20SDFCU Annual Report

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2 C H A I R M A N ’ S R E P O R T

4 T R E A S U R E R ’ S R E P O R T

6 S U P E R V I S O R Y C O M M I T T E E R E P O R T

8 S D F C U T E A M L I S T I N G

10 I N D E P E N D E N T A U D I T O R ’ S S TAT E M E N T

11 F I N A N C I A L S

TABLE OF CONTENTS

YOUR FINANCES MEAN THE WORLD TO US.

75,2 0O members worldwide

Headquarters

SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 32

CHAIRMAN’S REPORTOn behalf of the Board of Directors, committee volunteers, and employees of State

Department Federal Credit Union (SDFCU), I am pleased to update you on a year of

solid growth and exceptional financial and efficient operational performance. We

continue to focus on areas to improve our membership value: member experience,

sustainability, and security and soundness.

First, we are delighted to welcome over 8,500 new members to SDFCU. We added several new membership groups in 2016, including a new partnership with American Citizens Abroad (ACA) to provide much needed banking services to Americans and expatriates overseas. We made great strides in this program’s implementation and have already welcomed almost 200 ACA members to our credit union in 2016. This productive collaboration has earned media mentions in The Wall Street Journal and Kiplinger’s Finance.

Entrusted with the financial well-being of our members, we’ve increased our efforts

to return value to all who participate with us. We are proud to support our members’ financial needs by approving $317 million in member loans. We were able to provide members valuable savings not only through competitive rates across our lending products but also through benefit services such as our HomeAdvantage™ program. Home-loan borrowers earned $145,000 in cash rewards on their mortgages this year, bringing us to the $1 million rebate mark through this benefit program.

At SDFCU, we value innovation and apply creativity and continuous learning to improve our members’ experience

across all delivery channels. This year we brought more services into our Online and Mobile Banking platforms and enabled features that give our members convenient access and the flexibility they require. We have further integrated card servicing features into our mobile app by allowing members to better control and manage their credit cards from their phones. We’ve also enabled our members to self-service their Skip-a-Pay loan benefit in both online and mobile banking.

To further improve our member experience, we recognize the importance of listening to our members. We continue to collect member feedback through our You Really Count surveys and our branch Member Advisory Councils. In response to the feedback we have received, we’ve improved several internal systems to address issues and speed up processing. We’ve also increased training for and participation by our employees.

As a credit union we are committed to our members and the communities we serve and thus continued our fundraising

and service efforts this year. We awarded $68,000 in scholarships to student members. We also sponsored the Diplomatic Security Foundation and the Association for Diplomatic Studies and Training, along with the Foreign Service Youth Foundation art contest. We also continued to support our elementary school partners with student-run branches and financial literacy efforts.

Through customer-focused services and competitive products that return on value, we’ve increased member engagement, with nearly half of all households relying on SDFCU for three or more services. We close the year with $1.8 billion in assets and a net worth of $174 million (up from $162 million in 2015). We thus have much to be proud of thanks to our tireless employees, board, and volunteers and thanks to the trust and feedback of you, our member-owners. We remain committed to your financial well-being and are excited to continue as your financial partner into a promising new year.

Respectfully submitted,

Marlene E. Schwartz, Chairman

136

FREE Financial education

seminars offered

3,191member surveys received

144,013,202 Flexpoints redeemed

in 2016

$145KMembers earned

in cash rewards through HomeAdvantage™

Most popular reward items:

Gift Cards

Travel

Merchandise

SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 32

SDFCU ANNUAL REPORT 20164

It is with great satisfaction and pride that I report to you, our member-owners, the many

reasons to celebrate our financial successes for 2016. We continue to focus on the key

drivers of our business for the benefit of our members, namely: reducing costs to give

back more to our members in terms of competitive rates and low fees; improving areas

of member service; and creating and evolving products our members desire.

Our net income was $11.8 million increasing our net worth to 9.62%. The NCUA considers a credit union as “well capitalized” with a net worth ratio of over 7%.

Our over 75,000 member-owners showed their trust in us by increasing their deposits by over $67 million for the year. As expected with the low interest rate environment, the share growth was in our short-term products of checking and money markets. Total assets at December 31, 2016 increased to $1.8 billion.

Our loan balances increased by 20% over last year to $898 million. Mortgages and auto loans were the primary drivers of our loan growth. Our net charge offs were 0.19% of average loans based in large part because of our strong field of membership. Peer ratio for net charge offs is 0.47%.

Expense control was very good during the year as we reduced the operating expense to average assets ratio from 2.27% in 2015 to 2.18% in 2016. This decrease is particularly impressive because of our increased investment in technology, cybersecurity, and service delivery.

The investment portfolio continues to be an industry leader. We earned $10.5 million or 1.43% from our investment portfolio, above the national average while ensuring safety and soundness with our investment decisions.

To maintain our financial soundness, SDFCU’s Asset Liability Committee continues to monitor financial activities and results on a monthly basis. The Committee uses external and internal models assessing risk with respect to return and volatility over various rate cycles. We balance returns and risk based on maintaining adequate capital while maximizing giveback to our members with better rates and improved service.

The entire Board of Directors and SDFCU team is committed to providing a superior member experience by helping you to un-derstand your financial product and service options and to achieve your financial goals by providing low-cost borrowings and a safe, profitable place for your savings. We look forward to another great year in 2017.

Respectfully submitted,

W. Ron Whitworth, Treasurer

TREASURER’S REPORT

Asset Growth:

1935 1955 1985 2016

$10,000

$2,304,000

$166,313,036 $1,807,051,349

“well capitalized”

NET WORTH 9.62%

$898M in loan balances 20% increase

over last year

13% Credit Cards

12% Vehicle

9% Home Equity

12% Personal

2% Other

Loan Income

52% Mortgages

SDFCU ANNUAL REPORT 2016 5

SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 76

The Supervisory Committee is charged by law with the responsibility of overseeing the

internal and external audits of State Department Federal Credit Union (SDFCU) and to

ensure compliance with governing laws, policies, and procedures established by the

Board. To accomplish this, the Supervisory Committee:

1) Oversees the activities of the Internal Audit function of the State Department Federal Credit Union,

2) Contracts with the CPA firm of Doeren Mayhew CPAs and Advisors (formerly Orth, Chakler, Murnane and Co. LLP) for our external audit services, and

3) Meets with the regulators of the credit union during the annual examination process.

The Supervisory Committee approves an Annual Audit Plan which is executed by Internal Audit. Internal Audit conducts various reviews and assessments in order to analyze the Credit Union’s business objectives, risk management processes, and internal controls.

Doreen Mayhew, our external auditors, conducts a comprehensive annual financial audit and performs a verification of member accounts every year. The annual audit of the credit union is complete, and we are pleased to announce we once again received an unqualified opinion from our external auditors stating that our financials are presented fairly.

Also, the National Credit Union Administration (NCUA) conducted their annual examination, the results of which further confirmed the safety and soundness of SDFCU.

Additionally, the Chair of the Supervisory Committee regularly attends the monthly Board of Directors’ meetings, attends

various related educational conferences, and the Credit Union’s planning sessions. The Chair and members of the Committee regularly attend other functions and training programs to help improve the audit function and management controls over all member assets.

The Committee 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 is responsive to members’ needs.

After reviewing the results of our annual audit, feedback from members, as well as other reports and financial documents, we can say with complete confidence that State Department Federal Credit Union

continues to uphold the highest possible financial standards. This institution is financially sound and well managed with a clear strategic vision, solid leadership, and proven operational plans. We as a Committee will remain vigilant in representing members’ interest to ensure the highest level of safety and soundness, and that the Credit Union provides you with outstanding member service.

Respectfully submitted,

Gay Mount, Chair

Pamela G. Sharpe, Vice Chair

Denise Watlington, Secretary

Mae Whitehead, Member

Larry Harris, Member

Nellie Clemons-Green, Board Liaison

SUPERVISORY COMMITTEE REPORT

New visitors to the SDFCU website

452 ,640SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 76

IN SCHOLARSHIPS

AWARDED

$68,0O0

$27,552,267personal loans funded 55,881

mobile deposits

SDFCU ANNUAL REPORT 20168 9SDFCU ANNUAL REPORT 2016

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, Managing Director of Human Resources & Administration

Don Dimatteo, Managing Director of Member Experience

Michael Hunter, Managing Director of Internal Audit

Rifat Ikram, Managing Director of Information & Security Services

Karen O’Conner-Joyner, Managing Director of Funds Management

Joan Pendleton, Managing Director of Operational Support Services

Directors

Robin Alexander, Director of Accounting

Angel Baltimore, Director of eStrategy & Innovation

Kevin Everette, Director of Branch Operations

Mike Morris, Director of Membership Development

Gladys Perez, Director of Marketing

Veronica Trotta, Director of Mortgages & Loan Administration

Chuck Volper, Controller

Managers

Jesse Bell, Branch Sales Manager – State

Cynthia Chamberlain-Weatherspoon, Branch Sales Manager - Fort McNair

Deborah Clanton, Manager of Accounting

Tim Comeau, Manager of Card Strategy

Jimmie Dobbs, Jr., Branch Sales Manager – Arlington & GBBR

Irana Edwards, Manager of Deposit & Check Operations

Donovan Fox, Digital Strategy Content Manager

Catharine Glllogly, Manager of Real Estate Lending

Tracy Headen, Manager of Mortgage & Lending Services

Shalonda Johnson, Manager of Collections/Member Solutions

Ramon Jones, Manager of Lending Solutions

Tim Mihill, Manager of Member Service Center

Karen Monahan, Manager of Support Services

Ricardo Pineres, Compliance & BSA Manager

Larry Plassmeyer, Manager of Loss Prevention

LaFonde Proctor, Branch Sales Manager – Alexandria

Caroline Shaffer, Manager of Marketing

Kimberly Tyler, Manager of Human Resources

Ethan Viernes, IT Service Delivery Project Manager

Daniel Vroman, Manager of Membership Development

Zaneta White, Branch Sales Manager – Federal Center

SDFCU TEAMAS OF DECEMBER 31, 2016

full time employees199

MEMBERS per employee

376

employee training classes

summer interns

15

149

SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 1110

April 5, 2017

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, 2016 and 2015, 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 April 5, 2017, 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.

Doeren Mayhew Miami, FL

INDEPENDENT AUDITOR’S STATEMENT

12060 S.W. 129th Court, Ste. 201 Miami, Florida 33186-4582

305.232.8272 doeren.com

STATEMENTS OF FINANCIAL CONDITION

AS OF DECEMBER 31, 2016 AND 2015

Assets 2016 2015

Cash and cash equivalents $49,722,767 $49,706,461

Certificates of deposit in other financial institutions 250,000 250,000

Investments:

Available-for-sale 708,668,982 760,813,200

Loans to members, net of allowance for loan losses 898,362,397 748,506,272

Accrued interest receivable 4,547,644 4,229,434

Other receivables 31,083,379 28,465,628

Property and equipment 21,366,779 21,419,684

Prepaid and other assets 80,488,756 76,694,586

NCUSIF deposit 12,560,645 12,158,163

Total assets $1,807,051,349 $1,702,243,428

Liabilities and Members’ Equity

Liabilities:

Members’ shares and savings accounts $1,469,299,381 $1,402,114,190

Borrowings 165,000,000 145,000,000

Accrued expenses and other liabilities 13,589,200 10,902,174

Total liabilities 1,647,888,581 1,558,016,364

Commitments and contingent liabilities

Members’ equity:

Regular reserve 6,315,918 6,315,918

Undivided earnings 167,524,824 155,706,841

Accumulated other comprehensive loss

Total members’ equity 159,162,768 144,227,064

Total liabilities and members’ equity $1,807,051,349 $1,702,243,428

(14,677,974) (17,795,695)

SDFCU ANNUAL REPORT 2016SDFCU ANNUAL REPORT 2016 1312

2016 2015Interest income:

Loans to members $37,641,419 $34,927,749

Investment securities 9,898,063 8,728,371

Total interest income 47,539,482 43,656,120

Interest expense:

Members’ shares and savings accounts 6,753,621 6,391,486

Borrowings 2,371,620 2,079,709

Total interest expense 9,125,241 8,471,195

Net interest income 38,414,241 35,184,925

Provision for loan losses 1,823,705 1,087,438

Net interest income after provision for loan losses 36,590,536 34,097,487

Non-interest income:

Fees and charges 2,306,337 2,284,714

Interchange income 5,638,151 5,473,269

Rental income 1,629,999 1,720,378

Other miscellaneous income 3,260,531 2,888,124

Gain on sale of investments 644,511 2,395,297

Total non-interest income 13,479,529 14,761,782

Non-interest expense:

Compensation and benefits 17,730,436 17,509,910

Office occupancy 2,160,235 2,259,984

Office operations 10,367,316 10,587,726

Loan servicing 4,293,638 4,096,479

Other 3,700,457 3,088,236

Total non-interest expense 38,252,082 37,542,335

Net income $11,817,983 $11,316,934

YEARS ENDED DECEMBER 31, 2016 AND 2015

SDFCU ANNUAL REPORT 201612

STATEMENTS OF INCOME

CONTACT

Branch Locations:

Department of State Room B-641 2201 C St. N.W Washington, D.C. 20520

Federal Center 301 4th Street, S.W. Room 130 Washington, D.C. 20547

Alexandria 1630 King Street Alexandria, VA 22314

Arlington 3100 Clarendon Blvd. Arlington, VA 22201

Ft. McNair Building 41 Fort Lesley J. McNair Washington, D.C. 20319

GBBR 1954 Greenspring Dr, Suite 100 Timonium, MD 21093

Engage: 24-Hour Member Service

703.706.5000

800.296.8882

Phone Banking

703.706.5172

Email

sdfcu@sdfcu.org

Digital Presence

www.sdfcu.org

SDFCU Mobile App available on the Apple App Store, Google Play, and Amazon.

SDFCU ANNUAL REPORT 201614

sdfcu@sdfcu.org

703.706.5000 | 800.296.8882

www.sdfcu.org

Federally Insured by NCUA