Since 1935, the mission of McGraw-Hill Federal Credit Union has never been clearer help more

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1 A N N U A L R E P O R T

2 2017 PRESIDENT/CEO S MESSAGE A COMMITMENT TO TODAY, AN EYE TOWARD TOMORROW Since 1935, the mission of McGraw-Hill Federal Credit Union has never been clearer help more members live healthier financial lives. The way we empower our members with financial tools and resources has evolved, but the vision of our mission remains unchanged proved to be a year of focusing on our core values and determining the best way to translate them to true value for our more than 20,000 members nationwide. Our team re-imagined the future of the credit union while staying vigilant in putting members in the best position to achieve their financial life goals. We achieved a milestone of topping $400 million in assets while remaining a very well-capitalized institution. This ensures the credit union will remain well-positioned for continued success and has the flexibility to give members more of what they ve come to expect from a credit-union-industry leading financial institution. HOW WE HAVE INVESTED IN THE MEMBER EXPERIENCE + Improved mobile app account access and security all while receiving a best-in-class app rating by Apple and Android. + Revolutionized the way we introduce new products and provide greater convenience by making significant investments in our core operating systems. + Increased the value of S 3 Checking Prime by simplifying the relationship with no minimums, just great rates! + Fortified fraud prevention and security by updating all plastic cards with EMV chip technology with security features that safeguard member account information with the latest in plastic protection. + Rewarded member loyalty and activity by enhancing our Prosper Rewards program with cash back and new merchant gift cards awarding more than 11 million points, or $50,000+ in member giveback. LOOKING AHEAD TO 2018 The credit union team constantly looks toward the future and is excited about implementing programs that are completely focused on increasing member value. Over the next 12 months, members will realize this vision and begin to see the positive financial impact of the investments we ve made in their experience. We will not sit idle as the economic landscape continues to shift and member needs evolve. Instead, we will remain forthright in our passion and commitment to helping members live healthier financial lives. As John F. Kennedy once said, Change is the law of life and those who look only to the past or present are certain to miss the future. We re dedicated to exceeding members expectations we re just evolving to do it better. On behalf of the Board of Directors, employees of McGraw-Hill FCU, and myself, thank you for your continued membership and support. Sincerely, Shawn Gilfedder President/CEO McGraw-Hill Federal Credit Union

3 FINANCIAL HIGHLIGHTS YEAR-OVER-YEAR % increase in assets % increase in loan balances 8.16 % increase in deposit balances

4 FINANCIAL HIGHLIGHTS At or for the years ended June 30, ASSETS $400,850,164 $363,853,323 LOANS 314,207, ,175,605 DEPOSITS 327,475, ,759,137 NET WORTH 44,246,403 43,242,830 NET INTEREST INCOME $10,066,968 $10,602,339 PROVISION FOR LOAN LOSSES 865, ,778 NET INCOME/(LOSS) 1,003,573 (1,219,356) NET INTEREST MARGIN 2.63% 2.87% NON-PERFORMING ASSETS TO AVERAGE ASSETS 0.39% 0.22% OPERATING EXPENSE RATIO 2.96% 3.57% RETURN ON AVERAGE ASSETS 0.26% -0.33% NET WORTH TO ASSETS 11.04% 11.88% ASSETS $400.9 LOANS $314.2 DEPOSITS $327.5 $363.9 $278.2 $ Figures in millions

5 TREASURER S REPORT During the 2017 fiscal year ended June 30, McGraw-Hill Federal Credit Union remained financially strong and well-positioned in this dynamic and challenging interest rate environment. + The credit union s assets grew to more than $400 million for the first time in its history an increase of $37 million (+10%) versus the prior year. + Net Income for the period was $1 million, an improvement of $2.2 million over Total members equity was $44 million and the ratio of net worth to assets remained strong at 11.04%, well above the 7% minimum required to be considered well-capitalized. + The continued success of our lending programs generated growth of $36 million in loan balances, representing an increase of 13%. + A commitment to providing consistently competitive promotional and core deposit products generated growth of $24.7 million in deposit balances, an increase of 8%. The credit union retained the services of CliftonLarsonAllen LLP (CLA) as the members independent auditors for the 2017 fiscal year ending June 30. CLA issued an unmodified opinion thereon and a statement of the audit is included in this report. We look forward to, and anticipate, continued financial growth as we enter the 2018 fiscal year and are excited to continue to execute our strategic plans. Respectfully submitted, Sue Young Board Treasurer BOARD CHAIR REPORT In 2017, McGraw-Hill FCU remained committed to deepening member relationships while embarking on initiatives that helped the credit union grow in a fiscally responsible manner. We have remained vigilant to our mission of helping members lead healthy financial lives by: + Continuing to offer some of the best deposit and loan rates in the nation ranking in the top third of our peer group. + Maintaining a low fee structure that places us in an elite class of the top 3% of our peers. + Exploring operational efficiencies, reducing operating costs by 14%. As the credit union moves forward, the organization is primed for growth within our local markets and delivering financial wellness to our member and employer populations will remain vital to our future success. The credit union will enhance the member experience with emerging account access technologies, best-in-class security measures, and digital education opportunities that will help members build a foundation for financial wellness. MHFCU will also continue its volunteer work through the VOICE Foundation. In 2017, the foundation made $34,000 in total donations to the Children s Miracle Network, First Book of Manhattan, and America s Credit Union Museum. Additionally, the foundation is proud to award $10,000 in scholarships to six members as part of this year s Tyler G. Hicks Scholarship program. On behalf of the Board of Directors and our team of dedicated employees, thank you for your continued membership and support. Warm regards, Mary Herzich Board Chair To Members of McGraw-Hill Federal Credit Union We have audited the consolidated financial statements of McGraw-Hill Federal Credit Union and Subsidiary (the Credit Union), which comprise the consolidated statements of financial condition as of June 30, 2017 and 2016, and the related consolidated statements of income (loss), comprehensive income (loss), members equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. In our report dated September 5, 2017, we expressed an unmodified opinion on those consolidated financial statements. To obtain a copy of the audited financial statements, please contact the Credit Union s Executive Administrator at CliftonLarsonAllen LLP Baltimore, Maryland September 5, 2017

6 STATEMENT OF FINANCIAL CONDITION JUNE 30, ASSETS Cash and cash equivalents $ 26,346,266 $ 19,739,907 Investment securities Securities available-for-sale 30,519,578 37,854,539 Securities held-to-maturity 7,447,694 7,489,954 Other investments 1,841,863 1,490,172 Loans held-for-sale 913,500 1,046,004 Loans receivable, net 314,207, ,175,605 Accrued interest receivable 1,025, ,541 Premises and equipment, net 562, ,040 NCUSIF deposit 2,820,875 2,839,410 Investment in life insurance 10,576,816 10,916,315 Prepaid expenses and other assets 4,587,414 2,819,836 TOTAL ASSETS $ 400,850,164 $ 363,853,323 LIABILITIES AND MEMBERS EQUITY Members and non-members shares $ 327,475,366 $ 302,759,137 Accrued expenses and other liabilities 2,770,366 1,563,565 Borrowed funds 26,650,000 15,600,000 TOTAL LIABILITIES $ 356,895,732 $ 319,922,702 MEMBERS EQUITY, SUBSTANTIALLY RESTRICTED $ 43,954,432 $ 43,930,621 TOTAL LIABILITIES AND MEMBERS EQUITY $ 400,850,164 $ 363,853,323 Net Worth* 44,246,403 43,242,830 Net Worth Ratio 11.04% 11.88% *Net Worth excludes from equity unrealized, accumulated gains/losses on available-for-sale investments 2017 SUPERVISORY COMMITTEE REPORT The Supervisory Committee of McGraw-Hill Federal Credit Union consisting of three credit union volunteers and appointed by the Board of Directors provides support to the Board of Directors in the fulfillment of its oversight responsibilities in the following areas: + Integrity of financial reporting + Compliance with legal and regulatory requirements + Appointment and supervision of independent auditors + Performance of internal audit functions + Evaluation of internal controls and operational risk management In that regard, the Supervisory Committee s activities included: + Providing oversight of CliftonLarsonAllen LLP (CLA) an external CPA firm hired by the credit union to conduct its annual financial audit. + Providing oversight of Doeren Mayhew CPAs and Advisors - for internal audit, regulatory compliance, and risk management services to conduct its annual internal and compliance review audits. + Performing internal audit functions in accordance with a formalized annual plan. The Committee, along with the external auditors, executed the annual audit plan. The audit work of both firms was reported directly to the Supervisory Committee. No irregularities were encountered during the year. + Reviewing the findings of any examination completed by regulatory agencies and any auditor observations throughout the year. The Committee received regular updates from management regarding compliance matters, including how compliance is monitored and how follow-ups are being tracked and reported.

7 STATEMENT OF INCOME JUNE 30, INTEREST INCOME Interest on loans $ 10,674,656 $ 10,804,353 Interest on investments 1,059,416 1,437,625 Total Interest Income 11,734,072 12,241,978 INTEREST EXPENSE Dividends on share accounts 1,471,921 1,556,996 Borrowed funds 195,183 82,643 Total Interest Expense 1,667,104 1,639,639 Provision for loan losses 865, ,778 NET INTEREST INCOME, AFTER PROVISION FOR LOAN LOSSES 9,201,968 9,806,561 NON-INTEREST INCOME Fees and other income 2,179,272 2,112,728 Gain/(loss) on disposition of assets 765,893 (11,041) Gain on sale of investments 193,180 70,162 Total Non-Interest Income 3,138,345 2,171,849 7 NON-INTEREST EXPENSE Compensation and benefits 5,067,305 5,001,189 Office operations 3,079,614 3,847,979 Occupancy 810, ,289 Marketing 291, ,724 Loan servicing 667, ,157 Professional fees 1,182,963 1,853,424 Other expense 237, ,004 Total Operating Expense 11,336,740 13,197,766 NET INCOME/(LOSS) $ 1,003,573 $ (1,219,356) The Committee was engaged by management in the development of critical estimates, judgments, and complex or unusual transactions underlying the financial statements throughout the year. The Committee was informed of any significant changes in accounting principles, practices, standards, or policies; the effect of regulator and accounting initiatives, as well as any off-balance sheet structures on the financial statements. In addition, the Committee had access to all filings with regulators (including quarterly Call reports) and gave adequate consideration to whether the reports were complete and consistent with the information known to the Committee members before filing. The Committee had, and continues to have, access to the credit union s outside counsel to review any matters that may have a material impact on safety and soundness for the credit union and its members. Throughout the year, the Committee was kept fully informed of the financial condition of the credit union and the integrity of its financial reporting. The Committee was kept fully informed of the decisions made by the Board of Directors, and provided its findings and recommendations to the Board of Directors on a regular basis. The cooperation of the credit union s members, Board of Directors, officers, and employees is appreciated. Your Supervisory Committee shall continue to perform its oversight responsibilities in the best interest of all the credit union members. Respectfully submitted, James W. Mitos Supervisory Committee Chair

8 EXECUTIVE MANAGEMENT SHAWN GILFEDDER President/CEO MICHAEL SULLIVAN Executive Vice President/CIO JESUS E. MORENO Chief Financial Officer BOARD OF DIRECTORS MARY HERZICH Chair Director Since 2012 Credit Union Member Since 1992 MARYELLEN VALAITIS Vice Chair Director Since 2012 Credit Union Member Since 2010 SUE YOUNG Treasurer Director Since 2001 Credit Union Member Since 1979 GAIL MINER Interim Secretary Director Since 1991 Credit Union Member Since 1989 STEPHANIE HOOPES, PhD Director Since 2010 Credit Union Member Since 1983 ANDREW HWANG Director Since 2016 Credit Union Member Since 2016 PATRICK D. MAHONEY Director Since 2013 Credit Union Member Since 2004 MICHAEL TWAMLEY Director Since 2015 Credit Union Member Since 1985 JOHN DERY Director Since 2011 Credit Union Member Since 1994 TYLER G. HICKS Director Since 1962 Credit Union Member Since 1960 Main Office 120 Windsor Center Drive East Windsor, NJ Contact Us McGrawHillFCU.org New York Office 55 Water Street Concourse Level New York, NY This credit union is federally insured by the National Credit Union Administration