Chairman and CEO s Report Eastman Credit Union proudly celebrates 75 years of service excellence!

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2 Chairman and CEO s Report Eastman Credit Union proudly celebrates 75 years of service excellence! Since 1934, ECU has provided financial products and services that not only meet the needs of our member-owners but add superior value to their lives. Even in times of adversity, much like the events plaguing the national economy today, ECU remains committed to providing excellent service and great products to our member-owners was an extremely challenging year for the financial industry. ECU experienced higher loan losses and a reduction in the level of loan growth and asset growth compared to previous years. Despite the effects of deteriorating economic conditions, ECU remains in a strong financial position to meet the challenges ahead. During 2008, ECU continued to demonstrate service excellence by introducing new products and services, adding new branches and ATMs, developing a new financial education program, and making technology improvements to serve member-owners in a faster, more efficient manner. ECU celebrates the following accomplishments of 2008: A $4 million, 12th consecutive Extraordinary Dividend payout to member-owners, bringing the total in Extraordinary Dividends paid since 1998 to $37 million. New branch openings in Jonesborough and Johnson City (Boone s Creek), and groundbreaking for a full-service branch in Kingsport located on East Stone Drive. Launch of a Web-based financial education resource called LIFE (Liberating Individuals through Financial Education). Added ECU on the Go Mobile Banking, which offers access to ECU Online from a Web-enabled cell phone or PDA. Secure Chat allows member-owners to communicate with a Service Center Representative via ECU Online. Technology changes implemented to allow monthly compounding for Investment Certificates that are 364 days or less. New ATMs at Northeast State Technical Community College and the Jonesborough branch. We are very proud of our effort to implement these product and service improvements during We look forward to continuing to serve our member-owners in 2009! ECU remains focused on providing the best possible products and services to our member-owners. B. Fielding Rolston Olan O. Jones, Jr. Chairman Chief Executive Officer

3 2008 Board of Directors/Committees Board of Directors: (Seated Left To Right) B. Fielding Rolston, Chairman Olan O. Jones, Jr., President/CEO Greg O. Nelson, Vice Chairman (Standing Left To Right) Lisa A. McConnell E. Wayne Kirk Norris P. Sneed Eileen T. Mowry Joseph H. Davis, III Mark E. Millwood Darrell P. Murphy, Secretary Mary D. Hall, Treasurer Audit Committee: E. Wayne Kirk, Chairman Darrell P. Murphy Norris P. Sneed Compensation & Management Development Committee: Joseph H. Davis, III Olan O. Jones, Jr. Mark E. Millwood Greg O. Nelson B. Fielding Rolston, Chairman Credit Committee: Lisa A. Broadwater Thomas W. Kennedy Dolly T. Linkous Kelly F. Price Investment Committee: David W. Atkinson Mary D. Hall Olan O. Jones, Jr. B. Fielding Rolston Community Advisory Board: Roy Adams Jeff Anderson David Baker Miles Burdine Tabetha Church George DeCroes Karen Guidi Lauretta Hallman Randall Jones Andy King Bill Knight Wanda McConnell Brenda McCroskey Donnie Meadows Katherine Palmer Trish Patterson Tom Stevens

4 Treasurer s Report Financial institutions were faced with a particularly difficult business environment during Loan losses and tight liquidity plagued the industry. While ECU was affected by deteriorating economic conditions, results from operations compared favorably with National Credit Union Administration (NCUA) forecasts for the industry. Net worth, the principle measure of financial strength, continues to provide a solid foundation for the credit union. Our Vision: To Be the Preferred Financial Institution of Eligible Members Assets grew $114 million or 5.9% while member deposits grew $124 million or 7.6%. This level of growth compares favorably with peer averages and reflects strong acceptance by members of the value of doing business with ECU. Growth was experienced in all loan classifications. Total loans grew $83 million or 5.7% to $1.54 billion at December 31, Mortgage loans grew $60 million or 8.1%, consumer loans increased $9 million or 1.9%, home equity loans grew $8 million or 5.9% and member business loans increased by $5 million or 8.7%. Of the $124 million in deposit growth, $69 million was in investment certificates. Insured money market accounts (IMMAs) increased $20 million or 11.2%. Shares and checking accounts also showed solid growth. Return on assets (ROA) from continuing operations was.65% as compared to.86% the previous year. The interest rate environment toward the end of 2008 created an attractive interest spread between loans and deposits but this positive development was more than offset by higher loan losses. Loan losses were.66% of average assets in 2008, up from.45% in ECU management of loan losses is a top priority, but the continued poor economic environment makes the effort particularly challenging. Cost management is also a priority at ECU. This is reflected in a decline in total expenses from 2.05% of average assets in 2007 to 1.97% in ECU s expense ratio remains well below the industry average. After reducing total expenses for non-interest income, net expenses were 1.15%, a decrease from 1.27% during Net worth was 10.70% at December 31, 2008, a decrease from 10.86% at year-end This decline was the product of strong asset growth and the payment of a $4 million Extraordinary Dividend. Net worth continues to be exceptionally strong by regulatory standards and is within the Board of Directors policy range. Total equity was $219 million at year-end 2008, an increase of $10 million from the previous year. Despite the challenges, 2008 was a solid year for Eastman Credit Union. In 2009, we expect a similar environment related to growth in loans and deposits, interest rate spread management and continued higher level of loan losses. ECU is well positioned to address these challenges and take advantage of opportunities as a result of its financial strength, solid member base and superior package of products and services. Mary D. Hall Treasurer Credit Union Founded $1 Million in Assets TEX, CED, ARK, HDC Eligible for Membership Mortgage Loans Offered Share Drafts/ATMs Offered (Wilcox) (Tennessee Eastman Building 1)

5 Credit Committee Report As the mortgage industry continued to experience very attractive interest rates in 2008, ECU enjoyed another excellent year of mortgage growth. First mortgage loans to members grew by $60 million to $806 million and home equity loans increased by $8 million to $139 million. Consumer lending activity was strong for the year, experiencing growth of $9 million, for a total of $482 million outstanding. A large portion of the growth was generated in the student loan and recreational vehicle portfolios. ECU also continues to be a leading automobile lender in the areas we serve. The ECU Visa portfolio continued to experience growth with an increase of just less than $1 million for a total of $48 million outstanding. ECU Business Services experienced steady growth in ECU offers a variety of business financing options, including equipment, real estate, lines of credit and Visa loans. ECU s business loan portfolio grew $5 million in 2008 for a total of $67 million outstanding. Overall, loans outstanding increased by $83 million with a total outstanding loan balance of $1.54 billion. While this growth level is down from the previous year due to a slowing economy, members continue to recognize that ECU provides superior value when it comes to a wide variety of member business, mortgage and consumer loan products and services. Year-end loan delinquencies (greater than 60 days) were 0.95% of loans outstanding, compared to 0.52% in Net losses were $13.1 million, or 0.85% of loans outstanding, compared to 0.57% for The amount of delinquencies and write-offs continues to be well below the national credit union average. The approval rate for loan applications continues to remain high with a low rejection rate of 25%. This approval rate, along with the low delinquency rate, reflects the responsible manner in which members use their credit privileges and meet their financial responsibilities. Our Mission: To Provide Financial Products and Services Which Add Superior Value To the Lives of Our Members $500 Million in Assets Longview, TX Johnson City, TN (Broyles Drive) First Extraordinary Dividend Payment (Colonial Heights) $1 Billion in Assets

6 Audit Committee Report The Audit Committee functions to ascertain that the credit union complies with all applicable state and federal laws and regulations and with Eastman Credit Union s bylaws and policies. The Audit Committee is responsible for determining whether the credit union s practices and procedures are sufficient to safeguard members assets. These responsibilities are fulfilled in several ways including: periodic reviews of audits performed by Eastman Credit Union s Internal Audit department and an annual review of the external audit performed by McGladrey & Pullen, LLP. In addition, as a credit union chartered by the State of Tennessee and with deposit insurance provided by the National Credit Union Administration, Eastman Credit Union is subject to regular examinations by the Tennessee Department of Financial Institutions and the National Credit Union Administration. Results of the most recent examination were favorable and have been communicated to the Audit Committee. Based on the reviews, the Audit Committee has found that the credit union is operating in accordance with prescribed laws and regulations and performs its functions in a highly commendable manner. Our Focus: To Exceed Our Members Expectations (Stone Drive Groundbreaking) (Meadowview) Field of Membership Expanded Named #1 Peak Performing Credit Union in the Nation Continued Branch Expansion Jonesborough, TN Sevierville, TN Johnson City, TN (State of Franklin) Johnson City, TN (Boone s Creek) Record Breaking $4 Million Extraordinary Dividend Blountville, TN Mt. Carmel, TN Rogersville, TN Bristol, TN Gate City, VA

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8 Olan O. Jones, Jr. David W. Atkinson Gary M. Tucker Debra C. Bridwell Carol S. Cross Darrell E. Dinsmore Cherie S. Monson Kelly F. Price Branch Locations KINGSPORT, TENNESSEE 201 SOUTH WILCOX DRIVE 2021 MEADOWVIEW LANE 170 WENDOVER DRIVE, COLONIAL HEIGHTS EASTMAN BUILDING 147 EASTMAN BUILDING 230 7:30 a.m. 1:00 p.m., Mon. Fri East Stone Drive (scheduled to open mid-2009) BLOUNTVILLE, TENNESSEE 3306 HIGHWAY 126 BRISTOL, TENNESSEE 1237 VOLUNTEER PARKWAY JOHNSON CITY, TENNESSEE 113 BROYLES DRIVE 255 MARKETPLACE boulevard 4307 NORTH ROAN STREET, SUITE 1 - BOONE S CREEK FOOD CITY SHOPPING CENTER JONESBOROUGH, TENNESSEE 1000 WEST JACKSON boulevard, SUITE 10 7:30 a.m. 5:30 p.m., Mon Fri. Eastman Credit Union Officers CEO/President CFO/Executive Vice-President Senior Vice President, Marketing/CUSO Vice-President, Operations Vice-President, Human Resources/LRC Vice-President, Information Technology Vice-President, Chief Counsel Vice-President, Member Services/Lending MOUNT CARMEL, TENNESSEE 166 MAIN STREET ROGERSVILLE, TENNESSEE 4003 HIGHWAY 66 9:00 a.m. - 5:30 p.m., Mon. - Fri. SEVIERVILLE, TENNESSEE 699 PARKWAY, SUITE 5 - RIVER PLACE SHOPPING CENTER 7:30 a.m. 5:30 p.m., Mon. - Fri. GATE CITY, VIRGINIA 265 JONES STREET BATESVILLE, ARKANSAS 2800 GAP ROAD (BUILDING 2N01, ARK) 6:30 a.m. - 12:30 p.m., Mon. - Fri. COLUMBIA, SOUTH CAROLINA I-26 & HIGHWAY 21 SOUTH (BUILDING 14K01) 7:30 a.m. - 1:00 p.m., Mon. - Fri. LONGVIEW, TEXAS HIGHWAY 149, KODAK BOULEVARD or The Eastman Credit Union logo, ECU Online, ECU, Equity Express, It s Your Money and Lifeline are registered service marks of Eastman Credit Union. Information in this brochure is accurate as of date of printing and is subject to change at any time without notice.