VolCorp 2022 Financial Report

FINANCIAL

2022 REPORT

TABL

CONT

FINANCIAL ANALYSIS

Regulatory Considerations Regulatory Topics Retained Earnings and Capital Net Economic Value Analysis Assets and Member Loans Investments Earnings Liquidity

1

LE OF

TENTS

CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report Financial Statements Notes to Consolidated Financial Statements Internal Control Over Financial Reporting

15

FINAN

ANAL

Regulatory Co Regulatory Topics, and Capital, Net Analysis, Assets a Investments, Ea 1

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NCIAL

LYSIS

onsiderations, Retained Earnings Economic Value nd Member Loans, rnings, Liquidity 2

FINANCIAL

2022

REPORT

REGULATORY CONSIDERATIONS An integral part of a credit union’s investment policies, procedures and practices is the analysis of all institutions in which it has invested its surplus funds—including corporate credit unions. Part 703 of the National Credit Union Administration’s (NCUA) Rules and Regulations states: “A Federal credit union must conduct and document a credit analysis on an investment and the issuing entity before purchasing it, except for investments issued or fully guaranteed as to principal and interest by the U.S. government or its agencies, enterprises, or corporations or fully insured (including accumulated interest) by the National Credit Union Administration or the Federal Deposit Insurance Corporation. A Federal credit union must update this analysis at least annually for as long as it holds the investment.”

ASSETS

(in thousands)

DECEMBER 31, Cash and Uncollected Cash Items

2022

2021

2020

2019

2018

$549,266

$1,380,273

$1,388,367

$500,608

$338,626

-

308

328

248

355

845,633

855,627

877,066

473,819452,322

Certificates of Deposit and balances with other financial institutions U.S. Government agency securities Asset-backed Securities

82,240

123,316

187,332

328,134

364,179

Federal Home Loan Bank Stock

14,918

5,157

5,425

9,722

11,315

-

20,372

20,372

-

-

2,685

3,389

3,097

2,706

2,525

$945,476

$1,008,169

$1,093,620

$814,629

$830,696

(19,050)

2,487

2,149

(581)

(2,528)

Net Investments

$926,426

$1,010,656

$1,095,769

$814,048

$828,168

Member Loans

54,677

1,454

3,597

5,531

32,237

Premises and Equipment, net

3,816

3,315

3,534

3,506

3,572

NCUSIF Capitalization Deposit

666

679

672

659

669

All Other Assets

11,172

8,024

9,043

15,553

9,660

TOTAL ASSETS

$1,546,023

$2,404,401

$2,500,982

$1,339,905

$1,212,932

Central Liquidity Facility membership stock CUSO Investments Total Investments Unrealized Gains and Losses on AFS

3

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Though NCUA’s investment regulation specifically exempts state-chartered credit unions, many are using the regulation as a guideline in their investment policies, procedures, and practices. Recognizing the analysis of a corporate credit union can be burdensome, we are providing you with this summary analysis of Volunteer Corporate Credit Union.

LIABILITIES & EQUITY (in thousands)

DECEMBER 31,

2022

2021

2020

2019

2018

Deposits in Collection

$82,194

$41,681

$84,499

$80,988

$87,488

Accrued expenses and other liabilities

3,472

3,599

1,846

205

3,964

Federal Home Loan Bank Notes Payable

178,757

-

-

-

190,000

Total Liabilities

$264,423

$45,280

$86,345

$81,193

$281,452

Daily Shares

1,147,393

2,228,932

2,303,156

1,154,141

832,485

Term Shares

486

683

851

233

2,183

Total Shares

$1,147,879

$2,229,615

$2,304,007

$1,154,374

$834,668

69,242

69,242

69,242

69,242

69,242

863

863

863

863

863

Retained Earnings

82,666

56,914

38,376

34,814

29,235

Unrealized Gains and Losses on AFS

(19,050)

2,487

2,149

(581)

(2,528)

Total Capital

$133,721

$129,506

$110,630

$104,338

$96,812

$1,546,023

$2,404,401

$2,500,982

$1,339,905

$1,212,932

CLF Membership Notes Payable

Perpetual Contributed Capital Equity acquired in merger

TOTAL LIABILITIES AND EQUITY

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FINANCIAL

2022

REPORT

REGULATORY TOPICS Capital Requirements of NCUA’s Rules and Regulations 704 “(1) A corporate credit union must maintain at all times: (i) A leverage ratio of 4.0 percent or greater; (ii) A Tier 1 risk-based capital ratio of 4.0 percent or greater; and (iii) A total risk-based capital ratio of 8.0 percent or greater.

(2) To ensure it meets its capital requirements, a corporate credit union must develop and ensure implementation of written short- and long-term capital goals, objectives, and strategies which provide for the building of capital consistent with regula-

TOTAL CAPITAL

tory requirements, the maintenance of sufficient capital to support the risk expo-

(in thousands)

($Thous)

sures that may arise from current and projected activities, and the periodic review and

$140,000

reassessment of the capital position of the 120,000

corporate credit union.

(3) Beginning with the first call report submitted

100,000

on or after October 21, 2013, a corporate credit union must calculate and report to

80,000

NCUA the ratio of its retained earnings to its 60,000

moving daily average net assets. If this ratio is less than 0.45 percent, the corporate

40,000

credit union must, within 30 days, submit a retained earnings accumulation plan to the

20,000

NCUA for NCUA’s approval. The plan must Dec. 2018

minimum leverage ratio requirements,

Dec. 2019

earnings sufficient to meet all its future

Dec. 2020

corporate credit union will accumulate

Dec. 2021

0

Dec. 2022

contain a detailed explanation of how the

including specific semiannual milestones for accumulating retained earnings. In the case of a state-chartered corporate credit union, the NCUA will consult with the appropriate state supervisory authority (SSA) before making a determination to approve or disapprove the plan, and will provide the SSA a copy of the completed plan. If the corporate credit union fails to submit a plan acceptable to NCUA, or fails to comply with any element of a plan approved by NCUA, the corporate will immediately be classified as significantly undercapitalized or, if already significantly undercapitalized, as critically undercapitalized for purposes of prompt corrective actions. The corporate credit union will be subject to all the associated actions under §704.4.”

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Definitions Under Part 704 of NCUA’s Rules and Regulations Leverage ratio means the ratio of Tier 1 capital to moving daily average net assets.

Retained earnings means undivided earnings, regular reserve, reserve for contingencies, supplemental reserves, reserve for losses, GAAP equity acquired in a merger, and other appropriations from undivided earnings as designated by management or the NCUA. Total capital means the sum of Tier 1 capital and Tier 2 capital, less the corporate credit union’s equity investments not otherwise deducted when calculating Tier 1 capital.

Tier 1 capital means the sum of paragraphs (1) and

RETAINED EARNINGS RATIO

(2) of this definition from which items in paragraphs (3) through (6) are deducted:

5.00%

(1) Retained earnings; (2) Perpetual contributed capital;

4.50%

(3) Deduct the amount of the corporate credit 4.00%

union’s intangible assets that exceed one half percent of its moving daily average net

3.50%

assets (however, the NCUA may direct the corporate credit union to add back some of

3.00%

these assets on the NCUA’s own initiative, 2.50%

or the NCUA’s approval of petition from the applicable state regulator or application

2.00%

from the corporate credit union); (4) Deduct investments, both equity and debt,

1.50%

in unconsolidated CUSOs; (5) Deduct an amount equal to any PCC or NCA

1.00%

that the corporate credit union maintains at 0.50%

another corporate credit union; (6) Deduct any amount of PCC received from

0

Dec. 2018

Dec. 2019

Dec. 2020

Dec. 2021

Dec. 2022

federally insured credit unions that causes PCC minus retained earnings, all divided by moving daily average net assets, to exceed two percent when a corporate credit union’s retained earnings ratio is less than two and a half percent.

6

FINANCIAL

2022

REPORT

REGULATORY TOPICS (Continued) Definitions Under Part 704 of NCUA’s Rules and Regulations Tier 1 risk-based capital ratio means the ratio of Tier 1 capital to the moving monthly average net risk-weighted assets.

Tier 2 capital means the sum of paragraphs (1) through (4) of this definition: (1) Nonperpetual capital accounts, as amortized under §704.3(b)(3);

LEVERAGE RATIO

(2) Allowance for loan and lease losses calculated under GAAP to a maximum of 1.25 percent of risk-weighted assets; (3) Any PCC deducted from Tier 1 capital; and

9.00%

(4) Forty-five percent of unrealized gains on 8.00%

available-for-sale equity securities with readily determinable fair values. Unrealized

7.00%

gains are unrealized holding gains, net of unrealized holding losses, calculated as the

6.00%

amount, if any, by which fair value exceeds historical cost. NCUA may disallow such inclusion in the calculation of Tier 2 capital if

5.00% 4.00%

NCUA determines that the securities are not prudently valued.

3.00%

Total risk-based capital ratio means the ratio of total capital to moving monthly average net risk-

2.00% 1.00%

weighted assets.

Dec. 2018

BEFORE

Dec. 2019

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Dec. 2020

inator.

Dec. 2021

the above ratios are also deducted from the denom-

Dec. 2022

0

Any amounts deducted from the numerator of

RETAINED EARNINGS AND CAPITAL A corporate credit union’s balance sheet reflects the liquidity needs and cash flows of its member credit unions.

Therefore, it is not unusual for a corporate credit union to experience asset fluctuations of 25 percent or more, not only from month-to-month, but at times within periods of less than 30 days. In addition, corporate credit union month-end assets are often significantly inflated due to routine payrolls that flow into their member credit unions. In recognition of the distortion such fluctuations can cause, NCUA corporate credit union regulations call for the use of the corporates’ moving daily average net assets (MDANA) when calculating key financial ratios.

Even with an expectation of cyclical flows throughout any given year, macroeconomic events can disrupt

RETAINED EARNINGS

historical trends. After two years of elevation from

(in thousands)

economic stimulus, deposits and assets began to subside to more normal levels during 2022,

$90,000

particularly during the latter half of the year. This resulted in a 31% year over year decline in MDANA from $2.6 billion at December 31, 2021 to $1.8 billion at December 31, 2022.

80,000 70,000 60,000

While the decline in MDANA was additive to increases in regulatory capital ratios, both a

50,000

successful year of business operations and additional 40,000

claim payments from the U.S. Central Asset Management Estate enabled significant retained

30,000

earnings and capital growth, ending 2022 at $83.5 and $150.1 million respectively which represents

20,000

increases of $26 million from their respective 2021 ending balances. This resulted in a retained earnings

10,000

ratio of 4.60 percent at December 31, 2022, as

0

8

FINANCIAL

2022

REPORT

Dec. 2018

from 4.72 percent at December 31, 2021.

Dec. 2019

“well capitalized” at 8.26 percent, an increase

Dec. 2020

At year-end 2022, VolCorp’s leverage ratio was

Dec. 2021

Dec. 2022

compared to 2.21 percent at December 31, 2021.

NET ECONOMIC VALUE ANALYSIS The NEV of a corporate credit union is defined as the difference between the book value of regulatory total capital and the mark-to-market value of assets and liabilities at current interest rates. Such NEV is computed as the sum of the present values of a time series of cash flows from assets (including the value of embedded options) minus the sum of the present values of a time series of cash flows from liabilities (including the value of embedded options). NEV is a point-in-time measurement based on a given balance sheet date, and is measured in terms of a Base scenario (i.e., the existing market interest rate environment on said balance sheet date) and certain rate shock scenarios keyed off such Base scenario in intervals of +/- 100, 200 and 300 basis points (collectively, the industry-standard rate shock scenarios). A corporate’s Base NEV Ratio is computed by dividing the residual Base NEV by the mark-to-market value of the Base total assets. NEV is a measure of, and the NEV Ratio is an indicator of, the inherent interest rate risk embedded in the balance sheet structure of a financial institution. Base NEV serves as a proxy assessment of the residual post-liquidation value of the financial institution under certain interest rate environments. Under Part 704.8(d)(1)(ii) of its Rules and Regulations for all corporate credit unions, those corporates operating under Base Plus authority as granted by the NCUA Board of Directors (see below) must maintain a minimum Base NEV Ratio of 2.00% and a maximum permissible downward NEV shift of negative 20.00% from Base NEV. In addition, the NCUA Board set identical minimum NEV Ratio limits and maximum permissible downward NEV shift limits for the aforementioned industry-standard rate shock scenarios. By definition, shocking a corporate’s balance sheet means determining/measuring the impact on Base NEV and the Base NEV Ratio of an instantaneous, parallel, and sustained upward and/or downward shift of market interest rates. The NEV shift represents the percentage increase and/or decrease of NEV under any or all of the industry-standard rate shock scenarios.

MOVING DAILY AVERAGE ASSETS (in thousands)

$2,600,000 2,400,000 2,200,000 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000

Dec

Nov

Oct

Sep

Aug

Jun VOLCORP

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Jul

May

Apr

Mar

Feb

Jan

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The permissible downward NEV shift is dependent, in part, upon the level of authority granted each corporate credit union by the NCUA Board. As a starting point, all corporate credit unions have the authority to operate at Base level. At this level, the permissible shift in the corporates’ NEV Ratio is negative 15.00% under the industry-standard rate shock scenarios. Each corporate credit union may petition the NCUA Board to operate under expanded authority. To obtain such expanded authority, the corporate credit union must meet all the requirements of Part 704 of the NCUA’s Rules and Regulations and fulfill additional capital, management, infrastructure, and asset liability requirements. In September 1997, VolCorp’s Board of Directors requested authority to operate at the expanded level referred to as Base Plus. In November 1997, VolCorp became the first corporate credit union to receive authority by the NCUA Board to operate above Base level at Base Plus authority level. At such Base Plus level, VolCorp’s permissible negative NEV shift expanded downward to negative 20.00% from negative 15.00% under Base authority.

As of December 31, 2022, VolCorp’s Base NEV totaled $133.9 million, the Base NEV Ratio was 8.66%, and the NEV shift showed a decrease of $13.5 million/-10.09% under the regulatory +300 basis point rate shock scenario. These results were well within the NEV risk limits as defined and stipulated by the aforementioned NCUA regulation. The following tabulation provides full disclosure of the impact of the NCUA regulatory interest rate shock scenarios on VolCorp’s Base NEV and Base NEV Ratio as of December 31, 2022:

NEV (thous.)

NEV (from Base, thous.) %

NEV (from Base)

-300bp

-200bp

-100bp

Base

+100bp

+200bp

+300bp

$148,279

$143,285

$138,441

$133,859

$129,425

$124,962

$120,353

$14,420

$9,425

$4,581

$

0

$(4,434)

$ (8,897)

$(13,507)

10.77%

7.04%

3.42%

0.00%

(3.31)%

(6.65)%

(10.09)%

10

FINANCIAL

2022

REPORT

ASSETS Cash and Investments The quality of a financial institution’s assets is one of the most important factors contributing to its financial soundness. As of December 31, 2022, 99 percent of VolCorp’s assets consisted of cash and uncollected cash items, loans to member credit unions, and high-quality, low credit-risk investments. Cash holdings are concentrated in the Federal Reserve Bank.

Furthermore, as of December 31, 2022, 99 percent of VolCorp’s marketable securities holdings were rated AAA or AA by S&P, and 91 percent were issued or guaranteed by U.S. Government Agencies. VolCorp monitors the quality of its assets through extensive monthly credit analyses and portfolio modeling. As of December 31, 2022, the continued quality and structure of VolCorp’s portfolio was illustrated in that VolCorp had a marketable securities portfolio totaling $906 million with a net unrealized loss of $19 million. Due to the short-term nature of VolCorp’s investment holdings and the 425-basis point upward movement in the Federal Reserve Bank’s Federal Funds Target Range over the course of 2022, the mere 2% net unrealized loss on marketable securities at year-end reflects the heavy concentration in floating rate instruments.

When making investment decisions, VolCorp has always prioritized safety, CASH AND liquidity, and yield. In order to minimize UNCOLLECTED ITEMS LOANS credit risk, VolCorp’s policies allow 35.53% 3.54% funds to be placed only in limited government-sponsored enterprises and agencies, the Federal Reserve Bank, or in other highly rated securities and top-rated banks and domestically chartered corporations.

These policies further limit investments in banks, corporations, and securities individually and in aggregate, and require extensive DISTRIBUTION analysis and monitoring. VolCorp’s (DECEMBER31, 31,2022) 2021) (DECEMBER approved-institution analysis considers size, capital adequacy, asset quality, management, earnings performance, and liquidity. The quality of assets held is ultimately reflected in the Tier 1 risk-based capital ratio of 71.92% at December 31, 2022, which OTHER ASSETS is much greater than its respective 1.01% INVESTMENTS “well capitalized” threshold of 6.00%.

ASSET

59.92%

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Member Loans VolCorp has the responsibility of serving as the primary source of cash liquidity to meet the needs of its membership, while also protecting the deposits of its individual member credit unions. In response to these needs, as of December 31, 2022, VolCorp had extended 255 lines of credit to member credit unions totaling over $1.8 billion of funding commitments. Further as of that date, outstanding loans and lines of credit to members totaled $54.7 million, or 3.54% of total assets, with all loans showing as current without exception.

The quality of the loan portfolio is governed by the loan policy established by the Board of Directors and by the procedures established by management to effect full implementation of said policies to include strict adherence to consistent underwriting practices. Each line of credit is collateralized and secured by VolCorp filing a UCC1 Financing Statement to establish and perfect a first priority security interest in designated assets of the borrowing credit union. A proactive credit review of all lines is performed quarterly by way of detailed tracking of select financial health ratios. Based on this review, it is determined which credit unions require monitoring on a more frequent basis and which credit unions may benefit from VolCorp reaching out to offer additional assistance. Since its charter, VolCorp has never charged off a loan to a member credit union and has a perfect record of zero credit losses.

FHLB & OTHER FINANCIAL INSTITUTIONS 1.61%

ASSET-BACKED SECURITIES 8.72%

CUSO’S 0.29%

INVESTMENT DISTRIBUTION

(DECEMBER (DECEMBER31, 31,2022) 2021)

U.S. GOVERNMENT AGENCY SECURITIES 89.38%

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FINANCIAL

2022

REPORT

EARNINGS Like all credit unions, VolCorp is a not-for-profit financial cooperative, existing solely for the benefit of its members. VolCorp strives to help members improve their financial position by providing superb yet costeffective services and attractive investment yields. VolCorp does not maximize earnings at the expense of its member owners. It is also not the policy of VolCorp to increase earnings by jeopardizing the safety of the membership’s shares and capital through high risk investments or investment practices. Even so, VolCorp must maintain a stable earnings position in order to pay dividends, cover budgeted expenses, innovate, maintain capital adequacy, and meet statutory reserve requirements.

VolCorp’s earnings and member share rates both benefited during 2022 with the relatively rapid increases in overnight rates, resulting in 2022’s net interest income of $9.9 million. U.S. Central distributions and growth in service-driven revenue bolstered non-interest operating income to $31.9 million. After operating expenses of $14.9 million and net non-operating expense of $234 thousand, 2022’s net income rested at $26.6 million for a 146-basis point return on MDANA.

COMPARATIVE INCOME (in thousands)

Year ended December 31,

2022

2021

2020

2019

2018

Cash

$29,917

$3,644

$3,944

$11,208

$6,097

Investments

16,392

5,516

8,912

20,513

19,416

719

17

36

529

576

47,028

9,177

12,892

32,250

26,089

36,333

6,207

4,707

20,723

13,543

Interest on Borrowed Funds

829

-

22

730

2,932

Total Interest Expense

37,162

6,207

4,729

21,453

16,475

9,866

2,970

8,163

10,797

9,614

-

-

-

-

5

7,947

8,133

8,024

8,271

8,194

U.S. Central AME Distributions

23,924

32,672

-

-

-

Total Non-Interest Income

31,871

40,805

8,024

8,271

8,199

Salaries and Benefits

8,110

7,301

6,714

6,286

5,722

Other

6,996

6,565

5,721

5,905

5,391

Total Non-Interest Expenses

15,106

13,866

12,435

12,191

11,113

Net Contribution to Retained Earnings

$26,631

$29,909

$3,752

$6,877

$6,700

Interest Income

Loans Total Interest Income Interest Expense Dividends on Shares

Net Interest Income Non-Interest Income Gain (Loss) on Securities Other

Non-Interest Expenses

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LIQUIDITY VolCorp balances the responsibilities of providing competitive returns with the need to maintain sufficient liquidity to meet members’ cash flow needs. VolCorp holds adequate cash and overnight investments to provide for reasonable cash flow demands while managing an investment portfolio predominantly comprised of floating rate instruments which are, in general, less sensitive to unfavorable valuations in an upward interest rate environment relative to comparable fixed rate investments. Management understands and anticipates daily and seasonal variances, but also plans for unexpected outflows and member needs. VolCorp’s liquidity position is monitored daily and adjusted as necessary.

As of December 31, 2022, the cash and cash equivalents balance of $549 million represented 35% of assets, highlighting a balance sheet structured to provide for routine member liquidity. However, VolCorp also has access to multiple lines of credit. VolCorp maintains credit arrangements with the Federal Home Loan Bank of Cincinnati and holds federal funds lines of credit with regional banks. At year-end 2022 these arrangements represented total contractual amounts of $732 and $85 million respectively, of which $638 million was available net of an outstanding FHLB overnight advance.

VolCorp also acts as an agent in the Federal Reserve Bank’s Excess Balance Account (EBA) program for a subset of its membership. The EBA allows excess member deposits to reside on balance sheet with the Federal Reserve Bank, providing VolCorp the flexibility to manage its balance sheet with access to additional member funding if necessary.

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FINANCIAL

2022

REPORT

CONSOL

FINAN

STATEM

Independent Au Financial Statem Consolidated Fina Internal Control Over

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LIDATED

NCIAL

MENTS

uditors’ Report, ments, Notes to ancial Statements, r Financial Reporting

16

FINANCIAL

2022

REPORT

Volunteer Corporate Credit Union and Subsidiary CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021

REPORT Independent Auditors’ Report ...........................................................................................

1

FINANCIAL STATEMENTS Consolidated Balance Sheets .............................................................................................

5

Consolidated Statements of Income ..................................................................................

6

Consolidated Statements of Comprehensive Income (Loss) .............................................

7

Consolidated Statements of Changes in Members’ Equity ................................................

8

Consolidated Statements of Cash Flows ............................................................................

9

Notes to Consolidated Financial Statements .....................................................................

10

INTERNAL CONTROL OVER FINANCIAL REPORTING Management Report Regarding Statement of Management’s Responsibilities, Compliance with Designated Laws and Regulations, and Management’s Assessment of Internal Control over Financial Reporting..................................................

25

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Supervisory Committee of Volunteer Corporate Credit Union and Subsidiary Report on the Financial Statements and Internal Control Opinions on the Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated financial statements of Volunteer Corporate Credit Union and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income (loss), changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Volunteer Corporate Credit Union and Subsidiary as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

We also have audited Volunteer Corporate Credit Union and Subsidiary’s internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the National Credit Union Administration (NCUA) 5310 – Corporate Credit Union Call Report, as of December 31, 2022, based on criteria established in Internal Control ‐ Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, Volunteer Corporate Credit Union and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control ‐ Integrated Framework (2013) issued by COSO. Basis for Opinions We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audits of the Financial Statements and Internal Control Over Financial Reporting section of our report. We are required to be independent of Volunteer Corporate Credit Union and Subsidiary and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

‐1‐

Responsibilities of Management for the Financial Statements and Internal Control Over Financial Reporting Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of effective internal control over financial reporting relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for its assessment about the effectiveness of internal control over financial reporting, included in the accompanying Management's Report Regarding Statement of Management's Responsibilities, Compliance with Designated Laws and Regulations, and Management's Assessment of Internal Control over Financial Reporting.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Volunteer Corporate Credit Union and Subsidiary’s ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.

Auditors’ Responsibilities for the Audits of the Financial Statements and Internal Control Over Financial Reporting Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and about whether effective internal control over financial reporting was maintained in all material respects, and to issue an auditors’ report that includes our opinions.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit of financial statements or an audit of internal control over financial reporting conducted in accordance with GAAS will always detect a material misstatement or a material weakness when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit of the consolidated financial statements and an audit of internal control over financial reporting in accordance with generally accepted auditing standards, we:  



Exercise professional judgment and maintain professional skepticism throughout the audits.

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Obtain an understanding of internal control relevant to the consolidated financial statement audit in order to design audit procedures that are appropriate in the circumstances.

‐2‐







Obtain an understanding of internal control over financial reporting relevant to the audit of internal control over financial reporting, assess the risks that a material weakness exists, and test and evaluate the design and operating effectiveness of internal control over financial reporting based on the assessed risk.

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Volunteer Corporate Credit Union and Subsidiary’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the consolidated financial statement audit.

Definition and Inherent Limitations of Internal Control over Financial Reporting An institution’s internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 704.15 of the NCUA Regulations, our audit of Volunteer Corporate Credit Union and Subsidiary’s internal control over financial reporting included controls over the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and controls over the preparation of schedules equivalent to basic financial statements in accordance with the instructions for the National Credit Union Administration NCUA 5310 – Corporate Credit Union Call Report. An institution’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the institution; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the institution are being made only in accordance with authorizations of management and those charged with governance; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the institution’s assets that could have a material effect on the consolidated financial statements.

‐3‐

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements. Also, projections of any assessment of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Nashville, Tennessee June 6, 2023

‐4‐

Volunteer Corporate Credit Union and Subsidiary Consolidated Balance Sheets (In Thousands) December 31, Assets Cash Uncollected cash items Cash and cash equivalents

2022 $

Certificates of deposit Federal Home Loan Bank stock Central Liquidity Facility membership stock Securities available for sale, at fair value Investment in Credit Union Service Organizations Loans to members and member affiliates Accrued interest receivable and other assets Premises and equipment, net National Credit Union Share Insurance Fund deposit Total assets

$

2021

462,729 86,537 549,266

1,338,355 41,918 1,380,273

‐ 14,918 ‐ 908,823 2,685 54,677 11,172 3,816 666

308 5,157 20,372 981,430 3,389 1,454 8,024 3,315 679

1,546,023

$

2,404,401

Liabilities and members' equity Liabilities Members’ depository accounts Deposits in collection Accrued expenses and other liabilities Federal Home Loan Bank advances

1,147,879 82,194 3,472 178,757

2,229,615 41,681 3,599 ‐

Total liabilities

1,412,302

2,274,895

Members' equity Perpetual contributed capital Equity acquired in merger Retained earnings Accumulated other comprehensive income (loss)

69,242 863 82,666 (19,050)

69,242 863 56,914 2,487

Total members' equity

133,721

129,506

1,546,023 $

2,404,401

Total liabilities and members' equity

$

The accompanying notes are an integral part of these consolidated financial statements. ‐5‐

Volunteer Corporate Credit Union and Subsidiary Consolidated Statements of Income (In Thousands) For the Years Ended December 31, Interest and dividend income Cash Investments Loans to members and member affiliates

2022 $

2021

29,917 16,392 719

3,644 5,516 17

Total interest and dividend income

47,028

9,177

Interest expense Members' depository and share accounts Federal Home Loan Bank advances

36,333 829

6,207 ‐

Total interest expense

37,162

6,207

Net interest income

9,866

2,970

Non‐interest income Item processing Income (loss) from investment in Credit Union Service Organizations Currency services Corporate credit union liquidation distributions Other

2,649

2,563

(144) 1,869 23,924 3,573

292 1,875 32,672 3,403

Total non‐interest income

31,871

40,805

Non‐interest expense Salaries and benefits Office operations and occupancy Professional and outside services Travel and conferences Other

8,110 4,363 936 187 1,510

7,301 4,174 1,232 119 1,040

Total non‐interest expense

15,106

13,866

26,631 $

29,909

Net income

$

The accompanying notes are an integral part of these consolidated financial statements. ‐6‐

Volunteer Corporate Credit Union and Subsidiary Consolidated Statements of Comprehensive Income (Loss) (In Thousands) For the Years Ended December 31, Net income Other comprehensive income (loss): Unrealized gain (loss) on available for sale securities Other comprehensive income (loss) Total comprehensive income

$

$

2022 26,631

$

2021 29,909

(21,537)

338

(21,537) 5,094 $

338 30,247

The accompanying notes are an integral part of these consolidated financial statements. ‐7‐

Volunteer Corporate Credit Union and Subsidiary Consolidated Statements of Changes in Members’ Equity (In Thousands)

Equity Acquired in Merger

Perpetual Contributed Capital Balance at January 1, 2021

$

69,242 $

863 $

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

38,376 $

2,149 $

Total 110,630

Perpetual contributed capital dividends

‐

‐

(35)

‐

(35)

Non‐pro rata capital dividends

‐

‐

(11,336)

‐

(11,336)

Net income

‐

‐

29,909

‐

29,909

Unrealized gains on securities available for sale

‐

‐

‐

338

338

69,242

863

56,914

2,487

129,506

Perpetual contributed capital dividends

‐

‐

(879)

‐

(879)

Net income

‐

‐

26,631

‐

26,631

Unrealized losses on securities available for sale

‐

‐

‐

(21,537)

(21,537)

(19,050) $

133,721

Balance at December 31, 2021

Balance at December 31, 2022

$

69,242

$

863 $

82,666

$

The accompanying notes are an integral part of these consolidated financial statements. ‐8‐

Volunteer Corporate Credit Union and Subsidiary Consolidated Statements of Cash Flows (In Thousands) For the Years Ended December 31, Operating activities Net income $ Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Net amortization (accretion) of securities Net (gain) loss on sale of premises and equipment Loss (income) from investment in Credit Union Service Organizations Net change in accrued interest receivable and other assets Net change in accrued expenses and other liabilities Net cash provided by (used in) operating activities

Supplemental cash flow information: Interest paid Non‐cash item ‐ Unrealized gain (loss) on available for sale securities

2021

26,631 $

29,909

661 76 ‐

553 238 19

144 (3,148) (127) 24,237

(292) (389) 1,753 31,791

308 (9,761) 20,372 (53,223)

20 268 ‐ 2,143

13 (255,710) 306,704

(7) (154,655) 241,280

560 (1,162) ‐ 8,101

‐ (373) 20 88,696

$

(1,081,736) 40,513 178,757 ‐ (879) (863,345) (831,007) 1,380,273 549,266 $

(74,392) (42,818) ‐ (11,336) (35) (128,581) (8,094) 1,388,367 1,380,273

$

37,117 $

6,207

$

(21,537) $

338

Investing activities Net change in certificates of deposit with other financial institutions Net change in Federal Home Loan Bank stock Net change in Central Liquidity Facility Membership stock Net change in loans to members and member affiliates Net change in National Credit Union Share Insurance Fund deposit Purchases of securities Maturities, prepayments, and calls of securities Return of investment from Credit Union Service Organization Purchases of premises and equipment Proceeds from sale of premises and equipment Net cash provided by (used in) investing activities Financing activities Net change in members’ depository accounts Net change in deposits in collection Proceeds from Federal Home Loan Bank advances, net Non‐pro rata capital dividends Payment of perpetual contributed capital dividends Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

2022

The accompanying notes are an integral part of these consolidated financial statements. ‐9‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 1: DESCRIPTION OF BUSINESS Volunteer Corporate Credit Union and Subsidiary (VolCorp) was created in April 1981 by the general assembly of the State of Tennessee to function as a credit union support system to credit unions in Tennessee to facilitate mergers, joint ventures, and cooperative efforts and to provide credit unions with investment, liquidity, and payment system services. VolCorp is regulated by the Tennessee Department of Financial Institutions’ Credit Union Division and the National Credit Union Administration (NCUA).

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of VolCorp conform to accounting principles generally accepted in the United States of America and to general practices within the credit union industry. The following represent the more significant of those policies and practices: Principles of Consolidation The accompanying consolidated financial statements include the accounts of VolCorp and its wholly‐owned subsidiary, Symphony, LLC. Symphony, LLC was formed in November 2020. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Accounting The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Financial Accounting Standards Board (FASB) provides authoritative guidance regarding U.S. GAAP through the Accounting Standards Codification (ASC) and related Accounting Standards Updates (ASUs).

Use of Estimates The preparation of U.S. GAAP consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near term are related to estimating the fair value of financial instruments and the status of contingencies.

Financial Instruments and Concentrations of Credit Risk In the normal course of business, VolCorp invests in highly rated domestic corporations and uses nationally recognized broker/dealers in the execution of trades for financial instruments. Exposure to individual counterparties may be significant. In providing financial services solely to the credit union industry, VolCorp is dependent upon the viability of that industry.

At December 31, 2022, VolCorp had $42,578 in deposits held at other financial institutions that were in excess of Federal Deposit Insurance Corporation coverage limits.

‐ 10 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents Cash and cash equivalents includes cash, deposits held at other financial institutions, and uncollected cash items with original maturities fewer than 90 days.

Uncollected Cash Items and Deposits in Collection These accounts represent deposits made by VolCorp’s members that have not cleared the Federal Reserve Bank (Federal Reserve). Such amounts generally become available for investment or withdrawal by members within one to three days. The uncollected cash items represent the amounts due from the Federal Reserve, and the deposits in collection represent the amount due to the members when they become available. These amounts are not interest bearing.

Transactions as Agent VolCorp acts as an agent in facilitating overnight investment transactions between participating member credit unions and the Federal Reserve. Transactions with the Federal Reserve are facilitated via the Excess Balance Account (EBA) pursuant to Regulation D. VolCorp acts as intermediary for these transactions but is not otherwise obligated by the transaction. VolCorp's consolidated financial statements do not reflect these transactions except for the fees earned. At December 31, 2022 and 2021, VolCorp was agent for participating member credit unions on EBA funds totaling $827,845 and $1,712,500, respectively.

Certificates of Deposit These items are certificates of deposit in various institutions.

Federal Home Loan Bank stock, at Cost Federal Home Loan Bank (FHLB) capital stock, can only be sold at par or a value as determined by the issuing institution and only to the respective institution or to another member institution. These securities are recorded at cost and evaluated annually for possible impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Central Liquidity Facility Membership Stock Central Liquidity Facility (CLF) membership stock, can only be sold at par or a value as determined by the CLF and only to the CLF. These securities are recorded at cost and evaluated annually for possible impairment. VolCorp became a member of the CLF as an agent on behalf of a subset of its member credit unions to provide those credit unions access to extensions of credit from the CLF based on liquidity needs. VolCorp does not have access to extensions of credit through the CLF. Volcorp redeemed this stock in 2022 and was not a member as an agent as of December 31, 2022.

‐ 11 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Securities VolCorp has adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320 Debt and Equity Securities which requires all investments in debt securities and all investments in equity securities that have readily determinable fair values to be classified into three categories as follows: Trading Securities Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value with unrealized gains and losses included in earnings. No securities have been classified as trading securities.

Securities Held to Maturity Debt securities that VolCorp has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost using a method that does not differ materially from the level interest yield method.

Securities Available for Sale Debt securities not classified as either held to maturity debt securities or trading securities are classified as available for sale securities and reported at estimated fair value with unrealized gains and losses excluded from earnings and reported as other comprehensive income (loss) within members’ equity.

If quoted market prices are not available, fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Declines in the fair value of securities below their cost that are related to credit losses and are other‐than‐temporary are reflected as realized losses. In estimating other‐than‐temporary losses, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near‐term prospects of the issuer, (3) the financial condition and near‐ term prospects of the underlying collateral with loan level due diligence performed by an outside third party and (4) whether VolCorp does not have the intent to sell the security and it is more likely than not that it will be able to retain the security until recovery of the cost basis.

Declines in the fair value of available for sale securities below their cost that are deemed to be other‐than‐temporarily impaired are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of impairment related to other factors is recognized in other comprehensive income.

Premiums and discounts are recognized in interest income using the interest method over the period until maturity or the expected maturity date based on prepayments. Gains and losses on investment dispositions are recognized using the specific identification method for determining the cost of securities sold. ‐ 12 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investment in Credit Union Service Organizations Investments in Credit Union Service Organizations (CUSOs) are recorded using the equity method of accounting for investments in entities in which it has an ownership interest, but does not exercise a controlling interest in the operating and financial policies of an investee. Under this method, an investment is carried at the acquisition cost, plus the CUSO's equity in undistributed earnings or losses since acquisition. VolCorp periodically tests its investments for potential impairment whenever events and circumstances indicate a loss in the fair value of the investments may be other than temporary. The equity method is considered appropriate due to either VolCorp’s percentage of ownership or the ability to exert influence over the CUSOs. Loans to Members and Member Affiliates Loans are stated at unpaid principal balances. No allowance for loan losses has been established as all outstanding loans are secured by a general or specific pledge of the member credit unions’ assets, and there have been no historical losses. Interest on loans is recognized over the terms of the loans and is calculated on principal amounts outstanding.

Premises and Equipment, net Land is carried at cost. Premises and equipment are carried at cost, net of accumulated depreciation. Premises and equipment are depreciated using the straight‐line method over the estimated useful lives of the related assets which primarily range from 2 to 50 years.

Long‐Term Assets Premises and equipment and other long‐term assets are reviewed for impairment when events indicate that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Income Taxes VolCorp is exempt by statute, from federal and state taxes on income related to its exempt purposes. However, VolCorp is subject to unrelated business income tax as discussed below.

Accordingly, no provision for income taxes is included in the accompanying consolidated statements of income.

The IRS and certain state taxing authorities are currently revisiting what, if any, products and services provided by state chartered credit unions are subject to unrelated business income tax (UBIT). There is little guidance in the IRS regulation on what activities should be subject to UBIT. The IRS issued guidance in the form of technical advice memorandums. As a result, there is uncertainty regarding whether state chartered credit unions should pay income tax on certain types of net taxable income from activities that may be considered by taxing authorities as unrelated to the purpose for which VolCorp was granted non‐taxable status. In the opinion of management, any liability resulting from taxing authorities imposing income taxes on the net taxable income from activities deemed unrelated to VolCorp’s non‐taxable status is not expected to have a material effect on VolCorp’s financial position or results of operations.

‐ 13 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes, continued VolCorp has adopted FASB ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de‐recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Management evaluates the tax positions taken on tax filings and consults with outside professionals in evaluating the likelihood of unfavorable results from any such tax positions. The tax years from 2019 and forward remain open to tax audits; however, there are currently no audits for any tax periods in progress.

National Credit Union Share Insurance Fund Deposit and Insurance Premiums The deposit in the National Credit Union Share Insurance Fund (NCUSIF) is in accordance with NCUA regulations, which require the maintenance of a deposit by each insured credit union in an amount equal to one percent of its insured shares. The deposit will be refunded to VolCorp if its insurance coverage is terminated, it converts to insurance coverage from another source, or the operations of the fund are transferred from the NCUA Board. VolCorp is required to pay a percentage of total insured shares as insurance premiums to the NCUSIF unless the NCUA Board waives the payment.

No payments were made during 2022 and 2021.

Perpetual Contributed Capital (PCC) PCC is a permanent, non‐cumulative equity investment. Payment of dividends is based on available earnings and is not guaranteed. PCC, in the event of liquidation, is subordinate to all other liabilities of VolCorp. Dividends declared on PCC are determined by management and approved by the Board of Directors based on an evaluation of current and future market conditions.

Comprehensive Income (Loss) Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, which are also recognized as a separate component of members’ equity.

Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are currently such matters that will have a material effect on the consolidated financial statements.

Restrictions on Cash There were no restrictions or requirements related to cash at December 31, 2022 and 2021.

‐ 14 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments VolCorp has an established process for determining fair values. Fair value is based upon quoted market prices, when available. If listed prices or quotes are not available, fair value is based upon pricing by an independent outsourced firm which uses proprietary models including market data, interest rate yield curves, option volatilities and other third party information. Management reviews the methodology and results of the pricing by the independent outsourced firm. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.

Furthermore, while VolCorp believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Generally accepted accounting principles have a three‐level valuation hierarchy for fair value measurements. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The three levels are explained as follows: 

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever possible.



Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.



Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for valuations in situations in which there is little, if any, market activity for the asset or liability at the measurement.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Advertising Costs Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2022 and 2021 was $99 and $95, respectively.

‐ 15 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Off Balance Sheet Financial Instruments In the ordinary course of business, VolCorp enters into commitments to extend credit. Such financial instruments are recorded when they are funded.

Subsequent Events VolCorp evaluated all events or transactions that occurred after December 31, 2022, through June 6, 2023, the date these consolidated financial statements were available to be issued.

Reclassifications Certain items in prior financial statements have been reclassified to conform to the current presentation. The reclassifications had no impact on net income or members’ equity.

Note 3: CERTIFICATES OF DEPOSIT Certificates of deposit are classified as held to maturity and are carried at cost less any impairment, as fair market value is not readily determinable. As of December 31, 2021 certificates of deposits totaled $308. No certificates of deposits were outstanding as of December 31, 2022.

Note 4: SECURITIES AVAILABLE FOR SALE The amortized cost and approximate estimated fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 were as follows: Gross Unrealized Gains

December 31, 2022

Amortized Cost

U.S. Government agency securities Asset‐backed securities Mortgage‐backed securities SBA‐backed securities Total

$ 325,680 $ 82,240 263,013 256,940 $ 927,873 $

December 31, 2021

Amortized Cost

U.S. Government agency securities Asset‐backed securities Mortgage‐backed securities SBA‐backed securities Total

$ 350,652 $ 119,542 335,291 173,458 $ 978,943 $

‐ 16 ‐

Gross Unrealized Losses

1,220 $ ‐ ‐ 389 1,609 $

Gross Unrealized Gains

(11,306) $ (1,488) (6,148) (1,717) (20,659) $

Gross Unrealized Losses

1,848 $ 304 838 1,856 4,846 $

(1,940) $ (147) (255) (17) (2,359) $

Fair Value 315,594 80,752 256,865 255,612 908,823

Fair Value 350,560 119,699 335,874 175,297 981,430

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 4: SECURITIES AVAILABLE FOR SALE (Continued) Asset‐backed securities consist primarily of securitized credit card, student loan, mortgage, automobile dealer floor plan receivables and other assets.

VolCorp sold no securities during the years ended December 31, 2022 and 2021.

The amortized cost and estimated fair value of securities available for sale at December 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized Cost Fair Value $ 52,819 $ 52,548 255,452 252,517 99,649 91,282 ‐ ‐ 519,953 512,477 $ 927,873 $ 908,823

December 31, 2022 Due in less than one year Due after one year through five years Due after five years through ten years Due after ten years SBA‐backed and mortgage‐backed securities Total

Information pertaining to securities with gross unrealized losses at December 31, 2022 and 2021 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows: Less Than 12 Months Fair Unrealized Value Losses

December 31, 2022 U.S. Government agency securities $ 74,647 $ Asset‐backed securities 60,347 Mortgage‐backed securities 185,741 SBA‐backed securities 135,704 Total $ 456,439 $

12 Months or Longer Fair Unrealized Value Losses

353 $ 86,726 $ 10,953 224 20,405 1,264 3,900 71,053 2,248 1,597 8,878 120 6,074 $ 187,062 $ 14,585 $

‐ 17 ‐

Fair Value

Total Unrealized Losses

161,373 $ 11,306 80,752 1,488 256,794 6,148 144,582 1,717 643,501 $ 20,659

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 4: SECURITIES AVAILABLE FOR SALE (Continued) Less Than 12 Months Fair Unrealized Value Losses

December 31, 2021 U.S. Government agency securities $ 59,992 $ Asset‐backed securities 15,824 Mortgage‐backed securities 78,866 SBA‐backed securities 10,738 Total $ 165,420 $

12 Months or Longer Fair Unrealized Value Losses

1,131 $ 35,734 $ 30 6,775 121 24,831 17 ‐ 1,299 $ 67,340 $

Fair Value

Total Unrealized Losses

809 95,726 $ 117 22,599 134 103,697 ‐ 10,738 1,060 $ 232,760 $

1,940 147 255 17 2,359

At December 31, 2022 and 2021, VolCorp had 96 and 32 securities in a loss position, respectively.

The unrealized losses associated with these investments are primarily driven by changes in interest rates and are not related to the credit quality of the securities. VolCorp does not intend to sell these securities, and it is not likely they will be required to sell the securities before the amortized cost basis is recovered, which may be at maturity. Management does not consider these securities to be other‐than‐temporarily impaired at December 31, 2022 and 2021.

Note 5: INVESTMENT IN CREDIT UNION SERVICE ORGANIZATIONS VolCorp’s investment in CUSOs at December 31, 2022 and 2021 were as follows:

December 31, 2022 Percentage Recorded of Ownership Value 4.41 % $ 167 10.67 1,769 22.22 749 $ 2,685

Name Credit Union Business Group, LLC Primary Financial Company, LLC CU Investment Solutions, LLC

December 31, 2021 Percentage Recorded of Ownership Value 4.41 % $ 151 10.67 2,314 22.22 924 $ 3,389

Name Credit Union Business Group, LLC Primary Financial Company, LLC CU Investment Solutions, LLC

Investments in CUSOs are accounted for under the equity method based on VolCorp’s percentage of ownership or the ability to exert significant influence over the CUSOs.

‐ 18 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 6: FAIR VALUE MEASUREMENTS The following table presents the assets carried at fair value subject to measurement on a recurring basis. Assets are presented as of December 31, 2022 and 2021, by their nature and by FASB ASC 820, Fair Value Measurements and Disclosures, valuation hierarchy: December 31, 2022

U.S. Government agency securities Asset‐backed securities Mortgage‐backed securities SBA‐backed securities Total assets at fair value

Total Value Value Level 1 $ 315,594 $ ‐ 80,752 ‐ 256,865 ‐ 255,612 ‐ $ 908,823 $ ‐

Value Value Level 2 Level 3 $ 315,594 $ ‐ 80,752 ‐ 256,865 ‐ 255,612 ‐ $ 908,823 $ ‐

Total Value Value Level 1 $ 350,560 $ ‐ 119,699 ‐ 335,874 ‐ 175,297 ‐ $ 981,430 $ ‐

Value Value Level 2 Level 3 $ 350,560 $ ‐ 119,699 ‐ 335,874 ‐ 175,297 ‐ $ 981,430 $ ‐

December 31, 2021

U.S. Government agency securities Asset‐backed securities Mortgage‐backed securities SBA‐backed securities Total assets at fair value

There were no liabilities carried at fair value for 2022 and 2021.

The following valuation method was used for assets carried at fair value as of December 31, 2022 and 2021: 

U.S. Government agency securities, asset‐backed securities, mortgage‐backed securities, and SBA‐backed securities – fair values are estimated using pricing models that use observable inputs or quoted prices of securities with similar characteristics. These securities are classified within Level 2 of the valuation hierarchy.

‐ 19 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 7: PREMISES AND EQUIPMENT Premises and equipment at December 31, 2022 and 2021, respectively were as follows: December 31, Land Building Furniture, fixtures, and equipment

2022 $

Less: accumulated depreciation and amortization Total

$

427 $ 2,429 6,958 9,814 5,998 3,816 $

2021 427 2,429 5,796 8,652 5,337 3,315

Depreciation expense was $661 and $553 for the years ended December 31, 2022 and 2021, respectively.

Note 8: MEMBERS’ DEPOSITORY ACCOUNTS At December 31, 2022 and 2021, the balances of the various types of members’ depository accounts are as follows:

December 31, Daily shares Share certificates Total

$ $

2022 1,147,393 $ 486 1,147,879 $

2021 2,228,932 683 2,229,615

Share certificates as of December 31, 2022 are scheduled to mature within one year.

At December 31, 2022, two members’ deposit accounts totaled $181,648 and represented 15.83% of total member depository accounts. At December 31, 2021, two members’ deposit accounts totaled $267,162 and represented 11.98% of total member depository accounts. The aggregate amount of members’ depository accounts over $250 as of December 31, 2022 and 2021 was approximately $1,082,655 and $2,161,181, respectively.

‐ 20 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 9: BORROWINGS VolCorp, as a member of the FHLB of Cincinnati, is eligible for advances from this bank pursuant to the terms of various borrowing agreements. VolCorp has pledged 104 securities, with a carrying value of $775,584 as collateral under the borrowing agreement with the FHLB of Cincinnati as of December 31, 2022. At December 31, 2021, VolCorp had 103 securities pledged with a carrying value of $861,767 as collateral under the borrowing agreement with the FHLB of Cincinnati.

At December 31, 2022, there was $178,757 of overnight borrowings outstanding on this line of credit with a fixed rate of interest of 4.33% and a maturity date of January 3, 2023. There were no amounts outstanding at December 31, 2021. Based on related collateral and VolCorp’s holdings of FHLB stock, Volcorp is eligible to borrow $553,101 of additional funds from the FHLB of Cincinnati as of December 31, 2022.

VolCorp maintains a federal funds line of credit with one regional bank. Securities with a carrying value of $98,046 and $103,895 were pledged as collateral with this bank at December 31, 2022 and 2021, respectively. No amounts were outstanding under this line of credit at December 31, 2022 or 2021, and borrowing availability totaled $70,000. This agreement may be cancelled at the discretion of either party. Effective June 30, 2021, VolCorp renewed an unsecured federal funds facility from another regional bank with a borrowing availability of $15,000. This agreement expires on June 30, 2023 unless otherwise extended or terminated. No amounts were outstanding under this line of credit at December 31, 2022 or 2021.

Note 10: REGULATORY CAPITAL REQUIREMENTS VolCorp is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain additional actions by regulators that, if undertaken, could have a direct material effect on VolCorp’s consolidated financial statements.

Failure to meet minimum capital requirements would require VolCorp to submit a plan of action to correct the shortfall. Additionally, the NCUA could require an increase in capital to specific levels, reduction of interest, and ceasing or limiting VolCorp’s ability to accept deposits.

Beginning October 2016, a portion of PCC is excluded from Tier 1 capital as defined by the NCUA. The portion of PCC also reduces daily average net assets and monthly moving average net risk‐ weighted assets for the applicable ratio calculations. NCUA Regulations as of December 22, 2017 were modified to include all PCC received from federally insured credit unions when the corporate credit union’s retained earnings ratio is greater than 2.50%.

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Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 10: REGULATORY CAPITAL REQUIREMENTS (Continued) At December 31, 2022 and 2021, VolCorp’s capital ratios were as follows:

Regulatory Capital Amount Ratio

Required Capitalization under NCUA Regulation 704 Under Adequately Well Capitalized Capitalized Capitalized

2022 (1) Leverage (2) Tier 1 Risk Based Capital (2) Total Risk Based Capital

$ 150,086 $ 150,086 $ 150,086

8.26% 71.92% 71.92%

< 4.00% < 4.00% < 8.00%

4.00% 4.00% 8.00%

5.00% 6.00% 10.00%

2021 (1) Leverage (2) Tier 1 Risk Based Capital (2) Total Risk Based Capital

$ 123,630 $ 123,630 $ 123,630

4.72% 53.79% 53.79%

< 4.00% < 4.00% < 8.00%

4.00% 4.00% 8.00%

5.00% 6.00% 10.00%

(1) to rolling daily average net assets (2) to moving monthly average net risk‐weighted assets

The retained earnings ratio is key in maintaining capital adequacy in compliance with NCUA regulations. Beginning in October 2013, NCUA regulation 704.3 requires corporate credit unions to calculate and report a retained earnings ratio of at least 0.45%. VolCorp’s retained earnings ratio at December 31, 2022 and 2021 was 4.60% and 2.21%, respectively.

Non‐Pro Rata Capital Dividends On October 5, 2010, VolCorp was issued recovery claim certificates of approximately $59,500 for membership capital accounts at U.S. Central Federal Credit Union previously depleted through the recognition of losses. U.S. Central Federal Credit Union was placed into liquidation on October 1, 2010. During 2022 and 2021, VolCorp recognized $23,924 and $32,672 of corporate credit union liquidation distributions related to the recovery claim certificates upon receipt of the distributions.

During 2021, VolCorp paid $11,336 of non‐pro rata capital dividends to member natural person credit unions that recognized losses as a result of U.S. Central Federal Credit Union’s liquidation.

During 2021, VolCorp also paid $3,698 of non‐pro rata interest distributions to association member natural person credit unions that recognized losses as a result of U. S. Central Federal Credit Union’s liquidation. No capital dividends related to member natural person credit unions that recognized losses as a result of U.S. Central Federal Credit Union’s liquidation were paid during 2022.

Based on NCUA projections, the remaining recovery claim certificates will be satisfied by distributions during future periods. VolCorp recognizes income from corporate credit union liquidation distributions during the period distributed funds are received. ‐ 22 ‐

Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 11: RELATED PARTY TRANSACTIONS Each of the directors of VolCorp is affiliated with credit unions that, in the ordinary course of business, may engage in financial transactions with VolCorp. Outstanding balances of members’ share accounts with these related parties were $166,822 and $308,610 at December 31, 2022 and 2021, respectively. Outstanding loan balances with these related parties were $15,000 at December 31, 2022. There were no loan balances with these related parties outstanding as of December 31, 2021.

Note 12: EMPLOYEE BENEFITS VolCorp maintains two defined contribution plans. Under the 401(k) employee savings plan, all full‐ time employees who have been employed at least one year are required to contribute 5% of their gross annual salary to the plan. Contributions are fully vested when made. VolCorp makes no contributions to the employee savings plan. Under the retirement savings plan, VolCorp contributes an amount equal to 10% of each participant’s salary to the plan. Employees who have been employed at least one year become participants in the plan. Benefits are fully vested after five years.

VolCorp made contributions to the retirement savings plan of $483 and $430 during the years ended December 31, 2022 and 2021, respectively.

The Credit Union has two collateral assignment split dollar agreements between the Credit Union and a key employee. The agreements involve a method of paying for insurance coverage by splitting the elements of a life insurance policy. Under the agreements, the employee is the owner of the policies and made collateral assignments to the Credit Union in return for loans equal to the amount of premiums to be paid on behalf of the employee plus accrued interest at the applicable long‐term federal rate when placed into effect in 2017 plus an additional 19 basis points. At the time of death of the key employee, the Credit Union will be paid the loan amounts plus accrued interest and the balance of the insurance benefits will be paid to the designated beneficiaries. As of December 31, 2022 and 2021, the balance of the loan approximated $5,985 and $5,911, respectively, and is included in accrued interest receivable and other assets on the balance sheets.

Note 13: COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ACTIVITIES In the normal course of business, there may be various outstanding legal proceedings or potential claims. In the opinion of management, after consultation with legal counsel, the financial position of VolCorp will not be affected materially by the outcome of any such legal proceedings or potential claims.

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Volunteer Corporate Credit Union and Subsidiary Notes to the Consolidated Financial Statements (In Thousands) Note 13: COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ACTIVITIES (Continued) Some financial instruments, such as loan commitments, irrevocable letters of credit, and lines of credit, are issued to meet member‐financing needs. These are agreements to provide credit or to support the credit of others as long as conditions established in the contract are met and usually have expiration dates. Commitments may expire without being used. These instruments contain, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the balance sheets. The credit risk relates to the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract.

The market risk relates to the possibility that future changes in market prices may make a financial instrument less valuable or more onerous. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral upon exercise of the commitment. The contractual amount of financial instruments with off balance sheet risk at December 31, 2022 and 2021 were as follows:

December 31, Unfunded commitments under lines of credit Unfunded commitments under letters of credit Total

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$ $

2022 1,796,046 $ 886 1,796,932 $

2021 1,711,467 404 1,711,871

MANAGEMENT REPORT REGARDING STATEMENT OF MANAGEMENT'S RESPONSIBILITIES, COMPLIANCE WITH DESIGNATED LAWS AND REGULATIONS, AND MANAGEMENT'S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING Statement of Management's Responsibilities The management of Volunteer Corporate Credit Union and Subsidiary (the “Corporate”) is responsible for preparing the Corporate’s annual consolidated financial statements in accordance with generally accepted accounting principles; for designing, implementing, and maintaining an adequate internal control structure and procedures for financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the NCUA 5310 – Corporate Credit Union Call Report; and for complying with Federal and, as applicable, State laws and regulations pertaining to affiliate transactions, legal lending limits, loans to insiders, restrictions on capital and share dividends and regulatory reporting that meets full and fair disclosure.

Management's Assessment of Compliance with Designated Laws and Regulations The management of the Corporate has assessed the Corporate’s compliance with Federal and State laws and regulations pertaining to affiliate transactions, legal lending limits, loans to insiders, restrictions on capital and share dividends and regulatory reporting that meets full and fair disclosure during the fiscal year that ended on December 31, 2022. Based upon its assessment, management has concluded that the Corporate complied with the Federal and State laws and regulations pertaining to affiliate transactions, legal lending limits, loans to insiders, restrictions on capital and share dividends and regulatory reporting that meets full and fair disclosure during the fiscal year that ended on December 31, 2022.

Management's Assessment of Internal Control over Financial Reporting The Corporate’s internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and financial statements for regulatory reporting purposes, i.e., NCUA 5310 – Corporate Credit Union Call Report. The Corporate's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporate; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and financial statements for regulatory reporting purposes, and that receipts and expenditures of the Corporate are being made only in accordance with authorizations of management and directors of the Corporate; and (3) provide reasonable assurance regarding

prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Corporate's assets that could have a material effect on the consolidated financial statements.

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management assessed the effectiveness of the Corporate's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the NCUA 5310 – Corporate Credit Union Call Report, as of December 31, 2022, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based upon its assessment, management has concluded that, as of December 31, 2022, the Corporate's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the NCUA 5310 – Corporate Credit Union Call Report, is effective based on the criteria established in Internal Control—Integrated Framework (2013).

The Corporate’s internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for the NCUA 5310 – Corporate Credit Union Call Report, as of December 31, 2022, has been audited by Carr, Riggs & Ingram, LLC, an independent public accounting firm, as stated in their report dated June 6, 2023.

Volunteer Corporate Credit Union:

_______________________________ Jeffrey W. Merry, President and Chief Executive Officer

_______________________________ Justin Holt, Chief Financial Officer

ADDRESS 2460 Atrium Way Nashville, TN 37214

ONLINE volcorp.org vportfolio.org symphonycuso.org volcorpdesign.org

NUMBERS (615) 232-7900 (800) 470-3444 After Hours: (615) 232-7977 Operations Fax: (615) 232-7979

EXTENSIONS 1 - Member Services/Operations/Item Processing/ACH 2 - Investment Sales 3 - Marketing and Business Development 4 - Administration and President’s Office 8 - Symphony CUSO 9 - Dial By Name Directory 0 - Operator

HOURS Monday, Tuesday, Wednesday and Friday: 7:30 a.m. to 4:30 p.m. (Central time).

Thursday: 8:30 a.m. to 4:30 p.m. (Central time).

Our Member Services Department closes at 4:15 p.m. (Central time) each day.

Office closings are coordinated with the Federal Reserve Bank holiday schedule.

NCUA

Savings Federally Insured to at least $250,000.

NCUA, a U.S. Government Agency.