PROGRAM 1. Registration
7:30 am - 11:30 am
2. Business Agenda
9:00 am - 11:30 am
a. Call to Order b. Ascertain Quorum c. Presentation of Head Table and Special Guests d. Invocation by Eric Cordero e. USA and PR Anthems f. Administrative Announcement by Víctor L. Rosario g. Approval of Annual Meeting Rules h. Approval of the minutes of the last meeting i. President’s Report by Juan M. Masini j. Treasurer’s Report by Ramón A. Negrón k. Credit Committee Report by Juan M. Masini l. Supervisory Committee Report by Joseph R. Marrero m. BAIA’s Special Presentation by Víctor L. Rosario n. Nominations Committee Report by Juan O. Rodríguez o. Elections p. Old Business q. New Business r. Adjournment
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3. Lunch
11:30 am - 1:00 pm
4. Social Agenda
12:00 noon - 5:30 pm
CARIBE FEDERAL CREDIT UNION
WELCOME TO THE SIXTY-SIXTH ANNUAL MEETING OF CARIBE FEDERAL CREDIT UNION HELD THIS 3rd DAY OF JUNE 2018 AT THE WYNDHAM GRAND RÍO MAR HOTEL RIO GRANDE, PUERTO RICO
It is a pleasure to welcome you to our 66th annual meeting. During the annual meeting, we the Board of Directors, in compliance with our fiduciary responsibility as required by federal law and regulation, will present the financial situation of our credit union, as well as other accomplishments for the previous year. Paramount among the membership’s responsibilities is the election of members to the Board of Directors, whose terms expire. The meeting will also provide an excellent opportunity to share in comradery with other members and old friends of the Caribe Federal Credit Union family. Your Credit Union is growing in size, services and technology. We must keep up with the times while striving to offer our members, the best possible service in the most favorable terms. Thank you for joining us in celebrating Caribe Federal Credit Union’s 67th Anniversary.
Board of Directors Caribe Federal Credit Union
2017 ANNUAL REPORT
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SERVICES OFFERED BY CFCU Regular Share Account Share Certificate Share Draft/Checking Account Christmas Club Account Cari Kid Share Saving’s Account I-Save Share Saving’s Account Commercial Account Personal Unsecured Loans Personal Fully Secured Loan Line of Credit Business Loans New Auto Loan Used Auto Loan Auto Transfer Loan Auto Balloon Boat Loan Motorcycle Loan Emergency Loan IRA Loan MasterCard Student MasterCard Conventional Mortgage Loan VA, Rural and FHA Mortgage Loans Personal Mortgage Loan Reverse Mortgage Loan Land Loan Photovoltaic Equipment Loan Check Cashing Money Orders Traveler’s Checks Marbetes Occasion Checks Teller Station Auto Bank Direct Deposit Wire Transfers Telecaribe Caribe Online Caribe Bill Pay-e
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Shared Branching Caribe Mobile International ATM Card Free ATM withdrawals with Coop24 and ShareNet
SUPPLEMENTARY PLANS Offered through Business Alliance Insurance Agency, Inc. (BAIA) • Auto Insurance Products • Personal and Commercial Insurance Products • Life Insurance Plan • Dental Insurance Plan • Members Financial Assistance • College Fund • IRA’s
MISSION To satisfy our members financial needs.
VISION Be the best option in financial products and services.
CARIBE FEDERAL CREDIT UNION
KNOW YOUR OFFICIALS Board of Directors Mr. Juan M. Masini Mr. Porfirio Ríos Mr. Heriberto J. Martínez Mr Ramón A. Negrón Mr. Rafael A. Martínez Mr. Emilio M. Colón Mr. Iván O. Puig Mrs. Celia A. Ruiz Mr. Alexis E. Agostini Mrs. Nidza Hernández Mr. Juan O. Rodríguez
President First Vice President Second Vice President Treasurer Secretary Member at Large Member at Large Member at Large Member at Large Member at Large Member at Large
Lawyer Retired, US Trustee Retired, Farm Services Agency Ex-BOD Member ICPR Retired, ATF Retired, USACE Retired, USPS Retired, USDE Retired, USDA–APHIS PPQ Engineer HUD
Supervisory Committee Mr. Joseph R. Marrero Mr. Roberto Comas
Member Member
Lawyer Lawyer
Credit Committee Mr. Juan M. Masini Chairperson Lawyer Mrs. Celia A. Ruiz Member Retired, USDE Mrs. Melanie P. Rodríguez Member Lawyer Mr. Juan O. Rodríguez Alternate Member HUD
2017 ANNUAL REPORT
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Hato Rey Branch
Mortgage Division
U Banking Division
I.T. Division
Administrative Division (Guaynabo)
MEET OUR STAFF
Virtual Branch
Guaynabo Branch
MINUTES OF THE SIXTY-FIFTH ANNUAL MEETING JUNE 25, 2017 The 65th Annual Meeting of Caribe Federal Credit Union (CFCU) was held at the Wyndham Grand Resort Beach & Spa located in Río Grande, PR, on Sunday, June 25, 2017. QUORUM DETERMINATION AND CALL TO ORDER Secretary Rafael A. Martínez certified that quorum was established with more than 200 members present. Chairman Juan M. Masini-Soler called the meeting to order at 9:00 A.M. Chairman of the Board, Juan M. Masini-Soler, welcomed everyone and expressed his appreciation to all the members present at the annual meeting. He wished everyone a pleasant experience at the 65th annual meeting and the celebration of CFCU’s 66th Anniversary. The Chairman initiated the meeting by presenting the members of the Board of Directors, the Chairman of the Supervisory Committee, the General Manager, the Parliamentary consultant and the special guests. Member Eric Cordero delivered the invocation and the dedication of the 65th Annual Meeting. The Anthems of the Commonwealth of Puerto Rico and the United States of America were played. A minute of silence was observed in memory of all the members that passed away since our last annual meeting. ADMINISTRATIVE ANNOUNCEMENTS Activities Committee Chairperson, Víctor L. Rosario presented the administrative announcements concerning the annual meeting and the social activity to all the members present, followed by a raffle for the “early bird” attendees. ANNUAL MEETING RULES Chairman Juan M. Masini presented the proposed assembly parliamentary rules for consideration and approval by the membership. The parliamentary rules were approved as presented since they were distributed earlier during registration. The motion was seconded and approved. MINUTES The Chairman of the Board presented the June 12, 2016 Annual Meeting Minutes for consideration by the members and they were unanimously approved as presented.
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CARIBE FEDERAL CREDIT UNION
CHAIRMAN’S REPORT The Chairman began his presentation by expressing, that as his first year as President of the Board of Directors of CFCU, it was his honor and privilege to present a general overview of CFCU’s situation and the current future plans. Masini informed that his presentation would include a summary of some the projects worked on during 2016, accomplishments obtained during the same period as well as some of the projects still in progress. The Chairman briefly addressed the economic and financial situation of Puerto Rico to put into perspective the accomplishments of CFCU during 2016, so that the achievements could be better appreciated given the difficult fiscal and economic situation of our island. During the past ten (10) years, Puerto Rico has been submerged in a deep recession which has not been able to surpass. The recent information received by the Economists is that there will be no economic growth until 2026. During 2016, the island’s financial situation continued to deteriorate up to the point that the government is bankrupt. The public debt exceeds 70 thousand million dollars and as a consequence the government has imposed additional taxes causing an increase in the cost of living of puertorican citizens. Another consequence of the crisis is the exodus of people leaving the island to mainland in search of a better opportunity. Nonetheless, the financial industries have increased its assets. The local banks had an increase of a .67%, the local credit unions a .72% and the federal credit unions a 3.97% and CFCU being the highest, a 6.26%. CFCU continues to be the local federal credit union with the highest assets, totalizing $336 million until December 2016. Chairman Masini also mentioned that CFCU does not have any government bonds investments and that the BOD and management continue to keep on making wise business decisions and the necessary adjustments to fortify our credit union in order to serve members with the best products and services. As part of the Chairman’s presentation, he made mention of the 2016-2018 Strategic Plan and the 2016 Business Plan that were favorably completed. He then described, in general terms, the recently developed Strategic Plan for 2016-2018, which contained the following principal goals: -
Maintain CFCU’s solid financial condition Improve products and services Improve the flexibility of the loan requirements and processes Maintain delinquencies low and increase collections Improve marketing and communications Maintain employees well trained Maintain low operational expenses
2017 ANNUAL REPORT
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Chairman Masini informed that during 2016 CFCU had increased its loan portfolio by $15 million and presented the past 10 year trajectory with a steady increase every year. He also informed on the loans by type, on the marketing strategies, the tasks of the IT department, compliance and BAIA’s products and services available to members. Masini took a moment to recognize the employees who exceeded their 2016 evaluation and concluded his report expressing that CFCU’s 66 years of existence were thanks to all the components of the credit union which are: the BOD, management, employees and most of all its members. He expressed his appreciation to the members of the BOD for their commitment with CFCU and their support to him as Chairman of the BOD, this being his first year, and to the General Manager Jorge M. Vadell for his outstanding work throughout the past years. He wish everyone a pleasant afternoon during the social activity. TREASURER’S REPORT Treasurer Ramón A. Negrón welcomed everyone present and began his presentation with CFCU’s 2016 financial statements and comparing it to the 2015 financial statements. The financial statements were consolidated with CFCU’s subsidiary Business Consortium Alliance (BCA) and its affiliate Business Alliance Insurance Agency (BAIA). The Audited Financial statements were prepared by Llavona-Casa, Caribe’s external CPA firm. The Treasurer indicated that the financial statements were available to members for their review since June 8, 2017. He informed that the year 2016 was a very difficult year with a continuous period of a serious economic recession that has adversely affected the financial industries and that the Federal Fiscal Control Board (PROMESA) had started fiscalism in Puerto Rico. On the contrary to us, the EEUU economy has improved. The Federal Reserve maintained low interest rates during the year except for December 2016 where it started to increase 25 point base, a 3.75%. It is important to mention that this year the increase was 75 points base a 4.25%. In the EE.UU the cost of living has not increased and the bankruptcies and the delinquency on loans have been reduced. At CFCU the delinquency has been maintained under the 1% which is outstanding and the loan portfolio has increased $15 million more. The real estate market and the sale of the auto loans have been adversely affected in PR, however, in CFCU it has been the contrary having a significant increase in the auto and personal loan. CFCU closed the year with 29,305 members, an increase of 935 when compared to 2015. As everyone knows CFCU deposits are fully insured by NCUA. As of December 31, 2016, CFCU closed with $336 million in assets, an increase of $20 million more when compared to 2015.
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CARIBE FEDERAL CREDIT UNION
TOTAL ASSETS As of December 31, 2016, CFCU closed with $336 million in assets, an increase of $20 million more when compared to 2015. ASSET COMPOSITION The total assets consist of Cash and Cash Equivalents of $92 million. CFCU had a total of $228 million on net loans which show an increase of $15 million when compared to the previous year. The total Liabilities and Member savings amounted to $292 million, showing an increase of $18 million when compared to last year. The equity or reserve on capital reflects the amount of $44.5 million, an increase of $2 million in capital. The dividends paid on regular shares and shares certificates amounted to $1.9 million which is more than what most of our competitors were currently paying. The operational expenses amounted to $7.3 million in year 2016. The increase was mainly due to the depreciation of the building located in Guaynabo and the promotional and professional services expenses. The Treasurer presented the income distribution as follows: 15.76% paid in dividends, 58.78% spent in operational expenses, 9.2% set aside as provision for loan losses and 16.2% for net income. CFCU’s total net income for year 2016 was $2 million. He concluded his report expressing that despite the economic crisis that affects our island and citizens, CFCU continues to be a solid financial institution, thanks to all the members that use our products and services as well as the commitment and effort of our Board of Directors, ALCO Committee, Management and employees. CFCU remains committed to serve its members with warmth. CREDIT COMMITTEE REPORT President of the Credit Committee, Juan M. Masini-Soler, greeted and welcomed all the members present in the Annual Meeting. He introduced each of the members of the Credit Committee and the Loan Division and recognized their outstanding performance throughout the year. Thereafter, he presented the statistics on the loans approved and rejected during 2016 a year of great challenges. A total of 8,624 loan applications were considered during the year of which 4,602 were favorably approved, representing a 53%. The breakdown of the loan portfolio for 2016 was as follows: secured loans $4,815,050 partially secured loans $972,900, unsecured loans $25,623,903, Master Card $1,068,343, auto loans $50,136,900, motorcycle and boat loans $52,105, commercial loans $2,482,806 and mortgage loans $5,815,722 for a total of $90,967,729 in approved loans. As of December 31, 2016, our loan portfolio had a net income of $230,467,882 representing over $15 million more when compared to 2015.
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Director Juan M. Masini-Soler indicated that the Credit Committee and Management are constantly monitoring the changes in the market in order to provide members with the best products at the lowest cost. He encouraged all the members to take advantage of CFCU’s excellent loan offers. Masini-Soler, commented that CFCU’s main source of revenue is generated from loan interests. Therefore, when a member applies for a loan, they are not only contributing to CFCU’s income growth but they also receive excellent treatment by CFCU’s staff as well as obtaining an excellent product at a competitive rate. Moreover, these benefits are not offered by other banks or competing credit unions. As everyone knows, 2016 continued to be a year of great challenges due to Puerto Rico’s economic crisis where CFCU had to make multiple adjustments to maintain the credit union viable, genuinely competitive and financially solid. Notwithstanding the 2016 fiscal crisis of PR, CFCU experienced an increase in the amount of loan applications and loans approvals. All these efforts were possible thanks to our Board of Directors and Management. It is important to point out that other financial institutions have endured the same economic crisis of the island, however some of them are in serious financial problems and others have had to shut down operations. CFCU has maintained its firm financial course and as a good sailor would say “we have successfully endured the storm” with enthusiasm, professionalism and above all we have served our members with warmth. Masini-Soler expressed with immense pride that members of the Credit Committee and all the employees have contributed tremendously to making CFCU the best and most successful federal credit union established in Puerto Rico. CFCU has earned a position of prestige and honor for many years, also recognized by the National Credit Union Administration. He expressed his appreciation to CFCU’s membership for their support wished everyone a wonderful day during this magnificent social activity and that CFCU is everyone’s grand house (casa grande) and that the best is yet to come. SUPERVISORY COMMITTEE REPORT Chairman of the Supervisory Committee, Joseph M. Marrero introduced each member of the committee. He informed on the main duties of the Supervisory Committee which are the following: 1. 2. 3. 4.
Ensure the compliance of NCUA’s rules and regulations. Safeguard the financial objectives of the credit union. Ensure that the financial goals are met by management. Protect member’s assets.
He informed that Llavona Casas was the CPA firm who performed the external audit and examined CFCU’s operations for the year ending on December 31, 2015 and that it was their
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CARIBE FEDERAL CREDIT UNION
opinion that the financial statements present fairly, in all material respects, the financial position of CFCU and the results of the operations and its cash flows were in conformity with generally accepted accounting principles (GAAP) of the United States of America. He also informed that the committee had contracted the services of Internal Auditor William Torres to provide internal audit services as required by the Board of Directors and the regulations of NCUA. In addition, CFCU’s Compliance Officer assures the compliance of the laws and regulations. He concluded his report mentioning the list of tasks performed by the internal auditors and the future work plan to be executed by the Supervisory Committee. BUSINESS ALLIANCE INSURANCE AGENCY Business Alliance Insurance Agency’s (BAIA), Chairman Emilio M. Colón presented BAIA’s BOD members and initiated his presentation expressing that BAIA was a great source to obtain insurance products and financial planning. He mentioned that financial planning was a very critical subject especially in these difficult times and that BAIA was offering personal financial consultation by specialized experienced personnel. He also shared information on retirement planning products and insurance products. He concluded his report encouraging members to visit BAIA’s kiosk or to obtain more information in any of CFCU’s branches. NOMINATIONS COMMITTEE REPORT President of the Nominations Committee, Juan O. Rodríguez introduced the members of the committee. He then informed on the election process as follows: Option A2 - In-person elections; nominating committee and nominations by petition. The new election process states that the nominating committee files its nominations with the secretary of the credit union at least 90 days prior to the annual meeting, and the secretary notifies in writing all members eligible to vote at least 75 days prior to the annual meeting; nominations for vacancies may also be made by petition, said document should be accompanied with the signature of 1% of the active members with a minimum of 20 and a maximum of 500. The written notice must indicate that the election will not be conducted by ballot and there will be no nominations from the floor when there is only one nominee for each position to be filled. A brief statement of qualifications and biographical data in a form approved by the board of directors will be included for each nominee submitted by the nominating committee with the written notice to all eligible members. Each nominee by petition must submit a similar statement of qualifications and biographical data with the petition. The written notice must state the closing date for receiving nominations by petition. In all cases, the period for receiving nominations by petition must extend at least 30 days from the date that the petition requirement and the list of nominating committee's nominees are mailed to all members. To be effective, a signed certificate must accompany such nominations from the nominee or nominees stating that they are agreeable to nomination and will serve if elected to office. Such nominations must be filed with the secretary of the Board of Directors at least 40 days prior to the annual meeting and the secretary will ensure that nominations by petition along with those of the nominating committee are posted in a conspicuous place in each credit union office at least 35 days prior to the annual meeting.
2017 ANNUAL REPORT
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Director Rodríguez presented the candidates for the Board of Directors: Mr. Rafael A. Martínez, Mrs. Celia A. Ruíz, Mr. Porfirio Ríos and Mr. Ramón A. Negrón all of whom were duly approved by the Nominations Committee. No new nominations were received. DECLARATION OF NOMINEES There being no additional candidates to the Board of Directors and no requirement for a voting process, Director Hernández stated that the following candidates were re-elected to serve as members of the Board of Directors for years 2016 to 2018: Mr. Rafael A. Martínez, Mrs. Celia A. Ruíz, Mr. Porfirio Ríos and Mr. Ramón A. Negrón. NEW BUSINESS Member Juan Ocasio recommended that CFCU offer its members educational sessions on personal finances. Chairman Juan M. Masini informed that CFCU’s subsidiary BAIA offers these sessions to the members several times a year. Member Frank La Torre suggested that CFCU should not charge for account balance certifications. The recommendation was received and will be studied by the BOD. Member Juan Ocasio recommended that CFCU waive the $1 fee for balance at the ATM. The recommendation was received and will be studied by the BOD. Member José Benier suggested that the $10 per month dormant fee be waived. Chairman clarified that the dormant fee is $5.00 per month. The recommendation was received and will be studied by the BOD. Member Jorge Velázquez suggested that before an account goes into dormant that CFCU should call the member and also notify them by written that the account is about to go into dormant in order to avoid the charges. Chairman Masini explained that the members are notified however, some of them cannot be reached. Member Aidee Villalobos suggested that members be charged less than $12 for parking during the annual meeting at the hotel. The recommendation was received and will be studied by the BOD. Member Juan Ocasio requested time in the annual meeting to present the following recommendations for consideration by the BOD: 1. To offer small business loans to CFCU members considering that many big companies started very small operations such as Apple, Google and Amazon. 2. To offer IRA educational funds to members who wish to open one. 3. To offer Keogh Plan through BAIA. 4. To offer investments on Gold. 5. To offer individual finance workshops to CFCU members.
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CARIBE FEDERAL CREDIT UNION
Thereafter, the BOD informed that the recommendations presented by Mr. Ocasio will be studied by management and the BOD. Member Carmen Isaguirre asked about the seminar that CFCU would offer to members on parliamentary procedures. Chairman Masini informed that this seminar was available at CFCU’s website since last year. However, the Chairman indicated that for the benefit of the members who do not have a computer, he would arrange a live seminar at CFCU on August 19, 2017, 9:00AM. Member Saúl Molina expressed that he did not agree with the explanation that Parliamentary Consultant, Dr. Miguel Meléndez gave on the statement that the motions presented by members during the annual meeting are considered recommendations that need to be studied and approved by the BOD before implementing any of them. His personal opinion is that all motions presented by the members in the annual meetings are mandatory to be approved. Dr. Meléndez explained that all motions especially any one of them that has economic impact must be studied by management and considered by the BOD. Also that was the reason why the Board of Directors elected by the members in every annual meeting exists. Member Rosita Aguirre recommended that CFCU should consider offering balances by phone to members at least 3 times a year without charging fees. The recommendation will be studied and considered by the BOD. Member José Pérez recommended that CFCU provide a standby paramedic and ambulance service for the duration of the annual meeting in case of a medical emergency. The recommendation will be studied and considered by the BOD. OLD BUSINESS General Manager Jorge M. Vadell gave a presentation on the status of the recommendations that were presented in last year’s annual meeting. He informed on the recommendations that were implemented and the recommendations that were not viable. ADJOURNMENT There being no further business discuss, the meeting was adjourned by the Chairman of the BOD at 11:45 AM. Raffles, lunch and a social activity followed.
2017 ANNUAL REPORT
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Caribe Federal Credit Union CONSOLIDATED AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
For the years ended December 31, 2017 and 2016
2017 ANNUAL REPORT
17
INDEPENDENT AUDITORS’ REPORT The Board of Directors Caribe Federal Credit Union San Juan, Puerto Rico REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS We have audited the accompanying consolidated financial statements of the Caribe Federal Credit Union (“the credit union”) which comprise the consolidated statements of financial condition as of December 31, 2017 and 2016, and the related statements of income and expenses, changes in members’ equity, comprehensive net income, and cash flows for the years then ended, and the corresponding notes to the consolidated financial statements. MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITOR'S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION ON ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Caribe Federal Credit Union, as of December 31, 2017 and 2016, and the results of its operations, changes in member’s equity, comprehensive net income and cash flows for the years then ended, in accordance with generally accepted accounting principles in the United States of America.
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CARIBE FEDERAL CREDIT UNION
SUPPLEMENTAL INFORMATION Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information in pages 39, 40, and 41 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such supplemental information is the responsibility of management and was derived from and relates directly to, the underlying accounting and other records used to prepare the consolidated financial statements. The supplemental information has been subject to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental information is fairly stated in all material respects in relation to the consolidated financial statements taken as whole.
San Juan, Puerto Rico April 20, 2018
Stamp No. E-306196 was affixed to the original.
____________________________ LLAVONA - CASAS, CPA PSC License Number 226 Expires on December 1, 2018
2017 ANNUAL REPORT
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2
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES For the Federal years ended December Caribe Credit Union 31, 2016 and 2015 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2017 and 2016 2016 2015 Interest Income: Assets 2016 Interest and fees on loans $ 2017 10,817,571 $ 10,355,541 Interest on investments 797,793 809,796 Cash and cash equivalents $ 9,345,373 $ 7,142,296 Certificates of deposits Total interest income Investment securities Loans to members, net Interest expense: Accrued interest receivable Accounts receivable, net shares accounts (Note 10) Dividends on members' Prepaid expenses Property andincome equipment, net Net interest NCUSIF deposit Art Collections Provision for loan losses (Notes 2 and 6) Other assets
NetTotal interest income after provision for loan losses assets
$
36,799,270 11,615,364 30,894,050 265,494,847 1,460,975 37,500 1,951,646 125,327 11,183,917 9,663,718 2,815,866 77,619 (1,147,454) 824,139
24,161,200 11,165,337 60,306,309 228,163,203 640,787 367,584 2,086,968 131,457 11,827,632 9,078,369 2,686,175 77,619 (1,173,272) 750,848
8,516,264 $ 359,058,883
7,905,097 336,255,110
Service fee and and Members' non-interestEquity income (Note 12) Liabilities Non-Interest expenses (Notesaccounts 2, 13 and 14): Members' shares and savings Compensation and Accounts payable andbenefits accrued liabilities Accounts payable to auto dealers Occupancy and related Other Total liabilities Total non-interest expenses Members' Equity Net Income regular reserve Appropriated Unappropriated earnings Accumulated other comprehensive loss
935,915
303,785,748 3,406,786 2,626,509 7,095,436 2,093,305 1,781,148 313,507,693
286,973,339 3,150,638 1,792,539 3,011,240 2,208,446 1,843,630 291,777,118
7,281,239
7,202,714
$ 3,811,746 2,006,927 41,897,281 (157,837)
Total members' equity Total liabilities and members' equity
771,902
$
45,551,190 $
359,058,883
1,638,298 3,811,746 40,713,114 (46,868) 44,477,992
$
336,255,110
4 The accompanying notes are an integral part of the consolidated financial statements.
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The accompanying notes are an integral part of the consolidated financial statements.
CARIBE FEDERAL CREDIT UNION
3
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES For the years ended December Caribe Federal Credit Union 31, 2016 and 2015 CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES For the years ended December 31, 2017 and 2016 2016 Interest Income: 2017 Interest and fees on loans $ 10,817,571 Interest Income: Interest on investments 797,793 Interest and fees on loans Total interest income Interest on investments
$
Totalexpense: interest income Interest
11,849,898 11,615,364 886,470
2015 2016 $ 10,355,541 809,796 $ 10,817,571 11,165,337 797,793
12,736,368
Dividends on members' shares accounts (Note 10) Interest expense:
11,615,364
1,951,646
2,086,968
9,663,718 1,989,172
9,078,369 1,951,646
Provision for loan losses (Notes 2 and 6) Net interest income
(1,147,454) 10,747,196
(1,173,272) 9,663,718
Net interest income after provision for loan losses Provision for loan losses
8,516,264 (2,735,265)
7,905,097 (1,147,454)
Service fee and non-interest income (Note 12) Net interest income after provision for loan losses Non-Interest expenses (Notes 2, 13 and 14): Service fee and and non-interest Compensation benefits income Occupancy and related Non-Interest expenses: Other Compensation and benefits Occupancy and related Total non-interest expenses Other NetTotal Income non-interest expenses
771,902 8,011,931
935,915 8,516,264
$
693,765 3,406,786 2,093,305 1,781,148 3,665,686 2,044,781 7,281,239 1,811,062 2,006,927 7,521,529
771,902 3,150,638 2,208,446 1,843,630 3,406,786 2,093,305 7,202,714 1,781,148 1,638,298 7,281,239
$
1,184,167
Interest and dividends on members' shares Net interest income and savings accounts
Net Income
$ $
2,006,927
The accompanying notes are an integral part of the consolidated financial statements. The accompanying notes are an integral part of the consolidated financial statements.
2017 ANNUAL REPORT
4 4
21
22
CARIBE FEDERAL CREDIT UNION $
40,713,114
2,006,927
(157,837)
(110,969)
(46,868)
(24,231)
$
$
$ (22,637) 1,638,298 $
Theaccompanying accompanyingnotes notesare arean anintegral integral part part of of the the consolidated consolidated financial financial statements. The statements.
$
$ 2,006,927 38,706,187 $
41,897,281
3,811,746
$
Balance, December 31, 2017
3,811,746
-
3,811,746
1,184,167 $
$
935,915
771,902
3,406,786 3,150,638 2,093,305 2,208,446 Unappropriated 1,781,148 Accumulated 1,843,630 Other Earnings Comprehensive loss 7,281,239 7,202,714
7,905,097
(1,173,272)
8,516,264
(1,147,454)
Comprehensive income
Balance, December 31, 2016
Comprehensive income
Net2015 Income Balance, December 31,
Non-Interest expenses (Notes 2, 13 and 14): Compensation and benefits Occupancy and related Appropriated Regular Other Reserve Total non-interest expenses
Net interest income after provision for loan losses
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY Service fee and non-interest income (Note 12) For the years ended on December 31, 2017 and 2016
Provision for loan losses (Notes 2 and 6)
4
45,551,190
1,073,198
44,477,992
1,982,696
42,495,296
Total
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES Caribe Federal Credit Union 31, 2016 and 2015 For the years ended December CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended on December 31, 2017 and 2016 2016 Interest Income: Interest and fees on loans $ 10,817,571 Interest on investments 797,793 2017
Total interest income
11,615,364
Net Income
$ 1,184,167
2015 $ 10,355,541 809,796 2016
11,165,337 $ 2,006,927
Interest expense: Changes in unrealized gain (loss) on investment available(Note for sale Dividends on members'securities shares accounts 10)
(110,969) 1,951,646
Total comprehensive income
$ 1,073,198
Net interest income
9,663,718
Provision for loan losses (Notes 2 and 6) Net interest income after provision for loan losses Service fee and non-interest income (Note 12) Non-Interest expenses (Notes 2, 13 and 14): Compensation and benefits Occupancy and related Other Total non-interest expenses Net Income
$
(24,231) 2,086,968 $ 1,982,696
9,078,369
(1,147,454)
(1,173,272)
8,516,264
7,905,097
771,902
935,915
3,406,786 2,093,305 1,781,148
3,150,638 2,208,446 1,843,630
7,281,239
7,202,714
2,006,927
$
1,638,298
The accompanying notes are an integral part of the consolidated financial statements. The accompanying notes are an integral part of the consolidated financial statements.
2017 ANNUAL REPORT
4 6
23
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES Caribe Credit Union 31, 2016 and 2015 For the Federal years ended December CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended on December 31, 2017 and 2016 2016 Interest Income: 2017 Interest and fees on loans $ 10,817,571 Interest on investments 797,793 Cash flows from operating activities: Net income Total interest income Adjustments to reconcile net income to net cashexpense: provided by operating activities: Interest Depreciation and amortization Dividends on members' sharesofaccounts (Note 10) Loss (gain) on disposition repossessed assets Capitalized interest on certificate of deposit Provision for possible loan losses Net interest income Dividends credited on members' shares accounts Premium amortization and discount Provision for loan losses (Notes 2 and 6)accretion, net Recoveries on charged-off loans (Increase)/decrease assets: for loan losses Net interest income after in provision Accrued interest receivable Insurance claim receivable Service fee and non-interest income (Note 12) Accounts receivable, net Prepaid expenses Non-Interest expenses (Notes 2, 13 and 14): Other assets Compensation and benefits (Decrease)/increase Occupancy and related in assets: Other Accrued and other liabilities Accounts payable to auto dealers
2016
$ 10,355,541 809,796
$ 1,184,167 11,615,364
864,984
1,951,646 23,539
900,624
2,086,968(233)
1,993,957
1,959,462 4,225 (1,173,272) 298,494
8,516,264
7,905,097
2,093,305 833,970 1,781,148
2,208,446 (121,668) 1,843,630
7,281,239
7,202,714
(820,188) 771,902 330,084 6,130 (96,830) 3,406,786
4,084,196
10,272,604
$
(70) 1,147,454 9,078,369
2,690 (1,147,454)
314,877
Total adjustments
Net cash provided by operating activities
$ 2,006,927 11,165,337
(70) 2,735,265 9,663,718
Total non-interest expenses
Net Income
2015
2,006,927
$
11,456,771
1,048 64,358 935,915 (340,363) (1,687) (31,662) 3,150,638
551,849
4,431,831
1,638,298
6,438,758
The notes are arean anintegral integralpart partofofthe theconsolidated consolidatedfinancial financial statements. The accompanying accompanying notes statements.
24
CARIBE FEDERAL CREDIT UNION
7 4
Caribe Federal Credit Union CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES For the Federal years ended December Caribe Credit Union 31, 2016 and 2015 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended on December 31, 2017 and 2016 2016 Interest Income: 2017 Interest and fees on loans $ 10,817,571 Interest investments 797,793 Cash flowsonfrom investing activities: Cash proceeds from maturities, disposition Total interest income
2015 2016 $ 10,355,541 809,796
11,615,364
and return on principal over investments Adquisition of certificates of deposit Interest expense: Adquisition of investment securities available for sale Net increases in loansshares to members Dividends on members' accounts (Note 10) Acquisitions of property and equipment Depositincome in NCUSIF Net interest
39,798,600 (12,638,000) (10,500,000) (40,381,786) 1,951,646 (221,269) (129,691) 9,663,718
Net cash provided by investing activities
(24,072,146)
Provision for loan losses (Notes 2 and 6)
(1,147,454)
Cash flows from financing activities: Net increase in shares accounts
Net cash provided by financing activities
Net decrease in cash and cash equivalents
19,969,634
7,905,097
771,902
935,915
19,969,634
2,203,077
Non-Interest expenses (Notes 2, 13 and 14): Cash and cash equivalents at beginning of year Compensation and benefits Occupancy and related Cash and cash equivalents at end of year Other
(4,948,117)
7,142,296 3,406,786 2,093,305 $ 1,781,148 9,345,373
Total non-interest expenses
63,117,502 3,150,638 2,208,446 $ 1,843,630 58,169,385
7,281,239
Net Income Supplemental Disclosures of Cash Flow Information
$
(31,356,509)
8,516,264
14,818,452
Service fee and non-interest income (Note 12)
28,900,000 (7,241,000) (36,000,000) (16,222,374) 2,086,968 (568,974) (224,161) 9,078,369
(1,173,272)
14,818,452
Net interest income after provision for loan losses
11,165,337
2,006,927
7,202,714 $
1,638,298
Interest and dividend paid for the years ended December 31, 2017 and 2016 was $1,993,957 and $1,959,462, respectively. Also, during the years ended December 31, 2017 and 2016, unrealized loss on securities available for sale were recognized for ($110,969) and ($24,231), respectively, representing a non-cash item. Those charges are not reported as part of the net income for those years since they represent other comprehensive income.
4 The accompanying notes are an integral part of the consolidated financial statements. The accompanying notes are an integral part of the consolidated financial statements.
2017 ANNUAL REPORT
8
25
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 1.
ORGANIZATION Caribe federal Credit Union (“Credit Union”) is a nonprofit organization established in 1951 organized and chartered under the Federal Credit Union Act. The Credit Union serves federal employees in Puerto Rico and the U.S. Virgin Islands, members of the Liga de Estudiantes de Arte de San Juan, select employee groups in Puerto Rico and immediate family members. Its purpose is to promote thrift among its members by affording them an opportunity to accumulate their savings and create for them a source of credit for productive purposes. Business Consortium Alliance, Inc. (BCA) is a wholly-owned subsidiary of Caribe Federal Credit Union (Parent Company). It is a credit union service organization (“CUSO”) under the United States Credit Union Act. It was engaged in the development of its lines of business and in providing services to the Credit Union. During the year ended December 31, 2008, Business Alliance Insurance Agency (BAIA) was incorporated and began operations in 2009. The Company was created to conduct and operate a general insurance agency business for insurance companies organized or admitted to do business in the Commonwealth of Puerto Rico. It is a subsidiary of BCA.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The most significant accounting policies followed the Credit Union are in conformity he accounting principles generally accepted in the United States of America. The most significant policies are as follows: Principles of Consolidation The consolidated financial statements include the accounts of Caribe Federal Credit Union and its wholly-owned subsidiary Business Consortium Alliance, Inc. (BCA), which was consolidated with Business Alliance Agency (BAIA). All significant intercompany balances and transactions between the Credit Union and the subsidiary have been eliminated in the preparation of the consolidated financial statements. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain 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. Accordingly, actual results could differ from those estimates. 9
26
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reclassifications In the accompanying financial statements, certain 2016 figures were reclassified to conform to the 2017 presentation. Concentrations of Credit Risk Financial instruments that potentially subject the Credit Union to credit risk include cash balances and certificate of deposits with several financial institutions located in Puerto Rico and the United States; which were insured for up to $250,000 by the U.S. Federal Deposit Insurance Corporation (FDIC). The balances may exceed amounts insured by the FDIC. Credit risk for loans receivable and share accounts are also concentrated since most of the Credit Union’s members are located in the Puerto Rico geographical area. Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Association (NCUA) up to $250,000 per institution. The bank balance of deposits in commercial banks amounting to approximately $8,840,000 exceeded the amounts covered by federal depository insurance limits. There was no bank balance of deposits exceeding the NCUA depository insurance limits at December 31, 2017 and the balance of deposits in Banco Cooperativo amounting to approximately $1,212,000 were uninsured at that date. Cash and Cash Equivalents For purposes of the statements of cash flows, the Credit Union consider all highly liquid investment securities acquired with an original or remaining maturity of three months or less to be cash equivalents. Investment Securities Investment securities consist mainly of obligations issued by the Government of the United States and its political subdivisions. The Credit Union records the investments in securities in accordance with Accounting for Certain Investments in Debts and Equity Securities. The Credit Union classifies investments in debt instruments as securities available for sale and held to maturity. Investments are made in accordance with the Credit Union’s policies, which incorporate the regulations of National Credit Union Administration (NCUA), hence they are 10
2017 ANNUAL REPORT
27
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) principally in federally sponsored and guaranteed instruments. Gains or losses on disposition are based on the net proceeds and the adjustment carrying amount of the securities sold, using the specific identification method. Interest income is recorded on an accrual basis. Securities held-to-maturity Securities held-to-maturity are those which the management has the intent to hold to maturity. These investments are reported at cost, adjusted for amortization of premiums or accretion of discounts, which are recognized in investment interest income using the effective interest method over the period of maturity. Securities available-for-sale Securities available-for-sale are presented at fair market value. Unrealized gains and losses on securities available for sale are excluded form earnings and recognized as a direct or decrease in other comprehensive income. Investment securities in this classification could be sold any time in response to economic and strategic factors. Other than temporary decline in the fair market value Declines in the fair value of held to maturity and available for sale securities below their cost that are other than temporary are reflected as realized losses. In estimating other than temporary impairment, management considers: (1) the credit union 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 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 its 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 other than temporary impairment of a debt security in earnings and the remaining portion in accumulated other comprehensive income (loss). Loans to Members and Allowance for Loan Losses Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and net origination fees. Interest on loans is recognized over the term of the loan and is calculated using the simple-interest method on principal amounts outstanding. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The allowance is an amount that 11
28
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of collectability of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers’ ability to pay. Accrual of interest is discontinued on a loan when management believes, after considering economics, business conditions and collection efforts that the borrowers’ financial condition is such that collection of interest is doubtful. Regularly, this is applied to loans with the delinquency greater than 89 days. The revenue for such interests not accrued is recognized when collected. Loan Origination Fees Loan origination fees are deferred and recognized over the life of the loan as an adjustment of yield. The unamortized balance of the net origination fees is reported as part of the loan balance to which it relates. The periodic amortization is reported on the income statement as interest income. Accounts Receivable Accounts receivable are stated at their net realizable value. Property and Equipment 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. Assets classified as construction in process are not depreciated until the asset has been completed and placed into service. Impairment of Long Lived Assets The Credit Union periodically reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No indications of impairment are evident at December 31, 2017 and 2016.
12
2017 ANNUAL REPORT
29
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Art Collection Art collections are capitalized at their cost at the date of purchase or, if the items were contributed, at their fair or appraised value at the contribution date. NCUSIF Deposit The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is accordance with National Credit Union Administration (NCUA) regulations, which require the maintenance of a deposit by each insured credit union in an amount equal to one percent (1%) of its insured shares. The deposit is refunded to the credit union if its insurance coverage is terminated, it obtains its insurance coverage from another source, or the operations of the fund are transferred from the NCUA Board. 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 sale. 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 the properties for subsequent impairment and any subsequent declines in fair value are recorded through current period earnings. Members’ Shares Accounts The dividend rates are set by the Board of Directors based on an evaluation of current and future market conditions. Dividends on members’ shares accounts are based on available earnings at the end of the corresponding period and are not guaranteed by the Credit Union. Dividends are credited to the members’ share accounts on the last day of the month for which dividends are declared. Members share accounts are subordinated to all other liabilities of the Credit Union upon liquidation. Members’ Equity Caribe Federal Credit Union is required by regulation to maintain a statutory reserve. This reserve, which represents a regulatory restriction of retained earnings, is not for the payment of dividends. The statutory reserve consists of $3,811,746 for 2017 and 2016.
13
30
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available for sale securities. Advertising and Promotional Costs Advertising and promotional costs are expended as incurred. Federal and State Income Taxes The Credit Unions is exempt, by statute, from federal and state income taxes. 3.
CASH AND CASH EQUIVALENTS As of December 31 2017 and 2016, the balance of cash and cash equivalents consisted of the following: 2017 Cash in banks Petty cash Change Fund Total cash and cash equivalents
4.
2016
$
8,255,976 200 1,089,197
$
6,116,705 200 1,025,391
$
9,345,373
$
7,142,296
CERTIFICATES OF DEPOSITS As of December 31, 2017, and 2016, the Credit Union maintains certificates of deposits mostly in denominations of $250,000 and $100,000. The schedules maturities are as follows: 2017 2016 Due in one year or less Due after one year through three years Due in three years or more Total certificates of deposits
$
13,911,000
$
22,638,270 250,000 36,799,270
$
6,741,000 17,420,200
$ 24,161,200
14
2017 ANNUAL REPORT
31
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 5.
INVESTMENT SECURITIES At December 31, 2017 and 2016 the investment securities were as follows: 2017 Investment securities: Available for Sale Held to maturity Total investment securities
2016
$
20,592,163 10,301,887
$ 10,203,133 50,103,176
$
30,894,050
$ 60,306,309
As of December 31, 2017 and 2016, the amortized cost and the estimate fair market value of investment securities available for sale and held to maturity are as follows: 2017 Available for sale: Type of Investment Federal Home Loan Bank (FHLB) Federal Home Loan Mortgage Corporation (FHLMC) Federal National Mortgage Association (FNMA) Federal Farm Credit Bank (FFCB)
Total
$
Held to maturity:
Federal Home Loan Bank (FHLB)
Total
Unrealized
Gain
Loss
3,000,000 8,000,000 6,750,000 3,000,000
$ 20,750,000
Type of Investment
Unrealized Amortized Cost
$
-
Market Value
$
(18,170) (66,924) (57,663) (15,080)
$
(157,837)
Unrealized
Unrealized
Gain
Loss
Amortized Cost
$
2,981,830 7,933,076 6,692,337 2,984,920
$ 20,592,163
Market Value
$ 10,301,887
$
174
$
(82)
$ 10,301,979
$ 10,301,887
$
174
$
(82)
$ 10,301,979
15
32
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016
5. INVESTMENT SECURITIES (CONTINUED) 2016 Available for sale: Type of Investment Federal Home Loan Bank (FHLB) Federal Home Loan Mortgage Corporation (FHLMC) Federal National Mortgage Association (FNMA) Federal Farm Credit Bank (FFCB)
Total
$
Federal Home Loan Bank (FHLB)
Total
Unrealized
Gain
Loss
Market Value
1,000,000 4,000,000 3,250,000 2,000,000
$
520 -
$
(1,190) (20,710) (24,048) (1,440)
$
$ 10,250,000
$
520
$
(47,388)
$ 10,203,133
Held to maturity: Type of Investment
Unrealized Amortized Cost
Unrealized
Unrealized
Gain
Loss
Amortized Cost
998,810 3,979,290 3,226,473 1,998,560
Market Value
$ 50,103,176
$
2,760
$
-
$ 50,105,936
$ 50,103,176
$
2,760
$
-
$ 50,105,936
The amortized cost and estimated fair value of investment securities, at December 31, 2017 and 2016, by contractual maturity, are shown below. Investment expected maturities may differ from original contractual maturities because of borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due Date Due in one year or less Due after one year through five years Total
Amortized Cost
2017
2016
Market Value
Amortized Cost
$ 15,301,887
$ 15,282,620
$ 50,103,176
$ 50,105,936
15,750,000
15,611,922
10,250,000
10,203,133
$ 31,051,887
$ 30,894,542
$ 60,353,176
$ 60,309,069
Market Value
Unrealized losses as of December 31, 2017 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.
16
2017 ANNUAL REPORT
33
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 5. INVESTMENT SECURITIES (CONTINUED) As of December 31, 2017 Continuing Unrealized Losses for Less Than 12 months Description of Securities
Federal Home Loan Bank (FHLB) Federal Home Loan Mortgage Corporation (FHLMC) Federal Farm Credit Bank (FFCB) Federal National Mortgage Association (FNMA) Total
Unrealized Losses
Fair Value
$
(15,700)
4,961,755 1,991,420
12,410,430
$
Unrealized Losses
Fair Value
997,130
(2,870)
$
2,981,430
$
(18,570)
(38,245)
2,971,720
(28,280)
$
7,933,475
$
(66,525)
(8,580)
993,500
(6,500)
(27,045) $
Total
Unrealized Losses
Fair Value
1,984,300
3,472,955 $
Continuing Unrealized Losses for 12 months or More
(89,570)
3,219,383 $
8,181,733
2,984,920
(30,617) $
(68,267)
(15,080)
6,692,338 $
20,592,163
(57,662) $
(157,837)
As of December 31, 2016 Continuing Unrealized Losses for Less Than 12 months Description of Securities
Federal Home Loan Bank (FHLB)
Fair Value
$
Federal Home Loan Mortgage Corporation (FHLMC) Federal National Mortgage Association (FNMA) Federal Farm Credit Bank (FFCB) Total
Unrealized Losses
-
-
Fair Value
$
Total
Unrealized Losses
998,810
(1,190)
Unrealized Losses
Fair Value
$
998,810
$
(1,190)
3,979,290
(20,710)
-
-
3,979,290
(20,710)
2,225,953
(24,048)
-
-
2,225,953
(24,048)
1,998,560 $
Continuing Unrealized Losses for 12 months or More
8,203,803
(1,440) $
(46,198)
$
998,810
$
(1,190)
1,998,560 $
9,202,613
(1,440) $
(47,388)
17
34
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6.
LOANS As of December 31, 2017, and 2016, the portfolio of loans to members of the Credit Union by type is as follows: 2017 2016 Commercial: Corporations and individuals $ 23,149,103 $ 19,257,185 Total commercial 23,149,103 19,257,185 Consumer: Unsecured 58,835,571 47,158,674 Mortgage 30,492,872 27,738,872 Auto 136,260,423 115,168,752 Share secured loans 7,339,551 7,310,254 Credit cards 13,260,682 13,839,901 Lines of credit 534,705 581,767 Total consumer 246,723,804 211,798,220 Total loans $ 269,872,907 $ 231,055,405 Less: Allowance for loan losses Plus: Net unamortized deferred origination fees Total loans to members, net
(3,769,704) $
(608,356) 265,494,847
(2,304,679) $
(587,523) 228,163,203
Allowance for loan Losses The allowance for loan losses reflects management judgement of probable loan losses inherent in the portfolio at balance sheet date. The Credit Union uses a disciplined methodology to establish the allowance for loan losses each quarter. A minimum of 1.40% of the outstanding loans portfolio is required by policy. To determine the total allowance for loan losses, management estimates the provision needed for each segment of the portfolio, including loans analyzed individually and loans analyzed on a collectively basis. The allowance for loan losses consists of amounts applicable to: (1) consumer loans (personal auto, mortgage, line of credit and credit card) and (2) commercial loans portfolios. The establishment of the allowance for loan relies on a consistent process that requires multiple layers of management review and judgment and responds to changes in economic conditions, member behavior, and collateral value, among other influences. From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional amounts to or release balances from the allowance for loan losses. 18
2017 ANNUAL REPORT
35
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) The Credit Union’s allowance for loan losses is sensitive to individually evaluated loans, economic conditions and delinquency trends. Individually loans are evaluated based on each situation by experienced collection officers and reviewed by management. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged (“charge -off”) against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses. Loan Charge-Offs Loans recommended for charge-off must meet at least one of the following standards: •
A non-performing loan more than six month past due without a payment of at least 75 percent of a regular monthly installment within the last 90 days. In cases of nonperforming loans, transfers from shares and proceeds from the sale of collateral generally do not constitute “payments”;
•
A loan in bankruptcy, within 60 days of receipt of notification of filing from the bankruptcy court, unless the credit union can clearly demonstrate and document that repayment is likely to occur. Loans with collateral may be written down to the value of the collateral, less cost to sell. However, in Chapters 11 and 13 bankruptcy proceedings, if the court lowers the amount that the borrower must pay, the credit union should immediately charge off that portion of the debt discharged by the court;
•
A fraudulent loan, no later than 90 days of discovery or when the loss is determined, whichever is shorter;
•
On the death of the debtor, there appears to be little hope that there are sufficient assets available from the estate or from insurance to recover the debt;
•
On liquidation of the collateral, a deficiency balance exists, and the borrower(s) has indicated that no further payments are forthcoming;
•
Where CFCU has foreclosed an estimate loan loss, but has not yet sold the collateral on hand, CFCU may transfer the loan balance into the Collateral in Process of Liquidation account. It should charge-off any outstanding loan balance in excess of the property, less the cost to sell; 19
36
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) •
Where CFCU has foreclosed an estimate loan loss, but has not yet sold the property securing the real estate loan at the fair value of the property, CFCU may transfer the loan balance into the Other Real Estate Owned (OREO) account and should chargeoff any outstanding loan balance in excess of the value of property, less cost to sell;
•
A delinquent loan in the hands of an attorney or collection agency, unless there are extenuating circumstances to indicate CFCU will collect the loan;
•
A loan deemed uncollectible, where additional collection efforts are non-productive regardless of the number of months delinquent;
•
A “skip” where the credit union has had no contact for 90 days.
When a loan meeting of the above criteria is not recommended for charge-off, the collections department will report that fact to the board of directors in a separate written report. The report will include an explanation as to why the loan should be kept open and not assigned to nonperforming asset status (e.g., the debtor has agreed to and is making regular periodic payments). A summary of the changes in the allowance for loan losses, by portfolio segment, is as follows:
Beginning balance Provision during the year Recoveries of loans previously reserved Loans charge-offs Ending balance Evaluation of Allowance: Allowance evaluated individually Allowance evaluated collectively Total Loan Ending Balance: Evaluated individually for impairment Evaluated collectively for impairment Total
2017 Commercial $ 251,016 198,418
$
Consumer 2,053,663 2,536,847 314,877 (1,585,117) 3,320,270
$
$
449,434
$
$
378,202 71,232
$
546,656 2,773,614
$
924,858 2,844,846
$
449,434
$
3,320,270
$
3,769,704
$
2,097,263 21,051,840 23,149,103
$
$
1,988,583.00 244,735,221 246,723,804
4,085,846 265,787,061 269,872,907
$
$
Total 2,304,679 2,735,265 314,877 (1,585,117) 3,769,704
$
20
2017 ANNUAL REPORT
37
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED)
Beginning balance Provision during the year Recoveries of loans previously reserved Loans charge-offs Ending balance Evaluation of Allowance: Allowance evaluated individually Allowance evaluated collectively Total Loan Ending Balance: Evaluated individually for impairment Evaluated collectively for impairment Total
2016 Commercial $ 318,318 7,796 (75,098) $ 251,016
$ $
112,099 138,917 251,016
1,425,738 17,831,447 $ 19,257,185
$
$
$
Consumer 1,832,303 1,139,658 298,494 (1,216,792) 2,053,663
$
$
$
$
388,916 1,664,747 2,053,663
$
$
1,554,305 210,243,915 211,798,220
$
$
$
Total 2,150,621 1,147,454 298,494 (1,291,890) 2,304,679
501,015 1,803,664 2,304,679 2,980,043 228,075,362 231,055,405
Non-Accruing Loans The Credit Union generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, part of the principal becomes uncertain, part of the principal balance has been charged off and no restructuring has occurred, or the loans reach over 89 days past due. Loans to members in which the accrual of interest has been discontinued or reduced amounted to $1,616,201 and $1,235,391, at December 31, 2017 and 2016, respectively. If interest on those had been accrued, such income would have approximately $112,893 and $96,075, respectively.
21
38
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) The following table summarizes the aging of the loans to members’ receivable portfolio:
December 31, 2017 Personal Mortgage Auto Secured Credit cards Lines of credit Total consumer loans
Age Analysis of Loan to members Receivables by Category as of December 31, 2017 Current or 0-59 60-89 Over 90 58,785,402 $ 26,555 $ 23,614 $ 29,347,369 308,344 837,159 136,147,582 59,017 53,824 7,339,504 47 13,239,024 21,074 584 534,705 $ 245,393,586 $ 415,037 $ 915,181 $
Commercial Total loans to members
December 31, 2016 Personal Mortgage Auto Secured Credit cards Lines of credit Total consumer loans
22,448,083 $
267,841,669
$
415,037
701,020 $
Age Analysis of Loan to members Receivables by Category as of December 31, 2016 Current or 0-59 60-89 Over 90 47,084,110 $ 41,198 $ 33,366 $ 26,882,749 856,123 115,079,334 22,753 66,665 7,300,971 9,283 13,790,412 21,548 27,941 566,773 14,994 $ 210,704,349 $ 94,782 $ 999,089 $
Total 47,158,674 27,738,872 115,168,752 7,310,254 13,839,901 581,767 211,798,220
Over 90 Non Accruing $ 33,366 856,123 66,665 27,941 14,994 $ 999,089
19,257,185
236,302
$
229,725,232
1,616,201
23,149,103 269,872,907
19,020,883
$
Over 90 Non Accruing $ 23,614 837,159 53,824 584 $ 915,181
$
Commercial Total loans to members
701,020
Total 58,835,571 30,492,872 136,260,423 7,339,551 13,260,682 534,705 246,723,804
$
94,782
236,302 $
1,235,391
$
231,055,405
$
1,616,201
1,235,391
22
2017 ANNUAL REPORT
39
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) Credit Quality Information Consumer Loans - The use of risk classifications in consumer loans allows management to estimate their exposure to different types of risk. The Credit Union has established policies to evaluate application for loans using FICO credit scores, among other information, provided by major credit reporting agencies. A FICO score is a credit score developed by a third party that take information and analyze it to predict consumer behavior, such as how likely someone is to pay their bills on time or not, or whether they are able to handle a larger credit line. Generally, the FICO score range is 300 to 850, with the higher number representing less risk to the lender. Credit Quality Levels, Credit Score and Loans to Members’ Risk Exposure
The different levels of risk of loss established internally by the Credit Union according to the FICO credit scores are as follows: Upper Level - 700 or more, member has little or no additional risk. Middle Level - 660 to 699, member represents a nominal risk of loss. Lower Level - 659 or less, member is experiencing some degree of financial difficulty,
and represents a potential risk of loss. These levels are reviewed periodically, as well as other statistics and external factors, to monitor the performance of the portfolio. The following table represents the recorded investment in consumer loans based on different levels of risk of loss for the years ended December 31, 2017 and 2016. December 31, 2017 Loans Balance %
Credit Quality Levels Upper Level
$
Middle Level Lower Level
74%
60,350,560
23%
8,552,974
3%
$
262,319,077
100%
$
269,872,907
Credit score not available Total Consumer loans
193,415,543
December 31, 2016 Loans Balance % $
198,912,706
93%
10,828,526
5%
4,581,609
2%
$
214,322,841
100%
$
231,055,405
7,553,830
16,732,564
23
40
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) Commercial Loans - The Credit Union categorizes member business loans into risk categories based on relevant information about the ability of the borrower to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Credit Union analyzes member business loans individually by classifying the loans as to credit risk. This analysis is limited to member business loans. The Credit Union uses the following definitions for classified risk rating: Pass - The debtor has adequate capital and the ability to repay the debt in the normal course of operations. Special Mention - The loan has the potential weakness, such as negative financial trends, a limited financial history, a serious documentation flaws, or inadequate control on the part of the financial institution. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset. However, a loan rated “special mention” is considered fully collectible. Substandard - A loan is “substandard” if there is the potential for loss. Such loans have well-defined weakness and are not fully protected either by the paying capacity of the borrower or the value of the secondary source of repayment. These loans are characterized by the distinct possibility that your financial institution could sustain some loss if the deficiencies are not corrected. Doubtful and loss - The lowest risk ratings of “doubtful” and “loss” indicate increased loss potential. Such loans should have been already recognized and, more than likely, charged off. At December 31, 2017 and based on the most recent analysis performed, the risk category of loans is as follows: December 31, 2017 Special Mention
Pass Commercial Total commercial
$ 21,051,840 $ 21,051,840
$
-
Doubtful or Loss
Substandard
Total
$
1,396,243
$
701,020
$
23,149,103
$
1,396,243
$
701,020
$
23,149,103
24
2017 ANNUAL REPORT
41
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) Impaired Loans The following table includes the recorded investment and unpaid principal for impaired loans receivables with associated allowance amount. The Credit Union determined the specific allowance based on the net charge-off experience for the last two years, the specific losses estimated on an individual basis, the present net value of future cash flows, discontinued at the loan’s effective rate for troubled restructuring (TDR) and in cases of collateral depended loans, the fair value of the collateral less selling costs. Impaired Loans by Category for the year ended December 31, 2017
Impaired Loans by Category for the year ended December 31, 2016
Specific Unpaid Principal
Associated
Specific Unpaid Principal
Associated
of Impaired
Allowance for the
of Impaired
Allowance for the
Loans (cases)
Impaired Loan (Cases)
Loans (cases)
Impaired Loan (Cases)
Consumer: Personal Mortgage Auto Credit cards Lines of credit
Total consumer
$
143,058 1,634,822 180,309 30,394 -
$
65,992 351,219 120,316 9,129 -
$
182,003 1,177,391 111,313 68,605 14,993
$
65,095 225,696 45,880 37,251 14,994
$
1,988,583
$
546,656
$
1,554,305
$
388,916
Commercial Total
2,097,263 $
4,085,846
378,202 $
924,858
1,425,738 $
2,980,043
112,099 $
501,015
Loans to members secured by collateral consist of $196,537,768 and $168,955,411 for 2017 and 2016, respectively. The remaining balance represents loans partially secured and unsecured. The collections from most of the members’ loans are by direct deposit through payroll deduction. Troubled Debt Restructuring (TDR) In situations where, for economic or legal reasons related to a member’s financial difficulties, the Credit Union grants a concession for the other than an insignificant period of time to the member that the Credit Union would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). The Credit Union strives to identify members in financial difficulty early and work with them to modify to more affordable 25
42
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 6. LOANS (CONTINUED) terms before their loan reaches nonaccrual status. In cases where the Credit Union grants to the member new terms that provide for a reduction of either interest or principal (on noncollateral dependent loans) measures any impairment based on the present value of expected future cash flows at the loan effective interest rate. The following table presents the restructured loans by category:
Loans Count Consumer: Master card Personal Mortgage Auto Total consumer loans Commercial Total
1 9 3 3
Total consumer loans Commercial Total
$
16
1 10 2 3
1,734 43,361 398,083 30,177
$
473,355
7 23
Loans Count Consumer: Master card Personal Mortgage Auto
For the year ended December 31, 2017 Restructured Loans Delinquent Loans Assigned Loans Principal Assigned Principal Balance Allowance Count Balance Allowance
1,396,243 $
1,869,598
$
173 4,336 42,034 3,018
-
49,561
-
70,636
-
120,197
-
$
-
$
-
-
$
-
-
$
-
For the year ended December 31, 2016 Restructured Loans Delinquent Loans Assigned Loans Principal Assigned Principal Balance Allowance Count Balance Allowance
$
2,338 60,525 321,267 44,647
$
234 7,538 29,036 7,878
-
$
1
9,902 22,753
1 -
$
2,476 5,688
16
428,777
44,686
2
32,655
8,164
6
1,266,250
68,667
1
159,487
-
113,353
3
22
$
1,695,027
$
$
192,142
$
8,164
Loans to Related Parties Certain officers, directors, and employees of the Credit union had loans and also share accounts with the Credit Union during 2017 and 2016. Such loans were in the ordinary course of business at normal credit terms including interest rates and collateralization and do not represent more than a normal risk of collection. Total loans outstanding to these related parties at December 31, 2017 and 2016, amounted to $2,076,145 and $1,689,200, 26
2017 ANNUAL REPORT
43
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 respectively. Share accounts to these related parties at December 31, 2017 and 2016 amounted to $4,202,656 and $4,168,075, respectively. 7. ACCRUED INTEREST RECEIVABLE At December 31, 2017 and 2016, the following are the components of accrued interest receivable:
2017 Accrued interests on loans Accrued interests on investments Total accrued interest receivable
$ $
1,337,253 123,722 1,460,975
2016 $ $
583,105 57,682 640,787
8. PROPERTY AND EQUIPMENT As of December 31, 2017, and 2016, the property and equipment were composed of the following:
Useful Life (in Years) 40 1-5
Buildings Furniture and fixtures Office equipment, principally Information systems
1-5
Less accumulated depreciation and amortization Land Total property and equipment
2017 $ 10,876,022 1,062,577
2016 $ 10,831,222 1,006,525
3,199,719 15,138,318 (6,340,896) 8,797,422 2,386,495 $ 11,183,917
3,079,301 14,917,048 (5,475,911) 9,441,137 2,386,495 $ 11,827,632
27
44
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 9. OTHER ASSETS As of December 31, 2017, and 2016, the other assets were composed of the following: 2017
Acquired on liquidation of loans - real estate Acquired on liquidation of loans - auto Deposits for the acquisition of property and equipment Deposits in Banco Cooperativo Investment in FHLB NY Deposits for annual meeting Others Total other assets
2016
$
512,241 17,160 12,105 108,099 54,200 15,000 105,334
$
468,950 25,126 108,099 64,500 40,000 44,173
$
824,139
$
750,848
10. MEMBERS’ SHARES ACCOUNTS Members’ shares accounts are summarized as follows:
Weighted-Average Dividend Rate at December 31, Shares drafts Regular shares (excluding escrow shares) Share certificates: 0.00% - 2.00% 2.01% - 3.00% Total members shares accounts
0.16%
2017 $
0.58%
18,497,251
2016 $
14,727,064
220,545,276
207,538,582
64,148,364 594,857 64,743,221
61,215,024 3,492,669 64,707,693
303,785,748
$ 286,973,339
1.11%
$
28
2017 ANNUAL REPORT
45
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 10. MEMBERS’ SHARES ACCOUNTS (CONTINUED) As of December 31, 2017 and 2016, the NCUA insured and Credit Union shares members’ accounts up to $250,000. The composition of insured and uninsured members’ shares and deposits balances follows: Type
2017
Uninsured member shares and deposits
$
Insured member shares and deposits
2016
15,647,644
$
288,538,668
Insured escrow
14,498,343 272,821,269
(400,564)
Total share and share certificates accounts
$
303,785,748
(346,273) $
286,973,339
At December 31, 2017, scheduled maturities of share certificates are as follows: Year ending December 31,
Amount
2018 2019 2020 2021 2022
$
40,104,804 8,936,172 6,488,478 5,539,140 3,674,627
$
64,743,221
Dividends expense on members’ shares accounts is summarized as follows: Type Regular shares
2017 $
Share drafts Share certificates Total dividends expense
$
1,241,456
2016 $
1,165,106
27,974
23,665
719,742
762,875
1,989,172
$
1,951,646
29
46
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 11. ACCRUALS AND OTHER LIABILITIES As of December 31, 2017, and 2016 the composition of accruals and other liabilities is as follows: 2017 Dividends payable Accrued payroll and related Annual members' meeting Accounts payable - trade Accounts payable - ATM Escrow accounts Other accruals
$
Total accruals and other liabilities
31,131 243,818 100,000 96,188 368,738 400,564 1,386,070
$ 2,626,509
2016 $
35,916 214,698 100,000 75,342 248,039 346,273 772,271
$ 1,792,539
12. SERVICE FEE AND NON-INTEREST INCOME Service fee and non-interest income for the years ended December 31, 2017 and 2016 are as follows: 2017 ATM card fees and charges, net Master card fees and charges, net Other fees, charges and expenses Sponsorships other Annual meeting
2016
$
139,636 (208,278) 450,585 68,330 12,240
$
156,124 (142,058) 488,091 53,620 11,585
$
462,513
$
567,362
Non-interest income from BCA
231,252
Total service fee and non-interest income
$
693,765
204,540 $
771,902
30
2017 ANNUAL REPORT
47
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 13. NON-INTEREST EXPENSES The detail of non-interest expenses for the years ended December 31, 2017 and 2016 are as follows: Compensation and benefits Occupancy and related: Depreciation and amortization Occupancy and utilities Communications Insurance Rent Repairs and maintenance Security
2017
2016
$ 3,665,686
$ 3,406,786
864,984 277,903 289,002 236,713 14,219 236,352 125,608 2,044,781
900,624 293,167 263,830 232,898 15,399 266,000 121,387 2,093,305
560,660 260,831 205,741 156,918 126,243 80,332 76,763 61,460 64,800 78,196 24,818 5,872 11,069 97,359
525,568 297,478 176,523 158,437 138,716 84,830 57,583 57,530 65,745 88,248 22,165 16,930 10,344 81,051
Other operating expenses: Professional services and contracted services Education and promotional Loan servicing and collection Annual meeting Monthly statements Bank service charges Federal operating Office supplies Commission and fees Travel and conferences Employees activities Loss (gain) on disposition of assets Dues and subscriptions Other miscellaneous Total other operating expenses Total non-interest expenses
1,811,062
1,781,148
$ 7,521,529
$ 7,281,239
14. DEFERRED COMPENSATION PLAN The employees of Caribe Federal Credit Union participate in a group deferred compensation plan through contributions to a life annuity accumulation contract administered by an insurance company. The plan was effective on October 1, 1993. Caribe Federal Credit Union matches the participant’s contribution up to a 5% of the employee compensation. All participants contribute at least 3% of their total gross compensation. The participants’ annual deposit should not exceed $15,000 from the gross compensation or $16,500 for participants over 50 years old.
31
48
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 14. DEFERRED COMPENSATION PLAN (CONTINUED) Employees are eligible to enter the plan if they have attained eighteen (18) years old and completed twelve months of service. The normal retirement date is the first day of the month after the participants 62nd birthday and after completing twenty (20) years of service. The plan also provides for early retirement. A participant may elect to retire at any time after attaining fifty-five (55) years old and completing seven (7) years of service. Vesting is accumulated after the second year on the plan for a period of five years at 20% per year. At termination of employment, the vested portion of a participant’s account will be paid following the next annual benefit payment date. During the years ended December 31, 2017 and 2016, Caribe Federal Credit Union contributed $94,128 and $91,051, respectively, to the pension plan. 15. UNCERTAINTIES, COMMITMENTS AND CONTINGENCIES Economic Conditions The Commonwealth of Puerto Rico and its instrumentalities (Commonwealth) is currently experiencing a severe fiscal, economic and liquidity crisis. On June 30, 2017, the President of the United States signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). Consequently, there is no assurance that the federally appointed oversight board of PROMESA will be successful in achieving budgetary and fiscal balance through a debt restructuring and a multi-year fiscal plan. The Credit Union continues to take steps to mitigate the possible effect in payment of loans by increasing the reserve for bad debt expenses from 1% to 1.40% of total loans as of December 31, 2017. Litigation The Credit Union maintains several claims against third parties, mainly demands payment of money and repossessions of assets, as part of its ordinary operations as a financial institution. Based upon counsel and management’s opinion the outcome of such matters is not expected to have a material adverse effect on the Credit Union’s financial condition.
32
2017 ANNUAL REPORT
49
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 15. UNCERTAINTIES, COMMITMENTS AND CONTINGENCIES (CONTINUED) Loan Commitments At December 31, 2017 and 2016, Caribe Federal Credit Union had outstanding the following commitments to extended credit with its members: Lines of Credit Commercial Consumer Credit Cards
2017 $ $
2,295,820 1,176,986 20,120,647 23,593,453
2016 $ $
2,480,349 1,147,238 18,604,132 22,231,719
In addition, the Credit Union had pending to deliver certain payments to auto dealers subject to the presentation of required documents. As of December 31, 2017, and 2016, payments amounted to $7,095,436 and $3,011,239, respectively, and are recorded as accounts payable to dealers in the accompanying financial statements. Caribe Federal Credit Union is a party to financial statements with off- balance sheet risk in the normal course of business to meet the financing needs of its members. These financial statements include commitments to extend credit and involve, to varying degrees, elements of credit and interest risk in excess of the amount recognized in the statement of financial position. The contractual notional amounts of those instruments reflect the extent of involvement Caribe Federal Credit Union has in particular classes of financial instruments. Caribe Federal Credit Union’s exposure to credit loss in the event of nonperformance by the other party to the financial statements for commitments to extend credit is represented by the contractual notional amount of those instruments. Caribe Federal Credit Union uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Unless noted otherwise, Caribe Federal Credit Union does not require collateral or other security to support financial instruments with credit risk. 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 fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Caribe Federal Credit Union evaluates each member’s credit worthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by Caribe Federal Credit Union upon extension of credit, is based on management’s credit evaluation of the counterpart.
33
50
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 15. UNCERTAINTIES, COMMITMENTS AND CONTINGENCIES (CONTINUED) Line of Credit Caribe Federal Credit Union has a line of credit facility with a financial institution. As of December 31, 2017, and 2016 there are not outstanding balances in the subject line of credit. With certain exceptions, substantially all assets of the Credit Union serve as collateral for the line of credit facility. The unused amount was $5,000,000 as of December 31, 2017 and 2016. Interest is charged when applicable based on the advance term, usually below prime rate. 16.
FAIR VALUE OF FINANCIAL INSTRUMENTS FASB ASC 820 Fair Value Measurements provides a framework for measuring fair value that requires an entity to determine fair value based on exit price in the principal market for the asset or liability being measured. Fair Value is defined as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The guidance also establishes a three levels fair value hierarchy that describes the inputs that are used to measure assets and liabilities. •
Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities.
•
Level 2 asset and liability fair values are based on observable inputs that include: quoted market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are observable in the market and can be corroborated by observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models and or discounted cash flow methodologies, as well as financial instruments for which the determination of fair value requires significant management judgment or estimation.
The estimated fair values of the Credit Union’s financial statements, none of which are held for trading purposes, are as follows:
34
2017 ANNUAL REPORT
51
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) December 31, 2017 Carrying Fair Amount Value
December 31, 2016 Carrying Fair Amount Value
Financial Assets: Cash and cash equivalents Certificates of deposits Investment securities Loans receivable (net of unamortized deferred origination fees) Accrued interest receivable Assets acquired in liquidation of loans
$
9,345,373 36,799,270 30,894,050
$
265,494,847 1,460,975 529,401 343,994,515
$
303,785,748
$
23,593,453
$
$
9,345,373 36,799,270 30,894,142 257,681,542 1,460,975 529,401 336,710,703
$
7,142,296 24,161,200 60,306,309
$
7,142,296 24,161,200 60,309,069
$
228,163,203 640,787 494,076 320,413,795
$
203,427,104 640,787 494,076 296,174,532
303,785,748
$
286,973,339
$
286,973,339
23,593,453
$
22,231,719
$
22,231,719
Financial Liabilities Members' shares accounts Off- Balance Sheet Financial: Commitments to extend credit
$
The carrying amounts in the preceding table that is included in the statement of financial condition under the applicable captions. The Credit Union has no financial instruments that are held or issued for trading purposes. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: •
Cash and cash equivalents- The carrying amount approximates fair value due to the short-term nature of these instruments.
•
Certificates of Deposit- For long-term certificates of deposit, fair value has been determined discounting the principal and interest to be received at rates currently offered by other financial institutions for certificates with similar terms and characteristics.
•
Investment securities - Fair values have been determined using quoted market prices for all investment securities.
•
Accrued Interest Receivable - The fair value of the accrued interest receivable approximates the carrying amount in the financial statements.
35
52
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) •
Members’ shares accounts: (a) Regular shares and share drafts accounts - The fair value of members’ regular shares and share drafts having no fixed maturity is the amount payable on demand at the reporting date. (b) Share certificates - The fair value of fixed maturity members’ share certificates is estimated using the rates currently offered for deposits with similar remaining maturities.
•
Commitments to extend credit - The estimated fair value of the commitments to extend credit represents the Credit Union are potentially unfunded under such lines of credit.
Lease Commitments BAIA operates on leased premises under a month-to-month agreement with an entity related with a director, at a monthly charge of $1,000. During the years ended December 31, 2017 and 2016, the total rent expenses amounted to $14,219 and $15,399, respectively. Fair Value of Financial Instruments Measured on a Recurring Basis The fair values of assets and liabilities measured on a recurring basis at December 31, 2017 and 2016 are as follows:
Asset Class
Fair Value Measurement At Reporting Date Using: Level 1 Level 2
Fair Value
Level 3
December 31, 2017 Available for sale securities Held-to-maturity securities Assets acquired in liquidation of loans December 31, 2016
$ $ $
20,592,163 10,301,979 529,401
$ $
Available for sale securities Held-to-maturity securities Assets acquired in liquidation of loans
$ $ $
10,203,133 50,105,936 494,076
$ $
20,592,163 10,301,979 -
-
10,203,133 50,105,936 -
-
$
529,401
$
494,076
36
2017 ANNUAL REPORT
53
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 17. REGULATORY CAPITAL As of December 31, 2017, and 2016, the Credit Union’s net worth to total assets ratio is categorized as “well capitalized” as per the most recent call report. To be categorized as “well capitalized”, the Credit Union must maintain a minimum net worth ratio of 7% as defined under the regulatory framework provisions of Section 38 of the FDI Act. Credit Unions whose net worth ratio falls below 7% will be subject to Prompt Corrective Actions requirements. The Credit Union net worth ratio at December 31, 2017 and 2016 follows:
Net Worth Amount
Period
CFCU Actual Net Worth to Total Assets Ratio (1)
CFCU Category (2)
2017
$
45,709,027
12.73%
Well Capitalized
2016
$
44,524,860
13.24%
Well Capitalized
(1) In performing its calculation of total assets, the credit union used the monthly average over the quarter option, as permitted by regulation. (2) There are no conditions or events since the most recent Call Report that management believes have changed the Credit Union’s category.
Under capital adequacy regulations 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 principles. 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. Risk Based Net Worth (RBNW) Ratio The RBNW requirement only applies to complex Credit Unions (CU) as defined by the National Credit Administration (NCUA). A complex CU is one with more than $50 million in assets and with a risk based net worth requirement of more than 6%. The RBNW is based on risk weighting formulas on specific assets, liabilities, and off-balance sheet items which qualify under the regulations. The Credit Union RBNW ratio for 2017 and 2016 was 4.62% and 4.74%, respectively, based on most recent CALL Report.
37
54
CARIBE FEDERAL CREDIT UNION
Caribe Federal Credit Union NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended on December 31, 2017 and 2016 18. SUBSEQUENT EVENTS The consolidated financial statements and related disclosures include evaluation of events up to and including April 20, 2018, which is the date the consolidated financial statements were available to be issued.
38
2017 ANNUAL REPORT
55
56
CARIBE FEDERAL CREDIT UNION
Total liabilities and members' equity
Total members' equity
Capital stock - authorized 10,000 shares with a par value of $100, issued and outstanding 5,000 shares Additional paid-in capital Appropriated regular reserve Unappropriated earnings Accumulated deficit Accumulated other comprehensive income
Members' Equity
Total liabilities
Members' shares accounts Accruals and other liabilities Accounts payable to auto dealers
Liabilities and Members' Equity
$
$
$
359,022,233
45,551,190
3,811,746 41,897,281 (157,837)
313,471,043
303,785,748 2,589,859 7,095,436
359,022,233
9,108,160 36,789,000 30,894,050 265,494,847 1,460,975 12,415 123,047 11,183,340 2,815,866 77,619 238,775 824,139
Total assets
CFCU
Cash and cash equivalents Certificates of deposits Investment securities Loans to members, net Accrued interest receivable Accounts receivable, net Prepaid expenses Property and equipment, net NCUSIF deposit Art Collections Investment in unconsolidated subsidiary, net Other assets
$
Assets
Caribe Federal Credit Union CONSOLIDATING STATEMENT OF FINANCIAL CONDITION At December 31, 2017
$
$
$
$
275,425
238,775
500,000 1,000,000 (1,261,225) -
36,650
36,650 -
275,425
237,213 10,270 25,085 2,280 577 -
BCA
$
$
$
(238,775)
(238,775)
(500,000) (1,000,000) 1,261,225 -
-
-
(238,775)
(238,775) -
Eliminations $
$
$
$
$
359,058,883
45,551,190
3,811,746 41,897,281 (157,837)
313,507,693
303,785,748 2,626,509 7,095,436
359,058,883
9,345,373 36,799,270 30,894,050 265,494,847 1,460,975 37,500 125,327 11,183,917 2,815,866 77,619 824,139
2017
2017 ANNUAL REPORT
57
Net Income
Participation in profit of unconsolidated subsidiary
Income/(loss) before participation in losses of unconsolidated subsidiary and regulatory charges
Total non-interest expenses
Compensation and benefits Occupancy and related Other
1,184,167
55,376
1,128,791
7,345,653
3,664,486 2,026,456 1,654,711
462,513
8,011,931
Net interest income after provision for loan losses
Service fee and non-interest income
(2,735,265)
Provision for loan losses
1,989,172
12,736,368
11,849,898 886,470
10,747,196
$
$
CFCU
Net interest income
Dividends on members' shares accounts
Interest expense:
Total interest income
Interest Income: Interest and fees on loans Interest on investments
Caribe Federal Credit Union CONSOLIDATING STATEMENT OF INCOME AND EXPENSES For the year ended on December 31, 2017
$
-
-
-
-
-
-
55,376
-
55,376
175,876
1,200 18,325 156,351
231,252
BCA $
(55,376)
(55,376)
-
-
-
-
-
-
-
-
-
-
Eliminations
$
$
1,184,167
-
1,184,167
7,521,529
3,665,686 2,044,781 1,811,062
693,765
8,011,931
(2,735,265)
10,747,196
1,989,172
12,736,368
11,849,898 886,470
2017
58
CARIBE FEDERAL CREDIT UNION 1,654,711 7,345,653
Total other operating expenses
Total non-interest expenses
863,648 276,769 287,130 233,302 3,719 236,280 125,608 2,026,456
3,664,486
CFCU
499,573 258,253 205,741 156,918 126,243 79,787 76,763 58,293 78,196 24,818 5,872 11,069 73,185
$
$
Other operating expenses: Professional services and contracted services Education and promotional Loan servicing and collection Annual meeting Monthly statements Bank service charges Federal operating Office supplies Commission and fees Travel and conferences Employees activities Loss (gain) on disposition of assets Dues and subscriptions Other miscellaneous
Occupancy and related: Depreciation and amortization Occupancy and utilities Communications Insurance Rent Repairs and maintenance Security
Compensation and benefits
$
$
1,200
175,876
156,351
61,087 2,578 545 3,167 64,800 24,174
1,336 1,134 1,872 3,411 10,500 72 18,325
BCA
Caribe Federal Credit Union CONSOLIDATING SCHEDULE OF NON-INTEREST EXPENSES For the year ended on December 31, 2017
$
$
-
-
-
-
-
Eliminations
$
$
7,521,529
1,811,062
560,660 260,831 205,741 156,918 126,243 80,332 76,763 61,460 64,800 78,196 24,818 5,872 11,069 97,359
864,984 277,903 289,002 236,713 14,219 236,352 125,608 2,044,781
3,665,686
2017
41