2 SDFCU 01 Annual Report 7

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1 2017 SDFCU Annual Report

2 your finances mean the world to us. 2 Chairman s Report 4 Treasurer s Report 6 Supervisory Committee Report 8 SDFCU Team 10 Independent Auditor s Statement 11 Financials 2017 Total Membership 80,664 members worldwide Map based on Longitude (generated) and Latitude (generated). Details are shown for Country and City.

3 Chairman s Report It is with great pleasure that I present to you an update on your credit union on behalf of the Board of Directors, employees, and volunteers of State Department Federal Credit Union (SDFCU). This was another strong year for member growth for SDFCU. Our products and services attracted 9,051 new members in These new members not only have the lifetime benefits of credit union membership now but also took advantage of our competitive low rates and accounted for one third of our total loan originations. Through our indirect auto lending programs, SDFCU saw another solid year in auto loan growth. In addition, we experienced a 26% increase in Home Equity loan and line of credit originations over It is important to the credit union people helping people philosophy and to SDFCU to contribute and participate in the betterment and financial education of the communities we serve. This year we conducted 86 sessions on various topics including: banking without a branch, trust accounts, and the home-buying process. In addition, we were proud to award $68,000 toward college scholarships for members and sponsor the Foreign Service Youth Foundation art contest. SDFCU is focused and mindful of delivering an easy and convenient experience for our members, no matter how they choose to conduct their banking. Some of the ways we improved upon the experience were in the join and loan application processes. We eliminated steps in the applications and made them available on mobile devices. In addition, we significantly improved the mortgage application process; members can now self-serve their rates, see closing cost estimates, and obtain a prequalification letter 24/7. We continue to update and enhance both online and mobile channels to make banking accessible from anywhere, at any time. In these times, it is critically important we maintain a vigilant focus on cyber security. In 2017, we conducted training, board briefings, independent assessments, and technology enhancements to keep data security standards in the forefront of all we do. We also continue to focus on providing tools to put proactive fraud monitoring in the hands of the member. Our members can monitor their credit through our SavvyMoney tool available in Online Banking. They can also set up account alerts and turn cards on and off using either Online Banking or our mobile app. As we look into 2018, SDFCU is investing in business intelligence efforts to improve operational efficiencies, inform data-driven decision-making, and uncover insights and trends to help build products and improve service. We also launched a new cash back credit card at the request of our members and we continuously make process improvements to drive a superior omni-channel member experience. I am grateful you have chosen SDFCU to serve you and we remain dedicated to your financial well-being. Your Finances Mean the World to Us. Respectfully submitted, Marlene E. Schwartz, Chairman 7,248 22,116 Members celebrating their one-year anniversary with SDFCU Members celebrating over 20 years with SDFCU How many bills paid through Bill Pay in 2017? 442, Members participated on the Member Advisory Council 2 SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

4 Treasurer s Report 8.3% 2.5% Other Home Equity Loans 4.2% Personal Loans 20.5% Auto Loans I am pleased to report, in 2017, State Department Federal Credit Union (SDFCU) added a record number of new members, reduced our operating expense ratio, expanded financial education programs, and continued to offer products and services that our members value. SDFCU is a stable and secure financial institution that members can rely on. Financially, our credit union achieved a net income of $14.1 million for the year ended December 31, 2017 and $11.8 million for the prior year. The increased income is primarily attributable to our loan growth and corresponding improved loan income. Our credit union s return on assets continues to be very solid with 0.76% for 2017 and 0.67% for Most importantly, the net worth ratio measures the credit union s financial strength and is calculated by dividing the balance of retained earnings by total assets. As a result of controlling asset growth and operating with a return on average assets of 0.76% for the year, our credit union s net worth ratio increased by 27 basis points from 9.62% as of December 31, 2016 to 9.89% as of December 31, Total assets increased from $1.807 billion in 2016 to $1.900 billion in 2017 (5.1%). The NCUA considers a credit union as well capitalized when it has a net worth ratio over 7.0%. Members seeking loans found credit readily available at SDFCU. We originated $323 million in loans and increased our loan balance by 14.5% to nearly $1.028 billion. Significantly, the large increase in loans improved our loan-to-share ratio from 61.1% in 2016 to 67.3% as of December 31, Net loan charge-off ratio increased by five basis points from 0.19% to 0.24% for the years ending December 31, 2016 and 2017, respectively. The NCUA peer group average for the ratio is 0.49%. Our control of expenses was outstanding during Our operating expense to average asset ratio continues to improve, decreasing from 2.18% for the year ended December 31, 2016 to 2.09% for the year ending December 31, We will continue the tradition, as we have since 1935, of excellence and trustworthiness. We pledge to focus on maintaining low cost borrowing solutions for our member-owners and a safe, profitable place for their savings, while also keeping convenience in mind. Our record of financial stability, sound management by our staff and prudent decision-making by the Board of Directors makes SDFCU a solid lifetime partner for you. Thank you to our members for your continued support of your credit union. Loan Balance Mix 8.1% Credit Cards 56.4% First Mortgages Net worth 9.89% $1,527,519,647 Total balance of deposits 3.96% increase from last year Respectfully submitted, W. Ron Whitworth, Treasurer $1,900,155,660 Total ASSETS 4 SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

5 Supervisory Committee Report The Supervisory Committee welcomes comments and suggestions from the membership to improve Credit Union services. These comments are vital for the Committee to meet its responsibilities. If requested, the confidentiality of writers will be protected. Please send comments to: SDFCU Supervisory Committee P.O. Box 1741 Alexandria, VA State Department Federal Credit Union strives to offer exceptional services to you, our members. Our Supervisory Committee is an oversight committee. Its responsibilities include: Monitoring Board and management activities Providing for financial statement audits Conducting annual member account verifications Verifying compliance with policies, procedures, rules and regulations Monitoring the internal control environment By fulfilling these responsibilities, the Supervisory Committee determines that the Credit Union is operated in a safe and sound manner. These determinations are made though a combination of activities, which include: Conducting discussions with regulatory examiners and review of their reports, Conducting discussions with the external auditor and review of the financial statements and management letter, Overseeing ongoing audits, assessments, and verifications conducted by the Credit Union s internal auditors. The National Credit Union Administration, which is the regulatory agency for all federally charted credit unions, performs periodic examinations. The results of their last examination for State Department Federal Credit Union confirmed that we continue to be a financially safe and sound Credit Union. Our external auditor, the accounting firm of Doeren Mayhew, CPAs, performed a certified financial statement audit of the Credit Union for We are pleased to announce we once again received an unqualified opinion from our external auditor. In their report, they concluded that our financial statements are presented fairly. The Committee Chair also serves as the Credit Union ombudsman in answering all communications, whether complimentary or critical, to help State Department Federal Credit Union fulfill its mission of providing financial services that are responsive to members needs. Based on the results of the examinations, audits and member feedback, it is the opinion of the Supervisory Committee that State Department Federal Credit Union continues to be an institution that is financially strong and well managed with a clear strategic vision, solid leadership, and well laid operational plans for the future. We look forward to another strong year. Respectfully submitted, Gay Mount, Chair Larry Harris, Member Denise Watlington, Secretary Lisa Dyer, Member Mae Whitehead, Member Nellie Clemons-Green, Board Liaison $68,000 5,474 Awarded in Scholarships Members enrolled in our free credit monitoring service, SavvyMoney 259,667,792 Flexpoints earned by members in free Financial education seminars held 6 SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

6 SDFCU Team AS OF DECEMBER 31, 2017 Board of Directors Marlene E. Schwartz, Chairman Robert B. Petersen, Vice-Chairman W. Ron Whitworth, Treasurer Harold W. Geisel, Secretary Max Aguilar Nellie Clemons-Green Renee DeVigne Richard L. Greene James E. Robertson Executive Team Jan N. Roche, President/CEO Floyd Matsuda, Chief Information and Risk Officer Randy McClintock, Chief Financial Officer Bill Thorla, Chief Operating Officer Managing Directors Sharon Camper, Human Resources & Administration Don Dimatteo, Member Experience Michael Hunter, Internal Audit Rifat Ikram, Information & Security Services Karen O Connor-Joyner, Funds Management Joan Pendleton, Operational Support Services Directors Angel Baltimore, estrategy & Innovation Maryrose Bernabe, Member Contact Center Kevin Everette, Branch Operations Deborah Frink-Clanton, Accounting Victor Hall, Payments Mike Morris, Membership Development Gladys Perez, Marketing Veronica Trotta, Mortgages & Loan Administration Chuck Volper, Controller Reginald Wilkerson, Enterprise Data Management Services Managers Cynthia Chamberlain-Weatherspoon, Branch Sales Fort McNair Tim Comeau, Card Strategy Jimmie Dobbs, Jr., Branch Sales Arlington & GBBR Irana Edwards, Deposit & Check Operations Donovan Fox, Digital Strategy Content Catharine Glllogly, Real Estate Lending Tracy Headen, Manager of Mortgage & Lending Services Shalonda Johnson, Collections/ Member Solutions Ramon Jones, Lending Solutions Tim Mihill, Member Service Center Karen Monahan, Support Services Deborah Ochsenreiter, EDMS Core Delivery Services Larry Plassmeyer, Loss Prevention LaFonde Proctor, Branch Sales Alexandria Caroline Shaffer, Marketing Kimberly Tyler, Human Resources Ethan Viernes, IT Service Delivery Rocio Velluttini-Vasquez, Project Manager Daniel Vroman, Compliance Zaneta White, Branch Sales Federal Center Total volunteers serving SDFCU 20 Total Staff Count Interns 8 SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

7 Independent Auditor s Statement March 27, S.W. 129th Court, Ste. 201 Miami, Florida doeren.com Statements of Financial Condition AS OF DECEMBER 31, 2017 AND 2016 Assets Cash and cash equivalents $43,214,721 $49,722,767 Certificates of deposit in other financial institutions 250, ,000 Investments: Available-for-sale 659,721, ,668,982 Loans to members, net of allowance for loan losses 1,027,582, ,362,397 Accrued interest receivable 4,851,791 4,547,644 Other receivables 33,235,520 31,083,379 Property and equipment 21,778,570 21,366,779 Prepaid and other assets 31,112,842 29,731,708 Institution-owned life insurance 40,987,266 29,936,213 Defined benefit plan 24,393,441 20,820,835 NCUSIF deposit 13,028,275 12,560,645 Total assets $1,900,155,660 $1,807,051,349 To the Board of Directors and Supervisory Committee of State Department Federal Credit Union We have audited, in accordance with auditing standards generally accepted in the United States of America. the statements of financial condition of State Department Federal Credit Union as of December 31, 2017 and 2016, and the related statements of income for the years then ended, and the statements of comprehensive income, members equity, and cash flows for the years then ended (not presented herein); and in our report dated March 27, 2018, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived. Liabilities and Members' Equity Liabilities: Members' shares and savings accounts $1,527,519,647 $1,469,299,381 Borrowings 183,100, ,000,000 Accrued expenses and other liabilities 16,477,406 13,589,200 Total liabilities 1,727,097,392 1,647,888,581 Commitments and contingent liabilities Members' equity: Regular reserve 6,315,918 6,315,918 Undivided earnings 181,587, ,524,824 Accumulated other comprehensive loss (14,844,909) (14,677,974) Total members' equity 173,058, ,162,768 Doeren Mayhew Miami, FL Total liabilities and members' equity $1,900,155,660 $1,807,051, SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

8 Statements of Income YEARS ENDED DECEMBER 31, 2017 AND 2016 Contact Interest income: Loans to members $42,491,434 $37,641,419 Investment securities 10,957,063 9,898,063 Total interest income 53,448,497 47,539,482 Interest expense: Members' shares and savings accounts 7,752,560 6,753,621 Borrowings 2,670,830 2,371,620 Total interest expense 10,423,390 9,125,241 Net interest income 43,025,107 38,414,241 Provision for loan losses 3,677,220 1,823,705 Net interest income after provision for loan losses 39,347,887 36,590,536 Non-interest income: Fees and charges 2,522,120 2,306,337 Interchange income 5,960,961 5,638,151 Rental income 1,700,720 1,629,999 Other miscellaneous income 3,192,688 3,260,531 Gain on sale of investments 95, ,511 Total non-interest income 13,472,358 13,479,529 Non-interest expense: Compensation and benefits 18,831,375 17,730,436 Office operations 11,317,206 10,367,316 Office occupancy 2,138,706 2,160,235 Loan servicing 4,319,412 4,293,638 Other 2,151,111 3,700,457 Total non-interest expense 38,757,810 38,252,082 Net income $14,062,435 $11,817,983 Branch Locations: Department of State Room B C St. N.W. Washington, D.C Federal Center 301 4th Street, S.W. Room 130 Washington, D.C Alexandria 1630 King Street Alexandria, VA Arlington 3100 Clarendon Blvd. Arlington, VA Ft. McNair Building 41 Fort Lesley J. McNair Washington, D.C Engage: 24-Hour Member Service Phone Banking sdfcu@sdfcu.org Digital Presence SDFCU Mobile App available on the Apple App Store, Google Play, and Amazon. 12 SDFCU ANNUAL REPORT 2017 SDFCU ANNUAL REPORT

9 SDFCU ANNUAL REPORT 2017 Federally Insured by NCUA