2008 HUECU Annual Report

Harvard University Employees Credit Union

ANNUAL

REPORT

2008

What can we do for you?

Our vision Harvard University Employees Credit Union aspires to be a trusted partner in our members’ financial lives. We add value to membership by offering the best possible price, the highest quality personal service, and sincere, sound advice.

The Credit Union seeks to be known as a community leader and to deepen its long standing commitment to housing issues, green initiatives, financial literacy and access to credit for low and moderate income borrowers.

The Credit Union works toward transformational growth and change without relinquishing the core values we hold today. We are a not-forprofit cooperative which exists solely for the best interest of our members.

We value integrity and responsibility in all of our actions. We strive to enhance our communities and create solutions for social, environmental and economic issues.

Highlights from 2008 Deepening Relationships 2008 was the inaugural year for the Student Credit Card Design Contest, which allows students to design, vote and choose which credit card images they want to appear on their card.

Going Green In 2008, we consolidated our Administrative staff into one contiguous location. The new facility earned the U.S. Green Building Council’s highly regarded Gold LEED certification for environmentally sustainable development.

Lending a Hand This year saw HUECU launch the Energy Assistance Loan. The loan provides payment assistance to members struggling to manage their winter heating costs.

Educating our Members As part of our commitment to financial literacy, we expanded our member workshop series in 2008. Workshops cover a range of subjects, from first-time home buying to basic budgeting.

Innovating Through Technology In 2008, we launched a new interactive website. The site includes a wealth of new resources including financial calculators, educational resources, and an online mortgage application.

Getting Involved Community is at the heart of who we are and in 2008 the Credit Union supported a variety of social initiatives, including: • Passionately Pink for the Cure: Raised over $400 for breast cancer awareness.

• WGBH Pledge Drive: Answered phones in support of public access television.

• Toys for Tots: Collected over 200 toys for families in need.

• Christmas in the City: Teamed with the Phillips Brooks house to provide gifts to children in homeless shelters.

• CU Community Hope Initiative: Raised over $500 for the Massachusetts Coalition for the Homeless through donation bins in branches and a candy drive fundraiser.

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Message from the Chairman of the Board

George White The housing market tremor felt at the end of 2007 turned into a full scale financial earthquake by 2008. In the past, housing bubbles grew and burst within the confines of local economies, but the combination of sophisticated investment instruments with Wall Street’s appetite for risky mortgage loans has sent irreparable cracks throughout global markets. Starting with the collapse of Bears Stearns in the spring, the country’s investment banking industry was obliterated by the end of the summer.

On September 29th, when Congress rejected a $700 billion bank bail out plan, the stock market plummeted, booking the greatest single point loss in history. This free fall broke the back of credit markets and froze the liquidity needed to keep goods and services flowing. In the wake of this banking crisis a tsunami has spread throughout the financial markets, capsizing many other industries and national economies along the way.

We are now in a significant economic recession, with home foreclosures and unemployment rising sharply. Congress is wrestling daily with ways to keep the banking system in tact and get the economy growing again. Among the tasks yet to be started will be a total overhaul of the financial regulatory structure.

The credit union system emerged from the last systemic crash of the banking system, during the Great Depression of the 1930’s. Then, like now, Americans lost confidence in the motives and practices of banks and Wall Street.

This gave rise to the not for profit cooperative model that governs our Credit Union today. With restructuring of the financial service industry, our cooperative model is being threatened by our for profit opponents. If you have benefited from Credit Union membership, I ask for your support in advocating that our cooperative structure be left unchanged.

For over three generations, our Credit Union has been an indispensable resource in the financial lives of our members. It is a special experience to be associated with this organization and I am committed to our founding mission of putting people before profits.

George White Chairman of the Board

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" It is a special experience to be associated with this organization and I am committed to our founding mission of putting people before profits."

Message from the President & CEO

Eugene J. Foley While the past year was marked by large bank failures and a near melt down of the financial system, I am happy to report that our Credit Union continued growing in assets, profitability and liquidity.

The key to our success lies in our cooperative structure. Our business model is simple and effective; we take our members’ depos-

" Even in today’s market turmoil, our Credit Union is profitable, fully insured and very well capitalized with money to lend. "

its to fund the needs of members that need mortgages, cars or any other type of loan. This minimal amount of asset risk produces a predictable stream of steady returns that we share with our members in the form of higher than market dividends on deposits and lower that market interest rates on loans.

Even in today’s market turmoil, our Credit Union is profitable, fully insured and very well capitalized with money to lend. As a credit union chartered by the Commonwealth of Massachusetts, we are required to keep every dollar on deposit insured in full, which we do through two regulated agencies: federally through the National Credit Union Administration and additionally by the Massachusetts Share Insurance Corporation.

Over the past year we have enjoyed double digit deposit and loan growth. This stability enabled us to concentrate on enhancing efficiency, convenience and member services. In June we consolidated staff from four separate locations to relocate into new corporate offices in Harvard Square. This move reduced expenses and greatly enhanced our operations. In addition, we significantly increased member access by developing a new online experience including increased functionality with products like on line mortgage origination.

While we can not predict what changes we are likely to see as a result of the current national financial crisis, we have historically seen our members turn to their Credit Union during times of economic uncertainty. Our Board and Staff are committed to helping members weather even the worst of financial storms. We are working hard to develop products and services to financially educate and empower our members. We have revenue to pay the highest dividends possible on savings and cash to lend for members seeking loans. Most especially in these hard times, we are asking; “What Can We Do for You?”

Eugene J. Foley President & CEO

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Treasurer’s Report

John H. Lichten

The Credit Union grew in assets, liquidity and profitability in 2008, despite the near meltdown of the financial system and economy. With bail outs and bank failures shaking consumer confidence, members in record numbers turned to the safety and reliability of their Credit Union. Growth in membership, loans and deposits far exceeded business plan projections, driving assets up at year end by over 17% to $266 million.

5 Year Loan GrAPH

5 Year Deposit Graph $200

$200

$175

$175

$150

MILLIONS

MILLIONS

$225

$125

$150 $125

$100

$100

$75

$75

$50

$50 2004

2005

2006

2007

Deposits grew by 16% in 2008 continuing the trend of consistent growth.

2008

2004

2005

2006

2007

2008

Full liquidity enabled the Credit Union to meet the credit needs especially in mortgage lending.

As reflected in the audited financial statements, the Credit Union continues to enjoy sustained growth and profitability.

It is a well capitalized, safe and sound financial institution where members can feel confident in saving and borrowing.

The Board, Management and Staff are to be commended for their contributions to our financial strength, especially in these difficult times.

John H. Lichten Treasurer

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Audit Committee Report

Audit

" The Credit Union has provided positive growth and change while staying true to its core values."

The Audit Committee is comprised of five Directors dedicated to ensuring that the Credit Union’s actions are held at the highest standards of integrity and value. Throughout 2008, this team met monthly to review compliance programs and examine the financial records of the Credit Union.

Expenses related to Directors in 2008 totaled sixty-six thousand, seven hundred, and fifty-nine dollars. Expenses related to the Credit Committee totaled one thousand, two hundred, and twenty-three dollars. Expenses related to the Audit Committee totaled eighty-nine dollars. All Director expenses and reimbursements were made in compliance with the regulations stated by the National Credit Union Administration and the Massachusetts Division of Banks.

The Committee wishes to thank the Credit Union management for their cooperation, support and assistance throughout the year.

Respectfully Submitted, Guillermo Banchiere Edward Emde Christian Schumann Eileen Sullivan Edward Feldman, Chairman

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Statements of Financial Condition FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 assets Cash and cash equivalents Investments

Held-to-maturity

Other Loans to members, net Accrued interest receivable Property and equipment National Credit Union Share Insurance Fund deposit Other assets

2008

2007

$35,980,663

$19,243,737

5,099,642 23,284,200 196,137,887 780,991 2,456,588 1,900,781 380,564

10,961,929 15,883,300 175,906,539 909,541 1,554,380 1,735,624 350,320

$266,021,316

$226,545,370

LIABILITIES AND members’ EQUITY Liabilities

Members’ shares $219,025,557 $189,229,398

Borrowed funds 17,539,660 9,098,213

Accrued expenses and other liabilities 1,473,893 1,207,513

Total liabilities 238,039,110 199,535,124 Commitments and contingent liabilities

0

0

Members’ Equity

Retained earnings, substantially restricted 27,982,206 27,010,246

$266,021,316 $226,545,370

Statements of Income FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 INTEREST INCOME

2008

2007

$11,625,116 1,384,187

$10,357,279 1,981,394

13,009,303

12,338,673

4,002,794 609,107

3,684,419 518,914

4,611,901

4,203,333

8,397,402

8,135,340

707,872

395,037

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

7,689,530

7,740,303

NON-INTEREST INCOME Service charges and other fees Credit card interchange income Loan servicing fee

1,254,704 336,364 223,920

1,111,423 293,963 150,224

1,814,988

1,555,610

9,504,518

9,295,913

GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits Operations Occupancy

4,397,932 3,192,871 941,755

4,175,737 2,967,714 778,197

8,532,558

7,921,648

NET INCOME

$971,960

Interest on loans to members Interest on investments and cash equivalents

INTEREST EXPENSE Dividends on members’ shares Interest of borrowed funds

NET INTEREST INCOME PROVISION FOR LOAN LOSSES

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$1,374,265

Statements of Members' Equity FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 Retained Earnings

Regular Reserve

Unappropriated

Total

Balance, December 31, 2006 $3,811,094 Net Income

$21,824,887 1,374,265

$25,635,981 1,374,265

Balance, December 31, 2007 3,811,094 23,199,152 Net Income 971,960

Balance, December 31, 2008 $3,811,094 $24,171,112

27,010,246 971,960 $27,982,206

Statements of Cash Flows FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 OPERATING ACTIVITIES

2008

2007

Net income Adjustments to reconcile net income to net cash provided by operating activities:

(Accretion) amortization of investments, net

Provision for loan losses

Depreciation and amortization

Net change in: Accrued interest receivable Other assets Accrued expenses and other liabilities

$971,960

128,550 (30,244) 266,380

(195,361) (21,611) (104,936)

Net cash provided by operating activities

2,393,922

1,679,272

(33,453) 707,872 382,857

INVESTING ACTIVITIES

Purchases of held-to-maturity investments (5,104,260)

Proceeds from maturities of held-to-maturity investments 11,000,000

Net change in other investments (7,400,900)

Net change in loans to members (20,939,220)

Increase in the National Credit Union Share

Insurance Fund deposit (165,157)

Purchases of property and equipment (1,285,065)

Net cash used in investing activities (23,894,602)

$1,374,265 (60,938) 395,037 292,816

(8,901,506) 12,000,000 (1,000,000) (13,448,704) (24,576) (578,057) (11,952,843)

FINANCING ACTIVITIES Net change in borrowed funds Net change in members’ shares

8,441,447 29,796,159

(4,901,787) 15,490,096

Net cash provided by financing activities

38,237,606

10,588,309

INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

16,736,926 19,243,737

314,738 18,928,999

$35,980,663

$19,243,737

$4,575,282

$4,226,853

CASH AND CASH EQUIVALENTS AT END OF YEAR SUPPLEMENTAL CASH FLOW INformaTION Dividends paid on members’ shares and interest paid on borrowed funds

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Our Sponsor Organizations

Thank you The Harvard University Employees Credit Union is proud to offer our services to the employees, students and alumni of Harvard University, Harvard teaching hospitals and affiliated organizations.

We would like to thank all of our sponsor organizations for their continued support and participation in the Credit Union. Membership at the Credit Union is available exclusively to the following groups: Harvard University (Students, Alumni, Faculty and Staff) Radcliffe Institute for Advanced Study American Repertory Theater Beth Israel Deaconess Medical Center Boston Shriners Hospital Brigham and Women’s Hospital Cambridge Hospital/Cambridge Health Alliance Children’s Hospital Dana Farber Cancer Institute Dumbarton Oaks Research Library Harvard Business School Publishing Harvard/M.I.T. Cooperative Society Harvard Management Company Harvard Pilgrim Health Care Harvard – Smithsonian Center for Astrophysics Harvard Vanguard Medical Associates Joslin Diabetes Center Judge Baker Children’s Center Lesley University McLean Hospital Massachusetts Eye and Ear Infirmary Massachusetts General Hospital/Partners Health Care System MGH Institute of Health Professions Massachusetts Mental Health Center Medical Academic and Scientific Community Organization Mount Auburn Hospital The Center for Blood Research The Schepens Eye Research Institute Spaulding Rehabilitation Hospital Veterans Administration Boston Healthcare System WGBH Boston

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Board of Directors Officers

1

2

3

4

1

Eugene J. Foley: President and CEO

2

William Hanify: Executive VP & Chief Financial Officer

3

John Degnan: Vice President, Operations

4

Peter Buchanan: Vice President, Lending

5

Cheryl Gorman: Senior VP, Retail Services

1

Guillermo Banchiere since 2007

2

Karen DeBerio since 2003

3

Joseph DeCristoforo: Clerk since 1995

4

Edward Doctoroff since 1979

5

Edward Emde since 1993

6

Edward Feldman since 1984

7

Elizabeth Hess since 2004

8

John Lichten: Treasurer since 1992

9

Thomas Lucey since 2006

5

Board

1

5

9

13

2

6

10

14

3

7

11

15

4

8

12

10

Jeremiah Murphy since 2003

11

Chris Schumann since 2006

12

Eileen Sullivan Since 2008

13

Mary Straub since 2004

14

Maria Trottier: Vice Chair since 1991

15

George White: Chairman since 1999

What can we do for you? www.huecu.org

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Sat., 8:30 a.m. - 12:00 p.m.

Phone: (617) 495-4460 Fax: (617) 495-0444

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Phone: (617) 432-2265 Fax: (617) 432-2854