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NEW ENGLAND FEDERAL CREDIT UNION y 2016 ANNUAL REPORT

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O UR MIS S ION

New England Federal Credit Union is a member-owned organization committed to promoting and improving our members’ economic well-being. Everything we do is guided by our values of integrity, respect, trust, honesty, fairness, excellence and confidentiality. Our primary focus is to provide innovative, responsive and valued financial services to members while maintaining the long-term financial strength and flexibility of the Credit Union.

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Message from the Chair, Treasurer and Chief Executive Officer .............................................................4

2016 in Review ..................................................................................5

Preview 2017 ......................................................................................7

Report of the Supervisory Committee ............................................9

Consolidated Statements of Financial Condition ......................10

Consolidated Statements of Income .............................................11

Directors, Officers and Committees .............................................12

Products and Services ....................................................................13

Office Locations ................................................................................14

Staff ....................................................................................................15

TABL E OF CONTENTS

Two years ago, NEFCU underwent a transformative change as we upgraded our core computer system. This past year, we began to realize the benefits of this conversion with the integration of new applications and interfaces with that system. These improvements, together with other investments in our infrastructure, are enabling us to meet member needs in new and exciting ways.

Since first introduced, our mobile banking capability has grown dramatically and is rapidly changing the traditional service landscape upon which we built our success. More than two-thirds of the 110,000 logins that occur on NEFCUOnline each week are made with smart phones. NEFCU members are using our smart phone Apps, mobile web, tablet Apps, and SMS Text to make inquiries and perform transactions that used to be performed in person, over the phone, or on their laptop or desktop computers.

As a financial institution with more than 90,000 members, we maintain a strong willingness to consider new technology services, understanding that investments must be justified. We are paying close attention to overall market movements and investing when there is evidence of sufficient value for our members to justify the risks and resources involved.

Our unrelenting focus on understanding our members’ needs and then rising to meet them has resulted in another very successful year for NEFCU. The Credit Union continues to thrive with significant membership growth, solid financials, strong and improving member satisfaction, and firm operational results. We did better than expected in loan generation, and made good progress working with our staff to implement new ways to identify and support the realization of our members’ financial goals.

We now service more than $2 billion in loans, have over 12% capital and are a five-time winner of the Chittenden County based “Daysie Award” for Favorite Bank/Credit Union and Mortgage Company. Our HealthOne Division is now fully aligned with NEFCU product and service standards, and we are exploring opportunities for expanding into the wider Michigan market.

Understanding that financial aspirations take time for members to achieve, we think it’s important to help keep them on track. To this end, the Credit Union is investing in customer relationship management technology that builds upon our understanding of each member’s financial goals and aligns information, expert guidance and appropriate products and services to help members achieve their objectives.

As we move into 2017, we’re exploring even more ways to further improve the member experience. We’d like to thank you for being a part of this journey, and for your support in helping to make NEFCU the valued institution it is today.

Michael E. NixTREASURER

Charles T. DesLauriersCHAIR OF THE BOARD

John J. Dwyer, Jr.PRESIDENT & CHIEF EXECUTIVE OFFICER

Message from the Chair, Treasurer and Chief Executive Officer

Left to right: Michael E. Nix, John J. Dwyer, Jr., and Charles T. DesLauriers


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People everywhere are using smart phones to communicate, share photos, browse the news, research purchases and shop online. In the process, they’re changing the very nature of retail, including financial services.

The capabilities of these devices continue to improve and are changing entire industries. At NEFCU, mobile use by members has increased by 16% in the past year, and more than two-thirds of the logins to NEFCUOnline now come from mobile devices instead of personal computers or laptops.

Our Mobile Banking App includes a remarkable range of convenient and powerful tools, including: quick views of balances and history; balance transfers; loan and deposit account applications; remote deposits; BillPay™, member to member and person to person (PopMoney®®®) transfers; biometric (fingerprint) authentication; ATM and branch locators, and more. We’re currently working on mobile features to apply for a mortgage loan, provide more detailed access to credit card activity, and to enable mobile chat support between members and our Contact Center.

Instant AccessSmart phone technology has led our members to expect more “immediacy” in their dealings with their financial institution. They’ve grown accustomed to logging in daily, or even multiple

times a day, to check their accounts. That desire for instant access to real-time information is influencing all interactions members have with us. They want every transaction, whether on the phone, online or at the branch, to be performed quickly and without delay, and we are constantly reviewing our internal processes to accommodate that sense of urgency.

We have recently added credit card access through the use of mobile devices. VISA® Online Access provides powerful ways to obtain information and manage credit cards. In the near future, we plan to add additional credit card control features and eventually provide the same for debit cards. We’re also looking at mobile technology to communicate certain transactions with members in real time as a way to combat fraud.

Meanwhile, with an average of more than 200,000 visits per month, our website nefcu.com is not only an important source of information for our members, but a primary source of new business for the Credit Union. Sixty percent of all mortgage applications in 2016 came to us via nefcu.com, generating 56% of total closings. We recently improved our website with new graphics and better navigation to make it easier for people to find what they’re looking for. Our other remote channels, such as “live chat,” are also growing in popularity.

2 01 6 IN REVIEW

TECHNOLOGY’S TRANSFORMATIVE POWERNew technology is being introduced every day that makes banking easier, more accessible, and more rewarding to consumers. NEFCU is committed to bringing these new capabilities to our members securely and at a reasonable cost, to make your experience with us as fast, easy and convenient as possible.

32% receive email or

text alerts; and

50% use a

mobile device for access.

33,500unique users actively use

online banking.

Among these users,

24% actively use

Bill Pay™ each month;

45% are

registered for eStatements;

@


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2016 IN REVIE W (cont inued)

In addition to the unprecedented number of remote access channels, members still want a positive branch experience and the “personal touch.” That’s why we’re making ongoing improvements to the branches to increase opportunities for member engagement, while exploring ways to better serve their needs.

Over the years, NEFCU has established high levels of trust with our membership, and we remain highly focused on being a credible, trustworthy, and reliable financial service provider. Our industry is challenged to keep the needs of consumers front and center, and NEFCU’s focus on improving the financial lives of our members will continue to be the key to our success.

Mortgage LendingNEFCU continues to hold a strong lead over its competitors in home financing. We grew from a total of 17.8% of market share in 2014 to 21.2% in 2015 within our six-county footprint. The results are even more impressive when we look at the conventional loan market, where NEFCU originated 24.14% of all conventional loans within the six counties.

Total mortgage loan volume in 2016 was similar to that of 2015. The mix between purchase and refinance activity was nearly the same as well. In 2016 we added VA lending and introduced a new jumbo loan product, and we ended the year with $371 million in total mortgage loan volume.

Consumer LoansNEFCU has always been a leader in the auto lending space, and we continue to lead among Credit Unions in the market we serve. Competition in auto lending continues to be challenging. However NEFCU’s relative position to other credit unions has remained the same. In 2016, we made it possible for people to apply for a loan right from their mobile device, and growth of this channel has been steady throughout the year.

Our VISA® product is a far superior program in terms of rates and fees when compared to offerings from larger institutions. In addition to our low rates and fees, we will be investigating changes to the product in the coming year, with a goal of retaining the affordability, simplicity and convenience of the product while responding to marketplace competition for increased rewards.

Checking and SavingsFifty-five percent of our 41,000 active households have a transactional (checking) relationship with NEFCU. Active primary members with checking accounts have increased 4.7% for the year. Transaction relationships bring the consumer to the Credit Union and nefcu.com, and this exposure drives deeper relationships.

Investments and InsuranceNEFCU Financial Group/CUSO now manages $63M of member assets and serves 540 NEFCU households. With the Baby Boomer generational segment facing retirement decisions, we will be helping them with financial education and solutions to meet their changing needs.

Financial Education and CounselingNEFCU is well-known for its financial education programs, having led and sponsored seminars both on- and off-site for many years. This success can be credited to our subject matter expertise, the resources we have devoted to the program, the commitment of our staff, and our determination to offer financial education as a community service without an accompanying “sales pitch.” In 2016 nearly 80 seminars were held at the Credit Union, at partner organizations, and schools.

HealthOne®

At our HealthOne Division, we are currently focusing our efforts on the downtown Detroit market. Due to limited opportunities, we closed the HealthOne branch in Cleveland in 2016. As we move into 2017, we are examining the best value proposition NEFCU can bring to the larger four-county Michigan market we serve.

nefcu.com averages more than

200,000 visits per

month.

Two-thirds of the

110,000 logins per week to

NEFCUOnline occur through

mobile devices.

21,363members

actively use the mobile app.

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2 01 6 IN REVIEW (cont inued)

Information Security, Privacy and ConfidentialityNEFCU remains dedicated to its commitment to protect the privacy and confidentiality of its members. Our attention to data security increased this year as we instituted new cybersecurity measurements and assessments. All new Credit Union services and technology receive a thorough security review as part of the development and implementation process to make certain that we continue to meet or exceed industry standards for information safety. Nothing is more important than your safety, soundness, and trust.

Member SatisfactionWe regularly perform surveys to measure our performance. Survey results have improved since the conversion to our new core computer system, and the satisfaction numbers are back up to 96%.

Member Auto & Home Insurance ProgramMetLife Auto and Home® brings high-quality insurance from a top-rated national carrier to Credit Union members at discounted rates. Travelers®® Insurance is offered along with MetLife Auto and Home. Both top-rated national carriers are committed to providing group rates and high-quality service and value to members.

Preview 2017In 2017, we will focus on protecting current relationships while growing new ones. A significant portion of our Vermont demography are Baby Boomers, and their needs are evolving from borrowing, spending and saving to retirement income and legacy planning. We will address these needs through member education and customized solutions.

Identification of the services our members need will continue to expand through our member relationship development work. These include retirement and estate planning services provided by NEFCU Financial Group.

Our growth plans will focus on increasing our membership in Franklin County and in Michigan, and expanding lending opportunities within our overall market footprint.

In home financing, we will be adding FHA lending to our mix. Government lending programs accounted for a significant amount of volume this past year and we will look to originate a healthy portion of that market in 2017.

As for auto loans, we will explore improved pricing for members who take longer terms. In new product development, we will create a first-time auto buyer product to assist members with their first purchase and developing a credit profile.

We will affirm NEFCU’s reputation as the recognized leader of providing no-cost, no-obligation financial education and counseling to the general public in Vermont, and will pursue new channels for financial education delivery.

Our focus remains on improving the financial well-being of our members. In 2017, we will look for new technological features and functionality that can add value, while we never forget the importance of the “personal touch.”

NEFCU offered more than

80seminars in 2016,

in Vermont and Michigan.

Locations included the Credit Union,

partner organizations, and schools.

Total attendance increased to

1,808


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COMMUNITY G IV ING

As a community-based organization, NEFCU actively supports local organizations that help make our area a better place to live and do business. NEFCU focuses on four specific categories of community giving which are aligned with our priorities and our business: Housing, Children’s Welfare, Nursing and Science Education, and Financial Literacy. A fifth category, Healthy Communities, is an umbrella for the support we provide to a wide variety of other worthy causes, including local events. We also maintain a separate program to manage unsolicited requests for support. In 2016, NEFCU donated a total of $340,000 through our community giving program.

Events and Donations this year included: • American Cancer Society• American Heart Association• Champlain Housing Trust• Champlain Valley Office of

Economic Opportunity (CVOEO)• The Committee for Temporary

Shelter (COTS)• Community College of Vermont• Community Health Centers

of Burlington• Feed a Family Food Drive• Flynn Theatre for the

Performing Arts• Food From the Heart• Franklin County Home Health Agency• Northwestern Medical Center• United Way of Northwest Vermont• Martha’s Kitchen• Tim’s House, a Division of

Samaritan House• Vermont Children’s Hospital• Vermont Maple Festival• Vermont Public Radio (VPR)• Vermont Public Television (VPT)• Williston Community Food Shelf• Greater Burlington YMCA

NEFCU-led Programs and Events• Blankets of Hope• Shred Fests at Harvest Lane• Vermont Distinguished Writers’ Series

Community Events Supported by NEFCU• LaunchVT• Maple Tree Place Concert Series• Team Sporting Events

We also support the spirit of civic engagement by donating to smaller programs, events and causes that enrich our communities. We cannot fulfill every request, so we ask interested groups that meet our charitable giving guidelines to enter quarterly drawings to ensure a fair process. Recipients of NEFCU grants in 2016 included:• Essex CHIPS• American Lung Association• Williston Runs!• ANEW Place• Vermont Police Canine Association• Vermont Association for the

Blind and Visually Impaired• Trenton Squirt AA Hockey• Georgia Little League• Vermont Council on Rural

Development• Vermont Youth Conservation Corp• Junior League of Champlain Valley• Ronald McDonald House Charities• Mobius• Our Community Cares Camp, Inc.• South Burlington Community

Housing• Howard Center

The Supervisory Committee provides oversight of the Credit Union’s financial reporting process on behalf of the Board of Directors. As part of that oversight process, the Committee independently selects a certified public accounting firm to perform an opinion audit on the Credit Union’s financial statements. The Committee selected the firm CliftonLarsonAllen LLP to perform an audit of the Credit Union’s financial statements for the period ending December 31, 2016, expressing an opinion about whether the financial statements are fairly presented, in all material respects, in conformity with United States generally accepted accounting principles. The accounting firm expressed an unmodified opinion for the financial statements audited.

Management is responsible for the financial statements and the financial reporting process, including internal controls. In fulfilling its oversight responsibilities, the Committee discussed the financial statements in the annual report with management, including a discussion of the quality, not just the acceptability, of the accounting principles; the reasonableness of significant judgments; and the clarity of disclosures in the financial statements.

The Supervisory Committee discussed with the independent certified public accounting firm’s auditors, their judgments as to the quality, not just the acceptability, of the Credit Union’s accounting principles and such other matters as are required to be discussed with the Committee under generally accepted auditing standards. In addition, the Committee has discussed with the independent certified public accounting firm the auditor’s independence from management and the Credit Union, and considered the compatibility of non-audit services with the auditor’s independence.

The Supervisory Committee discussed with the company’s internal and independent auditors the overall scope and plan for their respective audits. The Committee meets with internal and contracted auditors as well as the independent certified public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Credit Union’s internal controls, and the overall quality of the Credit Union’s financial reporting and compliance initiatives.

The Committee is perpetuated by the volunteer efforts of Credit Union members. Members who are interested in serving on the Committee are encouraged to submit their names to Susan Francis, Internal Auditor 802-764-6528 for consideration by the Board of Directors and the Supervisory Committee.

John R. Eisenmann, Jr. Chair, Supervisory Committee

(Left to right) Michael J. Flaherty, Susan M. Francis (Internal Auditor), Britt A. Cummings, John R. Eisenmann, Jr., and Henry R. Farmer.

Report of the Supervisory Committee


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ASSETS 2016 2015

Cash and cash equivalents $ 76,511,794 $ 135,405,309Investments Available-for-sale 217,548,900 157,239,451 Other 2,315,990 2,411,090Loans held-for-sale 13,940,280 9,260,823Loans to members, net 821,966,170 760,769,428Accrued interest receivable 2,464,930 2,261,512Property and equipment, net 16,570,840 17,769,595National Credit Union Share Insurance Fund deposit 9,446,970 9,062,663Mortgage servicing rights, net 8,217,700 7,564,756Other assets 4,053,062 3,813,443 TOTAL ASSETS $ 1,173,036,636 $ 1,105,558,070

LIABILITIES AND MEMBERS’ EQUITY

LIABILITIES

Members’ shares $ 1,010,071,640 $ 954,541,591 Accrued expenses and other liabilities 22,265,763 17,863,626 Total liabilities 1,032,337,403 972,405,217

MEMBERS’ EQUITY

Retained earnings 145,961,713 136,047,179 Accumulated other comprehensive loss (5,262,480) (2,894,326)

Total members’ equity 140,699,233 133,152,853

TOTAL LIABILITIES AND MEMBERS’ EQUITY $ 1,173,036,636 $ 1,105,558,070

CONSOLIDATE D S TA TE ME NTS OF FINANCIA L C ONDITION

For the Years Ended December 31, 2016 and 2015

Full Financial Statements were audited by the firm of CliftonLarsonAllen LLP.


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2016 2015INTEREST INCOME Interest on loans to members $ 29,154,695 $ 28,205,628 Interest on investments and cash equivalents 4,345,358 3,646,546

Total interest income 33,500,053 31,852,174

INTEREST EXPENSE Dividends on members’ shares 5,167,246 5,611,604

Net interest income before provision for loan losses 28,332,807 26,240,570

PROVISION FOR LOAN LOSSES 1,320,000 1,310,000

Net interest income after provision for loan losses 27,012,807 24,930,570

NON-INTEREST INCOME Mortgage origination fees 4,030,442 2,866,184 Deposit fees 5,444,160 5,609,226 Credit card fees 2,005,617 1,977,111 Mortgage servicing fees 4,017,861 3,894,057 Commissions, fees and other income 691,219 689,393

Total non-interest income 16,189,299 15,035,971

GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits 19,234,739 18,184,649 Operations 9,043,926 9,229,124 General and administrative 1,570,637 1,791,450 Occupancy 1,887,810 1,825,730 Promotional 1,550,460 1,584,232

Total general and administrative expenses 33,287,572 32,615,185

NET INCOME $ 9,914,534 $ 7,351,356

CONSOL IDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2016 and 2015


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DIRECTORS, OFFIC E R S A ND C O MMITTEES

DIRECTORS

CHAIR,Charles T. DesLauriers

1st VICE CHAIR,Kathleen S. Emery-Ginn

2nd VICE CHAIR,Frank G. Harris, III

SECRETARY,Margaret H. O’Donnell

TREASURER,Michael E. Nix

Evan LangfeldtRuth E. UpholdArthur G. Woolf

CHAIR EMERITUS,William F. Meyer

DIRECTORS EMERITUS,Edward Blaise, IIIMartin J. MaraRonald D. MussenAnna S. Niemiec

BOARD COMMITTEES

Finance and InvestmentCHAIR,Michael E. Nix

John R. Eisenmann, Jr.Arthur G. Woolf

Marketing and Business DevelopmentCHAIR,Margaret H. O’Donnell

Jonathan P. EbbersRuth E. Uphold

Human ResourcesCHAIR,Kathleen S. Emery-Ginn

Michael E. NixDeborah McDowell

Information TechnologyCHAIR,Frank G. Harris, III

Kathleen S. Emery-Ginn

SENIOR MANAGEMENT

PRESIDENT AND CHIEF EXECUTIVE OFFICER,John J. Dwyer, Jr.

John T. EwellJohn M. HoodSusan E. LeonardCynthia K. MorganWilliam S. SmithJames L. St. Peter

SUPERVISORYCOMMITTEE

CHAIR,John R. Eisenmann, Jr.

Britt A. CummingsGlenn F. EnosHenry R. FarmerMichael J. Flaherty

INTERNAL AUDITOR,Susan M. Francis

Standing (left to right): Ruth E. Uphold, MD, Charles T. Deslauriers, Michael E. Nix. Seated (left to right): Arthur G. Woolf, Deborah McDowell, Margaret H. O’Donnell, Frank G. Harris, III. Not present: Evan Langfeldt and Kathleen S. Emery-Ginn.

Board of Directors Senior Management

Standing (left to right): John M. Hood (Lending), John T. Ewell (HR/Organizational Development), William S. Smith (Retail Delivery). Seated (left to right): James L. St. Peter (IT & Operations), Cynthia K. Morgan (Marketing), Susan E. Leonard (Senior VP & CFO), and John J. Dwyer, Jr. (President & CEO).


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P RODU CTS AND SERVICES

Home LoansFirst Time Homebuyer ProgramsFixed Rate MortgagesAdjustable Rate MortgagesJumbo MortgagesSecond Home MortgagesInvestment Property MortgagesMobile Home LoansLand LoansConstruction LoansMyChoice Mortgage™

VA Loans

Home Equity LoansHome Equity PlusHome Equity Line of Credit

Consumer LoansAuto LoansTruck Loans Recreational Vehicle LoansMotorcycle LoansBoat LoansSnowmobile LoansPersonal LoansConsolidation LoansLifestyle LoansEnergy Smart Loans

VISA®

Visa Explorer CardVisa Explorer Rewards CardVisa Online Access

Business LoansMachinery/Equipment/ Vehicle Term LoansTime (or Demand) NotesReal Estate Term LoansReal Estate Lines of CreditSecured Lines of CreditNEFCU ATIRAcredit™ Business MasterCard®®

Checking and Deposit AccountsSimplySmarter Checking™Business Share Draft AccountShare Account (Savings)Power Account (Money Market)Term Share CertificatesIndividual Retirement AccountsDirect DepositCourtesy Pay

NEFCUOnlineBillPay™

Expedited PaymentsElectronic Bill PresentmentAutomated and Scheduled Account TransfersSecure Support: Live ChatOnline Account OpeningPersonal Financial Management (FinanceWorks™)eDelivery of Statements and NoticesAlerts and NotificationsMobile DepositShared Access with OthersCard Dispute FormsStop PaymentsPopmoney®

External Funds TransferMember-to-Member Transfers

Account AccessNEFCUOnlineMobile BankingATMsDebit CardAccountlineWire Transfers TeleBranchLoan PhoneApple Pay®

Samsung Pay™Android Pay™Smartwatch Banking

Financial CounselingBudget CounselingCredit CounselingDebt CounselingEducational Seminars

InsuranceTruStage™ Accidental Death & Dismemberment InsuranceMEMBER’S CHOICE® Credit Life and Credit Disability InsuranceGAP ProtectionMetLife Auto & Home®® InsuranceTravelers®® Auto & Home Insurance

Securities, Investment and Insurance Services and products offered to NEFCU members by Consultants at NEFCU Financial Group, available through CUSO Financial Services, L.P. (Member FINRA/SIPC)

NMLS #446767


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Administrative Offices P.O. Box 527, Williston, Vermont 05495 802-879-8790 / 800-400-8790

Branch Offices 141 Harvest Lane, Williston, Vermont

74 Pearl Street, Essex Junction, Vermont

GLOBALFOUNDRIES 969, Essex Junction, Vermont

GLOBALFOUNDRIES 861, Williston, Vermont

University of Vermont Medical Center, Main Campus, McClure 2 Connector, Burlington, Vermont

1000 Shelburne Road, South Burlington, Vermont

295 Tuckers Way, St. Albans, Vermont

Loan Phone 866-80-LOANS

On the Web nefcu.com

NEFCU Financial GroupAvailable through CUSO Financial Services, L.P. (CFS) Investment and Insurance services available to NEFCU members through CFS Financial Consultants at NEFCU Financial Group, located at New England Federal Credit Union, 141 Harvest Lane in Williston, Vermont, 802-879-8580

OFFICE LOCA T IONS

New England Federal Credit Union

HealthOne® ®a division of New England Federal Credit Union

Branch Offices 600 Lafayette E., Detroit, Michigan

200 Renaissance Center, 1st Floor, Suite 1201, Detroit, Michigan

Phone 800-966-8200

On the Web healthonecu.com


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