2016Annual Report

FEDERALLY INSURED BY NCUA

Thank you to our members for making 2016 a great year.

AIR Academy Federal Credit Union (AAFCU®) celebrated its 61st anniversary in 2016. It was chartered in 1955, the same year the original Fortune 500 list was published. While AAFCU has continued to grow and prosper, only 60 of the original 500 companies were on the list in 2016. The primary difference is AAFCU is a member-owned organization dedicated to long-term decisions for the benefit of the membership. Thank you for being part of our success. It would not be possible without your commitment and loyalty.

The economic environment continues to be positive as the Dow Jones Industrial Average gained over 13% for the year and the S&P 500 gaining almost 10%. Unemployment improved to 4.7% from 5.0% at the end of 2015. Housing markets also improved in most parts of the country and many cities finally surpassed their 2006 highs. Of significant note, the Federal Reserve Bank increased interest rates and many economists project rates in 2017 will increase more than once. Higher interest rates could cost consumers more for car loans, mortgages, and credit cards. The positive aspect of higher interest rates is deposit rates could increase.

2016 was another successful year as assets, loans, and members grew. In 2016, growth continued as assets increased to $554 million, up from $515 million in 2015. While growth in assets is one of the primary measurements of success, credit unions were started with the purpose of lending money to members. In 2016, AAFCU wrote $244 million in loans ($144 million in consumer loans and $100 million in mortgages), which resulted in our loan portfolio increasing almost $22 million. We believe lending to members is our best investment and will remain a primary focus of our business model. Member growth is another measure of success and 2016 was a good year. Members grew more than 1,500 to over 48,000. Additionally, members took advantage of our technology as the number of app downloads increased 25% to nearly 15,000 users. As evidence of technology’s impact, in three short years 14% of members’ checks are deposited

by taking a picture. With our philosophy of “all things mobile” we expect the use of our app will grow as we implement additional features, such as debit card on/off, loan payments, and account-to-account transfers. We also anticipate the use of mobile payment platforms, such as Apple Pay® (currently available), Android Pay™ and Samsung Pay® (both coming in 2017). Like many financial institutions, AAFCU has experienced a shift away from Internet banking in favor of mobile banking. We believe this trend will continue, as more and more features are available to you on your phone and tablet.

Also in 2016, AAFCU developed a new, more user-friendly website and introduced Kasasa® checking accounts. Our Kasasa accounts were developed with our members in mind, and customized to serve more members in our field of membership. We made internal operational improvements to increase member service, while staying focused on the numerous regulations imposed on us post recession. Member service, as measured by Net Promoter Score, remained at world-class levels across our delivery channels. Air Academy Insurance Services (owned by our wholly owned subsidiary) continues to grow each month as we increase the number of policies and members served. Financial services offered through our three financial advisors and LPL Financial, has also grown in number of members served and assets under management.

2016 was indeed successful.

AAFCU has a proud tradition of being a strong, safe, and growing financial institution. We are committed to helping you, our member-owners, with your banking, insurance, and investing needs. On behalf of your volunteer Board of Directors, Supervisory Committee, and 140+ staff members, thank you for being a member. We look forward to serving you and your family in 2017.

CHAIRMAN’S AND PRESIDENT’SREPORT

~Dr. Donald M. Bird Chairman

~Glenn L. Strebe President/CEO

SUPERVISORYCOMMITTEE’S REPORTThe Supervisory Committee provides the membership with an independent evaluation of the safety and soundness of the Air Academy Federal Credit Union (AAFCU) operations and activities. The committee, which is appointed by the Board of Directors, works with the credit union’s internal auditor to ensure all aspects of the credit union are routinely monitored. The auditor conducts internal audits and reviews internal controls to ensure the assets of the credit union are protected.

Annually, the National Credit Union Administration (NCUA), our federal regulatory agency, performs a safety and soundness examination of AAFCU to verify the credit union is complying with federal regulations. The Supervisory Committee also employs an independent Certified Public Accountant (CPA) firm to perform a comprehensive annual financial statement opinion audit. For 2016, the firm of CliftonLarsonAllen, LLP, issued AAFCU an unmodified opinion; the highest audit opinion issued by a CPA firm.

Based on the results of our internal audit procedures, the NCUA’s examination report, and the independent auditor’s report, it is the opinion of the Supervisory Committee that AAFCU continues to be financially sound and well managed.

The Supervisory Committee serves as your voice in the credit union’s affairs. We invite you to share your comments with us throughout the year. Please send correspondence addressed to the Supervisory Committee to the following address:

Supervisory CommitteePO Box 62907Colorado Springs, CO 80962-2907

~David E. Fitzkee Chairman

2016 saw Air Academy Federal Credit Union (AAFCU) surpass $550 million in total assets, ending the year at $554 million. This represented growth of $39 million, a 7.5% increase.

Our loan portfolio grew to $464 million; helped in large part by our “personal by design” My Way Mortgage® loan. By allowing members to pick any term between one and thirty years, we increased our mortgage portfolio $17 million, or 10%. Our consumer loan portfolio also grew, increasing $6 million. Overall, AAFCU loaned our members $244 million in 2016, to help build their dreams.

We launched our new Kasasa rewards checking accounts; offering members who meet monthly qualifications either high dividends, cash back on purchases, or refunds on purchases in the iTunes®, Amazon® and/or Google Play™ stores. Our Kasasa accounts grew 12% helping our total deposits exceed $500 million for the first time in our 61-year history. Total deposits as of December 31, 2016, were $504 million.

This growth did not come at the expense of our safety and soundness. We ended the year with a net worth ratio of 8.42%, well above the 7% level our regulators, the National Credit Union Administration, consider well capitalized. Our delinquent loans were only 0.30% of total

loans and our charge offs were 0.65%. Both figures are in line with our peer averages.

As we continue to invest in electronic services for our members, we saw the number of members downloading our mobile application approach 15,000. This means over 30% of our members enjoy the convenience of banking whenever and wherever they wish. During 2016, members remotely deposited 59,000 checks, totaling $22 million, using mobile banking.

As we grow and offer new products and services, we never lose sight of our responsibility to be good stewards of our members’ finances. In 2016, our operating expenses were 4% lower than our peer group.

AAFCU remains a reliable place to invest and borrow with confidence, thanks to the high standards of integrity and through the guidance of our Senior Leadership Team and Board of Directors.

Please refer to the financial statements in this report for more details. Thank you for your membership!

~Dr. Harlan Else Treasurer

TREASURER’S REPORT

FINANCIALHIGHLIGHTS

Total Assets $553,752,054

Total Members (12/31/16)

48,305

Assets (millions)

2012 20

13 2014 20

15 2016

$446$470

$481$515

$554

STATEMENTOF FINANCIALCONDITION

(unaudited)

As of December 31, 2016 and 2015

Loans to membersLess: Allowance for Loan Losses

Net Loans to MembersCash and Investments

Other Assets

TOTAL ASSETS:

Total AssetsDividends PaidCapital

2012$445,548,352

$2,193,1138.19%

2013$470,009,634

$1,920,6008.24%

2014$481,422,762

$1,811,0758.51%

2015$515,209,500

$1,716,7258.66%

2016$553,752,054

$1,722,2038.42%

STATEMENTOF INCOME

(unaudited)

For the Years Ended December 31, 2016 and 2015

Operating IncomeOperating ExpensesProvision for Loan LossesNon-Operating (Losses) Gains, NetDividends Paid to Members

Net Income

2016$24,331,311 (16,607,687)(3,980,000)

89,097(1,722,203)

$2,110,518

2015$22,782,633 (16,452,480)(2,131,125)

(39,642)(1,716,725)

$2,442,661

2016$464,163,735

460,926,06959,868,48032,957,505

$553,752,054

(3,237,666)

2015$445,464,863

443,155,99538,064,51133,988,994

$515,209,500

(2,308,868)

AAFCU COMMUNITY SUPPORT SNAPSHOTJanuary 2016Discover Goodwill’s Discover Your Potential Fall Graduation Celebration

February 2016Financial Literacy Classroom Presentations

Colorado Springs School District 11El Paso County Sheriff Office 13th Annual Awards Banquet Art Scholarship Awards

Colorado Springs School District 11

March 2016Art Scholarship Awards

Kiowa School District C-2Academy School District 20 Douglas County School District RE-1

April 2016Art Scholarship Awards

Elbert School District 200Elizabeth School District C-1Falcon School District 49Lewis Palmer School District 38Fountain-Fort Carson School District 8

Arts Business Education Awards Luncheon May 2016Vanguard Rocketry Team National Fly-offSky Sox Table NightDiscover Goodwill’s Discover Your Potential Fall Graduation CelebrationYear-End Appreciation Breakfast

Benefiting Academy School District 20

June 2016Veteran’s Cup Golf Tournament

Benefiting Home Front CaresColorado Springs Western Street BreakfastSky Sox Table NightWoof and Wine Event

Benefiting the Humane Society of South Platte Valley

AAFCU Community Shred DayClimb for Courage

Benefiting the Children’s Hospital ColoradoYear-End Appreciation Breakfast Benefiting Academy School District 20

July 2016Courage Classic

Benefiting the Children’s Hospital ColoradoUnited States Air Force Academy Newcomer’s OrientationSky Sox Table Night

August 2016Fountain Valley Scholars Golf TournamentGoing for the Green Golf Classic Benefiting the Better Business Bureau of Southern Colorado Foundation and Air Academy Federal Credit Union FoundationBack to School Breakfast

Benefiting Academy School District 20Cheyenne Mountain School District ConvocationTitle Sponsorship Night Sky Sox

September 2016 United States Air Force Academy Parents’ Weekend United States Air Force Academy Friday Football LuncheonWacky W Bicycle Ride

Benefiting Project ReCycleAAFCU Community Shred DayBetter Business Bureau of Southern Colorado

Night of ExcellenceColorado Rockies Suite Night

October 2016Air Force vs. Navy Football TailgateRonald McDonald House LuncheonTrick or Treat at AAFCU

November 2016Financial Literacy Classroom Presentations

Academy School District 20United States Air Force Academy Friday Football LuncheonSenior Resource Council- Holiday Dinner DanceColorado Springs School District 11 Career FairFalcon School District 49 Career FairCastle Rock Starlighting CeremonyBriargate Family YMCA

Turkey Trot 5K Run/Walk

December 2016Adopt-A-Student Holiday Assistance ProgramAnnual Ugly Sweater Christmas Sweater Run/Walk/Roll

Benefiting Cerebral Palsy Association of Colorado SpringsEmily Griffith Center for Children- Chins Up Holiday Party

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CORPORATE HEADQUARTERS |9810 NORTH UNION BOULEVARD | COLORADO SPRINGS, CO 80924

Apply Pay is a trademark of Apple Inc., registered in the U.S. and other countries. Android Pay is a trademark of Google Inc. Samsung Pay is a registered trademark of SAMSUNG, registered in the U.S.A. Kasasa is a registered trademark of Kasasa, Ltd., registered in the U.S.A. iTunes is a

registered trademark of Apple, Inc. Amazon.com is a registered trademark of Amazon.com Inc. Google Play is a registered trademark of Google, Inc. Apple Inc., Amazon.com Inc., and Google, Inc. are not participants in or sponsors of this program. AAFCU is a registered trademark of Air

Academy Federal Credit Union.