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.