#1LOUISIANA CORPORATE CREDIT UNION FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 P&N Postlethwaite & Netterville#2TABLE OF CONTENTS Independent Auditors' Report Statements of Financial Condition Statements of Income and Comprehensive Income Statements of Changes in Members' Equity. Statements of Cash Flows Notes to Financial Statements Page 1 2 3 4 5 7-20#3P&N Postlethwaite & Netterville 30th Floor, Energy Centre, 1100 Poydras Street One Galleria Blvd., Suite 2100 504-837-5990 Phone 504-834-3609 Fax New Orleans, LA 70163 Metairie, LA 70001 - pncpa.com INDEPENDENT AUDITORS' REPORT A Professional Accounting Corporation To the Supervisory Committee Louisiana Corporate Credit Union Opinion We have audited the accompanying financial statements of Louisiana Corporate Credit Union (the Credit Union), which comprise the statement of financial condition as of December 31, 2021, and the related statements of income and comprehensive income, changes in members' equity, and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the 2021 financial statements referred to above present fairly, in all material respects, the financial position of the Credit Union as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Credit Union and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Prior Year Financial Statements The financial statements of Louisiana Corporate Credit Union as of December 31, 2020, were audited by other auditors whose report dated May 6, 2021, expressed an unmodified opinion on those financial statements. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Credit Union's ability to continue as a going concern within one year after the date that the financial statements are available to be issued. -1-#4P&N Postlethwaite & Netterville Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement 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, including omissions, are considered 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 financial statements. In performing an audit in accordance with generally accepted auditing standards, we: • • Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the 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 financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. 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 financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Credit Union'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 audit. Internal Control Over Financial Reporting We also have audited, in accordance with auditing standards generally accepted in the United States of America, the Credit Union's internal control over financial reporting as of December 31, 2021, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) relevant to reporting objectives for the express purpose of meeting the regulatory requirements of Section 704.15 of the National Credit Union Administration Regulations, and our report dated May 6, 2022, expressed an unmodified opinion. Postlethwaite + Nathilla Metairie, Louisiana May 6, 2022 -2-#5LOUISIANA CORPORATE CREDIT UNION STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2021 AND 2020 ASSETS Cash and cash equivalents Investment securities, available-for-sale Central Liquidity Facility stock Federal Home Loan Bank stock Other investments ASSETS 2021 2020 54,088,327 $ 45,283,274 164,683,696 159,079,532 3,263,098 3,263,098 1,408,800 1,407,300 370,306 424,130 102,443 70,634 76,855 190,346 191,068 17,968 19,661 1,119,641 1,033,606 $ 225,212,816 $ 210,880,967 Loans to members Accrued interest receivable National Credit Union Share Insurance Fund deposit Premises and equipment, net Other assets Total assets LIABILITIES AND MEMBERS' EQUITY LIABILITIES Members' shares and certificates Accounts payable and other liabilities Total liabilities MEMBERS' EQUITY, SUBSTANTIALLY RESTRICTED Perpetual contributed capital Undivided earnings Accumulated other comprehensive income Total members' equity Total liabilities and members' equity $ 211,423,495 116,094 211,539,589 $ 200,634,646 104,023 200,738,669 7,301,494 5,427,754 7,301,494 2,247,010 593,794 10,142,298 943,979 13,673,227 $ 225,212,816 $ 210,880,967 The accompanying notes are an integral part of these financial statements. - 3 -#6LOUISIANA CORPORATE CREDIT UNION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2021 AND 2020 INTEREST INCOME Investments Loans to members 2021 2020 $ 1,011,619 $ 1,431,897 746 825 1,012,365 1,432,722 INTEREST EXPENSE Members' shares and certificates NET INTEREST INCOME 235,031 427,271 777,334 1,005,451 NON-INTEREST INCOME Service charges and other fees 823,710 818,202 Miscellaneous operating income 3,224,934 Gain on disposition of assets - net 10,400 1,324 4,059,044 819,526 NON-INTEREST EXPENSE Compensation and benefits 777,121 741,428 Professional and outside services 692,813 696,746 Office occupancy and operations 108,116 102,380 Administrative expenses 70,306 64,919 1,648,356 1,605,473 3,188,022 219,504 NET INCOME OTHER COMPREHENSIVE INCOME Net unrealized holding gains, arising during the period COMPREHENSIVE INCOME 350,185 864,806 $ 3,538,207 $ 1,084,310 The accompanying notes are an integral part of these financial statements. -4-#7LOUISIANA CORPORATE CREDIT UNION STATEMENTS OF CHANGES IN MEMBERS' EQUITY YEARS ENDED DECEMBER 31, 2021 AND 2020 BALANCE, JANUARY 1, 2020 Net income Dividends paid on perpetual contributed capital Other comprehensive income BALANCE, DECEMBER 31, 2020 Net income Dividends paid on perpetual contributed capital Other comprehensive income BALANCE, DECEMBER 31, 2021 Perpetual Accumulated Other Contributed Capital Undivided Earnings Comprehensive Income (Loss) Total $ 7,301,494 $ 2,034,804 $ (271,012) $ 9,065,286 219,504 219,504 (7,298) (7,298) 864,806 864,806 7,301,494 2,247,010 593,794 10,142,298 3,188,022 (7,278) 3,188,022 (7,278) 350,185 350,185 $ 7,301,494 $ 5,427,754 $ 943,979 $ 13,673,227 The accompanying notes are an integral part of these financial statements. -5-#8LOUISIANA CORPORATE CREDIT UNION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2021 AND 2020 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,188,022 $ 219,504 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation Net amortization of premiums on investments Gain on disposition of assets - net Changes in operating assets and liabilities: Accrued interest receivable Other assets Accounts payable and other liabilities 13,025 14,617 97,200 78,123 (10,400) (1,324) 6,221 96,917 (86,035) (726,285) 12,071 (88,551) 3,220,104 (406,999) Net cash provided by (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale securities (37,051,015) (90,517,403) Proceeds from sales, maturities and paydowns of investment securities 31,699,836 16,903,919 Purchase of Central Liquidity Facility stock (3,263,099) Purchase of Federal Home Loan Bank stock (1,500) (12,699) Change in other investments 53,824 (19,296) Loans to members, net of principal collections Proceeds from the sale of premise and equipment Purchase of premises and equipment Net change in NCUSIF deposit Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Net change in members' shares and certificates Dividends paid on perpetual contributed capital Net cash provided by financing activities 102,443 (102,443) 10,400 (11,332) 722 (1,283) (7,379) (5,196,622) (77,019,683) 10,788,849 (7,278) 81,654,171 (7,298) 10,781,571 81,646,873 NET CHANGE IN CASH AND CASH EQUIVALENTS 8,805,053 4,220,191 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 45,283,274 41,063,083 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 54,088,327 $ 45,283,274 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for interest $ 223,308 $ 530,894 The accompanying notes are an integral part of these financial statements. -6-#9LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Louisiana Corporate Credit Union (the Credit Union) is a cooperative association organized in accordance with the provisions of the Louisiana Revised Statutes Section 6.641 Credit Unions, for the purpose of serving corporate accounts by providing money management services, creating a source of credit and offering various correspondent services to its members who are principally state and federally chartered credit unions located in the United States. The Credit Union competes with other asset management and investment companies, including other corporate credit unions. The Credit Union is chartered by the State of Louisiana (State) and regulated by the State as well as by the federal government through the National Credit Union Administration (NCUA), which also provides insurance on members' deposits. Basis of Presentation The accompanying 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). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change are those related to the assessment of other-than- temporary impairment on investments. Cash and Cash Equivalents For purposes of financial statement classification, the Credit Union considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of demand deposit accounts. The Credit Union maintains its cash in deposit accounts at various financial institutions. These balances, at times, may exceed federally insured limits. Management believes the credit risk associated with these deposits is minimal. Investment Securities Debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity” and recorded at amortized cost. Securities not classified as held-to-maturity or trading are classified as "available-for-sale" and recorded at estimated fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). At December 31, 2021 and 2020, all securities were available-for-sale. The Credit Union does not maintain a trading portfolio. -7-#10LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment Securities (continued) Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. U.S. GAAP specifies that (a) if an entity does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an OTTI in earnings and the remaining portion in other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections. For held-to-maturity debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI should be amortized prospectively over the remaining life of the security on the basis of timing of future estimated cash flows of the security. Federal Home Loan Bank (FHLB) stock is restricted as to its marketability. Because no ready market exists for this investment and it has no quoted market value, the Credit Union's investment in this stock is carried at cost. The NCUA Central Liquidity Facility (CLF) is a liquidity lender for credit unions experiencing unusual or unexpected liquidity shortfalls. During 2020, the Credit Union joined the CLF as an agent member on behalf of member credit unions. CLF stock is restricted as to its marketability. Because no ready market exists for this investment and it has no quoted market value, the Credit Union's investment in this stock is carried at cost. Other investments consist of two investments in credit union service organizations accounted for using the equity method. Primary Financial Company, LLC offers a program, SimpliCD, which enables the Credit Union's members to invest in and issue federally insured certificates of deposit. CU Business Group, LLC provides business lending and deposit consulting services to credit unions nationwide. Loans to Members The Credit Union grants installment and demand loans to its members. Loans receivable are stated at unpaid principal balances. Interest on loans, which is recognized on the accrual basis, is calculated based on the principal balance using rates as stipulated in the loan agreements. The Credit Union evaluates each member's credit worthiness on a case-by-case basis. Loans to members were $-0- and $102,443 at December 31, 2021 and 2020, respectively. -8-#11LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Loans to Members (continued) An allowance for loan losses is based on management's evaluation of the collectability of the loans. The evaluation of management includes consideration of prior loan-loss experience, the results of internal review procedures, the current financial condition of the borrower, the quality of the collateral, and current economic condition affecting the inherent collection risks of the loan portfolio. The accrual of interest is discontinued when management believes that the collection of interest is doubtful. The Credit Union has not historically incurred loan losses. No allowance for loan losses was necessary at December 31, 2021 and 2020. Premises and Equipment, net Premises and equipment are stated at cost less accumulated depreciation. Furniture, fixtures and equipment generally depreciate using the straight-line method with useful lives ranging from three to seven years. Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews all material assets annually for possible impairment. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. NCUSIF Deposit 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 would be refunded to the Credit Union 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. NCUSIF Insurance Premiums The Credit Union is required to pay an annual insurance premium equal to a percent of its total insured shares as determined by the NCUA, unless the payment is waived or reduced by the NCUA Board. The NCUA Board waived the premium for the years ended December 31, 2021 and 2020. Members' Shares and Certificates Members' shares and certificates are subordinated to all other liabilities of the Credit Union other than perpetual contributed capital and paid-in capital upon liquidation. Interest rates on members' shares and members' share certificates are set by management under the direction of the Board of Directors. -9-#12LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Perpetual Contributed Capital Perpetual contributed capital (PCC) represents the investment required for membership capital voting rights and membership by credit unions. PCC is not negotiable or assignable but may be transferable to another eligible member credit union under certain provisions. PCC may not be pledged or used as security for borrowing. PCC dividends are determined based on net earnings and the overall capital needs of the Credit Union. Additionally, PCC dividends are not guaranteed and may be suspended if earnings are negative and/or capital levels fall below regulatory and/or policy minimum levels. Revenue Recognition The Credit Union recognizes a significant portion of its revenue from contracts with customers in accordance with ASC 606, Revenue from Contracts with Customers. The Credit Union generally satisfies its performance obligations on its contracts with customers as services are rendered, and the transaction prices are typically fixed, charged either on a periodic basis or based on activity. Since performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying ASC 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. Non-interest income includes fees from the Credit Union's members for transaction-based activities, such as account maintenance, share draft processing, wire transfers and ACH origination and receipt. These fees are recognized at the time the transaction is executed as that is the point in time the Credit Union fulfills the member's request. The Credit Union also acts as an agent for third-party vendors that provide investment and lending services and products. Upon completion of the sale of services or products to a member, the Credit Union receives fees from the third-party vendor. The performance obligation to the third-party vendor is satisfied and the fee income is recognized at that point in time. The majority of the Credit Union's revenue is not subject to ASC 606, including investment income, loan interest income and gain on sales of investment securities, if any. The recognition of revenues from interest- earning assets is based on the underlying loan agreements, securities contracts or other similar contracts. Due to the nature of the services provided, the Credit Union does not incur costs to obtain contracts, and there are no material incremental costs to fulfill these contracts that should be capitalized. Additionally, there are no material contract assets or liabilities as the Credit Union does not typically enter into long-term contracts with its members. Advertising The Credit Union's policy is to expense advertising costs as incurred. Advertising expense was $3,410 and $4,306 for the years ended December 31, 2021 and 2020, respectively. Comprehensive Income (Loss) Comprehensive income or loss consists of net income or loss and other comprehensive income or loss that includes unrealized gains and losses on investment securities available for sale, which are also recognized as a separate component of members' equity. - 10 -#13LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes The Credit Union is exempt by statute from federal and state income taxes, except for certain products and services deemed by the IRS to be unrelated to the Credit Union's exempt purpose. Off-Balance Sheet Credit-Related Financial Instruments In the ordinary course of business, the Credit Union has entered into commitments to extend credit. Such financial instruments are recorded when they are funded. Significant Groups of Concentrations and Credit Risk The Credit Union may be exposed to credit risk from a regional economic standpoint because a significant concentration of its members are located in Louisiana. The Credit Union continually monitors operations, including loan and investment portfolios, for potential impairment. However, the loan portfolio is well diversified in terms of geographical location within Louisiana and the Credit Union does not have any significant concentrations of credit risk. Recent Accounting Standards In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The guidance in this ASU and its amendments supersedes the leasing guidance in ASC 840, Leases. Under the guidance, lessees are required to recognize lease assets and lease liabilities on the statements of financial condition for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The standard will be effective for annual periods beginning after December 15, 2021. In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. The standard will be effective for annual periods beginning after December 15, 2022. The Credit Union is currently assessing the impact of these pronouncements on its financial statements. Reclassifications Certain reclassifications have been made in the prior year financial statements to conform to the current year presentation. These reclassifications did not affect net income or total members' equity. -11-#14LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 2. INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities at December 31, 2021 and 2020, are as follows: December 31, 2021 Gross Unrealized Gross Unrealized Available-for-sale: U.S. Agency securities Mortgage-backed securities Student loan asset-backed securities Amortized Cost Gains Losses $ 76,279,890 $ 918,453 $ 80,917,549 6,542,278 311,847 $ 163,739,717 $ 1,230,300 $ (286,321) (54,785) (109,431) (122,105) 81,119,965 6,420,173 $ 164,683,696 Fair Value $ 77,143,558 December 31, 2020 Gross Gross Unrealized Unrealized Available-for-sale: U.S. Agency securities Mortgage-backed securities Student loan asset-backed securities $ 65,803,846 Amortized Cost Gains Losses Fair Value $ 403,758 $ (57,205) $ 66,150,399 84,550,089 8,131,803 587,697 (67,600) 85,070,186 $ 158,485,738 $ 991,455 $ (272,856) (397,661) 7,858,947 $ 159,079,532 At December 31, 2021 and 2020, approximately $125.7 and $131.2 million of investments were pledged as collateral for the Credit Union's line of credit with the FHLB of Dallas, respectively. See Note 5. The amortized cost and estimated fair value of certificates of deposit and debt securities, including mortgage-backed securities, at December 31, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Due within 1 year Due after 1 year through 5 years Due after 5 years through 10 years $ Amortized Cost 6,000,000 Fair Value $ 6,009,966 31,750,000 31,895,195 30,143,267 30,687,160 Due after 10 years 8,386,623 8,551,237 76,279,890 77,143,558 Mortgage-backed securities Student loan asset-backed securities Total $ 163,739,717 80,917,549 6,542,278 81,119,965 6,420,173 $ 164,683,696 -12-#15LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 2. INVESTMENT SECURITIES (continued) Information pertaining to securities with gross unrealized losses at December 31, 2021 and 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows: Less than 12 months Fair Value December 31, 2021 12 months or more Unrealized Loss Fair Value Available-for-sale: U.S. Agency securities Mortgage-backed securities $ 9,195,215 $ 20,245,271 (54,785) $ (84,700) $ Student loan asset-backed securities 4,179,598 6,420,174 $ 29,440,486 $ (139,485) $ 10,599,772 $ (24,731) (122,105) (146,836) $ 40,040,258 Total Unrealized Loss Fair Value Unrealized Loss (54,785) (109,431) (122,105) $ (286,321) $ 9,195,215 $ 24,424,869 6,420,174 Less than 12 onths Fair Value Unrealized Loss Fair Value December 31, 2020 12 months or more Unrealized Loss Total Fair Value Unrealized Loss Available-for-sale: U.S. Agency securities $ Mortgage-backed securities 5,000,000 $ 8,482,654 Student loan asset-backed securities 2,667,525 8,131,803 (38,484) (272,856) (16,742) $ 10,070,455 $ (40,463) $ 15,070,455 $ (57,205) (29,116) 11,150,179 8,131,803 (67,600) (272,856) $ 13,482,654 $ (45,858) $ 20,869,783 $ (351,803) $ 34,352,437 $ (397,661) Substantially all of these securities with gross unrealized losses are either guaranteed by the U.S. Government or secured by mortgage loans or student loans. These unrealized losses relate principally to current interest rates for similar types of securities. Because the Credit Union does not intend to sell the investments and it is not more likely than not that the Credit Union will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Credit Union does not consider those investments to be other-than-temporarily impaired at December 31, 2021 and 2020. 3. PREMISES AND EQUIPMENT Premises and equipment is summarized as follows: December 31, 2021 2020 Furniture and equipment $ 194,968 $ 210,992 Leasehold improvements 8,039 8,039 203,007 219,031 Less: accumulated depreciation (185,039) (199,370) Premises and equipment, net $ 17,968 $ 19,661 Depreciation expense for the years ended December 31, 2021 and 2020, was $13,025 and $14,617, respectively. - 13 -#16LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 4. MEMBERS' SHARES AND CERTIFICATES A summary of members' shares and certificates is as follows: December 31, 2021 Daily shares Fixed callable certificates Paid-in capital shares Total $ 208,888,350 2,498,000 37,145 $211,423,495 2020 $ 200,597,501 37,145 $ 200,634,646 During 2021, the Credit Union issued $2,498,000 of callable, fixed rate share certificates, which mature on March 30, 2026, if not called prior by the Credit Union. The aggregate amounts of members' shares and certificates over $250,000 were $204,279,287 and $195,390,991 as of December 31, 2021 and 2020, respectively. 5. BORROWED FUNDS The Credit Union maintains a line of credit as follows: December 31, 2021 Lender Outstanding Balance Available Balance Federal Home Loan Bank $ $ 125,699,946 December 31, 2020 Outstanding Available Lender Federal Home Loan Bank Balance Balance $ $ 131,150,923 The line of credit is secured by the Credit Union's investment securities available for sale as deemed eligible by the FHLB (Note 2) and is renewable annually. The interest rate is priced daily based on the FHLB of Dallas' discount note market. 6. EMPLOYEE BENEFIT PLANS Defined Contribution Retirement Plans The Credit Union sponsors a defined contribution safe harbor 401(k) retirement plan for all eligible employees. All full-time employees with one year of service are eligible, and vesting is graduated over six years. The Credit Union makes matching contributions equal to 100% of the participant's first 5% of salary contributed. The Credit Union may also make discretionary contributions at the direction of management. The plan was amended effective January 1, 2020, to add a safe harbor non-elective contribution equal to 3% of eligible compensation. This safe harbor contribution is fully vested to the participants. During the years ended December 31, 2021 and 2020, the amount contributed by the Credit Union and charged to expense was $44,587 and $43,907, respectively. - 14 -#17LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 6. EMPLOYEE BENEFIT PLANS (continued) Supplemental Executive Retirement Plan Effective in 2018, as amended in 2020, the Credit Union provided for a supplemental retirement benefit for an executive by entering into a collateral assignment split dollar plan with the executive. The executive is the policy owner of a life insurance policy, and the Credit Union advances the premiums due under the policy. The Credit Union also executed a limited recourse demand promissory note in which the principal outstanding equals the premiums paid by the Credit Union on behalf of the executive. Pursuant to the note, the executive collaterally assigned the policy cash value of the insurance policy to the Credit Union. Effective June 1, 2020, the Company amended and restated the limited recourse term promissory note to provide for additional funding related to the amount of the total remaining premium payments due under the policy of $645,000 as of June 1, 2020. Total split-dollar loans outstanding at December 31, 2021 and 2020, were $933,407 and $927,912, respectively, and are included in other assets in the accompanying statements of financial condition. Termination of the plan occurs upon events specified in the plan agreement. At the termination of the plan, the Credit Union is entitled to repayment of the outstanding loans under the note which may be repaid from the proceeds of the cash value of the policy or the death benefit. 7. RELATED PARTY TRANSACTIONS In the normal course of business, the Credit Union makes loans to member credit unions with common directors and principal officers. These loans are made on the same terms, including interest rate and collateral, as those prevailing at the time for similar loans with other members. No loan balances were outstanding at December 31, 2021 and 2020. Members' shares and certificates from related parties at December 31, 2021 and 2020, amounted to $60,130,879 and $68,888,993, respectively. 8. COMMITMENTS AND CONTINGENCIES Lease Commitments The Credit Union leases its main office facilities under an operating lease through 2023. Rent expense was $59,977 and $59,425 for the years ended December 31, 2021 and 2020, respectively. The required future minimum lease payments under the terms of the lease at December 31, 2021, are as follows: Years ending December 31 Amount 2022 $ 61,460 2023 46,095 Total $ 107,555 - 15 -#18LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 8. COMMITMENTS AND CONTINGENCIES (continued) Financial Instruments with Off-Balance Sheet Credit Risk The Credit Union is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its members and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the statement of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement the Credit Union has in particular classes of financial instruments. The Credit Union's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Credit Union uses the same credit policies in making commitments as it does for on- balance-sheet instruments. Commitments to extend credit are agreements to lend to a member as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Credit Union evaluates each member's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Credit Union upon extension of credit is based on management's credit evaluation of the counterparty. Collateral generally consists of the total assets of the member. Advised lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Credit Union is committed. Standby letters of credit are conditional commitments issued by the Credit Union to guarantee the performance of a member credit union to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to members. Standby letters of credit reduce a member credit union's advised line of credit. The following financial instruments were outstanding whose contract amounts represent credit risk: December 31, 2021 2020 $ 125,479,000 7,392 $ 126,289,557 508,914 Advised lines of credit - unused Standby letters of credit - unused Total $ 125,486,392 - 16 - $ 126,798,471#19LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 8. COMMITMENTS AND CONTINGENCIES (continued) Financial Instruments with Off-Balance Sheet Credit Risk (continued) The Credit Union, as agent, has entered into an Excess Balance Account (EBA) agreements with participating member credit unions and the Federal Reserve Bank, whereby the Federal Reserve Bank opened EBA accounts for the benefit of the participants at the request of the agent. As such, the balances in the EBA accounts are not reflected in the Credit Union's financial statements. These balances totaled $57,500,000 and $38,000,000 as of December 31, 2021 and 2020, respectively. The aggregate balance in the EBA represents a deposit liability of the Federal Reserve Bank solely to the participants. The Credit Union, as agent, is responsible for calculating and distributing the interest payable to each participant on the participant's excess balance. Other The Credit Union was not party to any legal actions as of December 31, 2021. During 2009, the Credit Union impaired and charged off 100% of its investment in U.S. Central Federal Credit Union (USC), which was placed in conservatorship by the NCUA on March 20, 2009. The Credit Union is entitled to available recoveries after satisfaction of all liabilities of the liquidation estate based on its pro-rata share of member contributed capital. The Credit Union was issued a claim certificate in the amount of $5,874, 197. During 2021, the Credit Union received $3,224,934 in payments, which is recognized as miscellaneous other operating income in the statement of income for the year ended December 31, 2021. In February 2022, the Credit Union was notified of an additional payment in the amount of $1,257,078 which was received in March 2022. The remaining claim after the aforementioned payments is $1,392,185; however, no assurance can be provided as to the ultimate amount, if any, to be recovered at this time. Further distributions will be evaluated by the liquidating agent on a semi-annual basis on June 30 and December 31 of each year. 9. FAIR VALUE MEASUREMENTS The Credit Union uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. - 17 -#20LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 9. FAIR VALUE MEASUREMENTS (continued) U.S. GAAP also establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. 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. These levels are as follows: • Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3-Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation. Fair values of assets measured on a recurring basis are as follows: Level 1 Available-for-sale: U.S. Agency securities $ Mortgage-backed securities Student loan asset-backed securities Total $ December 31, 2021 Level 2 Level 3 $ 77,143,558 $ 81,119,965 6,420,173 $ 164,683,696 $ December 31, 2020 Total $ 77,143,558 81,119,965 6,420,173 $ 164,683,696 Level 1 Level 2 Level 3 Total Available-for-sale: U.S. Agency securities Mortgage-backed securities Student loan asset-backed securities $ 66,150,399 85,070,186 7,858,947 $ $ 66,150,399 85,070,186 7,858,947 Total $ $ 159,079,532 $ $ 159,079,532 The Credit Union's available-for-sale debt securities are measured on a recurring basis through a model used by the Credit Union's investment custodian. All the debt security price adjustments meet Level 2 criteria at December 31, 2021 and 2020. Pricing models use actively quoted rates, prepayment models and other underlying credit and collateral data, including data from similar issues in active markets. - 18 -#21LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 10. REGULATORY CAPITAL The Credit Union is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Credit Union's financial statements. The risk-based capital requirements are as follows: • • • Leverage Ratio (4% to be adequately capitalized, 5% to be well capitalized) – the ratio of Tier 1 core capital to Moving Daily Average Net Assets (MDANA). Tier 1 core capital is defined as the sum of undivided earnings and perpetual contributed capital, adjusted for certain exclusions. Tier 1 Risk-Based Capital Ratio (4% to be adequately capitalized, 6% to be well capitalized - the ratio of Tier 1 core capital to the Moving Monthly Average Net Risk-weighted Assets (MMANRA). Total Risk-Based Capital Ratio (8% to be adequately capitalized, 10% to be well capitalized) the ratio of total capital (undivided earnings, perpetual contributed capital or non-perpetual capital, adjusted for certain exclusions) to MMANRA. Failure to meet minimum capital requirements would require the Credit Union to submit a plan of action to correct the shortfall. Additionally, NCUA could require an increase in capital to specific levels, reduction of interest, and ceasing or limiting the Credit Union's ability to accept deposits. The Credit Union's actual and required ratios for December 31, 2021 and 2020, are as follows: Actual Amount Ratio Minimum to be Adequately Capitalized Under Prompt Corrective Provisions Amount Ratio Minimum to be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio December 31, 2021 Leverage capital $ 12,358,942 5.84% $ 8,467,551 4.00% $ 10,584,439 5.00% Tier 1 risk-based capital (Tier 1 core capital to MMANRA) $ 12,358,942 34.05% $ 1,452,002 4.00% $ 2,178,002 6.00% Total risk-based capital (Total capital to MMANRA) $ 12,362,031 34.06% $ 2,904,003 8.00% $ 3,630,004 10.00% Retained earnings (Retained earnings to MDANA) $ 5,427,754 2.56% $ 952,600 0.45% N/A N/A December 31, 2020 Leverage capital $ 7,692,977 4.28% $ 7,188,923 4.00% $ 8,986,154 5.00% Tier 1 risk-based capital (Tier 1 core capital to MMANRA) $ 7,692,977 26.20% $ 1,174,616 4.00% $ 1,761,924 6.00% Total risk-based capital (Total capital to MMANRA) $ 9,136,751 31.11% $ 2,349,232 8.00% $ 2,936,540 10.00% Retained earnings (Retained earnings to MDANA) $ 2,247,010 1.25% $ 808,754 0.45% N/A N/A As of December 31, 2021 and 2020, the Credit Union met all capital requirements under Section 704.3 of the NCUA Regulations. - 19 -#22LOUISIANA CORPORATE CREDIT UNION NOTES TO FINANCIAL STATEMENTS 11. SUBSEQUENT EVENTS As described in Note 8, in February 2022, the Credit Union was notified of a payment from the U.S. Central Federal Credit Union liquidation in the amount of $1,257,078, which was received in March of 2022. Management has evaluated subsequent events through the date that the financial statements were available to be issued, May 6, 2022, and determined that no other matters required additional disclosure in the financial statements. No other subsequent events occurring after this date have been evaluated for inclusion in these financial statements. - 20-