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Growing Success 2017 ANNUAL REPORT

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Growing Success: Creating a prosperous Credit Union to serve more families and communities across our region.

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Dear Members,

ValleyStar’s strategy for growth and success continued to be well-implemented throughout 2017. Because of this, we now serve more communities and our growing membership is benefitting from product and service enhancements. We continue to be focused on building a strong and sustainable future for our members and our employees, while maintaining the impressive financial health of our organization.

This was a year of significant expansion for our Credit Union. In April, we completed a successful merger with Valley Community Credit Union in Waynesboro. Our Waynesboro building renovations were completed in October and we marked the occasion with a Grand Re-Opening Celebration. In November, we hosted the Grand Opening of our first Roanoke branch facility with a well-attended Neighborhood Tailgate Party. With the achievement of these events, ValleyStar is now serving two new markets with full-service branch offices operating in the Roanoke community of Clearbrook and in downtown Waynesboro. In addition, we announced a merger with Piedmont Credit Union in Danville and expanded our field of membership into Halifax County. The Piedmont merger will be completed on May 1, 2018. Our presence in these markets has been well received, and we are now better able to serve more families and businesses in our communities.

We continued to make product, service, and technology enhancements that improved our member experience. In 2017, ValleyStar began development of a new credit card rewards program, including our first-ever business card. We also began developing a new lending platform. Both programs are scheduled to launch in 2018. We successfully rolled out new chip card

Richard Wood CHAIRMAN OF THE BOARD

Delbert Lee Morgan PRESIDENT/CEO

A LETTER FROM THE CHAIRMAN OFTHE BOARD AND THE PRESIDENT/CEO

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technology in May, which offers greater protection against fraud for purchases made at the point of sale. In November, we launched a suite of Member Wealth Management investment, insurance, and financial planning products. ValleyStar home, indirect, and commercial loans continued to see strong growth throughout the year. In addition, Marketing increased ValleyStar’s digital advertising efforts to boost brand visibility in all of our markets.

Outreach to our communities was also very successful in 2017. The spring and fall offered opportunities for ValleyStar to host financial literacy seminars at Patrick Henry Community College and at the Martinsville Library. On April 27th, we raised $20,000 for Children’s Miracle Network (CMN) Hospitals Southwest Virginia via our 22nd Annual Golf Tournament. The fall ValleyStar Credit Union 300 late model stock car race at Martinsville Speedway saw record attendance and made history as the first race under the new LED lights. We ended the year with ValleyStar employees coming together in a noteworthy holiday outreach effort featuring the “12 Days of Giving” and a Teddy Bear Drive benefitting two CMN hospitals that serve families in our communities.

We are proud of all our accomplishments in 2017 and we look forward to continuing to serve our members in the future. We thank all of our members and our employees for their support as our organization continues to evolve and prosper.

Sincerely,

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The Supervisory Committee has the responsibility of playing an active role in protecting the interest of all Credit Union members while safeguarding the Credit Union’s assets.

We are pleased to report that the certified public accounting firm of Doeren Mayhew conducted a financial audit of ValleyStar Credit Union and found that the Credit Union is in strong financial condition. The firm also reviewed procedures to make sure that all standards set by our regulatory agencies, the National Credit Union Administration and the Commonwealth of Virginia State Corporation Commission, were met or exceeded. The audits were conducted in accordance with generally accepted auditing standards of the American Institute of Certified Public Accountants. The certified public accounting firm of Brown, Edwards & Company performed the quarterly Internal Audits for ValleyStar Credit Union.

The Supervisory Committee can assure the membership that the policies, programs, and management practices of ValleyStar Credit Union are sound and will continue to be effectively maintained. We would like to express our sincere appreciation to the Board of Directors, management and staff for their complete cooperation in assisting us in fulfilling our volunteer duties. If any member has questions or wishes to make recommendations for improvement, please contact me or any other member of the committee.

Sincerely,The Federal Credit Union Act and the bylaws of ValleyStar Credit Union provide for the establishment of a Supervisory Committee. The Supervisory Committee works independently of the Board of Directors and Credit Union management and is made up of Credit Union members who volunteer their time to support the credit union movement. Their principal function is to ensure the accuracy of the Credit Union’s financial statements and compliance with sound business practices and procedures.

SUPERVISORY COMMITTEE REPORT

Michael Bryant CHAIRMAN, SUPERVISORY COMMITTEE

Terry Young SUPERVISORY COMMITTEE

Jason Vipperman SUPERVISORY COMMITTEE

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As Treasurer of the Board of Directors, I am pleased to report that 2017 was another financially sound year for the Credit Union. Our year-end assets totaled $321,507,233, a 10.32% increase over 2016’s total of $291,415,247. Year-end deposits grew by 11.26% over 2016, ending at $274,844,366. Net income was a positive $2,001,586 and total membership climbed to 30,637. All of these numbers represent planned, deliberate growth. We also remain above peer average in almost all ratio comparisons. The 2017 and 2016 Financials are provided for you in this program.

The Board of Directors and the Credit Union management team meet at least once a month to evaluate the financial condition, and adherence to and implementation of the Credit Union policies that affect each member’s life. If you have questions or comments regarding ValleyStar’s financial performance, please do not hesitate to contact me. Thank you for the opportunity to serve in this capacity.

Sincerely,

G. Steve Isley TREASURER

TREASURER’S REPORT

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Consolidated Statement of Financial ConditionAs of December 31, 2017 (Unaudited)

COMPARATIVE FINANCIAL STATEMENTS

Statement of IncomeFor the Period Ended December 31, 2017

2017 2016ASSETSCash $3,196,167 $2,945,579Investments $105,786,646 $101,915,332Net Loans $195,357,026 $173,146,972Fixed Assets $11,210,857 $7,976,214Other Assets $5,956,538 $5,431,150

Total Assets $321,507,233 $291,415,247

LIABILITIESTotal Liabilities $1,497,670 $1,272,616

EQUITYMember Shares $274,844,366 $247,008,732Other Equity $45,165,198 $43,133,899

Total Liabilities $321,507,233 $291,415,247 & Equity

2017 2016 Loan Income $10,425,345 $8,939,515

Investment Income $1,679,189 $1,332,818

Other Income $4,159,093 $4,441,466

Total Gross Income $16,263,627 $14,713,799

Operating Expense $12,610,038 $11,677,766

Net Operating Income $3,653,590 $3,036,033

Non-Operating $170,355 $185,207 Gain/Loss

Net Income $3,483,235 $2,850,826 Before Dividends

Dividend Expense $1,481,648 $1,257,405

Net Income $2,001,586 $1,593,421

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Total Assets

Total Loans

2012 $263,650,525

2013 $266,246,401

2014 $275,037,823

2015 $276,321,942

2016 $291,415,247

2017 $321,507,233

Total Members

Total Deposits

2012 $224,107,871

2013 $224,979,838

2014 $232,609,321

2015 $233,193,354

2016 $247,008,732

2017 $274,844,366

2012 26,475

2013 26,862

2014 25,933

2015 26,173

2016 27,637

2017 30,637

2012 $152,238,105

2013 $146,444,450

2014 $140,047,862

2015 $157,701,234

2016 $174,398,433

2017 $196,777,165

GROWTH TREND GRAPHS

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Gregory Hill CCUV, LEGISLATIVE REPRESENTATIVE

LEGISLATIVE REPORT

Volunteers are one of the most significant assets we have in the credit union movement. Without the substantial time and talent given by these volunteers, our movement could not have made the progress it has over the years. During the era of rapid change for our members, ValleyStar has continued to utilize the contributions of volunteers.

ValleyStar Credit Union raised over $2,500 for the Virginia Credit Union Political Action Committee (VACUPAC) during 2017. I would like to thank everyone who participated. VACUPAC is the only political action committee that supports credit union-friendly candidates on the state level. It is non-partisan, meaning the funds are distributed to candidates of both major parties. It determines donations only on the candidate’s position on credit union issues, and sends a portion of the money to the national political action committee to support our Congressional allies.

VACUPAC is extremely important to the future of all credit unions. Laws and regulations affect our Credit Union and how we serve our members. We need lawmakers who will work with us and support our mission through sensible legislation. This is your opportunity to participate and invest in the future of credit unions.

Sincerely,

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MINUTES OF 63RD ANNUAL MEETING

I. Chairman Richard Wood called the meeting to order at 6:00 pm on March 9, 2017 at the Spencer-Penn Centre. He declared the meeting officially open and introduced the head table.

II. An invocation was given by James Rorrer.

III. The Chairman determined a quorum was present.

IV. A motion was made by Arthur Emberson and seconded by Bill Ray to dispense with the reading of the 2015 Annual Meeting minutes.

V. Chairman Richard Wood gave the Chairman’s report.

VI. President/CEO Delbert Lee Morgan gave the President’s report.

VII. Supervisory Committee Chairperson David Deal gave the Supervisory Committee’s report.

VIII. Treasurer Steve Isley gave the Treasurer’s report.

IX. Legislative Representative Gregory Hill gave the Legislative Report.

X. Unfinished Business: There was none.

XI. New Business: There was none.

XII. Director James Rorrer announced that the Nominating Committee nominated Richard Wood, Betty Jo Ray and Nancy Phillips to serve three-year terms [2020]. He reported that ValleyStar’s bylaws and election policy provide a process for nomination by petition and election by mail ballot when there is more than one nominee. Since there were no nominations by petition and only one nominee for each vacancy, Director James Rorrer announced the election of the previously named individuals for the terms previously designated.

XIII. President/CEO Delbert Lee Morgan announced the winners of the door prizes.

XIV. There being no further business, the meeting was adjourned at 6:20 pm.

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Richard WoodCHAIRMAN

G. Steve IsleyTREASURER

Betty Jo RaySECRETARY

Douglas NunnVICE CHAIRMAN

Gregory HillLEGISLATIVE REPRESENTATIVE

BOARD MEMBERS

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Norman W. HillDIRECTOR

David DealDIRECTOR

Nancy PhillipsDIRECTOR

James RorrerDIRECTOR

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SENIOR MANAGERS

Delbert Lee MorganPRESIDENT/CEO

Kevin LaineVP FACILITIES AND SECURITY

Tanya JonesVP LENDING

Cathy JohnsonSVP/COO

Wes GordonSVP/CFO

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Lori CauleyVP BRAND

Andrew ReynoldsVP FINANCE

Robert SparrowVP RISK MANAGEMENT

Wesley WilliamsVP INFORMATION TECHNOLOGY

VALLEYSTAR.ORG

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