2012 Annual Report - Fitzsimons Credit Unionthe economy, such as heightened loan loss provisions and a mandated write-down of investment in the corporate credit union system did not

2012 Annual Report | 1

2012 Annual Report

Your savings are federally insured to at least $250,000 by the National Credit Union Administration (NCUA).

2 | FitzsimonsCU.com

The board of directors is pleased to report that Fitzsimons Federal Credit Union remained a financially strong and viable institution throughout 2012 in spite of the sluggish and slow economic recovery and very low interest rate environment. Your credit union improved its net worth ratio during the year to 11.74%, up from 11.59% last year, while reaching total assets of just over $163M. The credit union has worked hard to overcome financial and regulatory challenges created by the economic downturn of the last few years. The board remains committed to preserving a safe and sound organization that members can consistently rely upon regardless of what occurs in the economy.

It seems as if every year the economy is a topic of any financial discussion and 2012 was no exception. Market interest rates are at all-time lows and the Federal Reserve has announced that they intend to keep interest rates low until mid 2015. For the credit union board and management, the focus remains serving its member-owners who are experiencing first-hand: heightened unemployment, consumer uncertainty, and offensively low savings rates that cut into monthly budgets. The credit union has had its bumps in the road the last few years due to the economy yet has managed to adapt and pull through. This is no coincidence as the board and management have remained disciplined and not undertaken risky behaviors in trying to boost earnings, grow assets, or increase net worth.

The strategic plan for 2013 directs management to achieve the following major goals: maintain a strong capital position, increase member and asset growth, and reduce future risk from rising rates. Achieving these goals is even more difficult knowing that the economy is still in the midst of recovery. To support the credit union goals, management will focus on growing loans and membership while looking to control operating expenses and increase efficiencies. Loans are at the core of the credit union’s earnings and are essential for paying competitive deposit rates and meeting operating expenses. Even with low lending rates, loan growth has been difficult because member-borrowers are leery of the economy and competition between financial institutions is fierce. For member-savers, sustained low interest rates have been difficult, especially for those depending on monthly dividends. In setting rates, management consistently looks to benefit all members by striking a balance between rates charged to borrowers and those paid to savers without putting the credit union at risk. While loan growth efforts will take center stage for next year, management will continue to work on broadening the credit union’s products and services, on attracting new members from ever changing demographics within our field of membership, and on developing staff for future succession. A suite of small business account products and services will be enhanced to compete with larger institutions and provide the credit union opportunities for member business deposits and loans. New member growth will concentrate on designing products and services to attract youth and young adult members and developing a financial education program for our youth who are generally unfamiliar with banking services. In the coming years management must look to expand and serve more people within its field of membership to include non-banked and under-banked households. We must be prepared to adapt and meet the needs of existing

BOARD AND MANAGEMENT REPORT


and potential members alike by recognizing that our member base is demographically more diverse than ever before. We will begin offering credit-builder loans for first-time borrowers, prepaid reloadable cards, and services such as international remittance beginning the first half of 2013. Management will continually monitor all credit union products and services without jeopardizing the personal touch that members have come to expect. Succession plans for board, management, and staff will continue to be reviewed and updated so that continuity of credit union knowledge and service to members is not compromised through inevitable turnover in key positions. Executive longevity and experience benefit us as we can work smarter and leaner. Management has done a remarkable job in 2012 controlling and reducing overall operational costs while the price of goods, services and regulatory compliance are rising. Rather than focus on cutting expenses, which ultimately cuts service to members, management has looked to increase operating efficiencies through use of technology and electronic service delivery without increasing expenses or impacting services and costs to members.

The economy has certainly left its mark on the credit union and its members the last few years. We took our lumps in the form of investment write-downs and assessments by regulators that we still live with today. This “new normal” of low short term rates and more regulation has caused some financial institutions to retract to a defensive position by charging more fees and limiting services in hopes of boosting their battered balance sheets. Our approach will be to reach out to all demographics of the membership, price products and services appropriately, and expand and promote electronic services through technology.

The members of the board of directors and the management team want to thank you for your continued loyalty. It is our pleasure to serve you.

SANDY NEVES

President & Chief Executive Officer

THOMAS H. SMITH

Board Chair


Thomas H. Smith, Board ChairHas been a member since 1967 and has over 30 years of volunteer service

with the credit union. Mr. Smith received education from Regis College and

the Denver Paralegal Institute. He retired from the U.S. Military.

George H. Touchard, Board Vice ChairHas been a member since 1980 with over 25 years of volunteer support to

the credit union. Mr. Touchard retired from the U.S. Military.

James L. Dye, Board MemberHas been a volunteer and member supporting the credit union for over 25

years and was also the Supervisory Committee Chair. Mr. Dye retired from

the U.S. Military and Civil Service.

Ruth E. Bigham, Board SecretaryHas been a member since 1968 and has over 20 years of volunteer service

on the Board of Directors. Ms. Bigham is retired from the Civil Service.

Lyle R. Artz, Board TreasurerNew to the board in 2010, Lyle was previously a volunteer for 8 years on the

Supervisory Committee. Mr. Artz is retired from the U.S. Military and currently

works for the Fitzsimons Redevelopment Authority.

BOARD OF DIRECTORS


Sandy NevesPresident & Chief Executive Officer

Robert FrybergerExecutive Vice President

Dave EricksonVice President Finance

Andrey ParshenkovVice President Information Technology

Kim AwaznezhadVice President Branch Operations

Cheri ProchazkaVice President Human Resources

Randall SkittAccounting Manager

Yvonne LoneyLending Manager

Polina YakushevaMarketing Manager

MaryAnne BiaeschBranch Manager

Renee GrimmBranch Manager

Brett SlaydenBranch Manager

LaVonda DulaneyCommunication Center Manager

Robert FritschCommittee Chair

Anthony BrisenoCommittee Secretary

Judy ThomasCommittee Member

Donald WagnerCommittee Member

Ruth BighamCommittee Member

SUPERVISORY COMMITTEE

EXECUTIVE &MANAGEMENT TEAM


Fitzsimons Credit Union remained a healthy, well capitalized institution in 2012 and achieved a second

consecutive year of profitability following two years of negative earnings. Accounting charges related to

the economy, such as heightened loan loss provisions and a mandated write-down of investment in the

corporate credit union system did not occur in 2012; however, Fitzsimons continues to be assessed

annually for expenses to stabilize the corporate credit union system. For 2012, the credit union’s cost to the

stabilization fund was $132K, a significant decrease from the assessment of $333K in 2011. There were

no premium charges by the National Credit Union Share Insurance Fund (NCUSIF) during 2011 & 2012

reflecting the strength of the insurance fund backing member deposits.

In 2012 the credit union continued to realize the benefits of no provision for loan loss expense that began

in late 2011 due to a sizeable balance in loss reserves, and a decline in delinquent and charged off loans.

Every month, credit union management conducts estimations for potential losses within the loan portfolio

based on historical losses, loan portfolio performance (delinquency), and economic conditions. Over three

years ago, loan loss estimates were raised in response to declining economic conditions such as rising

unemployment and depressed home values. In reaction to the economic climate, the credit union expensed

and set aside substantial funds for potential loan losses in the loss reserve (allowance), thus driving down

earnings. As the economy has slowly improved and actual loan charge offs have fallen, the credit union has

lowered its loan loss estimates and corresponding loan loss expenses, resulting in positive net income.

Loans continued to decline during the year, but at a slower pace than in 2011 despite historically low loan

interest rates. Loans are vital to Fitzsimons’ financial performance because they provide the majority of

the credit union’s income as they yield more than investments. More importantly, lending is at the core of

meeting the financial needs of our members and why the credit union exists. In 2012, total loan balances

decreased by 5.4% while interest income from loans fell 15.7%, providing less revenue to cover operating

expenses, loan losses and dividends to the membership. Management recognizes that loan growth goes

hand in hand with the economic climate, as consumers are less likely to borrow when there is uncertainty

surrounding employment, creditworthiness, and home values. While Fitzsimons cannot allay all economic

concerns, it will continue to offer competitively priced lending options and work with members in need of

financial assistance. To assist members with their car buying needs, the credit union added an additional car

buying service and auto leasing during the year.

TREASURER’S REPORT


The prospect of lower interest revenue due to slow loan growth has pushed management to place tighter

controls on operating expenses while managing costs associated with enhancing service to

members. Management continuously evaluates the member fee structure, and seeks to reward

members who transact using more efficient products and delivery channels such as online banking,

bill pay, eChecking, etc. Keeping pace with technology is essential for meeting the shifting needs of

members wanting to conduct basic financial transactions through non-traditional means such as tablets

and smartphones. The challenge is managing the costs of adding technology in meeting emerging needs

related to electronic channels while still catering to those members preferring in-person transactions. As

existing members shift transaction behavior by adopting electronic delivery channels, they will begin to

recognize the convenience and accuracy that these services provide, while the credit union will see per

member cost reductions that can be funneled back into paying more dividends or lowering lending rates.

2012 was profitable for the credit union as some of the initial reactions to potential loan losses in previous

years have allowed for the absorption of current loan losses without the need to expense and set aside

additional funding in the allowance. We know 2013 will have its own challenges such as increased lending,

and managing expenses during a time when the economy is slowly recovering. Statements made by the

Federal Reserve Board indicate that market rates are expected to remain low through 2015, and the credit

union is prepared to operate and serve its members should a low rate cycle persist. This is made possible

by not taking undue risk prior to, during, or after the recession, thereby preserving the credit union’s net

worth position. Your board and management will always make operating a safe and sound institution a

priority for Fitzsimons. We thank our member-partners for their loyalty over the last year.

LYLE R. ARTZ

Board Treasurer


1stMortgage

47%

Auto Loan29%

2ndMortgage

16%

STATEMENT OF FINANCIAL CONDITION December 31, 2012Assets Total Loans 78,507,399Allowance for Loan Losses (2,267,336)

Net Loans 76,240,063

Cash and Investments 74,554,242

Fixed Assets 8,634,977Share Insurance Capitalization Deposit 1,390,902All Other Assets 2,208,509

Total Other Assets 12,234,388

Total Assets 163,028,693$

Liabilities, Shares & EquityAccounts Payable & Other Liabilities 1,801,398

Regular & IRA Shares 48,178,544Share Drafts 24,640,996Money Market Shares 18,696,543Share & IRA Certificates 50,340,885

Total Shares & Certificates 141,856,968

Regular Reserve & Undivided Earnings 19,147,577Unrealized Gain/(Loss) on Investments 222,749

Total Net Worth & Unrealized Inv Loss 19,370,326

Total Liabilities, Shares & Equity 163,028,693$

STATEMENT OF INCOME 2012Interest IncomeInterest on Loans 4,269,149Income from Investments 753,051

Total Interest Income 5,022,200Interest ExpenseDividends on Shares 732,171Interest of Borrowed Money 2

Total Interest Expense 732,173Net Interest Income Before Provison 4,290,027

Provision for Loan Losses -Net Interest Income After Provision 4,290,027

Operating ExpenseEmployee Compensation & Benefits 2,607,395Travel & Conference 84,774Office Occupancy 537,991Office Operations 1,370,154Educational/Promotional 166,728Loan Servicing 254,561Professional/Outside Services 280,366Members Insurance/Corporate CU Stabilization 132,136NCUA Operating Fee 35,564Miscellaneous Operating Expense 76,056

Total Operating Expense 5,545,724Fee and Other IncomeFee Income 1,370,893

STATEMENT OF FINANCIAL CONDITION

STATEMENT OF INCOME

ACCOUNT DISTRIBUTION

LOAN DISTRIBUTION

STATEMENT OF INCOME 2012Interest IncomeInterest on Loans 4,269,149 Income from Investments 753,051

Total Interest Income 5,022,200 Interest ExpenseDividends on Shares 732,171 Interest on Borrowed Money 2

Total Interest Expense 732,173 Net Interest Income Before Provison 4,290,027

Provision for Loan Losses - Net Interest Income After Provision 4,290,027

Operating ExpenseEmployee Compensation & Benefits 2,607,395 Travel & Conference 84,774 Office Occupancy 537,991 Office Operations 1,370,154 Educational/Promotional 166,728 Loan Servicing 254,561 Professional/Outside Services 280,366 Members Insurance/Corporate CU Stabilization 132,136 NCUA Operating Fee 35,564 Miscellaneous Operating Expense 76,056

Total Operating Expense 5,545,724 Fee and Other IncomeFee Income 1,370,893 Other Operating Income 713,874

Total Fee and Other Income 2,084,767

Net Operating Income 829,069

Gains on Disposition of Assets 44,166

Net Income 873,236$

Unsecured3%

Other1%

Commercial4%

Regular & IRAShare34%

Share & IRACertificate

35%

ShareDraft17%

Money MarketShares13%


ACCOUNT DISTRIBUTION

LOAN DISTRIBUTION

STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWSFor the period January 1, 2012 through December 31, 2012

Increase or (Decrease) in Cash and Cash Equivalents

Liquidity: Level 1

CASH FLOWS FROM OPERATING ACTIVITIES:Interest Payments from Member's Loans 4,494,814Interest Payments from Investments 1,340,934Non-Interest Income 2,011,493Dividends paid on Members' Accounts (732,171)Interest Payments on Borrowings (2)Operating Expenses (5,138,221)Net Changes in Other Asset or Liability Accounts (107,112)

Net Cash Provided or (Used) in Operating Activities 1,869,734

CASH FLOWS FROM INVESTING ACTIVITIES:Loans Made to Members (Excludes Member LOCs) (22,871,737)Net Member Line-of-Credit Activity 336,736Proceeds from Payback of Non-LOC Member Loans 26,091,883Purchases of Investment Securities (33,386,101)Proceeds from Maturity of Investment Securities 23,752,379(Increase)/Decrease in Long Term Investments 0Purchases of Fixed Assets (40,782)Proceeds on Disposition of Fixed Assets 3,361Proceeds from Sale of Other Real Estate Owned 341,595(Increase)/Decrease in NCUSIF deposit (59,356)

Net Cash Provided or (Used) by Investment Activities (5,832,021)

CASH FLOWS FROM FINANCING ACTIVITIES:Net Increase/(Decrease) in Regular Shares 3,068,568Net Increase/(Decrease) in Share Draft Balances 2,108,347Net Increase/(Decrease) in Money Market Balances 1,426,874Net Increase/(Decrease) in IRA Balances 60,519Proceeds from Sale and Renewal of Member Certificates 49,635,671Payments from Maturing Member Certificates (52,211,461)Net Increase/(Decrease) in Borrowed funds 0

Net Cash Provided or (Used) by Financing Activities 4,088,519

Net Increase or (Decrease) in Cash & Cash Equivalents 126,232

Cash & Cash Equivalents at beginning of period 15,530,290

Cash & Cash Equivalents at end of period 15,656,522

Liquidity: Level 2Available Lines-of-Credit to FFCU (FHLB & SunCorp) 14,314,451Cummulative Total Level 2 29,970,973

Liquidity: Level 3Unfunded Commitments to Members (LOC, Courtesy Pay) (14,917,248)Cummulative Total Level 3 15,053,724

Disclosure of accounting policy: Cash & Cash Equivalents consist of cash on hand and deposits with SunCorp Corporate Credit Union,

the Federal Reserve Bank and the Federal Home Loan Bank. All loans are made with maturities of more than 90 days, or treated as such in the

statement of cash flows. All investments are treated as having original maturities in excess of 90 days. Member accounts other than certificates

and FFCU borrowing activity are considered short-term and only the net increase or decrease is reported on the statement of cash flows.

Share & IRA certificates are treated as long-term and reported as gross receipts and gross payments on the statement of cash flows.

For the period January 1, 2012 through December 31, 2012Increase or (Decrease) in Cash and Cash Equivalents


INDEPENDENT AUDITORS’ REPORT

To the Members, Board of Directors,

and Supervisory Committee of

Fitzsimons Federal Credit Union

Aurora, Colorado

We were engaged by Fitzsimons Federal Credit Union to perform an independent audit of the

Credit Union’s financial statements for the year ended September 30, 2012. We have issued our

independent auditors’ report dated December 28, 2012.

In the independent auditors’ report, we expressed an unqualified opinion on the Credit Union’s

financial statements. An unqualified opinion states that the financial statements present fairly, in

all material respects, the financial condition of the Credit Union as of September 30, 2012 and the

results of its operations and cash flows for the year then ended.

A full copy of the independent auditors’ report and audited financial statements is available from

the Credit Union upon request.

Sincerely,

Holben Hay Lake Balzer

Certified Public Accountants LLC

Denver, CO


The National Credit Union Administration (NCUA) requires that the supervisory committee be responsible to ensure

that the board of directors and management of Fitzsimons Federal Credit Union (FFCU) meet required financial

reporting objectives and establish practices and procedures sufficient to safeguard members’ assets. In satisfying

this requirement, the supervisory committee assures that (1) internal controls are in place and effectively maintained,

(2) accounting records and financial reports are accurate, and (3) plans, policies and controls are properly adminis-

tered by the board to safeguard against error, conflict of interest, self-dealing and fraud.

Holben Hay Lake Balzer, hired in 2010, conducted the 2012 annual opinion audit and expressed an unqualified

opinion on the credit union’s financial statements for the period ending September 30, 2012. The purpose of the

opinion audit is to review the credit union’s accounting records and financial reports in accordance with auditing

standards generally accepted in the United States of America. Those standards require that the auditors plan and

perform the audit to obtain reasonable assurance about whether the financial statements are free from material

misstatement. A component of the opinion audit includes performing a verification of members’ accounts against

the credit union’s records. The independent auditors’ report indicates the audited financial statements as of

September 30, 2012 and 2011, present fairly, in all material respects, the financial condition of the credit union.

The unaudited financial statements as of December 31, 2012, as listed in the annual report can not be verified by

the supervisory committee; however, there have been no material changes in accounting policies or management of

the credit union that would cause concern.

In addition to the annual opinion audit, the supervisory committee engaged Lombardi Accounting Services, Inc. to

conduct quarterly audits of the credit union’s internal controls. Internal controls include operating procedures, staff

structure and other measures within the credit union to safeguard member assets, check the accuracy and reliability

of accounting data, and encourage compliance with board policies. Internal controls minimize the possibility that

errors or fraud remain undetected for any length of time.

Your credit union received a variety of audits/examinations in 2012, which were reviewed by the

supervisory committee. I am happy to report there were no material misstatements or findings. Management

cooperated fully with the supervisory committee, examiners and auditors. They responded promptly and seriously

considered any recommendations.

It has been a pleasure serving the FFCU membership. Additionally, we thank the board of directors, the management

and staff for their support and cooperation that assists the supervisory committee in carrying out its responsibilities

to the membership.

ROBERT G. FRITSCH

Supervisory Committee Chair

SUPERVISORY COMMITTEE REPORT


2201 N. Fitzsimons Parkway Aurora, Colorado 80045

6359 S. Southlands Parkway Aurora, Colorado 80016

(303) 340-3343 | (800) 933-5839 | FitzsimonsCU.com

that’s what partners are for.

Documents

2012 Annual Report - Fitzsimons Credit Unionthe economy, such as heightened loan loss provisions and a mandated write-down of investment in the corporate credit union system did not