Southeast Corporate FCU 2007 Annual Report

Table of ContentsReport of the Chairman of the Board of Directors . . . . . . . . . . . . . . 2

Report of the President & Chief Executive Officer . . . . . . . . . . . . . . 4

Financial Officer’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Supervisory Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Supervisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2007 Accomplishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Serving Our Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Supporting Us All . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

In Remembrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Concept, design and layout by Southeast Corporate FCU marketing department

I believe credit unions are true craftsmen . Although our project is actually a work in progress and will never be completely “built out,” when it comes to financial services, we take incredible pride in our work – putting people and quality first . So it is with pride that I report to you that your corporate credit union, Southeast Corporate, completed another successful year, both in developing and improving services to our members and building financial strength .

With our Board of Directors and Supervisory Committee serving as the architects of change, we took a hard look at the infrastructure and internal systems at the Corporate in addition to its physical needs for space, with one goal in mind – to better serve members into the future . Our “blueprint for tomorrow” included completion of construction of our new headquarters facility in Tallahassee and expansion of our leased Jacksonville operations center, as well as dramatic improvements in service delivery that will be flexible and more adaptable to inevitable changes demanded

by our member credit unions .

Opportunity became reality as our Member Business Solutions CUSO (MBS) celebrated an important milestone, having met a three-year goal and processed more than $300 million in loans for partner credit unions . MBS remains on target for its growth projections, maintaining a solid trajectory by including the purchase and brokering of business loan participations in its tool bag . Today the MBS CUSO, jointly owned by Southeast Corporate and Georgia Central, serves credit unions up and down the East Coast and as far away as California . It has a reputation as one of the leading credit union business lending opera-

tions in the country .

As the subprime mortgage crisis began to unfold early in 2007, we were re-minded just how challenging the credit union world can be as unprec-

edented changes happened in the marketplace affecting the entire financial services industry . Fortunately Southeast Corporate was well prepared and we maintained our excellent ranking with both Standard and Poor’s and Fitch Ratings . In anticipation of potentially exceptional demand for liquidity, we completed and submitted an application for Federal Home Loan Bank of Atlanta membership which will enhance our status as a liquidity provider . We also ap-plied for expanded investment authority with NCUA to enhance

Report of the Chairman, Board of Directors

2

our earnings potential and we formed a CUSO, Acco-lade Investment Advisory, L .L .C ., to further capitalize on our additional investment expertise by assisting member credit unions with portfolio management . All these ef-forts combined to help build our window to the future, a future ripe with opportunity . Serving member credit unions is at the heart of Southeast Corporate and to do so we continued to build solutions tailored to the unique needs of our membership . In the Check 21 arena Southeast continued as a leader, operat-ing one of the larger branch capture networks with close to 500 credit union branches live . Teller Capture was piloted during the year and both Merchant Capture and ATM Capture made significant strides in product develop-ment and are ready to move further forward in 2008 .

Our commitment to technology remained high as we expanded and deepened the talent in our information technology area . An ambitious and detailed plan of ac-tion under new IT leadership became an integral part of our blueprint . By restructuring the IT department and re-engineering IT processes and procedures, we achieved improvements in both operational and project manage-ment . Similarly in the areas of risk, information security and accounting, staffing was enhanced with additional depth and expertise . In every department our goal during 2007 was to strengthen our internal systems, processes and infrastructure and develop a platform for increased efficiencies for 2008 .

Measure twice, cut once! Board and management worked diligently to transition to a formal balanced score-card system of measuring corporate performance . The system demands quality control benchmarks, monitoring, results analysis and continuous improvement . As we progress through 2008 we will be asking for more feed-back from members as part of the quality control loop to ensure successful implementation . I hope you will par-ticipate in our short member survey feedback process to help us provide the products and services that will make a positive and meaningful difference in your operation .

Another primary objective of the Board has been the development and maintenance of strong governance over the entire operation of the Corporate . We have been focused on our structural foundation – critical ele-ments of the Corporate’s purpose, so that the focus and direction of the Corporate remains constant over time as people change .

The combination of loyal members and a committed, experienced Board and staff ensure that our plans for the future will become reality . I wish to thank Mr . Ron Fye

for his dedicated service on the Supervisory Committee and Board of Directors for more than 22 years . He has greatly contributed to our growth and success and he will be missed . He is one of many dedicated longtime Board members over the past several years whose lead-ership has been passed on to a new generation . The transition continues but Southeast Corporate remains true, serving the needs of its member credit unions . With Southeast Corporate’s strong risk management infra-structure, limited credit and interest rate risk, high liquidity, dedicated leaders and high-quality staff, I am pleased to report that Southeast Corporate is well positioned to meet the expanding needs of credit unions today and long into the future .

Respectfully submitted,

Timothy D . McMurryChairmanPresident & CEOPowerNet CU

Report of the Chairman, Board of Directors

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There’s no doubt that 2007 will go down in history as one of the most challenging years for the economy . Between the subprime mortgage crisis, which swelled as the year progressed, and the resulting dislocation in most market sectors, many institutions were left deeply troubled . Fortunately Southeast Corporate was well prepared . Our blueprint for the future secured our ability to maneuver within the markets, ensuring a strong, well-managed portfolio while maintaining ample liquidity, regardless of the economic turmoil .

Even with the mounting market issues, Southeast Corporate finished the year in excellent financial shape . In 2007, Southeast identified four key building blocks for honing our performance and improving service . These included fine-tuning internal systems and infrastructure; executing enhancements to existing products and services; growing usage of Southeast’s products and services among credit unions; and developing a platform to accommodate making future service enhancements and expanding member relationships .

Southeast Corporate undertook several process improvements in 2007, which included undergirding management and regulatory reporting through the addition of several key internal reports, while also updating control and review procedures . In the asset/liability management area, we expanded Southeast’s income simulation and analysis reporting to provide the Asset Liability Committee (ALCO) with enhanced income projections for a more complete picture of our financial condition . These measures allowed us to

improve reporting, trim the time needed to complete Southeast’s month-end closings, giving management the ability to review current financial information for better decision making .

During the year, we buttressed Southeast’s core-processing and Member$MART systems, co-owned with Georgia Central Credit Union, strengthening our capabilities for years to come by per-forming regression testing and designing a number of system upgrades . As a result of our success with these processing systems, another corporate credit union, Virginia Corporate, will join our Corporate Synergies CUSO in 2008 .

Constructing Southeast’s new 30,000 square-foot headquar-ters and expanding our Jacksonville operations center were major tasks completed in 2007, and well worth the effort . After several years of growth because of expanded product lines, upgraded technology and additional staff resources,

Report of the President & Chief Executive Officer

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Southeast was simply out of room . Now we have ad-equate space to accommodate staff and the flexibility to expand as needed . Also, for the first time in some years, all of our Tallahassee staff are housed together, facilitat-ing communication and project coordination .

In the fourth quarter, Southeast opened Accolade Invest-ment Advisory, LLC, a credit union service organization that already is providing credit unions with a range of services, such as asset/liability management, bond ac-counting and investment reporting . As with all of South-east’s new ventures, member demand demonstrated a clear need for extensive portfolio management services and investment advice .

Accolade was designed to relieve busy CFOs and CEOs from some of the burden of portfolio management, an area in which our staff specializes . As part of Accolade’s architecture, we developed a prototype interest-rate risk model based on Southeast’s own BancWare modeling capabilities . Accolade is unique from many other third-party firms in that it relies on total rate of return, rather than a yield-to-maturity model, which will assist credit unions in managing through the various phases of the economic cycle . To assist members with less-complex balance sheets, we also reinforced Southeast’s ALMoni-tor Online, adding a new GAP report platform and the ability to upload NCUA 5300 data in advance of regula-tory reporting .

I’m pleased that our three year-old CUSO, Member Business Solutions, LLC (MBS), another joint venture with Georgia Central, achieved profitability in 2007 . I am convinced that MBS, which now serves 45 credit union partners in 12 states, has been successful because of its focus on helping credit unions truly serve small-business members, who typically need loans for $500,000 or less .

Southeast built on its suite of Virtual Deposit services in 2007, helping credit unions make full use of the provi-

sions in the Check 21 Act . With Virtual Deposit Re-mote Capture processing for nearly 500 branches, Southeast moved into image exchange, improving

our image-enabled processing capabilities with better efficiencies . We also developed a new Teller

Capture service, began work on a Merchant Capture program, and continued to review the various aspects of launching an ATM Cap-ture service .

To increase our market focus and assure staff depth, we reorganized Southeast’s senior management functions this past year, creating an Executive Vice President posi-tion to manage support functions and refocusing staff responsibilities so we can stay abreast of credit unions’ ever-evolving financial service needs . To reinforce that focus, we placed our sales, marketing and consulting areas under a new staff position of Senior Vice President, Sales and Marketing . In addition, the Board added a Gov-ernance Committee in 2007, which is intended to help make sure we stay current with industry best practices .

Throughout 2007, Southeast Corporate strengthened its in-ternal systems, processes and infrastructure . We developed or improved our product and service offerings . And we put together the tools needed for focusing more directly on member relationships in 2008 . As we turn the page on the year just past, Southeast is poised, ready for what comes next with a strong risk-management sub-structure, limited credit and interest-rate risk and ample liquidity .

The linchpins in Southeast’s future are a well-managed, diversified portfolio and sound operating policies; prod-ucts and services at the forefront of members’ needs; tal-ented, knowledgeable staff members who are passionate about serving credit unions; and a Board of Directors that is active, involved and forward-thinking . But Southeast’s keystone is our member credit unions, the foundation of our success .


William B . BirdwellPresident & CEO

Report of the President & Chief Executive Officer

5

The financial markets experienced an extremely tumultu-ous year during 2007 . What began as deterioration in the subprime mortgage market quickly spread to con-cerns with the mortgage and real estate markets as a whole . Ultimately this caused tens of billions of dollars in losses for some of the largest and most well regarded financial institutions in the world . Concern that the issues within the real estate and financial markets would lead to a further economic downturn, the Federal Reserve Open Market Committee (FOMC) initiated an aggressive monetary easing in September . The FOMC reduced rates three times during the year, resulting in a 100 basis point reduction in the Fed funds rate while also taking other steps to infuse liquidity into the system .

Despite the fragile state of the financial markets during 2007, Southeast continued to perform admirably . Al-though no institution can claim to be entirely insulated from the distress in the financial markets, Southeast was well positioned to weather the storm . By adher-ing to conservative risk management practices in this

difficult operating environment, the corporate experienced an exemplary year . Net income rose to $6 .3 million, a 70% increase compared to 2006 . This increase was driven by both a 21% improvement in net interest income as well as a 10% increase in fee income .

Combined these two categories more than offset the 8 .3% rise in

non-interest expenses . Fee

income rose during the year due to increased credit union usage of Southeast’s item processing services, in particular its branch capture solution . Additionally, fee income benefitted from increased volume at Southeast Corporate’s Member Business Solutions CUSO (MBS), which helps credit unions enter the growing business lending sector . During the year MBS underwrote more than $194 million in business loans for member credit unions, a 75% increase over 2006 volume .

Due to the sharp rise in net income, Southeast Corporate’s capital continued to show a healthy increase . Retained earnings rose to $112 .3 million, an increase of 6% com-pared to $106 million . Total capital increased to $213 .6 million, up from $207 .5 million at the end of 2006 . All of Southeast Corporate’s capital measures were well in compliance with regulatory requirements as dictated by NCUA Part 704 .

I am confident that our Corporate’s strong capital, conservative practices, and experienced management, position us well to continue serving credit unions in the future, whatever operating environments we may encounter .


Linda S . Darling, CCUEFinancial OfficerExecutive Vice President & CFOSuncoast Schools FCU

Financial Officer’s Report

6

The Supervisory Committee is responsible for ensuring that the Board and Management meet required financial reporting objectives and establish practices and proce-dures sufficient to safeguard members’ assets . It ensures that Southeast Corporate maintains a system of strong internal controls, complies with established state and federal laws and regulations and that its records provide a true reflection of its financial condition .

In accordance with these responsibilities, the committee hired the independent accounting firm of Orth, Chakler, Murnane & Company, CPAs, to perform a comprehen-sive annual audit for the year ended December 31, 2007 . The results of the audit are contained within the 2007 Annual Report . The Committee also relied on the work of the Internal Audit and Compliance Department, which conducted various internal operational, compliance and information technology audits throughout the year .

In an industry with continued growth and a constantly evolving regulatory and economic environment, corpo-rate governance was strengthened with the hiring of a third internal auditor in 2007 . The Corporate has worked diligently and has made great strides with the implemen-tation of enterprise-wide compliance and risk manage-ment processes .

Based on the results of internal audits, the external audit and the regulatory examination conducted during the past year, the Supervisory Committee believes that South-east Corporate is operating in compliance with regula-tions and Board approved policies and in a financially secure and operationally safe and sound manner .

The Committee would like to thank the Board of Direc-tors, management team and staff for their support and commitment to excellence . My appreciation is extend-ed to fellow committee members Lynn Owen, President & CEO of Insight Financial CU in Orlando, Florida and Debbie Jones, President & CEO of UT Federal Credit Union in Knoxville, Tennessee .


William Gregg Jr .Chairman, Supervisory CommitteePresident & CEOJetStream FCU

Supervisory Committee Report

Timothy D. McMurryBoard ChairmanPresident & CEO

PowerNet CU

Jim MitchellVice Chairman

President & CEOArmy Aviation Center FCU

Linda S. DarlingFinancial Officer

Executive Vice President, CFOSuncoast Schools FCU

Richard TolarSecretary

Senior Vice President, CFOKeesler FCU

William Gregg, Jr .President & CEOJetStream FCU

Ron FyePresident & CEO

Florida Commerce CU

Raffael CrockettPresident & CEO

BrightStar CU

Board of Directors

8

William Gregg, Jr.Supervisory Committee Chairman

President & CEOJetStream FCU

Lynn OwenPresident & CEO

Insight Financial CU

Debbie JonesPresident & CEO

UT Federal Credit Union

Supervisory Committee

9

L. to R. William Birdwell Debra Vanderwerf Rob Schleiter President Senior Vice President Executive Vice President Chief Executive Officer Corporate Adminsitration

Sandy Baker Jim Gallagher Gregory Wirthmann Senior Vice President President Senior Vice Presdient Sales & Marketing Member Business Solutions, LLC Chief Investment Officer

Jim Horlacher Ben Mauldin Kay Moon Senior Vice President Senior Vice President Senior Vice President Chief Technology Officer Chief Risk Officer Chief Operations Officer

Senior Management

10

L. to R. William Birdwell Debra Vanderwerf Rob Schleiter President Senior Vice President Executive Vice President Chief Executive Officer Corporate Adminsitration

Sandy Baker Jim Gallagher Gregory Wirthmann Senior Vice President President Senior Vice Presdient Sales & Marketing Member Business Solutions, LLC Chief Investment Officer

Jim Horlacher Ben Mauldin Kay Moon Senior Vice President Senior Vice President Senior Vice President Chief Technology Officer Chief Risk Officer Chief Operations Officer

Formed Accolade Investment Advisory CUSO

Added Governance Committee based on best practices

Fine tuned internal systems and infrastructure

Completed construction of 30,000 square foot corporate headquarters in Tallahassee

Created real world income simulation and analysis for ALCO

Introduced Balanced Scorecard System to Board and Management

Completed and submitted application for Federal Home Loan Bank of Atlanta membership

Expanded market of current products in the Southeast and pursued select opportunities in other markets

Added approximately 2000 square feet of space in our Jacksonville operations center

Moved into image exchange, implementing image enabled processing enhancements and efficiencies

Helped members take advantage of Check 21 by beginning development and piloting of Teller Capture, developing and testing Merchant Cap-ture and continuing to evaluate ATM Capture

Applied for Part 1 expanded investment authority

Enhanced ALMonitor Online adding new GAP report platform and ability to upload 5300 data in advance of NCUA reporting

Member Business Solutions, LLC passed the $300 million loan production mark

Put infrastructure in place and began purchas-ing and brokering business loan participations through MBS

Restructured senior management staff, creating Executive Vice President position, and realigned reporting structure

Revised Membership Capital requirements

Executed critical enhancements to existing prod-ucts and services

Developed platform for more service enhance-ments and targeted sales efforts going forward

Restructured information technology depart-ment, increasing technical expertise and improv-ing both operational management and project management. Re-engineered IT processes and procedures

Enhanced management & regulatory reporting

Began development of data warehouse for peer analysis, member analysis and business metrics

2007 Accomplishments

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Being a Member Relationship Manager is a very rewarding experi-ence. Each day I enjoy working with members one on one regarding their

credit union needs. Throughout the past 4 years I have developed special

relationships with many members. Member Relationship Managers are

sometimes the first point of contact for members. I am very honored to be a

part of a movement that truly appreci-ates its purpose in helping others.

Jamie DuncanMember Relationship Manager

I enjoy the personal relationship that I’ve developed with members over the years. And I have a sense of pride knowing that I have helped them make sound financial decisions, and have of-fered ideas to make their credit unions more financially successful. I work hard to understand what their needs and requirements are, and we have devel-oped a mutual friendship and trust. Helping members reach and exceed their goals is a rewarding experience and a fascinating career.

David LoweFinancial Strategist

As an employee of Southeast Corporate, I not only represent my employer, I also represent my belief in the credit union movement. I have been able to develop long lasting relationships based on trust and knowledge and I continue to strive for excellence. As a member of our business development team, I enjoy the opportunities I’ve been afforded in my role and look forward to more.

Gisli Th. Magnusson Sales Strategist

I have had the good fortune of be-ing able to address league meetings throughout our region, speaking on

business continuity and trying to relate it to individual credit unions. This has

led to opportunities to assist members in managing their business continuity

programs by reviewing their programs, rewriting plans and adding additional

features such as a pandemic plan. I cherish these opportunities to help.

Ken SchroederVP Business Continuity

Our team was assembled to help mem-bers take advantage of business loan opportunities without the cost of the necessary infrastructure . It has been my pleasure to use my years of business lending experience to help members safely reach their goals . I find that knowledge is best used when shared and I most enjoy the direct interaction with our members; reviewing loan de-tails, suggesting strategies and helping with technical problems .

Joe TorreMember Business SolutionsCredit Policy Officer

Since my first dealings with credit unions over 30 years ago, their mis-sion has remained constant: to provide member owners with the best financial services and products available on a low-cost, cooperative basis. Using this mission as a guiding light it is highly satisfying for me to help our members navigate today’s increasingly complex financial markets to maximize the return on their investable assets for the betterment of their members.

Michael Alexandre Financial Strategist

Serving Our Members

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Gisli Th. Magnusson Sales Strategist

The challenges inherent in managing investment portfolios seem to have magnified in recent years. With the fixed income markets and products gaining in complexity on a continual basis, it is very rewarding to be able to guide credit unions in the prudent investment of their excess funds.

Peter GibsonDirector Accolade Investment Advisory LLC

I really enjoy getting to know the individuals at the credit unions I work with and am impressed with their level of commitment to their credit unions, their members, the credit union move-ment, and their community. I especially enjoy helping credit unions overcome problems or obstacles or helping them find and implement new and more efficient systems to continue to grow and compete. Bill StewartMember Relationship Manager

Working with credit unions to manage their investments and liquidity has been a great fit for me. When a member calls

and asks for advice on investing their members “hard earned money,” it is

very flattering that they trust my knowl-edge and it truly makes me feel like I am helping my neighbor. When my

member has a need, I want to be the first one to help; that is why I am here. When my member succeeds, it makes

my heart smile!

Tanya ShanksFinancial Strategist

Working with credit unions is the most rewarding work I have ever done. I have the unique opportunity to assist credit unions in a variety of capacities that help their growth and make an important difference in the lives of their own members. Working with members is different from other jobs in that I can experience the daily struggles and victories alongside our members. They know they can count on us for profes-sional support and a listening ear to provide advice.

Shirley SennDirector Consulting

My biggest reward comes from help-ing members with problems. For me it goes beyond just doing a job but falls back to the basic principle of people helping people. The feeling that I get

when I help a member find a solution to a problem or train them on a new

product is extremely rewarding. Know-ing that the members depend on us

as a corporate and that I have a part in that process is very exciting.

Keith WalskyBranch Capture Manager

The greatest joy I get out of my job is the people that surround me. The staff at Southeast Corporate along with our members are committed to the same goal, helping people. Too many times in my life I have seen organizations build cultures around greed. I sleep peacefully knowing that I am active in an industry where values go beyond profit and we truly care about our members.

Art Wood Member Relationship Manager

Serving Our Members

13

Front Row - L to R: Donna Lewis, Deena Shealy, Tangie Bishop, Joey Nazario, Natalie Nettles, Cindy Jeffords, Mike Guma, Theresa Feasel, Susan Randle, Julie Duvall, Carole Sullivan, Kevin Hafner, Melanie Thompson, Kote Patibandla, Deanna Sablan, Perry Jones, Trey Rudder

Row 2 - L to R: Mike Yon, Judy Lazzerini, Pat Smith, Taff Collette, Ellen Chapman, Marjorie LaPorte, Leeann Cowen, Barbara Porter, Roberta Rayford, Deborah Kennedy, Patricia O’Neal, Kelli Bell, David Kolb, Linda Braswell, Melodie Wadsworth, Lucinder Mickens, Wendy Santiago, Angie Holmes, Crystal Baker, Steve Upton, David Lowe, Gail Chandler, Teresa Bex, Randy Pupo

Row 3 - L to R: Shirley Senn, Jose Perez, Sheila Locklear, Toni Upshur, Rodel Espino, John Alford, Mary Davis, Craig Hauger, Stephanie Hunter, Barry Haddix, Rebecca Andersen, Rosa Ortiz, Jorge Bustamante, Stephanie Chandler, Art Wood, Tanya Shanks, Ray Wilder, Diana Knight, Bill McCoy, Fred Culcleasure

Row 4 - L to R: Granardo Felix, Tamika Roan, Crystal Wittine, Jamie Duncan, Tawanna Lecount, Sylvia Bryant, Pam Nigh, Jeff Green, Claudette Ryall, Tonia Hooper, Bill Stewart, Mary Ann Spiegel, Mark Redlon, Gisli Magnusson, Matt Parr, Kendra Hill, Leslie Lanham, June Smith

Back Row - L to R: Sue Pennington, Joe Torre, Linda O’Brien, Philip Sheridan, Peter Gibson, Doug Sexton, Michelle Evans, Faye Brady, Katherine Lilly, Laura Dohojda, Jackie, Smith, Steve Wildes, Jennifer Davis, Martha Dixie, Ken Schroeder, Evelyn Bent, Michael Alexandre, Penny Swindle, John Smiley, James Buzek, Lisa Coffey, Debora Sidle, Charles Harkness, LaShawnda Monroe, Nikki Taylor, Lisa Barcinas, Brad Dedmon, Keith Walsky, Mark Jenkins, Leo Toban, Nancy Marcinek, Jose Jimenez, John Hubert, Neil Spell, Paul Simpson

Supporting Us AllSoutheast Corporate Staff

14

Front Row - L to R: Donna Lewis, Deena Shealy, Tangie Bishop, Joey Nazario, Natalie Nettles, Cindy Jeffords, Mike Guma, Theresa Feasel, Susan Randle, Julie Duvall, Carole Sullivan, Kevin Hafner, Melanie Thompson, Kote Patibandla, Deanna Sablan, Perry Jones, Trey Rudder

Row 2 - L to R: Mike Yon, Judy Lazzerini, Pat Smith, Taff Collette, Ellen Chapman, Marjorie LaPorte, Leeann Cowen, Barbara Porter, Roberta Rayford, Deborah Kennedy, Patricia O’Neal, Kelli Bell, David Kolb, Linda Braswell, Melodie Wadsworth, Lucinder Mickens, Wendy Santiago, Angie Holmes, Crystal Baker, Steve Upton, David Lowe, Gail Chandler, Teresa Bex, Randy Pupo

Row 3 - L to R: Shirley Senn, Jose Perez, Sheila Locklear, Toni Upshur, Rodel Espino, John Alford, Mary Davis, Craig Hauger, Stephanie Hunter, Barry Haddix, Rebecca Andersen, Rosa Ortiz, Jorge Bustamante, Stephanie Chandler, Art Wood, Tanya Shanks, Ray Wilder, Diana Knight, Bill McCoy, Fred Culcleasure

Row 4 - L to R: Granardo Felix, Tamika Roan, Crystal Wittine, Jamie Duncan, Tawanna Lecount, Sylvia Bryant, Pam Nigh, Jeff Green, Claudette Ryall, Tonia Hooper, Bill Stewart, Mary Ann Spiegel, Mark Redlon, Gisli Magnusson, Matt Parr, Kendra Hill, Leslie Lanham, June Smith

Back Row - L to R: Sue Pennington, Joe Torre, Linda O’Brien, Philip Sheridan, Peter Gibson, Doug Sexton, Michelle Evans, Faye Brady, Katherine Lilly, Laura Dohojda, Jackie, Smith, Steve Wildes, Jennifer Davis, Martha Dixie, Ken Schroeder, Evelyn Bent, Michael Alexandre, Penny Swindle, John Smiley, James Buzek, Lisa Coffey, Debora Sidle, Charles Harkness, LaShawnda Monroe, Nikki Taylor, Lisa Barcinas, Brad Dedmon, Keith Walsky, Mark Jenkins, Leo Toban, Nancy Marcinek, Jose Jimenez, John Hubert, Neil Spell, Paul Simpson

Supporting Us AllSoutheast Corporate Staff

15

Independent Auditors’ Report

March 28, 2008

To the Supervisory Committee ofSoutheast Corporate Federal Credit Union

We have audited the accompanying consolidated statements of financial condition of Southeast Corporate Federal Credit Union as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive operations, members’ eq-uity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Credit Union’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial state-ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial state-ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated finan-cial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Southeast Corporate Federal Credit Union as of December 31, 2007 and 2006, and the results of its consolidated operations and its consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Orth,Chakler,Murnane & CoOrth, Chakler, Murnane & CompanyCertified Public Accountants

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Consolidated Statements of Financial Condition

The accompanying notes are an integral part of these consolidated financial statements.

ASSETS

As of December 31, 2007 2006 Cash $283,295,329 $330,149,978 Other receivables 504,114 1,157,224Investments: Available-for-sale 1,475,557,807 1,095,524,001 Other 2,311,237,729 2,086,678,124Loans to members 89,935,328 117,238,545Accrued interest receivable: Investments 23,710,612 18,797,512 Loans 212,532 436,709Prepaid and other assets 7,159,727 6,909,896Property and equipment 9,565,603 8,490,942NCUSIF deposit 418,369 429,708 Total assets $4,201,597,150 $3,665,812,639

LIABILITIES AND MEMBERS’ EQUITY

As of December 31, 2007 2006LIABILITIES: Members’ share and savings accounts $3,756,254,586 $3,314,099,160 Membership capital share deposits 81,803,292 81,512,854 Member paid-in capital 20,192,948 20,192,948 Borrowed funds 219,846,363 119,914,594 Interest payable 24,335,159 19,585,059 Accounts payable 8,639,422 1,346,814 Other accrued liabilities 3,655,466 2,969,458 Total liabilities 4,114,727,236 3,559,620,887

Commitments and contingent liabilities — —

MEMBERS’ EQUITY: Corporate reserve 23,033,120 23,033,120 Undivided earnings 89,241,363 82,936,173 Accumulated other comprehensive loss (25,651,171) (37,445) Minority interest 246,602 259,904 Total members’ equity 86,869,914 106,191,752 Total liabilities & members’ equity $4,201,597,150 $3,665,812,639

17

Consolidated Statements of Income


Consolidated Statements of Comprehensive Operations

For the years ended December 31, 2007 2006INTEREST INCOME: Loans to members $3,743,960 $5,977,621 Investments 200,405,177 151,021,158 Total interest income 204,149,137 156,998,779

INTEREST EXPENSE: Members’ share and savings accounts 179,632,524 137,178,828 Borrowed funds 7,969,570 6,368,327 Total interest expense 187,602,094 143,547,155

Net interest income 16,547,043 13,451,624

NON-INTEREST INCOME: Fees and service charges 8,872,754 8,324,203 Gain on disposition of property and equipment 91,074 295,177 Gain on investments, net 689,518 —

Total non-interest income 9,653,346 8,619,380

26,200,389 22,071,004

NON-INTEREST EXPENSE: Compensation and employee benefits 10,514,319 10,326,687 Office operating costs 5,618,059 5,161,381 Professional and outside services 2,831,330 2,429,919 Other 944,793 548,458 Total non-interest expense 19,908,501 18,466,445

Net income before minority interest 6,291,888 3,604,559

Minority interest 13,302 102,606

Net Income $6,305,190 $3,707,165

For the years ended December 31, 2007 2006

NET INCOME: $6,305,190 $3,707,165

OTHER COMPREHENSIVE INCOME: Net unrealized holding gains on investments classified as available-for-sale (26,146,163) (131,160) Net unrealized holding gains on 457 plan investment classified as available-for-sale 532,437 703,219 Reclassification adjustment for net (gains)/losses included in net income — — Other comprehensive (loss)/income (25,613,726) 572,059

Comprehensive (loss)/income ($19,308,536) $4,279,224

18

Consolidated Statements of Members’ Equity


For the years ended December 31, 2007 and 2006

Balance, December 31, 2005 $23,033,120 $79,229,008 ($609,504) $101,652,624Net income — 3,707,165 — 3,707,165 Other comprehensive income — — 572,059 572,059Balance, December 31, 2006 23,033,120 82,936,173 (37,445) 105,931,848 Net income — 6,305,190 — 6,305,190Other comprehensive loss — — (25,613,726) (25,613,726)Balance, December 31, 2007 $23,033,120 $89,241,363 ($25,651,171) $86,623,312

Accumulated Other

Comprehensive(Loss)/Income Total

CorporateReserve

UndividedEarnings

19

Consolidated Statements of Cash Flows


For the years ended December 31, 2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES:Net income $6,305,190 $3,707,165 Adjustments: Depreciation 1,557,121 1,590,487 Amortization of investment premiums/discounts (3,514,059) (1,766,579) Changes in operating assets and liabilities: Other receivables 653,110 580,918 Accrued interest receivable (4,688,923) (6,682,681) Prepaid and other assets 282,606 (306,292) Interest payable 4,750,100 7,272,488 Accounts payable 7,292,608 (114,455) Other accrued liabilities 686,008 989,967 Minority interest (13,302) 63,400 Net cash provided by operating activities 13,310,459 5,334,418

CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities, sales and repayments of available-for-sale securities 994,859,256 1,090,594,852 Purchase of available-for-sale securities (1,397,525,166) (1,005,983,624) Net change in other investments (224,559,605) (167,207,876) Net change in loans to members 27,303,217 31,378,010 Expenditures for property and equipment (2,631,782) (4,763,889) Proceeds from the sale of property and equipment — 1,001,611 Change in NCUSIF deposit 11,339 (3,532) Net cash used in investing activities (602,542,741) (54,984,448)

CASH FLOWS FROM FINANCING ACTIVITIES: Net change in members’ share and savings accounts 442,155,426 89,212,924 Net change in membership capital share deposits 290,438 (2,109,180) Net change in short-term borrowing 99,931,769 25,072,820 Net cash provided by financing activities 542,377,633 112,176,564 Net change in cash (46,854,649) 62,526,534 Cash at beginning of year 330,149,978 267,623,444 Cash at end of year $283,295,329 $330,149,978

SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid $182,851,994 $136,274,667

SCHEDULE OF NON-CASH TRANSACTIONS: Changes in accumulated other comprehensive (loss)/income ($25,613,726) $572,059

20

Notes to the Consolidated Financial Statements NOTE 1: SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION-Southeast Corporate Federal Credit Union (the “Credit Union”) is a cooperative association orga-nized in accordance with the provisions of the Federal Credit Union Act for the purpose of providing correspondent banking services as well as investment products and a source of credit for its member credit unions. The Credit Union also owns a majority interest in three credit union service organizations (CUSOs) which are described below:Member Business Solutions, LLC - The Credit Union owns 66.6% of this company. The remainder of the company is owned by Georgia Central Credit Union. The primary sources of income for this CUSO are provided through fees earned for the underwriting and documenting of business loans for member credit unions. During the years ended December 31, 2007 and 2006, the revenues from this CUSO represented a nominal percentage of total revenues.Corporate Synergies, LLC - The Credit Union owns 66.6% of this company. The remainder of the company is owned by Georgia Central Credit Union. This company was started during 2006 to purchase and develop a core data processing system to process transactions for both corporate credit unions. During the years ended December 31, 2007 and 2006, the revenues from this CUSO represented a nominal percentage of total revenues.Accolade Investment Advisory, LLC - The Credit Union owns 100% of this company. This company was started in 2007 to provide investment advisory services to credit unions. During 2007 the revenues from this CUSO repre-sented a nominal percentage of total revenues.CONSOLIDATED FINANCIAL STATEMENTS - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make esti-mates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses for the periods then ended. Actual results could differ from those estimates. Estimates that are par-ticularly susceptible to change relate to the fair value of financial instruments. The significant accounting principles and policies used in the preparation of these consolidated financial statements, together with certain related infor-mation, are summarized below.PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Credit Union and the three CUSOs described above. All significant intercompany accounts and transactions have been eliminated.CASH - Cash includes amounts due from banks and corporate credit unions as well as deposits in transit. Amounts due from banks and corporate credit unions may, at times, exceed federally insured limits.INVESTMENTS - Investments are classified into the following categories: available-for-sale and other. Investment securities classified as available-for-sale are measured at market value as of the consolidated statement of financial condition date. Unrealized gains and losses for available-for-sale investments are reported as a separate compo-nent of members’ equity. The Credit Union has elected to classify certain cash equivalents as other investments. This election is available to the Credit Union according to the terms of Statement of Financial Accounting Standard (SFAS) No. 95, “Statement of Cash Flows.” Realized gains and losses on disposition, if any, are computed using the specific identification method. Investments are adjusted for amortization of premiums and accretion of discounts over the term of the investment by a method that approximates the interest method. Adjustments are recognized to interest income on investments.LOANS TO MEMBERS - Loans to members are stated at the amount of unpaid principal. Interest on loans is cal-culated using the simple-interest method on principal amounts outstanding. The accrual of interest is discontinued when management believes that collection of interest is doubtful.PROPERTY AND EQUIPMENT - Land is carried at cost. Property and equipment are carried at cost less accu-mulated depreciation. Buildings, furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the term of the lease, or the estimated life of the asset, whichever is less. The Credit Union reviews property and equipment (long-lived assets) for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.NCUSIF DEPOSIT - The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with National Credit Union Administration (NCUA) regulations, which require the maintenance of a deposit by each insured credit union. The deposit would be refunded to the Credit Union if its insurance coverage is terminated, it converts to insurance coverage from another source, or the operations of the fund are transferred from the NCUA Board.NCUSIF INSURANCE PREMIUMS - Credit unions are required to pay an annual insurance premium equal to one-twelfth of one percent of its total insured shares, unless the payment is waived or reduced by the NCUA Board. The NCUA Board waived the 2007 and 2006 insurance premiums.MEMBERS’ SHARE AND SAVINGS ACCOUNTS - Members’ shares are subordinated to all other liabilities of the Credit Union other than membership capital share deposits and member paid-in capital deposits upon liquidation. Interest rates on members’ share and savings accounts are set by management based on a daily assessment of available earnings and are not guaranteed by the Credit Union.MEMBERSHIP CAPITAL SHARE DEPOSITS - Membership capital share deposits require a notification term of three years prior to their withdrawal from the Credit Union. In the event of the Credit Union’s liquidation, member-ship capital share deposits are payable only after satisfaction of all liabilities of the Credit Union, including uninsured share obligations to members and the NCUSIF, but excluding paid-in capital deposits. The weighted-average rate paid on these deposits was 4.83% and 5.33% as of December 31, 2007 and 2006, respectively.MEMBER PAID-IN CAPITAL - In the event of the Credit Union’s liquidation, paid-in capital is payable only after satisfaction of all liabilities of the Credit Union, including uninsured share obligations to members, the NCUSIF, and membership capital share deposits. Member paid-in capital is subject to withdrawal after 20 years from the original date of deposit. The weighted-average rate paid on these deposits was 5.33% and 5.83% as of December 31, 2007 and 2006, respectively.MEMBERS’ EQUITY - The Credit Union is required to maintain a statutory reserve (corporate reserve) in accor-dance with the Federal Credit Union Act and NCUA’s Rules and Regulations. This statutory reserve represents a regulatory restriction and is not available for the payment of interest.FEDERAL AND STATE TAX EXEMPTION - The Credit Union is exempt from most federal, state, and local taxes under the provisions of the Federal Credit Union Act, Internal Revenue code, and state tax laws.

21

Notes to the Consolidated Financial Statements Continued...

NOTE 2: INVESTMENTS

The amortized cost and estimated market value of investments are as follows:

As of December 31, 2007 Gross Gross Amortized Unrealized Unrealized MarketAvailable-for-sale: Cost Gains Losses Value

Asset-backed securities $878,985,752 $1,371,976 ($20,007,683) $860,350,045Private issue mortgage- backed securities 334,914,724 42,415 (8,265,892) 326,691,247Fed agency mortgage- backed securities 175,697,603 233,062 (225,844) 175,704,821Municipal securities 20,000,000 — — 20,000,000 Notes receivable 77,461,467 3,128 (400,700) 77,063,895Fed agency securities 15,775,704 12,228 (40,133) 15,747,799 $1,502,835,250 $1,662,809 ($28,940,252) $1,475,557,807

As of December 31, 2006 Gross Gross Amortized Unrealized Unrealized Market Available-for-sale: Cost Gains Losses Value

Asset-backed securities $510,505,742 $313,330 ($503,194) $510,315,878Private issue mortgage- backed securities 300,430,751 161,882 (179,202) 300,413,431Fed agency mortgage- backed securities 220,148,576 171,482 (355,392) 219,964,666Notes receivable 28,500,000 — (639,750) 27,860,250Municipal securities 30,000,000 — (600) 29,999,400Fed agency securities 7,070,212 — (99,836) 6,970,376 $1,096,655,281 $646,694 ($1,777,974) $1,095,524,001

As of December 31, 2006, the Credit Union had outstanding repurchase agreements to resell the same securities at the maturity date of the repurchase agreement in January 2007. The cost of the repurchase agreements, including accrued interest, was approximately $154,004,000 as of December 31, 2006. The estimated market value of the underlying securities approximated the amortized cost as of December 31, 2006.

Proceeds from the sales of investments classified as available-for-sale approximated $61,801,000 and $21,614,000 for the years ended December 31, 2007 and 2006, respectively. Gross gains of approximately $21,000 and $13,000 were realized for the years ended December 31, 2007 and 2006, respectively. Gross losses of approximately $23,000 were realized for the year ended December 31, 2007. No gross losses were realized during the year ended December 31, 2006.

The following table shows the gross unrealized losses and fair value of investments, aggregated by length of time that individual securities have been in a continuous unrealized loss position.

As of December 31, 2007 Available-for-sale

Less than 12 Months 12 Months or Longer Total Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value LossesAsset-backed securities $419,630,718 ($18,744,454) $50,419,542 ($1,263,229) $470,050,260 ($20,007,683)Fed agency mortgage- backed securities 19,148,596 (36,026) 63,483,690 (189,818) 82,632,286 (225,844) Private issue mortgage- backed securities 212,071,366 (6,748,005) 72,539,256 (1,517,887) 284,610,622 (8,265,892)Notes receivable 61,615,895 (362,700) 10,462,000 (38,000) 72,077,895 (400,700)Fed agency securities — — 3,387,082 (40,133) 3,387,082 (40,133) $712,466,575 ($25,891,185) $200,291,570 ($3,049,067) $912,758,145 ($28,940,252)

22

NOTE 2: (continued)

As of December 31, 2006 Available-for-sale

Less than 12 Months 12 Months or Longer Total Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses Asset-backed securities $220,354,711 ($444,117) $15,529,421 ($59,077) $235,884,132 ($503,194)Private issue mortgage- backed securities 114,547,227 (110,581) 22,879,695 (68,621) 137,426,922 (179,202)Fed agency mortgage- backed securities 124,443,048 (296,228) 17,279,767 (59,164) 141,722,815 (355,392)Notes receivable — — 27,860,250 (639,750) 27,860,250 (639,750)Municipal securities — — 29,999,400 (600) 29,999,400 (600)Fed agency securities — — 6,970,376 (99,836) 6,970,376 (99,836) $459,344,986 ($850,926) $120,518,909 ($927,048) $579,863,895 ($1,777,974)

Unrealized losses on securities issued by the U.S. Government and its Agencies have not been recognized into income because the principal balances of these securities are guaranteed by the U.S. Government. The decline in the fair value of the federal agency securities is largely due to increases in market interest rates, and the fair values of the securities are expected to be recovered as these securities approach their maturity date and/or market rates decline. The principal balances of the asset-backed securities, notes receivable, and private issue mortgage-backed securities are not guaranteed; however, the decline in the fair values of these securities is largely due to increases in market interest rates, and the fair values of the securities are expected to be recovered as these securities approach their maturity date and/or market rates decline and therefore have not been recognized into income. Management has the ability to hold these securities for the foreseeable future.

Included in the deposits at U.S. Central Credit Union are membership share and paid-in-capital accounts which are subject to notice withdrawal requirements. The total of these accounts approximated $101,000,000 and $83,000,000 as of December 31, 2007 and 2006, respectively. The deposits maintained at U.S. Central Credit Union normally exceed federally insured limits.

The amortized cost and estimated market value of investments by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay certain obligations without call or prepayment penalties.


As of December 31,Other investments: 2007 2006 U.S. Central Credit Union: Daily shares $234,047,459 $739,911,107 Membership shares 59,927,162 41,448,415 Certificates of deposit 1,967,836,640 1,099,020,035 Paid-in capital 41,335,000 41,335,000 Community investment fund 5,640,000 5,640,000Repurchase agreement — 153,864,282Certificates of deposit 1,996,000 4,990,000Credit Union Service Organizations 455,468 469,285 $2,311,237,729 $2,086,678,124

As of December 31, 2007 Amortized MarketAvailable-for-sale: Cost Value Within one year $30,003,092 $29,983,361 1 to 5 years 47,458,375 47,080,534 10 years and over 35,775,704 35,747,799 113,237,171 112,811,694 Asset-backed securities 878,985,752 860,350,045 Fed agency mortgage-backed securities 175,697,603 175,704,821 Private issue mortgage-backed securities 334,914,724 326,691,247 $1,502,835,250 $1,475,557,807 23


NOTE 3: LOANS TO MEMBERS

The composition of loans to members is as follows:

As of December 31, 2007 2006Loans outstanding: Demand $22,312,000 $26,410,959 Settlement 1,604,188 6,327,586 Share secured 750,000 750,000 Collateralized loans 65,269,140 83,750,000 $89,935,328 $117,238,545

NOTE 4: PROPERTY AND EQUIPMENT

A summary of the Credit Union’s property and equipment is as follows:

As of December 31, 2007 2006

Land $1,752,393 $—Buildings 4,997,272 — Furniture and equipment 2,273,532 1,239,206Data processing equipment 5,771,367 5,947,405 Leasehold improvements 199,091 181,056 Construction in progress — 5,239,997 14,993,655 12,607,664Less accumulated depreciation and amortization (5,428,052) (4,116,722) $9,565,603 $8,490,942

NOTE 5: MEMBERS’ SHARE AND SAVINGS ACCOUNTS

Members’ share and savings accounts are summarized as follows:

As of December 31, 2007 2006

Transaction accounts $197,656,172 $159,855,891Unapplied shares 269,490,062 296,221,222Funds plus 1,471,685,890 1,519,532,558CIF variable rate shares 5,640,000 5,640,000Managed investment accounts 127,762,846 127,209,278Collateral share accounts 2,888,765 2,788,915Certificates 1,681,130,851 1,202,851,296 $3,756,254,586 $3,314,099,160

The aggregate amount of members’ time deposit accounts in denominations of $100,000 or more was approximately,$1,697,932,000 and $1,201,026,000 as of December 31, 2007 and 2006, respectively.

Scheduled maturities of certificates are as follows:

As of December 31, 2007 Within 1 year $1,227,942,7051 to 2 years 253,601,8642 to 3 years 101,965,3613 to 4 years 36,945,9214 to 5 years 60,675,000Thereafter — $1,681,130,851

SHARE INSURANCEMembers’ shares are insured by the NCUSIF to a maximum of $100,000 for each member.

24


NOTE 6: BORROWED FUNDSBorrowed funds are summarized as follows: As of December 31, 2007 2006

Loans from U.S. Central CU:Commercial paper (due Jan. 2008) 4.42% $74,846,363 — $—Commercial paper (due Jan. 2007) — — 5.33% $74,914,594Central Liquidity Facility Term (due Dec. 2008) 3.66% 20,000,000 3.66% 20,000,000 Term (due March 2009) 4.52% 100,000,000 — —Repurchase note (due Aug. 2009) 3.89% 25,000,000 3.89% 25,000,000 $219,846,363 $119,914,594

NOTE 7: EMPLOYEE BENEFITS401(k) PLANAll full-time employees of the Credit Union are eligible to participate in a 401(k) pension plan upon attaining one year of service and 21 years of age. The Credit Union contributes 7% of each eligible employees’ salary to the plan. Additionally, the Credit Union matches employee contributions at the rate of 100% up to 4% of their salary. Benefits become 100% vested after an employee completes six years of service. The Credit Union’s contributions to the 401(k) plan approximated $607,000 and $574,000 for the years ended December 31, 2007 and 2006, respectively.

NOTE 8: POST RETIREMENT BENEFITSThe Credit Union has a post retirement benefit plan which pays for 100% of the employees’ healthcare and life insurance premiums subsequent to retirement. Employees attaining at least age 55 and20 years of service are eligible for a pro rata share of full benefits. Employees of the Credit Unionare eligible for full benefits under this plan upon attaining age 65 and 20 years of service. TheCredit Union has accrued a liability for this obligation; however, the Credit Union is not requiredto, and does not make cash contributions to the plan. The following table sets forth the plan’s statusand amounts recognized in the Credit Union’s consolidated statements of financial condition: As of December 31, 2007 2006

Accumulated post retirement benefit obligation ($963,464) ($1,008,178) Plan assets at fair value — —Funded status (963,464) (1,008,178) Unrecognized net actuarial loss — 236,311Accrued pension benefit cost ($963,464) ($771,867)

The net periodic benefit cost related to this plan was approximately $203,000 and $179,000 for the years ended December 31, 2007 and 2006, respectively. Employer contributions and benefits paid during the year ended December 31, 2007 approximated $15,000. Expected contributions for the plan year beginning January 1, 2008 is approximately $13,000.

Assumptions used to develop the net periodic post-retirement benefits cost were as follows: For the years ended December 31, 2007 2006

Discount rate 5.75% 6.00%Expected long-term return on plan assets 5.75% 6.00%Rate of compensation increase 4.00% 4.00%

WeightedAverage

Rate

WeightedAverage

RateBalance Balance

25


NOTE 8: (continued)

The following benefit payments are expected to be paid:

Year ending December 31, Amount

2008 $13,000 2009 16,000 2010 20,000 2011 26,000 2012 29,000 2013-2017 213,000 $301,000

NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2007, the Credit Union had an unused Advised Line-of-Credit Agreement with U.S. Central Credit Union. The terms of the agreement require the pledging of all share accounts, share certificate accounts, or other accounts maintained with U.S. Central Credit Union as security for obligations under this line-of-credit agreement. The Credit Union is also required to pledge any securities held in safekeeping by U.S. Central Credit Union. The line of credit was approximately $1,000,000,000 of which approximately $880,000,000 had not been funded as of December 31, 2007.

The Credit Union leases certain office locations. The minimum noncancellable lease obligations approximate the following as of December 31, 2007. Year ending December 31, Amount 2008 $239,000 2009 185,000 Thereafter — $424,000

The rental expense under operating leases was approximately $363,000 and $465,000 for the years ended December 31, 2007, and 2006, respectively.

The Credit Union is a party to various miscellaneous legal actions normally associated with financial institutions, the aggregate effect of which, in management’s opinion, would not be material to the Credit Union’s consolidated financial statements.

NOTE 10: OFF-BALANCE-SHEET RISk AND CONCENTRATIONS OF CREDIT RISk

The Credit Union is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its members and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in ex-cess of the amount recognized in the consolidated statements of financial condition. The Credit Union’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments.

Commitments to extend credit are agreements to lend to a member as long as there is no violation of any condition established in the contract. Commitments generally have fixed ex-piration dates or other termination clauses. Since many of the commitments may expire with-out being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. As of December 31, 2007, the members’ total lines of credit approximated $1,933,837,000 of which approximately $1,932,233,000 had not been funded. The Credit Union evaluates each member credit union’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the member.

The Credit Union may be exposed to credit risk from a regional economic standpoint, since a significant concentration of its funded and unfunded loans are made primarily to member credit unions in the southeastern United States. In addition, as a normal course of business operation, the Credit Union maintains a significant amount of its investments with U.S. Central Credit Union. While management does not anticipate any loss as a result of this activity, these funds exceed federally insured limits. The balance maintained at U.S. Central Credit Union was approximately $2,309,000,000 and $1,927,000,000 as of December 31, 2007 and 2006, respectively.26


NOTE 11: REGULATORY CAPITAL

The Credit Union is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Credit Union’s consolidated financial statements. Failure to meet minimum capital requirements would require the Credit Union to submit a plan of action to correct the shortfall. Additionally, NCUA could require an increase in capital to specific levels, reduction of dividends, and ceasing or limiting the Credit Union’s ability to accept deposits.

Corporate credit unions must maintain a minimum capital ratio of 4% of its daily average net assets. Capital consists of retained earnings as well as membership capital and paid-in capital deposits.

Corporate credit unions that maintain a retained earnings ratio of less than 2% of its daily average net assets must meet certain minimum earnings requirements as established by NCUA Rules and Regulations.

The Credit Union’s actual and required capital and retained earnings ratios were as follows:

As of As of December 31, 2007 December 31, 2006 Amount Ratio Amount RatioCapital ratio: Actual capital: Retained earnings $112,274,483 $105,969,293 Membership capital 81,803,292 81,512,854 Paid-in capital 20,192,948 20,192,948 S-40 Notice (719,615) (200,318) $213,551,108 5.33% $207,474,777 6.09%

Required capital $160,127,309 4.00% $136,288,729 4.00%

Retained earnings ratio: Actual retained earnings $112,274,483 2.80% $105,969,293 3.11% Required retained earnings $80,063,655 2.00% $68,144,364 2.00%

Management believes that the Credit Union is compliant with all capital and retained earnings ratio requirements.

NOTE 12: FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret mar-ket data to develop the estimates of fair value. Accordingly, the estimates presented are not nec-essarily indicative of amounts that could be realized in a market exchange. The use of different assumptions and estimation methodologies may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate fair value of each of the financial instruments for which it is practicable to estimate.

CASHThe carrying amount is a reasonable estimation of fair value.

INVESTMENTSEstimated fair values for investments are obtained from quoted market prices where available. The fair value of fixed-maturity certificates of deposit was estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued.

LOANS TO MEMBERSThe estimated fair value for variable-rate loans is the current carrying amount. Management has determined that the fair value of fixed-rate loans would not be materially different from the carrying amount due to the short-term nature of the loans. Therefore, the fair value of fixed-rate loans is the current carrying amount.

ACCRUED INTEREST RECEIVABLEThe carrying amount is a reasonable estimation of fair value.

27


NOTE 12: (continued)

MEMBERS’ SHARE AND SAVINGS ACCOUNTS, CAPITAL SHARES, AND PAID-IN CAPITALThe estimated fair value of demand deposit accounts is the carrying amount. The fair value of fixed-rate certificates was estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued.

BORROWED FUNDSThe estimated fair value of borrowed funds is the carrying amount due to the short-term nature of the borrowing.

INTEREST PAYABLEThe carrying amount is a reasonable estimation of fair value.

COMMITMENTS TO EXTEND CREDITThe fair value of commitments to extend credit is the equivalent to the amount of credit extended, since the Credit Union does not charge fees to enter into these commitments and the commitments are not stated at fixed rates.

The carrying value and estimated fair value of the Credit Union’s financial instruments are as follows: As of December 31, 2007 As of December 31, 2006 Carrying Fair Carrying Fair Amount Value Amount Value

Financial assets: Cash $283,295,329 $283,295,329 $330,149,978 $330,149,978 Investments: Available-for-sale $1,475,557,807 $1,475,557,807 $1,095,524,001 $1,095,524,001 Other $2,311,237,729 $2,320,867,788 $2,086,678,124 $2,083,437,220Loans to members $89,935,328 $89,935,328 $117,238,545 $117,238,545 Accrued interest receivable $23,923,144 $23,923,144 $19,234,221 $19,234,221 Financial liabilities: Members’ share & savings accounts $3,756,254,586 $3,767,594,334 $3,314,099,160 $3,310,916,658 Membership capital share deposits $81,803,292 $81,803,292 $81,512,854 $81,512,854 Member paid-in capital $20,192,948 $20,192,948 $20,192,948 $20,192,948 Borrowed funds $219,846,363 $219,846,363 $119,914,594 $119,914,594 Interest payable $24,335,159 $24,335,159 $19,585,059 $19,585,059

Unrecognized financial instruments: Commitments to extend credit $— $1,923,233,000 $— $1,839,377,000

28

In Remembrance. . .It is with fond remembrance and deep regret that we acknowledge the passing in 2007 of two Southeast Corporate employees. Please join us in celebrating their lives and their many contributions to the credit unions we serve.

There’s a very special garden

Where the trees of memory grow

Nurtured by the kindness

And concern that good friends show.

The roots are cherished memories

Of good times in the past

The branches tender promises

That souls endure and last.

It’s a place of peace and beauty

Where bright new hopes can start

It’s memory’s lovely garden

That soothes the hurting heart.

Dorothy Joyce Bible1947-2007

Know the One that speaks for you,

Before all the world so clear.

The Father, the Spirit, and the Son.

Know now! They’re always near.

Whenever I feel I am alone,

I am not, for the Father’s with Me.

So, as we gather our memories

And cherish the closeness

Of people we love,

Our hearts give thanks and praise.

Friendship nourishes the soul.

Lani Elise Holston1968-2007

3692 Coolidge CourtTallahassee, Florida 32311

850.576.8900 • 800.342.0203

8400 Baymeadows Way #18Jacksonville, Florida 32256

904.861.2565 • 866.829.7528www.secorp.org

Documents

Southeast Corporate FCU 2007 Annual Report