The Board of Directors is responsible for the formulation and implementation of investment policies. The Board delegates decision-making authority with respect to specific investments to the Manager and Assistant Manager (individually) for implementing investment policies and for executing day-to-day investment decisions. The Board authorizes the Treasurer to monitor management activity to assure policy compliance.

The Manager, or in the Manager's absence the Assistant Manager, is responsible for maintaining the necessary cash position to meet operating demands on a daily basis. Excess funds in the checking account are to be invested overnight, over the week-end or for a short period of days (under 30) in order to maximize earnings while at the same time maintain a liquid position to meet daily cash requirements. The Manager is also responsible for investing excess funds (within the limits of this policy) for periods for 30 days or more. Investments over 5 years must be approved by the Board.

All investment decisions shall be consistent with this policy. The Treasurer will submit to the Board at each regularly scheduled meeting a report listing new investment decisions and the market value of any securities. Management will provide the board at each regularly scheduled board meeting a written report that lists the total investment portfolio.

The main function of the Credit Union is to provide financial services for its members. This is accomplished by creating assets in the form of consumer loans and issuing liabilities in the form of deposits. Since loan demand and deposit flows are subject to variation over time, liquidity and cash management activities are required in the management of these assets and liabilities. Therefore, the primary objective of the investment portfolio is to provide liquidity and facilitate the cash management process. The portfolio will convert excess cash resulting from slack loan demand and/or deposit inflows into earning assets. Alternatively, the portion will be drawn down when necessary to accommodate loan requirements, deposit withdrawals, or other contingencies.

In light of the investment objective, the portfolio should be comprised of securities with the following characteristics:

1. A low degree of default risk;
2. A low degree of price risk resulting from changes in the level of interest rates; and,
3. A high degree of liquidity.

These characteristics limit the types of investments that may be acquired by the Credit Union. The emphasis is on liquidity and the safety of principal with respect to default risk and interest rate risk. The yield on investments is secondary to liquidity and safety.

In addition to the emphasis on liquidity and safety, Federal and State regulations and/or policies of the Board of Directors further constrain investment activity. In this section, authorized investments are outlined along with certain unauthorized investment-related transactions. Maturity constraints and diversification requirements are also specified.

1. Authorized Investments.

* The Credit Union may invest only in securities that are specifically authorized in this section:

1. U.S. Treasury Securities
2. U.S. Government Agency and Agency Guaranteed Securities
1. Federal National Mortgage Association
2. Government National Mortgage Association
3. * Not used
4. Federal Home Loan Bank
3. Volunteer Corporate Credit Union (VCCU)
4. * Not used
5. * Certificates of Deposit in Banks, Savings Banks and S&Ls with capital-to-asset ratios of 3% or better insured by the FDIC
6. * Share certificates of deposit in other credit unions with capital-to-asset ratios of 3% or better insured by the NCUA
7. * Federal Funds Sold through SunTrust Bank

1. This is the sale of overnight or very short-term, immediately available funds to a commercial bank. Although the term of fed funds transactions is usually one to three days, longer maturity transactions known as "term fed funds" are allowed provided the term does not exceed 30 days.

2. The term shall not exceed 30 days although a "continuous" agreement is allowed. Under a continuous arrangement the agreement remains in effect until cancelled by either the Credit Union or the borrower.

3. The securities acceptable for purchase under a repurchase are those issued by the U.S. Treasury and agencies of the U.S. Government.

4. ** Total Federal Funds purchased will be limited to $1.7 million daily.

8. The following brokers are approved by the board:
1. * Vining Sparks, Memphis, TN
2. Duncan-Williams, Memphis, TN
3. United American Investments, Marietta, GA
4. * Not used
5. * Not used
6. Multi-bank Securities, Inc., Southfield, MI
7. Gibraltar Securities Co., New Jersey
8. * Not used
9. U.S. Sterling Capital Corp, NY
10. Great Eastern Management, Inc., NY
11. * Not used

2. Maturity of Investments.

To control the risk of loss resulting from increases in the level of interest rates and the forced sale of securities, the maturity distribution of the investment portfolio must be controlled. Investments are restricted to a maximum term of 5 years. When the needs of the Credit Union are such that sufficient investments are held to cover short-term needs, investments with a maturity of up to 5 years may be made. Investments in securities with maturities in excess of 5 years are not authorized without Board approval.

3. Diversification Requirements

To avoid an unwarranted concentration of funds in a single entity that is subject to default risk, diversification requirements are imposed as follows:

1. U.S. Treasury and Agency Securities. These may be held in unlimited amounts because they are risk free, or in the case of agency securities, virtually risk free.

2. * Volunteer Corporate Credit Union (VCCU). The total amount of funds invested in and on deposit with this institution will not exceed $1,000,000. Excluded from this amount are securities or investments held in safekeeping at VCCU.
3. * Not needed.
4. * Commercial Banks, S&Ls, FSBs and other credit unions: investment in a single institution is limited to $100,000 plus accrued interest. Note: whenever possible, the investment should be limited to $99,000 if the investment pays out interest monthly, $98,000 if the investment pays out interest quarterly, and $93,000 if the investment pays out interest annually to protect the Credit Union's accrued interest should the institution liquidate.
5. ** Total funds on deposit at SunTrust Bank are limited to $2,000,000 which includes the main account corresponding balance, the Credit Union employee payroll account, fed funds, and any certificates of deposit.

4. Unauthorized Transactions.

Regulations pertaining to Federal and State Chartered Credit Unions prohibit or limit the use of certain types of investment transactions. Pursuant to these regulations and/or the policy of the Board of Directors, the following transactions are unauthorized for use by the Credit Union:

1. Futures Contracts. A Futures Contract is an agreement calling for a fixed-price, future delivery of standardized securities, usually Treasury and Agency issues.

2. Forward Placement Contracts. There are two types of forward placement contracts, both of which are unauthorized by the Board:

1. Standby Commitment. This is an agreement for the sale of a security at a future day whereby the buyer of the security is required to accept delivery at the option of the seller.
2. Cash Forward Agreement. This is an agreement to purchase or sell a security at a future date with mandatory delivery and acceptance.
3. Short Sales. This is the sale of a security that is not owned by the Credit Union.
4. Adjusted Trades. This is a method of hiding an investment loss by selling a security as a fictitiously high price to a dealer and simultaneously buying another over-priced security from the same dealer.
5. Brokered Deposits - where certificates of deposit held by the depository financial institution are in the name of a deposit broker.

Other procedures must be followed to protect the assets of the Credit Union.

1. Transactions.

Investment Transactions will be conducted directly with borrowers, the issuers of securities, or strong, reputable securities firms.

2. Money Finders.

So-called "money finders" may be used for the following purpose:
To arrange the purchase for fully insured CDs (not exceeding $100,000) issued by banks, S&Ls, Credit Unions, and savings banks.

No funds are to be transferred to or through the money finders.

3. Payment, Delivery, and Safekeeping

With respect to payment, delivery, and the safekeeping of securities, the following policies will be followed:
1. When a security is purchased, evidence of the wire transfer of the funds shall be retained until the instrument matures and the funds are returned.
2. U.S. Treasury and Agency securities will be held in safekeeping by the Federal Reserve Bank or by Volunteer Corporate Credit Union. (These instruments exist in "book entry" form, i.e., computer entries maintained by the Federal Reserve Bank or Volunteer Corporate Credit Union.)
3. Securities not in the physical possession of the Credit Union may be held in a safekeeping account with a financial institution other than a Federal Reserve Bank.
4. All securities held in a safekeeping account will be evidenced by a safekeeping receipt from the safekeeping institution.
5. * The Certified Public Accountants will, as part of its audit, confirm all securities held in safekeeping.
6. Certificates of Deposits and Insured Deposit Notes must be held in the name of the Credit Union.

The Board recognizes that questions may arise and minor policy exceptions may be necessary from time to time. Should such an instance occur, Management and/or the Treasurer will report any exceptions to the Board at its next regular meeting.

Because marketable securities can be sold prior to maturity, and because security values can fluctuate with the market, the Credit Union's investment in marketable securities must be handled in such a way to comply with Financial Accounting Standards Board (FASB) Financial Accounting Standards Number 115.

1. Held to Maturity Securities.

If the Credit Union's intention is to purchase a security for the purpose of earning interest income until it matures, then this security will be identified as "held to maturity" on the monthly Investment Report to the Board of Directors.

It is the intention of this Board of Directors that this type of investment will not be sold or "cashed in" prior to maturity for any reason. The investment will be reported at amortized cost.

2. Available for Sale Securities.

If the Credit Union's intention (as to holding it to maturity or disposing of it prior to maturity) is somewhat unclear when a security is purchased, then it will be identified as "available for sale" at the time of purchase and will be reported as such on the monthly Investment Report to the Board of Directors.

This type of security can be sold if the Credit Union can realize a profit from the sale, limit a substantial market value loss, or use the cash for other purposes. The investment will be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component in the equity section.

3. Trading Securities.

If the Credit Union's intention is to purchase a security with the understanding that it will be sold or traded before it matures, then this security will be identified as "trading" on the monthly Investment Report to the Board of Directors.

This type of security can be disposed of prior to maturity if the Credit Union can realize a profit from the sale, limit a substantial market value loss, or use the cash for other purposes. It will be reported at fair value, with unrealized gains and losses included in earnings.

4. Classification and Reporting

At the time of purchase, Management will determine which of the three above classifications will be used to identify the security. This classification will be given to the Treasurer along with other information about the investment. The Treasurer will report monthly to the Board the securities' fair market values as well as the securities' classification. These values are usually those obtained from the broker or Volunteer Corporate Credit Union.

Revisions: 10/26/88, 2/28/90, 4/24/91, 11/20/91, 2/10/92, 6/23/94, 4/18/96, 6/20/96, 2/27/97, 11/20/97, Reviewed: 8/20/98, * Revised: 5/23/02, ** Revised: 6/26/03, Reviewed: 3/16/05