Table of Contents Report of the Chairman of the Board of Directors . . . . . . . . . . . . . . 2 Report of the President & Chief Executive Officer . . . . . . . . . . . . . . . 4 Financial Officerâ€™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 Auditorâ€™s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 In Remembrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Concept, design and layout by Southeast Corporate FCU marketing department
Report of the Chairman, 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 operations in the country. As the subprime mortgage crisis began to unfold early in 2007, we were reminded just how challenging the credit union world can be as unprecedented 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 applied for expanded investment authority with NCUA to enhance
, Board of Directors our earnings potential and we formed a CUSO, Accolade Investment Advisory, L.L.C., to further capitalize on our additional investment expertise by assisting member credit unions with portfolio management. All these efforts 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, operating 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 development 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 action under new IT leadership became an integral part of our blueprint. By restructuring the IT department and reengineering IT processes and procedures, we achieved improvements in both operational and project management. 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.
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 leadership 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 infrastructure, 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. McMurry Chairman President & CEO PowerNet CU
Measure twice, cut once! Board and management worked diligently to transition to a formal balanced scorecard 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 feedback from members as part of the quality control loop to ensure successful implementation. I hope you will participate 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 elements 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 3
Report of the President & 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 finetuning 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 performing 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 headquarters 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,
& Chief Executive Officer Southeast was simply out of room. Now we have adequate 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, facilitating communication and project coordination. In the fourth quarter, Southeast opened Accolade Investment Advisory, LLC, a credit union service organization that already is providing credit unions with a range of services, such as asset/liability management, bond accounting and investment reporting. As with all of Southeast’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 thirdparty 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 ALMonitor Online, adding a new GAP report platform and the ability to upload NCUA 5300 data in advance of regulatory 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.
To increase our market focus and assure staff depth, we reorganized Southeast’s senior management functions this past year, creating an Executive Vice President position 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 Governance Committee in 2007, which is intended to help make sure we stay current with industry best practices. Throughout 2007, Southeast Corporate strengthened its internal 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; products and services at the forefront of members’ needs; talented, 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. Respectfully submitted,
William B. Birdwell President & CEO
Southeast built on its suite of Virtual Deposit services in 2007, helping credit unions make full use of the provisions in the Check 21 Act. With Virtual Deposit Remote 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 Capture service.
Financial Officer’s Report The financial markets experienced an extremely tumultuous year during 2007. What began as deterioration in the subprime mortgage market quickly spread to concerns 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. Although no institution can claim to be entirely insulated from the distress in the financial markets, Southeast was well positioned to weather the storm. By adhering 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% compared 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. Respectfully submitted,
Linda S. Darling, CCUE Financial Officer Executive Vice President & CFO Suncoast Schools FCU
Supervisory Committee Report The Supervisory Committee is responsible for ensuring that the Board and Management meet required financial reporting objectives and establish practices and procedures sufficient to safeguard membersâ€™ 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 comprehensive 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, corporate 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 implementation of enterprise-wide compliance and risk management 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 Southeast Corporate is operating in compliance with regulations and Board approved policies and in a financially secure and operationally safe and sound manner.
The Committee would like to thank the Board of Directors, management team and staff for their support and commitment to excellence. My appreciation is extended 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. Respectfully submitted, William Gregg Jr. Chairman, Supervisory Committee President & CEO JetStream FCU
Board of Directors
Timothy D. McMurry Board Chairman President & CEO PowerNet CU
Linda S. Darling Financial Officer Executive Vice President, CFO Suncoast Schools FCU
William Gregg, Jr. President & CEO JetStream FCU
Jim Mitchell Vice Chairman President & CEO Army Aviation Center FCU
Richard Tolar Secretary Senior Vice President, CFO Keesler FCU
Raffael Crockett President & CEO BrightStar CU
Ron Fye President & CEO Florida Commerce CU
William Gregg, Jr. Supervisory Committee Chairman President & CEO JetStream FCU
Debbie Jones President & CEO UT Federal Credit Union
Lynn Owen President & CEO Insight Financial CU
Senior Management L. to R.
William Birdwell President Chief Executive Officer
Debra Vanderwerf Senior Vice President Corporate Adminsitration
Rob Schleiter Executive Vice President
Sandy Baker Senior Vice President Sales & Marketing
Jim Gallagher President Member Business Solutions, LLC
Gregory Wirthmann Senior Vice Presdient Chief Investment Officer
Jim Horlacher Senior Vice President Chief Technology Officer
Ben Mauldin Senior Vice President Chief Risk Officer
Kay Moon Senior Vice President Chief Operations Officer
2007 Accomplishments 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 Capture 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 purchasing 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 products and services Developed platform for more service enhancements and targeted sales efforts going forward Restructured information technology department, increasing technical expertise and improving 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
Serving Our Members Since my first dealings with credit unions over 30 years ago, their mission 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 todayâ€™s increasingly complex financial markets to maximize the return on their investable assets for the betterment of their members.
Michael Alexandre Financial Strategist
I enjoy the personal relationship that Iâ€™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 offered ideas to make their credit unions more financially successful. I work hard to understand what their needs and requirements are, and we have developed a mutual friendship and trust. Helping members reach and exceed their goals is a rewarding experience and a fascinating career.
David Lowe Financial Strategist
Being a Member Relationship Manager is a very rewarding experience. 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 appreciates its purpose in helping others.
Jamie Duncan Member Relationship Manager
Our team was assembled to help members 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 details, suggesting strategies and helping with technical problems.
Joe Torre Member Business Solutions Credit Policy Officer
I have had the good fortune of being 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 Schroeder VP Business Continuity
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 Iâ€™ve been afforded in my role and look forward to more.
Gisli Th. Magnusson Sales 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 professional support and a listening ear to provide advice.
Shirley Senn Director Consulting
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 â€œhard earned money,â€? it is very flattering that they trust my knowledge 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!
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
My biggest reward comes from helping 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. Knowing that the members depend on us as a corporate and that I have a part in that process is very exciting.
Keith Walsky Branch Capture Manager
Tanya Shanks Financial 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.
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 movement, 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 Stewart Member Relationship Manager
Peter Gibson Director Accolade Investment Advisory LLC
Front Row - L to R: Donna Lewis, Deena Shealy, Tangie Bishop, Joey Nazario, Natalie Nettles, Cindy Jeffords, Mike Guma, There Perry Jones, Trey Rudder
Row 2 - L to R: Mike Yon, Judy Lazzerini, Pat Smith, Taff Collette, Ellen Chapman, Marjorie LaPorte, Leeann Cowen, Barbara Lucinder Mickens, Wendy Santiago, Angie Holmes, Crystal Baker, Steve Upton, David Lowe, Gail Chandler, Teresa Bex, Ran
Row 3 - L to R: Shirley Senn, Jose Perez, Sheila Locklear, Toni Upshur, Rodel Espino, John Alford, Mary Davis, Craig Hauge 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 Leslie Lanham, June Smith
Back Row - L to R: Sue Pennington, Joe Torre, Linda Oâ€™Brien, Philip Sheridan, Peter Gibson, Doug Sexton, Michelle Evans, Faye Michael Alexandre, Penny Swindle, John Smiley, James Buzek, Lisa Coffey, Debora Sidle, Charles Harkness, LaShawnda Mo John Hubert, Neil Spell, Paul Simpson
ng Us All
esa Feasel, Susan Randle, Julie Duvall, Carole Sullivan, Kevin Hafner, Melanie Thompson, Kote Patibandla, Deanna Sablan,
a Porter, Roberta Rayford, Deborah Kennedy, Patricia Oâ€™Neal, Kelli Bell, David Kolb, Linda Braswell, Melodie Wadsworth, dy Pupo
er, Stephanie Hunter, Barry Haddix, Rebecca Andersen, Rosa Ortiz, Jorge Bustamante, Stephanie Chandler, Art Wood, Green, Claudette Ryall, Tonia Hooper, Bill Stewart, Mary Ann Spiegel, Mark Redlon, Gisli Magnusson, Matt Parr, Kendra Hill,
e Brady, Katherine Lilly, Laura Dohojda, Jackie, Smith, Steve Wildes, Jennifer Davis, Martha Dixie, Ken Schroeder, Evelyn Bent, onroe, Nikki Taylor, Lisa Barcinas, Brad Dedmon, Keith Walsky, Mark Jenkins, Leo Toban, Nancy Marcinek, Jose Jimenez,
Independent Auditorsâ€™ Report
March 28, 2008 To the Supervisory Committee of Southeast 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, membersâ€™ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Credit Unionâ€™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 statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial 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 & Co Orth, Chakler, Murnane & Company Certified Public Accountants
Consolidated Statements of Financial Condition ASSETS As of December 31, 2007 2006 Cash $283,295,329 $330,149,978 Other receivables 504,114 1,157,224 Investments: Available-for-sale 1,475,557,807 1,095,524,001 Other 2,311,237,729 2,086,678,124 Loans to members 89,935,328 117,238,545 Accrued interest receivable: Investments 23,710,612 18,797,512 Loans 212,532 436,709 Prepaid and other assets 7,159,727 6,909,896 Property and equipment 9,565,603 8,490,942 NCUSIF deposit 418,369 429,708 Total assets $4,201,597,150 $3,665,812,639
LIABILITIES AND MEMBERS’ EQUITY LIABILITIES: Members’ share and savings accounts Membership capital share deposits Member paid-in capital Borrowed funds Interest payable Accounts payable Other accrued liabilities Total liabilities Commitments and contingent liabilities MEMBERS’ EQUITY: Corporate reserve Undivided earnings Accumulated other comprehensive loss Minority interest Total members’ equity Total liabilities & members’ equity
As of December 31, 2007 2006 $3,756,254,586 81,803,292 20,192,948 219,846,363 24,335,159 8,639,422 3,655,466 4,114,727,236
$3,314,099,160 81,512,854 20,192,948 119,914,594 19,585,059 1,346,814 2,969,458 3,559,620,887
— 23,033,120 89,241,363 (25,651,171) 246,602 86,869,914 $4,201,597,150
— 23,033,120 82,936,173 (37,445) 259,904 106,191,752 $3,665,812,639
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Income INTEREST INCOME: Loans to members Investments Total interest income
$3,743,960 200,405,177 204,149,137
$5,977,621 151,021,158 156,998,779
179,632,524 7,969,570 187,602,094
137,178,828 6,368,327 143,547,155
NON-INTEREST INCOME: Fees and service charges Gain on disposition of property and equipment Gain on investments, net
8,872,754 91,074 689,518
8,324,203 295,177 —
NON-INTEREST EXPENSE: Compensation and employee benefits Office operating costs Professional and outside services Other Total non-interest expense
10,514,319 5,618,059 2,831,330 944,793 19,908,501
10,326,687 5,161,381 2,429,919 548,458 18,466,445
INTEREST EXPENSE: Members’ share and savings accounts Borrowed funds Total interest expense
Net income before minority interest
Net interest income
Total non-interest income
Consolidated Statements of Comprehensive Operations
For the years ended December 31, 2007 2006
NET INCOME: OTHER COMPREHENSIVE INCOME: Net unrealized holding gains on investments classified as available-for-sale Net unrealized holding gains on 457 plan investment classified as available-for-sale Reclassification adjustment for net (gains)/losses included in net income Other comprehensive (loss)/income
For the years ended December 31, 2007 2006
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Members’ Equity For the years ended December 31, 2007 and 2006
Balance, December 31, 2005 Net income Other comprehensive income Balance, December 31, 2006 Net income Other comprehensive loss Balance, December 31, 2007
Accumulated Other Undivided Comprehensive (Loss)/Income Earnings
($609,504) $101,652,624 — 3,707,165
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows For the years ended December 31, 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments: Depreciation Amortization of investment premiums/discounts Changes in operating assets and liabilities: Other receivables Accrued interest receivable Prepaid and other assets Interest payable Accounts payable Other accrued liabilities Minority interest Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities, sales and repayments of available-for-sale securities Purchase of available-for-sale securities Net change in other investments Net change in loans to members Expenditures for property and equipment Proceeds from the sale of property and equipment Change in NCUSIF deposit Net cash used in investing activities
653,110 (4,688,923) 282,606 4,750,100 7,292,608 686,008 (13,302) 13,310,459
580,918 (6,682,681) (306,292) 7,272,488 (114,455) 989,967 63,400 5,334,418
994,859,256 1,090,594,852 (1,397,525,166) (1,005,983,624) (224,559,605) (167,207,876) 27,303,217 31,378,010 (2,631,782) (4,763,889) â€” 1,001,611 11,339 (3,532) (602,542,741) (54,984,448)
CASH FLOWS FROM FINANCING ACTIVITIES: Net change in membersâ€™ share and savings accounts Net change in membership capital share deposits Net change in short-term borrowing Net cash provided by financing activities Net change in cash Cash at beginning of year Cash at end of year
442,155,426 290,438 99,931,769 542,377,633 (46,854,649) 330,149,978 $283,295,329
89,212,924 (2,109,180) 25,072,820 112,176,564 62,526,534 267,623,444 $330,149,978
SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid
SCHEDULE OF NON-CASH TRANSACTIONS: Changes in accumulated other comprehensive (loss)/income
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION-Southeast Corporate Federal Credit Union (the “Credit Union”) is a cooperative association organized 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 represented 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 estimates 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 particularly 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 information, 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 component 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 calculated 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 accumulated 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 onetwelfth 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, membership 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 accordance 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.
Notes to the Consolidated Financial Statements Continued... NOTE 2: INVESTMENTS The amortized cost and estimated market value of investments are as follows:
Amortized Available-for-sale: Cost
As of December 31, 2007 Gross Gross Unrealized Unrealized Market Gains Losses Value
Asset-backed securities Private issue mortgagebacked securities Fed agency mortgagebacked securities Municipal securities Notes receivable Fed agency securities
$878,985,752 334,914,724 175,697,603 20,000,000 77,461,467 15,775,704 $1,502,835,250
Amortized Available-for-sale: Cost Asset-backed securities Private issue mortgage- backed securities Fed agency mortgagebacked securities Notes receivable Municipal securities Fed agency securities
233,062 (225,844) 175,704,821 — — 20,000,000 3,128 (400,700) 77,063,895 12,228 (40,133) 15,747,799 $1,662,809 ($28,940,252) $1,475,557,807 As of December 31, 2006 Gross Gross Unrealized Unrealized Market Gains Losses Value
220,148,576 28,500,000 30,000,000 7,070,212 $1,096,655,281
171,482 (355,392) 219,964,666 — (639,750) 27,860,250 — (600) 29,999,400 — (99,836) 6,970,376 $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 Gross Gross Fair Unrealized Fair Unrealized Value Losses Value Losses
Total Gross Fair Unrealized Value Losses Asset-backed securities $419,630,718 ($18,744,454) $50,419,542 ($1,263,229) $470,050,260 ($20,007,683) Fed agency mortgagebacked securities 19,148,596 (36,026) 63,483,690 (189,818) 82,632,286 (225,844) Private issue mortgagebacked 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)
Notes to the Consolidated Financial Statements Continued... 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.
Other investments: U.S. Central Credit Union: Daily shares Membership shares Certificates of deposit Paid-in capital Community investment fund Repurchase agreement Certificates of deposit Credit Union Service Organizations
As of December 31, 2007 2006 $234,047,459 59,927,162 1,967,836,640 41,335,000 5,640,000 — 1,996,000 455,468 $2,311,237,729
$739,911,107 41,448,415 1,099,020,035 41,335,000 5,640,000 153,864,282 4,990,000 469,285 $2,086,678,124
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.
A s of December 31, 2007 Amortized Market Available-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
Notes to the Consolidated Financial Statements Continued... NOTE 3: LOANS TO MEMBERS The composition of loans to members is as follows: As of December 31, 2007 2006
Loans outstanding: Demand Settlement Share secured Collateralized loans
$22,312,000 1,604,188 750,000 65,269,140 $89,935,328
$26,410,959 6,327,586 750,000 83,750,000 $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 Buildings Furniture and equipment Data processing equipment Leasehold improvements Construction in progress Less accumulated depreciation and amortization
$1,752,393 4,997,272 2,273,532 5,771,367 199,091 — 14,993,655 (5,428,052) $9,565,603
$— — 1,239,206 5,947,405 181,056 5,239,997 12,607,664 (4,116,722) $8,490,942
NOTE 5: MEMBERS’ SHARE AND SAVINGS ACCOUNTS Members’ share and savings accounts are summarized as follows: Transaction accounts Unapplied shares Funds plus CIF variable rate shares Managed investment accounts Collateral share accounts Certificates
A s of December 31, 2007 2006 $197,656,172 269,490,062 1,471,685,890 5,640,000 127,762,846 2,888,765 1,681,130,851 $3,756,254,586
$159,855,891 296,221,222 1,519,532,558 5,640,000 127,209,278 2,788,915 1,202,851,296 $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 $1,227,942,705 1 to 2 years 253,601,864 2 to 3 years 101,965,361 3 to 4 years 36,945,921 4 to 5 years 60,675,000 Thereafter — $1,681,130,851 SHARE INSURANCE Members’ shares are insured by the NCUSIF to a maximum of $100,000 for each member.
Notes to the Consolidated Financial Statements Continued... NOTE 6: BORROWED FUNDS Borrowed funds are summarized as follows:
As of December 31, 2007 2006 Weighted Weighted Average Average Rate Balance Rate Balance
Loans from U.S. Central CU: Commercial paper (due Jan. 2008) Commercial paper (due Jan. 2007) Central Liquidity Facility Term (due Dec. 2008) Term (due March 2009) Repurchase note (due Aug. 2009)
3.66% 20,000,000 4.52% 100,000,000 3.89% 25,000,000 $219,846,363
3.66% — 3.89%
20,000,000 — 25,000,000 $119,914,594
NOTE 7: EMPLOYEE BENEFITS 401(k) Plan All 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 BENEFITS The Credit Union has a post retirement benefit plan which pays for 100% of the employees’ health care and life insurance premiums subsequent to retirement. Employees attaining at least age 55 and 20 years of service are eligible for a pro rata share of full benefits. Employees of the Credit Union are eligible for full benefits under this plan upon attaining age 65 and 20 years of service. The Credit Union has accrued a liability for this obligation; however, the Credit Union is not required to, and does not make cash contributions to the plan. The following table sets forth the plan’s status and amounts recognized in the Credit Union’s consolidated statements of financial condition: As of December 31, 2007 2006 Accumulated post retirement benefit obligation Plan assets at fair value Funded status Unrecognized net actuarial loss Accrued pension benefit cost
($963,464) — (963,464) — ($963,464)
($1,008,178) — (1,008,178) 236,311 ($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 Expected long-term return on plan assets Rate of compensation increase
5.75% 5.75% 4.00%
6.00% 6.00% 4.00%
Notes to the Consolidated Financial Statements Continued... NOTE 8: (continued) The following benefit payments are expected to be paid:
Year ending December 31,
2008 2009 2010 2011 2012 2013-2017
Amount $13,000 16,000 20,000 26,000 29,000 213,000 $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, 2008 2009 Thereafter
Amount $239,000 185,000 — $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 excess 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 expiration dates or other termination clauses. Since many of the commitments may expire without 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.
Notes to the Consolidated Financial Statements Continued... 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 December 31, 2007
As of December 31, 2006
Amount Ratio Amount Ratio Capital 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 Retained earnings ratio: Actual retained earnings Required retained earnings
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 market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily 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. CASH The carrying amount is a reasonable estimation of fair value. INVESTMENTS Estimated 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 MEMBERS The 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 RECEIVABLE The carrying amount is a reasonable estimation of fair value.
Notes to the Consolidated Financial Statements Continued... NOTE 12: (continued) MEMBERS’ SHARE AND SAVINGS ACCOUNTS, CAPITAL SHARES, AND PAID-IN CAPITAL The estimated fair value of demand deposit accounts is the carrying amount. The fair value of fixedrate certificates was estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued. BORROWED FUNDS The estimated fair value of borrowed funds is the carrying amount due to the short-term nature of the borrowing. INTEREST PAYABLE The carrying amount is a reasonable estimation of fair value. COMMITMENTS TO EXTEND CREDIT The 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 $2,083,437,220 Loans 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
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.
Dorothy Joyce Bible 1947-2007 Lani Elise Holston 1968-2007
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.
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.
3692 Coolidge Court Tallahassee, Florida 32311 850.576.8900 • 800.342.0203
8400 Baymeadows Way #18 Jacksonville, Florida 32256 904.861.2565 • 866.829.7528