Credit Union Access to Capital

Credit Union Access to Capital & How the Federation Can Help! 2012 AACUC Annual Conference Charleston, SC Terri J. Fowlkes Director, Community Development Investments

National Federation of Community Development Credit Unions Founded in 1974 501 (3)(c) charitable organization Community Development Financial Institution ( CDFI ) Membership Association of Community Development Credit Unions CDCUs Credit unions that specialize in serving low- and moderate-income people and communities Over 240 member CDCUs in 46 states 1.7 million members $13 billion in assets 14 full time staff members New York City headquarters Branch offices in Madison, Colorado Springs & San Francisco

Credit Union Spotlight Hawaii First FCU, Hilo, HI Chartered in 1956 as Kamela Community FCU Assets in excess of $40 million, serving 6,000 members out of three branch locations Low-Income Designated CDFI Certified Federation Member CDCU and CDIP Secondary Capital Investee Opened affiliate Hawaii First Community Resource Center in 2008 and second in 2011 CDFI Fund grant and Federation secondary capital funds were used to support the opening of the second CRC and provide much needed resources for credit union and community members to obtain self sufficiency 3

There are Three Key Credit Union Credentials to Help Your Credit Union Access Capital

Three Key Credit Union Credentials Credential # 1: Low-Income Designation Credential # 2: CDFI Certification Credential # 3: Community Development Credit Union ( CDCU ) Status 5

Credential #1 NCUA s Low-Income Designation

What is Low-Income Designation? A credit union may be granted a low-income designation by the NCUA if: More than 50% of the credit union s members live in census tracts that have a median family income below 80% of the Area Median Family Income (AMFI) or More than 50% of the credit union s members live in census tracts that have median individual income less than 80% of Area Median Income (AMI) the area median income (AMFI and AMI) is based on the use of credit union member data compared to U.S. census information low-income members are also those members enrolled as students in a college, university, high school, or vocational school 7

Other Methods for Qualifying Other methodologies that ease the burden on CUs seeking LID that have lower-income members living in higher-income neighborhoods include: 100% Loan Review 100% Membership Survey Combination of 100% Loan Review and 100% Membership Survey (as long as member is only included once) Statistically Valid Sample Newest methodology For use when membership is large and it is cost prohibitive to complete a 100% loan and/or membership survey Sample has to be either entirely from loan files or entirely from a membership survey can not combine a loan file review with a survey. 8

Benefits of Low-Income Designation Low-income designated credit unions may: Accept non-member deposits Qualify for exception from the aggregate loan limit for member business loans Accept secondary (alternative) capital accounts Participate in the NCUA Community Development Revolving Loan Fund Loans & Grants Participate in the NCUA Small Credit Union Program and Workshops Provide transaction services to non-members in field of membership 9

Benefits of Low-Income Designation 1. Accept Non-Member Deposits Accept deposits up to the greater of $3 million or 20 percent of total shares, unless a greater amount is approved by NCUA s RD Accept deposits from any source 2. Exempt from Member Business Loan Limitations Exempt from limit on outstanding MBLs (including unfunded commitments) of the lesser of 1.75 times the CU s net worth or 12.25 percent of the CU s total assets 3. Accept Secondary Capital Loans Deeply subordinated debt that positively affects the credit union s net worth 10

Benefits of LID cont. 4. Accept Community Development Revolving Loan Fund Loans from NCUA Low-cost loans up to $300,000 to be used for various purposes Loans with a 0.40% interest rate, 5 year maturity, balloon note with principal due at maturity 5. Accept Community Development Revolving Loan Fund Grants from NCUA Technical assistance grant funding to be used for various credit union initiatives 11

Benefits of LID cont. 6. Participation in the NCUA Small Credit Union Program Program is designed to provide direct assistance to credit unions through an NCUA Economic Development Specialist (EDS) Enrolled credit unions can receive assistance with strategic management or operational issues 7. Participation in NCUA Small Credit Union Workshops Free NCUA one-day workshops / roundtables open to all credit unions, not just LIDs Topics targeted for credit unions with less than $50 million in assets 12

Benefits of LID cont. 8. Transactional Services Available ONLY to FCUs Ability to provide specific transaction services (i.e. check cashing for a fee, money orders, etc) to persons within the credit union s fields of membership, regardless of membership status (i.e. potential members) 13

Number of LID CUs Type of Credit Union National Totals* All Federally Insured CUs 7,019 Low-Income Designated CUs 1,092 Anticipated significant increase in number of LICUs NCUA will soon send letters to nearly 1,000 credit unions indicating that they are eligible for LID *Source: NCUA 3/31/12 14

Ways to Work Towards LID Convert to a community charter serving a geographic area qualifying for an LID If a multiple common bond FCU, add an underserved area If a community charter, market and add new members from underserved areas within the community boundaries

Credential #2 CDFI Certification

U.S. Department of Treasury CDFI Fund The Community Development Financial Institution (CDFI) Fund was 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 Mission of CDFI Fund Expand Expand the the capacity capacity of of financial financial institutions institutions to to provide provide credit, credit, capital, capital, and and financial financial services services to to underserved underserved populations populations and and economically economically distressed distressed communities communities in in the the United United States States

Benefits of CDFI Certification Access to Financial and Technical Assistance dollars from the CDFI Fund Eligible to receive funds from banks Through Bank Enterprise Award program Banks may receive CRA credit Leverage other Funding Sources and Partnerships 18

Criteria for CDFI Certification An organization must meet all of the following criteria in order to obtain CDFI Certification: 1. A Legally Existing Entity 2. Non-Governmental Entity 3. Predominately a Financing Entity 4. Provide Development Services in conjunction with Financing 5. Primary Mission of Community Development Joining the National Federation of CDCUs helps demonstrate this (self-certification as part of membership application)

Criteria for CDFI Certification cont. 6. Principally Serves a Target Market CDFI Investment Areas Low-Income Targeted Populations Other Targeted Populations 7. Accountable to the Target Market Federation advocating with CDFI Fund that credit unions that serve eligible Target Markets are automatically accountable to that Target Market

Certification Period CDFI certification is good for 3 years CUs must submit re-certification applications every 3 years Re-certification applications are very similar to the initial certification application, but focuses on 3 key areas: No material changes have taken place Demonstration that CU is still serving CDFI eligible target markets Demonstrate the CU still devotes at least 60% of its financing activities to eligible target markets

The CDFI Field Type of CDFI Number of Certified Institutions Percentage of Total Unregulated CDFIs Loan Funds 602 62% Venture Capital Funds 25 3% Regulated CDFIs Credit Unions 219 22% Banks and Thrifts 82 8% Depository Holding Companies 54 5% Total 988 100%

Credit Union CDFIs There are 219 CDFI Certified Credit Unions listed by the CDFI Fund CUs are the most rapidly growing segment of CDFIs Over last 20 months, 60 CUs have obtained certification $14 billion in cumulative assets, with 2 million members 4 CDFI CUs with over a billion in assets GECU, El Paso, TX - $1.9B in assets, 310,000 members HawaiiUSA, Honolulu, HI - $1.3B in assets, 124,821 members MECU, Baltimore,MD - $1.2B in assets, 100,500 members CoVantage, Antigo, WV - $1B in assets, 72,841 members

State CDFI Programs New York State CDFI program: Provides approximately $5 million a year in funding to NYS CDFIs Administered through the Empire Economic Development Corporation Focus: micro and small business lending Just announced: $58M from the State Small Business Credit Initiative (SSBCI) including $18.4mm for loan loss reserve match.

Federation s 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 Becoming a CDCU

CDCUs & CDFI Fund New Federation paper describes role of CDCUs in CDFI movement Explores impact of Great Recession and federal response Calls for increased recognition and support for CDFI credit unions 26

Credential #3 Community Development Credit Union (CDCU) Status

What s a CDCU? Membership in the Federation qualifies credit unions as CDCUs Credit Unions with an explicit mission to serve underserved individuals and communities 240 credit unions in 46 states Represented by 13-member board Extremely diverse Board Lynda Milton, Chair Biggest CDCU: GECU of El Paso, TX $1.9B in assets and 310,000 members Smallest CDCU: Destiny CU, WI $9,712 in assets and 712 members

Federation s Mission To help low- and moderate-income people and communities achieve financial independence through credit unions. 29

National Federation of Community Development Credit Unions Programs Include: Community Development Investments Capitalization CDCU Mortgage Center HUD Approved National Housing Counseling Intermediary Advocacy NCUA CDFI Fund U.S. Department of Treasury HUD CU Breakthrough Credit Union Consulting Services Technical Assistance Low-Income Designation / CDFI Certification 30

National Federation of Community Development Credit Unions Programs Include continued: Education & Training CDCU Institute Foreclosure Prevention Mortgage Lending Special Initiatives Disability Older Adults Better Directions Healthy Foods Initiative Faith-Based Credit Union Network Latino Credit Union Networks Small Business Lending Youth Credit Union Project Veterans pilot Program 31

Benefits of Becoming a CDCU Recognition of commitment to promoting financial inclusion and the development of underserved communities. Helps meet the primary mission of promoting community development test of CDFI Certification Eligible to access Federation s investment products Advocacy Access to: Expertise Programs Resources

Community Development Investment Program ( CDIP ) Access to Federation Capital Resources Over $50 million in assets under management 32 investors Over $25 million in investments in approximately 60 CDCUs nationwide $10.5 million in mortgage loans purchased from 10 CDCUs nationwide Barbara Stephens, CDIP Capitalization Committee Chair 33

Benefits of Low-Income Designation 1. Accept Non-Member Deposits Accept deposits up to the greater of $3 million or 20 percent of total shares, unless a greater amount is approved by NCUA s RD Accept deposits from any source 2. Exempt from Member Business Loan Limitations Exempt from limit on outstanding MBLs (including unfunded commitments) of the lesser of 1.75 times the CU s net worth or 12.25 percent of the CU s total assets 3. Accept Secondary Capital Loans Deeply subordinated debt that positively affects the credit union s net worth 34

Benefits of LID cont. 4. Accept Community Development Revolving Loan Fund Loans from NCUA Low-cost loans up to $300,000 to be used for various purposes Loans with a 0.40% interest rate, 5 year maturity, balloon note with principal due at maturity 5. Accept Community Development Revolving Loan Fund Grants from NCUA Technical assistance grant funding to be used for various credit union initiatives 35

Benefits of LID cont. 6. Participation in the NCUA Small Credit Union Program Program is designed to provide direct assistance to credit unions through an NCUA Economic Development Specialist (EDS) Enrolled credit unions can receive assistance with strategic management or operational issues 7. Participation in NCUA Small Credit Union Workshops Free NCUA one-day workshops / roundtables open to all credit unions, not just LIDs Topics targeted for credit unions with less than $50 million in assets 36

Benefits of LID cont. 8. Transactional Services Available ONLY to FCUs Ability to provide specific transaction services (i.e. check cashing for a fee, money orders, etc) to persons within the credit union s fields of membership, regardless of membership status (i.e. potential members) 37

Benefits of Low-Income Designation 1. Accept Non-Member Deposits Accept deposits up to the greater of $3 million or 20 percent of total shares, unless a greater amount is approved by NCUA s RD Accept deposits from any source 2. Exempt from Member Business Loan Limitations Exempt from limit on outstanding MBLs (including unfunded commitments) of the lesser of 1.75 times the CU s net worth or 12.25 percent of the CU s total assets 3. Accept Secondary Capital Loans Deeply subordinated debt that positively affects the credit union s net worth 38

Benefits of LID cont. 4. Accept Community Development Revolving Loan Fund Loans from NCUA Low-cost loans up to $300,000 to be used for various purposes Loans with a 0.40% interest rate, 5 year maturity, balloon note with principal due at maturity 5. Accept Community Development Revolving Loan Fund Grants from NCUA Technical assistance grant funding to be used for various credit union initiatives 39

Benefits of LID cont. 6. Participation in the NCUA Small Credit Union Program Program is designed to provide direct assistance to credit unions through an NCUA Economic Development Specialist (EDS) Enrolled credit unions can receive assistance with strategic management or operational issues 7. Participation in NCUA Small Credit Union Workshops Free NCUA one-day workshops / roundtables open to all credit unions, not just LIDs Topics targeted for credit unions with less than $50 million in assets 40

Benefits of LID cont. 8. Transactional Services Available ONLY to FCUs Ability to provide specific transaction services (i.e. check cashing for a fee, money orders, etc) to persons within the credit union s fields of membership, regardless of membership status (i.e. potential members) 41

Benefits of Low-Income Designation 1. Accept Non-Member Deposits Accept deposits up to the greater of $3 million or 20 percent of total shares, unless a greater amount is approved by NCUA s RD Accept deposits from any source 2. Exempt from Member Business Loan Limitations Exempt from limit on outstanding MBLs (including unfunded commitments) of the lesser of 1.75 times the CU s net worth or 12.25 percent of the CU s total assets 3. Accept Secondary Capital Loans Deeply subordinated debt that positively affects the credit union s net worth 42

Benefits of LID cont. 4. Accept Community Development Revolving Loan Fund Loans from NCUA Low-cost loans up to $300,000 to be used for various purposes Loans with a 0.40% interest rate, 5 year maturity, balloon note with principal due at maturity 5. Accept Community Development Revolving Loan Fund Grants from NCUA Technical assistance grant funding to be used for various credit union initiatives 43

Benefits of LID cont. 6. Participation in the NCUA Small Credit Union Program Program is designed to provide direct assistance to credit unions through an NCUA Economic Development Specialist (EDS) Enrolled credit unions can receive assistance with strategic management or operational issues 7. Participation in NCUA Small Credit Union Workshops Free NCUA one-day workshops / roundtables open to all credit unions, not just LIDs Topics targeted for credit unions with less than $50 million in assets 44

Benefits of LID cont. 8. Transactional Services Available ONLY to FCUs Ability to provide specific transaction services (i.e. check cashing for a fee, money orders, etc) to persons within the credit union s fields of membership, regardless of membership status (i.e. potential members) 45

CDIP Modern Day Robin Hood 46

CDIP Overview Community Development Investment Program 47

Secondary Capital Loans Deposits Nominee Deposits Non-Member Deposits Risk-Shared Deposits Capitalization Program A Full - Service Capital Shop PRIDEs (Predatory Relief and Intervention Deposit) Micro-Enterprise Deposits Grants (not currently available) 48

What is Secondary Capital? HIGH OCTANE FUEL Deeply subordinated debt that counts towards credit union s net worth Equity injection to accelerate credit union growth Gives credit union the ability to accept more deposits, make more loans The Federation CDFI Fund Sources? Investors: Other CUs, CDFIs, etc. 49

Secondary Capital Loans Purpose: To strengthen / sustain credit union equity position Loans to improve regulatory net worth and support credit union asset growth Subordinated to all other credit union debt Long-term Maturity of 5 to 7 years Loans up to $500,000 50

Nominee / Non-Member Deposits Purpose: To provide CDCUs with liquidity to generate income Used to expand credit union loan portfolio Deposits at or below market rates 51

Risk- Shared Deposits Micro-Enterprise Purpose: To assist CDCUs with providing loans for business purposes to their members Used to collateralize a portion of loans made by credit unions to small businesses PRIDEs Purpose: To help credit unions fight high cost payday, tax-refund, auto, mortgage, assistive technology and other lending and achieve greater impact Used to collateralize a portion of loans made by credit unions to fight predatory / abusive lending 52

CDCU Mortgage Center CDCU Secondary Market Mortgage Training & Education Mortgage Connections HUD Housing Counseling 53

CDCU Secondary Market Purpose: To assist credit unions with the expansion of affordable mortgage lending in low- and moderate- income communities nationwide To increase credit union liquidity to provide affordable mortgage loans to their members To assist credit unions with asset /liability management To assist credit unions overcome regulatory constraints regarding the proportion of fixed rate mortgage loans that can be held in their portfolios To help credit unions overcome the limited or non-existent secondary markets for credit union mortgage loans Federation purchases performing, first mortgage loans originated by Federation Member CDCUs and CD Partners 54

CDCU Secondary Market cont. Target purchases Loans to minority /low-income/ first-time homebuyers 1-4 family Condominium Co-op ITIN Rural Seasoned (or non-seasoned with one year recourse) 55

Mortgage Training & Education Purpose: To provide professional education and training in affordable mortgage lending and foreclosure prevention for credit unions of all sizes Special personalized training to help credit unions expand affordable mortgage lending and minimize losses Courses include: mortgage loan underwriting, mortgage lending strategies, the secondary market, marketing, mortgage fraud detection, homebuyer counseling and education, foreclosure prevention and much more 56

Mortgage Connections Purpose: Help credit unions establish or grow their mortgage business through industry partnerships Assist credit unions who want to begin offering mortgage financing to members Assist credit unions who are already in the mortgage business and want to expand mortgage products offerings Assist credit unions with loan processing, underwriting, loan servicing functions, and more 57

Purpose: HUD Housing Counseling Intermediary Act as a HUD intermediary to a network of 15 housing counselors nationwide Expand the number and capacity of credit unions providing housing guidance Most recent funding - $955,302 for fiscal year 2012 58

How the Federation Can Help Your CU Access Capital? Through Continued Advocacy Assist with obtaining Low-Income Designation Assist with applying for NCUA Loans and Grants Assist with becoming CDFI Certified Assist with applying for CDFI grants Provide you with capital deposits, secondary capital, mortgage purchases, and more Provide consulting services, training, education, and technical assistance And much more!!! 59

Credit Union Spotlight Generations Credit Union, Durham, NC Started in 2002 $25 million in assets, serving 10,000 members, out of 7 branches Merged with and acquired 10 minority credit unions in NC since inception Low-Income Designated CDFI Certified Federation Member CDCU Secondary Capital Non-Member Nominee Deposit Recipient CDCU Mortgage Center Secondary Market Training and education CDCU Institute, on-site mortgage training 60

Questions?

For more information National Federation of Community Development Credit Unions 39 Broadway, Suite 2140 New York, NY 10006 www.cdcu.coop Terri J. Fowlkes Director, Community Development Investments tjfowlkes@cdcu.coop (212) 809-1850, extension 221 Lloyd Doaman Portfolio Officer ldoaman@cdcu.coop (212) 809-1850, extension 271 62