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The Seven Cooperative Principles date back to some of the earliest co-ops that formed in England in the 1800s. To this day they form the foundation on which cooperatives around the world operate. Seattle Metropolitan Credit Union has adapted these principles to the financial needs and goals of our members, and they guide us in everything we do. Membership Should Be Open To All Membership at Seattle Metropolitan Credit Union is open to every resident of the State of Washington, without gender, social, racial, political, or religious discrimination. Members Should Call The Shots Seattle Metropolitan Credit Union is a democratically run organization, controlled by our members. Our Board of Directors is composed of and democratically elected by our membership. Member Participation Benefits the Entire Credit Union SMCU returns surpluses to members in the form of fewer fees, more services, lower interest on loans and higher dividends on deposits. The more members participate, the more there is to go around. Autonomy & Independence Set Us Apart As a financial cooperative, Seattle Metropolitan Credit Union is controlled by our members, not outside shareholders. Financial Education Should Be Free & Available To All We believe that financial education is a critical benefit of membership. SMCU provides financial information via seminars, workshops, newsletters and our website at no cost to our members. Cooperation Among Cooperatives Is Vital We serve our members best and contribute to the cooperative movement by working with other cooperatives through local, state, regional, national and international organizations. Giving Back To The Community Is An Obligation We believe it is a priority to give back to the communities where we do business while focusing on our members and their needs. SMCU seeks to achieve a greater good through responsible corporate citizenship. The 7 Principles 2
Contents Board of Directors, Supervisory Committee, and Senior Management... 4 From the Board Chair... 5 From the CEO... 6 Minutes of the 80th Annual Meeting... 8 Executive Committee Report...11 Supervisory Committee Report...12 Finance & Budget Committee Report...14 2013 Financial Statements...16 Agenda Check-In and Refreshments...8:30 a.m. SMCU s 81st Annual Meeting...9:00 a.m. Welcome Introduction of the Board of Directors Call to Order Ascertain Quorum Approval of 80th Annual Meeting Minutes Supervisory Committee Report Volunteer Election Results Unfinished Business New Business CEO Remarks Questions from the Membership Adjournment... 10:30 a.m. 3
Board of Directors Jim Yearby... Chair James A. Fossos... Vice Chair Camilla Bishop... Secretary Rodney Eng...Director Ken Harer...Director Ray Hill...Director Robert Leighton...Director Frank Mathews...Director Jack McGoldrick...Director Supervisory Committee Ben Wakefield...Chair Gary Skinner...Secretary Robert Leighton... Member Sandra Philbrook... Member Senior Management Richard Romero...President/CEO Larry Grager...SVP, Chief Financial Officer Jill Vicente...SVP, Chief Strategy Officer Tonita Webb...SVP, Chief Admin Officer Jane Brunton...VP, Internal Audit Caleb Cook... VP, Lending Chad Meadows...VP, Retail Sales Brent Richins...VP, Member Services 4
From the Board Chair L ast year I reported that your credit union was facing tough economic times but was financially healthy. Today, tough-enough times continue, and SMCU remains financially sound. We do have many tough challenges ahead but your board and management team are working hard, doing everything that is possible to protect the assets of your credit union. As you have seen from your newsletter and other media and marketing materials, your credit union has money to make loans. Whether you are in the market for a new automobile, seeking to purchase the new home of your dreams, or you simply want to remodel your existing home, money is available to you at very competitive rates. other infrastructure to make sure we remain viable and relevant as you seek financial services. Our strategic plan focuses on responsible growth with investment in new and innovative tools to meet your financial service needs. Many channels are now provided to meet your needs whether your choice is service at a branch, on your home computer, or while on the road through your smart phone. Your board, CEO, and his leadership team are working hard to make sure that you get the service that you deserve as a member of a first-class financial institution. Our goal is to be your financial institution of choice, not just because you are a member, but because we offer you very competitive financial rates and more importantly, great, friendly service. To serve your needs, we are investing in new talent, technology, and As we grow and expand our financial reach, we will always keep our focus on credit union risk. Maintaining the safety and soundness of your assets is one of the board s most important responsibilities. I want you to know (continued) 5
From the Board Chair (continued) that your board is on its job. We will continue to provide governance and oversight that will assure that your assets are protected as you would expect us to do. Meeting all of your financial needs is the board s highest priority. We want to exceed your expectations by making sure that you have the best experience in all your dealings with Seattle Metropolitan Credit Union. You deserve no less, and the board is committed to making sure your financial needs are met; that is our highest priority. It is privilege to serve you. Thank you for the opportunity. From the CEO was a good year for 2013 Seattle Metropolitan Credit Union. The Credit Union s Net Worth, the measurement used to indicate financial strength, finished at 9.09%. Our Return on Assets, the measurement used to calculate how well the Credit Union earns income, finished at.85% (10 basis points over the industry average.) Our assets, the measurement used to gauge the size of our Credit Union, grew by 17 million dollars under a controlled growth plan. During 2013 SMCU management and your Board of Directors worked closely to ensure that you continue to have access to the best, most up-to-date financial products and 6 Jim Yearby Board Chair Seattle Metropolitan Credit Union services available. To that end, we laid the groundwork for enhanced service delivery channels, such as SMCU s first mobile banking app and a significantly improved online Mortgage Center. Both of these projects will be implemented in 2014 and will provide our members with faster, more convenient service, from wherever they choose to do their banking. While we are proud of the work we have done and look forward to making these enhanced services available to our members, the job of providing quality member service is never finished. To that end, we have created new feedback channels, such as a quarterly member survey, (continued)
From the CEO (continued) and have new processes in place to ensure that we can respond to service opportunities and suggestions quickly to continue to meet our members needs. We enter 2014 with a cautiously optimistic outlook. While the financial results in 2013 for SMCU were strong, the Credit Union continues to battle against an economic environment of low investment returns and a tough, competitive market for originating new loans. These challenges continue to push SMCU s management team to find new ways to earn income and to deliver service at levels that our members have come to expect. Because we are a credit union, our greatest asset is our membership and the cooperative structure that sets us apart from other financial institutions. You, our memberowners, share in SMCU s success. As such, it is in your best interest to be aware of issues that can impact the operation of the Credit Union. We ask that you remain connected to your Credit Union by subscribing to our email list, following us on social media, and visiting our website. Stay aware of legislative actions that could benefit or harm our organization. From time to time, SMCU will reach out to you in order to keep you informed of when your voice can count. We may ask you to contact a legislator or representative in order to get our voice heard. We consider ourselves truly fortunate that you have chosen us to be your trusted financial advisor. Our aim every day is to remain worthy of that trust. If you have suggestions about ways we can improve our service, please let us know. Thank you for being a member. Richard Romero President/CEO Seattle Metropolitan Credit Union 7
Minutes from the 80th Annual Meeting B oard Chair, Mr. Jim Yearby, welcomed all attendees and thanked all attendees for their time. presented. The motion was seconded and approved by vote without opposition or abstention. Chief Executive Officer and President, Richard Romero, reported that the Credit Union s current finances are strong and getting stronger by the month. Mr. Romero further stated that he remains committed to the Credit Union s 7 Principles and that the upcoming year will focus on improving the organization s infrastructure. Mr. Yearby introduced the members of the Board, the members of the Supervisory Committee, and the members of the Senior Management Team. Board Secretary, Camilla Bishop, ascertained the quorum and called the meeting to order at 6:12 PM. Board members present were Jim Yearby, Board Chair; Rodney Eng, Board Vice Chair; Camilla Bishop, Board Secretary; Jim Fossos; Ken Harer; Ray Hill; Robert Leighton; and Frank Mathews. A member from the floor moved to accept the minutes of the 2012 79th Annual Meeting as Chair of the Supervisory Committee, Ben Wakefied, introduced the members of the Supervisory Committee. Mr. Wakefield then reviewed the duties of the Supervisory Committee and thanked Jane Brunton, Internal Audit, for her assistance throughout the past year. Nomination & Election Committee Chair, Ken Harer, reported the results of the 2013 Volunteer Election. Mr. Harer stated that 2,336 valid votes were cast in this election, approximately 6.7% of the Credit Union s membership. Mr. Harer additionally stated that the majority of votes were cast by mail. Mr. Harer reported that Ms. Bishop, Mr. Fossos, and Mr. Hill were re-elected to the Board of Directors. Mr. Harer further reported that Mr. Gary Skinner and Mr. Robert Leighton were re-elected to the Supervisory Committee. Mr. Fossos moved to approve the Supervisory Committee report as presented by Mr. Wakefield, the Nomination & Election Committee report as presented by Mr. (continued) 8
2013 Minutes (continued) Harer, and the Finance & Budget Committee report as printed in the meeting material. The motion was seconded and approved by vote without opposition or abstention. Mr. Yearby asked the attendees if there was any unfinished business to be addressed at the meeting. In response, a member stated that she did not think that the question she posed at the previous year s annual meeting had been addressed. The online catalog of items that members may purchase using their Rewards Points does not list the price in Rewards Points for each item. Debbie Robinson, Operations Manager, replied stating that point values are assigned by third-party vendors provided by the Visa. As such, the point values and the publishing of these values are unfortunately not controlled by the staff of the Credit Union. Ms. Robinson further stated that she brought the member s request to the attention of VISA. Mr. Yearby asked the attendees if there was any new business to be addressed at the meeting. In response, a member asked why the meeting is held at the downtown location as the afternoon commuter traffic makes it inconvenient for her to reach the downtown location at this time on weekday evenings. Mr. Yearby replied stating that the meetings were previously held on Saturdays and the Board would consider changing the day or the location of the Credit Union s Annual meeting in the future. A member asked if Mr. Yearby or Mr. Romero would expand upon some of the budget priorities for 2013 and explain the new business model referenced in Mr. Yearby s letter to the members. In response, Mr. Romero stated that the business model is aimed at improving the Credit Union s infrastructure, such as information technology and management structure. Mr. Romero further stated that the 2013 business model will focus on identifying a clear target market as well as on market penetration. A member asked why he is being charged fees on his accounts when the total balance of his accounts exceeds the required minimum balance. In response, Mr. Harer stated that it is costly to the Credit Union to support multiple accounts with low balances. To address this after the 2008/2009 financial crisis, the Credit Union implemented fees on low-balance accounts to encourage members to consolidate their accounts. The measures were taken to keep the (continued) 9
2013 Minutes (continued) Credit Union financially solvent. The member clarified that his question regards his money market accounts. Branch Manager, Wendi Fracasso, replied by stating that it is common to charge a fee for dropping below a minimum balance for money market accounts to support the advantages offered with money market accounts. to generate new membership. Ms. Vicente replied that the two most significant efforts currently underway are the reward offered to members for referring new members and the constant work continued by the Business Development department. The same members also stated that he currently has limited access to the Credit Union s services where he lives in Kenmore, Washington. In response, Mr. Romero replied that the 2013 business plan includes a review of branch profitability and analysis of where our membership resides. Mr. Romero further stated that executing a branching strategy is a difficult and expensive operation best supported by thorough research. Mr. Yearby asked the attendees if there were any further questions or concerns. No further questions or concerns were raised. Mr. Yearby thanked the attendees for coming and for raising their questions. Mr. Fossos moved to adjourn the meeting. The motion was seconded and approved by vote without objection or abstention. The same member also asked what outreach is being conducted 10
Executive Committee T hese are both exciting and challenging times for your board and Seattle Metropolitan Credit Union. First, thank you for your loyal service over the years. You have done an outstanding job supporting your credit union and you deserve much of the credit for our success. As Board Chair, one of my duties is to chair the executive committee. The executive committee is composed of the board officers. Let me introduce them to you at this time. Ken Harer is our past chair of the board, Jim Fossos is our vice chair, Camilla Bishop is our secretary, Richard Romero is our treasurer and I, Jim Yearby, serve as the current chair of the board. I am privileged to work with such a competent and dedicated group and, as you may guess, they keep me out of trouble. The committee s primary charge is to help carry out the business of the credit union and to act on behalf of the full board between board meetings, when it is necessary. Typical duties include: Setting the monthly board meeting agenda Reviewing and approving credit union lease agreements Assessing the economic market conditions and devising strategies to keep the credit union s assets safe and its service competitive Reviewing and recommending proposals for expanding credit union service Recommending the sale, acquisition or restructure of credit union assets, and Performing related duties as required. The above duties are not exhaustive but are intended to give you an idea of the charge of the committee. The committee has done an outstanding job executing its responsibilities the past year as in previous years. The committee is especially skilled at providing oversight and helping with strategic credit union direction and decisions. Helping set the annual strategic plan and direction of the credit union Leading the evaluation of the CEO s annual performance While the committee is proud of its accomplishments, we realize there are many challenges and much work that remains to be done as we move forward. We are aware of both our (continued) 11
Executive Committee Report (continued) challenges and opportunities and will look to strike a proper balance between the two that will add the maximum value to the credit union. We realize in such a competitive financial market, we must be nimble and able to change quickly, if needed, in ways that enable the credit union to continue providing excellent service to our existing and new members and to remain relevant now and in the future. You can count on us to continue executing our duties well. We appreciate your loyal support. Supervisory Committee T he Washington State Credit Union Act defines the corporate governance requirements for credit unions, including the requirements and duties of the Supervisory Committee. The Bylaws of SMCU further define the membership, terms, duties and responsibilities of the Supervisory Committee. As of 12/31/13, the SMCU Supervisory Committee was composed of three elected volunteers: Ben Wakefield, Chair; Gary Skinner, Secretary; and Bob Leighton; as well as one appointed member, Sandra Philbrook. Jane Brunton, VP of Internal Audit, worked on behalf of the Committee. 12 Jim Yearby Executive Committee Chair Seattle Metropolitan Credit Union The duties and responsibilities of the Supervisory Committee include the following: Engage a CPA firm to perform a certified audit and member account verification annually, as required by the regulatory and insuring agencies. Ensure that deficiencies identified through audits are brought to the attention of the Board and management; track and document progress made in addressing deficiencies. Recommend courses of corrective action to the Board and management to (continued)
Supervisory Committee Report (continued) better ensure the safety and soundness of their actions. Regularly review the financial records and the Minutes of the Board. Ensure that effective internal controls are established and maintained, and that policies and procedures are established and maintained and in compliance with current regulations. Periodically meet with management to discuss issues of internal control and compliance. Review member complaints concerning safety and soundness issues. Carry out all duties as required by law, regulation, and SMCU s Bylaws. Approve the firm that serves as Tellers of the Volunteer Elections for the Board and Supervisory Committee. Report annually to the members at the Annual Meeting about the Committee s activities. The Committee held regular meetings throughout 2013. Turner, Warren, Hwang & Conrad, AC (TWHC) was engaged by the Committee to perform the annual certified CPA Audit for the calendar and fiscal year ending 12/31/13, and the Member Account Verification as of 9/30/13. In addition to the CPA Audit, and the joint risk examination by the Division of Financial Institutions; Department of Credit Unions (DFI/DCU), our state regulator; and the National Credit Union Administration (NCUA), our federal regulator, the Supervisory Committee reviewed all internal and external audit reports. In 2013, the Committee engaged outside experts to work with internal staff to perform audits, including a Member Information Risk Assessment, an Accounts Payable Audit, a Review of Corporate Credit Cards, an Automated Clearing House (ACH) and Wire Audit, an IT Operational Audit and multiple Security Assessments, a Non-Deposit Investment (NDIP) Compliance Review, a Bank Secrecy Act (BSA) Audit, a General Ledger (GL) Reconciliation Review, and a Review of Fiserv (legacy system) User Access Privileges. At each regular meeting, the Committee reviewed the audit and exam responses and noted the progress. The Committee received the Board packets on a monthly basis and reviewed those for issues related to safety and soundness. The Committee remains focused on the timely resolution of audit and exam findings and recommendations. (continued) 13
Supervisory Committee (continued) In addition to the CPA Audit, Management Letter and Financial Statement Report, and the DFI/ DCU/NCUA regulatory report, the Committee is especially concerned with the following critical issues: Asset Liability Management (ALM) and Interest Rate Risk (IRR), the safeguarding of member information, IT security, financial management, responsibility and accountability, expense control, credit risk management, and regulatory compliance and risk management. The Committee effectively carried out its responsibilities during 2013. As of this writing, there are no material adjustments to report. Ben Wakefield Supervisory Committee Chair Seattle Metropolitan Credit Union Finance & Budget Committee T he Finance & Budget Committee of Seattle Metropolitan Credit Union is tasked with the following duties and responsibilities: Reviewing SMCU s financial statements and supporting documents; Reviewing delinquency statistics and monthly charge-off reports; Reviewing the monthly Asset/ Liability Committee (ALCO) meeting minutes. Reviewing our Credit Union investment, liquidity, and balance sheet risk-management strategies; Recommending to the Board of Directors key financial ratio benchmarks for the Credit Union for their approval and adoption; Approving correspondent financial institutions and investment brokers; (continued) 14
Finance & Budget Committee (continued) Reviewing monthly budget variance reports and responses from Management; and Recommending the annual budget to the Board of Directors for approval and adoption. The members of the 2013 Finance & Budget Committee were: Jim Fossos, Board Director, Ken Harer, Board Director, Committee Chair Ray Hill, Board Director Frank Mathews, Board Director Richard Romero, Treasurer, CEO Providing support to the Committee were Larry Grager, Senior Vice President/Chief Financial Officer; Caleb Cook, Vice President of Lending; and Martin Dinn, Executive Administrative Coordinator. 2013 Highlights SMCU ended the year with 41,585 members. SMCU paid just over $1.6 million in dividends to our members. Member loan balances ended the year at $360 million, and member share deposits increased to $537 million by December 31, 2013. Total assets are just under $600 million. In 2009, the National Credit Union Administration (NCUA) announced the Corporate [CU] Stabilization Program, a program designed to add financial strength to the credit union industry over a number of years, and to replenish the federal share insurance fund (NCUSIF). SMCU s required assessment by NCUA was $0.5 million for 2012 and $0.4 million for 2013. Loan losses dropped significantly as our economy showed continued improvement. Credit quality of our loan portfolio improved significantly, such that we needed no additional contributions to provisions for loan losses, making a big, favorable impact on net earnings this year. With prudent management, we were able to increase our net worth to 9.09%. Your Finance & Budget Committee members are proud that Seattle Metropolitan Credit Union remains a well capitalized credit union. We thank our members, staff and volunteers. Ken Harer Finance & Budget Committee Chair Seattle Metropolitan Credit Union 15
INTEREST INCOME 2013 Financials Seattle Metropolitan Credit Union Audited Condensed Statement of Income December 31, 2013 2013 2012 Loans to Members $18,300,219 $20,104,452 Investments and interest-bearing accounts $1,738,130 $1,056,265 Total Interest Income $20,038,349 $21,160,717 INTEREST EXPENSE Members share accounts $1,615,788 $2,072,297 Total Interest Expense $1,615,788 $2,072,297 NET INTEREST INCOME $18,422,561 $19,088,420 PROVISION FOR LOAN LOSSES ($341,033) $3,095,141 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES NON-INTEREST INCOME $18,763,594 $15,993,279 Fees and service charges $2,239,174 $2,038.865 Interchange Income $2,544,861 $2,476,186 Net realized gain on sale of real estate loans $1,542,956 $1,955,985 Net realized loss on sale of foreclosed assets ($225,033) ($454,213) Net realized loss on disposal of property & equipment ($837) ($38,801) Other Income $1,121,407 $1,136,789 Total Non-Interest Income $7,222,528 $7,114,811 NON-INTEREST EXPENSE Compensation and Benefits $10,555,578 $9,323,708 Office Operations $7,989,507 $7,474,658 Office Occupancy $1,549,813 $1,610,546 NCUSIF Premium Assessment $398,366 $469,388 Other Expense $471,831 $567,584 Total Non-Interest Expense $20,965,095 $19,445,884 NET INCOME $5,021,027 $3,662,206 Turner, Warren, Hwang & Conrad AC conducted the annual audit of the 2013 Financial Statements of the Credit Union. The Financial Statements above are condensed for readability, do not meet the full disclosure requirements of generally accepted accounting principles, and are not presented in their audited format. Full, audited copies of the Financial Statements are available at the Seattle Metropolitan Credit Union Administrative Offices. 16
2013 Financials (cont.) Seattle Metropolitan Credit Union Audited Statement of Financial Condition December 31, 2013 2013 2012 ASSETS Cash and Cash Equivalents $31,750,981 $80,580,763 Investments Available for Sale $149,885,569 $77,530,867 Other $32,240,100 $34,776,700 Loans to Members $359,902,692 $365,350,322 Loans Held for Sale - $3,061,000 Accrued Interest Receivable $1,423,965 $1,270,897 Property and Equipment $11,418,861 $10,844,837 NCUSIF Deposit $4,979,577 $4,940,926 Other Assets $3,697,608 $4,097,330 TOTAL ASSETS $595,299,353 $582,453,642 LIABILITIES AND MEMBERS EQUITY Liabilities Members Share Accounts $537,864,885 $526,611,595 Accrued Expenses and Other Liabilities $5,568,339 $6,338,625 Total Liabilities $543,433,224 $532,950,220 Commitments and Contingent Liabilities Members Equity Retained Earnings, Substantially Restricted $5,201,500 $5,201,500 Undivided Earnings $48,885,321 $43,864,294 Accumulated Other Comprehensive Income ($2,220,692) $437,628 Total members equity $51,866,129 $49,503,422 TOTAL LIABILITIES AND MEMBERS EQUITY $595,299,353 $582,453,642 Turner, Warren, Hwang & Conrad AC conducted the annual audit of the 2013 Financial Statements of the Credit Union. The Financial Statements above are condensed for readability, do not meet the full disclosure requirements of generally accepted accounting principles, and are not presented in their audited format. Full, audited copies of the Financial Statements are available at the Seattle Metropolitan Credit Union Administrative Offices. 17
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