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2008

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www.psecreditunion.ca

PSE

PSE

141 Weldon StreetMoncton, NB

E1C 5W1

Telephone: (506) 853-8881Fax: (506) 856-8492

Agenda As part of Canada’s largest network of financial institutions, PSE Credit Union has been serving the Greater Moncton area for 70 years. With 2,600 owners, $28 million in assets, PSE has grown to provide their owners with complete money management including the expertise you need to make better decisions for your financial future.

Complementing PSE Credit Union services are a number of nationally and regionally based companies specializing in Mortgage, Trust, Insurance, and Wealth Management services. No matter what your financial needs may be, you will always get superior advice and service from our experts, to put you in control of your financial future.

Call to Order

Determination of Quorum

Approval of Agenda

Introduction of Guests

Approval of Minutes – 2007 Annual Meeting

Other Business

Reports

President and CEO’s Report

Audit Committee Report

Credit Committee Report

Auditors’ Report

Election of Directors

Recommendations

Adjournment

Table of Contents

Board of Directors

Staff Members

Community Relationships

2007 Meeting Minutes

President & CEO Messages

Audit & Credit Committee Reports

Financial Statements

Election Changes and Recommendations

Mission, Agenda & Table of Contents

Annual Report – 2008

Vision

PSE Credit Union is dedicated to provide you with the most effective financial services and wise financial guidance to empower you to make the best decisions for your financial well-being.

Mission

PSE Credit Union aims to provide quality financial products and services so our customer-owners can realize their financial goals.

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Gary WilsonVice - Chairperson

Sandra MacFarlaneSecretary

Don MortonChairperson

Rowena BoyingtonDirector

Klaus ReiblingDirector

Phil EvansDirector

David GreenwoodDirector

Mike MoreyDirector

John McKinleyDirector

Board of Directors

PSE Credit Union1

Steve CrawfordDirector

Trish CarterManager of Operations

Susan BureauxFinancial Services Representative

Jeannette HolmdenCEO

Jennifer HamiltonBusiness Development Manager

SueAnn MageeCustomer Service Representative

Debi LittleLoans Manager

Shirley RichardFinancial Services Representative

Irna GeddesCustomer Service Representative

Kelly McCaffertyCustomer Service Representative

Meet Our Employees

Annual Report – 2008 2

Judy LegerCustomer Service Representative


At PSE, we believe our relationships with our owners go beyond our suite of financial services and wise financial guidance. We seek to improve the quality of life in the community in which we operate and in which our owners live and work. In order to effectively meet this objective, we awarded over $5000 in monetary donations this past year by supporting charitable organizations, and awarding scholarships.

Who are you riding with? This past July, PSE Credit Union along with other Moncton Credit Unions joined together to support the Typically Canadian Group; a team of inspirational young men who biked across Canada in order to pay tribute to people who have battled or are currently battling cancer. Representatives from the three Credit Unions gathered at the Assumption Fire Department to present the Typically Canadian team with a cheque for $750. All proceeds went directly to the Canadian Cancer Society and, to date, the Typically Canadian team has raised over $100,000 for this cause.

Shelf Purchased at Local Food DepotPSE Credit Union, along with other area Credit Unions, recently purchased the 20th of 100 shelves being sold in the Buy a Shelf Campaign at the Food Depot Alimentaire (FDA). The price to buy a shelf is $12,500. Each shelf purchased helps ensure the FDA is able to service 23 food banks and community kitchens across southeastern New Brunswick.

Bringing Down Hunger One Foot at a TimeThe Credit Unions were so inspired by the Buy a Shelf Campaign, they decided to turn to the public and fundraise

enough funds to purchase a second shelf on behalf of our communities. On Thursday, October 23, 2008, PSE Credit Union along with other area Credit Unions and C103, sent midday radio announcer Tim Cormier 80 feet in the air to help “Bring Down Hunger” and support Food Depot Alimentaire’s “Buy a Shelf Campaign”. For every $50 raised throughout the day, Tim was lowered one foot. After 14.5 hours suspended in a crane

overlooking the corner of Main Street and Vaughan Harvey Boulevard, the call came in that allowed Tim to finally put his feet back on solid ground and brought the total raised to over $4000!

Gift of ChristmasChristmas is a time for family and friends with the spirit of giving and appreciation for all that we have received through-out the year. Unfortunately, not every child is privileged enough to experience Christmas with the luxuries many of us take for granted. For over 10 years now, the Credit Unions in conjunction withC103.1/XL96.9 have been joining forces for the annual Gift of Christmas fundraiser. New toys, non- perishable food items and cash donations are collected at all credit union locations in our region with proceeds redistributed to the communities in which they came. This annual event would not be possible without the tremendous support from all of our owners. Thank-you.

PSE Credit Union3

PSE 2008 Bursary RecipientsPSE recognizes the importance of education in our communities by offering financial support to those pursuing higher education that will empower them to successfully obtain their career objectives. The PSE bursary program is designed to assist students with financial needs as government loans and summer job savings do not always make the grade when it comes to the cost of education. This year, PSE Credit Union awarded $2000 in bursaries to 2 deserving Credit Union owners or children/grandchildren of owners attending post-secondary institutions.

Community Leadership AwardPSE Credit Union, along with other area Credit Unions and CHOICE REWARDS™ MasterCard®, recently presented the 2007/2008 CHOICE REWARDS™ MasterCard® and Credit Union Community Leadership Award to Corey Garland of the Dieppe Commandos (formerly the Moncton Beavers). This award, along with a bursary in the amount of $1000 is presented to the Maritime Junior “A” Hockey League team player who best exemplifies Credit Union values of community involvement, responsibility and leadership.

PSE welcomes visitor from MalawiIn celebration of Credit Union Day, the management and staff of PSE welcomed a visitor from Malawi, Africa, Ms. Gertrude Chiomba, for a 2 week stay. Ms. Chiomba works as an Accountant with Sunbird SACCO Credit Union. Ms Chiomba was a part of the eighth annual Canadian Co-operative Association’s “Giving Credit Where Credit is Due”, women’s mentoring program. This mentoring program provides Asia, Africa and the America’s staff of financial co-operatives with a unique opportunity for professional development.



Kyler KingSaint Mary’s University

Sarah BrayshawDalhousie University

2007 Meeting Minutes

Call To Order:President Don Morton called the meeting to order at 7:50PM.

Quorum:Don Morton declared a quorum of members present.

Approval Of Agenda:President Don Morton asked the members present if they had any items to place on the agenda under Item #6 Other Business, none were forthcoming. Helen Hall moved the approval of the agenda, seconded by Murray Rogers. Motion carried.

Introduction of Guests:Special guests Gerard Adams and Paul Paruch of CUCNB; Debbie Chase and Gerard Giovannetti of League Savings and Mortgage; Allan Vallis of RMA and Gary Morrison of Thornton VanTassel were introduced by the President.

2006 Annual General Meeting Minutes: Motion to approve the minutes of 2006 as distributed was made by Sandra MacFarlane and seconded by Doris Northrup. Motion carried.

Introduction of Board of Directors and Staff: President Don Morton introduced the Board of Directors for the year 2006/2007 and CEO Jeannette Holmden introduced the Staff.

President and CEO’s Report: Presented by President Don Morton and Chief Executive Officer Jeannette Holmden.

Audit Committee Report:Presented by Chairperson Philip Evans.

Credit Committee Report:Presented by Chairperson, Sandra MacFarlane.

External Auditors’ Report:An overview of the Auditors Report and Financial Statements was presented by Gary Morrison of Thornton VanTassel. Positive and outstanding financial results were reported for the fiscal year ending September 30, 2007; congratulations were given to the management and staff of the credit union once again.

Motion to accept the President and CEO’s Report, the Audit Committee Report, the Credit Committee Report and the External Auditors Report was made by Sandra MacFarlane and seconded by Carol Morton. Motion carried.

Recommendations:Recommendation #1: It is recommended that the auditing firm of Thornton VanTassel be appointed the external auditors for the credit union for the fiscal year ending September 30, 2008.Motion made by Helen Hall and seconded by Trish Carter. Motion carried.

Recommendation #2: It is recommended that the Board of Directors by empowered to appoint the delegates to all credit union related functions held during the period from now to the date of the 2008 Annual Meeting of the credit union. Motion made by Doris Northrup and seconded by Sue Bureaux. Motion carried.

Recommendation #3: Surplus Shares Patronage Rebate PSE Credit Union Limited may pay to our owners an annual Patronage Rebate from the credit union’s surplus earnings. The amount of the rebate this year will be based upon the interest paid by our owners on their loans during the fiscal year as well as the interest paid to our owners on their deposits during the fiscal year. The Board recommends a Patronage Rebate of 3.00%. Motion made by Murray Rogers and seconded by Helen Hall. Motion carried.

Presentations:President Don Morton presented a 20 year Service Award to Debbie Little, Loans Manager.

Election of Directors:Gary Wilson, Chair of the Nominating Committee advised there were seven owners eligible to run for five vacancies on the PSE Board of Directors. The following owners placed their names as candidates for Directors of the PSE Credit Union: Cynthia Cain, Steve Crawford, Phil Evans, David Greenwood, Sandra MacFarlane, John McDonald and Klaus Reibling. Gary Wilson asked three times for nominations from the floor, with no nominations from the floor Ted MacDougall moved the nominations closed. Secret ballots were taken and the successful candidates were Cynthia Cain, two year term; Steve Crawford, Phil Evans, David Greenwood and Sandra MacFarlane, three year terms. Gary Wilson moved the ballots be destroyed, seconded by Helen Hall. Motion carried.

Motion to adjourn at 8:50PM.

Recording SecretarySandra MacFarlane

PSE Credit Union5

2008 has proven to be another year full of activity for the board and staff of your credit union. On behalf of the Board of Directors, I would first like to give credit to the staff for their efforts uniting Moncton Civic with PSE. This transition, lead by our CEO, went as well as we had hoped, and has certainly helped contribute to the success of our year.

At this time, we would like to congratulate Jeannette on the completion of a Master of Business Administration Degree from Saint Mary’s University this past May. The effort she put in with traveling to Halifax every second week-end, studying nights and weekends, and at the same time over-seeing the operation of the credit union, along with her family obligations, was remarkable. Jeannette would be the first to tell you that this could not have been done without the support and dedication of all her staff. We, as a Board, are fortunate to have such dedicated employees.

An area of current interest is the possible amalgamation of Credit Union Central of New Brunswick with the Centrals’ of Nova Scotia, Newfoundland & Labrador, and Prince Edward Island. Currently, our central has 10 employees and is therefore limited in what it can provide to the credit unions in New Brunswick. The purpose of one central for the Atlantic region would be to provide improved, additional, and cost-effective services for all member credit unions. One Atlantic central would represent 70 credit unions with assets of approximately $2.3 billion dollars. A vote will take place this spring at each province’s credit union central’s annual general meeting. If the votes at all of the AGM’s are positive, the proposed amalgamation date is set for January 1st, 2010. It is interesting to note that the Central’s in British Columbia and Ontario were united into one Central in 2008.

It is not only the Central’s talking about amalgamation, but there are many credit union discussions happening as well. Some are in our province, as well as, in most other provinces all across the country. Increased operating costs, smaller interest rate spreads due to a very competitive environment, and increased regulations are forcing credit unions to become as efficient as possible. Reducing duplication is one way to decrease operating costs, and we are always looking for ways to do this. Just this past January, we outsourced our cheque clearing function to Advance Savings Credit Union which saved us approximately $20,000 than if we had done it ourselves. That’s a big savings to our bottom line.

This year has seen unprecedented growth for PSE. Our focus is on providing our owners with the most competitive interest rates available in the market place, and while we must be succeeding as we have seen our loan and deposit portfolios enjoy double digit growth, we are still maintaining a healthy equity level. As we celebrate our growth, it does not come without growing pains. We are at capacity in our main office space and therefore need to make some smart decisions on how we are going to manage our growth into 2009 and beyond.

We made some changes this year to our wealth management offering in 2008. Our relationship with Berkshire did not turn out as we had hoped for and thus discontinued the referral arrangement this past April. In their place, we were very fortunate to be able to secure a referral arrangement with Kelly Nichols of Blue Chip Advice. Kelly is an independent advisor in the Moncton area and has been a successful financial consultant for many years. We are very pleased with how the relationship is working, and highly recommend that you give him a call, even for just a financial check-up.

We want to do what is best for you, our owners. Your Board and I are looking at all possibilities to continue our growth and provide you with the best service possible.

Respectfully Submitted,

Don MortonPresident


President & CEO’s Message


LOANS GRANTED

CATEGORY # OF LOANS VOLUME ($)

Automobile/Recreation 109 $2,044,910

Misc/Tax/Insurance/Medical 18 $205,415

Consolidation 113 $2,389,990

Home Improvement 23 $386,652

Mortgage/Used Housing/Land 14 $1,448,168

Furniture & Appliances 2 $8,154

Vacation 8 $40,999

Education 22 $271,000

Investments 15 $316,359

Christmas 12 $78,342

PCA Overdraft/Lines of Credit 78 $1,048,478

2008 TOTALS 414 $8,238,467

2007 TOTALS 337 $6,460,987

2006 TOTALS 372 $6,613,676

2005 TOTALS 339 $6,137,427

Audit Committee Report 2007 – 2008The Audit Committee has a responsibility to review the financial statements of the Credit Union and report to the Board of Directors with recommendations and comments and we have carried out that responsibility over the past year. The Audit Committee also has a responsibility to perform such duties as required by legislation contained in the Credit Union Act.

The Audit Committee has held regular meetings over the past twelve months and additional special meetings as were required. In compliance with the Credit Union Act, the Audit Committee met with the External Auditors prior to commencement of the year-end audit to be presented at the Annual Meeting.

As Chairman of the Audit Committee I wish to express my sincere thanks to the Committee members for their commitment over the past year. I wish to especially commend the staff for their dedication and hard work. Our staff’s commitment to ongoing training and education, to better serve our owners, along with sound business practices, has greatly contributed to the growth and stability of PSE Credit Union.

Respectfully submitted,

David Greenwood, ChairAudit Committee

Credit Committee Report 2007 – 2008The responsibility of the Credit Committee is to ensure that all loans granted are managed according to Credit Union legislation and policies as approved by our Board of Directors. The approval of loans is delegated to our General Manager and Loan Officers.

The Credit Committee of PSE Credit Union held regular monthly meetings and additional special meetings as required.

During our fiscal year October 1, 2007 to September 30, 2008 a total of 414 loans were granted with a total value of $8,238,467.

At year-end, the total loan portfolio was valued at $20,015,561. An increase in growth of $3,164,254.

In closing, the Credit Committee would like to thank the loan staff for their dedication to their work and their co-operation throughout the year.

Respectfully submitted,

Sandra MacFarlane, ChairCredit Committee

PSE Credit Union7

Audit & Credit Committee Reports

Don MortonPresident


The management of Public Service Employees Credit Union Ltd. is responsible for the integrity, objectivity and consistency of the financial information presented in this annual report. This responsibility includes selecting appropriate accounting policies which are in accordance with Canadian Generally Accepted Accounting Principles and ensuring that the financial information is based on informed judgments and estimates with appropriate consideration as to materiality. The Board of Directors has approved the financial statements for issuance to the owners.

Management maintains the necessary system of internal controls designed to provide reasonable assurance that transactions are authorized, assets are safeguarded, and proper records maintained.

The Board of Directors oversees management’s responsibilities for financial statements through the Audit Committee. The Audit Committee conducts a detailed review of the financial statements with management and the independent auditors before recommending their approval to the Board of Directors.

Managements Responsibility for Financial InformationThornton VanTassel, the independent auditors appointed by the owners, have examined our financial statements and issued their report, which follows. The auditors have full and complete access to, and meet periodically with the Audit Committee to discuss the audit and matters arising there from.


Managements Responsibility for Financial Information

PSE Credit Union9


PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.

FINANCIAL STATEMENTS

September 30, 2008

CONTENTSPage

AUDITORS' REPORT 1

FINANCIAL STATEMENTS

Balance Sheet 2

Statement of Members' Equity 3

Statement of Earnings 4

Statement of Cash Flows 5

Notes to Financial Statements 6-17

10

11

12

13

14

15-26

AUDITORS' REPORT

To the Members of:PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.

We have audited the balance sheet of Public Service Employees Credit Union Ltd. as at September 30,2008 and the statements of members' equity, earnings and cash flows for the year then ended. Thesefinancial statements are the responsibility of the Credit Union's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Thosestandards require that we plan and perform an audit to obtain reasonable assurance whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position ofthe Credit Union as at September 30, 2008 and the results of its operations and its cash flows for the yearthen ended in accordance with Canadian generally accepted accounting principles.

CHARTERED ACCOUNTANTS

Fredericton, N.B.November 17, 2008

1.



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PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.BALANCE SHEET

SEPTEMBER 30, 2008

2008 2007

ASSETS

Cash $ 1,754,803 $ 1,924,053Investments (Note 3) 4,692,025 2,825,122Loans receivable (Note 4) 20,015,561 17,899,785Accrued interest receivable 46,436 51,542Other receivable 207,031 73,169Prepaid expenses 25,363 31,596Future income taxes 11,400 6,000Income tax receivable 6,752 -Capital assets (Note 5) 919,808 979,168

$ 27,679,179 $ 23,790,435

LIABILITIES AND MEMBERS' EQUITY

Liabilities to MembersMember deposits (Note 6) $ 25,322,707 $ 21,672,756Accrued interest on deposits 259,959 208,106

25,582,666 21,880,862

Other LiabilitiesAccounts payable and accrued liabilities 288,614 254,262Income taxes payable - 8,497Accrued patronage rebate 26,671 34,905

315,285 297,664

Members' Equity 1,781,228 1,611,909

$ 27,679,179 $ 23,790,435

APPROVED BY THE BOARD:

_____________________________ Director _____________________________ Director

See accompanying notes to financial statements.-

2.



PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.STATEMENT OF MEMBERS' EQUITYYEAR ENDED SEPTEMBER 30, 2008

2008 2007

Membership Shares (Note 9)

Balance at beginning of year $ 201,546 $ 214,078Net change during the year 24,121 (12,532)

Balance at end of year $ 225,667 $ 201,546

Surplus Shares (Note 9)

Balance at beginning of year $ 220,297 $ 227,853Change during the year 60,969 (7,556)

$ 281,266 $ 220,297

Retained Earnings

Balance, beginning of year $ 1,190,066 $ 1,110,545Net income for the year 84,229 79,521

Balance, end of year $ 1,274,295 $ 1,190,066

$ 1,781,228 $ 1,611,909

See accompanying notes to financial statements.

3.

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PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.STATEMENT OF EARNINGS

YEAR ENDED SEPTEMBER 30, 2008

2008 2007

Interest incomeInterest on loans $ 1,274,663 $ 1,165,444Interest on investments 230,372 159,559

1,505,035 1,325,003

Interest expenseInterest on member deposits 548,500 461,820Other interest 691 688

549,191 462,508

Net interest income 955,844 862,495Provision for credit losses (Note 4) 40,000 -

Financial margin 915,844 862,495Other income (Note 11) 398,778 355,529

1,314,622 1,218,024

Non-interest expensesPersonnel 512,571 461,988Occupancy 100,193 89,186Organization 61,829 61,934Member security 83,834 73,199General business 373,993 339,922Amortization 62,740 62,493

1,195,160 1,088,722

Earnings before patronage rebate and income taxes 119,462 129,302Recommended patronage rebate (Note 9) 26,671 35,110

Earnings before income taxes 92,791 94,192Provision for income taxes - current (Note 12) 13,928 20,671

- future (5,366) (6,000)

8,562 14,671

EARNINGS FOR THE YEAR $ 84,229 $ 79,521


4.



PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.STATEMENT OF CASH FLOWS

YEAR ENDED SEPTEMBER 30, 2008

2008 2007

NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES:

OPERATINGEarnings for the year $ 84,229 $ 79,521Add items not affecting cash:

Amortization 62,740 62,493

146,969 142,014Net change in non-cash

balances from operations (Note 10) (65,201) (30,585)

81,768 111,429

FINANCINGIncrease in deposits 3,649,952 392,156Increase (decrease) in membership shares 24,121 (12,531)Increase (decrease) in surplus shares 60,969 (7,555)

3,735,042 372,070

INVESTINGAdditions to capital assets (3,380) (220,284)Increase in loans receivable (net) (2,115,777) (661,344)(Increase) decrease in investments (1,866,903) 510,855

(3,986,060) (370,773)

NET INFLOW (OUTFLOW) OF CASH (169,250) 112,726

CASH RESOURCES, beginning of year 1,924,053 1,811,327

CASH RESOURCES, end of year $ 1,754,803 $ 1,924,053


5.

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PUBLIC SERVICE EMPLOYEES CREDIT UNION LTD.NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

GENERAL

The Credit Union is incorporated under the Credit Unions Act of New Brunswick and its principalactivity is providing financial services to its members. For financial reporting and regulatory matters,the Credit Union is under the authority of the Superintendent of Credit Unions and Caisse Populaires.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.1 Investments

Investments are valued at the lower of cost and net realizable value.

1.2 Capital assets

Capital assets are recorded at cost. Amortization is provided annually at rates calculated to writeoff the assets over their estimated useful lives as follows:

Building -25 years straight lineParking lot -20 years straight lineATM -5 years straight lineSecurity equipment -20 years straight lineFurniture and fixtures -10 years straight lineComputer equipment -3 years straight line

1.3 Deferred Income Taxes

The Credit Union follows the tax allocation method of accounting for income taxes. Deferredincome taxes arise from claiming amounts for tax purposes in excess of amounts recorded foraccounting purposes.

1.4 Loans

Loans are carried at the principal amount less an allowance for impaired loans established torecognize anticipated losses. The amount provided for anticipated loan losses is determined bymanagement through reference to specific loans in arrears and the judgement of managementbased on their previous experience. The allowance for impaired loans is calculated as thedifference between the recorded value of the loans and the estimated realizable amount ofsecurity as determined by the fair value of security underlying the loans.

Managements' judgement considers the most likely set of economic conditions and the CreditUnion's most likely course of action based on information existing at the date of preparation ofthe financial statements. However, unanticipated events and circumstances may occur and actualresults may vary materially from management's estimates of anticipated loan losses.

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SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

1.5 Use of Estimates

The preparation of financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses during the year. Themost significant estimate involves the establishment of the allowance for impaired loans. Actualresults could differ from those estimates.

1.6 Revenue and Expense Recognition

Interest accrued on loans is recognized in income except where a loan is classified as impaired.Loans are classified as impaired generally at the earlier of when, in the opinion of management,there is reasonable doubt as to the collectibility of principal or interest, or when interest is 90days past due. Interest received on an impaired loan is recognized in income only if there is nolonger any doubt as to the collectibility of the carrying value of the loan, otherwise, the interestreceived is credited to the principal.

1.7 Foreign currency

Monetary items denominated in foreign currency are translated to Canadian dollars at exchangerates in effect at the balance sheet date and non-monetary items are translated at rates ofexchange in effect when the assets were acquired or obligations incurred. Revenues andexpenses are translated at rates in effect at the time of the transactions. Foreign exchange gainsand losses are included in income.

1.8 Income taxes

The Credit Union uses the asset and liability method of accounting for income taxes. Under theasset and liability method, future tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis. Future tax assets and liabilities aremeasured using enacted or substantively enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recovered or settled. Theeffect on future tax assets and liabilities of a change in tax rates is recognized in the period thatincludes the date of enactment or substantive enactment.

7.

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SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

1.9 Comprehensive income

Comprehensive income includes net income and other comprehensive income (OCI).

OCI is comprised of unrealized fair value gains and losses from available-for-sale financialinstruments.

Accumulated other comprehensive income (AOCI) includes unrealized fair value gains andlosses arising from available-for-sale financial instruments. When the underlying securities aresubsequently sold or written down, the resulting realized gain or loss is released from AOCI intoincome in the statement of income.

The Credit Union has no OCI or AOCI at September 30, 2008.

1.10 Financial instruments

Effective January 2007, the Credit Union adopted the following Canadian Institute of CharteredAccountants (CICA) accounting recommendations for the recognition, presentation anddisclosure of financial instruments:

CICA Handbook Section 3855 "Financial Instruments - Recognition and Measurement"CICA Handbook Section 3862 "Financial Instruments - Disclosures"CICA Handbook Section 3863 "Financial Instruments - Presentation"CICA Handbook Section 1530 "Comprehensive Income"CICA Handbook Section 3251 "Equity"

Under the new standards, on acquisition, all financial assets must be classified as held-to-maturity, loans and receivables, held-for-trading or available-for-sale and at inception. Allfinancial liabilities must be classified as held-for-trading or other. The Credit Union hasclassified cash and cash equivalents as held-for-trading; loans and account receivable isclassified as loans and receivables; accounts payable and member deposits have been classifiedas other liabilities. Investments have been classified as indicated in note 3 of the financialstatements.

Investments in securities that are classified as held-to-maturity or as loans and receivables arevalued at cost or amortized cost, adjusted to recognize other than a temporary impairment in theunderlying value.

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SEPTEMBER 30, 2008

1.11 Financial instruments (Continued)

Investments in securities that are classified as available-for-sale are initially recognized atacquisition cost and subsequently re-measured at fair value at each reporting date. PublicService Employees Credit Union Ltd. utilizes the settlement date accounting for all purchasesand sales of financial assets in its investment portfolio. The fair value of publicly tradedsecurities is based on their quoted market prices. All other securities' fair value is determined bydiscounting the expected future cash flows at current market rates.

Investments in securities that are classified as held-for-trading are recorded at fair value.

Public Service Employees Credit Union Ltd. recognizes interest income as earned andinvestment gains and losses when realized. Unrealized gains and losses on available-for-salesecurities are recorded in other comprehensive income and recognized in income when realized.For investments held-for-trading, realized and unrealized gains and losses are recorded inincome.

2. RISK MANAGEMENT

a) The types of risk inherent in the Credit Union environment include credit, liquidity and interestrate risk.

i) Credit risk is the risk that the Credit Union will incur a loss because a member fails to meetan obligation. Risk management policies are implemented by management and the Board.These include the evaluation of the member's ability to repay the loan when it is originallygranted and subsequently renewed and the regular monitoring of member information such asdelinquent and over-limit amounts.

In addition, the Credit Unions Act requires the Credit Union to maintain at all times aprescribed capital base. The required level of capital, consisting of share capital and retainedearnings, is 5% of the total assets. The actual capital base at September 30, 2008 is detailedin note 9 of the notes to the financial statements.

ii) Liquidity risk is the risk that the Credit Union will encounter difficulty in raising funds tomeet its obligations to members. To mitigate this risk, the Credit Union is required under theCredit Unions Act of New Brunswick to maintain, at all times, liquid assets that are adequatein relation to the business carried on. The level of liquidity is based on a prescribedpercentage of total liabilities. At September 30, 2008, the prescribed liquidity requirementwas 10% of total liabilities of which 8% is to be in liquid deposits with Credit Union Central.The actual liquidity was 16.7% of total liabilities, and 9.3% was in liquidity deposits withCredit Union Central.

9.

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SEPTEMBER 30, 2008

2. RISK MANAGEMENT (CONTINUED)

iii) Interest rate risk refers to the potential impact on the Credit Union's earnings and net assetvalues due to changes in interest rates. Interest rate risk results primarily from differences inthe maturity or repricing dates of assets and liabilities. The Credit Union manages the impactof interest rate changes with self-imposed limits, thus minimizing fluctuations of incomeduring periods of changing interest rates. The Credit Union's major source of income is thefinancial margin between the income earned on investments and loans to members, and theinterest paid to members on their deposits and interest on temporary borrowings.

Interest-sensitive assets and liabilities cannot normally be perfectly matched by amount andterm to maturity, nor would a perfect match be desirable. One of the roles of a Credit Unionis to intermediate between the expectations of borrowers and depositors.

The following schedule shows the Credit Union's sensitivity to interest rate changes.Amounts with floating rates or due or payable on demand are classified as maturing within sixmonths, regardless of maturity. A significant amount of loans and deposits can be settledbefore maturity on payment of a penalty, but no adjustment has been made for repaymentsthat may occur prior to maturity. Amounts that are not interest sensitive have been groupedtogether, regardless of maturity.

Financial statement amounts

Liabilities Net asset/Expected repricing and members' liabilityor maturity dates Assets equity mismatch

0-6 months $ 7,055,740 $ 5,354,650 $ 1,701,0906-12 months 2,011,770 3,896,880 (1,885,110)1-2 years 2,318,260 1,735,650 582,6102-3 years 2,017,940 1,042,770 975,1703-5 years 6,663,560 1,260,780 5,402,780Not interest sensitive 7,685,500 14,462,040 (6,776,540)

$ 27,752,770 $ 27,752,770 $ -

10.




SEPTEMBER 30, 2008

2. RISK MANAGEMENT (CONTINUED)

(b) Fair value of financial instruments

The amounts are designed to approximate the fair values of the Credit Union's financialinstruments using the valuation methods and assumptions described below. The estimated fairvalues disclosed do not reflect the value of items that are not considered financial instruments,such as capital assets. Since many of the Credit Union's financial instruments lack an availabletrading market, the fair values represent estimates of the current market value of instruments,taking into account changes in market rates that have occurred since their origination. Due to theestimation process and the need to use judgement, the aggregate fair value amounts should not beinterpreted as being necessarily realizable in an immediate settlement of the instruments.

The carrying value of the Credit Union's financial instruments is not adjusted to reflect changesin interest rates, as it is the Credit Union's intention to hold the instruments to maturity.

Estimated fair values of financial instruments are summarized as follows:

2008 2007

Fair Value Fair ValueFair Book Over Fair Book Over

Value Value Book Value Value Value Book Value

Assets:Cash $ 1,754,803 $ 1,754,803 $ - $ 1,924,053 $ 1,924,053 $ -Investments 4,692,025 4,692,025 - 2,825,122 2,825,122 -Member loans 20,015,561 20,015,561 - 17,899,785 17,899,785 -Other assets 260,218 260,218 - 116,214 116,214 -

Less:Liabilities:

Member deposits 25,582,666 25,582,666 - 21,880,862 21,880,862 -Other liabilities 288,612 288,612 - 254,261 254,261 -Shares 506,934 506,934 - 421,844 421,844 -

The following methods and assumptions were used to estimate the fair value of financialinstruments:

a) The fair values of cash, investments, other assets and other liabilities are assumed toapproximate book values, due to their short term nature.

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SEPTEMBER 30, 2008

(b) Fair value of financial instruments (Continued)

b) The estimated fair value of floating rate member loans and member deposits are assumed toequal book value as the interest rates automatically reprice to market. The fair value of fixedrate member deposits approximates their fair market value. In management's opinion, anydifference between fair values and book values of these financial instruments would not besignificant or material to these financial statements.

c) The estimated fair value of fixed rate member loans has not been calculated as it is notpracticable within constraints of timeliness or cost to determine the amounts with sufficientreliability. In determining fair market value of the loan portfolio, one must factor in price,credit, liquidity, and cashflow risk. In order to properly determine credit risk, one would haveto review each loan individually and determine the risks associated with that particular loanfile at the year end date. The credit risk is then calculated by the difference between thecurrent interest rate on that loan and the going market rate of a loan with similarcharacteristics. In management's opinion, the difference between fair values and book valuesof the loan portfolio would not be significant or material to these financial statements.

3. INVESTMENTS2008 2007

Held-to-maturityCUCNB - term deposits $ 1,500,000 $ -LSM - term deposit - 6,000

$ 1,500,000 $ 6,000

2008 2007

Fair Value Cost Accumulated Fair Value Cost AccumulatedOther Other

Comprehensive ComprehensiveIncome Income

Available-for-SaleCUCNB Liquidity $ 2,459,569 $ 2,459,569 $ - $ 2,046,744 $ 2,046,744 $ -CUCNB Shares 485,449 485,449 - 535,650 535,650 -CUCNB - Special 213,850 213,850 - 203,571 203,571 -LeagueData Shares 32,590 32,590 - 32,590 32,590 -LS&M Shares 567 567 - 567 567 -

$ 3,192,025 $ 3,192,025 $ - $ 2,819,122 $ 2,819,122 $ -

12.




SEPTEMBER 30, 2008

3. INVESTMENTS (CONTINUED)

2008 2007

Held-to-maturity $ 1,500,000 $ 6,000Available-for-sale 3,192,025 2,819,122Held-for-trading - -

Total investments $ 4,692,025 $ 2,825,122

Shares in Credit Union Central New Brunswick are required by the Credit Union Act to be held andare a condition of membership in Central. As required by the Credit Union Act, the Credit Union alsomaintains investments in Central to satisfy the legislated liquidity level. However all equities with nospecified maturity date are classified as available-for-sale. As there is no market for the shares inCentral, the fair value of the shares is at cost.

4. LOANS RECEIVABLE 2008 2007

Personal $ 11,288,086 $ 9,830,774Mortgages 8,250,846 7,572,867Commercial - 141,378Line of credit 524,426 410,072

20,063,358 17,955,091

Less : Allowance for credit losses

Balance at beginning of year 55,306 47,305Recovery of loans written off 7,184 8,001Provision for the year 40,000 -Loans written off (54,693) -

Balance at end of year 47,797 55,306

$ 20,015,561 $ 17,899,785

The allowance for credit losses consists of a specific allowance of $42,528 against gross loans of$43,626 and a general allowance of $5,269 against gross loans of $20,019,732.

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PSE Credit Union23



SEPTEMBER 30, 2008

5. CAPITAL ASSETS2008 2007

Accumulated Net Book Net BookCost Amortization Value Value

Land $ 220,100 $ - $ 220,100 $ 220,100Building 805,351 259,855 545,496 576,848Exterior sign 42,714 4,618 38,096 42,246Parking lot 43,624 12,435 31,189 33,661ATM 45,519 21,600 23,919 33,519Security equipment 80,906 47,328 33,578 37,910Furniture and fixtures 223,040 196,504 26,536 33,831Computer equipment 172,581 171,687 894 1,053

$ 1,633,835 $ 714,027 $ 919,808 $ 979,168

6. DEPOSITS 2008 2007

Term $ 6,880,496 $ 6,333,778Demand 8,193,658 6,076,712Chequing 4,906,819 4,493,098RRSP 4,098,337 3,685,383Plan 24 684,776 430,652Member life savings 558,621 653,133

$ 25,322,707 $ 21,672,756

7. LINE OF CREDIT

The Credit Union maintains an authorized line of credit with Credit Union Central in the amount of$550,000 with an interest rate of prime plus 1/4%. The line of credit, which was not utilized at yearend, is secured by deposits and an assignment of book debts.

8. RELATED PARTY TRANSACTIONS

Included in loans to members are loans to senior officers, directors and staff. The amount of theseloans is not material. These loans have been advanced on the same terms and conditions as have beenaccorded to all members of the Credit Union. There was no remuneration paid to directors or electedcommittee members during the year other than reimbursement for out-of-pocket expenses related toCredit Union business.

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SEPTEMBER 30, 2008

9. REGULATORY EQUITY2008 2007

Membership shares $ 225,668 $ 201,546

Section 30-1 of the Credit Unions Act describes shares as the capital of the Credit Union. Pursuant toPSE's by-laws, the value of each membership share is $5 and as a condition of membership each adultmember must hold 20 shares. These shares have various restrictions on withdrawal and are notcovered by Credit Union Deposit Insurance.

Surplus shares2008 2007

$ 281,266 $ 220,297

The Board of Directors has recommended a patronage rebate of 2% on loan interest paid and depositinterest received for the current fiscal year. This patronage rebate will be distributed to members assurplus shares this year. Surplus shares do not receive any interest, are subject to restrictions on theirwithdrawal and are not covered by Credit Union Deposit Insurance.

Retained Earnings2008 2007

$ 1,274,295 $ 1,190,066

Credit Union legislation

Credit Union legislation requires that each Credit Union maintain a minimum level of equity in theCredit Union to provide protection against potential financial losses. The requirement calls for equityto meet or exceed 5% of total assets. The following table indicates the equity level for Public ServiceEmployees at September 30, 2008. Surplus shares, as shown in the table, include accrued patronagerebate.

2008 2007

Membership shares 0.8 0.9Surplus shares 1.0 1.1Retained earnings 4.6 5.0

6.4 7.0

15.


SEPTEMBER 30, 2008

10. NET CHANGE IN NON-CASH BALANCES2008 2007

Increase (decrease) in:Accrued interest on deposits $ 51,853 $ 41,530Accrued patronage rebate (8,234) (20,044)Accounts payable and accrued liabilities 34,351 (76,965)Income taxes payable (15,249) 17,963

Decrease (increase) in:Accrued interest receivable 5,107 (1,829)Other receivable (133,862) 2,338Prepaid expenses 6,233 12,422Future income taxes (5,400) (6,000)

$ (65,201) $ (30,585)

11. OTHER INCOME2008 2007

Commissions $ 132,968 $ 112,098Service charges 217,604 185,467Other 48,206 57,964

$ 398,778 $ 355,529

12. INCOME TAXES

The statement of income contains items that are non-taxable or non-deductible for income taxpurposes, which causes the effective tax rate reflected in the current income tax provision to differfrom the combined statutory tax rate which is 16.5%. The main items impacting the provision arethe impaired loan reserve and capital assets.

16.

PSE Credit Union25



SEPTEMBER 30, 2008

13. BUSINESS ACQUISITION AND AMALGAMATION

The Credit Union purchased the assets and liabilities of Moncton Civic Credit Union Limited at theclose of business October 10, 2007. The transaction was accounted for by the purchase method asfollows:

Moncton Civic Credit Union Limited

Cash $ 58,029Investments with Credit Union Central:

Term deposit 400,000Special deposit 2,133Shares Credit Union Central NB 57,575Liquidity deposits 293,739

Accrued interest receivable 853Loans receivable 1,284,725Other receivable 3,310Capital assets 1,390Member deposits (1,926,059)Deposits (3,189)Accoutns payable and accrued liabilities (92,753)Membership shares (32,698)Surplus shares (47,055)

Adjustment to retained earnings $ -

Pursuant to articles of amalgamation effective at the date of close of business October 10, 2007,Public Service Employees Credit Union Limited and Moncton Civic Credit Union Limitedamalgamated to continue as Public Service Employees Credit Union Limited. The financialstatements reflect the results of the consolidated operations from the date of acquisition.

14. COMPARATIVE FIGURES

Certain 2007 figures have been reclassified to conform to the current year's financial statementpresentation.

17.



PSE Credit Union27

Election Changes and Recommendations

Duties and ResponsibilitiesArticle 6 of the current by-laws of PSE states:

(1) Every director and officer of the Credit Union, in exercising the power and discharging the duties of a director or an officer shall:

a. Act honestly and in good faith with a view to the best interest of the Credit Union, and

b. Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Nominating Committee Members:• DonMorton-Chairperson• GaryWilson-Vice-Chairperson,• IrnaGeddes-CustomerServiceRepresentative• DebiLittle–LoansManager

2007-2008The Nominating Committee is pleased to report that the following 4 owners are eligible to run for 4 vacancies on the PSE Credit Union Board of Directors at the time of printing this report.

Rowena BoyingtonTeam Leader with Public Works Government Services of Canada, an owner since 2002 and a PSE Director for the past 6 years. Rowena has enjoyed her time on the board and would like the opportunity to continue to make a difference within her community and credit union. John McKinleyRetired Revenue Canada Agency worker, an owner since 2000, and a PSE Director and Audit Committee Member for the past 3 years. John looks to serve within a organization that operates with a philosophy that he believes in.

Mike MoreyGeneral Manager of a local IT service company, South Hampton Computers, an owner since 2001, and a PSE Director for the past 6 years. Mike looks forward to offering his experience, knowledge and time to continue to the help with the development and growth of PSE Credit Union.

Klaus ReiblingRetired Civil Servant, an owner for over 30 years. Klaus brings many years of experience in dealing with people and a willingness to learn. Klaus looks at PSE as an extended family member which means he cares very much for the wellbeing and success of PSE Credit Union. As PSE continues to grow, Klaus would like to help lead PSE into the future.

Recommendations

Recommendation #1It is recommended that the auditing firm of Stevenson & Partners LLP be appointed the external auditors for the Credit Union for the fiscal year ending September 30, 2009.

Recommendation #2It is recommended that the Board of Directors be empowered to appoint the delegates to all Credit Union related functions held during the period from now to the date of the 2009 Annual Meeting of the Credit Union.

Recommendation #3Surplus Shares Patronage RebatePSE Credit Union Limited may pay to our owners an annual Patronage Rebate from the credit union’s surplus earnings. The amount of the rebate this year will be based upon the interest paid by our owners on their loans during the fiscal year as well as the interest paid to our owners on their deposits during the fiscal year. The Board recommends a Patronage Rebate of 2.00%.

2008

Ann

ual R

epo

Rt

www.psecreditunion.ca

PSE

PSE

141 Weldon StreetMoncton, NB

E1C 5W1

Telephone: (506) 853-8881Fax: (506) 856-8492

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