Chairman & President’s Report ....
4
Board of Directors ...
6
Treasurer’s Report ...
8
Credit Committee Report ...
10
Supervisory Committee Report ....
11
Financials ...
12
Corporate Information ...
36
INTEGRITY
ratios. Primarily due to the uptick in credit unionlending, year-end assets were down to $1.1 billion compared to $1.4 billion at the previous year-end. On an average basis, assets for all of 2014 were down $59 million compared to 2013. Deposits in our Excess Balance Account (EBA) at the Federal Reserve Bank are down to just $130.8 million. Retained earnings at year-end 2014 were $19.8 million, giving First Carolina a retained earnings ratio of 1.41%, putting us well above NCUA’s retained earnings requirement that takes effect in October 2016.
With the support of our members and guidance of our Board, First Carolina has successfully met and surpassed our capital rebuilding goals. That we now move forward as a solid, financially stable corporate is a result of working in collaboration with our members to achieve these goals. It is a relationship that we value and do not take for granted.
All of us here at First Carolina moved into 2014 with renewed passion to provide outstanding products and service to our members. It was once again a busy year for projects that enhanced our members’ experience with all that First Carolina has to offer.
Understanding that a change to the extended period of low interest rates is anticipated for 2015, First Carolina introduced a number of floating rate CD specials, which we expect will become a regular offering as we enter a period of rising rates. Although floaters are not instruments credit unions normally purchase, we have been operating within a rate environment that has been anything but normal for the last 6-7 years. Given the focus on interest rate risk by regulators, these investments offer some additional current yield and will move up quickly with increases to market rates. Enhancements to existing services were also a priority in 2014. Improvements to our securities safekeeping program brought that service in-house with the next step being integrating both our brokerage operation and bond accounting service into the safekeeping program. Additionally, our ALM Manager program has been upgraded where it will operate off the same high-end ALM platform as our ALM Direct program. The ALM department’s mission is to help credit unions use their ALM modeling capabilities for strategic purposes
CHAIRMAN AND PRESIDENT’S REPORT
At some point in every story, a page is turned and it is time to begin a new chapter. From the economy to world events, through mid-term elections and a new Congress, there was a sense of moving on. For First Carolina 2014 proved not to be so much about moving toward change, but stepping away from the past toward re-focusing and re-energizing efforts to serve our members.
Although 2014 didn’t seem to start out auspiciously for the U.S. economy, consistent gains throughout the year in key sectors led us to believe that we may actually be seeing a sustained comeback. Record auto sales, improved housing starts and the highest rate of hiring for U.S. workers in 13 years combined to raise overall optimism. While the job outlook was positive it did not yet equate to wage growth, which continued to lag throughout the year proving that we still have a way to go. However, growing U.S. oil exports hit the world markets resulting in large drops in oil prices, which gave consumers relief at the pumps and more money in their pockets. For our credit union members, consumers’
willingness to open their pocketbooks translated to more loans for automobile purchases or refinancing. As credit unions experienced a resurgence in lending, First Carolina had a corresponding decrease in our assets as more of our members grew their loan portfolios while shrinking their excess cash and investments.
The start of 2014 marked a milestone for First Carolina as we left behind our Capital Restoration Plan, under which we had been operating since 2010. First Carolina’s strategy of managing the Corporate’s capital ratios by maintaining a portion of members’ deposits off-balance sheet continues, however, First Carolina is no longer dependent on this off-balance sheet management tool to maintain strong capital
4
INTEGRITY
CHAIRMAN AND PRESIDENT’S REPORT
continuedrather than to just satisfy regulatory requirements. The ongoing development of our ALM staff has made us a key resource for performing ALM model validations for credit unions nationwide. At the end of the year, First Carolina began converting its international wire program to a new, more user-friendly and convenient platform that performs required OFAC checks on each transaction.
A focus on Growth and Learning is one of our core organizational values. All of us at First Carolina strongly believe in our function as an educational resource for our membership. In 2014 we continued to expand upon our education and training services by adding new sessions to the “Director Training Series” that was introduced last year. This series focuses on educating board members about financial management and a range of balance sheet risks that helps them meet NCUA requirements for director training and financial literacy. Additional sessions continue to be developed and added to the library for our members to access.
As a complement to the Director Training Series, First Carolina recognized a need for comprehensive investment education that was accessible to all credit union personnel and was offered on a flexible schedule while limiting costs and travel time. In September, our “Investment Training Series” was launched to provide credit union personnel access to valuable educational information on investing. The series provides online presentations covering a wide variety of investment topics at no cost to credit unions. Training topics include general education subjects such as “The Role of the Federal Reserve & the FOMC” as well as more investment specific subjects such as the five-part series on “Investing
in SBA Pool Securities.” More sessions and topics will be added over the coming year to help keep credit union investment personnel knowledgeable of current trends and products. Our annual Financial Conference was once again well attended with about 100 credit union representatives from six states gathering to learn about interest rate risk, developing ALM assumptions, using NEV as a management tool, and understanding cybercrime. During our Payments Conference in October we discussed the latest trends in ACH, international payments, and risk management in the payments arena.
Most important, First Carolina once again received stellar ratings from its annual membership survey which showed that 97% of the respondents are “totally satisfied” with their relationship with First Carolina. Our staff service levels received an overall score of 4.84 on a scale of 5, and our Net Promoter score was a 9.85 out of 10. We know that we must work hard each day to continue earning this level of support from our members.
As we enter the next chapter of our story, we see a bright future for First Carolina as we stay focused on the core of what we do best – help our members to succeed. Thank you for your business, your partnership and the privilege of serving you.
Respectfully,
Bob Bruns
Chairman, Board of Directors
David Brehmer President/CEO
FIRST CAROLINA BOARD OF DIRECTORS
Back row, left to right:
Lucile Beckwith, Bob Bruns, Jack Braswell, Jim McDaniel, Steve Smith
Front row, left to right:
Scott Woods, Lori Thompson, Randy Crawford, Scott Weaver
6
“UsingFCCCU’sACHauditservicehashad
averypositiveimpactonourstaffand
operations.Notonlydowehavethetrustin
theexpertiseofFCCCUandknowthatthey
areadequatelyreviewingourACHprocesses,
butalso,whenACHquestionsorissues
arisethroughouttheyearwehaveourACH
contactatFCCCUasareliableresource.
Ourstateexaminershavebeenverypleased
withthisindependentreview.”
Sharon Conti President/CEOVirginia Educators Credit Union
George Kite
CFO
Call Federal Credit Union
“OurCreditUnionhadgrowninsizeand
complexity,yetwewerestillusinga
modelthatwasoriginallycreatedtobea
managementinformationsystem—notan
interestrateriskmodelingplatform.By
usingALMDirectfromFirstCarolina,Call
FCUnowhasbetterdata,tomaketheright
decisionsforfuturegrowthbyspendingmore
timeanalyzingdatathanpreparingit.It
definitelysavesustimeandfreesupour
resourcesforotherimportantandnecessary
projects;butmoreimportantlyithasgiven
usamoredetailedunderstandingofour
balancesheetwhichhelpsusmakemore
informeddecisionswithgreaterconfidence,
leadingtobetteroutcomesandsuccesses.”
ACH AUDITS
ALM DIRECT
First Carolina had another strong financial year in 2014, with continued steady growth in retained earnings. As of 2014, First Carolina was no longer operating under its Capital Restoration Plan (2010-2013) having exceeded projections by 33% during the period covered by the plan.
As of December 31, 2014, retained earnings were $19.8 million compared to $16.3 million in 2013. Under the revised NCUA Regulation, Part 704, corporates are required to meet three different thresholds for retained earnings ratios. The first of those thresholds took effect on October 31, 2013. On that date, the minimum required reserves and undivided earnings ratio became 0.45%. First Carolina achieved compliance with this requirement in 2012 with a year-end ratio of 0.88%.
Two additional retained earnings ratios become effective October 2016 (1%) and October 2020 (2%). First Carolina has already surpassed the 2016 regulatory capital threshold with a reserves and undivided earnings ratio of 1.41%.
Assets ended 2014 at $1.093 billion, compared to $1.377 billion at year-end 2013. First Carolina’s
average assets for the year are down by $59 million from the prior year to $1.406 billion as our member credit unions have taken advantage of the uptick in consumer spending and have increased lending to their members.
At year-end, members’ off-balance sheet deposits were $130.5 million, up from $122.9 million the previous year. When combined, member on and off-balance sheet holdings totaled $1.137 billion as of year-end.
Total capital now stands at $88.2 million, excluding unrealized losses on securities and accumulated other comprehensive losses. During 2014, First Carolina paid out all the remaining MCSD on its books. For purposes of capital calculations, NCUA requires First Carolina to reduce total capital by the amount of equity it holds in corporate CUSOs which at year-end totaled $2.1 million. This results in a total net capital of $86.1 million compared to $82.7 million at the end of 2013.
First Carolina’s total capital and leverage (Tier 1) capital ratio is 6.13% based on our 12-month rolling average assets. This exceeds NCUA’s regulatory
TREASURER’S REPORT
8
PASSION
FOR
TREASURER’S REPORT
continuedPASSION
FOR
SERVICE
guidelines, which require total capital to be above 4%. Our Tier 1 risk-based capital ratio stands at 22.8% reflecting the high credit quality of today’s balance sheet.
First Carolina’s net income was $3.782 million, with a net contribution to retained earnings of $3.431 million after dividend distributions to PCC accountholders. This figure includes booking of an additional $220,918 in “other than temporary impairments” (OTTI) from the write down of one of our remaining non-agency mortgage bonds. This write down was offset by positive accounting adjustments of $663,255 on the non-agency mortgage portfolio related to six bonds that have performed better than originally projected. A primary role of First Carolina is to act as a liquidity provider for our member credit unions. First Carolina was easily able to fulfill this function since access to liquidity remained strong throughout 2014. Cash reserves were proactively managed and external lines-of-credit were tested to ensure reliability. Our ability to generate liquidity from our balance sheet is reported monthly to the membership.
The Board of Directors, management and staff of First Carolina deeply appreciate the confidence and support you have given to your Corporate. We remain committed to doing our best to prove ourselves worthy of that trust every day. Together we look forward to a strong and successful 2015. Respectfully submitted,
Steve Smith Treasurer
GROWTH
AND
LEARNING
CREDIT COMMITTEE REPORT
The Credit Committee is responsible for reviewing and approving credit line requests, and is committed to ensuring that all of First Carolina Corporate Credit Union’s lending decisions consider the creditworthiness of borrowers, as well as financial market conditions and credit constraints. The Committee also provides advice and guidance to the First Carolina board and management regarding lending policies and procedures.
During 2014, the Credit Committee met quarterly to review requests for credit line changes and evaluate the creditworthiness of borrowers, and on an as-needed basis to address specific member needs. Our work this year also included a semi-annual review of the financial condition and performance of each credit union with an approved line of credit from First Carolina.
At year-end 2014, First Carolina had $1.11billion in approved lines of credit, an increase of 7% from year-end 2013. Outstanding loans at year-end were $13.95 million compared with $4.41 million a year earlier. As in previous years, First Carolina has never suffered a loss on any member loan, and there were no member loan delinquencies in 2014.
In our efforts to provide our member-owner credit unions with reliable sources of liquidity, First Carolina’s Credit Committee remains committed to continually reviewing our lending program to maximize the benefits to members, ensure the safety of our corporate, and make certain that First Carolina is one of our members’ primary liquidity sources.
We look forward to serving our members throughout 2015.
Respectfully Submitted,
Lucile Beckwith Chairperson
The Supervisory Committee at First Carolina Corporate Credit Union selects and retains a certified public accounting firm to periodically review the staff’s account reconciliations and internal operating procedures. The Committee also oversees First Carolina’s disaster recovery plan and all funds-transfer procedures. Each quarter, a report is provided to the Board of Directors on all actions taken by the committee.
This year, the Committee engaged the certified public accounting firm of PB Mares, PLC to perform periodic internal review services; and the certified public accounting firm of Orth, Chakler, Murnane and Company, CPAs, to perform an audit of First Carolina to render an opinion on its annual financial statements. The annual audit was completed in March 2015, and the results are contained in this annual report.
First Carolina maintains a fully equipped business recovery center (BRC) in Archdale, N.C. During the month of November, First Carolina conducted a series of disaster recovery tests utilizing the BRC facility. All corporate operations continued as normal with no service interruptions. We are pleased to
report that the BRC continues to perform well as a fully capable backup to the main facility. During 2014, the North Carolina Credit Union Division (NCCUD) and the National Credit Union Administration (NCUA) performed a joint examination of First Carolina’s operations. As it pertains to internal operating procedures and processes, the Supervisory Committee is satisfied with (1) the Internal Operating Procedures & Controls as independently reviewed and reported by PB Mares, our contracted Internal Auditor; and (2) with adherence to Regulatory Procedures as addressed by the NCUA and the NCCUD during their joint regulatory/insurance examination.
In summary, the Supervisory Committee concludes that First Carolina’s operations are sound and it continues to abide by the laws and regulations that govern it. The corporate exceeds the regulatory capital requirements that became effective in October 2013 and is already above the next regulatory capital hurdle for the retained earnings capital ratio (effective October 2016).
On behalf of the Committee, I extend our appreciation to the staff and Board for their work and open communication throughout 2014, and to my fellow committee members for their interest and faithful performance in volunteering service to First Carolina Corporate Credit Union.
Respectfully Submitted,
Michal B. Parker Chairperson
FINANCIALS
Independent Auditor’s Report ...
13
Statements of Financial
Condition ...
14
Statements of Income ...
16
Statements of Comprehensive
Income ...
17
Statements of Members’ Equity ...
18
Statements of Cash Flows ...
19
Notes to the Financial
Statements ...
21
I
NDEPENDENT
A
UDITOR
’
S
R
EPORT
March 18, 2015
To the Supervisory Committee of
First Carolina Corporate Credit Union
We have audited the accompanying financial statements of First Carolina Corporate Credit Union
which comprise the statements of financial condition as of December 31, 2014 and 2013, and the
related statements of income, comprehensive income, members’ equity, 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 audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from 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.
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
OCM
&
Co
A PROFESSIONAL ASSOCIATION
CPAS
I
NDEPENDENT
A
UDITOR
’
S
R
EPORT
March 18, 2015
To the Supervisory Committee of
First Carolina Corporate Credit Union
We have audited the accompanying financial statements of First Carolina Corporate Credit Union
which comprise the statements of financial condition as of December 31, 2014 and 2013, and the
related statements of income, comprehensive income, members’ equity, 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 audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from 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.
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
OCM
&
Co
A PROFESSIONAL ASSOCIATION
CPAS
I
ndependent
A
udItors
’ r
eport
March 18, 2015
To the Supervisory Committee of First Carolina Corporate Credit Union
We have audited the accompanying financial statements of First Carolina Corporate Credit Union which comprise the statements of financial condition as of December 31, 2014 and 2013, and the related statements of income, comprehensive income, members’ equity, 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from 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.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Carolina Corporate Credit Union as of December 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
We have also audited, in accordance with the auditing standards generally accepted in the United States of America, First Carolina Corporate Credit Union’s assertion concerning the effectiveness of the Credit Union’s internal control and procedures over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 18, 2015, expressed an unqualified opinion.
Orth, Chakler, Murnane & Co.
Orth, Chakler, Murnane & Company Certified Public Accountants Miami, FL
I
NDEPENDENT
A
UDITOR
’
S
R
EPORT
March 18, 2015
To the Supervisory Committee of
First Carolina Corporate Credit Union
We have audited the accompanying financial statements of First Carolina Corporate Credit Union
which comprise the statements of financial condition as of December 31, 2014 and 2013, and the
related statements of income, comprehensive income, members’ equity, 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 audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from 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.
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
OCM
&
Co
A PROFESSIONAL ASSOCIATION
CPAS
I
NDEPENDENT
A
UDITOR
’
S
R
EPORT
March 18, 2015
To the Supervisory Committee of
First Carolina Corporate Credit Union
We have audited the accompanying financial statements of First Carolina Corporate Credit Union
which comprise the statements of financial condition as of December 31, 2014 and 2013, and the
related statements of income, comprehensive income, members’ equity, 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 audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from 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.
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
Orth, Chakler, Murnane and Company, CPAs
A Professional Association
12060 S. W. 129 Court, Suite 201, Miami, Florida 33186-4582 ! Telephone 305-232-8272 ! Fax 305-232-8388th Web site: www.ocmcpa.com
Douglas J. Orth, CPA, CFE, Managing Partner James A. Griner, CPA
Hugh S. Chakler, CPA, CISA, CITP, CFE Lori J. Carmichael, CPA
John J. Murnane, CPA Daniel C. Moulton, CPA
Jack D. Kenney, CPA
OCM
&
Co
A PROFESSIONAL ASSOCIATION
14
ASSETS
As of December 31,
2014
2013
___________________________
(dollars in thousands)
Cash and cash equivalents
$100,591
$317,970
Investments:
Available-for-sale
813,315
810,482
Securities purchased under agreement to resell
17,054
19,385
Other
133,218
216,056
Loans
13,951
4,412
Accrued interest receivable:
Investments
1,361
1,627
Loans
5
6
Prepaid and other assets
12,409
6,196
Property and equipment
467
439
NCUSIF deposit
___________________________
388
403
Total assets
___________________________
$1,092,759
$1,376,976
___________________________
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF FINANCIAL CONDITION
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF FINANCIAL CONDITION
continuedThe accompanying notes are an integral part of these financial statements.
LIABILITIES AND MEMBERS’ EQUITY
As of December 31,
2014
2013
___________________________
(dollars in thousands)
LIABILITIES:
Members’ share and savings accounts
$988,706
$1,166,257
Membership capital shares
—
8,781
Borrowed funds
17,054
119,385
Accrued interest on share accounts
193
131
Accrued interest on borrowed funds
—
6
Accounts payable and accrued liabilities
___________________________
496
578
Total liabilities
___________________________
1,006,449
1,295,138
Commitments and contingent liabilities
MEMBERS’ EQUITY:
Perpetual contributed capital
68,477
68,334
Accumulated undivided earnings
19,772
16,342
Accumulated other comprehensive loss
___________________________
(1,939)
(2,838)
Total members’ equity
___________________________
86,310
81,838
Total liabilities and members’ equity
___________________________
$1,092,759
$1,376,976
___________________________
16
For the years ended
December 31,
2014
2013
___________________________
(dollars in thousands)
INTEREST INCOME:
Investments
$8,792
$9,475
Loans
___________________________
162
141
Total interest income
___________________________
8,954
9,616
INTEREST EXPENSE:
Members’ share and savings accounts
2,360
2,660
Borrowed funds
___________________________
246
513
Total interest expense
___________________________
2,606
3,173
Net interest income
___________________________
6,348
6,443
NON-INTEREST INCOME:
Fees and service charges
3,010
3,113
Gain on investments
879
273
Federal Reserve Bank - EBA agent fees
___________________________
97
102
Total non-interest income
___________________________
3,986
3,488
NON-INTEREST EXPENSE:
Compensation and employee benefits
2,717
2,597
Operating expenses
2,459
2,288
Other
1,155
1,099
Impairment of investment securities
___________________________
221
89
Total non-interest expense
___________________________
6,552
6,073
Net income
___________________________
$3,782
$3,858
___________________________
The accompanying notes are an integral part of these financial statements.
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF INCOME
The accompanying notes are an integral part of these financial statements.
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF COMPREHENSIVE INCOME
For the years ended
December 31,
2014
2013
___________________________
(dollars in thousands)
NET INCOME
___________________________
$3,782
$3,858
OTHER ITEMS OF COMPREHENSIVE
INCOME/(LOSS):
Net unrealized holding gains/(losses) on
investments classified as available-for-sale
1,557
(742)
Reclassification adjustment for net gains
included in net income
___________________________
(658)
(184)
Other comprehensive income/(loss)
___________________________
899
(926)
Comprehensive income
___________________________
$4,681
$2,932
___________________________
18
For the years ended
December 31, 2014 and 2013
___________________________________________
Accumulated Perpetual Other Contributed Undivided Comprehensive
Capital Earnings Loss Total
___________________________________________
(dollars in thousands)
Balance,
December 31, 2012
$68,334
$12,749
($1,912)
$79,171
Net income
—
3,858
—
3,858
Dividends paid on perpetual
contributed capital
—
(265)
—
(265)
Other comprehensive
loss
___________________________________________
—
—
(926)
(926)
Balance,
December 31, 2013
68,334
16,342
(2,838)
81,838
Contributed capital
143
—
—
143
Net income
—
3,782
—
3,782
Dividends paid on perpetual
contributed capital
—
(352)
—
(352)
Other comprehensive
income
___________________________________________
—
—
899
899
Balance,
December 31, 2014
___________________________________________
$68,477
$19,772
($1,939)
$86,310
___________________________________________
The accompanying notes are an integral part of these financial statements.
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF MEMBERS’ EQUITY
The accompanying notes are an integral part of these financial statements.
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF CASH FLOWS
For the years ended
December 31,
2014
2013
_____________________________
(dollars in thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$3,782
$3,858
Adjustments:
Depreciation
188
149
Dividends paid on perpetual contributed capital
(352)
(265)
Amortization of investment premiums/discounts
3,887
5,593
Impairment of investment securities
221
89
Gain on investments
(879)
(273)
Changes in operating assets and liabilities:
Prepaid and other assets
(6,213)
(2,902)
Accrued interest receivable
267
265
Accrued interest payable
56
(92)
Accounts payable and accrued liabilities
_____________________________
(82)
(183)
Net cash provided by operating activities
_____________________________
875
6,239
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturities, repayments and sales
of available-for-sale securities
240,773
329,143
Purchases of available-for-sale securities
(245,936)
(324,954)
Decrease in securities purchased under
agreements to resell
2,331
3,545
Net change in other investments
82,838
(41,643)
Net change in loans
(9,539)
(84)
Expenditures for property and equipment
(216)
(118)
Change in NCUSIF deposit
_____________________________
15
21
Net cash provided by/(used in) investing activities
_____________________________
70,266
(34,090)
20
The accompanying notes are an integral part of these financial statements.
FIRST CAROLINA CORPORATE CREDIT UNION
STATEMENTS OF CASH FLOWS
Cash Flows: (continued)
For the years ended
December 31,
2014
2013
___________________________
(dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in members’ share and savings accounts
(177,551)
(83,068)
Refund of membership capital shares put on notice
(8,781)
(1,580)
Net change in short term borrowings
(102,331)
96,456
Repayment of long-term borrowings
—
(20,000)
Perpetual contributed capital raised
___________________________
143
—
Net cash used in financing activities
___________________________
(288,520)
(8,192)
Net change in cash and cash equivalents
(217,379)
(36,043)
Cash and cash equivalents - beginning of year
___________________________
317,970
354,013
Cash and cash equivalents - end of year
___________________________
$100,591
$317,970
___________________________
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid
___________________________
$2,550
$3,265
___________________________
SCHEDULE OF NON-CASH TRANSACTIONS:
Other comprehensive income/(loss)
___________________________
$899
($926)
___________________________
FIRST CAROLINA CORPORATE CREDIT UNION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Organization
First Carolina Corporate Credit Union (the Credit Union) is a nonprofit financial cooperative organized to serve as a central money facility for investments and correspondent banking activity for its member credit unions through the financial system. The Credit Union provides a wide range of investment, liquidity, and correspondent banking services for its member credit unions and affiliated organizations principally located in North Carolina and South Carolina.
Financial Statements/Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses for the periods then ended. Actual results could differ from those estimates. Estimates that are particularly susceptible to change relate to the fair value of financial instruments. The significant accounting principles and policies used in the preparation of these financial statements, together with certain related information, are summarized below.
Cash and Cash Equivalents
Cash includes amounts due from the Federal Reserve Bank of Richmond (FRB) and other banks as well as cash in transit. Amounts due from banks may, at times, exceed federally insured limits.
Federal Reserve Bank - Excess Balance Account Program
The Credit Union, as agent, entered into an Excess Balance Account (EBA) agreement with participating member credit unions and the FRB, whereby the FRB opened EBA accounts for the benefit of the participants at the request of the agent. As such, the balances in the EBA accounts are not reflected in the Credit Union’s financial statements. These balances totaled approximately $130,815,000 and $131,191,000 as of December 31, 2014 and 2013, respectively. Neither the participating member credit unions nor the agent may use the EBA for general payments or other activities. The aggregate balance in the EBA represents a deposit liability of the FRB solely to the participants. The agent is solely responsible for calculating and distributing the interest payable to each participant on the participant’s excess balance and for damages owed to participants for any inaccuracy in calculating the participant’s excess balance and interest.
Investments
Investments are classified into the following categories: for-sale and other. Investment securities classified as available-for-sale are measured at fair value as of the statement of financial condition date. Unrealized gains and losses for available-available-for-sale investments are reported as a separate component of members’ equity as accumulated other comprehensive income/loss. Realized gains and losses on disposition, if any, are computed using the specific identification method. Investments are adjusted for the amortization of premiums and accretion of discounts as an adjustment to interest income on investments over the term of the investment using the interest method.
The Credit Union entered into the purchase of securities under agreements to resell the same or substantially identical securities. The amounts advanced under these agreements represent short- term loans. Securities purchased under agreements to resell as of December 31, 2014 and 2013, consisted primarily of agency issued mortgage-backed securities. The amounts advanced under the agreements are reflected as assets in the statements of financial condition. The Credit Union has the right to request additional collateral based on the fair value of the underlying securities. It is the Credit Union’s policy to take possession of the securities purchased under agreements to resell. These securities are delivered into a third-party custodian’s account that explicitly recognizes the Credit Union’s interest in the securities. As of December 31, 2014 and 2013, these agreements matured within 30 days and involved one counter-party.
The Credit Union has elected to classify certain cash equivalents as other investments. This election is available to the Credit Union according to the terms of Statement of Cash Flow Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
Federal Home Loan Bank (FHLB) Stock
As a member of the FHLB of Atlanta, the Credit Union is required to invest in stock of the FHLB. The Credit Union’s minimum stock investment is based on a formula developed by the FHLB that considers the Credit Union’s total assets and outstanding advances from the FHLB. The FHLB stock is carried at cost within other investments and its disposition is restricted. No ready market exists for the FHLB stock, and it has no quoted market value.
22
Loans
Loans are stated at the amount of unpaid principal. Interest on loans is calculated using the simple-interest method on principal amounts outstanding. The accrual of interest is discontinued when management believes that collection of interest is doubtful.
ALL Methodology
Management assesses the risks inherent in the loan portfolio by segmenting certain loans in the portfolio by product type. Loans are segmented into the following pools: commercial loans and a life insurance loan. Commercial loans are divided into the following four classes: fixed term/fixed rate loans, prime rate lines of credit, settlement loans, and other loans.
Each class of loans requires significant judgment to determine the estimation method that fits the credit risk characteristics of its portfolio segment. Management must use judgment in establishing metrics for the modeling processes used to evaluate the loan portfolio. The following methodology is used by management to determine the balance of the ALL for each segment or class of loans.
Commercial Portfolio Segment ALL Methodology
Commercial loans are evaluated on a loan-by-loan basis.
Loan Charge-Off Policies
The Credit Union evaluates all lines of credit on an annual basis. Member credit unions that do not meet certain financial criteria are placed on a watch list.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are carried at cost less accumulated amortization. The cost of leasehold improvements is amortized using the straight line method over the term of the lease, or the estimated life of the asset, whichever is less. The Credit Union reviews property and equipment (long-lived assets) for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
NCUSIF Deposit
The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with NCUA regulations, which require the maintenance of a deposit by each insured credit union. The deposit would be refunded to 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.
Members’ Share and Savings Accounts
Members’ shares are subordinated to all other liabilities of the Credit Union other than membership capital share deposits and member paid-in capital deposits upon liquidation. Interest rates on members’ share and savings accounts are set by management based on a daily assessment of available earnings and are not guaranteed by the Credit Union.
Membership Capital Shares
Membership capital share deposits (MCSD) required a notification term of three years prior to their withdrawal from the Credit Union. Effective November 1, 2011, notice was placed on all MCSD if the member credit union had not already done so and these deposits were returned to the members as of October 31, 2014.
Borrowed Funds
The Credit Union maintained borrowed funds from the FHLB as of December 31, 2014 and 2013. Borrowed funds are collateralized by various investment securities held in safekeeping at the FHLB.
Perpetual Contributed Capital (PCC)
PCC is a secondary capital instrument that is classified as equity in the statement of financial condition. PCC investments are not negotiable or assignable but may be transferred to another eligible member credit union under certain provisions. PCC may not be pledged or used as security for borrowing. PCC dividends are determined based on net earnings and the overall capital needs of the Credit Union. Additionally, PCC dividends are not guaranteed and may be suspended if earnings are negative and/or capital levels fall below regulatory and/or policy minimum levels.
Note 1: (continued)
FIRST CAROLINA CORPORATE CREDIT UNION
Federal Tax Exemption
The Credit Union is exempt from most federal, state, and local taxes under the provisions of the Internal Revenue Code and state tax laws. The Income Taxes topic of the FASB ASC clarifies accounting for uncertainty in income taxes reported in the financial statements. The interpretation provides criteria for assessment of individual tax positions and a process for recognition and measurement of uncertain tax positions. Tax positions are evaluated on whether they meet the “more likely than not” standard for sustainability upon examination by tax authorities. The Credit Union is a state-chartered credit union as defined 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 directly related to its exempt purposes. However, IRC Section 511 imposes a tax on the unrelated business income (UBI) derived by state-chartered credit unions.
Beginning in March 2008, the Internal Revenue Service (IRS) released Technical Advice Memorandums (TAMs) to specific state chartered credit unions specifying the revenue sources subject to unrelated business income tax (UBIT). UBI may also be subject to tax in certain states. Management has assessed the Credit Union’s activities and any potential federal or state income tax liability. Management has determined that the Credit Union has no income derived from non-exempt sources. Therefore, no liability exists from federal or state taxation of activities deemed to be unrelated to its exempt purpose. As such, the Credit Union has not filed tax returns for reporting UBIT-related income for tax years prior to December 31, 2014.
Subsequent Events
Management has evaluated subsequent events through March 18, 2015, the date the financial statements were available to be issued. Management has not identified any items requiring recognition or disclosure.
NOTE 2: INVESTMENTS
The amortized cost and estimated fair value of investments are as follows:
As of December 31, 2014
____________________________________________________________
Gross Gross
Available-for-sale: Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________________________________________________________
(dollars in thousands)
Small Business Administration $285,211 $1,005 ($917) $285,299 Asset-backed securities: Non-mortgage 418,199 157 (789) 417,567 Mortgage 13,346 7 (1,162) 12,191 Collateralized-mortgage obligations: Non-agency 4,474 — (670) 3,804 Agency 91,212 233 (34) 91,411 Mortgage-backed securities - agency ____________________________________________________________2,812 231 — 3,043
$815,254 $1,633 ($3,572) $813,315 ____________________________________________________________ ____________________________________________________________ As of December 31, 2013 ____________________________________________________________ Gross Gross
Available-for-sale: Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________________________________________________________
(dollars in thousands)
Small Business Administration $288,807 $1,365 ($735) $289,437 Asset-backed securities: Non-mortgage 370,003 219 (835) 369,387 Mortgage 24,675 48 (2,077) 22,646 Collateralized-mortgage obligations: Non-agency 7,798 10 (1,050) 6,758 Agency 118,285 203 (268) 118,220 Mortgage-backed securities - agency ____________________________________________________________3,752 282 — 4,034
$813,320 $2,127 ($4,965) $810,482
____________________________________________________________ ____________________________________________________________
Note 1: (continued)
FIRST CAROLINA CORPORATE CREDIT UNION
24
The repayment of investment securities is contingent upon the repayment of the underlying assets supporting the securities. The following tables represent concentration limits on investments.
As of December 31, 2014
By security type: _____________________________________________________________Fair value Capital based limit Asset based limit
(dollars in thousands)
Mortgage-backed securities $6,847 $861,837 $546,380 FFELP SLMA $154,976 $861,837 $546,380 Auto loan/lease ABS $59,429 $430,919 $273,190 Credit card ABS $203,163 $430,919 $273,190 Other ABS $12,191 $430,919 $273,190
As of December 31, 2014
By issuer: ______________________________________Fair value Regulatory limit
(dollars in thousands)
Government agency securities $3,043 $21,546 Chase Master Trust $41,684 $43,092 Discover Card Master Trust $41,080 $43,092 American Express Credit Account $40,451 $43,092 BB&T Bank $39,790 $43,092 CitiBank Credit Card Issuance Trust $30,689 $43,092 Capital One Master Trust $23,187 $43,092 Ford Dealer Floor Plan Master Trust $20,530 $21,546 Bank of America Credit Card Trust $20,051 $43,092 NC State Education Assistance Fund $18,181 $21,546 GE Dealer Floor Plan Master Trust $18,120 $21,546 Self Help Ventures Fund $17,054 $172,367 PNC Bank $14,781 $43,092 Ally Master Owner Trust $13,025 $21,546 NEF 2007-1 A1 $11,657 $21,546
Note 2: (continued)
FIRST CAROLINA CORPORATE CREDIT UNION
Note 2: (continued)
FIRST CAROLINA CORPORATE CREDIT UNION
NOTES TO THE FINANCIAL STATEMENTS
The following tables show the gross unrealized losses and fair values of investments aggregated by the length of time individual securities have been in a continuous unrealized loss position.
As of December 31, 2014 Available-for-sale
_________________________________________________________________________
Less than 12 Months 12 Months or Longer Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses _________________________________________________________________________
(dollars in thousands)
Small Business Administration $68,638 ($323) $83,373 ($594) $152,011 ($917) Asset-backed securities: Non-mortgage 146,422 (360) 161,260 (429) 307,682 (789) Mortgage — — 10,975 (1,162) 10,975 (1,162) Collateralized-mortgage obligations: Non-agency — — 3,804 (670) 3,804 (670) Agency _________________________________________________________________________— — 24,738 (34) 24,738 (34) $215,060 ($683) $284,150 ($2,889) $499,210 ($3,572) _________________________________________________________________________ _________________________________________________________________________ As of December 31, 2013 Available-for-sale _________________________________________________________________________
Less than 12 Months 12 Months or Longer Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses _________________________________________________________________________
(dollars in thousands)
Small Business Administration $69,275 ($319) $49,270 ($416) $118,545 ($735) Asset-backed securities: Non-mortgage 224,975 (726) 35,269 (109) 260,244 (835) Mortgage — — 19,087 (2,077) 19,087 (2,077) Collateralized-mortgage obligations: Non-agency — — 4,315 (1,050) 4,315 (1,050) Agency _________________________________________________________________________38,962 (76) 27,972 (192) 66,934 (268) $333,212 ($1,121) $135,913 ($3,844) $469,125 ($4,965) _________________________________________________________________________ _________________________________________________________________________
Unrealized losses on securities issued by the U.S. Government and its Agencies have not been recognized into income because of the implicit guarantee of the principal balances of these securities by the U.S. Government. The decline in fair value is primarily due to differences between security yields and market interest rates. The unrealized losses on these securities are expected to be recovered as they approach their maturity dates. Management has the intent and ability to hold these securities to full recovery of fair value, which may be maturity.
26
Management periodically evaluates investment securities for other-than-temporary impairment and has recorded estimated credit losses of approximately $221,000 and $89,000 during the years ended December 31, 2014 and 2013, respectively. The following table provides a summary of other-than- temporary impairments.
Available-for-sale
___________________________ For the years ended
December 31,
2014 2013
___________________________
(dollars in thousands)
Balance, beginning of year $2,707 $3,937 Add: Increases to the amount related to the credit loss for which
an other-than-temporary impairment was previously recognized 221 89 Less: Realized losses for securities sold or paid down (582) (683) Less: Increases in cash flows expected to be collected that
are recognized over the remaining life of the security ___________________________(663) (636) Balance, end of year ______________________________________________________$1,683 $2,707
The remaining loss estimates recorded through accumulated other comprehensive income represent the interest rate differential between the expected yield on securities and the book yields. The expected yield on the asset-backed securities and the non-agency securities is substantially higher than the current book yields due to market expectations for these types of securities. This has caused the discount rate used in valuing these securities to be substantially higher in most cases than the investment yields.
Other investments: As of December 31,
2014 2013
___________________________
(dollars in thousands)
Money market account $128,399 $202,871 Federal Home Loan Bank:
Member stock, restricted 2,007 7,031 Daily account — 14 Certificates of deposit 747 4,210 CUSOs ___________________________2,065 1,930 ______________________________________________________$133,218 $216,056
NOTE 3: LOANS
The composition of loans is as follows:
As of December 31, 2014 2013 ___________________________ (dollars in thousands) Commercial: Settlement $12,259 $2,648 Fixed term/fixed rate 1,000 1,000 Prime rate lines of credit ___________________________547 635
Total commercial loans 13,806 4,283 Insurance, secured ___________________________145 129
Total loans 13,951 4,412 Less ALL ___________________________— —
______________________________________________________$13,951 $4,412
Note 2: (continued)
FIRST CAROLINA CORPORATE CREDIT UNION
Impaired Loans
A loan is impaired when it is probable, based on current information and events, that the Credit Union will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. There were no impaired loans as of December 31, 2014 or 2013. Additionally, none of the loans outstanding as of December 31, 2014 or 2013 were past due or had been modified. The Credit Union places loans on non-accrual status when a loan reaches 90 days past due or when the collection of interest or principal becomes uncertain.
Commercial Credit Quality Indicators
The Credit Union reviews all lines of credit on an annual basis by reviewing the borrower’s financial condition and key ratios. From this analysis, a watch list is created of members that are in a deteriorating financial condition.
The following tables summarize the credit risk profile of the member commercial loan portfolio by class:
As of December 31, 2014 _________________________ Fixed term/ Prime rate
Credit grade Settlement fixed rate lines of credit Total
___________________________________________________________________________________________________________ (in thousands) (in thousands) (in thousands) (in thousands)
Non-watch list $11,524 $1,000 $547 $13,071 Watch list _______________________________________________________________735 — — 735 $12,259 $1,000 $547 $13,806 _______________________________________________________________ _______________________________________________________________ As of December 31, 2013 _________________________ Fixed term/ Prime rate
Credit grade Settlement fixed rate lines of credit Total
___________________________________________________________________________________________________________ (in thousands) (in thousands) (in thousands) (in thousands)
Non-watch list $2,570 $1,000 $635 $4,205 Watch list _______________________________________________________________78 — — 78
$2,648 $1,000 $635 $4,283
_______________________________________________________________ _______________________________________________________________
NOTE 4: PROPERTY AND EQUIPMENT
A summary of the Credit Union’s property and equipment is as follows:
As of December 31, 2014 2013 ___________________________ (dollars in thousands) Computer hardware $449 $463 Computer software 262 225 Furniture and equipment 168 163 Vehicles 87 88 Leasehold improvements ___________________________83 83
1,049 1,022 Less accumulated depreciation ___________________________(582) (583)
______________________________________________________$467 $439
Note 3: (continued)
