Pablo DeFilippi, Federation Scott Butterfield, The Federation Miriam De Dios, Coopera Linda Levy, LESPCU Developing a Sustainable Community Development Outreach Strategy Workshop 10-10-2013 Introduction Agenda The Emerging Markets Opportunity A Comprehensive Approach to Serving Emerging Markets Roundtable Exercise The Building Blocks of Community Development: Low Income Designation, CDFI Certification and CDCU Status Best Practices from Lower East Side People s Federal Credit Union Questions 1
CUNA, Coopera, Federation Partnership Objective: Collectively leverage our capabilities, knowledge and resources to bring CUs information and tools to reach and serve emerging communities. 2013 CCU&G Conference: NEW Emerging Markets Educational Track Coopera Our Mission: To partner with people, businesses and communities for new economic opportunity Our Founder: Warren Morrow sought to provide dignified financial services to Hispanics through credit unions We help your credit union grow by reaching and serving the Hispanic community We are owned by Affiliates Management Company, holding company of the Iowa Credit Union League We are a CUNA exclusive alliance partner 2
The Federation Certified CDFI Intermediary, representing more than 250 community development credit unions (CDCUs) Member CDCUs provide credit, savings, transaction services and financial education to more than 2.2 million residents of low-income urban, rural and reservation-based communities across the U.S., and hold over $15 billion in community-controlled assets The Federation offers a wide range of advocacy, educational, training, investment, marketing, and outreach programs to support and assist CDCUs The Opportunity Scott Butterfield, The Federation 3
Food for Thought According to the January 2013 CUNA Mutual Group Credit Union Trend Report: Loan growth: 46 percent (3,191 CUs) reported loan portfolio declines in 2012. Its great news that overall credit union growth was up in 2012, but the sad reality is that 514 of the largest credit unions accounted for 80 percent of the 2012 loan growth. Membership growth: Roughly 50 percent (3,511 CUs) reported membership declines in 2012. Approximately 81 percent of the membership gains came from the 400 largest credit unions. Small credit union challenges: Small credit unions make up the majority of our number. As of December 2012, there were 4,694 credit unions with assets less than $50 million. These credit unions will continue to face challenges that larger credit unions won t. Teams with limited resources will need to stretch, doing more with less. Opportunities for Growth and Relevance Today, tens of millions of consumers need a financial bridge that connects to affordable access to credit and the path to a better quality of life. Each plank on the bridge represents a single step: financial education, skill development, credit repair, regular savings, and better financial management. 4
Emerging Markets Good Fit for CUs CUs traditional membership reaching saturation point. Slow membership growth / aging membership Serving people of small means, core CU value 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 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. 5
LID CUs: Leading the Way As a group, LICUs led the nation in lending throughout the recession of 2008 2009, as well as the steady recovery of recent years. Between December 2007 and March 2012, low-income credit unions expanded loans by $11 billion (57.6%). During the same time period, the entire credit union industry expanded loans by $45 billion (8.6%), while banks and thrifts decreased loans by approximately $500 billion (6.3%). A Comprehensive Approach to Serving Emerging Markets Miriam De Dios, Coopera 6
What s an emerging market for your credit union? Emerging Markets Low-income Unbanked/underserved Immigrants Hispanics 7
Hispanics The largest, fastest-growing, youngest & most underserved group in the U.S. Where do you begin? 8
The Coopera Approach 1. The right organizational mentality Philosophy Investment 2. Adapt to the market Personnel Products Processes Promotion/Marketing A Comprehensive, Strategic Approach MARKET SHARE FINANCIAL EDUCATION RIGHT MENTALITY ADAPTED TO MARKET 9
The Groundwork Board has asked for a plan or CEO has determined the board needs to see a plan An in-depth analysis has been conducted (opportunities & challenges) Results of analysis have been presented Management has conviction and recognizes the need for a broad-based, comprehensive, sustainable effort Identify your Opportunities & Challenges Hispanic Opportunity Navigator (HON) Needs Assessment & Cultural Score Demographic Market Scan Baseline Hispanic Member Analysis Branch Recommendations ROI Potential Credit Union Roadmap & Growth Stage Score 10
Key Components of a Strategy Measurement Hispanic Opportunity Navigator Assessment Promotion and Marketing Implementation Hispanic Growth Strategy Strategic Planning Branch Strategy Process Improvements Product Improvements Personnel - Staff /Board Training and Staff Adjustments Roundtable Exercise 11
Part 1: Discussion Questions What are your credit unions greatest obstacles for growth? Is your credit union number one or two among competitors within your community? Why? Are there any markets within your community that are underserved? If yes, what are they? Part 2 Find Your Emerging Markets Table Low-income Immigrants Hispanics Other Identify your growth phase using the worksheet Discuss what s needed to advance your strategy Share 12
The Building Blocks Pablo DeFilippi, The Federation The Building Blocks Building blocks for developing a sustainable community development strategy: Low Income Designation (Regulatory tools) + CDFI Certification (Access to external resources) + CDCU (Specialized Expertise + Partnerships) = Sustainable Growth and Community Impact 13
Low Income Designation 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. 14
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 15
Benefits of LID 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 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. 16
10/10/2013 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. CDFI Certification 17
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 CDCUs & CDFI Fund Federation is the CU authority in Community Finance and CDFIs. 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 18
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 The CDFI Field Type of CDFI Number of Certified Institutions* Percentage of Total Unregulated CDFIs Loan Funds 613 61% Venture Capital Funds 25 3% Regulated CDFIs Credit Unions 225 23% Banks and Thrifts 82 8% Depository Holding Companies 54 5% Total 999 100% 19
CDFI Certified CUs CUs most rapidly growing CDFI segment : Over the last 18 months more than 60 CUs have received their certification 225 CDFI Certified credit unions listed by the CDFI Fund $17 billion in assets serving 2 million consumers Growing number of multibillion dollar CUs: Credit Union Location Members Assets GECU El Paso, TX 304,468 $2,1 Billion GTE Financial Tampa, FL 202,258 $1.6 Billion HawaiiUSA Honolulu, HI 123,326 $1.4 Billion Local Governments Raleigh, NC 227,844 $1.3 Billion MECU Baltimore, MD 103,618 $1.2 Billion CoVantage Antigo, WI 77,240 $1.1 Billion Is it worth it? Annual grant competition with grants of up to $2M Technical Assistance grants up to $100,000 Bank Enterprise Award (BEA) low-interest deposits 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 20
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 21
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 CDCU Affiliation 22
What s a CDCU? Provided at joining the National Federation of Community Development Credit Unions based CUs with an explicit focus in serving underserved communities 250 credit union members in 44 states.2.5 million members $19 billion in assets Biggest CDCU: GECU of El Paso (TX) @ $2.1 billion. Federation represents vast majority of all CDFI certified credit unions 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: NCUA CDFI Fund US Treasury Department: CDCI Access to expertise, programs and resources 23
3 key areas: How do 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) Capital: What we do Increase Liquidity Below-market rate deposits (Non Member, Nominee) Purchases of affordable credit union mortgage loans Boost Net Worth CDFI Fund grants Secondary capital (Federation, CDCI, CDFI Bond Guarantee) Reduce Risk Federation PRIDE (Predatory Relief and Intervention Deposits) Federation Microenterprise Collateral Deposits Encourage Innovation Federation pilot grants (i.e. Better Directions, Borrow & Save) 24
Knowledge: What we do Develop and deliver innovative products focused on LMI consumers; Identify best practices and lessons learned Develop practical tools and tips Share information through National and Regional Conferences, workshops and webinars Help individual credit unions with technical assistance and customized consulting services. Knowledge Regional Conferences GAC LID/CDFI Certified CU Roundtable ACUC LID/CDFI Certified CU Roundtable NCUA Trainings Annual Conference CDFI tracks Reports from CDFI Fund Director On-Going Webinars (in partnership with CUNA) Consultations and support 25
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 CU Breakthrough Services Innovation Affiliate Structures Capit al CDFI Grant Writing Compliance Growth Charter & FOM Expansion Innovation Check Cashing & Remittance s Impact Organizing New Credit Unions Capit al Secondary Capital Plans & Sources Knowledge CDFI Certification Leadership Speakers Bureau Impact Asset Building VITA/EITC Innovation Payday Loan Alternatives Leadership Strategic Planning Knowledge NCUA Low Income Designation Growth Secure Home Ownership Impact Micro & Small Business Lending Knowledge Target Market Research 26
Lower East Side People s Federal Credit Union Linda Levy, CEO Lower East Side People s FCU 1986: Formed to serve the residents of the Lower East Side of Manhattan 1986: Receives low-income designation 1996: Receives CDFI certification 2006: Obtains FOM expansion to serve low-income housing cooperatives in NYC 2007: Changes charter to multiple SEG and obtains FOM expansion to serve the residents of Central Harlem of Manhattan (Underserved Area) 27
LESPFCU 1986 Low-Income Designation Non-Member Deposits ($2.8M): LESPFCU has historically received non-member deposits from credit unions and banks. Because of CRA, banks have a strong incentive to invest in low-income communities and LICUs are a very good vehicle for them to do so. $200,000 from NCUA s Community Development Revolving Loan Fund Access to grants from NCUA as well as Technical Assistance from the agency s Economic Development Specialists 28
Participation as a CDCU Received over $750,000 in non member deposits from our CDI Program Received ($1.5M) in secondary capital loans needed to sustain deposit growth (both member a nonmember) Received $898,000 secondary capital loan from the US Treasury s CDCI program Access to technical assistance and best practices CDFI Certification 1998: $48,500 TA grant 1999: $66,000 TA grant 2000: $57,000 TA grant and $300,000 FA grant 2002: $74,000 TA grant and $500,000 FA grant 2004: $60,000 TA grant and $500,000 FA grant 2006: $100,000 TA grant 2010: $750,000 FA grant 2011: $1,500,000 FA grant 2012: $498,000 FA grant Total awards: $4,453,500 29
30,000,000 Growth Incremental v/s Transformational 25,000,000 20,000,000 15,000,000 Loans Assets 10,000,000 5,000,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LESPFCU 2013 Harlem Branch Main Branch, Avenue B 30
LESPFCU Today $ 36 M in assets and 6,000 members Over 300 member low-income housing cooperatives 20 employees 2 branches Operates 8 ATMs 11.67% net worth PFI for 85% of members Considered a complex credit union by NCUA LESPFCU Today Largest CDCU in NYC Operates own non-profit affiliate (People s Center for Economic Independence PCEI) Runs one of the largest CU-based VITA sites in the country Has made more than $60 million in loans to predominantly low income consumers Brought over 20,000 unbanked consumers into the financial mainstream Provided financing for hundreds of micro and small businesses 31
Best Practices Bilingual staff Hire local residents Professional development Products tailored to members needs Financial counseling Patient and sympathetic member service Mission driven Low Income Designation for Credit Unions 63 The Impact Lower East Side People s FCU 500% asset growth 1300% loan growth a new branch 45% unbanked 75% low-income 32
Action Items Identify and assess your community need Make serving emerging markets a strategic priority Create a comprehensive strategic business plan Engage experts for research, products, plan development and community outreach Seek resources: Community partnerships Credit union partners Coopera, Federation NCUA Low Income Designation CDFI U.S. Treasury Grants Engage and make a measurable impact in your community Build a bridge to greater relevance in your communities Hispanic Outreach Resources White Papers Develop the Right Organizational Mentality to Serve Hispanics Asking the Right Questions: How to reach and best serve the Hispanic market in your credit union Learning the Language of America s Youth Attract the Hispanic Community with Prepaid Reloadable Cards http://www.cooperaconsulting.com/hispanic-expertise.cfm Hispanic Outreach Insights Monthly E-newsletter http://www.cooperaconsulting.com/ Hispanic Outreach Connection LinkedIn Group (CCHOC) http://www.linkedin.com/groupinvitation?groupid=2148195&shared Key=5F7335401508 Coopera Blog http://blog.cooperaconsulting.com/ Coopera on Twitter Follow Coopera@_Coopera 33
El PoderesTuyo Spanish credit-union specific online financial education website Free 6 month subscription for conference attendees Promotional Code cuna.org/tuyo For more information Lower East Side People s FCU Linda Levy, CEO llevy@lespfcu.org Coopera Miriam De Dios, CEO dedios@cooperaconsultin g.com Federation Pablo DeFilippi, Director of Membership pablo@cdcu.coop 212-529-8197 866-518-0214 800.437.8711 x304 LESPeoples.org CooperaConsulting.com CDCU.coop 34