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2017ANNUAL REPORT

MHV ANNUAL REPORT 2017CHAIRMAN &PRESIDENT'S REPORTGary E. AndersonChairman of the BoardWayne WinklerPresident/CEOAt Mid-Hudson Valley Federal Credit Union (MHV), we put safety and soundness first when making financialdecisions. Our member-owners are at the center of everything we do. We are committed to providing ourmembers with value added products, convenience and personalized reliable member service. Our goal is to helpour members achieve their financial goals and exceed their expectations each and every time they reach out to us.We take pride in providing our members with the financial services and education they needto improve their financial well-being. In 2017, we provided financial wellness seminars to our memberscovering a variety of topics including financial & retirement planning, first time home buying, and collegefunding strategies. In an effort to educate young children about personal finance, MHV has partnered withThe Berenstain Bears Financial Literacy Program. We believe teaching children personal financial literacyearly and throughout their educational career, helps them become financially responsible as young adults.In 2017, we increased the loans we provided to our members by 11.6% as we continued toprovide our members with a variety of smart lending solutions and competitively priced products. This pastyear, MHV helped more people finance their vehicles than ever before, providing 93 million in vehicle loansto MHV members. We continue to make home ownership a reality for our members, by granting over 71million in member home mortgage loans. MHV realizes that local businesses are an integral part of thecommunities we serve. We are committed to providing our member business owners financial solutions,competitive rates, and local decision making that they need to grow and prosper. Last year, we invested over 31 million in member business loans to help grow the local business economy.MHV is committed to keeping pace with developing technology and the enhanced digitalenvironment. In 2017, we upgraded our Personal Teller system with new enhanced Interactive TellerMachines. These machines function as a Personal Teller from 6am to 11pm daily or as an ATM for accessto quick cash withdrawals 24 hours by 7 days a week. We launched digital wallets for Android, Apple andSamsung devices, push alerts and Visa and Mastercard access on mobile banking.The 2017, Equifax Data breach was yet another demonstration of cybercrime involving the theftof millions of consumer’s personal data. At MHV, safeguarding your personal financial information is aresponsibility we take very seriously. We use multi levels of security to protect our member’s confidentialinformation. In addition, we conduct extensive testing of our information security infrastructure to mitigatethe threat of cyber security attacks. MHV’s Perks Package is a great value added product that provides ourmembers the ability to obtain identity theft protection and monitoring services to protect their personalfinancial information.LAST YEAR, WE INVESTED OVER 31 MILLIONHELP GROW THE LOCAL BUSINESS ECONOMY.

MHV ANNUAL REPORT 2017MHV GIVESBACK 155,000 DONATED TO LOCALCHARITIES &ORGANIZATIONSControlling ongoing operational costs is a key initiative ofMHV’s financial management strategy. To that end, we made a majorinvestment to terminate our employer-sponsored defined benefitpension plan. The decision was made due to the volatility, level ofcosts, and increased regulation associated with defined benefitpension plans. This allows us the flexibility to continue to offer ouremployees versatile 401k defined contribution plans. Your credit unionremains well capitalized and continues to receive favorable audits andregulatory exams. This will be expounded upon in our Treasurer andSupervisory Committee reports.MHV strongly believes in the credit union philosophy of“People Helping People.” One way we embody this principle is bygiving back to the communities we serve, through staff volunteerismand financial support. In 2017, we contributed to 200 variousorganizations throughout our three county community charter.Looking ahead at 2018, we will be unveiling a new redesignedweb site, an online responsive design account opening application,a vehicle leasing program, and branch renovations in several of ourbranch offices to better server all of our members.As the financial services industry continues to evolve andgrow, MHV is with you every step of the way, on your personal financialjourney. MHV is dedicated to offering safe and sound financial servicesto all of our members. The volunteers, management, and staff ofthe Mid-Hudson Valley Federal Credit Union would like to thank themembers for their continued trust and loyalty in choosing MHV as theirtrusted financial partner.200 COMMUNITY & CHARITABLEEVENTS ATTENDED ANDSUPPORTED215 CHARITIES & COMMUNITYORGANIZATIONSSUPPORTED2,300 SERVICE HOURSVOLUNTEERED BY MHVEMPLOYEES IN THECOMMUNITY18FINANCIAL EDUCATIONSEMINARS PRESENTEDFOR MEMBERS 7,000 Gary E. AndersonWayne WinklerIN MEMBER BUSINESS LOANS TOIN COLLEGE SCHOLARSHIPSAWARDED TO HELPSTUDENTS PURSUE HIGHEREDUCATION

MHV ANNUAL REPORT 2017TREASURER’SREPORTStephen SwansonSecretaryChristopher CoralloSr. VP/CFOSigns of an improving national economy continued through 2017. The unemployment rate continuedto decline for the 8th consecutive year to 4.1%, the Dow Jones was up over 25% above the prior year,and 4th quarter GDP was 2.5% as compared to 1.8% in the 4th quarter of 2016. However, slow wage growthcontinued and job creation declined to 2.1 million in 2017, down from 2.2 million in 2016, reflecting thelowest annual growth since 2009.In the Hudson Valley metropolitan statistical area (MSA), private sector employment was up 1.4%.Employment was up in each of the MSA’s that include Mid-Hudson Valley Federal Credit Union’s (MHV) fieldof membership: Dutchess-Putnam MSA up 3.0%, Ulster MSA up 2.3% and Orange-Rockland-WestchesterMSA up 1.0%. At the same time that employment was up in the private sector, the total unemployment ratein the Hudson Valley actually increased from 4.1% at the end of 2016 to 4.3% at year-end 2017.MHV year-end capital ratio of 8.65% remains well abovethe 7.00% considered well capitalized by the NCUA. In 2017, MHVmade the strategic decision to terminate our Defined BenefitPlan, maintaining employee retirement benefits while mitigatingongoing operating expenses. In spite of a charge to earnings,MHV’s financial strength continued to improve. Net loans grew by 71.4 million, or 11.5%, as MHV originated: 92.7 million in autoloans; 77.0 million in mortgages; and 31.0 million in member%business loans. The significant loan growth was fueled by depositgrowth of 30.6 million, or 3.5%, and a decrease in the investmentportfolio. This has resulted in a more favorable earning asset mixwhere the net loan to share ratio has increased to 77.5%, up from 71.9 % in 2016, and an improvement in netinterest margin. Gross operating revenue was up 6.5% over the prior year.It is our financial strength that allows MHV to improve upon our service. In 2017, MHV introducednew features to our online banking platform and upgraded our Personal Teller machines. We offered anumber of promotions including, “Don’t Let Your Debt Snowball” personal loan campaign, “Win Gas fora Year” auto loan promotion, “Share the Love” and other checking referral promotions, and generous 12months and 30 months Certificate rates in the 4th quarter. We are committed to serving our membershipand our community.As the economy improves, it is expected that inflation will increase and market rates will rise,affecting the rates paid on deposits and charged on loans. MHV Management and the Board of Directorscontinuously monitors the effects that these changes may have on the credit union’s balance sheet, interestmargin and liquidity to assure the enduring financial safety, soundness, and stability of the credit union.Net Loansgrew by71.4 million,or 11.5Stephen Swanson4Christopher Corallo

MHV ANNUAL REPORT 2017SUPERVISORYCOMMITTEE REPORTRobert PfeifferChairman, Supervisory CommitteeThe Mid-Hudson Valley Federal Credit Union (MHV), as an institution, succeeds because of the commitmentand skill of its Staff, the experience and focus of its Management Team, the strategic direction provided byits Board of Directors, and the loyalty of its members. The Supervisory Committee supports that institutionalsuccess by working with Staff, Management, and the Board of Directors to oversee MHV’s operational andfinancial policies and practices and by representing the members’ interests and concerns. Additionally, thecommittee provides direction, if needed, to ensure the continued institutional soundness of MHV.The Supervisory Committee is a small team of volunteer credit union members, appointed yearly by theBoard of Directors. We are committed to ensuring the overall safety and soundness of MHV through the auditingof its operational policies and practices and through our focus on three overriding goals: Protecting the assetsof our membership, Guaranteeing compliance with all financial regulations, Monitoring for accurate financialreporting. As a committee, we report our independent findings to the MHV Board of Directors and ManagementTeam for the purpose of strengthening the institution. Additionally, we provide assistance with member concernsand we work with the Management Team to resolve those concerns with fairness and correctness.To help us more effectively carry out our supervisory role, we engage an independent accountingfirm to conduct a continuous internal program of MHV policies and operations. The resulting audits, and ourinteractions with MHV staff and the audit team, enable MHV to manage the proper financial and operationalcontrols needed to protect member assets. We also set the scope of future audits and review the results ofcompleted audits. And, as needed, we meet with MHV Management to review responses to audit findings.During 2017, the Supervisory Committee oversaw the auditing of thirteen different MHV operationalareas that included an increased audit emphasis on five areas with inherently higher risk. As part of the auditprocess for the year, eighteen internal audit reports were produced and all findings were reviewed by thecommittee and MHV Management. Additionally, we reviewed numerous MHV internal operating policies toensure that they are appropriate for the continued success of MHV.One area of increased, and continuing, focus for MHV is information technology (IT) security. During2017, the Supervisory Committee worked closely with MHV Management to review NCUA and third-partyaudit results and plans to make MHV more secure. We feel confident that MHV has taken positive steps toensure our members’ assets are protected.The committee also engaged the accounting firm of Crowe Horwath, LLP to conduct an external audit ofMHV’s consolidated financial statements to properly oversee and ensure the soundness of the credit union’s finances.Based on the results of the internal audit program overseen by the Supervisory Committee, ourreview of third-party audits and reviews, Management’s commitment to providing best of breed IT security,and the independent audit of the consolidated financial statements, we believe that the Mid-Hudson ValleyFederal Credit Union continues to be committed to providing the member community with a secure, stable,and successful environment for financial management and investment.Robert Pfeiffer