2016 Annual Report

There’s a Reason People Bank Here

CHAIRMAN AND PRESIDENT’S REPORT

As your trusted financial partner, we are pleased to report that HVFCU ended 2016 on a strong financial footing. We showed increases across the board in capital, membership, assets, savings, and loans (see Treasurer’s Report), as members turned to us for the financial services that can make their lives better. Through your solid support, we’ve been able to grow and expand our services to you and more of your neighbors.

We believe a strong key to our success is our ability to listen to members – both your concerns and your compliments – and take action to make our products and services better for you. In the past several years, you’ve told us how important convenient, timely access to your accounts is, and so we’ve put even more efforts into making that access a reality.

A DIGITAL TRANSFORMATION Cell phones and tablets have changed much more than just the ways we communicate; they’re changing the way people bank with expectations higher than ever for 24/7 service. At HVFCU, our website has grown to become our single largest “branch” and a focal point of communications, with over 8 million sessions in 2016. On average, members perform 203,000 transactions per month through Internet and Mobile Banking. Throughout 2016, we implemented changes that

improved our ability to serve you in ways you consider most convenient.

Improving the Home Buying Experience In 2016, we added significant enhancements for those purchasing or refinancing a home. Our new mortgage system provides access to important information regarding mortgage applications, including uploading and viewing documents, locking in a rate, and checking the status of outstanding conditions.

Expanding Website and Online Banking Features More and more often, our website – hvfcu.org – is being accessed via smartphones or tablets. A key goal of our newly redesigned website, launched in December, was mobile optimization – ensuring that you can view information easily and conveniently from any device you choose. Other digital improvements this year included:

New, improved Business Internet Banking and Bill Pay, as well as a dedicated mobile app for business members.

Easy, direct access to the HVFCU Rewards! site via Internet Banking.

Adding Visa® Checkout for greater security and faster online purchases.

Noreen Hennessy Chairman

Mary D. Madden President and CEO

NEW BORROWING OPTIONS We continue to be a lender that offers options for a wide variety of borrowing needs. Two of our new products in 2016 addressed hot topics in our culture – the proliferation of student debt and affordable energy. To help students and their families address the increasing gaps they face in financing their higher education, HVFCU has partnered with Sallie Mae® to offer affordable financing with multiple repayment options. Homeowners looking to reduce their dependence on fossil fuels are increasingly turning to solar power. Our new Solar Panel Financing provides an affordable option to consider if you’ve been thinking of this yourself.

EXPANDING COMMUNITY OUTREACH The staff and volunteers at HVFCU have always been proud to serve our community at large. At the end of 2016, over 40 staff served more than 50 nonprofits in our area, ranging from Chambers of Commerce to agencies providing food, clothing, shelter, and medical services to all ages. In addition to carrying a strong voice within our community, HVFCU has grown to be one of the largest credit unions in the country, and with that comes the ability to affect positive change for our members and our industry.

We are becoming more active in providing our regulators and legislators information that can inform their decision-making. For example, legislation is being considered that will hold merchants more accountable for data breaches. Too many of our members have been caught in

these breaches, causing not only inconvenience, but also fear of identity theft. As a financial cooperative, these breaches cost us time and money as well, which can affect our service levels to you. As nonpartisan issues like this arise, we may inform members when you can help us by sending your stories to legislators.

LOOKING AHEAD HVFCU will continue to focus on adding even more value for our members. For business members, that includes a suite of cash management solutions that provide businesses of all sizes greater control and flexibility of their finances. In 2017, we plan to complete improvements to our Hyde Park branch, including interior renovations and the addition of a drive-up teller. We are also working to relocate our Poughkeepsie branch to a more convenient location at the corner

of IBM Road and Route 9, taking care to incorporate the history of this property into the new branch. We’re proud that so many of you have found your reason to bank with us. We look forward to another year of steady growth and providing you even more reasons to think of us first. Thank you for being a member of Hudson Valley Federal Credit Union.

Noreen Hennessy Chairman

Mary D. Madden President and CEO

ADDITIONAL 2016 IMPROVEMENTS

New LaGrange Branch at 155 Stringham Road

Branch Bill Pay offers the opportunity to pay bills electronically – some even same day

Android & Samsung Pay for debit cards

2016 Annual Report I 1

2016 TREASURER’S REPORT

As your Treasurer, I’m pleased to report that 2016 was another year of solid growth for HVFCU in all four of our key metrics (shown in the chart below). Total deposits increased 4.5% to $3.97 billion, while membership itself increased 4.7% to just shy of 275,000 individuals and businesses. Loans in our portfolio grew by 10.2% to $2.56 billion. Assets at year-end totaled $4.44 billion, which represents an increase of $196 million (4.6% over 2015). These healthy numbers allowed us to end the year with 10.60% in capital reserves, a substantial net worth figure that represents the strength and stability of our financial cooperative.

The credit union remains deeply vested in the economic health of our region. Many of our 2016 accomplishments contributed positively to the region, such as the construction of the LaGrange Branch, which used local contractors and workers.

Our ability to provide members with new products and services allows local residents and businesses to improve their financial outlook, so they, in turn, can confidently contribute to our local economic health.

I know our entire Board and senior management team share my sentiment that we appreciate the trust our members have shown in us. We continue to look for safe and secure ways to grow our financial cooperative to benefit even more of our neighbors in the coming year. We’re proud to serve you – our financial partners.

Nancy Kappler-Foster Treasurer

Key Measurements Net Worth at the end of 2016 was 10.60% of Total Assets. B =Billions I

2016 2015 % Growth

Total Assets $4.445B $4.249B 4.6%

Total Savings $3.968B $3.798B 4.5%

Total Loans $2.556B $2.319B 10.2%

Member Growth 274,994 262,722 4.7%

2 I Hudson Valley Federal Credit Union

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Annual Meeting

Wednesday, April 26, 7 p.m. Best Western Plus 503 Washington Avenue, Kingston

This year’s Annual Meeting will be held in Ulster County for the first time. This is a standard business meeting with a brief review of the state of the credit union. (Please note there will be no guest speaker, gifts, refreshments, or raffles.) To ensure the safety of our members, volunteers, and staff, everyone attending the meeting will be required to pass through a security checkpoint. Potentially hazardous items (such as pocket knives or weapons) will be held by security personnel during the Meeting or you will be asked to return them to your vehicle. Thank you.

SUPERVISORY COMMITTEE REPORT

Our Supervisory Committee includes five voting members and two associate members – all of whom are unpaid volunteers donating their time and talent to ensure we remain a strong financial cooperative. We work closely with the Internal Audit Department to monitor the audits they perform throughout the year across the organization. The Committee also reviews the preparation of financial statements by external auditors.

As my predecessors have done for many years, I am pleased to report that our external accounting firm (CliftonLarsonAllen) performed a 2016 audit of our financial statements that resulted in an unqualified opinion. In

addition, The National Credit Union Administration’s annual audit found no areas of concern.

Members who observe any irregularities or have an issue that management could not resolve to your satisfaction can contact us for a review of your concerns. Our strong financial cooperative benefits from members’ feedback and we appreciate the opportunity to serve you.

Kathleen Dispensa Supervisory Committee Chair

2016 Annual Report I 3

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HUDSON VALLEY FEDERAL CREDIT UNION

Consolidated Statements of Financial Condition

December 31,

2016 2015

ASSETS Cash and cash equivalents $138,763,590 $163,129,215 Investments Loans to members:

1,607,749,579 1,620,220,732

Real Estate loans 590,092,917 534,887,023 Consumer loans 1,607,989,647 1,445,321,324 Member Business loans 358,224,778 338,917,132

Total loans to members 2,556,307,342 2,319,125,479

Allowance for loan losses (37,681,312) (27,750,114) Accrued interest receivable 10,864,918 10,447,605 Prepaid expenses 2,581,893 2,375,036 Property and equipment, net 78,547,037 79,160,393 NCUSIF deposit 35,945,859 34,508,415 Other assets 51,916,787 48,268,779

TOTAL ASSETS $4,444,995,693 $4,249,485,540

LIABILITIES AND MEMBERS’ EQUITY

Members’ savings accounts: Regular Savings $970,008,324 $846,425,831 Checking 558,549,804 506,923,377 Money Market 807,747,319 783,325,729 IRAs 235,444,280 240,173,317 Certificate Accounts 1,026,935,949 1,085,342,214 Business Accounts 369,494,514 335,702,635

Total members’ savings accounts 3,968,180,190 3,797,893,103 Borrowed Funds: — Accrued expenses and other liabilities 33,367,460 27,750,304

TOTAL LIABILITIES AND SAVINGS 4,001,547,650 3,825,643,407

Members’ equity, substantially restricted 443,448,043 423,842,133

TOTAL LIABILITIES AND MEMBERS’ EQUITY $4,444,995,693 $4,249,485,540

4 I Hudson Valley Federal Credit Union

HUDSON VALLEY FEDERAL CREDIT UNION

Consolidated Statements of Income

Years Ended December 31,

2016 2015

Interest income: Loans $124,270,283 $118,227,854 Investments 33,154,503 29,354,682

Total interest income 157,424,786 147,582,536

Interest expense: Members’ savings accounts 26,839,964 25,352,137 Borrowed funds 7,082 46,761

Total interest expense 26,847,046 25,398,898

Net interest income 130,577,740 122,183,638

Provision for loan losses 36,862,701 20,136,787

Net interest income after provision for loan losses 93,715,039 102,046,851

Non-interest income: Gain on sale of assets 12,037,542 6,729,934 HVFCU Financial Services Income 4,031,247 4,030,819 HVFCU Insurance Agency Income 616,588 567,277 Other 36,121,944 34,787,746

Total non-interest income 52,807,321 46,115,776

Non-interest expenses: Compensation 38,874,505 36,099,240 Office operations 24,344,100 23,733,077 Loan servicing 18,701,653 18,696,600 Employee benefits 13,827,695 12,924,099 Office occupancy 6,275,426 6,768,757 Marketing 2,803,960 3,558,196 Professional and outside services 2,577,602 3,008,585 Miscellaneous 937,601 318,600 Travel, conferences and training 590,873 464,936 Federal operating fee 376,005 360,428 Members’ insurance 316,024 216,549 Association dues 309,685 312,029 Annual meeting/election 146,014 175,701 Directors/Volunteers expense 119,444 152,187 Cash over and short 15,827 7,075

Total non-interest expenses 110,216,414 106,796,059

Net income $36,305,946 $41,366,568

2016 Annual Report I 5

2016 BOARD OF DIRECTORS

(Top row, left to right)

Noreen Hennessy, Chairman

Takao Inouye, First Vice Chairman

Joseph E. Eppich, Second Vice Chairman

Nancy Kappler-Foster, Treasurer

Stephen M. Caswell, Assistant Treasurer

(Bottom row, left to right)

William L. Spearman, Secretary

Jeffrey S. Battistoni, Director

Marianne Collins, Director

Misty V. Decker, Director

DIRECTOR EMERITUS

David S. Bagley Jan Mahar Sturdevant Henry J. Rodgers Jr.

SENIOR MANAGEMENT

Mary D. Madden President and Chief Executive Officer

Anton L. Rohrmeier Executive Vice President and

Chief Operations Officer

Scott VanZandt Chief Financial Officer

Diane M. Allenbaugh Vice President, Human Resources and Organizational Development

Sandra R. Ludlum Vice President, Branch Administration and Contact Center

Chelen L. Reyes Vice President, Retail Delivery and Marketing

Herb White Vice President, Lending

COMMITTEES

Asset Liability Management Committee Nancy Kappler -Foster, Chair Stephen M. Caswell William L. Spearman Mary D. Madden Scott VanZandt John Pecchia Brian J. Haughey

Compensation & Benefits Committee Takao Inouye, Chair Noreen Hennessy Stephen M. Caswell Lauren Gillett Sharon McGinnis

Nominating Committee Dr. Lynn R. Fielitz, Chair Marianne Collins Paul Anderson Julieta Majak Vanessa S. Primus

Policy & Governance Committee Misty Decker, Chair Joseph E. Eppich Marianne Collins Chris Wyble Patricia Miller

Supervisory Committee Kathleen Dispensa, Chair William J. Mulvey, Secretary Carlos L. Acosta Tuknekah Noble Daniel F. Thomas Elinor Speckman, Associate Member Michael J. Young, Associate Member

CUSERVE Board of Directors Andrea J. Mannix, Chair Mary D. Madden, Secretary/Treasurer Joseph Lapore Rich Trocino

Federally Insured by the NCUA