2016 Annual & Community Report. Y-12 Federal Credit Union, $1,000,000,000 Strong and Growing.

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1 2016 Annual & Community Report Y-12 Federal Credit Union, $1,000,000,000 Strong and Growing.

2 Our Mission The Mission of Y-12 Federal Credit Union is to be a financially sound institution making a positive difference in our membership s financial lives and the communities in which they live. Our Vision Y-12 Federal Credit Union will be the financial institution of choice in Tennessee. Our Service Standards I will identify your financial needs and offer a solution that will improve your financial life. I will provide you with accurate and timely information. I will express my appreciation for your business. I will treat you with respect and maintain the highest standards of professionalism. I will always call you by your name. I will take ownership of your request.

3 Board Chairman Report Thanks to YOU, our members, we can share in the celebration of another successful year. By all financial measures, 2016 was an outstanding year for Y-12 Federal Credit Union. We experienced significant growth in membership, shares, and loans. Your credit union grew assets by $94 million, or 17%, surpassing the $1 billion mark in August. We experienced 11% membership growth, ending the year with over 107,000 members. Thanks to all those members, we saw 11% share growth and 19% loan growth. To keep up with the constantly changing financial landscape, Y-12 FCU continues to evolve with how we deliver products and services to our members. In 2016, we updated many existing products and services and added new technologies to meet the growing needs of our membership. Updates included the continued addition of PTM (Personal Teller Machine) technology, a major branch renovation, a new phone system, new lending systems, and a greatly improved online presence. You can read more about many of these initiatives on the following pages. While all these accomplishments are exciting, we recognize that our primary focus must always be on the member experience. You have many options when choosing a financial institution, so we strive to be deserving of the faith you place in us. One way we attempt to ensure we have our finger on the pulse of our membership is through our member advisory boards. The first advisory board was launched in Blount County in Due to the success of this group, we added a second advisory board in 2016 in Knox County. These members volunteer their time to meet monthly with credit union leadership, providing input on a variety of topics. In closing, I want to recognize your Board of Directors for all of the countless hours they volunteer on your behalf in the oversight of our credit union. I also wish to thank and acknowledge our dedicated team of employees who work daily to fulfill our mission of making a positive difference in the lives of our members. Finally, and most importantly, I wish to thank our member/owners for trusting us to be your financial partner. On behalf of the entire Board of Directors, it is our honor to represent you. Ronald A. Honeycutt CHAIRMAN, Y-12 FEDER AL CREDIT UNION BOARD OF DIRECTORS

4 Your board and committee members are volunteers who generously give their time and talent to lead our credit union efforts. In addition to monthly meetings, they spend countless hours on credit union business and activities on behalf of our members. This volunteer spirit is the heart of the credit union movement. Board of Directors Ronald A. Honeycutt C H A I R M A N David Rupert V I C E C H A I R M A N Lloyd Jollay S E C R E T A R Y Sam Pelchar T R E A S U R E R Tom Fisher D I R E C T O R Hurtis Hodges D I R E C T O R Supervisory Committee Hilary Shreter D I R E C T O R Hilary Shreter C H A I R M A N David Liles S E C R E T A R Y Chris Dean M E M B E R Kevin Cress M E M B E R Asset Liability Management Committee Sam Pelchar CHAIRMAN Lloyd Jollay MEMBER David Liles MEMBER Mark Ziegler MEMBER Dustin Millaway MEMBER Credit Union Services of East Tennessee, LLC (wholly-owned subsidiary) Cecil Chitwood CHAIRMAN Tom Fisher TRE A SURER Gary Smith S ECRETARY Lloyd Jollay MEMBER Kevin Paul MEMBER Executive Team Mark Ziegler PRESIDENT/ CEO Keith Troup E XECUTIVE VICE PRESIDENT/ COO Dustin Millaway S ENIOR VICE PRESIDENT/ CFO Todd Richardson S ENIOR VICE PRESIDENT/ CTO Michelle Cathey DIRECTOR OF H U MAN RESOURCES Stephanie Zuleger CHIEF LENDING OFFICER

5 Supervisory Committee Report The Supervisory Committee is appointed annually by the Board of Directors and is composed of volunteers who are not credit union employees. The Federal Credit Union Act holds this Committee responsible for reviewing internal controls to ensure that each segment of the Credit Union is properly administering the plans, policies, and procedures for which it is accountable. The Committee functions independently, but interfaces with the Board of Directors, management, National Credit Union Administration examiners, and an independent certified public accountant to meet this responsibility. The Committee employs the Credit Union s Internal Auditor and meets regularly to discuss internal controls, audits, and reviews. The Supervisory Committee is also responsible for the comprehensive annual audit of the Credit Union. The Committee has again engaged the certified public accounting firm of Nearman, Maynard, and Vallez, CPAs to perform this annual audit for In addition to the comprehensive annual audit, the Supervisory Committee outsources audits, such as information technology monitoring, to other independent auditors. Based on the annual audit, regulatory reviews, outsourced audits, and internal audits, it is the opinion of the Supervisory Committee that your Credit Union s internal controls are effective and adequately protect the Credit Union, its members, management, and employees. The Supervisory Committee is confident that the volunteer officials and the paid Credit Union staff form a dedicated group working to continually improve the position and strength of the Credit Union for its members now and into the future. Hilary Shreter C H A I R M A N, S U P E RV I S O RY CO M M I T T E E

6 2016: Billion Dollar Celebration In August, Y-12 FCU reached a significant milestone of surpassing $1 billion in assets. That s amazing, considering we started back in 1950 with about $5,000 in assets. It also makes us part of a rather exclusive group. There are almost 6,000 credit unions nationwide, and less than 300 have reached the $1 billion mark. To commemorate this grand accomplishment, we celebrated with those who helped us get there our members and staff! Maryville Branch Renovation In 1985, Y-12 FCU opened its second branch location in Maryville. From that original location, we have grown to serve over 9,000 members. So in 2016, the Maryville location received a much needed renovation. Along with all the traditional services, the newly-renovated, ultra-modern branch incorporates full-service concierge-style pods, Personal Teller Machines in the lobby and drive-thru, and a coin machine. The branch offers extended hours from 7:00 a.m. until 7:00 p.m. in the drive-thru. Eagleton Branch Grand Re-Opening During conversations with many members, including our Blount County Member Advisory Board, we discovered that most of them did not think our Alcoa branch was named properly. Although technically in the city limits, the location is not what most local residents consider Alcoa. After polling our members for suggestions, we held a Grand Re-Opening of the newly-named Eagleton Branch in April.

7 A Billion Dollar Year All New Website and Mobile App At Y-12 Federal Credit Union, we are committed to providing the same level of service to members regardless of how they choose to do business with us. Fulfilling that promise required a complete overhaul of our remote services. In August, we launched a completely redesigned, state-of-the art mobile app that is one of the best in the market. Members can sign in using their fingerprint to check balances, make transfers, deposit a check, pay bills, or access many other services. At year end, we had approximately 15,000 active users and mobile deposits had doubled since introducing the new app. We also redesigned our website with an updated look, simplified navigation, and extended compatibility for all devices. Our Cyber Branch is always open! New Phone System In August, our Contact Center, Collections, and Card Services departments switched to a new, more sophisticated phone system. The new system has advanced call routing features, allowing members to get to who they need quickly, without speaking to an agent. If call volume is high, members can request a call back and maintain their place in the queue without being on hold. This system has many more features that we will continue to roll out in 2017, allowing us to serve our members more quickly and efficiently.

8 Making a Positive Difference in the Communities We Serve At Y-12 Federal Credit Union, we believe it is important to give back to the members and communities that contribute to our success. It s so important that we made it part of our mission statement. Giving back doesn t just include monetary donations. Our employees donate countless volunteer hours each year to a 1 variety of worthy organizations truly making a difference in their local communities. 3 (Photo legend: 1-American Cancer Society s Making Strides Against Breast Cancer walk, 2-Walking in the rain at the Anderson County Relay for Life, 3-Donating school supplies to Ball Camp Elementary School, 4-Chili & Wing Cookoff to support Community Health of East Tennessee, 5-Delivering tiny trees, donated and decorated by our staff, to patients at East Tennessee Children s Hospital, 6-Serving lunch to the Oak Ridge Police Department, 7-Supporting Boys & Girls Club of the Tennessee Valley with our participating auto dealers)

9 Treasurer s Report Financially, 2016 continued the upward trend in revenue and net income, allowing for improvements to be made in the areas of technology, member service, security, and facilities. The credit union exceeded $1 Billion in assets thanks to continued growth in total loans. Credit is due to management for not only continued financial success, but for positioning Y-12 FCU s assets and liabilities to weather the impact of expected multiple interest rate increases in 2017 and beyond. More specifically, 2016 net income grew 9.7% over an exceptionally good The balance sheet continued favorable growth by attaining $1.089 billion, a 17.2% increase over was primarily fueled by net total loan growth of 18.7% over last year. Member shares in Y-12 Federal Credit Union also grew in 2016 by $86.8 million, an 11.2% increase. Y-12 Federal Credit Union remains financially safe and secure thanks to management and staff, volunteers on the board and committees, regulatory agencies, and outside auditors and consulting firms. It is the successful interaction of all these groups that contribute to our growth, which in turn provides funds to improve member services and security. I would personally like to thank the credit union employees and volunteers for their dedication to our members, who provide the focus for our efforts. Sam Pelchar TRE ASURER 2015 Assets of $929.6 million. This growth

10 Scholarship Program In 2010, Y-12 Federal Credit Union introduced the Bill T. Hicks Scholarship. This award is named for Bill T. Hicks, former Y-12 FCU Board Chair and educator in the Oak Ridge School System. The scholarships recognize the achievement of student members graduating from high school. To date we ve awarded 46 scholarships totaling $33,000. Education Services We believe that it is never too early or too late to improve your financial literacy. That s why we have an entire department dedicated to Education Services. From our in-school branches to seminars for adults of all ages, we are working to help our members better understand how to manage their finances. School Branches Started in 2009 with just 2 schools, the in-school program has grown to 10 branches run by students in 7 high schools and 3 middle schools. Hundreds of students have gained hands-on experience working as volunteer MSCs. Over 20 student interns have been hired to work in Y-12 FCU branches. Additionally, several of these interns have gone on to become full or part time Y-12 FCU employees.

11 Statement of Condition As of December 2016 (Summary in Thousands) ASSETS Loans Net of Allowance for Loan Losses 762, ,694 Cash & Cash Equivalents 20,229 35,452 Investments 100, ,476 Fixed Assets 22,056 23,953 Other Assets 23,692 25,763 Total Assets 929,592 1,089,338 LIABILITIES and EQUITY Accounts Payable & Other Liabilities 9,659 10,425 Notes Payable 73, ,545 Total Liabilities 83, ,970 Member Shares 747, ,517 Non Member Shares 27,750 49,127 Regular Reserves 9,050 9,050 Undivided Earnings & OCI 62,067 71,674 Total Assets Total Shares $1.08 B $929 M $749 M $697 M $861 M $774 M $664 M $628 M Total Equity and Member Shares 845, ,368 Total Liabilities and Equity 929,592 1,089,338 Statement of Income and Expenses for the Year Ended December 2016 Income Loan Interest 26,296 33,080 Investment Interest 1,418 1,808 Fee & Other Income 14,639 16,817 Total Income 42,353 51,705 EXPENSES and COST OF FUNDS Operating Expenses (Included PLL) 30,968 38,035 Cost of Funds 2,303 3,871 Total Expenses and Cost of Funds 33,271 41,906 Other Non Operating Income Exp (Inc) (200) (381) Net Income before Stabilization 9,282 10,182 Stabilization Expense 0 0 Net Income after Stabilization 9,282 10,182 Total Loans Total Net Worth $908 M $765 M $616 M $526 M $92.2 M $82.0 M $72.7 M $67.2 M

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