2010 Audit Report
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United Federal Credit UnionConsolidated Financial Reportwith Additional InformationDecember 31, 2010United Federal Credit UnionContentsReport Letter 1Consolidated Financial StatementsStatement of Financial Condition 2Statement of Income 3Statement of Members' Equity 4Statement of Cash Flows 5Notes to Consolidated Financial Statements 6-23Additional Information 24Report Letter 25Consolidating Statement of Financial Condition 26Consolidating Statement of Income 27Independent Auditor's ReportTo the Board of DirectorsUnited Federal Credit UnionWe have audited the accompanying consolidated statement of financial condition of UnitedFederal Credit Union (the "Credit Union") as of December 31, 2010 and 2009 and the relatedconsolidated statements of income, members’ equity, and cash flows for the years then ended.These consolidated financial statements are the responsibility of the Credit Union'smanagement. O ur responsibility is to express an opinion on these consolidated financialstatements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the ...

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United Federal Credit Union
Consolidated Financial Report
with Additional Information
December 31, 2010United Federal Credit Union
Contents
Report Letter 1
Consolidated Financial Statements
Statement of Financial Condition 2
Statement of Income 3
Statement of Members' Equity 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-23
Additional Information 24
Report Letter 25
Consolidating Statement of Financial Condition 26
Consolidating Statement of Income 27Independent Auditor's Report
To the Board of Directors
United Federal Credit Union
We have audited the accompanying consolidated statement of financial condition of United
Federal Credit Union (the "Credit Union") as of December 31, 2010 and 2009 and the related
consolidated statements of income, members’ equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Credit Union's
management. O ur responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall 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 United Federal Credit Union a t
December 31, 2010 and 2009 and the consolidated results of its operations, members' equity,
and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
January 24, 2011
1United Federal Credit Union
Consolidated Statement of Financial Condition
December 31, December 31,
2010 2009
Assets
Cash and cash equivalents $ 30,078,443 $ 67,070,797
Investment securities - Available for sale (Note 2) 105,066,449 75,038,318
Time deposits with other financial institutions 12,628,000 14,750,000
Loans to members - Net (Note 3) 1,011,775,781 887,533,579
Accrued interest receivable 3,840,520 3,689,080
Premises and equipment - Net (Note 4) 44,140,729 42,460,889
NCUSIF deposit (Note 15) 8,701,857 8,128,336
FHLB stock 5,960,400 4,868,500
CenCorp member capital share deposit 455,329 534,244
Other assets 5,806,479 4,147,931
$ 1,228,453,987 $1,108,221,674Total assets
Liabilities and Members' Equity
Liabilities
Members' share and savings accounts (Note 5) $ 985,825,324 $ 885,864,156
Borrowed funds (Note 7) 93,257,719 86,602,205
Accrued interest payable 992,816 1,027,201
Accrued expenses and other liabilities 13,080,368 10,415,966
Total liabilities 1,093,156,227 983,909,528
135,297,760 124,312,146Members' Equity
$ 1,228,453,987 $1,108,221,674Total liabilities and members' equity
See Notes to Consolidated Financial Statements. 2United Federal Credit Union
Consolidated Statement of Income
Year Ended
December 31, December 31,
2010 2009
Interest Income
Loans $ 64,492,061 $ 52,679,546
Investment securities and other 2,466,011 1,352,649
Total interest income 66,958,072 54,032,195
Interest Expense
Members' share and savings accounts 15,677,583 18,586,119
Borrowed funds and line of credit 3,620,851 4,017,114
19,298,434 22,603,233Total interest expense
Net Interest Income - Before provision for loan losses 47,659,638 31,428,962
11,616,890 9,896,732Provision for Loan Losses - After provision for loan losses 36,042,748 21,532,230
Noninterest Income
Fees and charges 18,925,425 16,833,335
Recapitalization of NCUSIF deposit - 3,765,575
Insurance commissions 1,171,455 837,170
Other 1,475,942 466,891
Total noninterest income 21,572,822 21,902,971
Noninterest Expenses
Compensation and benefits 23,880,460 18,880,221
Operating expenses 16,879,665 14,262,068
Occupancy 2,950,471 2,399,229
Impairment - NCUSIF deposit - 1,157,013
Other 3,005,284 1,745,974
46,715,880 38,444,505Total noninterest expenses
$ 10,899,690 $ 4,990,696Net Income
See Notes to Consolidated Financial Statements. 3United Federal Credit Union
Consolidated Statement of Members' Equity
Accumulated
Other
Comprehensive
Appropriated Unappropriated Income Total
Balance - January 1, 2009 $ 22,892,415 $ 95,776,031 $ - $ 118,668,446
Comprehensive income:
Net income - 4,990,696 - 4,990,696
Change in unrealized gain
on securities available
653,004for sale - - 653,004
Total comprehensive
5,643,700income
Balance - December 31, 2009 22,892,415 100,766,727 653,004 124,312,146
Comprehensive income:
Net income - 10,899,690 - 10,899,690
Change in unrealized gain
on securities available
85,924for sale - - 85,924
Total comprehensive
10,985,614income
$ 22,892,415 $ 111,666,417 $ 738,928 $ 135,297,760Balance - December 31, 2010
See Notes to Consolidated Financial Statements. 4United Federal Credit Union
Consolidated Statement of Cash Flows
Year Ended
December 31, 2010 December 31, 2009
Cash Flows from Operating Activities
Net income $ 10,899,690 $ 4,990,696
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 2,403,726 2,045,926
Amortization of securities 678,509 118,479
Provision for loan losses 11,616,890 9,896,732
Impairment - NCUSIF deposit - 1,157,013
Recapitalization - NCUSIF deposit - (3,765,575)
Impairment - CenCorp member capital share deposit 78,915 165,756
Net change in:
Accrued interest receivable (151,440) (1,043,401)
Other assets (1,658,548) 1,288,161
Accrued interest payable (34,385) (230,934)
Accrued expenses and other liabilities 2,664,402 637,452
Net cash provided by operating activities 26,497,759 15,260,305
Cash Flows from Investing Activities
Proceeds from maturities and principal paydowns of investment securities -
Available for sale 62,722,023 21,440,815
Purchases of investment securities - Available for sale (93,342,739) (87,830,597)
Net increase in loans to members (135,859,092) (51,374,002)
Increase in NCUSIF deposit (573,521) (3,013,509)
Purchases of FHLB stock (1,091,900) -
Purchases of premises and equipment (4,083,566) (3,950,072)
Proceeds from maturities of time deposits with other financial institutions 11,461,000 13,968,000
Purchase of time deposits with other financial institutions (9,339,000) (28,718,000)
Cash and investments received from the acquisition of Clearstar Federal
- 42,706,496Credit Union
Net cash used in investing activities (170,106,795) (96,770,869)
Cash Flows from Financing Activities
Net increase in members' shares and savings accounts 99,961,168 132,096,547
Proceeds from FHLB advances 18,000,000 10,000,000
Repayment of FHLB advances (11,344,486) (17,265,988)
Net repayment of revolving credit facilities - (7,254,243)
106,616,682 117,576,316Net cash provided by financing activities
Net (Decrease) Increase in Cash and Cash Equivalents (36,992,354) 36,065,752
67,070,797 31,005,045Cash and Cash Equivalents - Beginning of year
$ 30,078,443 $ 67,070,797 - End of year
$ 19,332,819 $ 22,834,167Supplemental Cash Flow Information - Cash paid for interest
During 2009, the Credit Union acquired Clearstar Federal Credit Union. See Note 14 for the additional details on the assets and
liabilities acquired.
See Notes to Consolidated Financial Statements. 5United Federal Credit Union
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 1 - Nature of Business and Significant Accounting Policies
Nature of Business - United Federal Credit Union is a nonprofit financial cooperative
operating in Michigan, Ohio, Arkansas, North Carolina, North Dakota, and Nevada.
The Credit Union's primary source of revenue is interest income resulting from loans
made to its members, many of whom live and work in southwestern Michigan, as well as
fees and charges.
On September 25, 2009, the Credit Union acquired Clearstar Federal Credit Union.
See Note 14 regarding the acquisition.
Principles of Consolidation - During 2010, the Credit Union formed United Holdings,
LLC, a 100 percent-owned subsidiary, and United Diamond Insurance Agency, LLC
(UDIA), a credit union service organization that provides insurance brokerage services
to credit union members. UDIA is 100 percent owned by United Holdings, LLC. The
consolidated financial statements include the accounts of Federal Credit Union,
United Holdings, LLC, and UDIA, which are collectively referred to as the "Credit
Union" throughout the report. All significant intercompany balances and transactions
have been eliminated in consolidation.
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 disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Estimates that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan losses. Actual results
could differ from those estimates.
Cash and Cash Equivalents - For the purpose of the consolidated statement of cash
flows, cash equivalents include cash on hand, balances due from other financial
institutions, and interest-bearing deposits with the other financial institutions with
original maturities of three months or less.
Investment Securities - Investment securities are classified as held to maturity and
carried at amortized cost when management has the positive intent and ability to hold
them to maturity. Investment securities are classified as available for sale when they
might be sold before maturity. Investment securities classified as available for sale are
carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income (loss) and as a separate component of members' equity.
6United Federal Credit Union
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 1 - Nature of Business and Significant Accounting Policies
(Continued)
Purchase premiums and discounts are recognized in interest income using the interest
method over the terms of the securities. Declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses. In estimating other-than-impairment losses, management considers (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Credit Union to
retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. Gains and losses on the sale of securities are recorded
on the trade date and are determined using the specific identification method.
Time Deposits with Other Financial Institutions - Time deposits with other
financial institutions consist of certificates of deposit with contractual maturities of 30
months or less.
Loans - The Credit Union grants mortgage, commercial, and consumer loans to
members. A substantial portion of the loan portfolio is represented by mortgage loans
throughout the Midwest. The ability of the members to honor their contracts is
dependent upon the real estate and general economic conditions in this area.
Loans that the Credit Union has the intent and ability to hold for the foreseeable future
are stated at unpaid principal balances plus net deferred loan origination fees and
discounts, less an allowance for loan losses. 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 well secured and in process of collection. Credit card loans and
other personal loans are typically charged off no later than 180 days past due. 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.
7United Federal Credit Union
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 1 - Nature of Business and Significant Accounting Policies
(Continued)
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost
is recognized as an adjustment to interest income using the interest method over the
contractual life of the loans, adjusted for estimated prepayments based on the Credit
Union's historical prepayment experience. C ommitment fees and costs relating to
commitments whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. I f the commitment is subsequently
exercised during the commitment period, the remaining unamortized commitment fee
at the time of exercise is recognized over the life of the loan as an adjustment of yield.
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.
A loan is considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral
value, and the profitability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Credit Union does not separately identify individual
consumer and residential loans for impairment disclosures.
8