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REPORT. It was an unprecedented year for the entire financial services CHAIRMAN S & PRESIDENT S

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REPORT

CHAIRMAN’S & PRESIDENT’S

I

t was an unprecedented year for the entire financial services industry in 2008. We saw the collapse and consolidation of household names that had been the foundation of the financial sys-tem. Stock markets plummeted, the housing market was devastated, and “bailout” became a frequently used word in most business con-versations. In spite of this turmoil, Air Academy Federal Credit Union stands strong, is profitable and well-capitalized, and able to serve you for many years to come. Please review the Treasurer’s Report for financial successes and highlights. Many people say that out of the ashes of devastation comes opportunity. We look forward to Creating

Opportunity Together in the future.

There were a number of highlights in 2008. Starting construction on our new corporate headquarters was a very significant event. The 52,000-square-foot building was in the planning stages for a couple of years, but construction began in the summer of 2008. The new building features a full-service branch and consolidates our sup-port functions into one geographic location. The headquarters will support AAFCU growth for many years to come. Much thought was put into forecasting asset size and member growth, and designing a building that will allow for expansion in the short term as well as the long term. We hired Nunn Construction, a 25-year-old local firm, as our general contractor and insisted they use as many local sub-contractors and suppliers as possible, as long as their value proposi-tion was appropriate. We feel being a part of and contributing to our local economy is very important. The completion of the new AAFCU headquarters is exciting and we look forward to a summer move.

Another highlight was the growing list of products and services of-fered to our membership. In 2008, we became a part of the Credit Union Service Centers network. This shared branching network al-lows AAFCU members access to their accounts at over 2,600 credit union branches around the country. The concept is another way credit unions cooperate with each other for the benefit of our members. We continued to promote MAAXIMUM Checking and have attracted over 4,000 members to the account. This high-yield checking account stands above other checking accounts in terms of benefits and pricing. Additionally, with the ever-increasing use of plastic cards, we implemented a reloadable VISA® card program. The program has been effective for many members – especially college-bound students.

The introduction of business services was one of our top priorities in 2008. As a result of member demand, we hired a Vice President of Business Services. This new position was designed to offer commer-cial lending to member businesses, as well as a full compliment of

“Many people say that out of the ashes of devastation comes opportunity. We look forward to Creating Opportunity Together in the future.”

“Your credit union now has the capabilities to serve you in consumer services, mortgage banking, financial planning, and business services. This is how we are Creating Opportunity Together.”

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TOGETHER

CREATING OPPORTUNITY

business services. Throughout 2009, our offerings will be expanded so AAFCU can be a full-service provider. Your credit union now has the capabilities to serve you in consumer services, mortgage bank-ing, financial plannbank-ing, and business services. This is how we are

Creating Opportunity Together.

Looking at 2009 and 2010, the economy will be challenging nationally and internationally. Many experts agree it will get worse before it gets better. With that environment as a backdrop, we will make decisions that are strategic without forgetting the challenges that are imminent. In some cases, decisions that benefit a major-ity of members may hurt others. But, these are tough times and we must act to ensure your future and our future. We know families will continue to struggle with making payments on their mortgages and cars, and more people will lose their jobs. As a credit union, we will work with our members to get through these times. The core ideol-ogy of credit unions is, “People Helping People.” For 54 years, AAFCU has done just that. Now is not the time to change. Rest assured we will always be guided by doing the right thing for the membership.

As we reflect on the past year, it has been one for the ages. We hope 2009 will bring great things for you and your family. Your credit union is here to serve you. Thank you for being a part of this great organization. On behalf of the Board of Directors and over 180 em-ployees, thank you for the opportunity to serve you.

Dr. Donald M. Bird Glenn L. Strebe

Chairman President/CEO

“Rest assured we will always be guided by doing the right thing for the membership.”

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REPORTS

TREASURER’S & SUPERVISORY COMMITTEE’S

TREASURER’S REPORT

SUPERVISORY COMMITTEE’S REPORT

A

ir Academy Federal Credit Union experienced

consider-able deposit growth in 2008, increasing from $270 million in 2007 to $350 million in 2008, an increase of 30%. This is due in part to MAAXIMUM Checking, AAFCU’s high-yield checking account that rewards members for using electronic services and pays above-market rates.

Troublesome mortgage conditions nationwide were not reflective of AAFCU’s Mortgage Group. While many mortgage operations in the area failed, our Mortgage Group saw a 6% increase in the number of mortgage loans closed and an impressive 36% increase in the dollar volume of those loans. Our loan underwriting at AAFCU continues to be conservative and we always want to make sure members get the loan that is appropriate for their circumstances. Thanks to an incred-ibly talented mortgage operation, mortgage loans held in our portfo-lio were up 42%, from $121 milportfo-lion in 2007 to $172 milportfo-lion in 2008. Consumer loan totals were $82 million, declining about $23 million or 22% from 2007. This decline was primarily due to a reduction in automobile lending. Operating income increased due to loan growth

of 11% and increased mortgage production. As of December 2008, we had 0.78% of total loans delinquent. This can be attributed to the overall economic downturn. In 2008, we wrote off 0.14% of loans – five times lower than our peers.

Despite challenging economic times, AAFCU strives to create oppor-tunities for our members to enhance their financial future. Even in a declining interest rate environment, AAFCU is the only local credit union to offer an innovative, high-yield checking account. Whether it is making home purchase dreams a reality or lowering automobile loan rates when members need a little extra saving power, AAFCU continues to progress ahead of member needs for tomorrow. Please refer to the financial statements in this report for more de-tails. Thanks to the high standards of financial integrity and through the guidance of its leadership, we are confident that AAFCU remains a sound place to invest and borrow. We look forward to the many opportunities to serve you in 2009.

Dr. Stephen Slate

Treasurer

I

n 2008, Air Academy Federal Credit Union remained dedicated to standing alongside our members and providing a strong, secure institution for saving and borrowing needs. To ensure AAFCU’s con-tinued success, an independent Supervisory Committee is appointed by the Board of Directors. This committee is tasked with monitoring AAFCU’s compliance with applicable laws and regulations, and up-holding quality and integrity throughout the credit union. The National Credit Union Administration (NCUA) audits AAFCU an-nually, and this year was no exception. The NCUA found AAFCU to be a safe and sound financial institution. AAFCU also engaged the services of an independent Certified Public Accountant (CPA) firm to perform a comprehensive annual financial statement audit. For 2008, the firm of McGladrey & Pullen, LLP, issued an “unqualified opinion” of “no reportable conditions” for AAFCU – the highest opinion issued by a CPA firm. In addition to these audits, AAFCU

employs two full-time auditors to routinely monitor AAFCU’s com-pliance with federal regulations on a daily basis.

The Supervisory Committee is your voice in credit union affairs. We invite you to share your comments with us throughout the year. Please send correspondence addressed to the Supervisory Commit-tee, P.O. Box 62907, Colorado Springs, CO 80962-2907.

Despite the economic challenges that face many financial institu-tions, our sound lending policies help ensure that AAFCU will continue to thrive. As we move into the future with a rock-solid foundation in place, AAFCU is poised to continue to provide you with outstanding service in 2009.

David E. Fitzkee

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HIGHLIGHTS

FINANCIAL

STATEMENT OF FINANCIAL CONDITION

As of December 31, 2008 and 2007

2008 2007

Loans to Members $269,875,931 $250,378,672

Less: Allowance for Loan Losses (534,110) (395,451)

Net Loans to Members 269,341,821 249,983,221

Cash and Investments 92,141,830 37,658,942

Other Assets 24,483,818 18,606,288

Total Assets $385,967,469 $306,248,451

STATEMENT OF INCOME

For the Years Ended December 31, 2008 and 2007

2008 2007

Operating Income $25,029,330 $22,121,545

Operating Expenses (15,446,914) (14,640,210)

Provisions for Loan Losses (553,100) (104,900)

Non-Operating (Losses) Gains, Net 268,368 (1,175)

Dividends Paid to Members (8,146,088) (5,575,151)

Net Income $1,151,596 $1,800,109 2004 2005 2006 2007 2008 Total Assets $280,769,015 $308,407,504 $295,632,417 $306,248,451 $385,967,469 Dividends Paid $2,779,979 $3,527,936 $5,161,868 $5,575,151 $8,146,088 Capital 9.10% 8.84% 9.74% 10.23% 8.42% 12% 10 8 6 4 2 0 2004 2005 2006 2007 2008 Capital 8.42% 10.23% 9.74% 8.84% 9.10% $400 350 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 Assets (millions) $386 $306 $296 $308 $281 $10 8 6 4 2 0 2004 2005 2006 2007 2008

Dividends Paid (millions)

$8.1

$5.6 $5.2 $3.5 $2.8

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TOGETHER

REACHING NEW HEIGHTS

1950s 1960s 1970s 1980s 1990s 2000s

1955 $4,346 in assets and 83 members

AAFCU receives its charter on October 25, 1955

1961 $1,000,000 in assets and 2,939 members

1972 Teller computers introduced

1975 Revolving credit loans introduced

1978 Credit disability insurance introduced

1979 Share certificate and money fund accounts introduced

1980 Kelly Johnson (Main) Branch opens Share draft accounts introduced

1982 Open-end loan and overdraft protection introduced

1984 Debit/ATM cards introduced

1992 $100,000,000 in assets and 40,565 members

1996 AAFCU’s first website introduced

1998 PC banking introduced

1999 Dividend-bearing checking introduced e@dvantage Checking introduced

2000 Home equity line of credit introduced

2001 $200,000,000 in assets and 43,253 members

2007 High-yield MAAXIMUM Checking introduced

2008 Business services introduced Shared branching introduced

NCUA share insurance increased to $250,000 Corporate headquarters groundbreaking $386,000,000 in assets and 44,029 members

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Images may be from one or more of these sources: ©Jupiterimages, ©Getty Images, ©iStock, ©SnapVillage. ©2009 Priority Publications Inc. priorityresults.com

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