Strengthening Your Capacity to Serve the Underserved

Transcription

1 Strengthening Your Capacity to Serve the Underserved Blake Myers Consultant, National Federation of Community Development Credit Unions Teri Robinson CEO, Pacific NW Ironworkers FCU Agenda 1. The Opportunity: The Under- & Un- Banked Population 2. The Building Blocks: Low-Income Designation CDFI Certification CDCU Affiliation 3. LMI = Relevance and Growth: The experience of Pacific NW Ironworkers FCU 1

2 The Underserved & Marketplace LMI markets: The Opportunity 34 million households or 28% of all households are financially underserved, According to a 2011 National Study from the FDIC, including: 9.9 million households are unbanked (those without a traditional savings or checking account) 24.2 million households are underbanked (those with limited relationships with a financial institution) 29% of all households do not have a savings account and 10% do not have a checking account. In total over 70 million people representing 25% of the U.S. population are financially underserved. 2

3 LMI markets: The Opportunity 22.2% of foreign born non-citizens are unbanked and 28.9% are underbanked At 52 million Hispanics represent 16.7% of the total US population (not counting 3.7 million residents of Puerto Rico). 20.1% are unbanked and 28.6% are underbanked. 41.5% of low income Hispanics are unbanked! 37% of the senior population (9.2 million people) are financially underserved Age million is unbanked and 4 million underbanked Age is unbanked and 3 million underbanked LMI markets: The Opportunity Young: 45% of households under 24 are underserved People with disabilities: with 51.2 million this group represents 18% of the entire US population (*) 37% are unbanked 47% are underbanked (*) Overlaps with seniors, 72% of whom are identified as having a disability 3

4 LMI Markets Good Fit for CUs CUs traditional membership reaching saturation point. Slow membership growth/aging membership Serving people of small means, core CU value CUNA s membership growth task force: immigrants, youth, people with disabilities Financial services vacuum: banks focused on middle market. AFS providers: high cost solution Business opportunity: emerging markets = need for affordable financial services. Also less price sensitive than established markets Expensive to be poor people can t afford it, yet poor communities have wealth. It s just under the mattress! Who s Serving Them? Payday lenders operate approximately 9,700 stores! Loan volume at $29.2 billion and $4.7 billion in revenue for loans made by payday loan stores. Internet payday lenders are estimated to have loaned $10.8 billion and collected fees of $2.7 billion. Money Remittance and Tax Preparation providers generated over $13 billion in revenues All this coming from people who can least afford it!. 25% of ALL households have used an AFS product last year 42% of ALL households had used one or more AFS in the past 4

5 Who s Serving Them? Approximately 13,000 check-cashing outlets in the country Cashing more than $80 billion worth of checks annually Some 80 to 90% of these are payroll checks with an average size of $500 to $600. The remainder are largely government benefits, incometax-refund, and personal checks. Revenues from this booming business are estimated at over $1.6 billion! LMI markets: The Opportunity Collectively, the underbanked represent over $1 trillion in annual income. AFS providers generated $78 billion in fee and interest revenue in 2011 from a volume of approximately $682 billion in principal loaned, funds transacted, deposits held and services rendered. In 2011 subprime auto loans represented the largest revenue segment at $27 billion, accounting for more than 1 in 3 revenue dollars in the underbanked market overall, and grew by 9.9% from Revenue grew by more than 9% in 2012 to a total of $85 billion. 5

6 Building Block #1 Low Income Designated Credit Unions LMI markets: Imperative & Opportunity LICUs, CDFI CUs, CDCUs v/s Regular CUs: Growing at faster pace than CUs with more traditional FOMs Have more flexibility to make up decreased income from loans and investments with fee income Have access to non-operating income (CDFI Fund and other funding sources) and alternative capital sources 6

7 Low-Income Designated CUs 1,961 LICUs as of 7/31/13 (2/3 FCUs) $157.6 billion in combined assets Serving 17.8 million consumers Hundreds of state chartered CUs might be eligible 70% of LICUs have assets below $50 million. Roughly 40% of all credit unions could be low income designated. LID good for 5 years. Critical to measure benchmark on a yearly basis 7

8 NCUA LID Criteria More than half of a credit union s members live in census tracts that have a median family income below 80% of the Area Median Family Income (AMFI) or individual income less than 80% of Area Median Income (AMI) for a single individual. Benefits of LICU designation Exemption from the cap limiting member business loans to 12.25% of your portfolio The power to raise secondary capital loans The ability to raise insured non-member deposits from any individual or institution Access to the NCUA Community Development Revolving Loan Fund and grant program Deposits TA grants Access to NCUA Economic Development Specialists 8

9 10/1/2013 Additional Benefits Ability to provide limited transactional services to non-members Ability to amend FOM to include associational groups formed for the sole purpose of making CU service available to LI persons (option only for multiple common bond CUs) Additional latitude in serving persons who are affiliated with the community. Those who participate in programs to alleviate poverty or distress, or who participate in associations headquartered in the community. Regulatory Flexibility 2010 Supervisory Letter Issued in response to Federation s advocacy Incorporated into Chapter 23 of the NCUA Examiners Manual it deals with low income credit unions. Educate your Examiner if they are not. : 9

10 LID CUs: Leading the way NCUA Board Chairman Debbie Matz LID credit unions are "lending more than other types of financial institutions and growing stronger". She also noted that LICUs are "national trendsetters" and that the collective success of low-income credit unions demonstrates that credit unions can do well while serving people of modest means. Building Block #2 The CDFI Certification 10

11 The CDFI Fund CDFI Fund established by Congress in 1994 through the efforts of Federation and others in community finance Federation is the credit union advocate with CDFI Fund Federation is the credit union source for CDFI training and services Mission of CDFI Fund Expand the capacity of financial institutions to provide credit, capital, and financial services to underserved populations and economically distressed communities in the United States What are CDFIs? Financial institutions that provide credit, capital, and financial services to underserved populations and communities in the United States Types of Certified CDFIs: Loan Funds (non-profit and for-profit) Insured or State-Insured Credit Unions Insured Depository Institutions (banks and thrifts) Venture Capital Funds Depository Institution Holding Companies 11

12 Types of CDFI Fund Awards Technical Assistance Up to $100,000 Personnel (Salary) Personnel (Fringe Benefits) Training and Travel Professional Services Materials / Supplies Equipment and Other Capital Expenditures Financial Assistance Up to $2.0 Million Loan Loss Reserves Capital Reserves Operations Financial Products Marketing Materials Financial Services The CDFI Field Type of CDFI Number of Certified Institutions* Percentage of Total Unregulated CDFIs Loan Funds % Venture Capital Funds 25 3% Regulated CDFIs Credit Unions % Banks and Thrifts 82 8% Depository Holding Companies 54 5% Total % 12

13 Do I want to be part of this? There are 225 CDFI Certified Credit Unions listed by the CDFI Fund $17 billion in assets and 2 million consumers 6 CUs with over a billion in assets: GECU (TX) 304,468 members and $2.1B GTE Financial(FL) 202,258 members and $1.6B HawaiiUSA (HI) members $1,4B Local Governments (NC) 227,844 and $1.3B MECU, Baltimore (MD) 103,618 members $1,2B CoVantage, Antigo (WI) 77,420 members $1.1 B Benefits: Is it worth it? Annual grant competition with grants of up to $2M Technical Assistance grants up to $100,000 Leverage local partners and other funding sources Access to their Community Investment Impact System Access to other programs such as the CDCI and the CDFI Bond Guarantee Participate in the FHLB's community development program Participate in the Bureau of Indian Affairs (BIA) loan guarantee program 13

14 Are all credit unions eligible? No, but thousands are eligible and don t know it Almost 2,000 low income designated credit unions Credit unions with original SEGs in declining industries like: auto manufacturing, construction, newspapers CUs serving rural areas CUs serving military personnel 7 Tests for Certification Certification Test All Credit Unions LI-Designated Credit Unions 1. Legal Entity 2. Primary Mission 3. Financing Entity 4. Target Market 5. Accountability 6. Development Services 7. Non Government Entity 14

15 Building Block #3: CDCU Affiliation NFCDCU Mission to help low- and moderate-income people and communities achieve financial independence through credit unions. NFCDCU: The National Federation of Community Development Credit Unions aka The Federation 15

16 About the Federation Since 1974 the Federation has been promoting financial inclusion by organizing, supporting and investing in credit unions serving LMI consumers Fast growing network: 250 member credit unions in 46 states Providing services to 2.2 million members $15 billion in assets Most Federation members are low income designated and/or CDFI certified Represent vast majority of all CDFI certified credit unions 3 key areas: How We Help Capital: Access to external resources, such as below market rate deposits; capital (CDFI Fund; CDCI program; CDFI Bond Guarantee; Federation s CDIP) Knowledge: Fostering innovation in product development and implementation focused on LMI consumers; best practices; National and Regional Conferences; Specialized consulting services. Impact: regulatory (NCUA s LID) external resources (CDFI Fund), and advocacy. 16

17 Federation Assistance Federation methodology can determine IA & LITP eligibility Accepted by CDFI Fund Now also by NCUA for LICUs Sampling can be used for Certification, Recertification, Monitoring and Compliance Federation toolkit & CU Breakthrough can help CDFI Tools and Intelligence The Federation Is the CU authority in all things CDFI Identifies trends that may adversely affect the competitiveness of CUs Provides application templates and advice Provides free reviews of funding applications 17

18 Programs to Serve the LMI Market: Secondary Capital What is Secondary Capital? Counts as regulatory net worth Borrowing that must be repaid (deeply subordinated debt Equity injection to accelerate credit union growth A benefit for LID credit unions only Enables a CU to accept a profitable growth opportunity without lowering Net Worth FUEL FOR GROWTH: each dollar of SC can be leveraged 14 times! 18

19 Loan Characteristics Minimum maturity of 5 years Most beneficial effect when SC has a very long term (10 years and longer) CU must pay interest regularly (quarterly or biannually) May not be pledged or used as security Will not carry over as secondary capital in the event of merger into a CU that is not LI- designated (will be closed out and paid back). Tricky Accounting Declining scale for the capital value of accounts with less than five years remaining maturity; Between 4-5 yrs remaining, 80% NW, 20% liability Between 3-4 yrs remaining, 60%NW, 40% liability Between 2-3 yrs remaining, 40%NW, 60% liability Between 1-2 yrs remaining, 20%NW, 80% liability Less than 1 yr remaining, 0% NW, 100% liability All funds, however, continue to be at risk to cover losses that exceed reserves and UE. The discounting formula limits the value of SC to the LICU without lowering the risk to the investor. 19

20 Sources of Secondary Capital U.S. Department of Treasury CDCI Potentially the U.S. Department of Treasury CDFI Bond Guarantee Program (still under development) The CDFI Fund Banks Other Credit Unions Private Sources The Federation Other Federation Programs Secondary Capital Federation s Community Development Investment Program CDFI Financial Assistance CDCI Program CDFI Bond Guarantee Program New Market Tax Credit 20

21 Teri Robinson CEO Pacific NW Ironworkers FCU Portland, OR $11 Million in Assets 4,900 Members Pacific NW Union Ironworkers 3 Branch Locations Portland OR Seattle WA Spokane WA 21

22 Pacific NW Ironworkers Net Worth Restoration Plan March 2010 New CEO March 2010 Received NCUA Low Income Designation June 2010 Received CDFI Certification March 2011 Pacific NW Ironworkers Lowest Capital 4.80% Received Secondary Capital June 2012 Stabilized Credit Union Allowed for slow steady growth March 2013 Net Worth Lifted 22

23 Net Worth Opportunity Examiner findings had always focused on: Risker borrowers Higher than peer loan yield Higher than peer income Higher operating expenses 23

24 Opportunity Researched findings and found. Loan Losses were not coming from risker borrowers Our A+ - B Borrowers 61% of charge offs in % in 2011 These were our Loyal Members Predatory lenders are charging our members 29% vs our loan rates 16% for D borrower Low Income Designation Applied for NCUA Low Income June 2010 Received CDFI Certification March 2011 Low Income designated and certified CDFI Serving more than 5,000 unionized ironworkers in AK, WA, ID, MT & OR who suffer from high unemployment due to the reeled construction industry. They have limited, to no access to financial products from conventional financial institutions due to their patterned work history. These same members often turn to predatory lenders to cover short-term cash needs hindering their ability to create any sort of wealth for themselves or their families. 24

25 Low Income Designation Low Income designated and certified CDFI Additionally, we have built a partnership with Ironworkers to deploy our financial education program aimed at teaching financially challenged members and non-members how to pay their bills, including making critical loan payments, even during tough times. This has allowed us to help those struggling with financial issues and limited access by deploying loans and becoming the point of change on several levels in the lives of many. Loan Growth Since one year ago up 35% 2.7 million 25

26 Loan Growth Average Monthly Totals Granted Loan Growth Loan Growth Average Monthly Granted 26

27 Low Income Designation Focused on recapturing loans funded by predatory lenders 47% loans granted to C-E Borrowers 1403 loans granted YTD Totaling $5,725, Loan yield 8% 1% Delinquency = 7 loans 101% Loan to Shares Next Steps 27

28 CUBreakthrough NFCDCU s Specialized consulting services to help CUs serve LMI markets: Help credit unions grow larger and stronger by reaching out to 70 million unbanked or underbanked consumers Services include: 1. Resource Development : CDFI certification, CDFI grant applications, strategic planning, fundraising 2. Product Design and Development for LMI markets : payday loan alternatives, credit builder, affordable home mortgage, small and microbusiness lending) 3. Asset building Programs: VITA/EITC, IDAs, Savings initiatives Contact Us National Federation of Community Development CUs 39 Broadway Suite 2140 New York, NY Blake Myers Federation & CUBreakthrough Consultant bmyers@cubreakthrough.com Teri Robinson CEO, Pacific NW Ironworkers FCU teri@ironworkersfcu.org 28