RETAINEDEARNINGSANDCAPITAL

Acorporate 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 of25percent or more, not only from month-to-month, but at times within periods of less than30days.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,NCUAcorporate 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 historical trends.After two years of elevation from economic stimulus, deposits and assets began to subside to more normal levels during 2022, particularly during the latter half of the year.This resulted in a31% year over year decline inMDANA from $2.6billion atDecember31, 2021to $1.8 billion atDecember31, 2022.

While the decline inMDANAwas additive to increases in regulatory capital ratios, both a successful year of business operations and additional claim payments from theU.S.CentralAsset ManagementEstate enabled significant retained earnings and capital growth, ending 2022at $83.5 and $150.1million respectively which represents increases of $26million from their respective 2021 ending balances.This resulted in a retained earnings ratio of4.60percent atDecember31, 2022, as compared to2.21percent atDecember31, 2021. At year-end2022,VolCorp’severage ratio was l “well capitalized”at8.26percent, an increase from4.72percent atDecember31, 2021.

Neteconomicvaluenalysis A

TheNEVof 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.SuchNEVis 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).NEVis a point-in-time measurement based on a given balance sheet date, and is measured in terms of aBase scenario(i.e., the existing market interest rate environment on said balance sheet date)and certain rate shock scenarios keyed off suchBase scenario in intervals of +/-100,200and 300basis points(collectively, the industry-standard rate shock scenarios).Acorporate’sBaseNEVRatio is computed by dividing the residualBaseNEVby the mark-to-market value of theBase total assets.NEVis a measure of, and theNEVRatio is an indicator of, the inherent interest rate risk embedded in the balance sheet structure of a financial institution.BaseNEVserves as a proxy assessment of the residual post-liquidation value of the financial institution under certain interest rate environments.UnderPart704.8(d)(1)(ii)of its Rules andRegulations for all corporate credit unions, those corporates operating underBasePlus authority as granted by theNCUABoard ofDirectors(see below)must maintain a minimumBaseNEVRatio of2.00% and a maximum permissible downwardNEVshift of negative20.00% fromBaseNEV.In addition, theNCUA Board set identical minimumNEVRatio limits and maximum permissible downwardNEVshift limits for the aforementioned industry-standard rate shock scenarios.By definition, shocking a corporate’s balance sheet means determining/measuring the impact onBaseNEVand theBaseNEVRatio of an instantaneous, parallel, and sustained upward and/or downward shift of market interest rates.TheNEVshift represents the percentage increase and/or decrease ofNEVunder any or all of the industry-standard rate shock scenarios.

The permissible downwardNEVshift is dependent, in part, upon the level of authority granted each corporate credit union by theNCUABoard.As a starting point, all corporate credit unions have the authority to operate atBase level.At this level, the permissible shift in the corporates’NEVRatio is negative15.00% under the industry-standard rate shock scenarios.Each corporate credit union may petition theNCUABoard to operate under expanded authority.To obtain such expanded authority, the corporate credit union must meet all the requirements ofPart704of theNCUA’sRules andRegulations and fulfill additional capital, management, infrastructure, and asset liability requirements.InSeptember1997,VolCorp’sBoard ofDirectors requested authority to operate at the expanded level referred to asBasePlus.InNovember1997,VolCorp became the first corporate credit union to receive authority by theNCUABoard to operate aboveBase level atBasePlus authority level.At suchBasePlus level,VolCorp’s permissible negativeNEVshift expanded downward to negative20.00% from negative15.00% underBase authority.

As ofDecember31, 2022,VolCorp’s BaseNEVtotaled $133.9million, theBaseNEVRatio was8.66%, and theNEVshift showed a decrease of $13.5million/-10.09% under the regulatory +300basis point rate shock scenario.These results were well within theNEVrisk limits as defined and stipulated by the aforementioned NCUAregulation.The following tabulation provides full disclosure of the impact of theNCUAregulatory interest rate shock scenarios onVolCorp’sBaseNEVandBaseNEVRatio as ofDecember31, 2022: