Where people bank for good

2012AnnualReport

Our MissionHelping our members prosper—helping our communities thrive.

Our Purpose—as stated in the Credit Union Bylaws

Freedom First is a member-owned, democratically operated, not-for-profit organization managed by a volunteer board of directors, with the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means. The purpose of this Credit Union is to promote thrift among its members by affording them an opportunity to accumulate their savings and to create for them a source of credit for provident, business, or productive purposes.

shareholders, Freedom First, like all coop-erative enterprises, operates with the goal of long-term financial independence and security for our members through financial education, steady credit building, and careful asset management.

These goals remain true to the roots of the credit union movement, which began in Europe in the mid-1800s to make affordable credit available to borrowers who otherwise would be locked into the exorbitant interest rates charged by the moneylenders of the day. These same principles are reflected in our bylaws as prescribed by our regulator, the Na-tional Credit Union Administration (NCUA). In 2012 we reaffirmed our commitment to those principles in specific and measurable ways:

Principle 1: Voluntary and Open Member-ship—In 2012 we expanded our community charter to include Franklin and Craig counties, so we are fully open to the entirety of the Roanoke and New River Valleys.

Principle 2: Democratic Member Control—our volunteer board of directors embraced a bold vision in 2012 by charging the Governance and Ethics Committee with modernizing our election process in order to increase member

participation. New term limits for directors will facilitate diversity among our board.

Principle 3: Member Economic Participation—we successfully increased member utiliza-tion of our loan, savings, and other services, thereby fulfilling our purpose and reaching the unbanked and underserved.

Principle 4: Autonomy and Independence—we continue to be owned and controlled by our members, not by outside shareholders. Our unique structure is designed to allow us to operate with no reliance on a management authority outside of our market, so all busi-ness decisions are made locally.

Principle 5: Education, Training, and Informa-tion—we expanded the reach of our financial education curriculum in 2012 to schools and nonprofit agencies; much of our lending and education staff earned advanced financial counseling/education certification; and we made a free online financial management tool available to our members.

Principle 6: Cooperation among Coopera-tives—we forged an unprecedented part- nership with local government, businesses, and the West End Center for Youth to begin a

In 2012, the term “austerity” came into common usage to describe the necessary response of governments, businesses, and households around the world to a persistent economic crisis rooted in excessive spending and an absence of thrift. Throughout the glob-al recession and its slow recovery, consumers have turned considerable attention to credit unions: not-for-profit financial institutions whose careful, prudent management avoids the volatility resulting from unsustainable bubbles of growth followed by painful contractions. Just as the past few years have shown that a destabilized financial industry can destabilize the economy, renewed focus on credit unions reveals that a stable financial industry that operates with the collective goals of individual and community prosper-ity can improve the economy. Freedom First has been operating under careful, prudent management since 1956, and in 2012, we reaf-firmed our dual goals of helping our members prosper and helping our communities thrive.

Cooperative Principles. The principles under which cooperative enterprises all over the world operate are the same principles that guide Freedom First’s business decisions every day. Rather than operating with the short-term goal of maximizing profits for

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Joint Report from the Chairman and President/CEO

redevelopment project in 2012 that promises to transform the struggling urban neighbor-hood through access to affordable financial services. Our management and board have taken on leadership roles in local, state, and national associations, including the Virginia Credit Union League and the National Fed-eration of Community Development Credit Unions.

Principle 7: Concern for Community—we lived our purpose through better rates, lower and fewer fees, and a community development focus anchored by a nationally recognized Community Grants program. Our staff, man-agement, and all-volunteer board of directors offer their time and talents without charge to many organizations in our service area throughout the year.

Like our staff, management, and volunteer board, Freedom First’s members know that financial security for individuals and the larger community are interdependent. Freedom First is not just a place to store your money—Freedom First is a place where people choose to bank for the good of the community as a whole as well as for their own financial well-being. Our accomplishments in 2012 made clear more than ever before that Free-dom First’s commitment to those dual goals is a good business decision as well as the right thing to do.

Safety and Soundness. For several years, our annual reports have necessarily focused on

our successful navigation of the turbulent economy. We are happy to report that our momentum entering 2012 continued throughout the year, resulting in 11% loan growth and a total $3.26 million in net income. Our net worth, the primary measure of safety and soundness, was 13.2% (nearly double the 7% the NCUA considers to be “well- capitalized”). Our accounting practices and

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financial statements have been inde-pendently reviewed by external auditors Nearman, Maynard, Vallez, CPAs, who identified no material findings and issued a clean unqualified opinion. Our contin-ued financial strength allowed us to ex-pand our capacity, add new services, and make significant upgrades in 2012 while still offering competitive interest rates and lower fees.

Steady Growth. Your Credit Union enjoyed steady growth in 2012. Our mem-bership grew by 14.4%,* our assets grew from $257 million to $292 million, and we made changes to our branches and our product and service offerings in response to the changing needs and preferences expressed by our members.

Approximately 3,000 of those new members joined Freedom First when we merged with Carilion Federal Credit Union in March 2012. The transition was remark-ably smooth and our newest members began taking advantage of Freedom First’s expanded product and service offerings right away. By the time the lease for the former Carilion Credit Union branch on Jefferson Street in Roanoke was up for renewal, many members had already transitioned to our nearby Towers branch because of its close proximity to Carilion Clinic facilities. The increase in activity at Towers has prompted us to establish a drive-up ATM at Towers and relocate

*Our peers averaged a 2% increase in their membership.

Net Income

$0M $1M $2M $3M $4M

2012$3.26M

2011$2.29M

Net Worth

0% 3% 6% 9% 12% 15%

201213.2%--with secondary capital

201210.4%

201110.3%

Collaborating with various partners to iden- tify and address community needs through values-based banking services keeps us ac-countable to our community. Being a regional employer of choice means Freedom First can attract and retain highly skilled, motivated employees who provide exemplary service to our members while remaining current with the complex changes facing the industry. Our internal Net Promoter Survey® is an effective means of measuring accountability to ourselves, and we are pleased to report that once again, Freedom First was named one of Virginia’s Best Places to Work in 2012.

To ensure accountability to our members, we established a robust member survey process in 2010 that enables us to differentiate be-tween an individual member request, which we can respond to personally, and a larger issue that would benefit from an operational change or a new product or service. Feed-back from members through Net Promoter Surveys informed Freedom First management and guided our decision process throughout 2012. For example, our new Botetourt County branch was developed—from the inclusion of a drive-up teller window to the hours of oper-ation—in direct response to member surveys.

We upgraded to a new, significantly enhanced online banking and bill pay platform in 2012 in response to feedback from our members. More than 1,800 members enrolled in the

within the center to a larger space with great-er capacity. This new location is scheduled to open in June 2013.

The year also saw the development of a new branch in Daleville—the first and only full-service credit union branch in Botetourt County—and an expansion of our community charter to allow us to directly serve Craig and Franklin counties. Although many Craig and Franklin county residents were already Free-dom First members, our regulator recognized the need to offer credit union services directly to these underserved counties and approved our charter expansion request.

We expanded our capacity behind the scenes as well. Construction at our Operations Center was completed in 2012, creating space for our growing call center and operations areas.

Accountability. Freedom First has taken steps to ensure that our accountability to our mem-bers, the community, and our regulator and auditors is tested consistently and effectively. Accountability starts with our volunteer Board of Directors, drawn from and elected by our membership to represent the communities we serve.

We remain accountable to our regulator through strict compliance with the laws and regulations governing the credit union indus-try. Our accounting practices are reviewed and monitored annually by both our regulator and an independent accounting firm.

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Members selected at random following an interaction with the Credit Union.

Transactional NPS

Freedom First Score: 67%

2012 Goal

0% 20% 40% 60% 75%

Members selected at random from the general membership.Source: Satmetrix 2012 Net Promoter® Benchmark Study of U.S. Consumers-NPS®

Relational NPS

Freedom First Score: 49%

2012 Goal

0% 10% 20% 30% 40% 50% 60%

Health Insurance Industry Average: 4%

Banking Industry Average: 18%

Net Promoter Survey Results, 2012

Impact. True to our purpose and the dual mission of helping people prosper and help-ing our communities thrive, in 2012 Freedom First expanded both our traditional banking services and Impact Banking—a unique suite of products and services designed to address the financial services needs of persons of modest means.

In the traditional banking area, we established commercial lending services and laid the nec-essary groundwork for small business lending and transaction services (coming in the fall of 2013). With regard to our community devel-opment activities, we added to our suite of Impact Banking options and increased our op-erational capacity to implement them. In 2012 we significantly expanded our partnership with the Federal Home Loan Bank of Atlanta, whose set-aside programs serve veterans, first-time homebuyers, and homeowners hoping to improve the safety and energy efficiency of their homes. Reaching out to unbanked and

underserved populations through affordable housing, transportation, financial education, and credit-building opportunities strengthens our values-based banking proposition.

Much of this capacity building would not happen without the financial support received from key stakeholders. Development fund-ing for the West End project and branch was obtained through an $850,000 grant from the CDFI Fund; the West End Center for Youth, which owns the property and will be the “landlord” for the new branch, secured additional development funds from the City of Roanoke. Freedom First is unique in our intent and ability to establish successful partnerships like this and leverage the resources each part-ner brings to the table.

Our community development efforts and Impact Banking products and services are outlined in more detail in our 2011-2012 Com-munity Impact Report.

new feature-rich platform, joining the 20,000+ Freedom First online banking users who con-verted from the original system.

Being accountable to our members does not end with implementation, however. NPS feedback has clarified for Credit Union management ways in which we could have ex-ecuted the transition more smoothly. Ongoing member feedback allows us to learn from our mistakes and adjust our project management practices so that similar conversions are easier for our members in the future.

Additional projects in response to member surveys were begun in 2012 and will come to fruition in 2013. These include customized mobile banking apps for Apple and Android devices, remote deposit capabilities, expe-dited debit card delivery, and an awareness campaign to educate our members about Freedom First’s network of 50,000+ surcharge- free ATMs.

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“I like the customer service, the online banking has tons of options, I like the fact that when you deposit money it’s there, you don’t have to rush before 2 p.m. so it goes in that day.” ~Jason C.

“This [credit union] has been very prompt with any concerns that we have had and they make banking so much easier.” ~Trista B.

Looking Forward. In 2012, Freedom First’s renewed commitment to the dual purposes of providing traditional banking and commu-nity development services for our members resulted in a solid bottom line: safe and sound operation; steady growth and expansion; and accountability to our regulator, our commu-nity, ourselves, and most of all, our members. This strength and stability allows us to move into 2013 and beyond with confidence that the path we’ve chosen is not only true to our roots as a cooperative, but also sustainable for many years to come.

Early 2013 saw the launch of a rebranding effort that reflects our mission, purpose, and critical goals: Freedom First is Where People Bank for Good. We believe it speaks to the strong and lasting relationships we’re able to build with our members, as well as the good work we’re able to do in the community as a member-owned, not-for-profit, democratically operated credit union. We will remain commit-ted to our dual goals: helping our members prosper and helping our communities thrive.

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Paul PhillipsPresident/CEO

Nelson ShibleyChairman

Community Impact

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COMMUNITY IMPACT

A quick look at some of the programs highlighted in our 2011-2012 Community Impact Report.

Affordable HousingIn 2012 we added a dedicated Affordable Housing Specialist to help borrowers navigate through debt, credit, and financial education on the

path to homeownership.

FHLB Set-Aside ProgramsWe expanded our partnership with the Federal Home Loan Bank of Atlanta, whose programs address the specific needs of veterans, first-time

homebuyers, and people of modest means who seek to improve the safety, energy efficiency, or accessibility of their homes.

Impact BankingBorrow & Save loans (128 issued in 2012) • Credit Builder loans (people with no credit averaged an increase of more than 600 points

in 6 months) • Micro Loans (average loan amount: $1,479) • Payday Alternative Loans (average savings per borrower: $575 • Individual

Development Accounts (new in 2012)

Responsible RidesIn 2012 we brought on a full-time coordinator to work directly with borrowers on this popular, award-winning program serving low- and

moderate-income working people who need affordable, reliable transportation.

Financial EducationOur full-time financial educator served 1,460 people in 2012 through partnerships, Money Mondays, and one-on-one counseling. Several staff members

earned certification as financial counselors from the Credit Union National Association.

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Promoting a healthy, sustainable quality of life is central to our mission. To that end, Freedom First Credit Union awarded more than $25,000 to eight local nonprofits in 2012 to support their efforts to break down barriers, enable people to fully participate as local citizens, and provide opportunities to help families achieve economic independence.

COMMUNITY GRANTS

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Adult Care Center of Roanoke Valley: $2,000 to provide a wheelchair-accessible scale necessary for ACCRV’s medical staff to provide accurate health assessments of center participants.

Boys & Girls Clubs of Southwest Virginia: $4,000 to support the L2Ork (Linux Laptop Orchestra) program, a partnership with Virginia Tech that combines computer technology and music to give students

a creative outlet as well as opportunities to learn about college, computer skills, and collaboration.

Community Outreach Program of Roanoke: $5,000

to fund U Feed Others (UFO), a weekend food security program aimed at families that may be unable to supply enough safe, nutritious food

for themselves.

Intellectual Disabilities Agency of the NRV: $2,250 to defray growing transportation costs IDA-NRV incurs when transporting clients to social and recreational programs.

NRV Cares: $1,750 to support Parenting Young Children, a 9-week course for parents and caregivers of children birth to age 6. The free classes include onsite childcare and

dinner for participating families.

Roanoke Children’s Theatre: $1,000 to support the RCT4TEENS’ 2013 production of “Eric & Elliot,” which uses gentle humor and fantasy to address teen depression and suicide prevention.

Roanoke Redevelopment & Housing Authority: $4,000 to fund a multi-site afterschool program that includes healthy snacks, homework help, recreational activities, and other programming.

Total Action for Progress: $5,000 to support Head Start-Healthy Start, which aims to increase healthy nutrition and physical activity behaviors in Head Start-enrolled children and families.

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Charles Perkins Scholarships Derek Litvak—William Fleming High School, attending Virginia Tech

Kristen Obenchain—Blacksburg High School, attending Virginia Tech

City of Salem/Frank Turk Scholarship Vickie Sword—City of Salem employee, attending Averett University

Fritz Kehn Scholarship Lucas Tyree—Salem High School/University of Hawaii, attending Yale University

Torie Phillips Memorial ScholarshipAndrew R. Long—Lord Botetourt High School, attending Virginia Tech

Cabell Brand Center for Global Poverty and Resource Sustainability Studies Scholarship Program Tray A. Arthur—Franklin County High School, attending Virginia Western Community College

ACADEMIC SCHOLARSHIPS

Spirit of Service

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INDEPENDENT AUDITOR'5 REPORT

May 8, 2012

Supervisory CommitteeFreedom First Credit UnionRoanoke, Virginia

We have audited the accompanying consolidated statements of financial condition of Freedom FirstCredit Union as of March 31, 2012 and 2011, and the related statements of income, members' equity,comprehensive income, and cash flows for the years then ended. These fmancial statements are theresponsibility of the Credit Union's Management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United Statesof America. Those standards require that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by Management,as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Freedom First Credit Union as of March 31, 2012 and 2011, and theresults of its operations and its cash flows for the years then ended in conformity with accountingprinciples generally accepted in the United States of America.

Nearman, Maynard, Vallez, CPAsA-I

.n arman.com

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2012 2011Cash and cash equivalents $ 4,459,695 $ 3,513,679Investments: Available-for-sale 212,379 503,344 Other 38,722,594 14,087,796Federal Home Loan Bank (FHLB) stock 1,488,300 1,911,900Loans held-for-sale 2,412,098 -Loans receivable, net of allowance for loan losses 210,601,910 210,053,829Accrued interest receivable 708,452 777,321Premises and equipment, net 8,895,901 6 ,684,481National Credit Union Share Insurance Fund deposit 2,000,033 2,072,553Assets acquired in liquidation 558,170 1,303,995Other assets 8,729,498 13,177,861

Total Assets $ 278,789,030 $ 254,086,759

March 31,ASSETS

2012 2011LiabilitiesMembers’ share and savings accounts $ 219,108,777 $ 198,805,596Borrowed funds 20,500,000 20,500,000Interest payable 86,624 106,497Accrued expenses and other liabilities 2,595,026 1,616,430Uninsured secondary capital 9,278,000 9,278,000 Total liabilities 251,568,427 230,306,523Commitments and contingent liabilitiesMembers’ EquityRegular reserve 5,751,716 5,751,716Undivided earnings 20,866,578 18,426,715Accumulated other comprehensive income (loss) 2,358 (398,195)Equity acquired in merger 599,951 - Total members’ equity 27,220,603 23,780,236

Total Liabilities and Members’ Equity $ 278,789,030 $ 254,086,759

March 31,LIABILITIES AND MEMBERS’ EQUITY

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

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CONSOLIDATED INCOME STATEMENT

2012 2011Interest Income Interest on loans receivable $ 12,232,937 $ 12,812,041 Interest on investments 45,959 58,368 Interest income 12,278,896 12,870,409Interest Expense Dividends on members’ share and savings accounts 1,188,666 2,028,750 Interest on borrowed funds 1,107,202 1,163,057 Interest expense 2,295,868 3,191,807

Net Interest Income 9,983,028 9,678,602

Provision for Loan Losses 1,381,266 3,220,593Net Interest Income After Provision for Loan Losses 8,601,762 6,458,009Non-interest Income Fees and service charges 3,830,860 3,404,052 Other non-interest income 2,659,849 2,478,644 Gain on disposition of assets acquired in liquidation, net 87,012 - Gain on disposition of premises and equipment, net 2,250 - Non-interest income 6,579,971 5,882,696

15,181,733 12,340,705Non-interest Expense Compensation and employee benefits 7,291,827 5,400,272 Operations 2,766,587 2,531,403 Loan servicing 728,897 689,277 Education and promotion 684,537 602,169 Occupancy 577,308 553,708 NCUA assessment 481,800 554,469 Professional and outside services 210,914 218,654 Loss on disposition of assets acquired in liquidation, net - 50,023 Non-interest expense 12,741,870 10,599,975

Net Income $ 2,439,863 $ 1,740,730

March 31,

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Balance, March 31, 2010 $ 5,751,716 $ 16,685,985 $ ( 262,077) $ - $ 22,175,624Net income - 1,740,730 - - 1,740,730Change in unrealized gain/(loss) on securities - - ( 12,756) - (12,756)Change relating to pension plan accounting - - ( 123,362) - (123,362)

Balance, March 31, 2011 5,751,716 18,426,715 ( 398,195) - 23,780,236Net income - 2,439,863 - - 2,439,863Change in unrealized gain/(loss) on securities - - ( 8,874) - (8,874)Change relating to pension plan accounting - - 409,427 - 409,427Equity acquired in merger - - - 599,951 599,951

Balance, March 31, 2012 $ 5,751,716 $ 20,866,578 $ 2,358 $ 599,951 $ 27,220,603

Regular Reserve

UndividedEarnings

AccumulatedOther

ComprehensiveIncome (Loss)

EquityAcquired In

Merger Total

MEMBERS’ EQUITY

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY AND COMPREHENSIVE INCOME

2012 2011Net Income $ 2,439,863 $ 1,740,730

Other Comprehensive Income or (Loss) Net unrealized holding (losses)/gains on securities arising during the year (8,874) (12,756) Less reclassification adjustment for net losses/(gains) included in net income - - Adjustment due to pension plan accounting 409,427 (123,362) 400,553 (136,118)

Comprehensive Income $ 2,840,416 $ 1,604,612

March 31,COMPREHENSIVE INCOME

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March 31,

CONSOLIDATED STATEMENT OF CASH FLOWS

2012 2011Operating Activities Net income $ 2,439,863 $ 1,740,730 Adjustments Provision for loan losses 1,381,266 3,220,593 Depreciation and amortization of premises and equipment 660,821 529,326 (Gain) loss on disposition of assets acquired in liquidation, net (87,012) 50,023 Gain on disposition of premises and equipment, net (2,250) - Amortization of investment premiums/discounts 1,259 2,553 Amortization of deferred loan origination fees/costs 835,113 701,303 Changes in operating assets and liabilities Loans held-for-sale (2,412,098) 802,215 Accrued interest receivable 68,869 (773) Other assets 4,857,790 (3,900,263) Dividends payable (19,873) (76,058) Accrued expenses and other liabilities 978,596 93,971 Uninsured secondary capital - 9,278,000Net cash provided by operating activities 8,702,344 12,441,620

Investment Activities Purchases of: FHLB stock - (225,000) Premises and equipment (2,870,071) (92,427) Proceeds from: Maturities, paydowns and sales of available-for-sale securities 280,832 447,231 Sale of FHLB stock 423,600 - Sale of premises and equipment 80 - Sale of mortgage loans 25,924,843 14,140,649 Net change in: Other investments (24,634,798) 25,847,311 Loans receivable, net of charge-offs (29,062,375) (15,666,940) Assets acquired in liquidation 832,837 (653,599) NCUSIF deposit 72,520 100,319 Merger activity 599,951 - Recoveries on loans charged off 373,072 477,810Net cash (used in) provided by investing activities (28,059,509) 24,375,354

2012 2011Financing Activities Net change in members’ share and savings accounts 20,303,181 (29,795,627) Repayments of borrowings - (7,000,000)Net cash provided by (used in) financing activities 20,303,181 (36,795,627)

Net Change in Cash and Cash Equivalents 946,016 21,347Cash and Cash Equivalents at Beginning of Year 3,513,679 3,492,332Cash and Cash Equivalents at End of Year $ 4,459,695 $ 3,513,679

Supplemental Cash Flow Disclosures Dividends and interest paid $ 2 ,315,741 $ 3,267,865 Loans receivable transferred to assets acquired in liquidation $ 457,170 $ 1,710,966

Cash received in merger $ 838,034Acquired assets, net of cash received 7,896,123Assumed liabilities (8,134,206)

Equity acquired in merger $ 599,951

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CONSOLIDATED STATEMENT OF CASH FLOWS (cont.)

March 31,

Supplemental Schedule of Noncash Investing and Financing InformationExcept for the cash received, the balances acquired in the merger as described in Note 13 of these consolidated financial statements are not included in the above because no cash was paid. Rather, only the transactions impacting cash flows after the date of acquisition are reflected in the corresponding sections (operating investing and financing) above.

The following schedule describes the Credit Union’s noncash investing and financing activities relating to the merger during the fiscal year ended March 31, 2012.

ing which stood at $9.2 million at year-end. All of this occurred with a decline in delinquent loans and write-offs. The ability to transform increased savings to increased loans is the most important factor in generating income for the Credit Union to support its services and community activities.

Our Credit Union has been examined by NCUA, our regulator, and audited independently. Both attest to the safety and soundness of our Credit Union. Looking forward, there is always a certain amount of uncertainty but progress continues to be made. Consolidated Financial Statements for Freedom First Federal Credit Union are shown below. On behalf of myself

Dear Shareholders,

A year ago, I reported Freedom First Federal Credit Union was safe and sound and pros-perity was just outside our window. Today, our financial position and opportunities to enhance membership services continues to improve. Some of the latest numbers indicate unemployment continues to decline, the housing market is improving—although not as quickly as some may wish—and the pur-chase of new automobiles is on the rise. All are key indicators that drive both individual and Credit Union prosperity.

Your Board of Directors and staff continue to plan strategically and act in the best inter-est of you, the owners of this organization. Over the past 12 months, total assets have increased from $256,369,000 to $291,889,000, or 14 percent. Net income increased from $2,289,000 to $3,267,000, or 43 percent. One of the most important measures, net worth, increased from $25,186 million to $29,536 million, a 17-percent increase.

There are a number of reasons for this growth and success. During 2012, Carilion Federal Credit Union merged with Freedom First, in-creasing assets by almost $8 million. Member shares increased by $25.7 million, while loans increased by $23.7 million. Consumer vehicle loans increased by $18 million and the Credit Union began a program of commercial lend-

as your Treasurer, and the Credit Union family, I want to express our sincere appreciation to the management and staff of Freedom First Federal Credit Union, because without their diligence and efforts these successes would not be possible.

Respectfully,

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Treasurer’s Report

Frank P. TurkTreasurer

12/31/2011 12/31/2012ASSETS

Loans (net) $ 206,542 $ 230,526Cash 4,073 5,983Investments 22,217 28,786Other assets 23,537 26,594

Total Assets $ 256,369 $ 291,889

LIABILITIES & NET WORTH

Payables $ 23,372 $ 29,488

Secondary capital 9,278 9,278Member shares 198,533 223,587Net worth 25,186 29,536

Total Liabilities & Net Worth $ 256,369 $ 291,889

CONSOLIDATED STATEMENT OF CONDITION (UNAUDITED) $ Amounts in Thousands

CONSOLIDATED INCOME STATEMENT (UNAUDITED) $ Amounts in Thousands 12/31/2011 12/31/2012INCOME

Income from member loans $ 12,348 12,519Investment & other income 6,132 7,885

Total Income $ 18,480 $ 20,404

EXPENSESOperating expenses $ 12,100 $ 13,578Dividends & interest expenses 2,377 2,167Loan loss provision 1,714 1,392

Total Expenses $ 16,191 $ 17,137

NET INCOME $ 2,289 $ 3,267

Gerald Barnes Ira Hartman Emily Jewett Michael Williams

Supervisory Committee

Judith Harrison

The Nominating Committee used the Credit Union newsletter, website, and lobby notices to inform the membership of the Credit Union’s nomination and election process for Board of Directors. This year, the Nominating Committee nominated five candidates for the five vacancies on the Board of Directors, and no members sought nomination by petition. The five nominees are: Gerald Barnes, Susan Hall, Judith Harrison, Roger Journell, and Tim Sutphin. In accordance with Article V, Section 2 of the Bylaws and the official Elections Policy of Freedom First Federal Credit Union, since the Nominating Committee has returned sufficient nominations for all vacancies, there will be no nominations from the floor at this year’s Annual Meeting on Thursday, May 9, 2013. Each candidate will officially take office immediately after the Annual Meeting.

Jared PoffChair, Nominating Committee

The Credit Union’s Supervisory Committee has the responsibility to determine that the operations of the Credit Union are carried out in accordance with the Federal Credit Union Act and the rules and regulations of the National Credit Union Administration. This year, we have directed an emphasis on internal controls, con-sumer compliance, fraud prevention, the Bank Secrecy Act, and other new rules that affect the Credit Union.

The Supervisory Committee engaged the services of a certified public accounting firm to perform a financial audit of the consolidated financial statements of the Credit Union and a verification of member accounts. Their financial audit report included an unqualified opinion as to the fair presentation of the Credit Union’s financial statements. Based on their report and our own observations, we can report to you that Freedom First Federal Credit Union continues to maintain a safe and sound financial institution.

The Supervisory Committee would like to thank you for your cooperation and support of the Credit Union.

Gerald BarnesChair, Supervisory Committee

In 2012, the Credit Union’s Governance and Ethics Committee hired BoardSource, an in-dependent, nonprofit governance consultant, to assess our adherence to best practices with regard to accountability, democracy, and skill development among our directors. The con-sultant reviewed our board policies, election process, and training procedures.

In response to the consultant’s recommen-dations, the Credit Union initiated updates to modernize its bylaws, board tenure policy, and election process. These changes will be implemented in 2013 and 2014.

Dan MerendaChair, Governance and Ethics Committee

Board of Directors, L-R: Nelson Shibley, Chairman; Tim Sutphin, Vice Chairman; Frank Turk, Treasurer; Susan Hall, Secretary; Thomas Chapman, Judith Harrison, Roger Journell, Dan Merenda, Jared Poff.

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Nominating Committee Report Supervisory Committee Report Governance and Ethics Committee Report

Blacksburg1204 South Main Street

Virginia Tech—Squires Student Center

Christiansburg417 North Franklin Street

Daleville1171 Roanoke Road

Roanoke5240 Valleypark Drive—Operations Center

5102 Williamson Road—Crossroads2221 Colonial Avenue—Towers Shopping Center

1210 Patterson Avenue—West End Center (coming soon!)

Steel Dynamics, Inc. (exclusively serving the SDI workforce)

Salem1235 Electric Road

1900 Electric Road—LewisGale Hospital

Vinton203 Virginia Avenue

Phone(540) 389-0244 / (866) 389-0244

Onlinewww.freedomfirst.com

Federally insured by NCUA.