2006 ORNL FCU Annual Report

ANDERSON COUNTY

Oak Ridge Main Office221 S. Rutgers Avenue

Oak Ridge Wal-Mart 373 S. Illinois Avenue

Clinton 1117 N. Charles Seivers Blvd

KNOX COUNTY

North Knoxville 808 Victor Drive

West Knoxville 8721 Kingston Pike

Middlebrook Food City 9565 Middlebrook Pike

East Knoxville 2321 East Magnolia

South Knoxville7325 Chapman Highway

Farragut 11405 Municipal Center Drive

Fountain CityNorthgate Plaza Shopping Center4330 N. Broadway

Karns7228 Oak Ridge Highway

Halls 4510 Emory Road

Powell Kroger6702 Clinton Highway

Millertown Pike5409 Millertown Pike

ROANE COUNTY

Kingston 1204 N. Kentucky Street

Oak Ridge National Lab P.O. Box 365

Rockwood Wal-Mart1102 N. Gateway Avenue

LOUDON COUNTY

Lenoir City 895 Highway 321 North

BLOUNT COUNTY

Alcoa 103 Hamilton Crossing Drive

Maryville 1743 West Broadway

Maryville Wal-Mart2401 US Hwy. 411 South

MONROE COUNTY

Madisonville 111 Kefauver Lane423-442-6061

HAMBLEN COUNTY

Morristown 1730 West Andrew Johnson Hwy.423-581-9800

SEVIER COUNTY

Sevierville 502 Dolly Parton Parkway

NCUANational Credit Union Administration,

a U.S. Government Agency.

Your savings insured to 100,000

EQUAL HOUSINGOPPORTUNITY

Telephone: 865-688-9555Or toll-free: 1-800-676-5328

*All locations except Madisonville and Morristown

CyberBranchTM

http://www.ornlfcu.com

Printed on recyclable paper.

ooking back on your credit union’s

performance throughout 2006, I am proud to

report another prosperous year. Perhaps

the best way to describe the past year is

one of consistent growth. New branches

were opened, many were remodeled

to increase the level of service they

provide, and plans were set in place for

additional branches in 2007.

Already, many of your friends and neighbors

have taken advantage of the convenience a growing

branch network affords them. This is reflected

in the numbers of new members we attracted in

2006. During the year, membership increased

by 10.58%, or 11,627 members. Total membership at

year-end was 121,478.

Loan and deposit growth was also strong during

2006. Although the nation experienced slower

economic growth, including a slowdown in the

housing market and a decrease in consumer spending,

ORNL Federal Credit Union loans outstanding

grew $55.4 million, or 7.91%, to finish the year at

$759.0 million. Deposits grew by $98.6 million,

or 13.49%. At year-end, our deposits totaled

$829.1 million. Total assets for the

credit union grew by $102 million,

or 11.60%, to a year-end total of

$980.9 million.

ORNL FCU was once again voted

Best Credit Union in 2006 by both

the Knoxville News-Sentinel and the

Oak Ridger’s readers’ polls. This continued confidence

and satisfaction with your credit union is largely due to

our staff’s ongoing efforts to provide superior service

and convenience to you and all of our members.

As part of our effort to provide the greatest level

of service and convenience possible, four new branches

were opened in 2006. Early in the year, we expanded

to the Sevierville area and, soon after, celebrated the

L

...the best way to describe the past year is one

of consistent growth.

— continued on page 2 —

opening of an in-store branch located within the Kroger

store in the Powell community. Later in the year, to

better serve members in the Harriman and Rockwood

area, a new office was opened within the Rockwood

Wal-Mart. And, in November, a new

East Knoxville branch was opened at

5409 Millertown Pike. Our Oak Ridge

Wal-Mart location was also given a

new look in 2006 to help provide

members visiting the branch even greater convenience.

Also, during 2006, we expanded Saturday hours at our

Farragut, Clinton, and Oak Ridge branches to better

accommodate those members taking advantage of our

convenient weekend hours.

As we look forward to the new year, many

plans are in place for new branch locations.

Ground was broken in October for a new branch in

Alcoa, with plans for a tentative opening date of

March 2007. Another Blount County branch is set to

open within the Maryville Wal-Mart in March. A month

later, our Fountain City Branch is set to relocate to

Fountain City’s new Shoppes at Fountain View. And in

May, our East Knoxville office will be able to provide

greater access to members in the East Knoxville area by

relocating to a larger, stand-alone, full-service facility.

Many product and service enhancements were

introduced during 2006. In July, we began offering

Health Savings Accounts (HSAs), designed

to help individuals and families with high

deductible health plans.

Many members have

already taken advantage

of the convenient, tax-free distributions

these accounts provide. Months later,

we introduced our BALANCE Financial

Fitness Program in an effort to assist

members in realizing their financial

goals by reducing debt, saving for higher

education, or planning for retirement.

Over 250 members have already looked to

the BALANCE Program’s unbiased money

management information and assistance for guidance.

Late in the year, we rolled out a new web site

design that provided members easier navigation

and more online tools than ever before. For

example, our new HomeValueBot service provides

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...we rolled out a new web site design

that provided members easier

navigation...

— continued from page 1 —

2 3— continued on page 4 —

site visitors instant, free estimates

of their home values. Users can even

enter an e-mail address to have

updated home valuations sent to them

quarterly. Through our partnership with

Credit Union Direct Lending (CUDL), our

new CUDL AutoSMART program provides

members with tools to research a vehicle,

locate a dealer, have dealers compete

for their business, and find information

about credit union financing.

As part of our ongoing financial

education effort, podcasts were also

added to our new web site design. With

the ability to listen online or download,

our podcasts provide financial education

to help members make informed financial

decisions. Web site visitors can even

subscribe to and receive ORNL FCU podcasts automatically

as they are posted each month.

After two years of success with our Credit Union

Service Organization (CUSO), Affinity Title Company, your

credit union created CU Community Insurance, LLC, in

the summer of 2006. CU Community

Insurance, LLC, was established to offer

members a convenient, low-cost choice

for homeowners, renters, and auto

insurance. The success of our Affinity

Title Company and the startup of

CU Community Insurance, LLC, has prompted us to

continue to look into other related areas of business

for further expansion of our CUSO.

As part of the credit union’s overall community

involvement efforts, we are pleased to be moving

into our fourth year as presenting sponsor of the

Dogwood Arts Festival. We continue to be proud of

this event’s accomplishments in relation to youth arts

education and support of other local organizations.

The year 2006 was also our 15th year

offering the B.A. Candler/ORNL Federal

Credit Union Scholarship to the University of

Tennessee. Each year, one deserving student

receives $1,000 toward school related expenses.

And, of course, we continue our involvement in the

Partners-In-Education and Junior Achievement programs

throughout our 16-county community.

...we are pleased tobe moving into

our fourth year as presenting sponsor

of the DogwoodArts Festival.

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— continued from page 3 —

On February 1, 2006, Knoxville city officials,

credit union staff and Knox County school leaders were

delighted to open the area’s first in-school, student-

run credit union. Located within the Austin-East Magnet

High School, the branch is staffed by students, under

the coordination of school and ORNL FCU staff. It serves

the students and faculty

of Austin-East. The goals

of this program are to

provide real-world, hands-

on experience to the

student staffers and to

provide savings programs

and incentives for students

to learn how to save

regularly. The student-run

credit union plays a major

role in the new Academy of Business

and Finance curriculum adopted by

the school.

Since establishing a partnership with the Tennessee

Conference for Community Development, in May 2005,

your credit union continues to work, in collaboration

with the City of Knoxville, Federal Home Loan Bank,

Fannie Mae and the Knox Housing Partnership, to

assist low to moderate income families with first-time

home purchases.

As we look back on our growth and success in 2006, we

look forward to 2007 and

the opportunity the year

brings for us to expand in

reaching even more of your

friends and neighbors. Be

assured, that although we

have grown tremendously

since obtaining our

community charter in

2002, we will never lose

sight of what has brought

us to where we are today — you,

our member-owners. On behalf of

the credit union staff and officials,

thank you for trusting ORNL Federal Credit Union as your

financial service provider and financial partner.

...we will never lose sight of what has brought us to where we are

today — you, our member-owners.

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Statement of Financial Condition Assets 2006 2005 Cash and cash equivalents $63,006,196 $49,767,191Investments $114,443,186 $91,195,359 Loans to members, net of the $740,452,887 $686,301,797 allowance for loan losses Loans held for sale $15,922,578 $14,639,894 Accrued interest receivable $3,588,498 $3,026,641 Property and equipment $25,830,249 $19,607,410 National Credit Union Share $7,239,491 $6,295,053 Insurance Fund deposit Other assets $10,485,174 $8,179,062 TOTAL ASSETS $980,968,259 $879,012,407

Liabilities &Members' Equity Liabilities Members’ shares $829,148,393 $730,578,920 Accrued expenses and $16,372,105 $13,735,573 other liabilities Federal Home Loan Bank $33,997,470 $41,381,526 advances Total Liabilities $879,517,968 $785,696,019 Members' Equity

Retained Earnings $101,450,291 $93,316,388 TOTAL LIABILITIES & EQUITY $980,968,259 $879,012,407

Statement of Income and Expense Income 2006 2005

Interest Income

Interest on loans to members $44,006,431 $36,910,973Interest on investments $5,227,059 $3,499,168 and cash equivalents Total Interest Income $49,233,490 $40,410,141 Interest Expense

Dividends on members’ shares $20,027,428 $13,604,194Interest paid on borrowed funds $1,546,913 $1,646,706Total Interest Expense $21,574,341 $15,250,900

Net Interest Income $27,659,149 $25,159,241

Provision for Loan Losses $1,450,885 $2,692,580

Net Interest Income After Provision for Loan Losses $26,208,264 $22,466,661

Non-Interest Income $14,864,853 $14,056,442

Income Before General and Administrative Expenses $41,073,117 $36,523,103 General and Administrative Expenses Salaries and benefits $18,030,534 $15,651,224Operations $11,154,137 $9,066,375Occupancy $2,465,236 $1,994,584Other $2,065,362 $1,983,416 TOTAL EXPENSES $33,715,269 $28,695,599

NET INCOME $7,357,848 $7,827,504

NOTES TO FINANCIAL STATEMENTS 1. Cash and Cash Equivalents - Cash and cash equivalents consist of cash on hand, demand deposits, money market funds and non-term share deposits in Volunteer Corporate Credit Union. 2. Investments - Investments consist primarily of government agency securities, mortgage-backed securities and term deposits at other insured financial institutions. 3. Loans to Members 12/31/06 12/31/05

First Mortgage Real Estate $269,084,654 $259,829,475 Other Real Estate $116,300,405 $84,118,744 Member Business $62,096,064 $46,981,291 Automobile $264,196,257 $263,210,123 Unsecured $18,532,416 $20,038,691 Other Loans $28,796,430 $29,736,861 $759,006,226 $703,915,185 Allowance for Loan Losses $(2,630,761) $(2,973,494) $756,375,465 $700,941,691

4. Loan Servicing - Mortgage loans sold to FNMA are not included in the accompanying statements of financial condition. The unpaid principal balances as of December 31, 2006, and 2005, were $157,960,488 and $133,758,433 respectively.

5. National Credit Union Share Insurance Fund (NCUSIF) Deposit - The deposit in the NCUSIF is in accordance with the National Credit Union Administration regulations, which requires a deposit by each federally insured credit union in an amount equal to 1% of its insured members’ shares.

6. Federal Home Loan Bank Advances - FHLB advances are payable in monthly installments of principal and interest. The average cost in 2006 was 4.12%. Interest paid is included in interest expense on the Statement of Income. Advances are used to fund members’ fixed rate first mortgage loans.

7. Consolidated Statements - The credit union wholly owns CU Community, LLC, a credit union service organization. The credit union’s financial statements are consolidated as required by generally accepted accounting principles.

8. Members’ Shares 12/31/06 12/31/05

Regular Share Accounts $152,628,858 $152,856,499 Share Draft Accounts $113,768,141 $105,709,178 Money Market Accounts $114,441,550 $130,927,912 IRAs $75,611,291 $63,937,729 Certificates $372,698,553 $277,147,602

$829,148,393 $730,578,920

YEAR ENDING DECEMBER 31, 2006

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20032002 2004 2005 2006

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

980.9

20032002 2004 2005 2006

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

829.1

(in millions)

(in millions)

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20032002 2004 2005 2006

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

759.0

20032002 2004 2005 2006

120

110

100

90

80

70

60

50

40

121,478

(in thousands)

(in millions)

he Supervisory Committee, which is

appointed by the Board of Directors of

ORNL FCU, is responsible for ensuring that

the credit union’s financial records are in order and that

internal controls are in place to protect the assets of the

credit union for its members. The Supervisory Committee

does this by conducting financial audits and by regular

testing of internal controls.

To assist us in carrying out these responsibilities

this past year, the committee engaged the firm

of McGladrey and Pullen, CPAs, to perform

an independent audit and to provide an opinion

on the financial condition of your credit union

for the period ending 12/31/2006. The goals

of this audit are to determine the reliability

and integrity of the financial and operating

information and to determine compliance

with generally accepted accounting

principles (GAAP). Independent audit findings

are helpful in our oversight of credit union

activities. The committee also engaged

CastleGarde to perform an internal vulnerability

T

he Nominating Committee reviewed the qualifications of members who submitted their names for consideration as candidates for the

Board of Directors. The three positions are to be filled by online voting from February 13 through February 22, prior to our credit union’s 59th Annual Meeting. We hereby nominate the following four individuals who we believe will serve the credit union in the best interests of the members. The order in which their names appear was determined by a random drawing.

Respecfully submitted,ORNL FCU Nominating CommitteeHerb Debban, ChairmanJoseph A. Setaro and Crystal Schrof

T Samuel P. McKenzie

James E. Payne

Marcella C. Catron

Karla J. Gaither

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assessment. CastleGarde was also responsible for

performing quarterly intrusion testing.

An Internal Audit Program, under the

direction of the Supervisory Committee,

provides an ongoing review of compliance

with policies and procedures. This program

includes an annual inspection of internal

controls, cash, member loans, and other

assets of your credit union. The audit program

for the year 2006 was completed as planned

with no unresolved issues.

The Supervisory Committee followed and

offered guidance to our internal auditing function

during the year. It approved the annual internal

audit plan, participated in training programs, and

met with credit union officers to discuss detailed

operational information.

The committee is pleased to report your credit union

continues a tradition of excellent financial management

and compliance.

1/ CALL TO ORDER a. Welcome b. Quorum determination

2/ MINUTES OF 58TH ANNUAL MEETING

3/ REPORTS a. Chairman b. Treasurer c. Supervisory Committee

4/ ANNOUNCEMENT OF ELECTION RESULTS Introduction of newly elected Board Members

5/ OLD BUSINESS

6/ NEW BUSINESS

7/ ADJOURNMENT

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Call to Order

a. WELCOME. The 58th Annual Meeting of the ORNL Federal Credit Union (operating under NCUA Charter No. 5797) was called to order at 7:30PM by Mason Oakes, Chair of the Board of Directors. Members of the Veterans United Honor Guard under the direction of Ralph Hendrix presented colors and led the pledge of allegiance. Director Katie Wolfe Zahn led members of the Sound Company Children’s Performing Choir of Oak Ridge in singing the national anthem and other selections.

Mason Oakes introduced President and Chief Executive Officer, John D. McKittrick; current board members, and members of the Supervisory Committee. He thanked members of other committees and volunteers as listed in the printed report. He stated that the purposes of the meeting were to elect board members, report to the membership, and award prizes.

b. QUORUM DETERMINATION. There were 387 members present, more than enough to constitute a quorum.

Minutes of the 57th Annual Meeting

A motion was made, seconded, and passed to approve the minutes as written.

Election

a. REPORT OF THE NOMINATING COMMITTEE. Members of the committee were Ben Smith, Chairman; Mary Beth Blair; and J. Grant Stradley. Smith referred to the Committee’s report as published in the 2005 Annual Report. He stated that the committee received seven candidate applications, with all applicants being highly qualified, and selected five. Nominees were Randy Gorman, Bill Grimmell, Jama B. Hill, Samuel P. McKenzie, and Leigha Stewart.

b. ANNOUNCEMENT OF ELECTION RESULTS. Cindy Spence, member of the Supervisory Committee, stated that 2,747 members voted, and she announced the following results of electronic/paper voting prior to the meeting:

Jama B. Hill 804 Leigha Stewart 659 Randy Gorman 564

Samuel P. McKenzie 531 Bill Grimmell 189

Oakes congratulated Jama Hill, Leigha Stewart, and Randy Gorman on their election.

Reports

A 12-minute audio-visual presentation on the credit union’s activities during 2005 was shown. Oakes thanked Larry Jones and members of the Marketing Department for producing the audio-visual report.

a. CHAIR. Mason Oakes referred to the printed report and to the audiovisual presentation. He said that staff members have worked really hard, and that we had a very good year. He called for questions, but there were none.

March 9, 2006

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b. TREASURER. Marcella Catron agreed with Oakes that this has been a good year for the credit union. She referred to the printed Treasurer’s report, and called for questions, but there were none.

c. SUPERVISORY COMMITTEE. Chair Randy Gorman referred to the Committee’s printed report and stated that he had one thing to add. He stated that the external auditors, McGladrey and Pullen, were here this week. The committee met with them this afternoon and received a full report. ORNL-FCU received an excellent report, with no findings.

Old Business

PRESENTATIONS. Oakes presented framed Dogwood Arts prints to Bettie Kurtz and Joe Setaro who chose to retire from the board this year. He expressed appreciation to them for their many years of service to ORNL Federal Credit Union.

New Business

Member Lewis Emerson asked why the credit union has stopped its past service of providing assistance to members who were purchasing new vehicles. John McKittrick stated that a library of car facts is no longer kept since so much information is now available on-line, but staff members are trained to assist when requested. Member John Clarke requested that ORNL FCU keep recognizing Mrs. Davis, its first employee and manager.

Drawing of Door Prizes.

Marcy Catron conducted the drawing, assisted by Herb Debban and Mason Oakes. Twenty-nine cash prizes totaling $1,500 were awarded by drawing names of attending members from a barrel. Also awarded was a $1,500 Travel Gift Certificate from American Express World Travel in Knoxville.

Catron read the rules, which state that members must be present to win. Names were drawn from the barrel by Jamie Antrican, daughter of employee Melanie Antrican. The winners were:

$100 Peggy Mitchell $50 Alvin L. Sharp $100 Paul S. Rohwer $50 Wendy Packan $100 Teresa Fancher $25 Helen Brown $100 Kyle R. Spence $25 Ashley Bryant $100 Jon A. Loftis $25 Kathy Wilson $100 Delores Doff $25 Daniel Claus $100 Doyle H. Cole $25 Diane Maddox $50 Joan Leffew $25 Donald Wright $50 Joel Pearman $25 Faye Wallace $50 Rosa Trivette $25 J. C. White $50 Martha Drewry $25 Ernest Shepherd $50 Mason Oakes $25 John Steward $50 Donna Beeco $25 B. G. Graham $50 Anne Belland $25 Denise Metcalf $50 Linda Morris

All names were then returned to the barrel before the

drawing for the grand prize, which was a $1,500 travel gift certificate from American Express World Travel of Knoxville. Mary Brooks was the winner of the grand prize.

Adjournment.

The meeting was adjourned at 8:20PM, after which a reception, catered by Judy Dodd, was held for members in the High School Cafeteria.

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BOARD OF DIRECTORSMason Oakes, ChairmanHerb Debban, Vice-ChairmanMarcella Catron, TreasurerWanda McCrosky, SecretaryRandy GormanJ. Robert Hightower, Jr.Jama HillBen B. SmithLeigha Stewart

Mary Helen Rose, Recording Secretary

SUPERVISORY COMMITTEECindy Spence, ChairmanDavid A. Watkins, SecretaryJeff AultJames McKinleyJoel E. Pearman

NOMINATING & ELECTION COMMITTEEHerb Debban, ChairmanCrystal SchrofJoseph A. Setaro

POLICY & GOVERNANCE COMMITTEEWanda McCrosky, ChairmanRandy GormanJ. Robert Hightower, Jr.Jama HillBen B. SmithLeigha Stewart

PENSION PLANNING COMMITTEEMason Oakes, Chairman and TrusteeSally Jaunsen Freels, TrusteeJ. Robert Hightower, Jr.Ben B. SmithMary Yoder

LEGISLATIVE AND GOVERNMENTAL AFFAIRS COMMITTEEBen B. Smith, ChairmanJ. Robert Hightower, Jr.Leigha Stewart

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John D. McKittrick, President

Dennis Bowker, Senior Vice-President, Finance

Chris Johnson, Senior Vice-President

Larry A. Jones, Senior Vice-President

R. Taylor Scott, Senior Vice-President

Maxine W. Allen, Vice-President, Mortgage Lending

Dawn Brummett, Vice-President, Member Services

David Farmer, Vice-President, New Branch Development

Clay Kearley, Vice-President, Consumer Lending

Michael McKnight, Vice-President, Chief Technology Officer

Brenda Owensby, Vice-President, Human Resources

C. Ed Samsel, Vice-President, Member Business Services

Janita Clausell, Assistant Vice-President, Member Services

Stacey Foster, Assistant Vice-President,

Fraud & Forgery, Security

Andrea Griffitts, Assistant Vice-President, Audit Services

Lori Ihle, Assistant Vice-President, Member Services

Vickie Kitts, Assistant Vice-President, Loan Servicing,

Collections

Melissa McMahan, Assistant Vice-President,

Remote Service Delivery

Lisa Taylor, Assistant Vice-President, Controller

Tom Wright, Assistant Vice-President,

Marketing and Community Relations

Jean Eiler, Security Officer

Vicki Cox, Manager, Consumer Loan Quality

Tod Elam, Manager, Collections

Chris Fox, Manager, Information Technology

Emily Gibson, Manager, Indirect Lending

Karen Lawrence, Manager, Sales

Janet Martin, Manager, Contact Center

Brian Mullins, Manager, MEMBERS Financial Services

Renee Pemberton, Manager, eServices

Rochelle Pettus, Manager, Operating/

Deposit Servicing

Trish Seiber, Manager, Mortgage Servicing

Tim Sirman, Manager, Facilities

Melanie Walsh, Manager, Staffing

Joy Wilson, Manager, Technical Training, Oak Ridge

Anne Belland, Branch Manager, Powell Kroger

Ryan Bennett, Branch Manager, Oak Ridge National Lab

Debra Brown, Branch Manager, Clinton

Amy Chesney, Branch Manager, Fountain City

Michael Dennis, Branch Manager, Sevierville

Barbie Evans, Branch Manager, Morristown

Linda Evans, Branch Manager, Maryville

Tommy G’Fellers, Branch Manager, South Knoxville

Debbie Hankins, Branch Manager, Oak Ridge Wal-Mart

John Hassell, Branch Manager, Madisonville

Vickie Hill, Branch Manager, Millertown Pike

Susie Jones, Branch Manager, Floater

Michelle Leach, Branch Manager, North Knoxville

Amanda Mahan, Branch Manager,

Middlebrook Food City

Gale Pace, Branch Manager, Farragut

Cissi Reagan, Branch Manager, Halls

Angel Scott, Branch Manager, West Knoxville

LaTanya Terrell, Branch Manager, East Knoxville

Don Thaler, Branch Manager, Lenoir City

Harriet Walker, Branch Manager, Kingston, Rockwood

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