2008 ORNL FCU Annual Report

60 Years of Tradition2008 Annual Report

Oak Ridge Groundbreaking 1969

Chairman’s Reportpg 1-3pg 4-5pg 6-7pg 8-9

pg 10pg 11

pg 12-13

Treasurer’s Report

Nominating Committee Report, Annual Meeting Agenda, Supervisory Committee Report

Minutes of the 60th Annual Meeting of The Membership

Officials

Management

Branch Locations

2008 Annual Report

n August 6, 2008, ORNL Federal Credit Union

officially celebrated 60 years of member

service. We’ve grown from one small office in

Oak Ridge to 31 branches located throughout

our 16 county community. Despite the economic

instability during 2008, ORNL Federal Credit

Union continued steady growth and performance

throughout the year.

Member loyalty played a key

role in membership growth during

2008, and we are committed to

maintaining the level of trust

you have in us. A 10.9% growth in

membership ended the year with

a total membership of 148,183.

That’s up by 14,619 members

from last year. And we hope you

will continue to spread the word

to your friends and family about

credit union membership.

Growth in both deposits and loans finished well

above our projections for the year. Our deposit

growth increased substantially with many people

leaving behind risky investments and moving to

the safety of ORNL Federal Credit Union. Total

deposits grew $143.9 million, or 16%, to a year-

end total of $1.037 billion. Although a sluggish

economy slowed loan growth throughout the

year, loans outstanding increased $141.4 million, or

16.6%, to a year-end total of $995.9 million. Finally,

our assets continue to grow and exceed the $1

billion mark. Total assets for the credit union grew

$167.9 million, or 15.9%, to a year-end total of $1.222

billion.

Our mission statement, “Enabling members to

achieve their financial goals by being there when,

where, and how they need us” demonstrates our

commitment to convenience for

our membership. Often times,

members find it difficult at the

end of their work day to make it

to a branch before closing. Our

in-store branches with extended

hours have proven to satisfy the

many members with varying work

schedules. A total of eight new

branches were opened in 2008—

five were in-store branches.

The year began with the opening of the in-store

branches at both the Kroger on Northshore Drive

and the Food City on Morrell Road in Knoxville

on March 10th. Later that month we branched

out into Campbell County as our stand-alone

LaFollette office opened near Woodson’s Mall on

March 17th. And on May 12th, we opened a new

stand-alone branch in the Bearden area that offers

convenient entrances and exits on both Kingston

Pike and Sutherland Avenue.

O

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Chairman’s Report 2008

Chairman’s Report 2008

As membership has simply outgrown our

storefront branch in Madisonville, we relocated to

a stand-alone office on July 28th providing drive-up

services and safe deposit boxes to our members

in that area. On August 27th,

we opened a location in the

new Maynardville Food City,

and on October 6th, our 30th

branch opened inside the

new Kroger Marketplace in

Farragut. Our 31st and final

branch to open for the year

is located within the new

Food City store in Lenoir

City and opened November

12th. Located near our

other Lenoir City Branch,

this new in-store branch, like the others, offers

the convenience of extended hours.

Although many members enjoy the

convenience of our expansive branch network,

the Internet has significantly changed the way

members do business with the credit union. It

provides a convenience that many members

can no longer live without. To help protect

members who do most of their business online,

we partnered with CSIdentity early in the year to

offer identity theft protection. For a nominal fee

CSIdentity monitors your personal information

on the Web and alerts you of anything suspicious.

And later in the year we began offering electronic

statements, or e-Statements, to our membership.

Now, with your home computer, you can view your

monthly statement online and also download,

store, and upload your statement to popular

accounting software. This new

service offers faster delivery of

your information and even better,

it cuts down on paper use!

Our Credit Union Service

Organization, CU Community, LLC,

continues to help hundreds of

members find a better rate on their

auto, home, and business insurance

through CU Community Insurance.

And, our CU Community Title

company and mortgage origination

services grow stronger as they not

only provide title and servicing support to ORNL

FCU, but to other area credit unions needing title

and insurance services.

Your credit union continued its mission to

serve as a good corporate citizen throughout

2008. We started the year with the Dogwood

Arts Festival and its House and Garden Show.

Money raised from the Dogwood Arts is used to

assist with the arts in area schools. Something

new for us in 2008 was our Document Shred Day

we held in the spring and fall. The community

was delighted at the convenience of ridding

their homes of sensitive documents safely and

securely. During the summer months several

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Chairman’s Report 2008

of our employees headed up the Camp Money

Matters: Financial Literacy Program. Local teens

were able to learn different aspects of finance in

a week-long, fun classroom setting at our main

office and at our West Knoxville office. At the end

of the week, the teens participated in a graduation

ceremony and were awarded a certificate. As

always, we have a strong presence of community

involvement with local schools. ORNL Federal

Credit Union is committed to helping local schools

by supporting their events and athletic programs,

teaching Junior Achievement classes that help

the students become better citizens, and

providing scholarships

to both the University

of Tennessee and

community colleges.

Despite the fact that

2008 was indeed a year

of turbulent economic

change, ORNL Federal

Credit Union felt it was a

priority to maintain good

corporate citizenship.

From the West to the

East coast, consumers began

to feel the fallout from the subprime debacle

and the following Wall Street meltdown. And

with all the bank failures, buyouts, and bailouts,

consumers were left confused on what to do with

their personal finances—even for loans, as the

media continued to say financial institutions were

tightening, and in some cases, ceasing lending.

We knew both members and non-members alike

were overextending their credit. We began to see

delinquencies on the rise and credit quality on the

decline.

In the fall of 2008 we began our Borrow Smart.

Save Smarter.TM campaign. We knew it was time to

help our members and non-members get back to

the basics of smart borrowing and saving—to the

basics of establishing both short and long term

savings goals, consolidating debt, and borrowing

within one’s means. We quickly

began to receive an overwhelming

response from staff and the

community. It is the goal of being a

trusted financial resource that will

drive us into 2009. We will continue

to expand this program to reach

out to our communities. And we

look forward to continuing to

serve you, our member-owners,

your friends and family, and

the many who will turn to your

credit union for help during

2009. On behalf of ORNL Federal Credit

Union’s Board of Directors and staff, thank you for

your loyalty and for making us your first choice as

a financial partner and service provider.

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Treasurer’s Report 2008

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 12/31/08 12/31/07 First Mortgage Real Estate $331,766,413 $275,441,167 Other Real Estate $161,775,303 $149,294,098 Member Business $110,343,970 $ 79,250,128 Automobile $330,401,477 $295,722,626 Unsecured $ 21,429,950 $ 20,411,824 Other Loans $ 40,180,010 $ 34,348,895 $995,897,123 $854,468,738 Allowance for Loan Losses $ (4,705,159) $ (2,911,277) $991,191,964 $851,557,461

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, 2008 and 2007, were $256,203,873 and $193,941,119, 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 2008 was 3.82%. Interest paid is included in interest expense on the Statement of Income. Advances are used primarily 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 Principals (GAAP).

8. Members’ Shares 12/31/08 12/31/07 Regular Share Accounts $170,885,723 $152,529,487Share Draft Accounts $130,612,096 $119,854,442Money Market Accounts $137,387,669 $112,602,607IRAs $104,678,315 $ 83,720,571Certificates $493,766,452 $424,740,791 $1,037,330,255 $893,447,898

YEAR ENDING DECEMBER 31, 2008

Statement of Financial Condition

Assets 2008 2007Cash and cash equivalents $ 50,964,239 $ 57,002,594 Investments $ 120,574,244 $ 90,899,718Loans to members, net of the $ 977,910,206 $833,249,164 allowance for loan lossesLoans held for sale $ 13,281,758 $ 18,308,297Accrued interest receivable $ 4,159,874 $ 3,853,976Property and equipment $ 38,246,193 $ 31,875,768National Credit Union Share $ 8,679,594 $ 7,691,495 Insurance Fund depositOther assets $ 8,097,700 $ 11,066,957 TOTAL ASSETS $ 1,221,913,808 $1,053,947,969

Liabilities & Members’ Equity

Liabilities Members’ shares $1,037,330,255 $893,447,898Accrued expenses and $ 17,745,875 $ 16,989,321 other liabilitiesFederal Home Loan Bank $ 57,266,139 $ 38,198,433 advancesTotal Liabilities $ 1,112,342,269 $948,635,652

Members’ Equity

Retained Earnings $109,571,539 $105,312,317

TOTAL LIABILITIES & EQUITY $ 1,221,913,808 $1,053,947,969Statement of Income and Expense

Income 2008 2007Interest Income Interest on loans to members $ 57,665,373 $ 50,395,805Interest on investments $ 6,341,813 $ 6,480,098 and cash equivalentsTotal Interest Income $ 64,007,186 $ 56,875,903

Interest Expense Dividends on members’ shares $ 25,616,289 $ 25,145,772Interest paid on borrowed funds $ 2,011,653 $ 1,460,561Total Interest Expense $ 27,627,942 $ 26,606,333

Net Interest Income $ 36,379,244 $ 30,269,570

Provision for Loan Losses $ 5,604,778 $ 2,042,668

Net Interest Income After

Provision for Loan Losses $ 30,774,466 $ 28,226,902

Non-Interest Income $ 21,196,511 $ 17,798,969

Income Before General and

Administrative Expenses $ 51,970,977 $ 46,025,871

General &Administrative ExpensesSalaries and benefits $ 26,343,323 $ 21,443,949Operations $ 14,439,313 $ 12,102,756Occupancy $ 3,894,609 $ 2,959,663Other $ 2,649,094 $ 2,350,640TOTAL EXPENSES $ 47,326,339 $ 38,857,008NET INCOME $ 4,644,638 $ 7,168,863

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Treasurer’s Report 2008

ASSETS

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2004 2005 2006 2007 2008

(in millions)

SHARES

$200

$300

$400

$500

$600

$700

$800

$900

2004 2005 2006 2007 2008

(in millions)MEMBERS

70

80

90

100

110

120

130

140

150

2004 2005 2006 2007 2008

(in thousands)

LOANS

$200

$300

$400

$500

$600

$700

$800

$900

2004 2005 2006 2007 2008

(in millions)

148,183

1.22 billion

1,037.3

995.9

$1,000

$1,000

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Nominating Committee Report

he Supervisory Committee, which is

appointed by the ORNL FCU Board of

Directors, 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 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 provide an

opinion on the financial condition of your credit union

for the period ending 12/31/2008. 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 assessment.

CastleGarde was 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

Supervisory Committee Report

Jama Hill

Thomas Berg

Randy Gorman

James Conway

Leigha EdwardsRespectfully Submitted,

ORNL FCU Nominating Committee Mason Oakes, Chair, Joe Setaro and Dub Shults

ualifying members who submitted their

application for consideration as Board

candidates were thoroughly reviewed and

the selection has been completed.

The three available positions on the Board

of Directors will be filled by the online election held

February 24th through March 5th prior to the 61st

Annual Meeting. The winners will be announced at the

meeting and on our Web site at www.ornlfcu.com.

The Nominating Committee hereby nominates

the following five individuals we believe will serve

the credit union in the best interests of the members.

Q

T

The order in which their names appear was

determined by a random drawing:

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Agenda 61st Annual Meeting

Supervisory Committee Reportinspection of internal controls, cash, member

loans, and other assets of your credit union. The

audit program for the year 2008 was completed as

planned with no unresolved issues.

The Credit Union’s Board of Directors

and management are fully committed to comply

with all applicable rules and regulations. As part

of this ongoing commitment, the responsibility

for the credit union’s compliance is included in

the Supervisory Committee’s scope of authority.

The Compliance Program for the year 2008 was

completed as approved with no outstanding items.

The 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’s activities during the

year included: approval of new policies, approval of

annual of internal audit and compliance programs,

performance review of these programs, reporting

to the Board of Directors at their monthly meetings,

participating in training programs, and meeting

with members of the management team.

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 60TH 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

Call to Order

a. WELCOME. The 60th Annual Meeting of the ORNL Federal Credit Union (operatingunder NCUA Charter No. 5797, issued August 6, 1948) was called to order at 7:00 p.m. by Herb Debban, Chair of the Board of Directors.

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

Minutes of the 59th 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 Joe Setaro, Chair; Mary Beth Blair; and Dub Shults. Debban called on James McKinley, Member of the Supervisory Committee, who referred to the Nominating Committee’s report as published in the 2008 Annual Report. Nominees were Evelyn Blau, Herb Debban,Wanda McCrosky, and Mason Oakes.

b. ANNOUNCEMENT OF ELECTION RESULTS. James McKinley announced the following results of electronic/paper voting prior to the meeting:Wanda McCrosky 691Mason Oakes 604Herb Debban 594Evelyn Blau 291

McKinley congratulated McCrosky, Oakes, and Debban on their election to the Board.

Reports

Debban 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 report to the membership, receive the report of the Nominating Committee, announce results of the election, and announce winners of the prizes.

A 6-minute audiovisual presentation on the Credit Union’s activities during 2007 was shown. Debban thanked members of the Marketing Department for producing the audiovisual report. He referred to reports of Chairman, Treasurer, and Supervisory Committee as shown in the Annual Report. He called for questions on any of the reports, but there were none. Debban again thanked

Minutes Of The 60th Annual Meeting

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1

2 4

3

all volunteers, and especially thanked members of the staff. He said we really have an outstanding staff.

Old Business

None.

New Business

a. RECOGNITION. Chair Herb Debban expressed appreciation to Jeff Ault, who hascompleted his service on the Supervisory Committee.

2008 Annual Meeting Prize Winners

Winners of $100 prizes from a drawing of all members who voted were:

Adjournment

The meeting adjourned at 7:15 p.m., followed by a reception catered by the Double Tree Hotel where the meeting was held.

Minutes Of The 60th Annual Meeting

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7

8

1. Christopher Alexius2. Kathy Banks3. Carolyn Boggess4. Dennis Bowker5. James Brock6. William Cotter7. Linda Ducamp8. Douglas Fraker9. Jama Hill10. Hank Jenkins11. Timothy McMurray12. Virginia Miller13. Robert Upchurch14. Julie Wallin15. Arnold Watson

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Board of Directors

Herb Debban, Chair

Mason Oakes, Vice Chair

Wanda McCrosky, Secretary

Marcella Catron, Treasurer

Leigha Edwards

Randy Gorman

Jama Hill

Samuel P. McKenzie

James E. Payne

Mary Helen Rose, Recording Secretary

Supervisory Committee

David Watkins, Chair

Vickie Caughron

Harvey Gray

James McKinley

Joel E. Pearman

Nominating & Election Committee

Mason Oakes, Chair

Joe Setaro

Dub Shults

Policy & Governance Committee

Wanda McCrosky, Chair

Leigha Edwards

Randy Gorman

Jama Hill

Samuel P. McKenzie

James E. Payne

Retirement Plans and Investment Committee

Herb Debban, Chair

Jama Hill

Sally Jaunsen Freels

Mason Oakes

Mary L. Yoder

Legislative and Governmental AffairsCommittee

Leigha Edwards, Chair

Randy Gorman

Samuel P. McKenzie

James E. Payne

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Officials

John D. McKittrick, President / CEODennis Bowker, Senior Vice President, FinanceChris Johnson, Senior Vice President, President, CU CommunityLarry A. Jones, Senior Vice PresidentR. Taylor Scott, Senior Vice PresidentMaxine W. Allen, Vice President, Risk Management MortgageDawn Brummett, Vice President, Member ServicesJanita Clausell, Vice President, Business Development & Training-MortgageDavid Farmer, Vice President, New Branch DevelopmentAndrea Griffitts, Vice President, Audit and ComplianceClay Kearley, Vice President, Consumer LendingDan Lovell, Vice President, Member Business ServicesMichael McKnight, Vice President, Chief Technology OfficerBrenda Owensby, Vice President, Human ResourcesLisa Taylor, Vice President, Controller & Funding OfficerTom Wright, Vice President, Marketing and Community RelationsVicki Cox, Assistant Vice President, Consumer Loan Quality ControlLinda Evans, Assistant Vice President, Member ServicesStacey Foster, Assistant Vice President, Fraud & Forgery, SecurityChris Fox, Assistant Vice President, Information TechnologyEmily Gibson, Assistant Vice President, Indirect LendingLori Ihle, Assistant Vice President, Member ServicesVickie Kitts, Assistant Vice President, Loan Servicing, CollectionsMelissa McMahan, Assistant Vice President, Remote Service DeliveryRochelle Pettus, Assistant Vice President, Operations, Deposit ServicingCissi Reagan, Assistant Vice President, Member ServicesTim Sirman, Assistant Vice President, FacilitiesHarriet Walker, Assistant Vice President, Member ServicesJoy Wilson, Assistant Vice President, Technical TrainingNancy Ballard, Public Relations DirectorJean Eiler, Security DirectorChristian Hammond, Creative DirectorJessica Wade, Marketing DirectorDon Bias, Manager, FacilitiesSharon Burris, Manager, eServicesBecky Curry, Manager, Accounting

Tod Elam, Manager, CollectionsKaren Lawrence, Manager, SalesJanet Martin, Manager, Contact CenterBrian Mullins, Manager, MEMBERS Financial ServicesCarolyn Murray, Manager, Internal Service CenterRenee Pemberton, Manager, Automated Dispenser ServicesTrish Seiber, Manager, Mortgage ServicingAmy Vichich, Manager, BenefitsMelanie Walsh, Manager, StaffingGreg Wilson, Manager, Operations, Deposit ServicingDonna Beeco, Branch Manager, Middlebrook Food CityRyan Bennett, Branch Manager, Oak Ridge National LabStanley Bollinger, Branch Manager, Powell KrogerLori Branam, Branch Manager, SeviervilleBrandi Breeden, Branch Manager, Maryville Wal-MartDebra Brown, Branch Manager, Farragut KrogerAmy Chesney, Branch Manager, Fountain CityMissy Crisp, Branch Manager, West KnoxvilleAngela Dilbeck, Branch Manager, Oak Ridge Wal-MartTommy G’Fellers, Branch Manager, KarnsBrenda Hall, Branch Manager, Lenoir City Food CityDebra Hankins, Branch Manager, KingstonMike Harrison, Branch Manager, HallsJohn Hassell, Branch Manager, MadisonvilleTerresa Hill, Branch Manager, MaryvilleVickie Hill, Branch Manager, Millertown PikeMyra Kennedy, Branch Manager, Loudon*Jacquoleen Knight, Branch Manager, Northshore KrogerSusie Jones, Branch Manager, FloaterMichelle Leach, Branch Manager, North KnoxvilleAmanda Mahan, Branch Manager, BeardenDawn Millican, Branch Manager, AlcoaGale Pace, Branch Manager, FarragutCynthia Russell, Branch Manager, LaFolletteMegan Sandiford, Branch Manager, Morrell Food CityAngel Scott, Branch Manager, Oak RidgeKay Smith, Branch Manager, ClintonLaTanya Terrell, Branch Manager, East KnoxvilleDon Thaler, Branch Manager, Lenoir CityTeresa Trent, Branch Manager, MorristownJerry Ward, Branch Manager, South KnoxvilleAngie White, Branch Manager, Maynardville Food CityMisty Wright, Branch Manager, Rockwood Wal-Mart

*Opening 2009 - 11 -

Management

Knox CountyBearden Branch5505 Kingston Pike

East Knoxville Branch3634 East Magnolia Avenue

Farragut Branch11405 Municipal Center Drive

Farragut Kroger Marketplace Branch189 Brooklawn Street

Fountain City Branch5208 North Broadway

Halls Branch4510 East Emory Road

Karns Branch7228 Oak Ridge Highway

Middlebrook Food City Branch9565 Middlebrook Pike

Millertown Pike Branch5409 Millertown Pike

Morrell Food City Branch284 Morrell Road

North Knoxville Branch808 Victor Drive

Northshore Kroger Branch9501 South Northshore Drive

Powell Kroger Branch6702 Clinton Highway

South Knoxville Branch7325 Chapman Highway

West Knoxville Branch8721 Kingston Pike

Anderson CountyOak Ridge Branch221 South Rutgers Avenue

Oak Ridge Wal-Mart Branch373 South Illinois Avenue

Clinton Branch1117 North Charles Seivers Boulevard

Blount CountyAlcoa Branch103 Hamilton Crossing Drive

Maryville Branch1743 West Broadway

Maryville Wal-Mart Branch2410 US Highway 411 South

Campbell CountyLaFollette Branch2229 Jacksboro Pike

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Branch Locations

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Branch Locations

Hamblen CountyMorristown Branch1730 West Andrew Johnson Highway

Loudon CountyLenoir City Branch895 Highway 321 North

Lenoir City Food City Branch300 Market Drive

Roane CountyKingston Branch1204 N. Kentucky Street

Lab BranchOak Ridge National Laboratory

Rockwood Wal-Mart Branch1102 North Gateway Avenue

Monroe CountyMadisonville Branch4201 Highway 411

Sevier CountySevierville Branch502 Dolly Parton Parkway

Union CountyMaynardville Food City Branch4344 Maynardville Highway

ORNL Federal Credit Union Branch

Borrow Smart. Save Smarter.TM