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Th
e 7 P
rincip
lesThe 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.
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Check-In and Refreshments ......................................................8:30 a.m.
SMCU’s 81st Annual Meeting ..................................................9:00 a.m.WelcomeIntroduction of the Board of DirectorsCall to OrderAscertain QuorumApproval of 80th Annual Meeting Minutes Supervisory Committee ReportVolunteer Election ResultsUnfinished BusinessNew BusinessCEO Remarks Questions from the Membership
Adjournment .................................................................................. 10:30 a.m.
Agenda
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
Contents
4
Board of DirectorsJim 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
Senior Management
Supervisory Committee
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
Ben Wakefield ......................................................................................Chair
Gary Skinner ................................................................................Secretary
Robert Leighton ........................................................................... Member
Sandra Philbrook ......................................................................... Member
5
From the Board ChairL 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.
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
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.
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)
6
From the CEO2013 was a good year for
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
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,
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.
Jim YearbyBoard ChairSeattle Metropolitan Credit Union
(continued)
From the Board Chair (continued)
7
Richard Romero President/CEOSeattle Metropolitan Credit Union
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 member-owners, 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.
From the CEO (continued)
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Minutes from the 80th Annual MeetingB oard Chair, Mr. Jim Yearby,
welcomed all attendees and
thanked all attendees for their time.
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
presented. The motion was
seconded and approved by vote
without opposition or abstention.
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)
9
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
2013 Minutes (continued)
(continued)
10
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.
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.
The same member also asked
what outreach is being conducted
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.
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.
11
(continued)
Executive CommitteeT 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:
• Helping set the annual strategic
plan and direction of the credit
union
• Leading the evaluation of the
CEO’s annual performance
• 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.
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
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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.
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
Supervisory Committee
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.
Jim YearbyExecutive Committee ChairSeattle Metropolitan Credit Union
(continued)
Executive Committee Report (continued)
13
(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.
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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 WakefieldSupervisory Committee ChairSeattle Metropolitan Credit Union
Supervisory Committee (continued)
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)
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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 HarerFinance & Budget Committee ChairSeattle Metropolitan Credit Union
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2013 FinancialsSeattle Metropolitan Credit Union
Audited Condensed Statement of Income
December 31, 2013
2013 2012
INTEREST INCOME
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$18,763,594 $15,993,279
NON-INTEREST INCOME
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.
17
2013 Financials (cont.)
Seattle Metropolitan Credit UnionAudited 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.