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A Winning Year

2013 ANNUAL REPORT


Our Mission Helping our members prosper—helping our communities thrive.

Our Purpose Freedom First is a member-owned, democratically operated, not-for-profit organization managed by a volunteer board of directors, with the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means. The purpose of this Credit Union is to promote thrift among its members by affording them an opportunity to accumulate their savings and to create for them a source of credit for provident, business, or productive purposes.

Our Team More than 160 people who embody our mission as they live, work, play, and serve in Virginia’s Valley Region. Freedom First staff, management, and all-volunteer board are dedicated to helping their fellow members prosper and helping their communities thrive.


Coaches’ Notes: Report from the Chairman and President/CEO modernized Freedom First’s model of governance to reflect the ongoing changes in the industry and the Credit Union (see committee report on page 18). The goal is to bring varied community voices to the table as Directors, voters, and advisors, with new perspectives enabling dynamic conversations, and planning that reflects the changing needs of our ever-evolving membership.

Freedom First and our community and members benefited from a very successful year in 2013. We outpaced our peers in loan growth, deposit growth, and earnings, while surpassing 2012 service scores. The nation’s economy continued its slow but steady recovery from the Great Recession that began in 2008, and credit unions—community-focused credit unions like Freedom First in particular—continued to be the financial institutions of choice for members who recognize the value of banking locally.

The projects your Credit Union completed and accolades we earned in 2013 are cause for celebration. We congratulate our management for bringing these projects to fruition, our staff for implementing them every day in our branches and behind the scenes, and our members for choosing to “bank for good” with Freedom First.

Your Credit Union has spent the years since 2008 building, expanding, and refining our community focus so that it’s not a catchphrase or a task in a to-do list, but inherent to our culture and our mission: helping our members prosper—helping our communities thrive. Not a day passes that we don’t see our efforts validated by our members, who respond in surveys, in letters, on social media, and in person how they have benefited from their membership in Freedom First. In 2013, our efforts were also validated by our national trade association, which named your Credit Union the National Community Credit Union of the Year!

The drive to execute these projects and reach these goals is the same drive that keeps us from being satisfied with last year’s accomplishments. In 2014, your Credit Union will launch a full suite of business banking services to complement our successful commercial lending program. And we will continue to return dividends to our members in the form of competitive rates, programs that matter and truly effect change, and projects that make banking with Freedom First easier and more convenient.

Our continued success relies on our forward-thinking management and directors, who took on several projects in 2013 with both immediate impact and long-term growth in mind. We refreshed our logo and added a tagline as part of a larger brand awareness campaign. We opened a new branch in Daleville, Botetourt County; relocated our Towers branch into a larger space and added a convenient drive-up ATM in the busy parking lot there; and broke ground on the West End branch, a project that embodies our collaborative spirit and community focus. The 2013 project with potentially the most lasting change is the one least visible to our members. The Board of Directors

Nelson Shibley N l Shibl Chairman

3

Paul Phillips President/CEO


Reaching for Our Critical Goals Critical Goal 1: Remain Safe and Sound. Net worth, the primary measure of safety and soundness, ended the year at 10.4% of assets and well above the regulatory threshold of 7.0%. Net income increased at nearly twice the rate of our peers; asset quality as measured by loan delinquency was in line with peer. Both the National Credit Union Administration and our external auditors (Nearman, Maynard, Vallez, CPAs) validated our safety and soundness and offered a clean unmodified audit opinion (see report beginning on page 12). Net Income

$0M

Net Worth

2012 $3.26M

2012 10.4%

2013 $3.186M

2013 10.4%

$1M

$2M

$3M

0%

$4M

3%

6%

9%

12%

15%

Critical Goal 2: Be a Great Place to Work. Freedom First’s success hinges on having a highly skilled, highly motivated, and highly engaged workforce. To attract and retain top talent, we have worked hard to install a competitive compensation and benefits framework and effective training program while providing employees with best-in-class systems and a positive work environment. We use several Member Loyalty Group surveys to capture employee engagement and sentiment: 1) the Department Net Promoter Score (NPS) ended the year at 70%, 5% above goal; 2) our overall Employer NPS decreased from 58% in 2012 to 45% in 2013; and 3) we outperformed all other credit unions participating in the Internal NPS Benchmark survey. We remain committed to continuous improvement and shared accountability among our board, management, and staff.

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Critical Goal 3: Improve the Financial Lives of Our Members. Loans and deposits grew significantly, indicating that our products and pricing remain highly competitive. The overall service experience as measured by NPS continued to increase, but remains short of our aggressive goal. We have integrated Freedom First Insurance, LLC,1 more fully into our overall sales and service processes, resulting in increased sales and revenue growth. Freedom First Wealth Management2 expanded its team in 2013 and changed its broker/dealer relationship to LPL Financial, one of the nation’s leading diversified financial services broker-dealers. Members now have access to a wider range of financial products and investment monitoring technology.

Net Promoter Scores Transactional NPS

Relational NPS Freedom First 2012 Score: 49%

Freedom First 2012 Score: 67%

2013 Goal

Banking Industry Average: 37%

2013 Goal

Freedom First 2013 Score: 53%

Freedom First 2013 Score: 69%

Health Insurance Industry Average: 14%

0% 10%

20%

30%

40%

0%

50% 57%

20%

40%

60%

77%

Members selected at random following an interaction with the Credit Union.

Members selected at random from the general membership. Source: Satmetrix 2013 Net Promoter® Benchmark Study of U.S. Consumers-NPS®

1 Insurance products are not sold by or products of Freedom First Federal Credit Union. 2 Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Freedom First Federal Credit Union is not a registered broker/dealer and is not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured Freedom First Federal Credit Union deposits and are not NCUA insured. These products are not obligations of Freedom First Federal Credit Union and are not endorsed, recommended, or guaranteed by Freedom First Federal Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. The LPL Financial representatives associated with this website may discuss and/or transact securities business only with residents of the following states: Maine, North Carolina, Pennsylvania, and Virginia. continued on next page

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Reaching for Our Critical Goals (cont.)

Critical Goal 4: Increase the Economic Vitality and Quality of Life in Our Community. Our community development activities and their impact continue to expand and increase. Affordable housing lending, Responsible Rides loans, and FHLB set-aside loan programs all increased in 2013 over 2012. We launched a workforce development loan in partnership with CDS Tractor-Trailer Training, and we developed the American Dreamer path to citizenship loan after winning the $100,000 Opportunity Finance Network/ Wells Fargo NEXT Seed Capital Award. See “Home Runs,� page 11, for awards and recognition of our program successes.

Critical Goal 5: Be a Leader in Corporate Governance. The Credit Union added this goal in 2013 following a rigorous consultant review and the formation of a Governance and Ethics Committee. See page 18 for details.

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RBIs: Impact Banking Products and Services A snapshot of Freedom First’s suite of Impact Banking programs and products: designed to meet the financial service needs of low- and moderate-income members.

Responsible Rides

Responsible Rides

increased loans 261% from 2012

We brought management of this award-winning ning ing program p in-house in 2012, and increased the number er of loans from 31 in 2012 to 81 in 2013.

Micro Loans Few traditional financial institutions offerr loans of less than th han ha h an $3,000, so borrowers often have to turn to lending o alternative a len nding n d sources that charge high interest rates. Freedom edom First granted edo graaanted gran $927,525 in micro-loans to 603 borrowers in 2013—4.7 013—4.7 013— 4.7 7 tim ttimes i as many as in 2012 at an average of $1,538 per loan.

Credit Builder Loans

$927,525

Freedom First members with zero or damaged credit had an average credit score of 630 in 2013 after only 6 months of Credit Builder participation.

to 603 borrowers through micro loans in 2013

Payday Alternative Loans(PAL) Freedom First issued 368 PAL loans in 2013, saving borrowers $47,858 in interest and fees over high-interest alternative lending sources.

630

Borrow & Save

average credit score after 6 months of Credit Builder participation

Borrow & Save holds half of loan proceeds in reserve until the disbursed amount is paid off. Borrowers recognize the value of savings when their loan is paid off and the secured balance is released. Many borrowers begin with a zero credit score and develop responsible spending and saving habits; accounts in 2013 saved borrowers $172,250.

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Impact Banking Products and Services contd. Affordable Housing

Affordable housing

Down payment assistance is offered together with financial education and credit counseling by staff who have undergone the Credit Union Financial Counseling Certification Program (FiCEP) through the Credit Union National Association.

$3 million in home loans to 34 lower income borrowers in 2013, independent of standard first-time homebuyer, FHA, VA, VHDA, and USDA home ownership programs

We offer a full complement of first-time homebuyer options and programs in conjunction with FHA, VA, VHDA, and USDA. Our affordable housing portfolio loan program is in addition to those more widely available opportunities, for families who fail to meet those stringent guidelines but have demonstrated the will and capacity necessary to become homeowners.

FHLB Set-Aside Programs Freedom First engages in financial education and counseling in addition to deploying Federal Home Loan Bank funds for forgivable loans that address the following community needs: • • • •

Affordable housing Accessibility rehabilitation Energy weatherization and energy-efficiency Homelessness prevention through communication with local code enforcement agencies • Veterans purchase and rehabilitation

Down payment assistance

Financial Education

with matches up to 5:1

Our full-time financial educator served 1,881 people in 2013 at no charge through partnerships, Money Mondays, and one-on-one counseling.

$113,996 awarded in 2013

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Teamwork: Service and Community Invest ment “We are so grateful to be affiliated with an organization that supports and believes in the health and well-being of the people in our community.” ~Heather Quintana, Happy Healthy Cooks

Community Investment Grants Our award-winning grants program gave a record $35,000 to nine deserving community action agencies in 2013. The Advancement Foundation $5,000 to fund a business enterprise development program.

$106,878 in donations of time, money, and scholarships in 2013

Freedom First was the premier sponsor of the first annual Superhero Race to benefit Family Promise of Greater Roanoke.

City of Salem Farmers’ Market $5,000 in matching funds for electronic benefit transfer (EBT) users purchasing locally grown produce and food items.

2013 Community Work Day Agencies

Commonwealth Catholic Charities $5,000 to establish and equip a computer lab to facilitate English and computer literacy instruction to refugees.

Advancement Foundation Big Brothers/Big Sisters of SWVA Botetourt Food Bank Boys & Girls Clubs of SWVA Children’s Trust Feeding America Southwest Virginia Habitat for Humanity New River Family Shelter Rescue Mission Salvation Army Warm Hearth Village

Historical Society of Western VA/O. Winston Link Museum $2,000 to fund Adventures in Photography, an educational program at Roanoke’s Lucy Addison Middle School. The Hope Center $3,000 to support establishing and operating an adult daycare facility for 20 seniors in rural Catawba. New Horizons Healthcare $5,000 to expand its Happy Healthy Cooks program into additional local elementary schools.

3,078

Salem Area Ecumenical Ministries $2,000 to fund ACT Packs for Children, a summer “feed and read” program for low-income students.

hours of community service in 2013

Unbridled Change $5,000 for Take Back the Reins, a therapeutic horseback riding program for low-income survivors of domestic abuse. Warm Hearth Village $3,000 to furnish handheld adaptive computers and specialized software for assisted living residents.

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Roo kies: Academic Scholarships Scholarships Freedom First awarded $9,500 in academic scholarships in 2013 to college-bound seniors and undergraduates whose academic achievement, work ethic, and civic involvement mirror Freedom First’s mission and principles. Charles Perkins Scholarships: $3,000 This scholarship was distributed among three students: Kendall Jenkins (Glenvar High School/UVA); Derek Litvak (William Fleming High School/Virginia Tech); and Emily McKnew (Salem High School/Virginia Western Community College/Christopher Newport University). Fritz Kehn Scholarship: $1,000 Lucas Tyree (Salem High School/University of Hawaii) won this scholarship for the fourth year in a row. He is attending graduate school at Yale University and plans to return to Virginia to teach sustainable agriculture practices to the Monacan tribe when he graduates. City of Salem/Frank Turk Scholarship: $1,000 Jonathan Orr (Salem High School/National College) received this scholarship. Torie Phillips Memorial Scholarship: $1,000 Logan Lumsden (Lord Botetourt High School /Radford University) was awarded this scholarship in recognition of her exemplary character and academic achievement. She plans to study nursing. FFCU Cabell Brand “Common Good” Scholarship: $1,000 Tammy Parece (Virginia Tech) earned this scholarship. Virginia Tech Scholarship Fund: $2,500 Freedom First contributes $2,500 to this fund each year.

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Home Runs National Community Credit Union of the Year This prestigious award from Credit Union National Association (CUNA) recognizes and honors community credit unions that consistently excel in the advancement of the ideals of the credit union movement, are proactive in their community, and provide a wide array of services that meet the needs of their diverse communities. “Freedom First has been called ‘a community development company that’s also in the banking business’ and it’s an apt description,” says Paul Phillips, President/CEO. “Winning the national Community Credit Union of the Year award validates our efforts and strengthens our commitment to our members and the communities we share.”

Credit Union Awards Desjardins Adult Financial Education Award (Virginia Credit Union League) Dora Maxwell Award for Social Responsibility (VACUL)

Citi Leadership Program for Opportunity Finance (Nicole Pendleton, Community Development Analyst, for her promise as an emerging leader in the CDFI industry)

Create Jobs for USA (Opportunity Finance Network and Starbucks: $20,025 to develop small business loans)

Speaking Engagements Federal Reserve Bank of Richmond • The Case for Ending Homelessness: Taking a Comprehensive Community Approach • Building Capacity: The Structure and Growth of Community Development Banks

Credit Unions Care Foundation of Virginia ($5,000 to expand Responsible Rides) Wells Fargo NEXT Seed Capital Award (OFN, the Kresge Foundation, and the John D. and Catherine T. MacArthur Foundation: $100,000 to develop the American Dreamer Loan for refugees and immigrants) Diamond Award (CUNA Marketing and Business Development Council, for our 2011-2012 Community Impact Report)

National Federation of Community Development Credit Unions • Small-Dollar Loans: Impactful and Sustainable Solutions • Borrow & Save: Breaking the Cycle of High-Cost Borrowing through Savings Mobilization • Tools and Strategies for Writing Successful Grant Applications

Individual Awards Eugene H. Farley, Jr. Award of Excellence (Paul Phillips, President/CEO, by VACUL in recognition of his outstanding contributions to the credit union movement)

Opportunity Finance Network • Credit Union Alternatives to High-Cost Payday Loans • CDFI Partnerships With Municipalities and the Private Sector

Credit Union Rock Star (Paul Phillips, by Credit Union Magazine for his leadership in transforming Freedom First into the largest CDFI in Virginia)

Roanoke Regional Housing Network Symposium • From Purchase to Rehab: Show Me the Money

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Scoreboard: Independent Auditor s’ Report

Supervisory Committee Freedom First Credit Union Roanoke, Virginia Report on the Financial Statements We have audited the accompanying consolidated financial statements of Freedom First Credit Union, which comprise the balance sheets as of March 31, 2013 and 2012, and the related statements of income, changes in members’ equity, comprehensive income, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Credit Union’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Credit Union’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 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Freedom First Credit Union as of March 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Nearman, Maynard, Vallez, CPAs Miami, Florida May 8, 2013

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Consolidated Statement of Financial Condit ion ASSETS

March 31,

Cash and cash equivalents Investments: Available-for-sale Other Federal Home Loan Bank (FHLB) stock Loans held-for-sale Loans receivable, net of allowance for loan losses Accrued interest receivable Premises and equipment, net National Credit Union Share Insurance Fund deposit Assets acquired in liquidation Other assets

$

Total Assets

$

2013 5,358,325

$

2012 4,459,695

13,264,840 24,750,982 1,498,100 2,617,891 236,666,576 842,891 9,553,977 2,140,201 790,147 12,432,934

212,379 38,722,594 1,488,300 2,412,098 210,601,910 708,452 8,895,901 2,000,033 558,170 8,729,498

309,916,864

$ 278,789,030

LIABILITIES AND MEMBERS’ EQUITY

March 31, 2013

Liabilities Members’ share and savings accounts Borrowed funds Interest payable Accrued expenses and other liabilities Uninsured secondary capital Total liabilities Commitments and contingent liabilities Members’ Equity Regular reserve Undivided earnings Accumulated other comprehensive income (loss) Equity acquired in merger Total members’ equity

$

Total Liabilities and Members’ Equity

$

13

240,195,595 25,500,000 84,653 4,703,885 9,278,000 279,762,133

2012 $

219,108,777 20,500,000 86,624 2,595,026 9,278,000 251,568,427

5,751,716 23,745,972 57,092 599,951 30,154,731

5,751,716 20,866,578 2,358 599,951 27,220,603

309,916,864

$ 278,789,030


Consolidated Statements of Income March 31, 2013 Interest Income Interest on loans receivable Interest on investments Interest income Interest Expense Dividends on members’ share and savings accounts Interest on borrowed funds Interest expense

$

Net Interest Income Provision for Loan Losses Net Interest Income After Provision for Loan Losses Non-Interest Income Fees and service charges Other non-interest income Gain on sale of mortgage loans, net Gain on disposition of assets acquired in liquidation, net Gain on disposition of premises and equipment, net Non-interest income

Non-Interest Expense Compensation and employee benefits Operations Loan servicing Education and promotion Occupancy NCUA assessment Professional and outside services Loss on disposition of assets acquired in liquidation, net Non-interest expense Net Income

$

14

12,708,425 142,813 12,851,238

2012 $

12,232,937 45,959 12,278,896

1,025,141 1,103,515 2,128,656

1,188,666 1,107,202 2,295,868

10,722,582

9,983,028

1,530,678 9,191,904

1,381,266 8,601,762

4,054,417 2,908,142 963,687 7,926,246

3,830,860 2,659,849 409,384 87,012 2,250 6,579,971

17,118,150

15,181,733

7,882,979 3,138,164 1,012,425 893,047 670,193 203,319 190,733 247,896 14,238,756

7,291,827 2,766,5873 728,897 684,537 577,308 481,800 210,914 12,741,870

2,879,394

$

2,439,863


Consolidated Statements of Members’ Equity and Comprehensive Income MEMBERS’ EQUITY Regular Reserve Balance, March 31, 2011 Net income Change in unrealized gain/(loss) on securities Change relating to pension plan accounting Equity acquired in merger

$

Balance, March 31, 2012 Net income Change in unrealized gain/(loss) on securities Balance, March 31, 2013

$

Undivided Earnings

5,751,716 -

$18,426,715 2,439,863

-

-

-

Accumulated Other Comprehensive Income (Loss)

$ 23,780,236 2,439,863

( 8,874)

-

(8,874)

-

409,427 -

599,951

409,427 599,951

5,751,716 -

20,866,578 2,879,394

2,358 -

599,951 -

27,220,603 2,879,394

-

-

54,734

-

54,734

599,951

$ 30,154,731

$ 23,745,972

$

( 398,195) -

$

Total

-

5,751,716

$

Equity Acquired In Merger

57,092

$

COMPREHENSIVE INCOME

March 31,

Net Income

$

Other Comprehensive Income or (Loss) Net unrealized holding (losses)/gains on securities arising during the year Adjustment due to pension plan accounting

Comprehensive Income

$

54,734 54,734

$

15

2013 2,879,394

2,934,128

2012 2,439,863

(8,874) 409,427 400,553

$

2,840,416


Consolidated Statement of Cash Flows March 31, 2013 Operating Activities Net income Adjustments Provision for loan losses Depreciation and amortization of premises and equipment Gain on disposition of premises and equipment, net Gain on sale of mortgage loans, net Loss (Gain) on disposition of assets acquired in liquidation, net Amortization of investment premiums/discounts Amortization of deferred loan origination fees/costs Changes in operating assets and liabilities Loans held-for-sale Accrued interest receivable Other assets Dividends payable Accrued expenses and other liabilities Net cash provided by operating activities Investment Activities Purchases of: Available-for-sale securities FHLB stock Premises and equipment Proceeds from: Maturities, paydowns, and sales of available-for-sale securities Sale of FHLB stock Sale of premises and equipment Sale of mortgage loans Net change in: Other investments Loans receivable, net of charge-offs Assets acquired in liquidation NCUSIF deposit Merger activity Recoveries on loans charged off Net cash used in investing activities

$

2,879,394

2012 $

2,439,863

1,530,678 852,797 (963,687) 247,896 226,547 1,134,737

1,381,266 660,821 (2,250) (409,384) (87,012) 1,259 835,113

(205,793) (134,439) (3,703,436) (1,971) 2,108,859 3,971,582

(2,412,098) 68,869 4,857,790 (19,873) 978,596 8,292,960

(13,385,647) (9,800) (1,510,873))

(2,870,071)

161,373 46,513,087

280,832 423,600 80 25,924,843

13,971,612 (74,359,626) (479,873) (140,168) 80,145 (29,159,770)

(24,634,798) (28,652,991) 832,837 72,520 599,951 373,072 (27,650,125)

continued on next page

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Consolidated Statement of Cash Flows, continued

March 31, Financing Activities Net change in members’ share and savings accounts Gross borrowing during the audit period Gross repayments during the audit period Net cash provided by (used in) financing activities

2013

2012

21,086,818 7,500,000 (2,500,000) 26,086,818

20,303,181 20,303,181

$

946,016 3,513,679 4,459,695

$ $

2 ,315,741 457,170

Net Change in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year

$

898,630 4,459,695 5,358,325

Supplemental Cash Flow Disclosures Dividends and interest paid Loans receivable transferred to assets acquired in liquidation

$ $

2 ,130,627 442,566

Supplemental Schedule of Noncash Investing and Financing Information Except for the cash received, the balances acquired in the merger as described in Note 13 of these consolidated financial statements are not included in the above because no cash was paid. Rather, only the transactions impacting cash flows after the date of acquisition are reflected in the corresponding sections (operating investing and financing) above.

The following schedule describes the Credit Union’s noncash investing and financing activities relating to the merger during the fiscal year ended March 31, 2012. Cash received in merger Acquired assets, net of cash received Assumed liabilities

$

838,034 7,896,123 (8,134,206)

Equity acquired in merger

$

599,951

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Designated Hitters: Committee Reports Supervisory Committee Report The Credit Union’s Supervisory Committee has the responsibility to determine that the operations of the Credit Union are carried out in accordance with the Federal Credit Union Act and the rules and regulations of the National Credit Union Administration. This year, we have directed an emphasis on internal controls, consumer compliance, fraud prevention, the Bank Secrecy Act, and other new rules that affect the Credit Union.

• The Nominations and Elections Committee has been encouraged and empowered to create a slate of candidates most suitable for board service. • New nomination and election procedures are designed to modernize and increase member participation in the voting process. • Participation on Board committees is now possible for anyone (non-board members) with the skills and competency needed by that committee.

The Supervisory Committee engaged a certified public accounting firm to perform a financial audit of the consolidated financial statements of the Credit Union and a verification of member accounts. Their financial audit report included an unmodified opinion based on risk assessments and reviews of our internal controls and accounting procedures and presentations. Based on their report and our own observations, we can report to you that Freedom First Federal Credit Union continues to maintain a safe and sound financial institution.

Finally and perhaps most importantly, the Board of Directors has adopted a fifth critical goal for Freedom First Federal Credit Union, thus elevating the importance of competent and relevant leadership in today’s rapidly changing world. That goal is “To be a leader in corporate governance.” Given the magnitude of change put in place in 2013, your Board of Directors is well on its way to reaching that goal. Dan Merenda Chair, Governance and Ethics Committee

The Supervisory Committee would like to thank you for your cooperation and support of the Credit Union.

Nominations and Elections Committee Report In response to feedback from members and discussions from the Credit Union Planning Session, the Committee engaged in a deliberate and thorough search for interested and qualified candidates to present to the Board for this year’s election. As a result of that search, 12 members showed interest in the 3 open positions. Using a new, more robust screening process, we completed the task with six highly qualified nominees: Joseph Coyle, Ken Ferris, Dan Merenda, Bruce Phipps, Frank Turk, and Clint White.

Emily Faye Poff Chair, Supervisory Committee Governance and Ethics Committee Report Following recommendations made by an outside consulting group and approved by the Board of Directors in 2012, the Governance and Ethics Committee spearheaded a series of changes designed to improve the governance of your Credit Union. The following improvements are now in place:

As indicated at the 2013 annual meeting, on the Credit Union’s website, in mailings to members, in the Credit Union newsletter, in branch notices, and at employer and other group meetings, such as for General Electric retirees, there will be no voting at the 2014 annual meeting. Instead, voting will be accomplished online, by telephone, and by request for printed ballots from April 1-May 3, 2014.

• Board members now participate in a regularly scheduled self-assessment designed to identify strengths and areas of need based on our constantly changing economic and social environments. • Board and senior staff annually identify optimal board composition in terms of diversity, skill, knowledge, sector, industry, geographic, and demographic goals for board composition. • Board member term limits allow for a renewal of leadership based on optimal board composition.

The independent election vendor will present the election results to the Credit Union’s Supervisory Committee, which will inform the Board Secretary, who will then announce the

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results at the Credit Union’s Annual Meeting on May 8, 2014. Elected candidates will officially take office immediately after the Annual Meeting.

$1 million due to increased costs of operation. Many of these costs represent reinvestment in providing the best possible services to the membership.

Gerald Barnes Chair, Nominating Committee

Our Credit Union has been examined by NCUA, our regulator; and audited by Nearman, Maynard, Vallez, CPAs, a licensed independent public accounting firm; both of which attest to the safety and soundness of Freedom First. The future continues like the weather: partly cloudy, representing the uncertainty of the economy, but mostly sunny coming from the confidence that membership has in the Credit Union, Board, and management to provide high-quality services in a safe and sound manner.

Treasurer’s Report Once again, I am proud to report to you that as 2013 came to a close, Freedom First Credit Union was successful in its mission and in our number one goal of “safety and soundness” for all of our members and the Credit Union. During a time when the national, state, and regional economies seem confusing, taking steps ahead and then falling back a little, Freedom First continues to follow the Strategic Plan set before it by the Board and management.

Consolidated Financial Statements for Freedom First Federal Credit Union are shown below. Questions regarding this information may be forwarded to Credit Union Management or me. On behalf of myself as your Treasurer, and the entire credit union family, I want to express our sincere appreciation to the management and staff of Freedom First. Without their diligence and efforts this success would not be possible.

Over the past 12 months, Total Assets have increased from $291,889,000 to $315,085,000, an increase of 8%; growth rate for loans was 12% compared to our peers at 7%; and shares were up 9% compared to 4% for our peers. Our Net Income decreased by $81,000 to $3,186,000, which is rather extraordinary, especially when considering that expenses increased by almost

Frank Turk Treasurer

CONSOLIDATED STATEMENT OF CONDITION (UNAUDITED) $ Amounts in Thousands 12/31/2012

CONSOLIDATED INCOME STATEMENT (UNAUDITED) $ Amounts in Thousands

12/31/2013

12/31/2012

ASSETS Loans (net) Cash Investments Other assets

$

Total Assets

$

230,526 5,983 28,786 26,594

$

291,889

$

INCOME Income from member loans

257,750 5,723 24,156 27,456 315,085

$

Secondary capital Member shares Net worth Total Liabilities & Net Worth

29,488

$

9,278 223,587 29,536 $

291,889

243,387 32,690 $

315,085

19

3,467 7,779

$ 20,404

$ 21,246

$ 13,578

$ 14,633

2,167 1,392

1,934 1,493

Total Expenses

$ 17,137

$ 18,060

NET INCOME

$

$

EXPENSES Operating expenses Dividends & interest expenses Loan loss provision

39,008

$

7,885

Total Income

LIABILITIES & NET WORTH Payables

$ 12,519

Investment & other income

12/31/2013

3,267

3,186


Board of Directors BOARD OFFICERS

Nelson Shibley Chairman

Tim Sutphin Vice Chairman

Frank Turk Treasurer

Susan Hall Secretary

BOARD

Gerald Barnes Director

Judith Harrison Director

Roger Journell Director

Dan Merenda Director

Jared Poff Director

Corporate Responsibility Committee Thomas Chapman (former Director) Weldon Dinkel (former Director) Judith Harrison Jared Poff

ALCO (Finance) Committee Jared Poff Frank Turk Audit and Risk Committee Susan Hall Roger Journell

Employee Relations Committee Susan Hall Jared Poff Nelson Shibley

20


SUPERVISORY COMMITTEE

Emily Faye Poff Chair, Supervisory Committee

Joseph Coyle Supervisory Committee

Ira Hartman Supervisory Committee

Jay Lanz Supervisory Committee

Michael Williams Supervisory Committee

LEADERSHIP TEAM

Paul Phillips President/CEO

Sarah Andrews EVP/COO

Keith Rickoff EVP/CFO

Governance and Ethics Committee Gerald Barnes Dan Merenda

Harvey D. Brookins, Jr. EVP/CDO

Nominations and Elections Committee Gerald Barnes Susan Hall Judith Harrison

Lending Committee Tim Sutphin Frank Turk

21


Blacksburg 1204 South Main Street Virginia Tech—Squires Student Center

Christiansburg 417 North Franklin Street

Daleville 1171 Roanoke Road

Roanoke 5240 Valleypark Drive—Operations Center 5102 Williamson Road—Crossroads 2221 Colonial Avenue—Towers Shopping Center 1210 Patterson Avenue—West End Center Steel Dynamics, Inc. (exclusively serving the SDI workforce)

Salem 1235 Electric Road 1900 Electric Road—LewisGale Hospital

Vinton 203 Virginia Avenue (540) 389-0244 / (866) 389-0244 www.freedomfirst.com

Federally insured by NCUA.

2013 annual report  

2013 Freedom First Annual Report including impact data.

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