The Language of Business: Accounting

Board responsibilities: Fiduciary. An individual in whom another has placed the utmost trust and confidence to manage and protect property or money RESPONSIBLE FOR MANAGING YOUR CREDIT UNION’S ASSETS 701.4 (b) (3) Rules and Regulations

CLASSIFICATION OF ACCOUNTS INCOME STATEMENT BALANCE SHEET REVENUE ASSETS = LIABILITIES + CAPITAL _ EXPENSE = NET INCOME

Income Statement Items INCOME (revenue) - EXPENSES = NET INCOME ** gets transferred to Equity Measures Profitability!!!

Income Sources Interest on Loans Interest on Investments Fee Income Operating Income

More on EXPENSES Salaries usually one of largest Provision for loan loss – when we need to replenish the ALLL (allowance for loan a account) Card processing expense, utilities expense, benefits expense, property tax expense, data processing expense, postage expense

A tool What you think will happen this year Estimated guess Can be changed

Balance Sheet Items ASSETS - things owned (size of your credit union) LIABILITIES - things owed Capital (Equity) (Net worth) – net income accumulated over the years ASSETS= LIABILITIES + CAPITAL

Capital/Equity /Net Worth Funded by net income Reduced by net losses Cushion against losses Solvency **You can’t just make a deposit to this account!

Balance sheet Assets: Liabilities: Cash 3 Accounts Payable 2 Loans to members 9 Investments 6 Shares 15 Land 4 Share Certificates 3 Building 8 Share Drafts 6 Total Liabilities 26 Equity(net worth) (capital) 4 Total assets 30 Total Liabilities and Capital 30

ALLL Account Allowance for Loan Loss Most misunderstood account Estimated losses on loans Found on Balance Sheet -Subtract from loans- to properly state assets – we don’t expect everyone to pay back Write offs deplete ALLL- The ALLL gets replenished by provision for loan loss expense

Asset Liability Management Managing risks due to mismatches of assets and liabilities on balance sheet. Rate sensitivity! Loans Shares Equity

Trend Analysis Looking for patterns to help in making forecasts Asset growth Loan growth Share growth Gross income growth

Key Ratios Capital-measures solvency ROA-measures profitability Delinquency and chargeoff ratios- how well managed is your loan portfolio Loan growth

Additional hot topics! CECL IRR Alternative Capital Risk based capital Capital Shares discussion

QUESTIONS!!!