2,035
26,686
Total
$
39,169
(7,944)
979
$
58,890
428,298
201,306
(189,058)
41,503
482,049
205,500
(197,743)
26,359
$
516,165
The breakdown for the allowance for loan losses by loan portfolio segment at year-end is as follows:
December 31, 2013 ALL Evaluation
Microenterpris
Restructured
Collectively evaluated for impairment
Individually evaluated for impairment
Total at December 31, 2013
$
457,275
-
$
58,890
-
$
516,165
-
$
457,275
$
58,890
$
516,165
$
455,363
-
$
26,686
-
$
482,049
-
$
455,363
$
26,686
$
482,049
December 31, 2012 ALL Evaluation
Collectively evaluated for impairment
Individually evaluated for impairment
Total at December 31, 2012
Total
The associated loan balances in relation to the category breakdown for the allowance for loan losses
at year end is as follows:
December 31, 2013 Loan Balances in
relation to ALL Evaluation
Collectively evaluated for impairment
Individually evaluated for impairment
Total loans at December 31, 2013
Microenterpris
Restructured
$ 3,415,306
-
$
148,126
-
$ 3,563,432
-
$ 3,415,306
$
148,126
$ 3,563,432
17
Total
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 6 – Loans Receivable (cont.)
December 31, 2012 Loan Balances in
relation to ALL Evaluation
Collectively evaluated for impairment
Individually evaluated for impairment
Total loans at December 31, 2012
Microenterpris
Restructured
$ 2,821,565
-
$
73,368
-
$ 2,894,933
-
$ 2,821,565
$
73,368
$ 2,894,933
Total
The following table shows the loan portfolio segments allocated by payment activity at December
31. Loans are generally deemed performing if they are less than 90 days delinquent.
Credit Risk Profile by Payment Activity
Microenterprise
Restructured
Total
Payment Activity as of:
December 31, 2013
Performing
Non-performing
Total
December 31, 2012
Performing
Non-performing
Total
$ 3,376,521
38,785
$
137,944
10,182
$ 3,514,465
48,967
$ 3,415,306
$
148,126
$ 3,563,432
$ 2,777,561
44,004
$
58,878
14,490
$ 2,836,439
58,494
$ 2,821,565
$
73,368
$ 2,894,933
The following table shows an aging analysis of the loan portfolio by time past due at December 31:
Accruing Interest
30 - 89
90 Days or
Days Past More Past
Due
Due
Current
December 31, 2013
Microenterprise
$ 3,309,288
Restructured
119,210
Non-Accrual
Less than 90 Days or
90 Days
More Past
Past Due
Due
Total Loans
$
67,233
18,734
$
-
$
-
$
38,785
10,182
$ 3,415,306
148,126
$ 3,428,498
$
85,967
$
-
$
-
$
48,967
$ 3,563,432
December 31, 2012
Microenterprise
$ 2,663,126
Restructured
31,531
$
80,188
-
$
-
$
34,247
27,347
$
44,004
14,490
$ 2,821,565
73,368
$
80,188
$
-
$
61,594
$
58,494
$ 2,894,933
Total
Total
$ 2,694,657
18
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 6 – Loans Receivable (cont.)
Loan Participation and Servicing Agreements
During the year ended December 31, 2013, the Organization entered into a loan participation
agreement with Old Plank Trail Community Bank. The Bank acquired a 100% non-recourse
participation interest in loan accounts totaling $117,666. The loan balances are excluded from the
financial records of Accion Chicago but the accounts are serviced by the Organization. As of
December 31, 2013, the outstanding loan participation balances with Old Plank Trail Community
Bank totaled $80,837. Management has determined there is no significant risk of loss to the
Organization as a result of this participation agreement.
During the year ended December 31, 2013, the Organization entered into a loan participation
agreement with North Shore Community Bank and Trust. North Shore Community Bank and Trust
acquired a 100% non-recourse participation interest in loan accounts totaling $117,021. The loan
balances are excluded from the financial records of the Organization but the accounts are serviced by
the Organization. As of December 31, 2013, the outstanding loan participation balances with North
Shore Community Bank and Trust totaled $27,771. Management has determined there is no
significant risk of loss to the Organization as a result of this participation agreement.
During the year ended December 31, 2012, the Organization entered into a loan participation
agreement with Northbrook Bank and Trust. Northbrook Bank and Trust acquired a 100% nonrecourse participation interest in loan accounts totaling $83,225. The loan balances are excluded
from the financial records of the Organization but the accounts are serviced by the Organization. As
of December 31, 2013 and 2012, the outstanding loan participation balances with Northbrook Bank
and Trust totaled $25,931 and $79,642, respectively. Management has determined there is no
significant risk of loss to the Organization as a result of this participation agreement.
During the year ended December 31, 2011, the Organization entered into a loan participation
agreement with Metropolitan Bank. Metropolitan Bank had acquired a 100% non-recourse
participation interest in certain loan accounts between 2011 through 2013. The loan balances are
excluded from the financial records of the Organization but the accounts are serviced by the
Organization. As of December 31, 2013 and 2012, the outstanding loan participation balances with
Metropolitan Bank totaled $2,830 and $12,648, respectively. Management has determined there is
no significant risk of loss to the Organization as a result of this participation agreement.
During the year ended December 31, 2013, the Organization entered into a monthly agreement with
the Women’s Business Development Center (WBDC) for certain loan processing administrative
support and loan servicing activities. There is no specific termination date of the agreement however
the Organization does not expect the agreement to continue past the next twelve months. The
agreement requires payment of a certain percentage, up to a maximum of 25%, of total payments
collected by the Organization each month on behalf of WBDC. The minimum monthly payment is
$25 per account serviced. As of December 31, 2013, the Organization is servicing twenty loan
accounts with a total outstanding balance of $241,809.
19
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 7 – Funds Held for Others
The Organization received funds from the City of Chicago Department of Business Affairs and
Consumer Protection for the Chicago Microlending Institute Program. The Advisory Board
approved Chicago Neighborhood Initiatives (CNI) and the Woman’s Business Development Center
(WBDC) access to up to $300,000 each for microlending. As of December 31, 2013, all CNI and
WBDC funds had been advanced. At December 31, 2012, the Organization held the remaining
funds from the 2012 CNI approved microlending of $29,500 in the Organization’s restricted cash
account with a corresponding payable to CNI.
Note 8 – Leases
The Organization has operating leases for its facility, copiers, and a postage machine that expire at
various dates through March 2018. Rental expense for these leases totaled $119,712 and $116,659
for the years ended December 31, 2013 and 2012, respectively.
Future minimum lease payments are as follows:
2014
2015
2016
2017
2018
$
126,249
128,779
102,360
40,216
4,290
$
401,894
Note 9 – Notes Payable
Notes payable at December 31, are summarized as follows:
Lender
Secured Debt
Small Business Administration
Small Business Administration
Unsecured Debt
CDFI Fund
Community Savings Bank
Kankakee
Subordinated Debt
US Bancorp
Amalgamated Bank of Chicago
First Midwest Bank
Interest Rate at
12/31/13 12/31/12
(1) 3.625%
(1) 2.375%
(2)
3.625%
1.125%
Interest
Payment
Terms
Monthly
Monthly
Maturity at
12/31/13 12/31/12
4/4/14
1/7/20
7/7/16
1/7/20
Balance at
12/31/13
12/31/12
$ 143,129
285,556
$ 212,294
319,078
428,685
531,372
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Quarterly
Semiannual
End of term
12/31/57
12/31/57
2/28/14
12/31/57
12/31/57
2/28/14
554,400
88,000
75,000
717,400
567,000
90,000
75,000
732,000
2.00%
2.00%
2.00%
4.00%
2.00%
2.00%
Quarterly
Quarterly
Quarterly
3/15/18
11/30/14
11/30/17
9/16/23
11/30/13
11/30/17
250,000
50,000
50,000
350,000
150,000
50,000
50,000
250,000
20
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 9 – Notes Payable (cont.)
Lender
Equity Equivalent Debt
Bank Financial
Bank of America
Chicago Community Bank
Evergreen Bank Group
Fifth Third Bank
First Bank/Illinois
First Eagle Bank
First Savings Bank of Hegewisch
Leaders Bank
MB Financial Bank
Oxford Bank & Trust
PNC Bank
Northern Trust Company
Republic Bank
Interest Rate at
12/31/13 12/31/12
2.00%
0.00%
2.00%
2.00%
0.00%
2.00%
2.00%
2.00%
2.00%
0.00%
2.00%
0.00%
0.00%
2.00%
2.00%
0.00%
2.00%
2.00%
0.00%
2.00%
2.00%
2.00%
NA
0.00%
NA
0.00%
0.00%
2.00%
Total
Less: Present value discount (3)
Net Long-term debt
Interest
Payment
Terms
Monthly
Monthly
Semiannual
Semiannual
Semiannual
Semiannual
Semiannual
Semiannual
Semiannual
Semiannual
Semiannual
Monthly
Semiannual
Monthly
Maturity at
12/31/13 12/31/12
1/1/14
7/1/57
1/1/14
3/12/17
6/30/57
4/1/17
9/30/17
1/1/16
1/1/18
6/1/57
1/1/19
8/15/56
12/31/56
1/1/14
1/1/13
7/1/57
1/1/13
3/12/17
6/30/57
4/1/17
9/30/17
1/1/16
NA
6/1/57
NA
8/15/56
12/31/56
1/1/13
Balance at
12/31/13
12/31/12
$
40,000
65,250
100,000
100,000
169,090
250,000
100,000
400,000
75,000
86,621
25,000
85,871
86,000
24,953
1,607,785
3,103,870
(998,230)
$ 2,105,640
$
40,000
66,750
100,000
100,000
172,977
250,000
100,000
400,000
88,613
87,886
88,000
24,954
1,519,180
3,032,552
(1,038,245)
$ 1,994,307
(1) Principal and interest are payable monthly at a rate based upon average size of micro-loans
made, collateralized by such loans totaling $428,685 and $531,372 at December 31, 2013 and
2012, respectively.
(2) The Department of the Treasury, Community Development Financial Institutions (CDFI) Fund
had financial covenants, defined in their original agreement, relating to net assets, net revenue,
and operating and capital ratios. However, the Organization has been informed by the CDFI
Fund that the repayment of this debt will not be accelerated and they are no longer required to
submit reports to the CDFI Fund. In 2007, the Organization further restructured the debt
agreement with CDFI Fund, capitalizing the balance of $30,000 for past interest, reducing the
interest rate to 0%, extending the maturity to 2057, and requiring quarterly payments of
$3,150.
(3) A 7% discount interest rate was inputed on below market interest loans and interest-free loans,
which was included in temporarily restricted contribution revenue in the year the loan was
issued or terms renegotiated. The discount represents a cumulative amount of net revenue that
has been recognized due to below market interest and interest-free loans. Each year, as the
interest expense is recognized, the discounted amount decreases.
21
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 9 – Notes Payable (cont.)
The original contractual balance, present value discount and net balance of notes payable are
summarized as follows at December 31:
2013
Present Value
Discount
Balance, Net
of Discount
503,891
2,599,979
$
89,664
908,566
$
$ 3,103,870
$
998,230
$ 2,105,640
2012
Present Value
Discount
Balance, Net
of Discount
$
$
Contractual
Balance
Current portion, long-term debt
Long-term debt
$
Total long-term debt
Contractual
Balance
Current portion, long-term debt
Long-term debt
$
Total long-term debt
426,577
2,605,975
$ 3,032,552
76,753
961,492
$ 1,038,245
414,227
1,691,413
349,824
1,644,483
$ 1,994,307
Maturities of debt before the present value discount for imputed interest rate on below market
interest and interest-free loans at December 31, 2013 are as follows:
Year
Ending
2014
2015
2016
2017
2018
Thereafter
Secured
Debt
Equity
Equivalent
Debt
Senior
Debt
$ 187,944
45,891
46,993
48,121
49,277
50,459
$
89,600
14,600
14,600
14,600
14,600
569,400
$ 428,685
$ 717,400
Subordinate
Debt
Total
50,000
50,000
250,000
-
$ 176,347
11,396
411,396
461,396
86,396
460,854
$ 503,891
71,887
472,989
574,117
400,273
1,080,713
$ 350,000
$ 1,607,785
$ 3,103,870
$
The Equity Equivalent Debt is a long-term capital product for community development financial
institutions investing in economically disadvantaged communities. Although maturity dates are
stated and incorporated in the above analysis, investors generally renew their commitment, therefore
providing a relatively permanent capital base.
22
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 9 – Notes Payable (cont.)
The Organization has a revolving line of credit with MB Financial Bank. Nothing was outstanding
at December 31, 2013 and 2012. Available funds on this line of credit amounted to $1,000,000 and
$400,000 for the years ending December 31, 2013 and 2012, respectively.
Under the Revolving Loan Fund (RLF) agreement with Kankakee County, the Organization has
access to a revolving line of credit. Amounts borrowed are restricted for lending purposes, as
defined in the RLF agreement. As of December 31, 2013, and December 31, 2012, the Organization
had borrowed $75,000, the full amount of the line of credit.
The line of credit issued by MB Financial and the loans from the Small Business Administration are
collateralized by the outstanding notes receivable balances.
The total interest incurred and expensed on all notes payable outstanding, other than imputed
interest, for the years ended December 31, 2013 and 2012 was $38,355 and $34,019, respectively.
The Organization is also a guarantor for a credit card utilized by employees for business expenses.
The credit card has a $35,000 limit of which $8,597 was outstanding and included in accounts
payable at December 31, 2013. At December 31, 2012 the credit card limit was $15,000 of which
$6,565 was outstanding and included in accounts payable.
Note 10 – Commitments and Contingencies
Financial Instruments with Concentration of Credit Risk
Loans range in size from $500 to $50,000, while their terms generally range from 2 to 36 months,
with the exception of Small Business Association loans that have a maximum term of 72 months.
Collateral and cosigners may be required, and are dependent upon the loan amount and the perceived
credit risk. Most of the Organization’s business activity is with borrowers located throughout
Illinois, with the majority of these borrowers concentrated in the Chicagoland area. Geographic
concentration risk arises largely from the influence of economic conditions in the Midwest region,
particularly the Chicagoland area, on the Organization’s borrowers.
Fees and Grants Received
The Organization has received significant financial assistance from federal, state and local
government agencies. The disbursement of funds received under these programs generally requires
compliance with terms and conditions specified in the grant agreements, and may be subject to audit
by the grantor agencies. Any disallowed claims resulting from such audits could become a liability
of the Organization. Management believes the risk related to disallowed claims is minimal.
23
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 10 – Commitments and Contingencies (cont.)
Loan Servicing
The Organization maintains an agreement with a bank to service its loan portfolio. The agreement
provides that the bank will be responsible for recordkeeping, compliance with regulatory
requirements, collection and remittance to the Organization. In consideration for these services, the
Organization pays the bank a fee for each loan, based upon certain classifications as defined in the
agreement. Expense for loan servicing under this agreement approximated $102,434 and $84,682
for the years ended December 31, 2013 and 2012, respectively.
Note 11 – Temporarily Restricted Net Assets
Temporarily restricted net assets at December 31, consisted of the following:
EDA Revolving Loan Fund
Saban Women's Foundation - loan funds to small businesses
IL DCEO Revolving Loan Fund
CDFI - Technical Assistance program
Chicago Community Trust - Time Restricted
Bank of America Foundation - Funds for
SBA Loan Loss Reserve
Imputed interest on below market and interest-free loans
2013
$ 775,353
1,821,357
2,694
37,500
2012
$
760,881
61,875
1,634,795
38,436
-
60,000
998,230
60,000
1,038,245
$ 3,695,134
$ 3,594,232
Note 12 – Employee Benefit Plan
The Organization has a SIMPLE Individual Retirement Account Plan that covers substantially all of
its employees. The plan calls for the Organization to match employee contributions to the plan
dollar-for-dollar up to a maximum of 3% of employee compensation. Benefit plan expense was
$36,014 and $25,414 for years ending December 31, 2013 and 2012, respectively.
Note 13 – Related Party
The Organization has an equity equivalent debt agreement in the amount of $100,000 and a credit
card with a credit line of $35,000 with First Eagle Bank whereby a Board member owns and
manages the bank. All terms and conditions of the equity equivalent debt with First Eagle Bank are
consistent with all other Accion Chicago equity equivalent funders (see Note 9).
24
ACCION CHICAGO
NOTES TO FINANCIAL STATEMENTS
December 31, 2013 and 2012
Note 14 – U.S. Network
Accion Chicago is a member of the Accion U.S. Network, the largest and only nationwide
microlending network. The Network was officially launched in late 2011 to provide financial,
marketing, and risk management support to each of the five Accion lending companies in the United
States. Members including Accion Chicago, Accion East, Accion New Mexico-Arizona-Colorado,
Accion San Diego and Accion Texas each pay annual dues to the Network in order to support its
work on their behalf. Together, the five Accion affiliates continue to grow local lending operations
while the Network seeks to maximize resources nationally and to move the industry forward.
Together, the five independent organizations have served tens of thousands of clients since 1991.
Note 15 – Subsequent Events
For the year ended December 31, 2013, the Organization has evaluated subsequent events through
June 16, 2014, which is the date the financial statements were available to be issued. No subsequent
events have been identified that are required to be disclosed through that date, except for the
following:
On May 30, 2014, J.P. Morgan Chase released the restrictions on their contribution of $125,000
from tornado disaster relief loans to general operating support.
25