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					LATINO COMMUNITY CREDIT UNION/STATE EMPLOYEES’ CREDIT UNION
          A UNIQUE PARTNERSHIP, A NATIONAL MODEL

NATIONAL FEDERATION OF COMMUNITY DEVELOPMENT CREDIT UNIONS
                BRIDGE GRANT INTERIM REPORT

                                  FEBRUARY, 2006




    (Important “Guiding Principles” of the LCCU/SECU partnership have been marked with an “ ”.)
                                                 February 25, 2006

Mr. Ken Tiongson
National Federation of Community Development Credit Unions
120 Wall Street, 10th Floor
New York, New York 10005-3902

REF:     Bridge Grant Award Interim Evaluation Report
         Latino Community Credit Union
         State Employees’ Credit Union

Dear Mr. Tiongson:

Attached is our summary of progress made at Latino Community Credit Union, Durham,
North Carolina, in connection with the NFCDCU Bridge Grant Award.

We have attempted 1) to reemphasize the tremendous potential for the Latino/SECU cooperative
effort to serve as a national credit union development model; 2) to demonstrate that mainstream
credit unions can participate in credit union development efforts on a cost effective basis; and 3) to
confirm that start up CDCUs remain a realistic, viable, self sustaining, “best choice” alternative for
providing financial services to the “unbanked” and “underserved”.

We very much appreciate the continued support of both the NFCDCU and the Ford Foundation. You
have made a highly positive contribution to the success of Latino Credit Union; you’ve made a
tremendous difference in the lives of many individuals; and you’ve helped create “a story” that hopefully
can be “retold” across America.

Also attached is a one page summary of a study recently completed by the University of North
Carolina at Chapel Hill indicating the tremendous impact of our Hispanic population growth in
North Carolina.

We would be happy to provide you with any additional information you may need.

Thanks for your support!

                                                 Sincerely,

                                                 James C. Blaine
                                                 President

JCB/ji

Attachments

cc:      Luis Pastor, Latino Community Credit Union
    The Economic Impact of the Hispanic Population on the State of North Carolina

                      John D. Kasarda and James H. Johnson, Jr.

                           Kenan-Flagler Business School
                     The University of North Carolina at Chapel Hill

                                      January, 2006


•    “It has come as a surprise for many of us to learn that in the past decade the
     largest increase of Hispanic Population in the United States has taken place in
     North Carolina.”

•    600,913 people or 7% of the North Carolina population in 2004 were Hispanic.

•    Net cost to North Carolina governments of providing services to Hispanics was
     $102 per Hispanic – or $61 million per year.

•    Hispanic students accounted for 57 percent of the total growth in the North
     Carolina Public Schools.

•    Hispanics filled one in three new jobs created in North Carolina between 1995
     and 2005, with a significant concentration in construction.

•    75% of Hispanics are from Mexico.

•    There are four rural counties in which the Hispanic share exceeds 10%: Duplin
     (17.5 percent), Sampson (13.2 percent), Lee (13.2 percent), and Montgomery (12.2
     percent). Specialty industries that rely heavily on Hispanic labor (mainly turkey,
     poultry, and hog processing plants) are largely responsible for the high concentration
     of Hispanics in these counties.

•    41.3 percent of the State’s Hispanics are U.S. citizens.

•    Unauthorized immigrants constitute 45 percent of North Carolina’s Hispanic
     population.

•    In 2005, nearly three-fourths of all Hispanics in North Carolina were employed in four
     industries: construction (42.2 percent), wholesale and retail trade (11.5 percent),
     manufacturing (10.7 percent), and agriculture, forestry, fishing and hunting (9.2
     percent).

•    Of North Carolina Hispanics, over half have less than 8 years of schooling.

•    Hispanics have a $9 billion positive economic impact on the North Carolina
     economy.
      LATINO COMMUNITY CREDIT UNION/STATE EMPLOYEES’ CREDIT UNION
                A UNIQUE PARTNERSHIP, A NATIONAL MODEL

      NATIONAL FEDERATION OF COMMUNITY DEVELOPMENT CREDIT UNIONS
                      BRIDGE GRANT INTERIM REPORT

                                        FEBRUARY, 2006

I.       NFCDCU/FORD FOUNDATION BRIDGE GRANT

         In November 2004, the NFCDCU, in cooperation with the Ford Foundation, awarded a
         $25,000 Bridge Grant to State Employees’ Credit Union (SECU) to help fund the
         continued development of the Latino Community Credit Union (LCCU) (Durham, North
         Carolina).

         (Important “Guiding Principles” of the LCCU/SECU partnership have been
         marked with an “ ”.)

         Latino Community Credit Union was chartered in 2000 as a North Carolina credit union
         movement outreach to the rapidly growing Latino population in North Carolina. Latinos,
         at the time, represented over 6% of the North Carolina population and were generally
         first generation immigrants, employed in transient blue collar jobs, unfamiliar with and
         unprotected by normal U.S. business and governmental regulations. Almost uniformly,
         the Latino population also lacked reasonable access to the U.S. financial system.

         The absence of access by Latinos to financial services resulted in an increasing incidence
         of robberies and violent crimes in several North Carolina communities. Latinos needed a
         safe haven for their funds, an affordable institution to manage their every day financial
         needs.

         Through the efforts of many groups in the Durham, North Carolina community –
         including Self-Help Credit Union, the North Carolina Minority Support Center, the North
         Carolina Credit Union Division, NCUA and SECU; Latino Community Credit Union
         was created to provide an answer!

      Full credit union community commitment and consensus – including regulators – as to
      the need for LCCU was a critical plus.


II.      LCCU/SECU – RELATIONSHIP

         SECU is a mainstream credit union serving teachers and state employees in North
         Carolina. State Employees’ Credit Union, with $13 billion in assets, has a well-
         established operational infrastructure and service delivery system within North Carolina,
         including 190 branches, 850 ATMs and a staff of over 3,000.

         In partnering with Latino Credit Union, SECU agreed to provide day to day “back office”
         support to LCCU. LCCU, from its first day of operation, was provided with the full
         accounting, data processing, compliance, technical, and procedural support already
         deployed at SECU. SECU provided all systems, equipment, furniture, and support
         required to operate a full service, “stand alone” financial institution with branch offices.
       The agreement for full operational support assured that the new credit union would not
       fail due to lack of operational expertise.

III.      LCCU/SECU – CONTRACTURAL AGREEMENT

          SECU contracted with LCCU to provide full operational support at a cost of 15% of
          gross revenues (not including grants). The contract is simple and permits either party to
          withdraw with 6 months’ notice. The fee represents a “break-even” cost recovery for
          SECU, but provides cost/expense protection for LCCU in periods of volatile income
          fluctuations. As an example, the first full month revenue for LCCU was $100, so
          SECU’s monthly fee was $15 to offset the cost of providing full operational service to
          LCCU!

       A flexible service reimbursement contract helps assure that LCCU will not fail
       financially as it develops.

IV.       LCCU/SECU – MARGINAL COST ANALYSIS

          SECU seeks to recover expenses for services provided to LCCU on a “marginal cost”
          basis (as opposed to an average cost, full cost, or explicit cost basis). This concept
          assumes, for example, that the cost of adding a new member or a new account is
          “marginal” or incremental. For example, SECU manages 1.3 million members’
          relationships at an annual cost of $260 million, or $200 per member per year. A strong
          argument can be made that the cost of adding one additional member to the existing 1.3
          million membership basis is negligible. Marginal cost analysis is a highly favorable
          accounting treatment for LCCU.

       Expense recovery by SECU using marginal cost analysis provides LCCU (a start up
       operation) with the “economies of scale” of its mainstream partner credit union.

V.        LCCU/SECU – NATIONAL SUPPORT


          Numerous groups such as NFCDCU and the Ford Foundation have provided grant
          support to the LCCU. Such support is vital in the early stages of operation for a new
          credit union. Approximately 100 credit unions nationwide also have provided low cost
          term deposits to LCCU to support initial lending to the Latino membership.

       Low cost, below market term deposits from credit unions nationwide are available to
       new credit unions to support initial operations and lending.

VI.       LCCU/SECU – SERVICES/RESULTS

              •   Membership Growth                June 2004                Dec 2005

                                                     21,000                  40,000

                      o   Assets now exceed $25 million.
                      o   101% loans/shares.
                      o   17.5% net worth.
       •   “Unbanked” Membership
              o 74% of new members are unbanked and low income.
              o 99% of new members are unbanked or low income.

       •   New Services
              o Voice Response – “Latino Directo” service permits members to inquire
                 and make transactions via the telephone.
                        Call volume February 2005            Dec 2005
                                                  667           2,500

       •   Latino Mortgages
              o Initiated May 2004 with 13 mortgages for $1.5 million in 2004 and 57
                  mortgages for $5.5 million in 2005. The total includes 51 first-time
                  homebuyers. 50 of the 57 mortgage borrowers were low-income.
              o The program has been rapidly expanded in 2005 with arrangements
                  under negotiation for SECU to purchase excess mortgage volume
                  from LCCU.
              o Total LCCU mortgages now exceed $8 million! 95% and 100%
                  mortgage loan products added without PMI.

Mortgage Lending Service is a key relationship account and an important source of
income for a new credit union.

       •   Latino Online Access
              o Rollout early 2006.
              o SECU has committed to provide full online banking capabilities in
                  Spanish within six months.
              o Services will include “storefront” website, online transactions, lending
                  and statements. BillPay and check imaging will also be included.

Online Access is the most cost effective delivery system for a new credit union.

       •   “My LCCU” at ATMs

           Available in Fall 2005. Permits LCCU members to customize ATM access in
           Spanish, select account limits, and PINs.

A new credit union must provide widely available ATM access to its members.

       •   Automated Coin Sorters

           Available in each LCCU branch prior to spring 2006, identified with the LCCU
           Youth Account logo.

       •   Hertz/Enterprise Car Buying Service

           LCCU, with SECU, has contracted through Hertz and Enterprise to provide fixed
           price, fair price, reliable used vehicles to LCCU members.
      Vehicle financing is an important credit union service; attempt to assure the member is
      buying a quality used vehicle.

VII.      LCCU/SECU – SUSTAINABILITY

          No credit union should exist continually on a “charitable”, subsidized basis. Every credit
          union should, in time, be viable and sustainable in its own right.

          LCCU is projected to reach self-sustainability in 2007 on a five branch basis. Breakeven
          would have been reached on a single office operation basis within three years – but
          demand for local service has been extraordinary!

      Boards and staffs of both credit unions must believe in the project and in the purpose.

VIII.     LCCU/SECU – POLITICAL PROSPECTS


              •   LCCU advocates actively for its members in the North Carolina and National
                  political arenas.

              •   LCCU has provided SECU with much positive recognition for its involvement
                  with the new credit union.

              •   LCCU is an excellent investment in the future for SECU – and all of North
                  Carolina.

      Credit unions, particularly mainstream credit unions, must lead by example to
      demonstrate “the credit union difference”.

IX.       LCCU/SECU – QUALITATIVE MEASURES

          Some things just don’t show up in the numbers.

      It’s a long-term commitment – minimum of five years.

      Products, services, policies must be at least similar, if not identical, to assure quality,
      training, compliance.

      New credit union must develop its own “culture”, its own personality.

      New credit union must maintain its independence, its own sense of ownership.

      Partnerships are great, but the members own the credit union!

X.        LCCU/SECU – PURPOSE

      It’s the right thing to do!!
                    LATINO COMMUNITY CREDIT UNION
                               December 31, 2005
           Cash, Investments                      $4,500,000
           Mortgage Loans                         $7,000,000
           Personal/Auto Loans                   $13,000,000
           Other Assets                             $179,000
           Total Assets:                         $24,679,000

           Share Drafts                                     $1,400,000
           Money Market Accounts                                $4,900
           Share Certificates                               $5,900,000
           Share Accounts                                   $8,100,000
           Other Liabilities                                   $79,000
           Capital/Reserves                                 $4,300,000
           Total Liabilities:                              $24,679,000


That’s a lot of money for a low income, low wealth population!! And, the money and
the members are safe!!

CDCUs – There is a need, there is a role!!

				
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