2012 HUECU Annual Report

Harvard University Employees Credit Union Annual Report 2012

H u e cu : o u r v i s i o n 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-for-profit 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.

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2012 highlights

Mobile Banking Launch In March, the Credit Union launched a Mobile Banking platform. This was the first step in a larger project to give members comprehensive mobile access to their accounts. Soon to follow are iPhone and Android Apps, Mobile Check Deposits, and Mobile Bill Pay. Balance Financial Fitness Program In May, as part of our ongoing commitment to promoting financial literacy, HUECU launched the BALANCE Financial Fitness Program. Through BALANCE, members can take advantage of free one-on-one financial counseling and a wealth of online resources covering a broad range of financial topics.

Record Mortgage Business This past year, the Credit Union lent over $130 million in home loans, more than any previous year. As rates remained at historic lows, homeowners everywhere sought to refinance their loans. Many others saw the favorable rate environment as a perfect opportunity to become first-time home buyers.

Introducing

Crimson

New Checking Accounts Checking...

HUECU designed and launched a new line of checking accounts in 2012. Developed in response to feedback from our members, our Crimson Checking accounts give unprecedented access to Free ATM transactions nationwide. The new accounts also feature valuable perks like free checks, discounted rates on auto loans, cash credits toward credit cards and mortgages, bonus rates on deposit accounts, and more. *

Harvard Square 16 Dunster Street Cambridge, MA 02138

Massachusetts General Hospital Bulfinch Building 55 Fruit Street Boston, MA 02114

Longwood Medical Area Kresge Building 677 Huntington Avenue Boston, MA 02115

Charlestown Navy Yard 149 13th Street Charlestown, MA 02129

www.huecu.org | 617.495.4460 huecu@harvard.edu

twitter.com/myHUECU facebook.com/myHUECU

#104 Rev. 10/12

ATM Network Upgrades HUECU’s ATM network underwent a system-wide upgrade in 2012. Older machines were replaced with new state-of-the-art units that leverage the latest technology to provide members with higher levels of convenience and security. The rollout also included installation of a new ATM in the Science Center, located just north of Harvard Yard.

Harvard Alumni Card In September, HUECU introduced the new Harvard Alumni Card in partnership with the Harvard Alumni Association. The Harvard Alumni Card features a robust rewards program and is available to all Harvard alumni, faculty, and staff.

Message from the Chairman of the Board

George whitE As many financial institutions continued to struggle in a sluggish economy, the credit union industry flourished in 2012. At year end, U.S. credit unions held just over $1 trillion in assets, up 6.2% from the previous year. The number of credit union members nationwide also rose

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significantly, surpassing 93 million. These ongoing trends are indicative of a widespread movement toward more consumer-friendly, dependable community institutions.

I am exceptionally proud of the Harvard University Employees Credit Union’s success during these

challenging times. While other institutions were content to weather the storm, HUECU embraced this as an opportunity to grow and prosper.”

The economic recession set off by the 2008 sub-prime mortgage implosion has been called the worst financial crisis in our country since the Great Depression. I am exceptionally proud of the Harvard University Employees Credit Union’s success during these challenging times.

While other institutions were content to weather the storm, HUECU embraced this as an opportunity to grow and prosper.

The dissatisfaction with big banks that emphasize profits over people has led more consumers to seek out a safer, more trustworthy alternative. In this changing landscape, our not-for-profit, cooperative business model resonates like never before, and our commitment to putting people’s needs first, which has been at the core of our philosophy for over three generations, is being celebrated by Credit Union members new and old.

Our national economy is gradually mending from the crisis. The housing market began to right itself in 2012, as indicated by rising prices, a surge in new construction, and a five-year low in foreclosure filings. In addition, this year’s record low interest rates ignited a flurry of mortgage refinance activity. The Credit Union responded to the immense volume by creating several new jobs in our mortgage division. This expansion has increased our capacity to serve current members and positioned us well for future growth.

This past year also marked a significant milestone for HUECU, surpassing $400 million in total assets. This is a testament to you, our members, who continue to entrust us with your finances.

We continue to dedicate ourselves to enhancing our members’ lives through the products and services we offer, as well as ensuring we have the best delivery channels that suit your needs.

It is a truly rewarding experience to be associated with this organization. I would like to recognize and applaud the Board, management team, staff, and members for everything you do in support of our mission. Together you epitomize what is meant by “The Credit Union Difference.”

George White Chairman of the Board

Message from the president & ceo

Eu g e n e j . f o l e y While the national economy showed only gradual improvement in 2012, I am pleased to report

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that our Credit Union had one of its most successful years on record with continued growth in assets and profitability.

I am pleased to report that our Credit Union had one of its most successful years on record with continued growth in assets and profitability.

Total assets surpassed $400 million for the first time, driven by strong loan originations of over $175 million and deposit growth of more than 10%. Membership increased by over 9%, more than four times the national average, as our reputation for value and integrity continued to grow within the communities we serve.

Low-interest rates persisted throughout 2012, fueling extraordinary home loan volume. The substantial demand created many challenges, but thanks to our staff’s hard work and unwavering commitment to service, we were able to provide home loans to more members than ever before.

Our exceptional financial performance has allowed us to return additional value to our members in the form of enhanced services. In 2012, we launched a new line of checking accounts featuring a generous ATM surcharge refund program. Developed as a direct response to feedback from our members, this program provides unprecedented access to free ATM transactions nationwide.

The Credit Union also made significant investments in our member-facing technology. We launched a web-based mobile banking platform, the first of several mobile technologies that HUECU will be rolling out over the next year. We also conducted a systematic upgrade of our ATM network, replacing older machines with state-of-the-art units and adding a key ATM location in the Harvard Science Center.

HUECU strives to provide unique solutions for the needs of our diverse membership organizations.

This was demonstrated in 2012 with the introduction of the Harvard Alumni Card, an affinity credit card program developed by the Harvard Alumni Association (HAA) in partnership with HUECU. As a result of this collaborative effort, HAA is able to better serve the needs of Alumni around the world while keeping their financial relationships within the Harvard community.

Promoting financial literacy within our member communities has been a long-standing priority.

In 2012, we significantly expanded our capabilities in this area with the BALANCE™ Financial Fitness Program. Free to all HUECU members, this new service offers one-on-one budget and debt counseling, and a wealth of online tools and resources.

Growth and prosperity allow the Credit Union to invest in better technology and broader service offerings. However, it is our commitment to the Credit Union’s core values of honesty, integrity, and personal service that ensures our enduring success. Doing what is in our members’ best interest remains a guiding principle in all that we do, and we will continue to listen and respond to their changing needs.

I would like to thank our volunteer Board, dedicated staff, and most especially our loyal members for helping our Credit Union to thrive in difficult economic times. The cooperative spirit is alive and well at HUECU and we look forward to making a positive difference in our members’ lives for many years to come.

Eugene J. Foley President & CEO

Au d i t c o m m i t t e e r e p o r t William Murphy, Chair • Guillermo Banchiere Ed Emde • Edward Feldman • Stephen King

The Audit Committee is comprised of five Directors dedicated to ensuring that the Credit Union’s actions are held to the highest standards of integrity and value. Throughout 2012, this team met monthly to review compliance programs and examine the financial records of the Credit Union.

Expenses related to Directors in 2012 totaled $66,333. Expenses related to the Credit Committee totaled $1,386. Expenses related to the Audit Committee totaled $100. All Director expenses and reimbursements were made in compliance with the regulations of 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, William Murphy, Chair Guillermo Banchiere Ed Emde Edward Feldman Stephen King

Message from the treasurer

j o h n h . l i ch t e n Despite economic conditions that remain challenging, the Credit Union maintained healthy profitability and steady asset growth. Year-end assets were up nearly 8% at $415 million.

Positive growth was realized in membership, loans and deposits. Loan quality remains extremely high even through these economic times. $400

$300

$300

$250

$250 MILLIONS

MILLIONS

$350

$200 $150

$200 $150

$100

$100

$50

$50 2008

2009

2010

5-Year Deposit Growth

2011

2012

2008

2009

2010

2011

2012

5-Year Loan Growth

As reflected in the unaudited financial statements, the Credit Union continues to be a well-capitalized, financially strong institution where members can feel confident saving and borrowing. The Board, Management and Staff are to be commended for their contributions to our success.

John H. Lichten Treasurer

Statements of Financial Condition ASSETS

2012

2011

Cash and cash equivalents Investments Available-for-sale, at fair cost Other Loans to members, net Accrued interest receivable Property and equipment, net National Credit Union Share Insurance Fund deposit Other Assets

34,696,600

58,202,755

66,345,941 13,452,678 291,080,496 1,885,894 2,787,797 3,481,117 1,296,951

57,288,818 9,860,071 250,577,138 1,720,457 2,800,139 3,099,716 1,128,260

Total Assets

415,027,474

384,677,354

Liabilities Members’ shares Borrowed funds Accrued expenses and other liabilities

372,084,260 1,445,942 5,911,774

338,453,833 10,612,790 2,767,623

379,441,976

351,834,246

0

0

34,616,132 969,366

32,055,065 788,043

35,585,498 415,027,474

32,843,108 384,677,354

LIABILITIES AND MEMBERS’ EQUITY

Total liabilities

Commitments and contingent liabilities Members’ Equity Retained earnings, substantially restricted Accumulated other comprehensive income Total Members’ Equity Total Liabilities and Members’ Equity

Statements of income interest income Interest on loans to members Interest on investments and cash equivalents

2012

2011

14,057,113 1,120,142

13,954,928 876,859

15,177,255

14,831,787

2,450,865 406,240

3,234,776 488,995

2,857,105

3,723,771

12,944,337

11,974,682

INTEREST EXPENSE Dividends on members’ shares Interest on borrowed funds

NET INTEREST INCOME PROVISION FOR LOAN LOSSES NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

1,088,000

864,443

11,856,337

11,110,239

2,118,678 444,767 1,981,615 6,612

1,900,192 458,255 1,111,067 51,764

NON-INTEREST INCOME Service charges and other fees Credit card interchange income Loan servicing fee income Gain/Loss on investments

TOTAL INCOME BEFORE EXPENSES

4,551,672

3,521,278

16,408,009

14,631,517

6,461,390 5,493,374 330,706 1,561,472

5,921,853 4,440,422 774,929 1,454,260

13,846,942

11,667,909

2,561,067

2,040,053

GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits Operations Nat’l Credit Union Share Insurance Fund assessments, net Occupancy

NET INCOME

Statements of Members’ Equity Regular Reserve Balance, December 31, 2010 Net Income Net change in unrealized gains (losses) on available-for-sale investments

3,811,094

Balance, December 31, 2011 Net Income Net change in unrealized gains (losses) on available-for-sale investments

3,811,094

Balance, December 31, 2012

3,811,094

Unappropriated

Total

26,203,918 2,040,053

30,015,012 2,040,053

Accumulated Other Comprehensive Income (Loss) 112,489 0 675,554

28,243,971 2,561,067

32,055,065 2,561,067

788,043 0 181,323

30,805,038

34,616,132

969,366

Statements of Cash Flows: Years Ended December 31, 2012 & 2011 2012

2011

Net Income Adjustments to reconcile net income to net cash provided by operating activities: • Amortization (accretion) of investments, net • Gain on sale of available-for-sale investments • Provision for loan losses • Depreciation and amortization • Net changes in operating assets and liabilities:

Accrued interest receivable

Other assets

Accrued expenses and other liabilities

2,561,067

2,040,053

594,281 (6,612) 1,088,000 643,159

607,888 (51,764) 864,443 474,772

(165,437) (168,691) 3,144,151

(6,872) (185,507) 967,371

Net cash provided by operating activities

7,689,918

4,710,384

Purchases of available-for-sale investments Proceeds from maturities of available-for-sale investments Proceeds from sales of available-for-sale investments Net change in other investments Net change in loans to members Increase in the National Credit Union Share Insurance Fund deposit Purchases of property and equipment

(30,243,146) 18,756,612 2,023,065 (3,592,607) (41,591,358) (381,401) (630,817)

(44,328,908) 22,308,965 606,807 (2,558,448) 640,915 (277,750) (895,184)

Net cash used in investing activities

(55,659,652)

(24,503,603)

Repayment of borrowed funds Net change in members’ shares

(9,166,848) 33,630,427

(2,022,720) 33,245,612

Net cash provided by financing activities

24,463,579

31,222,892

(23,506,155)

11,429,673

Cash and cash equivalents at the beginning of the year

58,202,755

46,773,082

Cash and cash equivalents at the end of the year

34,696,600

58,202,755

2,261,484

2,865,617

Operating Activities

Investing Activities

Financing Activities

Increase (decrease) in cash and cash equivalents

Supplemental cash flow information Dividends paid on members’ shares and interest paid on borrowed funds

OFFI C ERS

Eugene J. Foley President & CEO

Craig Leonard Executive VP, CFO

Cheryl Gorman Executive VP, Retail Services

B OARD OF DIRE C TORS

Guillermo Banchiere Since 2007

Karen DeBerio Since 2003

Joseph DeCristoforo Clerk, Since 1995

Edward Doctoroff Since 1979

Thomas Lucey Since 2006

Jeremiah Murphy Since 2003

William Murphy Since 2010

Chris Schumann Since 2006

Peter Buchanan VP, Lending

John Degnan VP, Operations

Tom Montilli VP, Marketing

Edward Emde Since 1993

Edward Feldman Since 1984

Stephen King Since 2011

Mary Straub Since 2004

Marie Trottier Vice Chair Since 1991

George White Chairman Since 1999

John Lichten Treasurer Since 1992

our sponsors 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 these groups.

Harvard University (Students, Alumni, Faculty and Staff)

Joslin Diabetes Center Judge Baker Children’s Center

Radcliffe Institute for Advanced Study

Lesley University

American Repertory Theater

McLean Hospital

Beth Israel Deaconess Medical Center

Massachusetts Eye and Ear Infirmary

Boston Shriners Hospital

Massachusetts General Hospital/Partners Health Care System

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

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

Harvard/M.I.T. Cooperative Society

Spaulding Rehabilitation Hospital

Harvard Management Company

Veterans Administration Boston Healthcare System

Harvard Pilgrim Health Care Harvard–Smithsonian Center for Astrophysics Harvard Vanguard Medical Associates

WGBH Boston

Main Office - Cambridge 16 Dunster Street Cambridge, MA 02138 Phone: (617) 495-4460 Fax: (617) 495-0444

Longwood Medical Area Kresge Building 677 Huntington Avenue Boston, MA 02115 Phone: (617) 432-2265 Fax: (617) 432-2854

Massachusetts General Hospital Bulfinch Building

Charlestown Navy Yard

55 Fruit Street Boston, MA 02114

149 13th Street Charlestown, MA 02129

Phone: (617) 726-1630 Fax: (617) 726-7409

Phone: (617) 643-9655 Fax: (617) 724-9979