ACCU 12th ANNUAL MEETING

1
OFFICE OF CORPORATE CREDIT UNIONS
ACCU 12th ANNUAL MEETING October 16, 2007
2
AGENDA

• Composition of Corporate System
• Corporate Financial Trends (December 04 August
  07)
• System Issues/Challenges
• OCCU Issues/Initiatives
• Questions

3
Number of Corporate Credit Unions
14
16
15
14
17
15
15
14
4
CORPORATE MERGERS

• 2007 Northwest (F) into Southwest (F)
• (1.2 B) into (12.9 B)
• CCUF (S) into Members United (F)
• (0.3 B) into (12.1 B)
• 2006 Empire (F) into Mid-States (F)
• (4.1 B) into (5.8 B)

5
PROPOSED CORPORATE MERGERS

• VolCorp (S) into WesCorp (F)
• (1.2 B) into (33.9 B)
• SunCorp (S) into WesCorp (F)
• (3.0 B) into (33.9 B)

6
CORPORATE CHARTERCONVERSIONS

• 2005 Constitution State to Federal
• U.S. Central State to Federal
• 2004 Northwest State to Federal

7
Corporate Fields ofMembership by Charter Type

• State Charters 14 National
• Federal Charters 12 National
• Kentucky 1 Regional
• LICU 1 IBM credit unions

8
Number of Corporates By Expanded Authorities

• Base 12 (excludes CCUF)
• Base-Plus 10 (excludes Northwest)
• Part I 2 (Constitution Corp One)
• Part II 4 (U.S. Central, WesCorp, Southwest
  Members
• United)
• --------------------------------------------------
  --------------------------------------------------
  ---
• Part III 3 (U.S. Central, WesCorp Members
  United)
• Part IV 4 (U.S. Central, WesCorp, Southwest
  Members United)
• Part V 4 (Members United, Southwest, EasCorp
  Corporate America)

9
Assets By Charter Type
10
Retail Corporate Asset Stratification

• Assets Number
• lt 250 M 5
• 250 M lt 500 M 2 (5 percent of
  assets)
• 500 M lt 1B 4
• 1 B lt 2 B 7
• 2 B lt 5 B 6
• gt5 B 3 (63 percent of assets)

11
Largest Retail Corporates

• Western (F) 33.9 Billion
• Southwest (F) 12.9
• Members United (F) 12.1
• Southeast (F) 4.4
• Corporate One (F) 3.9

12
Concentration RisksRetail Corporates

• Corporate Assets Credit Unions
• Western 35 14
• Southwest 13 15
• Members United 13 27

13
Smallest Retail Corporates

• LICU (F) 5 Million
• Iowa (S) 145
• Louisiana (S) 174
• Treasure State (S) 230
• Midwest (F) 241

14
Wholesale/Retail Corporate Assets
15
System Assets Compared to Moving DANA
16
SYSTEM BALANCE SHEET STRUCTURE
17
SYSTEM INVESTMENTS
18
SYSTEM MARKETABLE SECURITIESJune 2007

• 84.6 Billion
• USC WesCorp 65.4 billion 78.4
• 4,264 CUSIPS
• 373 Individual counterparties and trusts
  (aggregate issuer exposure)
• 13 Aggregate individual issuer exposures gt 2.5
• Countrywide 301 issues 6.23
• J P Morgan 126 issues 4.84
• GMAC 195 issues 4.58

19
SYSTEM MARKETABLE SECURITIES

• CREDIT QUALITY
• Rated Securities
• 3,231 CUSIPS 80 billion 94
• Unrated Securities
• 1,033 CUSIPS 5 billion 6 (FNMA 57 and
• Freddie Mac 34)
• NRSRO RATINGS/EQUIVALENT
• AAA AA A BBB
• 89 8 1 0

20
SYSTEM CAPITAL
8.2
7.3
21
SYSTEM CAPITAL RATIOS
22
RETAIL vs. WHOLESALE CORPORATE CAPITAL
5.8
2.4
23
RETAIL vs. WHOLESALE CORPORATE CAPITAL
24
RETAIL CORPORATE CAPITALRATIOS
25
SYSTEM NET ECONOMIC VALUE RATIOS
26
SYSTEM NEV VOLATILITY 300 bp
27
SYSTEM EARNINGSYEAR-TO-DATE
28
RETAIL CORPORATE EARNINGSYEAR-TO-DATE
29
RETAIL CORPORATE EARNINGSYEAR-TO-DATE
30
U.S. CENTRAL EARNINGSYEAR-TO-DATE
31
REPORTED ACCUMULATED UNREALIZED G/L ON AFS
SECURITIES
32
SYSTEM ISSUES/CHALLENGES

• Financial Issues (e.g., Thin Operating Margins
  and Declining Capital Ratios)
• Compliance/Infrastructure Costs
• System Direction/System Inefficiencies
• Limited Management Depth (Key Person Risk)
• Strategic Positioning - Increasing Competition
  From Both Within Corporate System and External
  Sources
• Operational Risks

33
OCCU ISSUES

• Data Security
• - NCUA has issued numerous instructions and has
  educated examiners on data security, protection
  and storage of confidential electronic data
• - Exam and supervision data collected is
  afforded the same level of protection as
  personally identifiable information
• - Electronic data and communications are
  retained in automatically encrypted computer
  folders and devices (data is immediately
  encrypted)

34
OCCU ISSUES

• Data Security
• - Examiners are to comply with corporate
  policies in handling sensitive hardcopy
  documents. To the extent possible, all corporate
  data is sanitized if being retained by examiners
  and
• - Examiners hard copy files are retained in
  locked filing cabinets and shredded when no
  longer required.

35
OCCU ISSUES

• Accumulated Unrealized Gains/Losses on AFS
  Securities
• Fair Value is Defined in FAS 107 and FAS 115
• - The amount at which the investment can be
  exchanged in a current transaction between
  willing parties
• SEC states taking a long view of determining
  fair value does not conform with GAAP (cannot
  ignore current market conditions)
• FAS 157, Fair Value Measurements, fair value is
  the price that would be received to sell an asset
  (effective 2008 unless early adoption)

36
OCCU ISSUES

• Fair Value Hierarchy
• Level 1 Quoted Price
• Mark to Market
• Level 2 Observable Inputs
• Matrix or model price with market assumptions
• Level 3 Unobservable Inputs
• Model price with corporates assumptions
• The Price.is The Price.is The Price

37
OCCU ISSUES

• Future Dated ACH Transactions
• Examiner Judgment/Consistency

38
OCCU INITIATIVES

• Proposing Revisions to Part 704 Early 2008
• Studying Feasibility of Developing a Corporate
  Information Systems Examination Program
• Developing Comprehensive Merger Integration
  Guidelines and Expectations
• Conducting Study of CRIS Rating System
• Conducting Study of Concentration Risks in
  Corporate System

39
ISSUES/QUESTIONS