FAIRWINDS Credit Union

Transcription

ANNUAL
REPORT
2011
IMPROVING YOUR
FINANCIAL WELL-BEING
Federally insured by NCUA
VISION
Members financially secure and economically successful and responsible
MISSION
Improve members’ financial well-being
VALUES
Advocacy • Good Stewardship • Caring Environment • Honesty and Integrity • Cooperative Principles •
Community Commitment • Exceptional Service and Value
CONTENTS
Chairman’s and President’s Report.............................................. 4
2011 A Look Back...........................................................................7
2012 A Look Ahead....................................................................... 9
Treasurer’s Report.......................................................................10
Audit Committee Report............................................................. 11
Consolidated Financial Statements.............................................12
Board of Directors and Management Team................................14
Independent Auditor’s Report.....................................................15
Audited Financial Statements.....................................................16
Branch Locations........................................................................ 45
CHAIRMAN’S AND
PRESIDENT’S REPORT
Richard Leigh
Chairman
To Our Members
“Save more. Spend less.” “Pay off your debt.” “Avoid paying
fees.” Not the type of things you’re accustomed to hearing
from a financial institution. Particularly since much of
the financial news in 2011 included stories of continued
foreclosures and financial institutions charging fees like
debit card usage. At FAIRWINDS, our story hasn’t changed, no
matter what the economic climate may be. What’s our story?
We believe in helping you save more. We believe in helping
you have a fee-free experience at the credit union. Most
important though, we believe in helping you to improve your
financial well-being. That’s what matters most.
Our resolve to improving your financial well-being was never
greater than seen in 2011. We thank you for this opportunity
to share the highlights, successes, and experiences of 2011
that continue to make FAIRWINDS the better choice for
banking in Central Florida.
We take great pride in the products and solutions that were
developed in 2011 to help improve your financial wellbeing. One of these solutions was the launch of FAIRWINDS
Insurance Services, LLC. Offering a full suite of insurance
solutions ranging from auto, homeowners, business, and
renters insurance, this newest endeavor for the credit union
has helped our members save hundreds, even thousands, of
dollars on their insurance policies.
When the economy hit its downfall just a few years
ago, many consumers saw their dreams for retirement
either diminish or put on hold for the foreseeable future.
Recognizing an opportunity to help make those retirement
goals a priority again for many of our members, a new
product called Retire Your Mortgage was created and has
since been a well-received addition to our suite of solutions.
Providing the opportunity to refinance at lower rates and
for shorter terms, many of our members can now enter
retirement without the burden of a mortgage upon their
shoulders.
Doing what it is in your best interest is paramount to us.
Part of our advocacy efforts includes giving you choices
and options, which is exactly what we did with the new
FAIRWINDS Auto Resource Center. Through this dynamic
online solution, car buying and shopping resources are
available to you ranging from special discounts from local
preferred partner dealerships to an exclusive Car Buying
Concierge service. Designed to make car buying hassle-free
and affordable, the Auto Resource Center can help you find a
car and payment that best fits your budget.
4
AN N UA L R EP O RT 2 01 1
CHAIRMAN’S AND
Larry F. Tobin
President/CEO
As a financial cooperative, participation from
our members is essential to the vitality and
success of the credit union. Participation
also means more opportunity to avoid
service charges. To help you save even
more, we were proud to launch a new
online member resource called “The No
Fee Zone.” Since going live in the spring
of 2011, 25,277 guests have visited “The
New Fee Zone” and learned not only
what some of the most common service
charges are, but also how to avoid them.
While there is a cost of doing business
for some of our products and services,
there is always a way to save more
instead. And that’s how we prefer it.
FAIRWINDS iPhone app that launched in
2010. These new conveniences show that
no matter where you are or what time it
may be, you can count on FAIRWINDS to
be there to help when you need it.
When we say “improve your financial wellbeing,” we mean the financial well-being
of every FAIRWINDS member, including the
6,000 business members we serve every
day. Our business community continues
to grow and prosper and we are honored
to have helped our business members find
solutions when other options may not have
been available. For the second year in a row,
the credit union was named by the Small
Business Administration (SBA) North Florida
District Office as “Credit Union of the Year.” In addition, the
Orlando Business Journal ranked FAIRWINDS as the 13th largest
SBA Lender in Central Florida, and the only credit union on
the list. We look forward in 2012 to staying the course and
supporting our business members by providing more lending
and cash flow solutions.
NO FEE
ZONE
An even greater benefit of participation over the years has been
our Relationship Rewards member loyalty program. Introduced
in 2006, Relationship Rewards has helped you to pay less on
loans, earn more on deposits, and enjoy special discounts for
many of our products and services. This is our way of saying
thank you, not only for your loyal membership, but also for your
commitment to being an active participant in our cooperative.
In 2011 alone, Relationship Rewards provided members with
$1.4 million in savings. We are pleased that you continue to
find value in this unique loyalty program. We hope you will find
even greater value in 2012 as Relationship Rewards expands
with new ways to earn and redeem points.
Convenience is a necessity for our members and 2011
introduced new ways to make banking with us even easier and
faster. We expanded our Call Center hours to now serve you
24 hours a day, seven days a week. We were also excited to
unveil our new Android app in August. By popular demand, the
Android app follows in the footsteps of the widely successful
ANNUAL R E P O RT 2 011
5
CHAIRMAN’S AND
Many of our members have faced economic hardships these
past few years, and our Member Solutions team has been
there every step of the way. Through confidential, one-onone counseling, Member Solutions assisted 328 members in
2011 by restructuring more than $29 million in loans. While
Members Solutions will always be available to help at any
time, we are confident that fewer and fewer members will
need their support in the future as they continue toward a
path of financial prosperity and independence.
We are always proactively looking for opportunities to help
FAIRWINDS grow and expand our footprint in the Central
Florida community. Building upon our successful community
partnerships with the Orlando Magic, FAIRWINDS Broadway
Across America – Orlando, the University of Central Florida
Alumni Association, and Universal Orlando Resort, we were
excited to welcome our newest partner, the Central Florida Zoo.
These valuable partnerships provided you exclusive member
discounts and pre-sale opportunities for some of the most
popular events in Orlando. We will continue to collaborate with
our partners to bring FAIRWINDS members even more savings
and special offers in 2012.
6
We also would like to take a moment to reflect upon our efforts
to help support the Central Florida community. Giving back to
our community is one of our core values and a responsibility
that we don’t take lightly. Through your generous contributions
and the contributions of crewmembers, we were able to
provide thousands of dollars to such organizations as the
Ronald McDonald House, the American Diabetes Association,
Second Harvest Food Bank of Central Florida, and the United
Way. Our efforts in 2012 will focus on improving the financial
literacy of our youth through programs including Junior
Achievement and our own FAIRWINDS University. Today’s youth
are the future and it is our obligation to help them to become
champions for their own financial success.
Improving your financial well-being. It’s a simple concept, yet
impacts every individual. This is our focus and we are honored
that you continue to trust us with your financial future. Thank
you for your membership through the years and we look
forward to another successful year together.
2011
A LOOK BACK
Strength and Soundness
2011 was another successful year full of
growth, prosperity, and innovation. These
highlights reflect our efforts to provide you
with exceptional service and value and to
reinforce to you that FAIRWINDS remains your
better choice for banking in Central Florida.
FAIRWINDS continues to be a well-capitalized
credit union with an 8.51% capital ratio
reported for 2011. The year also ended with a
return on assets of .38% providing a positive
return for the cooperative.
Thanks to your commitment to sharing the
credit union difference, more than 23,195 new
members became part of FAIRWINDS.
Based on a 5-point scale, the credit union
scored a 4.90 from members as to their
likelihood to recommend FAIRWINDS to their
friends and family.
A sign of growing economic prosperity, our
Wealth Management Portfolio increased from
$173 million in 2010 to more than $203 million
in 2011.
Ensuring the protection of your financial
information, we once again achieved our
annual Cybertrust certification through
Verizon Business and passed our annual
information security audit conducted by the
independent firm, Doeren Mayhew, CPA.
As a rising leader in local business lending,
FAIRWINDS was named “Credit Union of the
Year” by the Small Business Administration
(SBA) North Florida District Office for the
second year in a row. The credit union was
also ranked as the 13th largest SBA lender in
Central Florida by the Orlando Business Journal.
Value and Convenience
Relationship Rewards, our popular member loyalty program,
provided you with more than $1.4 million in savings by paying
less on loans, earning more on deposits, and receiving valuable
discounts on a variety of FAIRWINDS services.
A new product, Retire Your Mortgage, was created to help
members refinance an existing mortgage with lower rates
and shorter terms making retirement dreams a reality once
again. More than $13 million in loans were disbursed.
A full suite of insurance solutions including homeowners,
vehicle, and business became available through FAIRWINDS
Insurance Services, LLC, helping members save money on their
current policies.
With consumers looking for new ways to save on their next
vehicle purchase, the Auto Resource Center was introduced
to help members not only find a new car, but to also find a
payment that fits every budget and lifestyle. As an extension of
the Auto Resource Center, our exclusive Car Buying Concierge
service takes the hassle out of shopping for your next vehicle.
7
2011
A LOOK BACK
We are always looking for new ways to help you save. A new
online resource, the No Fee Zone, was introduced to educate
our members about what some of the most common fees are
and how you can avoid them.
While many of our members continue to grow on a path
toward prosperity, some are still facing economic hardships.
Our Member Solutions group assisted 328 members by
restructuring more than $29 million in loans, helping them take
the first steps toward improving their financial well-being.
Recognizing your need for increased availability, our Member
Services Call Center expanded their hours to provide member
assistance 24 hours a day, seven days a week.
Following the success of the FAIRWINDS iPhone app, the new
Android app was unveiled in August to popular reception. More
than 3,000 members have adopted our newest technology with
hundreds more downloading the app every month.
Support for Our Local Community and Crewmembers
Expanding our footprint in Central
Florida, FAIRWINDS partnered with
the Central Florida Zoo adding to
several key community partnerships
with the Orlando Magic, FAIRWINDS
Broadway Across America – Orlando,
the UCF Alumni Association, and
Universal Orlando Resort. These
valuable partnerships provided you
with exclusive member discounts and
pre-sale specials for some of the most
popular events in Central Florida.
As part of our commitment to
supporting our community, thousands
of dollars in donations were contributed
to local charities including the Ronald
McDonald House, the American
Diabetes Association, Second Harvest
Food Bank of Central Florida, and the
United Way.
8
One of our core values is providing
a caring environment for our
crewmembers and we were honored
to receive recognition for these efforts.
Florida Trend magazine once again
named FAIRWINDS as one of the “Best
Places to Work” placing 16th in the state
in the large company category. The
Orlando Sentinel selected FAIRWINDS
as one of the “Top 100 Companies for
Working Families.” And continuing
our streak for the past several years,
FAIRWINDS was selected as one of
the “Best Places to Work” in the Giant
Category by the Orlando Business
Journal.
2012
A LOOK AHEAD
New Benefits, Greater Value
Plans for 2012 are already
in motion and we look
forward to another exciting
year together. Based on the
popularity of Relationship
Rewards, our member
loyalty program, new ways
to earn, redeem, and save
will be introduced in 2012.
By being an active and
loyal participant in our
cooperative, you can take
advantage of these new
benefits and find even
greater value in the program
than before.
The FAIRWINDS Auto
Resource Center has helped
thousands of members not
only find the right kind of
vehicle, but also the right
kind of payment. We will
expand this service with a
Mortgage Resource Center.
Whether you’re a first-time
homebuyer or looking to
refinance, this newest online
addition will provide you
with the right tools and
resources to help make
home buying and financing
simple, easy, and affordable.
As our Central Florida
community continues to
grow, so does the credit
union. Part of our growth
can be attributed to the
valuable community
partnerships we have
developed with the Orlando
Magic, Central Florida Zoo,
FAIRWINDS Broadway Across
America – Orlando, the
UCF Alumni Association,
and Universal Orlando
Resort. New opportunities
for partnership are on the
horizon in 2012, helping
us expand our footprint
throughout Central Florida.
Improving Your Financial Well-Being
Improving our technology is at the core of providing you with a better banking
experience at FAIRWINDS. Efforts toward enhancing your online and mobile banking
experiences, including more self-service solutions, will make banking with the credit
union faster and more convenient.
Preparing our youth for the future begins with helping them to understand the
importance of being financially responsible. We look forward to supporting our local
youth through programs including Junior Achievement and FAIRWINDS University
emphasizing the importance of financial literacy.
Helping you to improve your financial well-being will be our predominant focus in 2012.
We will be looking at new products and services that will not only complement our
current financial offerings, but also provide you with new ways to save.
9
TREASURER’S
REPORT
B. Daniel McNutt, Jr.
Treasurer
Positive Financial Performance
Positive financial trends continued in 2011 with further
improvements in key ratios year over year. For three
consecutive years FAIRWINDS has experienced gains in net
worth and earnings while asset quality also improved in 2011
reversing a negative trend. While economic challenges remain
in our marketplace, thanks to the participation of our members
the credit union has once again delivered a sound, positive
financial performance in 2011.
Marginal decreases in both the delinquency and charge-off
ratios are positive signs. A significantly lower loan loss provision
expense in 2011 echoes this as it is a leading indicator that these
ratios will continue to decrease going forward. At the same
time we still have members in need of financial assistance as
our unemployment rate and housing values continue to cause
financial distress. Our Member Solutions Team continues to be
there for our members restructuring $29 million in loans in 2011.
Net worth reached its highest level since 2008 ending at 8.51%
in 2011. The credit union remains well-capitalized as defined by
our regulator, the National Credit Union Administration (NCUA).
Gross revenue and a lower loan loss provision expense than
previous years helped contribute to the increase in net worth.
For the first time since 2008 the credit union had positive
savings growth as more and more members are choosing to
save more and borrow less. New members also contributed to
new savings growth as membership growth hit its highest level
since 2008. 23,195 new members joined the credit union in 2011
resulting in a 5.31% increase in membership.
In 2011 net income reached $5.8 million resulting in a 0.38%
return on assets. Net income was again curtailed by annual
NCUSIF premiums and assessments totaling $3.2 million
therefore eroding what would have been a $9 million bottom
line. Disciplined expense reduction was one component
contributing to the higher earnings over the previous year. On
the revenue side, both income from the investment portfolio
and non-interest income bolstered earnings.
10
2011 saw more members looking to our Wealth Management
Advisors for greater returns on their money by investing in the
market. More than $200 million in assets are now managed
under the program, up by $30 million from the previous year.
Your credit union has experienced three solid years of financial
improvement during a difficult economic period. We will
continue to focus our energies on increasing profitability and
providing you with a safe and sound financial cooperative for
the future.
AUDIT COMMITTEE
REPORT
Kelly D. Leary
Chairman
Safe and Sound
In 2011, following a professional services
search, the Audit Committee retained
the services of Doeren Mayhew, CPA
to conduct external audit services for
the credit union. The audits included
the annual financial statement audit,
information systems review and
internal controls review. Once again
Doeren Mayhew, CPA has issued an
unqualified opinion that the financial
statements fairly, in all material respects,
represent the financial position of the
credit union as of September 30, 2011
and 2010 and are in conformity with
accounting principles generally accepted
in the United States of America. Further
auditing by Doeren Mayhew, CPA of the
credit union’s information technology
confirm adequate internal controls
related to the financial statements.
Fraud prevention and detection
controls are also a priority issue for the
audit committee in order to mitigate
risk and prevent losses. As a result
RSM McGladrey, Inc. completed a
comprehensive review of the credit
union’s systems, processes, and
procedures related to its operations. No
significant deficiencies or high risk areas
were noted in the 2011 review.
On behalf of the Audit Committee, it
is with confidence that I report that
FAIRWINDS Credit Union’s operations
remain safe and sound. Both external,
independent, annual audits, and
ongoing internal operational audits
demonstrate that the credit union is well
managed with the proper controls in
place to operate at the highest levels of
standards and performance.
FAIRWINDS also once again received its
Cybertrust Certification as the result of
an annual review of the credit union’s
security systems. Verizon Business
awarded the certification which
represents the credit union’s ongoing
compliance and aversion to risk related
to its systems technology and physical
environments.
11
CONSOLIDATED
FINANCIAL STATEMENTS
2011
2010
Assets
Net Loans to Members
$ 804,501,219
$ 845,206,129
Cash & Due from Banks
$
$
Government & Agency Securities
$ 586,012,997
$ 472,550,911
Other Investments
$
11,322,508
$
10,763,868
Fixed Assets
$
76,344,133
$
79,219,887
All Other Assets
$
84,811,281
$ 101,424,126
$1,581,292,668
$1,539,256,934
Total Assets
18,300,530
30,092,012
Liabilities & Members’ Equity
Accounts Payable & Liabilities
$
Members’ Shares & Deposits
$1,350,126,591
$1,315,016,447
Reserves & Undivided Earnings
$ 139,918,228
$ 127,642,800
$1,581,292,668
$1,539,256,934
Total Liability and Members’ Equity
91,247,849
$
96,597,687
Statement of Income
Interest on Loans
$
47,066,350
$
53,543,406
Investment Income
$
14,835,984
$
16,530,060
Other Income
$
34,901,127
$
32,948,767
$
96,803,462
$ 103,022,232
Total Income
Operating Expenses
($ 56,476,096)
($ 58,009,659)
Provision for Loan Losses
($ 19,005,903)
($ 30,398,207)
Non-Operating Gains
($
5,844,383)
($
Dividends
($
9,589,869)
($ 13,672,178)
($ 90,916,251)
($ 102,694,412)
$
$
Total Expenses
614,367)
12
Net Income
5,887,211
327,820
CONSOLIDATED
2011
2010
Vital Statistics
Number of Members
147,636
140,188
Number of Loans Granted
9,074
7,318
$$$ of Loans Granted
Number of Loans Granted Since Organized
$$$ of Loans GrantedSince Organized
$ 335,936,271
$ 284,519,835
970,683
$6,841,088,138
961,609
$6,505,151,868
Interest on Loans - 49%
Sources of Income
Investments - 15%
Interest on Loans
$
47,066,350
Investments
$
14,835,984
Services Income
$
34,901,127
$
Services Income
96,803,462
Total
Services Income - 36%
Interest on Loans
Investments
Distribution of Income
Loan Losses
$
19,005,903 Operations
Net Income
$
5,887,211 Loan Losses
- 20%
Dividends - 10%
Dividends
$
Operations
$
62,320,479
Operations
$
96,803,462
Total
9,589,869
- 64%
Reserves - 6%
Dividends
Reserves
Loan Losses
13
BOARD OF DIRECTORS AND
MANAGEMENT TEAM
BOARD OF DIRECTORS
Richard Leigh
Chairman
Mack R. Perry
Vice Chairman
Carol F. Denton
Secretary
B. Daniel
McNutt,Jr.
Jason Albu
Director
Kelly D. Leary
Director
Lisa Snead
Director
Treasurer
MANAGEMENT TEAM
Larry F. Tobin
President/CEO
Daniel T. Bock III
Senior VP
Finance
14
Kathy A. Chonody
Senior EVP/CFO
John J. Coffey
Senior VP
Risk Managment
Philip C. Tischer
Senior EVP/COO
Charles S. Lai
James D. Adamczyk
Executive VP/CIO
Executive VP
Lending
Executive VP
Human Resources
Joseph A. Devine
Michelle K. Klima
Jorge E. Machado
James M. Thornberry
Senior VP
Wealth Managment
Senior VP
Controller
Senior VP
Business Services
Cathy M. Hertz
Senior VP
Branch Services
Mathy M. Hogan
Executive VP
eBusiness
Dianne K. Owen
Executive VP
Marketing
INDEPENDENT
AUDITOR’S REPORT
To the Board of Directors and Audit Committee of
FAIRWINDS Credit Union and Subsidiaries
We have audited the consolidated statements of financial condition of FAIRWINDS Credit Union and Subsidiaries as of
September 30, 2011 and 2010, and the related consolidated statements of operations, members’ equity and cash flows
for the years then ended. These consolidated financial statements are the responsibility of FAIRWINDS Credit Union and
Subsidiaries management. 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 of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of FAIRWINDS Credit Union and Subsidiaries as of September 30, 2011 and 2010, and the results of
their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
DOEREN MAYHEW
December 29, 2011
Troy, Michigan
15
AUDITED
FAIRWINDS CREDIT UNION AND SUBSIDIARY
Consolidated Statements of Financial Condition
Year Ended
September 30,
2011
2010
Assets
Cash and cash equivalents
$ 107,679,360
Non-negotiable certificates of deposit
Investment securities (note 2)
$
- 30,230,764
16,025,916
Available-for-sale
485,407,024
471,559,607
Held-to-maturity
4,642,416
10,570,102
FHLB Stock (note 1)
6,396,400
7,421,200
Loans held-for-sale (note 1)
883,160
17,540,530
Loans to members, net of allowance for loan losses (note 3)
801,188,250
860,846,331
Accrued interest receivable
6,128,801 6,996,696
Property, equipment and leasehold improvements (note 4)
77,083,481 79,885,739
NCUSIF deposit (note 1)
13,013,846 12,825,145
Assets acquired in liquidation of loans (note 1)
44,999,635 33,742,802
Other assets (notes 1 and 12)
27,696,463 29,775,184
Total assets
$1,575,118,836 $1,577,420,016
$1,336,119,312 $1,316,276,114
Liabilities And Members’ Equity
Liabilities
Members’ shares and savings accounts (note 6)
Borrowed funds (note 5)
75,000,000 91,025,916
Accounts payable 20,136,150 29,113,382
Other accrued liabilities (notes 1 and 12)
5,996,058
8,649,985
Total liabilities 1,437,251,520 1,445,065,397
Commitments and Contingent Liabilities (note 9)
Members’ Equity - Substantially Restricted (note 7)
$1,575,118,836 Total liabilities and members’ equity
See accompanying notes to consolidated financial statements
16
- AN N UA L R EP O RT 2 01 1
- 137,867,316 132,354,619
$1,577,420,016
AUDITED
Consolidated Statements of Operations
Year Ended
September 30,
2011
2010
Interest Income
Loans receivable
$
48,613,266
$
55,861,037
Investment securities
15,359,998 17,204,364
Total interest income
63,973,264 73,065,401 12,405,124
Interest Expense
Interest and dividends on members’ shares and savings accounts
7,124,028 Interest on borrowed funds
2,968,436 3,035,909
10,092,464 15,441,033
53,880,800 57,624,368
22,359,473
31,465,795
31,521,327
26,158,573
Total interest expense
Net interest income
Provision For Loan Losses
Net interest income after provision for loan losses
Non-Interest Income
Gains on sale of investments
- 1,129,141
Gains on sale of loans
- 101,566
Gains on deferred compensation plans
817,340 852,281
Fees and charges
Total non-interest income
34,749,560 31,866,509 35,566,900 33,949,497 Non-Interest Expenses
Compensation and benefits
28,930,774 28,703,019
Office operations
11,625,660 12,401,483
Occupancy
6,041,811 6,254,285
Operating expenses
8,741,837 8,313,567
NCUA premium assessment (note 1)
3,253,461
3,406,184
Loss on commercial rental properties
- 82,328
Loss on impairment of investment securities (note 2)
- 869,343
Losses on sale of assets and write-downs in liquidation
Total non-interest expenses
Net Earnings (Loss)
5,153,854 1,457,783
63,747,397
61,487,992
$
3,340,830
$
(1,379,922)
17
AUDITED
Consolidated Statements of Members’ Equity for the Years Ended September 30, 2011
and 2010
Accumulated
Non-
Other
Appropriated
Appropriated Compre Undivided Undivided hensive
Statutory Earnings Earnings/(Loss) Income/(Loss) Total
Members’ Equity October 1, 2009
$ 14,459,893 $
- $114,963,937 $ (2,266,377) $127,157,453
Comprehensive Income (Loss)
Net loss
Net change in unrealized losses on securities
- - (1,379,922)
- (1,379,922)
- - - 6,577,088 6,577,088
6,577,088 5,197,166
Comprehensive income (loss)
- - (1,379,922) Members’ Equity September 30, 2010 14,459,893
- 113,584,015
4,310,711 132,354,619
Comprehensive Income
Net earnings
Net change in unrealized gains on securities
- - 3,340,830
- 3,340,830
- - - 2,171,867 2,171,867
- - 2,171,867 5,512,697
Comprehensive income
3,340,830 Members’ Equity September 30, 2011 (note 7)
$ 14,459,893 $- $116,924,845 $ 6,482,578 $137,867,316
18
AUDITED
Consolidated Statements of Cash Flows
Year Ended
September 30,
2011
2010
Cash Flows From Operating Activities:
Net earnings (loss)
$
3,340,830
$
(1,379,922)
Adjustments:
Depreciation
3,791,915 4,126,200
Provision for loan losses
22,359,473
31,465,795
Net amortization/(accretion) of investment securities
731,531
(609,926)
Gains on sale of investments -
(1,129,141)
Gains on deferred compensation plans
(817,340)
(852,281)
Loss on impairment of investment securities
-
869,343
Losses on sales and write-downs of assets in liquidation
5,153,854 1,457,783
Recoveries on charged-off loans
2,764,992 2,399,280
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable
867,895
(992,753)
Decrease (increase) in other assets
2,976,418
(13,688,682)
Increase (decrease) in accounts payable
(8,977,232)
23,095,851
Increase (decrease) in other accrued liabilities
(2,653,927)
1,739,364
26,197,579
47,880,833
29,538,409 46,500,911
Total adjustments
Net cash provided from operating activities
19
AUDITED
Consolidated Statements of Cash Flows
Year Ended
September 30,
2011
2010
Cash Flows From Investing Activities:
Decrease (increase) in loans to members (net)
$
Decrease (increase) in loans held-for-sale
16,657,370
(9,120,438)
Decrease in non-negotiable certificates of deposit
16,025,916
5,000,000
Proceeds from maturities and sale of investment securities
324,470,131
338,891,529
Purchases of investment securities (330,949,526) (472,262,331)
Redemption of FHLB Stock
Acquisition of property and equipment
(981,078)
(1,577,980)
Proceeds from sale of assets in liquidation
25,887,545 8,969,073
Decrease (increase) in NCUSIF deposit
(7,853,552)
$
1,024,800
(188,701)
51,204,622
572,700
(222,330)
44,092,905
(78,545,155)
Net cash provided from (used in) investing activities
Cash Flows From Financing Activities:
Increase in members’ shares and savings accounts (net)
19,843,198 Repayments of borrowed funds
(16,025,916) -
Net cash provided from financing activities
10,648,867
3,817,282
10,648,867
Net Increase (Decrease) in Cash and Cash Equivalents
77,448,596
(21,395,377)
Cash and Cash Equivalents - Beginning
30,230,764
51,626,141
Cash and Cash Equivalents - Ending
$ 107,679,360
$
30,230,764
Interest and dividends paid
$
10,092,464 $
15,441,033
Assets acquired in the settlement of loans
$
42,387,168 $
23,557,772
Supplemental Information
20
AUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND 2010
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
FAIRWINDS Credit Union’s operations are principally related to holding deposits for and making loans to individuals
who qualify for membership. The field of membership consists of persons living or working in Lake, Orange, Osceola,
Seminole, Volusia, Brevard, or Polk counties in the State of Florida, those who work for one of the Credit Union’s
preferred business partners, are active or retired military personnel or dependents receiving military benefits and
immediate family members of current members.
FAIRWINDS Financial Services, L.L.C. is a wholly-owned subsidiary of FAIRWINDS Credit Union. FAIRWINDS Financial
Services, L.L.C.’s operations represent less than 1% of the consolidated totals for 2011 and 2010.
FAIRWINDS Insurance Services, L.L.C is a wholly-owned subsidiary of FAIRWINDS Credit Union created to provide
insurance products for members of the Credit Union. FAIRWINDS Insurance Services was organized in 2011 and did not
begin operations until October 1, 2011.
Principles of Consolidation
The consolidated financial statements included the accounts of FAIRWINDS Credit Union and its wholly-owned
subsidiary, FAIRWINDS Financial Services, L.L.C. All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash Equivalents
The consolidated statements of cash flows classify changes in cash or cash equivalents (short-term, highly liquid
investments readily convertible into cash with an original maturity of three months or less) according to operating,
investing or financing activities. Financial instruments which potentially subject the Credit Union to concentrations
of credit risk consist principally of cash and temporary cash investments. At times, cash balances held at financial
institutions were in excess of Federal Deposit Insurance Corporation (FDIC) limits. At September 30, 2011 and 2010,
the Credit Union’s cash balance exceeded FDIC insurance limits by approximately $96,300,000 and $6,900,000,
respectively. The Credit Union places its temporary cash investments with high-credit, quality financial institutions and,
by policy, limits the amount of credit exposure to any one financial institution. The Credit Union believes no significant
concentration of credit risk exists with respect to these cash investments.
21
AUDITED
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Credit Union may be exposed to credit risk from a regional economic standpoint because a significant
concentration of its borrowers work or reside in the Orlando, Florida metropolitan area. The Credit Union continually
monitors the Credit Union’s operations, including the loan and investment portfolios, for potential impairment.
Investment Securities
Generally accepted accounting principles requires that management determine the classification of individual
investment securities as trading securities, investments available-for-sale or investments held-to-maturity.
The Credit Union’s investments in securities for the years ended September 30, 2011 and 2010 are classified and
accounted for as follows:
HELD-TO-MATURITY SECURITIES
Securities for which the Credit Union has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest
income using the straight-line method, which materially approximates the interest method, over the period to
maturity.
AVAILABLE-FOR-SALE SECURITIES
Securities available-for-sale consists of securities not otherwise classified as trading securities or as securities
to be held-to-maturity and are recorded at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.
Declines in fair value of held-to-maturity and available-for-sale securities below their cost that are other-thantemporary are reflected as realized losses. In estimating other-than-temporary impairment, management considers:
(1) the Credit Union’s intent to sell the debt security prior to recovery and, (2) whether it is more likely than not that it
will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily
impaired unless there is a credit loss. When the Credit Union does not intend to sell a security, and it is more likely
than not, the Credit Union will not have to sell the security before recovery of its cost basis, it will recognize the credit
component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in
accumulated other comprehensive income.
22
AUDITED
Property, Equipment and Leasehold Improvements
Land is carried at cost. Property and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are
stated at cost, less accumulated amortization. Amortization is completed on the straight-line method over the length
of the lease term. Assets classified as construction-in-process are not depreciated until the asset has been completed
and placed into service.
NCUSIF Deposit and Premium
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with NCUA regulations,
which require the maintenance of a deposit by each insured credit union in an amount equal to one percent of its
insured shares. The deposit would be refunded to the credit union if its insurance coverage is terminated, it converts
to insurance coverage from another source, or the operations of the fund are transferred from the NCUA Board. The
NCUSIF deposit is required to be reviewed for impairment, including consideration of the refundablity of the deposit.
The NCUA assessed all federally insured credit unions a premium for the repayment of the funds borrowed by the
Temporary Corporate Stabilization Fund from the United States Treasury. The Credit Union recorded assessments of
approximately $3,253,000 and $1,752,000 during the years ended September 30, 2011 and 2010, respectively.
The NCUA assessed all federally insured credit unions a premium to fund the NCUSIF to statutorily required levels. The
Credit Union recorded the premium of approximately $1,654,000 during the year ended September 30, 2010.
Loans to Members
Loans that the Credit Union has the intent and ability to hold for the foreseeable future are stated at unpaid principal
balances, less an allowance for loan losses and net deferred loan origination fees and discounts. Interest on loans
is recognized over the term of the loan and is calculated using the simple-interest method on principal amounts
outstanding.
The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is wellsecured and in process of collection. Credit card loans and other personal loans are typically charged-off no later
than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest
income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Certain direct loan origination costs are deferred and recognized as an adjustment to interest income using the
straight-line method over the contractual life of the loans. The straight-line method, which is not in accordance with
generally accepted accounting principles, is not materially different from the interest method, which is required under
generally accepted accounting principles.
23
AUDITED
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of
a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral
and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available.
The Credit Union’s allowance for loan losses is that amount considered adequate to absorb probable losses in the
portfolio based on management’s evaluations of the size and current risk characteristics of the loan portfolio. Such
evaluations consider prior loss experience, the risk rating distribution of the portfolios, the impact of current internal
and external influences on credit loss and the levels of non-performing loans. Specific allowances for loan losses are
established for large impaired loans on an individual basis as required by generally accepted accounting principles.
The specific allowances established for these loans is based on a thorough analysis of the most probable source of
repayment, including the present value of the loan’s expected future cash flow, the loan’s estimated market value, or
the estimated fair value of the underlying collateral. General allowances are established for loans that can be grouped
into pools based on similar characteristics as described in generally accepted accounting principles. In this process,
general allowance factors are based on an analysis of historical charge-off experience and expected losses given
default derived from the Credit Union’s internal risk rating process. These factors are developed and applied to the
portfolio in terms of loan type. The qualitative factors associated with the allowances are subjective and require a high
degree of management judgment. These factors include the credit quality statistics, recent economic uncertainty,
losses incurred from recent events and lagging data.
Loans Held-for-Sale
Loans held-for-sale consists of residential real estate loans and is recorded at the lower of cost or market value. Market
price is determined on an aggregate basis based on commitments from investors to purchase such loans are prevailing
market rates.
24
AUDITED
Income Taxes
FAIRWINDS Credit Union and Subsidiaries are exempt from most Federal, state and local income taxes under the
provisions of the Internal Revenue Code and state tax laws.
FAIRWINDS Credit Union is a state-chartered credit union as described in Internal Revenue Code (“IRC”) Section 501(c)
(14). As such, the Credit Union is exempt from federal taxation of income derived from the performance of activities
that are in furtherance of its exempt purposes. However, IRC Section 511 imposes a tax on the unrelated business
income (as defined in Section 512) derived by state-chartered credit unions. Many states have similar laws. The specific
application of Section 512 to the various activities conducted by state-chartered credit unions has been an issue for
many years. In 2007, the Internal Revenue Service (“IRS”) issued a series of Technical Advice Memoranda (“TAM”) to a
number of state-chartered credit unions located throughout the country. In these TAMs, the IRS ruled certain products
and services to be subject to taxation as unrelated business income. In light of the TAMs, the Credit Union has assessed
its activities and any potential federal or state income tax liability. In the opinion of management, any liability arising
from federal or state taxation of activities deemed to be unrelated to its exempt purpose is not expected to have a
material effect on the Credit Union’s financial condition or results of operation.
Members’ Shares and Savings Accounts
Members’ shares are subordinated to all other liabilities of the Credit Union upon liquidation. Interest on members’
shares and savings accounts is based on available earnings at the end of an interest period and is not guaranteed by
the Credit Union. Interest rates on members’ shares accounts are set by the Board of Directors, based on an evaluation
of current and future market conditions.
Assets Acquired in Liquidation of Loans
Assets acquired in liquidation of loans represent collateral used to secure members’ loans that have been acquired by
the Credit Union in an effort to settle the members’ loan and are recorded at the lower of cost or market less costs of
liquidation.
Upon acquisition, the Credit Union determines fair value of the collateral and any losses are charged-off through the
allowance for loan losses. The Credit Union continues to review these properties for subsequent impairment and any
subsequent declines in fair value are recorded through current period earnings.
Federal Home Loan Bank Participation Stock
The Credit Union is a member in the Federal Home Loan Bank of Atlanta. The Credit Union owns 63,964 shares of nonmarketable participation stock for $6,396,400, with quarterly stock and/or cash dividends.
25
AUDITED
Risks and Uncertainties
The Credit Union invests in various investment securities. Investment securities are exposed to various risks such
as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at
least reasonably possible that changes in the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the consolidated statements of financial condition and
consolidated statements of operations.
Mortgage Servicing Rights
The cost of mortgage loans for which there is a definitive plan to sell are allocated to the loan and rights to service
mortgage loans based on their relative fair values. The cost of capitalized mortgage servicing rights is amortized
proportionately over the period of estimated net servicing revenue. The Credit Union has pooled certain mortgage
servicing rights together based on certain risk characteristics and is amortizing these servicing rights over the
estimated average life of those loans. As of September 30, 2011, the carrying value approximates the fair market value
of the mortgage servicing rights.
For measuring impairment, mortgage servicing rights are stratified based on predominate risk characteristics of the
underlying loans. These characteristics include loan type, loan size, interest rate, date of origination, loan term and
geographic region. The fair value of mortgage servicing rights used in measuring impairment is based upon quoted
market prices. Impairment of capitalized servicing rights is recognized through a valuation allowance for each stratum,
as necessary.
Subsequent Events
The consolidated financial statements and related disclosures include evaluation of events up through and including
December 29, 2011, which is the date the consolidated financial statements were available to be issued.
26
AUDITED
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the consolidated statements of financial condition of
FAIRWINDS Credit Union and their approximate fair values at September 30, 2011 are as follows:
Gross
Gross
Amortized Unrealized Unrealized Cost
Gains
(Losses) Fair
Value
Securities available-for-sale Federal agency securities
Collateralized mortgage obligations
Mortgage-backed securities
Total
$
257,988,192 $
2,409,014 $
(46,850) $ 260,350,356
184,143,478
3,619,143
(1,156,933)
186,605,688
36,792,778
1,677,188
(18,986) 38,450,980
$
478,924,448$
7,705,345$
$
4,642,416$
(1,222,769) $ 485,407,024
Securities to be held-to-maturity Mortgage-backed securities
290,817$-$
4,932,933
The amortized cost and estimated market value of debt securities,
at September 30, 2010, by contractual maturity, are shown below.
$
Securities
Securities to be
Available-for-Sale
Held-to-Maturity
Amortized
Fair Amortized
Fair
Cost
Value
Cost
Value
36,792,778 $
38,450,980 $
4,642,416 $
4,932,933
Due in less than one year
1,339,588
1,383,457
- -
Due in one year to less than five years
121,650,567
122,833,195
- -
Due in more than five years
319,141,515
322,739,392- - $
478,924,448$ 485,407,024$
Total
4,642,416$
4,932,933
27
AUDITED
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
Unrealized losses as of September 30, 2011 have not been recognized into income because they are not considered to
be other-than-temporary. Management considers the unrealized losses to be market driven, rather than credit driven,
and no loss will be realized unless the securities are sold.
Description of Securities
Continuing Unrealized
Continuing Unrealized
Losses For Less Than
Losses For 12 Months
12 Months
or More
Fair Unrealized
Value Losses Fair Unrealized
Value Losses Total
Fair Unrealized
Value Losses
Federal agency and
U.S. Government securities
$ 27,864,981 $
(65,836) $
- $
- $27,864,981 $
(65,836)
Collateralized
mortgage obligations
Total
90,273
$ 27,955,254 $
(83) 25,502,819 (1,156,850) 25,593,092 (1,156,933)
(65,919) $25,502,819 $ (1,156,850) $53,458,073 $ (1,222,769)
The Credit Union routinely conducts periodic reviews to identify and evaluate each investment security to determine
whether any other-than-temporary impairment (OTTI) has occurred. Economic models are used to determine whether
an OTTI has occurred on these securities. While all securities are considered, the securities primarily impacted by
OTTI testing are collateralized mortgage obligations, specifically collateralized mortgage obligations issued by nongovernmental agencies. For each private collateralized mortgage obligation in the investment, including but not
limited to those whose fair value is less than their amortized cost basis, an extensive, regular review is conducted to
determine if an OTTI has occurred. Various inputs to the economic model are used to determine if an unrealized loss
is other-than-temporary. The most significant inputs are the default rate and the loss severity rates of the underlying
collateral of the securities.
28
AUDITED
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
Other inputs may include the actual collateral attributes, which include geographic concentrations, credit ratings and
other performance indicators of the underlying assets.
To determine if the unrealized loss of these securities is other-than-temporary, the Credit Union projects total
estimated defaults of the underlying assets (mortgages) and multiply that calculated amount by an estimate of
realizable value upon sale in the marketplace (severity) in order to determine the impact on cash flows. If the Credit
Union determines that a given position will be subject to a write-down or loss, the Credit Union records the expected
credit loss as a charge to earnings while the non-credit portion is recorded to other comprehensive income.
The Credit Union recognized OTTI losses of $869,343 for the year ended September 30, 2010, related to expected credit
losses on collateralized mortgage obligations.
The carrying amounts of investment securities as shown in the consolidated statements of financial condition of
FAIRWINDS Credit Union and their approximate fair values at September 30, 2010 are as follows:
Gross
Gross
Amortized Unrealized Unrealized Cost
Gains
(Losses) Fair
Value
Securities available-for-sale Federal agency securities
Collateralized mortgage obligations
Total
$
312,407,990 $
3,446,438 $
(4,030) $ 315,850,398
136,846,188
1,972,170
(2,290,280)
136,528,078
17,994,718
1,186,413
- 19,181,131
$
467,248,896$
6,605,021$
$
10,570,102$
484,099$
(2,294,310) $ 471,559,607
Securities to be held-to-maturity Mortgage-backed securities
(1,644) $
11,052,557
29
AUDITED
NOTE 3 - LOANS TO MEMBERS
The composition of loans to members is as follows:
September 30,
2011
Automobiles
$ 152,963,971
2010
$ 157,977,853
Mortgage
269,224,027
296,411,887
Home equity
254,922,582
262,435,423
Other secured
20,053,350
28,055,597
Unsecured
21,832,352
24,140,471
Credit cards
46,814,134
51,348,657
Commercial loans
66,867,854
72,168,752
653,873
1,437,052
833,332,143
893,975,692
Net deferred loan origination fees/costs
Total
Less: allowance for loan losses
$ 801,188,250
$ 860,846,331
$
$
Total loans to members
32,143,893
33,129,361
A summary of changes in the allowance for loan losses is as follows:
Balance - Beginning
33,129,361
27,965,015
Provision charged to operations
22,359,473
31,465,795
Loans charged-off
(26,109,933)
(28,700,729)
Recoveries
2,764,992
2,399,280
Balance - Ending
$
32,143,893
$
33,129,361
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. In addition, the
Credit Union analyzes specific real estate and commercial loans for impairment under generally accepted accounting
principles. At September 30, 2011 and 2010, the recorded investment in impaired loans, all of which had allowances
determined under generally accepted accounting principles, amounted to approximately $108,385,100 and
$83,847,000, respectively. The allowance for losses related to these loans amounted to approximately $11,707,000 and
$10,700,000 at September 30, 2011 and 2010, respectively.
30
AUDITED
NOTE 3 - LOANS TO MEMBERS - CONTINUED
Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $30,173,000
and $29,950,000 for the years ended September 30, 2011 and 2010, respectively. If interest on those loans had
been accrued, such accrued income would have been approximately $2,112,600 and $1,940,000 for 2011 and 2010,
respectively.
At September 30, 2011 and 2010, the recorded investment in loans modified under troubled debt restructurings, all
of which had allowances determined under generally accepted accounting principles, amounted to approximately
$52,563,000 and $42,652,000. The allowances for losses related to these loans amounted to approximately $3,146,000
and $2,888,000 at September 30, 2011 and 2010, respectively.
NOTE 4 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The principal categories of property, equipment and leasehold improvements may be summarized as follows:
September 30,
Land and improvements
$
2011
23,032,365
$
2010
23,032,365
Building and improvements
49,586,702
49,550,967
Furniture and equipment
30,779,189
29,784,527
Leasehold improvements
10,191,138
10,397,349
692,774
1,579,422
114,282,168
114,344,630
Construction-in-process Total cost
Less accumulated depreciation
37,198,687
34,458,891
$
77,083,481
$
79,885,739
Undepreciated cost
31
AUDITED
NOTE 5 - BORROWED FUNDS
The Credit Union has outstanding borrowed funds and these notes mature and carry interest rates as follows:
September 30,
2011
2010
Fixed Rate Note with the Federal Home Loan Bank of Atlanta bearing interest of
4.389%, interest is payable monthly and principal is payable with a single
payment on August 28, 2017
$
25,000,000
$
25,000,000
payment on August 29, 2017
25,000,000
25,000,000
25,000,000
25,000,000
payment on January 30, 2018
Fixed Rate Note with Southeast Corporate Federal Credit Union bearing
interest of 0.574%, interest and principal is payable with a single payment
on December 31, 2010
32
Total borrowed funds
-
16,025,916
$
$
91,025,916
75,000,000
AUDITED
NOTE 5 - BORROWED FUNDS - CONTINUED
The Credit Union maintains a line-of-credit with Southeast Corporate Federal Credit Union at a variable rate of interest,
guaranteed by all assets, maximum credit available of $100,000,000 at September 30, 2011 and 2010. There were no
outstanding advances as of September 30, 2011 and 2010.
The Credit Union maintains a line-of-credit with the Federal Home Loan Bank of Atlanta at a variable rate of interest,
guaranteed by mortgage loans, maximum credit available of $310,600,000 at September 30, 2011. At September 30,
2011, the Credit Union had advanced $75,000,000 against this line-of-credit agreement in the form of term notes.
As of September 30, 2011, FAIRWINDS Credit Union has pledged $204,585,433 in first mortgage loans as collateral
against the term loans held with the Federal Home Loan Bank of Atlanta.
NOTE 6 - MEMBERS’ SHARES AND SAVINGS ACCOUNTS
September 30,
Share drafts
$
2011
87,326,352
$
2010
77,294,702
Shares and equivalents
346,384,647
270,087,895
Money market accounts
527,719,717
538,990,491
Individual retirement accounts
35,425,611
31,490,136
Certificates of deposit and IRA certificates
$1,336,119,312
Total members’ shares and savings accounts
339,262,985
398,412,890
$1,316,276,114
33
AUDITED
NOTE 6 - MEMBERS’ SHARES AND SAVINGS ACCOUNTS - CONTINUED
Interest expense on members’ shares and savings accounts is summarized as follows:
September 30,
Share draft accounts
$
2011
34,205
$
2010
32,360
Share accounts
168,691
311,726
Hi-Yield deposit accounts
1,150,444
3,210,614
Individual retirement accounts
98,596
182,114
Certificates of deposit and IRA certificates
5,672,092
8,668,310
$
7,124,028
$
12,405,124
At September 30, 2011, scheduled maturities of certificates of deposit and IRA certificates are as follows:
Year Ending
September 30:
2012
$ 254,830,854
2013
31,159,413
2014
13,299,615
2015
19,652,185
2016
20,320,918
Total
$ 339,262,985
The aggregate amount of members’ share and term deposit accounts in denominations of $250,000 or more at
September 30, 2011 and 2010 were approximately $87,806,000 and $116,449,000, respectively.
34
AUDITED
NOTE 6 - MEMBERS’ SHARES AND SAVINGS ACCOUNTS - CONTINUED
The NCUSIF insures members’ shares and certain individual retirement accounts. The Dodd-Frank Wall Street Reform
and Consumer Protection Act, signed into law July 22, 2010, included a provision to make the $250,000 share insurance
coverage provided by the NCUSIF permanent. The law requires the NCUA to use the higher $250,000 standard
maximum share insurance amount when making decisions about premiums and administering insurance deposit
adjustments. The increase in share insurance coverage includes all account types, such as share drafts, money markets,
shares and certificates of deposit. The law also includes deposits held by the Credit Union at other credit unions.
NOTE 7 - REGULATORY CAPITAL
The Credit Union is subject to various regulatory capital requirements administered by its primary federal regulator,
the NCUA. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Credit
Union’s financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Credit Union must meet specific capital regulations that involve quantitative measures of the
Credit Union’s assets, liabilities, and certain off-balance sheet items as calculated under generally accepted accounting
practices. The Credit Union’s capital amounts and net worth classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Credit Union to maintain
minimum amounts and ratios of net worth to total assets. Credit unions are also required to calculate a Risk-Based Net
Worth Requirement (RBNWR) which establishes whether or not the credit union will be considered complex under
the regulatory framework. The Credit Union’s RBNWR ratio as of September 30, 2011 and 2010 was 6.8% and 6.7%,
respectively. The minimum ratio to be considered complex under the regulatory framework is 6.0%. The Credit Union is
not considered complex under the regulatory framework.
As of September 30, 2011 and 2010, the Credit Union was categorized as “well capitalized” under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the Credit Union must maintain a
minimum net worth as follows:
Actual
Amount
$
131,384,738
8.34%
$ 110,258,319
7.00%
$
128,043,908
8.12%
$ 110,419,401
7.00%
Ratio
To Be Well Capitalized
Under the Prompt
Corrective Action
Provision
Amount
Ratio
September 30, 2011
Net worth
September 30, 2010
Net worth
35
AUDITED
NOTE 8 - RELATED PARTY TRANSACTIONS
The majority of employees and all members of the Board of Directors have member accounts at FAIRWINDS Credit
Union, including share, deposit and loan accounts. The terms of transactions involving these accounts (i.e., rates
charged and paid) are comparable to other members.
Included in loans receivable at September 30, 2011 and 2010 are loans of $3,624,609 and $3,835,641, respectively, to
directors and officers of the Credit Union. Such loans are made in the ordinary course of business at normal credit
terms including interest rates and collateralization.
36
AUDITED
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The principal commitments of FAIRWINDS Credit Union and Subsidiary are as follows:
Lease Commitments
At September 30, 2011 and 2010, FAIRWINDS Credit Union had outstanding commitments under noncancellable
operating leases for office space for several branch locations. Net rent expenses under the operating leases, included in
expenses, were $2,202,184 and $2,004,152 for the years ended September 30, 2011 and 2010, respectively.
The projected minimum rental payments under the terms of the leases at September 30, 2011 are as follows:
Year Ending
September 30:
2012
2013
1,645,589
2014
1,516,218
2015
1,519,671
2016
Total
$
$
1,861,335
995,065
7,537,878
Loan Commitments
At September 30, 2011, FAIRWINDS Credit Union had outstanding commitments for unused lines-of-credit that are not
reflected in the accompanying consolidated financial statements, as follows:
Home equity
Lines-of-credit
22,551,513
Credit cards
149,921,741
Overdraft privilege program
13,266,183
Commercial
11,122,329
Total
$
48,833,313
$ 245,695,079
37
AUDITED
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES - CONTINUED
FAIRWINDS Credit Union is a party to financial instruments with off-balance sheet risk in the normal course of business
to meet the financing needs of its members and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements
of credit and interest-rate risk in excess of the amount recognized in the consolidated statements of financial condition.
The contract or notional amounts of those instruments reflect the extent of involvement FAIRWINDS Credit Union has
in particular classes of financial instruments.
FAIRWINDS Credit Union’s exposure to credit loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual notional amount of those instruments.
FAIRWINDS Credit Union uses the same credit policies in making commitments as it does for on-balance sheet
instruments.
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit, generally unsecured
Commitments to extend credit, home-equity secured
48,833,313
Commitments to extend credit, commercial lending
11,122,329
Total
$ 185,739,437
$ 245,695,079
Commitments to extend credit are agreements to lend to a member as long as there is no violation of any condition
established in the contract. Commitments generally have termination clauses or fixed expiration dates. Since many
of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. FAIRWINDS Credit Union evaluates each member’s credit worthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary by FAIRWINDS Credit Union upon
extension of credit, is based on management’s credit evaluation of the member and classification of loan.
The Credit Union is a party to various legal actions normally associated with collections of loans and other business
activities of financial institutions, the aggregate effect of which, in management’s opinion, would not have a material
adverse effect on the financial condition or results of operations of the Credit Union.
38
AUDITED
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The Credit Union uses fair value measurements to record fair value adjustments to certain assets and liabilities and
to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market
prices for the Credit Union’s various financial instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques. Those techniques are significant
affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair
value estimates may not be realized in an immediate settlement on the instrument.
The definition of fair value focuses on exit price in an orderly transaction between market participants at the
measurement date under current market conditions, other than in a forced liquidation or distressed sale. If there
has been a significant decrease in the volume and level of activity for the asset or liability, a change in the valuation
technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at
which willing market participants would transact at the measurement date under current market conditions depends
on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within
the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
The Credit Union groups its financial assets and financial liabilities generally measured at fair value in three levels,
based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to
determine fair value.
Basis of Fair Value Measurements
Level 1 -
Valuation is based on quoted market prices in active markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and
equity securities that are traded in an active exchange market. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities.
Level 2 -
Valuation is based on inputs other than quoted market prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the asset or liability.
Level 3 -
Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value
is determined by using pricing models, discounted cash flow methodologies, or similar techniques, as well as
instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization with the valuation hierarchy is based on the lowest level of input that is
significant to their fair value measurement.
39
AUDITED
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS - CONTINUED
The following methods and assumptions were used by the Credit Union in estimating fair value disclosures for financial
instruments:
Cash and Cash Equivalents/Non-Negotiable Certificates of Deposit
The carrying amount approximates fair value due to the short-term nature of these instruments.
Investment Securities
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans Receivable
Fair value is based on the discounted value of future cash flows expected to be received for a loan or group of loans
using current rates at which similar loans would be made to borrowers with similar credit ratings and the same
remaining maturities. This method considers interest rate changes and credit risk changes within the discount rate
chosen. A single discount rate is applied to homogeneous categories of loans such as credit cards and automobile
loans.
Members’ Savings Accounts
The fair value disclosed for shares, share draft and money market accounts are, by definition, equal to the amount
payable on demand at the reporting date. Fair values for fixed-rate share certificates are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on shares and certificates.
Borrowed Funds
The fair value of fixed maturity borrowings is estimated using the rates currently offered for borrowings with similar
remaining maturities.
Commitments to Extend Credit
The estimate fair value of the commitments to extend credit represents the Credit Union’s potentially unfunded
commitments under such lines-of-credit.
40
AUDITED
Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis at September 30, 2011 are summarized as follows:
Quoted Prices in Other
Active Market Significant Significant
for Identical Observable Unobservable Assets
Inputs
Inputs (Level 1) (Level 2) (Level 3) Total
Carrying
Value
September 30, 2011
Available-for-sale securities
$-$
Loans held-for-sale
$
485,407,22$-
$
485,407,22
833,160$-$-
$
833,160
Assets Measured at Fair Value on a Nonrecurring Basis
Assets measured at fair value on a nonrecurring basis at September 30, 2011 are summarized as follows:
Quoted Prices in Other
Active Market Significant Significant
for Identical Observable Unobservable Assets
Inputs
Inputs (Level 1) (Level 2) (Level 3) Total
Carrying
Value
September 30, 2011
Other real estate owned
Impaired loans
$-$
44,999,635$-
$
44,999,635
$-$-$
96,678,102 $
96,678,102
41
AUDITED
The carrying amounts and estimated fair values of the Credit Union’s financial instruments at September 30, 2011 and
2010 are as follows:
September 30,
2011
Carrying
Amounts 2010
Fair
Value
Carrying
Amounts Fair
Value
Financial Assets
Cash and cash equivalents
30,230,764 $
30,230,764
Non-negotiable certificates of deposit
-
-
16,025,916
16,025,916
Investment securities
490,049,440
490,339,957
482,129,709
482,612,165
Loans held-for-sale
883,160
893,923
17,540,530
17,540,530
Loans receivable 833,332,143
825,469,626
892,538,640
870,797,000
Less: allowance for loan losses
(32,143,893)
- (33,129,361)
-
Unamortized loan origination fees
$
107,679,360 $ 107,679,360 $
653,873- 1,437,052- $ 1,400,454,083$1,424,382,866$1,406,773,250$ 1,417,206,375
Financial Liabilities
Members’ shares and savings accounts
$ 1,336,119,312 $1,341,263,244 $1,316,276,114 $ 1,287,081,000
Borrowed funds
75,000,000
82,603,000
91,025,916
100,540,000
$ 1,411,119,312$1,423,866,244$1,407,302,030$ 1,387,621,000
Unrecognized Financial
Instruments
42
Commitments to extend credit
$- $ 245,695,079$- $ 247,664,902
AUDITED
NOTE 11 - 401(K) PROFIT SHARING PLAN
The Credit Union has a 401(k) profit sharing plan that covers substantially all employees. Contributions by the Credit
Union included in the determination of net loss for the years ended September 30, 2011 and 2010 amounted to
approximately $775,000 and $614,000, respectively.
NOTE 12 - DEFERRED COMPENSATION PLAN
The Credit Union has a deferred compensation plan covering certain management employees which will be payable
upon the employees retirement or termination. The liability at September 30, 2011 and 2010 was approximately
$637,800 and $604,600 and is included in other accrued liabilities on the consolidated statements of financial
condition.
In 2010, the Credit Union established three new Supplemental Executive Retirement Plans (SERPs) that guarantee
specific payments be made to key executives once eligibility requirements are met. As of September 30, 2011 and 2010,
the obligation to the executives was $1,190,312 and $788,854, respectively. The SERPs were established to provide
two benefit payment dates for each executive to be paid when they reach the age of 55 and 65. The payment at age
55 is a lump-sum payment while the payment to be made at age 65 is determined based on the 5 highest years of
compensation paid to the executive between the date the agreements were signed and retirement age.
The Credit Union has invested in assets to informally fund the deferred compensation plans. As of September 30, 2011
and 2010, the Credit Union had assets valued at $15,821,152 and $15,430,163, respectively, related to these plans. The
assets would be available to general creditors in the event of liquidation of the Credit Union’s assets.
The Credit Union anticipates payments under the terms of the SERPs to be as follows:
Year Ending
September 30:
2012
2013
500,000
2014
-
2015
-
2016
Total
$
-
$
500,000
43
AUDITED
NOTE 13 - SERVICING PORTFOLIO
FAIRWINDS Credit Union was servicing $96,616,088 and $82,688,008 of unpaid FNMA mortgage balances at September
30, 2011 and 2010, respectively.
Servicing fee income related to these portfolios was approximately $224,000 and $174,000 for the years ended
September 30, 2011 and 2010, respectively. These amounts are included in fees and charges on the consolidated
statements of operations.
Custodial funds in escrow represent member payments for principal and interest, as well as for taxes and insurance.
These amounts are held in escrow, with a corresponding liability recorded until the date that such funds are released
by the Credit Union for their intended purpose. The total amount of escrow funds at September 30, 2011 and 2010 was
$1,247,054 and $1,089,357, respectively.
NOTE 14 - MORTGAGE SERVICING RIGHTS
The following is an analysis of the change in capitalized originated mortgage servicing rights:
44
September 30,
Balance - beginning
$
2011
840,197
$
2010
599,631
Capitalized servicing rights
163,039
263,167
Amortization expense
(28,659)
(22,601)
Balance - ending
$
974,577
$
840,197
BRANCH
LOCATIONS
ALTAMONTE SPRINGS
KISSIMMEE
SOUTH SEMORAN
APOPKA
LADY LAKE
ST. CLOUD
AVALON PARK
LAKE FOREST
TUSKAWILLA
BALDWIN PARK
LAKE MARY
UNIVERSAL BACK LOT
CLERMONT
LEESBURG
UNIVERSITY
COLLEGE PARK
LONGWOOD
VISTA LAKES
DELAND
MAITLAND
WATERFORD LAKES
DELTONA
METRO WEST
WEKIVA
DOWNTOWN ORLANDO
MT. DORA
WEST ORLANDO
DR. PHILLIPS
ORANGE CITY
WINTER GARDEN
EAST OVIEDO
OVIEDO
WINTER PARK
FERN PARK
SAND LAKE
FOUR CORNERS
SANFORD
150 Cranes Roost Blvd. #1230
Altamonte Springs, FL 32701
1621 S. Orange Blossom Trail
Apopka, FL 32703
12800 Tanja King Blvd.
Orlando, FL 32828
1801 Prospect Ave.
Orlando, FL 32803
1380 S. Grand Hwy.
Clermont, FL 34711
1402 Edgewater Dr.
Orlando, FL 32804
136 S. Woodland Blvd.
Deland, FL 32720
111 Howland Blvd.
Deltona, FL 32738
135 W. Central Blvd.
Orlando, FL 32801
7541-B West Sand Lake Rd.
Orlando, FL 32819
1425 E. Mitchell Hammock Rd.
Oviedo, FL 32765
134 Fernwood Blvd.
Fern Park, FL 32730
742 Cagan View Rd.
Clermont, FL 32714
1319 E. Osceola Pkwy., Ste. D
Kissimmee, FL 34744
870 US 441 N., Ste. C
Lady Lake, FL 32159
5020 W. State Road 46
Sanford, FL 32771
2879 W. Lake Mary Blvd.
Lake Mary, FL 32746
27414 US Hwy 27
Leesburg, FL 34748
800 E. State R d. 434
Longwood, FL 32750
457 S. Orlando Ave.
Maitland, FL 32751
5875 Arnold Palmer Dr.
Orlando, FL 32835
18415 US Hwy 441
Mt. Dora, FL 32757
2487 Enterprise Rd.
Orange City, FL 32763
77 Geneva Dr.
Oviedo, FL 32765
2375 S. Semoran Blvd.
Orlando, FL 32822
2975 E. Irlo Bronson Memorial Hwy.
St. Cloud, FL 34744
1475 Tuskawilla Rd.
Winter Springs, FL 32708
1000 Universal Studios Plaza, T -16
Orlando, FL 32819
3133 N . Alafaya Trail
Orlando, FL 32826
7037 Narcoossee Rd.
Orlando, FL 32822
306 N . Alafaya Trail
Orlando, FL 32828
397 Wekiva Springs Rd.
Longwood, FL 32779
6329 W. Colonial Dr.
Orlando, FL 32818
13580 Colonial Dr.
Winter Garden, FL 34787
1351 S. Semoran Blvd.
Winter Park, FL 32792
2475 Sand Lake Rd.
Orlando, FL 32809
261 E. Airport Blvd.
Sanford, FL 32773
45
ANNUAL
REPORT 2011
IMPROVING YOUR
FINANCIAL WELL-BEING

FAIRWINDS Credit Union

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