BENEFITS OF LOW-INCOME DESIGNATION & HOW TO APPLY

1. BENEFITS OF LOW-INCOME DESIGNATION & HOW TO APPLY NCUA EDS Carl Banks

2. Low-Income CU Definition • A low-income (LI) CU is one that serves predominantly low-income members. “Predominantly” is defined as a simple majority (over 50% of your members). • Section 701.34 of NCUA Rules and Regs. defines LI members as those members who earn 80% or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater.

3. Low-Income CU Definition • A regional director may use total median earnings for individuals instead of median family income if it is more beneficial to a federal credit union when determining if the credit union qualifies for a low-income credit union designation. • The low-income designation must be given to a credit union by the NCUA Office of Consumer Protection.

4. Low-Income CU Definition • A regional director will use the statewide or national, non-metropolitan area median family income instead of the metropolitan area or national metropolitan area median family income for members living outside a metropolitan area. Member earnings will be estimated based on data reported by the U.S. Census Bureau for the geographic area where the member lives.

5. Low Income CU Definition • The term “low-income members” also includes members who are enrolled as full or part-time students in a college, university, high school or vocational school; • However, student CU’s cannot participate in the Community Development Revolving Loan Fund Program (CDRLP); • Student CU’s are not considered low-income credit unions.

6. Low-Income CU Definition • State law and state supervisory authority (SSA) govern the level of participation in the CDRLP. • If NCUA approves a state chartered CU as a low-income designated CU, SSA must concur for CU to be designated as low-income.

7. Summary of Benefits • Can accept Non-Member Deposits • Participation in Comm. Development Revolving Loan Program • Can Accept Secondary Capital • Special FOM Rules • Certain regulatory exemptions apply to LID credit unions

8. Non-Member Deposits • LI credit unions can receive non-member shares or certificates from any source in addition to public unit accounts and accounts of other credit unions. • Aggregate of such accounts cannot exceed 20% of total shares or $1.5 million, whichever is greater, without a waiver from the NCUA Regional Director or SSA (for federally insured state-chartered CU’s).

9. Non-Member Deposits • Before a LID CU accepts any public unit or nonmember shares in excess of 20% of total shares, the board of directors must adopt a specific written plan concerning the intended use of these shares and forward a copy of the plan to the Regional Director for review and approval.

10. Non-Member Deposits • The plan must include: • (i) A statement of the credit union’s needs, sources and intended uses of public unit and nonmember shares; • (ii) Provision for matching maturities of public unit and nonmember shares with corresponding assets, or justification for any mismatch; and • (iii) Provision for adequate income spread between public unit and nonmember shares and corresponding assets.

11. Participation in NCUA’s CDRLP • Governing rule is Part 705 of NCUA Rules and Regulations; • LI credit unions are eligible to participate in the CDRLP; • The CDRLP may approve loans/deposits to a low-income CU in an aggregate maximum of $300,000; Rate this year is only 0.40%.

12. Participation in NCUA’s CDRLP • In addition, LI credit unions are also eligible for Technical Assistance (TA) grants to improve member services and increase the efficiency of credit union operations; • Funds for TA grants are provided by Congressional appropriation, and also from interest NCUA earns on CDRLP loans; • TA grants for 2012 are available to LID CUs in an aggregate amount of $25,000.

13. TA Grants • Relatively simple application process; • Online application for 2012 funding round. • Must apply through NCUA’s Office of Small Credit Union Initiatives (OSCUI).

14. Secondary Capital • Key Rule: • The FCU Act, Section 1790d(o) permits only low-income credit unions to include secondary capital accounts in their computation of net worth.

15. Secondary Capital • Section 701.34(b) of NCUA Rules and Regulations discusses the requirements for secondary capital.

16. Purpose of Secondary Capital • To enable those credit unions designated as low-income to support greater lending and improve other financial services for the limited income groups and committees they serve.

17. What is Secondary Capital? • Secondary capital is an uninsured obligation that is offered only to organizational investors; • It must take the form of subordinated debt (like a borrowing transaction that must be repaid over time);

18. What Does Subordinated Debt Mean? • Subordinated” means the secondary account holder’s claim must come AFTER any other claims from shareholders, creditors or the NCUSIF. • Therefore, it is considered a somewhat risky investment for an organization to make. • Usually provided to well-managed financial institutions.

19. Other Key Restrictions • Secondary capital is uninsured and cannot be shown as a share account—It is subordinated debt; • Funds must be available to cover losses after reserves and UE, but prior to liquidation.

20. Other Key Restrictions • The accounts must have a minimum maturity of 5 years; • The accounts may not be used as security on other obligations of the account holder; & • The accounts will not “carry over” as secondary capital in the event of merger into a CU that is not LI- designated.

21. Special FOM Rules • NCUA has adopted special rules that pertain to low-income credit union charters as well as FOM additions; • These special rules provide additional latitude to enable underserved, low income individuals to gain access to CU service.

22. What are These Rules? • Any multiple common bond credit union can add low-income associations to their fields of membership; • A LI-designated community FCU has additional latitude in that it may also serve persons who perform volunteer services, participate in programs to alleviate poverty or distress, or who participate in associa- tions headquartered in the community.

23. How to Apply for LI Designation? • Must submit written request to NCUA Office of Consumer Protection; • Request must contain appropriate documentation supporting that majority of members or potential members meet the LIT designation req.

24. The Following Methods Can Be Used: • Zip Code: This is the most common & easiest method to determine eligibility; • Zip codes of 100% of the credit union’s members of record as of a particular date will be complied and aggregate # of members residing in each ZIP will be determined. Either median family income, total median earnings or statewide or national non-metropolitan area median family income will be analyzed to determine eligibility. • NCUA and EDSs will utilize automated Low-Income Designation Assessment Tool to determine if a CU qualifies for the LID.

25. ZIP Code Method, Cont’d • More than 50% of the credit union’s current members must reside in defined low-income ZIP codes, based on Median Family Income Statistics or other data as previously explained. • This method can be used to establish that members and potential members meet the low-income test. • If CU does not qualify using Zip Code analysis, a CU can use other methods to try to qualify for the LID.

26. Other Acceptable Methods to Support Low-Income Status • Credit unions may provide actual member income from loan applications or surveys to demonstrate a majority of their membership is low-income members. • Loan Survey: Review 100% of outstanding loans (can also include paid-off and charged-off loans if within last two years) and submit income data to NCUA. More than 50% of the borrowers must meet the Low-Income Test (LIT). • You can try loan method if the Zip code method does not work.

27. Other Acceptable Methods, Cont’d • Membership Survey: Survey must include 100% of credit union’s members as of a particular date (or conduct a statistically valid survey acceptable to NCUA). • A simple majority of the members must respond and qualify under the LIT. • This method is rarely used for LID qualification.

28. Other Acceptable Methods, Cont’d • U.S. Census Bureau Block Group Information: This method could be used to determine a community credit union’s eligibility for LI designation or non-designated LICU’s FOM expansion request into a low-income community. This method will determine a defined community’s median family income.

29. Other Acceptable Methods, Cont’d • Information for this method can be obtained from the U.S. Census Bureau’s website; • WWW.Census.Gov , or • Researching information at your local library.

30. Other Acceptable Methods, Cont’d • Other Supportive Statistical Data: • Other statistical data provided by reputable organizations may be used if the NCUA is satisfied that the data presented is customary and uniformly accepted demographic information. If more than 50% of the members meet the LIT, then the CU or the FOM expansion group qualifies as LI.

31. Any Questions?? • Applying for LI designation is not that difficult; • Please make arrangements with the EDS for assistance in applying.

32. LI Designation Presentation • That’s All Folks!! • THANK YOU • CARL BANKS • cbanks@ncua.gov • 1-210-859-9713