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CHAIRMAN’S & PRESIDENT’S REPORT

Most new members chose the Connect Bundle, which offered potential savings of hundreds of dollars per year in fewer fees and discounted loan rates. Existing members had the choice of remaining in an "unassigned" membership or upgrading into a bundle. Many of those who have done so were already using the products in the bundle, and thus were able to get the benefits of the bundles without changing their banking behavior.

Based on member feedback, in 2017 we will be developing and launching additional bundles to further tailor our products to our members' needs.

~ We improved our technology to give you easier access.

We heard you loud and clear on our old website. The design was stale, there were too many pages, and navigation took too many clicks. We launched a new website in August, with a fresh and more modern look, cleaned up site structure, and most information available within 2 clicks from the home page. We envision the website as a 24/7 concierge for anyone seeking information about Signal's products and services, and will continue to enhance and modify the site to make information available to members and non-members as easily as possible.

Text Banking, a new service separate from the mobile banking app, also launched in 2016, giving you the ability to get balance and history information about your accounts instantly, with a few taps on your smartphone or tablet—no sign-in needed. Waiting in line to pay for something and want to make sure you can cover the expense? Text BAL to a short code, and we'll text your balance right back to you. You can also get the last four transactions just as quickly. So the next time you want to know your balance, skip the call or the ATM—just text us.

The Signal mobile banking app also came in for enhancements in 2016. Fingerprint authentication as well as password changing are now available from within the app, plus check images, in addition to the standard functions like transfers and deposits.

Our online banking portal got an upgrade to the newest software, as well a new look to more closely match the new website, and featuring a dashboard for members wanting a snapshot of their accounts and transactions, and a new name: eBanking. We redesigned the ads that appear in online banking as well, and even won an Intelligent Design Marketing Ad of the Month Award in December from our advertising partner, Deep Target. While we work toward a single sign-on solution to allow our credit card accounts to be included in online banking, we upgraded the design of our Visa portal as well.

~ We focused on fighting fraud through chip technology and education.

The chip-enabled credit cards we issued in 2015 reduced fraud on members’ credit card accounts by 34% in 2016 vs. 2014. In early 2017 we will be mass-reissuing our debit cards, also with chip technology, offering another layer of security for members.

We stepped up our efforts to educate members about card fraud, identity theft, and online safety. This included blog posts, email blasts, and education of staff to understand the benefits of chip technology,and the most common forms of identity theft. We also developed step-by-step guides to help members sign up for electronic services and learn how to use them. And in 2017 we have plans to develop a seminar on avoiding identity theft.

~ We increased certificate rates and offered a high-yield money market.

We continued to build on our 2015 success by offering highly competitive rates, especially on our share certificates and money market accounts. To help our members during the sometimes uncertain election year, we created a 3-tiered ladder certificate

Here’s what we heard

~ Many of you were not aware of all the products and services Signal makes available to members to meet the needs of their daily lives as well as life stages like saving for retirement, buying a home, and preparing for the financial independence of a child.

~ Our website was dated and difficult to navigate, and our mobile and online banking programs were not up to snuff.

~ Members are concerned about fraud and identity theft in an increasingly online and connected world.

~ Many of you are concerned about your savings yields and loan rates. Making your income go farther includes finding the best loan rates and being able to get a return on your savings that actually means something.

Thank you to all of you who contacted us, filled out our surveys, and let us know how you feel about being a Signal member. We wouldn't be here if it wasn't for you!

Here’s what we did...

~ We developed bundled products and services to help you simplify your banking.

An innovative offering in the credit union industry, product bundles cater to a member's relationship with the credit union. Only need basic products? Use the Connect Bundle to get your checking and savings accounts in one package, along with free Bill Pay transactions and loan discounts. Want a bigger banking relationship? We created the Premium Bundle for those of you carrying higher balances and seeking a better return on your investments. We reward your participation with a rebate of your home appraisal fees, a boost to your certificate rates, free checks twice a year, free Bill Pay transactions, and loan discounts. All members new to Signal were offered the option of a Connect Bundle or a Premium Bundle to begin their relationship with us.

Some new members opted for our à la carte option, Signal Selections, which gave them the flexibility of creating their own banking relationship with us, but at a cost depending on their banking habits, as Selections accounts are not exempt from some fees that do not apply to the bundles.

bundled services for all-in-one banking / website and technology enhancements to improve access / card chip technology to fight fraud /deposit rates far above the national average /

In 2016 we followed the blueprint we developed based on the feedback you gave us in 2015.

ground-breaking products /

service-focused / member

education /

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to help our members diversify their investments into short, medium and

longer term certificates. Our highest rate beat the national average by 40%.

In 2016 we also recognized the importance of giving members options in how they save.

Certificates aren't for everyone, so we turned our attention to money market accounts as well. Our

eMoney Market Account, aka the Signal Premium Money Market Account, offers a 1% yield on balances

above $25,000. Other high-yield money market account offerings are planned for 2017, in response to the new rate

environment and to provide more options for members who want a good savings rate, no matter their income.

~ We continued to offer our ground-breaking 5/5 Adjustable Rate Mortgage.

With a mortgage like the 5/5 ARM, which adjust no more than 1% every five years, members can get the low rates of an ARM with less risk of a payment

increase. It's a truly attention-getting offer that's been popular with members.

The mortgage team at Signal gets high marks for service, expertise, and accessibility. They hold regular in-branch hours, and partner with local real estate agents to help

members consider their options and find the right house with the right financing. We look forward to 2017 being an even better year for our members to use their financial

home (Signal) to finance their dream home.

~ We continued to build Signal into a more competitive, more member-focused credit union

Signal aims to become the primary financial partner for the majority of our members. Service and relationship-building are important pieces of building our reputation as a good primary financial partner.

In 2016, we made great strides in improving our member service, including the hiring and training of new call center operators and upgrading branch staff to Member Relationship Specialists, who can function as "universal

tellers." Our marketing focused on building more name recognition in our area, and we strengthened our SEG relationships as well.

To the Board of Directors, officials and staff of Signal Financial FCU: thank you for your unflagging service in 2016, and your continuing dedication to the credit union. Our warmest gratitude to all our members—your trust and partnership allow Signal to remain one of the most successful credit unions in the Washington area, and safeguards it as an oasis of cooperation and collective benefit in a world of division and fragmentation. We look forward to continuing to grow with you in 2017!

Andrew M. Mekelburg, Chair

Francois R. Verleysen, President/CEO

In 2016—the year Signal Financial turned 69 years old—we earned Better Business Bureau “A” accreditation and an “A” health rating from depositaccounts .com.

®

ACCREDITEDBUSINESS

TREASURER’S REPORT

Signal had a very good year in 2016. Net Income was $945,000—an increase of $671,000 over 2015. Overall, our assets increased to $357.5 million from $333.3 million, representing an increase of $24.2 million. That's more than twice the increase of 2015 over 2014, which was $10.0 million. Our gross loan growth of 5.69% continues to improve and kept pace with tremendous paydowns and payoffs as our members' situation changed. Our commercial loan portfolio grew to $88.8 million, increasing our net interest income by $3.9 million. Total shares at the end of the year were $288.9 million, an increase of $8.6 million over 2015’s $280.3 million. The introduction of bundled products, along with other strong offerings, has helped Signal increase its products per household and share of wallet.

Credit Unions continue to compete strongly with banks, by offering state of the art services and competitive rates. As a result, Credit Unions are becoming more recognized by consumers and businesses as a valuable alternative to banks. Signal is poised to continue its strong 2016 growth in 2017 partly due to its growing strength as a primary financial institution for members.

I would like to acknowledge the support and dedication of the volunteers and staff for their hard work in managing and protecting our members’ assets. With our superb team, I am confident Signal will attract new members and prove to be the financial institution that members will stay with for years to come.

Deborah Cullen, Treasurer

SUPERVISORY COMMITTEE’S REPORT

The Supervisory Committee is responsible for overseeing the operations of the credit union. Our mission is to protect our members’ assets and make sure their funds are safeguarded. The Supervisory Committee is also responsible for making sure all internal controls are established and maintained effectively. We also ensure that all records are maintained properly and accurately.

CliftonLarsonAllen, Certified Public Accountants, performed an independent financial statement audit of the year ending 2016. The Credit Union received an unqualified opinion for the audit. In addition, NCUA completed our examination in 2016, during which they observed no significant concerns.

The Supervisory Committee believes all audits, verifications, examinations and compliance reviews present an accurate reflection of financial results, and the Credit Union’s assets remain sound and secure.

Sandra Rubin, Supervisory Committee Chair

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ASSETS 2016 2015

Cash and Cash Equivalents $14,978,295 $11,503,097Deposits in Other Financial Institutions – 1,449,000Securities–Available for Sale 59,741,898 3,768,444Securities–Held to Maturity – 47,550,747Other Investments 2,330,409 1,414,627Loans, Net 269,985,473 256,005,508Loans Held for Sale – 153,919 Accrued Interest Receivable 1,370,568 1,223,102Premises and Equipment, Net 3,912,742 4,488,667NCUSIF (National Credit Union Share Insurance Fund) Deposit 2,844,970 2,715,702Other Assets 2,359,401 3,030,616

Total Assets $357,523,756 $333,303,429

LIABILITIES AND MEMBERS’ EQUITY 2016 2015

Liabilities Members’ Share and Savings Accounts $288,954,686 $280,315,103 Borrowed Funds 30,150,000 15,150,000 Accrued Interest Payable 241,589 242,863 Accrued Expenses and Other Liabilities 2,066,384 2,093,909 Total Liabilities 321,412,659 297,801,875

Members’ Equity Regular Reserves 6,430,310 6,430,310 Undivided Earnings 29,973,238 29,028,615 Accumulated Other Comprehensive Income (Loss) (292,451) 42,629 Total Members’ Equity 36,111,097 35,501,554

Total Liabilities and Members’ Equity $357,523,756 $333,303,429

Years ended December 31, 2016

and 2015

INTEREST INCOME AND EXPENSE 2016 2015

Interest Income Loans $12,780,382 $11,775,459 Securities, Interest Bearing Deposits, Cash Equivalents 1,256,895 828,071 Total Interest Income 14,037,277 12,063,530

Interest Expense Members’ Share and Savings Accounts 1,360,408 1,347,384 Interest on Borrowed Funds 435,053 42,945 Total Interest Expenses 1,795,461 1,390,329

Net Interest Income 12,241,816 11,213,201

Provision for Loan Losses 2,492,275 1,200,436

Net Interest Income After Provision for Loan Losses $9,749,541 $10,012,765

NON-INTEREST INCOME AND EXPENSE 2016 2015

Non-Interest Income Service Charges and Fees $4,968,285 $4,656,659 Other Non-Interest Income 459,466 529,652 Net Loss on Sale of Securities (3,947) – Net Loss on Sale of Assets – (37,155) Total Non-Interest Income 5,423,804 5,149,156

Non-Interest Expense General and Administrative Employee Compensation and Benefits 7,578,804 7,858,347 Office Occupancy and Operations 2,750,344 2,927,185 Other Operating Expenses 3,899,574 4,102,895 Total Non-Interest Expense 14,228,722 14,888,427

NET INCOME $944,623 $273,494

Years ended December 31, 2016 and 2015

STATEMENT OF FINANCIAL CONDITION

STATEMENT OF INCOME

Full audited financial statements can be found on our website: signalfinancialfcu.org.

Kensington Branch3015 University Boulevard, WestKensington, MD 20895(301) 933-9100 or (800) 368-0108

Chesapeake Branch(restricted access)13100 Columbia PikeSilver Spring, MD 20904

Largo Branch9500 Arena Drive, Suite 103Largo, MD 20774

MARYLAND

Ashburn Branch(restricted access)22001 Loudoun Parkway Ashburn, VA 20147

VIRGINIA

CityCenterDC Branch1201 New York Avenue NWWashington, DC 20005

Capitol Hill Branch1391 Pennsylvania Avenue Washington, DC 20003

Columbia Heights Branch1400 Irving Street, NW, Suite 115Washington, DC 20010

WASHINGTON, DC

BOARD OF DIRECTORS

Andrew Mekelburg Chair

Jonathan Morrison Vice Chair

Deborah Cullen Treasurer

Mary McCormick Secretary

Eileen Booker

Dennis Fike

Michael Harris

Donna Hauprich

Carl Tebell

SUPERVISORY COMMITTEE

Sandra Rubin Chair

Mark Fieni

Tammy Jeffers

3015 University Boulevard, West, Kensington, MD 20895 | 800-368-0108 | signalfinancialfcu.org