2010 Annual Report

Credit Union PhilosophyWe support the cooperative principles of self-help, self-responsibility, democracy, equality, equity, and solidarity.

Integrity and RespectIntegrity and respect guide our business practices and our relationships with our employees, our members, our business partners, and our community.

Social ResponsibilityWe strive to be a leader in corporate social responsibility through business practices, products and services that serve our members well while contributing to the well-being of local communities.

AccountabilityWe build trust that fosters organizational success and sustainability through our commitment to social and financial accountability.

CollaborationWe build relationships that are fair, equitable, and cooperative.

InnovationWe address challenges with creativity and spirited teamwork.

Helping People ProsperOur talents and resources help you achieve financial prosperity.

Vision

Mission

Core Values

Financial FreedomDream big! There is no limit to your potential. Our long-term vision is to serve as a catalyst, helping people and communities break through barriers to financial freedom.

We have much to celebrate at Freedom First Credit Union. Your Credit Union remains safe, strong, and sound, despite operating in a difficult economic environment. As a result of prudent practices, we are pleased to report another year of solid financial performance. We entered 2010 anticipating a challenging year, reflective of a struggling national economy. High unemployment—and underemployment—combined with a soft housing market adversely impacted both consumer confidence and consumer spending.

During these challenging economic times, we reaffirmed our commitment to providing access to affordable, equitable financial and development services to our member-owners and the local community. In 2010, we received our designation from the National Credit Union Administration as a Low Income Credit Union. Due to our unique mission and purpose, we also earned our certification as a Community Development Financial

Joint Report from Chairman and President/CEO

Nelson Shibley, Chairman & Paul Phillips, President/CEO

Institution from the Treasury. Combined, we were able to secure secondary capital in the form of a federal loan under the Community Development Capital Initiative for program expansion specific to community development and affordable housing. Your Credit Union is now the largest Community Development Financial Institution in Virginia.

Credit unions remain the most highly regulated and restricted of all insured financial institutions. Unfortunately, the ever-increasing complexity and accumulation of regulatory requirements has had the unintended consequence of requiring well-managed, well-capitalized credit unions such as Freedom First to redirect resources toward compliance, rather than toward the programs and services that are so vital to our members and communities. We will continue to work with our elected officials to preserve the not-for-profit credit union cooperative model.

Your Board and management continue to balance fiscal responsibility with the development and delivery of products and programs that meet the needs of the membership and community in a relevant way. We remain dedicated to our primary goals: Remain Safe and Sound, Be a Great Place to Work, and Improve the Financial Lives of Area Residents, Including the Disadvantaged.

Remain Safe and Sound Freedom First Credit Union remains financially strong and well-capitalized. In spite of the economic challenges and increased regulatory burden, your Credit Union generated another year of positive earnings, posting net income of $961,000 in 2010. This strong performance was achieved in spite of extraordinary costs related to corporate credit union stabilization and share insurance premiums. Concerns regarding low

loan demand and regulatory changes prompted controlled balance sheet growth. Your Credit Union successfully increased reserves in 2010, providing additional financial stability for future uncertainties. We ended 2010 with a net worth ratio of over 9%, nearly 13% with secondary capital, far exceeding the 7% regulatory standard set by our federal regulator, the National Credit Union Administration. Although charge-off amounts were slightly higher in 2010 than in 2009, we ended 2010 with less than half of the amount of delinquent loans compared to 2009. This encouraging trend is reflective of your Credit Union’s commitment to stabilizing losses and mitigating risk along with early indications of an improving local economy.

In keeping with the true cooperative spirit, our solid financial performance last year enabled your Credit Union to consistently offer market-competitive rates for share deposit and loan products that provide tangible value to a diverse membership. Recognizing the importance of external validation, we once again received a clean federal examination and an unqualified opinion audit from our external auditing firm, demonstrating your Credit Union’s continued safety and soundness.

Be a Great Place to Work Due to the economic environment, many employers in our community found it necessary over the last few years to cut salaries, eliminate benefits, and even reduce their workforce. In stark contrast, we invested deeper in our employee development, ensuring they have the needed resources to provide exemplary service to our member-owners and the community. We recognize that employees who are respected, appreciated, and engaged are more productive. In 2009, we partnered with the Great Place to Work Institute to solicit employees’ opinions on workplace issues and set up task teams to help facilitate recommended changes. As a testament to our organizational culture, your Credit Union was recently named one of Virginia’s Best Places to Work by Virginia Business magazine.

Improve the Financial Lives of Area Residents, Including the DisadvantagedChallenging economic conditions best demonstrate the advantages of the collaborative cooperative credit union model. Your Credit Union’s business model, structure, and mission are specifically designed for sustainable community development. We consistently respond to economic changes with innovative solutions that mutually benefit our members and the community. Freedom First Insurance and Freedom First Investment Services provide tangible value by diversifying revenue streams, further strengthening your Credit Union. Strong performance in 2010 confirms that you recognize the value of dealing with a partner who acts with your best interest in mind.

In order to ensure our products and programs continue to meet our members’ needs, we implemented a Net Promoter Score (NPS) methodology in 2010 to measure member satisfaction and advocacy on a consistent basis. Your comments on how your Board and management can improve upon products and programs are taken seriously and have already resulted in numerous changes, including planned infrastructure improvements.

Many in our local community, experiencing financial difficulties, look to Freedom First to fill the void left by numerous banks that are unwilling or unable to extend credit. In recent years, this philosophy led your Credit Union to create a Payday Alternative Loan to help address the predatory practices of payday lenders. When we identified a need for a product to help people establish or strengthen their credit file, your Credit Union developed Credit Builder.

In 2010, we renewed our focus on innovation and improvement, making great strides toward fulfilling our mission of Helping People Prosper. We expanded our Roanoke Valley Money Mondays program to the New River Valley, where volunteer Money Mechanics educators now provide free classes each month on basic money management.

We recognize that increased money management skills can help local residents make better financial decisions, resulting in financial prosperity.

Improving the financial lives of area residents would be impossible without addressing transportation and housing needs. Your Credit Union continues to seek out and create opportunities for collaboration on transportation and affordable housing. Working with local nonprofit agencies and business partners, we developed Responsible Rides in 2010 to help low-income working families purchase and maintain affordable, reliable transportation. Our core competencies as a funding source, providing custom underwriting, risk assessment, and proactive loan servicing, are vital to creating a sustainable solution that meets a true community need. As a result, 51 individuals with average annual income of less than $18,000 improved their employment prospects and quality of life in 2010 through this groundbreaking program, which was highlighted by the National Credit Union Foundation as a “great example of partnership and ‘people helping people.’” Programs like Responsible Rides are what set us apart from other financial institutions, and they’re successful because they follow your Credit Union’s own dual objectives: fiscal responsibility and community development. Included within this Annual Report is an impact statement detailing the positive effects your Credit Union had in the community in 2010.

We’ve also been very active in expanding our affordable housing initiatives. Having received lender approval from the Federal Housing Administration, Veterans Administration, Virginia Housing Development Authority, and U.S. Department of Agriculture, as well as being included in the down payment assistance

programs administered by the Federal Home Loan Bank and the City of Roanoke, your Credit Union can help make home ownership a reality for many in the local community.

Our view toward the future includes continuing to refine and expand our products, programs, and services, and making infrastructure investments. We are in the planning stages to expand the Operations Center to accommodate staffing growth, and we are purchasing property in Botetourt County to improve coverage for our member-owners. And based on NPS feedback, we plan to upgrade our online banking platform and add mobile banking over the next year.

As we enter 2011, your Credit Union will continue to build on our solid foundation of fiscal responsibility coupled with creative, sustainable solutions to real problems faced by our members and the community at large. On behalf of our volunteer Board of Directors and our management and staff, thank you for your membership.

Nelson ShibleyChairman

Paul PhillipsPresident / CEO

Sustainable SolutionsWe put our talents and resources to work throughout the year to help all of our members achieve financial prosperity.

Our mission statement summarizes our commitment to financial inclusion and to providing asset-building opportunities to our membership and to our local communities.

More individuals recognized that commitment in 2010 than ever before by becoming Credit Union members. Our growing membership makes creating sustainable solutions in the Roanoke and New River Valleys possible.

4,315 local consumers joined Freedom First Credit Union in 2010

Low Income

64% 19%

17%

2010 New Member Accounts

2010 New Checking Accounts

Low Income

68% 18%

14%

* Monthly Income Brackets calculated from HUD Guidelines; Low (< 80% AMI), Moderate (81%-120% AMI) and High (> 120% AMI) 80% of AMI (Area Median Income) adjusted for 1 person is $ 34,650 for the Roanoke MSA-(US Dept. of HUD 03/2009)

** Accounts analyzed are for non-group accounts and for members that are 17 years of age and older. 937 accounts in 2010 did not furnish income data.

Low Income (Monthly Income $0-$2,887)Moderate Income (Monthly Income $2,887-$4,330)High Income (Monthly Income $4,330+)

providing affordable financial servicesHelping People Prosper

Impact Banking We believe that everyone should have access to affordable financial services. Our Impact Banking family of unique products and programs make that access possible for low-income borrowers and savers, helping those typically abandoned by banks as “unprofitable” achieve their personal and financial goals.

Impact Banking Products Free CheckingSavingsPayday Alternative LoanCredit BuilderMicro LoansCredit CardsHome Loans

Impact Banking Programs Community Grants Financial Education Responsible Rides

Financial EducationWe offer free financial seminars throughout the community: in schools, at government agencies, with our business partners, and in collaboration with local nonprofits. Our volunteer financial educators focus on basic money management topics as well as debt reduction, understanding credit, and fraud prevention.

1,763 individuals received free financial education from Freedom First Credit Union

Micro LoansThe positive impact of small loans can be enormous, but they don’t generate much profit, so few financial institutions offer them. At Freedom First, we know that sometimes a small loan is all it takes to help our members achieve financial freedom.

471 Micro Loans issued in 2010

$1,513 average Micro Loan amount

Payday Alternative LoansWhen the unexpected happens, having cash on hand before payday can help. The high interest rates and hidden fees charged by payday lenders can make matters worse, not better. Our Payday Alternative Loan is a smart, fair alternative.

142 Payday Alternative Loans issued in 2010

$249 average amount saved by borrower

$14,698* total amount saved * Payday lending analysis, National Credit Union Foundation, REAL

Solutions—Impact Center, www.realsolutions.coop.

Credit Builder LoansCredit Builder is a loan-advance program that allows members to improve their credit by making regular payments on time and establishing good savings habits.

48 average points added to borrowers’ credit scores in 2010

NEYMECHANICS

M

Responsible RidesOwning a reliable car can provide the opportunity to earn a higher wage, obtain better employment, spend more family time together, and have access to more choices in terms of housing, schools, and social activities—together helping create a better quality of life and financial independence. By partnering with local community service agencies and businesses, Freedom First Credit Union has created Responsible Rides, an innovative program that makes car ownership possible for low-income working families. Each Responsible Rides partner brings a different perspective and core competency to the program.

Responsible Rides is not just another loan program that helps participants purchase a vehicle—Responsible Rides participants also receive the tools they need to keep their vehicle. Financial education classes, vehicle maintenance training, and ongoing communication among participants and program partners are essential components of this innovative program that serves the community in a meaningful way—one new Freedom First member at a time.

Responsible Rides by the Numbers

51 vehicles purchased through Responsible Rides in 2010

$17,945 average participant income

574 average participant credit score

$9,716 average vehicle price

Recipients of Responsible Rides Program:

73% single parent, 94% female

Impact Banking

Dreama Woodard: “Having more stable transportation will be like having more freedom. Just being able to get to work on time is a big improvement!”

Donna Jackson: “My older model van was unreliable and in constant need of repair, even leaking fumes into the car when I drove. Now I have a feeling of safety for my children, and I can get them to daycare so I can go to work.”

Maurice Jordan, Sr.: “Paying for different parts on my old car has been a headache. With my new car, going to work is easier and so is transporting my kids. It’s a new start for my family.”

Nonprofits Served

American Heart AssociationAngels of Assisi Better Beginnings Coalition of the Roanoke ValleyBlacksburg Interfaith Food PantryBlue Ridge Public Broadcasting Service (PBS)Boy Scouts of America Child Health Investment Partnership of Roanoke Valley Commonwealth Catholic Charities—Refugee and Immigration ServicesCouncil of Community Services (CCS)CCS Nonprofit Resource Center G.W. Carver Elementary School Greenvale School, Inc.Hidden Valley Middle School Hokie Club Scholarship Fund Hurt Park Elementary School Intellectual Disabilities Agency of the New River ValleyJefferson Center FoundationJunior Achievement of Southwest VirginiaJuvenile Diabetes Research Foundation Legal Aid Society of Roanoke Valley

Montgomery County Christmas Store Montgomery County Emergency Assistance Program Mount Pleasant Elementary SchoolNew River Valley Community Services New River Valley Economic Development AllianceNorthside Middle School Oak Grove Elementary School Rebuilding Together—RoanokeRelay for LifeRoanoke Redevelopment and Housing Authority Salvation Army—Angel Tree ProgramSouth Salem Elementary School SouthernCare Hospice Total Action Against Poverty (TAP)TAP Women’s Resource CenterVeterans of Foreign WarsVirginia Cooperative Extension Virginia Polytechnic Institute and State University Virginia Western Community College West End Center for YouthYoung Life—Botetourt County

2010 Community Support Investing in Sustainable Solutions for Worthwhile CausesFreedom First supports community-based organizations in their efforts to provide opportunities to help local families achieve economic success and a better quality of life. The projects we funded in 2010 give special consideration to low-income working families.

Student ScholarshipsCharles Perkins Scholarship: $1,000 Mr. Benjamin Willis (Lord Botetourt H.S.)Charles Perkins Scholarship: $1,000 Ms. Jacqueleen Lorraine Jordan (Salem H.S.)Frank Turk Scholarship: $1,000 Mr. Eli Adam Edwards (Salem H.S.)Fritz Kehn Scholarship: $1,000 Mr. Lucas Tyree (Northern Arizona University)Torie Phillips Memorial Scholarship: $1,000 Mr. Andrew McLucas (Lord Botetourt H.S.)

Free Ice Cream!Freedom First’s new ice cream truck, Scoop, debuted in 2010 to rousing success as an addition to our community-support initiatives. Scoop’s bright, festive colors and our staff’s cheerful service brightened the day for many children—and adults—at community events throughout the region.

Community Involvement GrantsWe support community-based organizations in their efforts to break down barriers, enable people to fully participate as local citizens, and provide opportunities to help families achieve economic success and a better quality of life. The projects we fund give special consideration to low-income working families. We awarded five grants in 2010:

Better Beginnings Coalition of the Roanoke Valley$1,200Blue Ridge PBS $5,000Intellectual Disabilities Agency of the New River Valley $2,250Jefferson Center Foundation $5,000Rebuilding Together—Roanoke $1,550

Better Beginnings Coalition of the Roanoke Valley was one of five grant recipients in 2010.

Freedom First scholarships “encourage young people to go to college … it broadens their world and allows them to see things through opened eyes. Thank you for the generous contribution to [my] education.” ~Lucas Tyree, Fritz Kehn Scholarship Recipient

2010 Community Support

“I don’t know of any other company that has such a concentrated effort on community service. We’re proud to be a part of the community where you all have given so much.” ~Jenny Lee, Executive Director, Greenvale School, Inc.

2010 Community Work DayGrants and donations of much-needed funds are not the only way to support local community groups. Freedom First takes a true hands-on approach with our annual Community Work Day, rolling up our sleeves and working side by side with local nonprofits to help them fulfill their mission. During 2010’s Columbus Day holiday, more than 120 staff and Board members cleaned, painted, landscaped, and completed clerical projects at seven nonprofit agencies in the Roanoke and New River Valleys.

Angels of Assisi

Child Health Investment Program of the Roanoke Valley

Commonwealth Catholic Charities—Refugee and Immigration Services

Greenvale School, Inc.

Montgomery County Emergency Assistance Program

Rebuilding Together—Roanoke

Salvation Army—Angel Tree Program

Total Action Against Poverty—Women’s Resource Center

West End Center for Youth

Treasurer’s ReportDear Shareholders,

As I began to prepare this Treasurer’s Report, I reflected on last year’s Report and marveled at how far we had come in the past 12 months. Last year both local and national economies were struggling, many banks and credit unions were closing their doors, unemployment remained high and everyone was cutting back trying to survive. Today things are looking a little brighter, and we are seeing some signs of progress.

Sometimes growth and success are not measured by bigger numbers. For example, in 2010 our Total Assets declined by $24 million from $276 million to $252 million (or 8.7%) and Total Income declined from $19.755 million to $18.803 million ($952 thousand or 4.8%.) While one may feel that this is a negative indicator, what it truly represents is a slight contraction creating a smaller, more efficient Credit Union able to serve our membership going forward. A very real indicator of this is Net Worth, which increased by $1.052 million (or 4.8%). When this is coupled with an infusion of secondary capital of $9.278 million, it lays a very solid foundation for our Credit Union. Attached to this Report are the “Statements of Financial Condition” and the “Statements of Income,” both of which report the numbers mentioned above.

As we continue to look forward, an air of uncertainty will still be with us. Economists do not anticipate significant growth for 15 months. I believe, however, that slow but steady growth is reasonable to expect over the next year. Rest assured that Freedom First stands ready to be your partner at the sunrise of a new year. On behalf of myself and all Credit Union members, I want to express my appreciation to the management and staff of Freedom First.

Frank P. Turk Treasurer

Supervisory Committee ReportThe Credit Union’s Supervisory Committee has the responsibility to determine that the operations of the Credit Union are carried out in accordance with the Federal Credit Union Act and the rules and regulations of the National Credit Union Administration. This year, we have directed an emphasis on compliance areas and the many new rules that affect the Credit Union.

The Supervisory Committee engaged the services of Nearman, Maynard, Vallez, CPAs & Consultants, P.A., a certified public accounting firm. Their audit report included an unqualified opinion as to the fair presentation of the Credit Union’s financial statements. Based on their report and our own observations, we can report to you that Freedom First Federal Credit Union continues to maintain the highest level of financial safety and soundness.

This is a special Annual Meeting for Freedom First Credit Union. Lois Evers and Janette Markham are retiring from the Supervisory Committee. We hope you will join us in our recognition of Lois and Janette as we offer our sincere heartfelt appreciation for their many years of unselfish service to the Committee and to the members of Freedom First Credit Union. The Supervisory Committee would also like to thank you for your cooperation and support of the Credit Union.

Gerald BarnesChairman, Supervisory Committee

Nominating Committee ReportThe Nominating Committee used the Credit Union newsletter and website to inform the membership of the Credit Union’s nomination and election process. This year, three nominations were received, and no members sought nomination by petition.

In accordance with Article V, Section 2 of the Bylaws and the official Elections Policy of Freedom First Credit Union, I hereby declare the elections closed. The following Directors are hereby elected without challenge: Dan Merenda, Jared Poff, and Frank Turk.

Each of these three Directors will serve a 3-year term beginning this month. The Nominating Committee offers its congratulations to these newly elected Directors.

Susan Hall Chairperson, Nominating Committee

2009 2010INCOME

Income from member loans $ 13,741 13,097Investment & other income 6,014 5,706

Total Income $ 19,755 $ 18,803

EXPENSESOperating expenses $ 10,145 $ 10,351Dividends & interest expenses 5,472 3,808Loan loss provision 3,557 3,683

Total Expenses $ 19,174 $ 17,842

NET INCOME $ 581 $ 961

STATEMENTS OF INCOME($ Amounts in Thousands)

STATEMENTS OF FINANCIAL CONDITION($ Amounts in Thousands) 2009 2010ASSETSLoans (net) $ 220,567 $ 212,783Cash 3,252 4,069Investments 34,734 15,120Other assets 18,013 20,482

Total Assets $ 276,566 $ 252,454

LIABILITIES & NET WORTH Payables $ 29,088 $ 27,164Secondary capital — 9,278Member shares 225,475 192,957Net worth 22,003 23,055

Total Liabilities & Net Worth $ 276,566 $ 252,454

Board of Directors

Supervisory CommitteeNelson Shibley, ChairmanTim Sutphin, Vice ChairmanFrank Turk, TreasurerSusan Hall, SecretaryThomas ChapmanWeldon DinkelEmily Faye JewettRoger JournellJared Poff

Gerald BarnesChairman

Lois EversIra HartmanJanette Markham

Paul PhillipsPresident/CEO

MAILING ADDRESS

P.O. Box 1999Salem, VA 24153

BRANCHES

Blacksburg 1204 South Main Street Virginia Tech, Squires Student Center, College Avenue

Christiansburg 417 North Franklin Street

Roanoke 2125 Colonial Avenue, Towers Shopping Center 5102 Williamson Road Steel Dynamics Roanoke Bar Division (closed to the public)

Salem 1235 Electric Road 1900 Electric Road, LewisGale Hospital

Vinton 203 Virginia Avenue

OPERATIONS CENTER

5240 Valleypark DriveRoanoke, VA 24019

(540) 389-0244 local(866) 389-0244 toll-free

www.freedomfirst.com

FREEDOM FIRST INSURANCE

6375-A Peters Creek RoadRoanoke, VA 24019

(540) 362-9781

FIRST COMMUNITY TITLE

2847 Penn Forest Boulevard Bldg. D, Suite 203Roanoke, VA 24018

(540) 777-2550