Formation of a New TN State-Chartered Credit Union

Select a name for the credit union and provide at least one alternative name in the event your first choice is unavailable.

This step is requested early in the chartering process as the name of the credit union is a means to track the progress of a charter application. The name of the credit union can be changed prior or subsequent to obtaining the credit union charter, subject to the Department’s approval. Incorporators need to notify the Department of any changes they wish to make to a reserved name.

Establish a field of membership - Potential members must qualify for membership by belonging to a specific group with a common bond such as:

a)       Occupation (work in same employment entity or line of work);

b)      Association (for example, a member of a particular church, professional, civic or fraternal group or labor union); or

c)       Community (live, work, worship, or attend school in the same geographic area).

That common bond is known as the credit union’s field of membership (“FOM”). Every credit union must establish a legally recognized FOM, and only persons or groups within the FOM and a few others by virtue of their close relationship to the common bond group may join the credit union. A credit union can serve either (a) groups with occupational or associational common bonds or (b) groups within a well-defined neighborhood, community, or rural district. 

a)       Occupational or Associational Common Bond.

-          An occupational common bond group can be established by persons who share an employment relationship with one or more legal entities.  This group could potentially serve employees of XYZ Company or alternatively, employees of the XYZ Company and all the subsidiary companies of XYZ Company.

o    TIP group is a single occupational common bond based on employment in a trade, industry, or profession, which can include employment in a number of legal entities. Even though these entities are not under common ownership, they have a common bond by virtue of producing similar products, providing a similar service, or participating in the same type of business. This group could potentially serve textile workers (i.e., a trade); employees of the healthcare industry, the airline industry, or in the federal government (i.e., an industry); or doctors, realtors, or teachers (i.e., a profession) located in a specific geographic area.  If a credit union has a TIP in its FOM, its FOM cannot include other groups. 

-          An associational common bond group may include in its FOM, regardless of location, all members and employees of a recognized association.  The association’s common bond consists of individuals and groups whose members participate in activities developing common loyalties, mutual benefits, and mutual interests. This group could potentially serve members and employees of one church, or alternatively, members and employees from a group of churches within the same denomination (e.g., Methodist or Baptist). Other examples of associational based groups are labor unions, homeowner associations, certain alumni groups, etc.

A member based group will not meet the associational common bond requirements by simply existing. The totality of circumstances will be taken into consideration in determining whether the group satisfies associational common bond requirements. Documents from the association should reflect whether it meets the following common bond requirements listed in the Department’s Rule 0180-29-.03:

o    Whether members pay dues;

o    Whether members participate in the furtherance of the goals of the association;

o    Whether the members have voting rights.

o    Whether the association maintains a membership list;

o    Whether the association sponsors other activities;

o    The association’s membership eligibility requirements;

o    The frequency of meetings; and

o    Whether the association sponsors other activities which clearly demonstrate that the members of the group meet and interact regularly to accomplish the objectives of the association. 

A credit union serving occupational, associational, or a combination of these groups can also apply to add an underserved area to its FOM.  An underserved area is a geographic area designated under the Community Development Financial Institution Act (CDFI) as an investment area and the area meets other criteria outlined in the NCUA’s Chartering Manual, Chapter 3, Section III. These geographic areas are generally defined as a county or by census tracts. More information on investment areas can be found at www.cdfifund.gov.

b)      Community Charter –A community FOM must be based on a single, geographically well-defined local community, neighborhood, or rural district where individuals have common interests and/or interact. More than one credit union may serve the same community. For example, a community could consist of a city or a county or a portion thereof.  In some cases, a community could be larger. 

The Department will provide preliminary approval on field of membership upon the credit union satisfying all other documentation requirements in the application.

A credit union can also seek a low-income designation pursuant to NCUA Rules and Regulations, Sections 701.34 and 741.204.   A credit union can be designated low-income when a majority of the credit union’s potential or actual membership qualifies as low-income. Low-income members are those members whose family income is 80 percent or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater, or those members who earn 80 percent or less than the total median earnings for individuals for the metropolitan area where they live, or the national metropolitan area, whichever is greater.  For members living outside a metropolitan area, the statewide or national, non-metropolitan area median family income or median earnings for individuals is used to qualify for the designation. The term “low-income members” also includes those members enrolled as students in a college, university, high school, or vocational school. NCUA can provide assistance with determining if a proposed area meets the low-income requirements.

If a majority of the credit union’s potential members are believed to be low-income members, a low-income designation can be requested at the time the preliminary field of membership approval is requested. The methodology for determining whether a majority of the potential members qualify as low-income members will largely depend upon the FOM being requested and whether the credit union can provide address information on the potential membership.   If NCUA is unable to complete a low-income determination based on the field of membership request, NCUA may work with the incorporators to identify the needed documentation to complete a low-income determination.   Absent the availability of needed documentation, the credit union can apply for the designation after membership is established.   Although there is no minimum number of members needed to apply for a low-income designation, the membership should be established to the point where adding new members would not jeopardize the low-income designation. 

More information regarding a low-income designation can be found here: Low-Income Credit Union Designation.  

Incorporators are any seven persons, residents of this state, who are within a common bond of occupation and association or reside in a well-defined neighborhood, community or rural district who desire to form a credit union. Incorporators are responsible for preparing the charter application. A primary point of contact needs to be identified during the chartering process. The primary point of contact may be an incorporator or professional organizer hired or appointed by the incorporator(s).

Incorporators need to undergo an appropriate background investigation to determine whether their standing is such as to give assurance that the credit union’s affairs will be properly administered In addition, officials and employees also are required to undergo such an investigation.  

-          Submit a letter identifying the incorporators and their anticipated involvement and contribution to the chartering process, including time commitment (number of hours per month);

-           Name and telephone number of the contact person. If other than a incorporators, their anticipated involvement and contribution to the chartering process, including time commitment (number of hours per month);

-          An original Report of Official and Agreement to Serve (NCUA 4012) Form found here: NCUA Form 4012; and,

-          A resume for each individual who desires to be an incorporator of the credit union. 

-          Ensure that the background investigation form is completed in its entirety.

-          This information is to be provided to the Department as part of the credit union application.  

Chartering and operating a credit union costs money, both initially and continuously. A credit union must remain solvent (maintain a positive capital position) at all times. New credit unions seldom generate sufficient income to cover operating expenses in the beginning. Therefore, incorporators must seek monetary donations or subsidies to cover start up and operating costs for the initial years of operation.

If your group is unable to secure adequate funding, consider obtaining credit union services from an existing credit union.

Types of support credit unions generally receive include donations of:

- Cash
- In-Kind Support:
- Office space;
- Furniture & equipment;
- Computers and recordkeeping software; and
- Utilities

Sources of support, subsidies, or donations may come from:

- Community organizations (i.e., church);
- Sponsoring organization (i.e., company or association);
- Non-profit organizations (i.e., economic development corporation); and,
- Other grant programs, such as the Community Development Financial Institutions (CDFI) Fund.

All commitments pledged must be placed in writing from their source and include the specific commitment and its terms. For example, if a sponsor company offers to provide office space free of charge and to donate $200,000 to cover start-up costs, the organizer’s letter should indicate the office location, the term (i.e., first 36 months of operations), and the size (e.g., 1,100 square feet) of the free office space, and state whether it includes free electricity, telephone service, trash removal, cleaning, security, grounds maintenance, etc.

The commitment letters must be supported by the donor’s clear ability to provide the pledged support. This can be accomplished with a copy of the donor’s audited financial statements or equivalent documentation.

If funds are committed but not received:

- Obtain a Commitment Letter signed by the donor. The donor must have authority to commit and provide the funds.
- Financial statements or similar proof of available funds

If funds are received:

- Bank statement reflecting deposit of funds. Bank statement should contain a date at least 15-days past the last deposit to confirm the funds have cleared.
- Acknowledgement letter signed by donor confirming the funds are donations to the credit union, and are not deposits.

All donors must be available to meet in-person with Department representatives to confirm their understanding of the donated funds.

If any commitments require repayment, they are considered borrowings by the credit union, not donated equity. As such, they cannot be counted towards the equity position of the credit union. The only exception to this rule is Secondary Capital, which is only available to low-income designated credit unions.

Each credit union must have at least one physical location, including credit unions that are anticipating most transactions via the internet, kiosks, or other electronic means.  Incorporators should determine an anticipated location of the main office and any other physical branch locations to be open at inception. If the exact addresses are not known, provide the city and state.

Find a Mentor and Other Resources - The Department strongly recommends incorporators/organizers establish mentor relationships with one or more existing credit unions and also to seek out other assistance in and outside the credit union industry. These relationships have proven to be beneficial to incorporators/organizers going through the chartering process and during the first few years of operation. A list of the available resources is below along with some information on each resource.

• Credit Unions
• Sponsor
• Natural Persons
• Credit Union Leagues/Associations
• Corporate Credit Unions
• Other Credit Union Affiliated Organizations
• Banks
• Other Government Entities

Credit Union Leagues/Associations - These are trade associations for credit unions. They are located in most states and provide a wide variety of services, such as education, training, and small credit union consulting. Some may provide products and other services such as form purchasing, audits, legal consultation, guidance on compliance with regulations, etc. Some may also provide hands-on assistance with the charter application steps. Some examples of how leagues/associations can assist in the chartering process include:

1) Answering questions;
2) Identifying training needs and available educational or training resources for staff and officials;
3) Identify vendors serving the credit union industry for bond coverage, insurance, purchasing supplies, etc.;
4) Identifying potential mentor credit unions in the area;
5) Provide human resource guidance (job descriptions, advertising positions, interviewing, salary surveys, etc.).

Credit Unions - A credit union mentor is typically an established, financially sound, well-managed credit union. Their assistance can be invaluable in helping you develop a successful business plan and pro-forma financial statements. Ideally, seek out a credit union mentor with the same field of membership type (i.e. occupational, associational, or community). Also, it is helpful to establish a mentor relationship with another well-managed credit union that uses the same data processing system. Although some credit union mentors offer hands-on assistance, most generally do not but their involvement assists incorporators/organizers with progressing and completing the chartering application themselves. As such, incorporators/organizers should not rely upon credit union mentors to complete the chartering application or to resolve the application’s deficiencies. Mentor credit unions may be available to:

- Answer questions and provide direction and guidance;
- Attend organizer meetings and/or board meetings after chartering;
- Assist and educate incorporators, organizers, and staff in understanding what it takes to start-up and run the daily operations, the processes involved, and necessary costs;
- Review and assist with developing reasonable assumptions for the pro-forma financial projections;
- Provide sample policies and procedures or assistance in reviewing the drafts.
- Assist in resolving application deficiencies, including business plan, financial statement projections, marketing development, policies, etc.;
- Train staff and officials (i.e., directors, supervisory committee, and credit committee) on their specific duties and responsibilities;
- Train staff on the mentor’s data processing system (if the same system is to be used by the PFCU);
- Identify reputable vendors serving the industry for proposed products and services;
- Assist in negotiating contracts;
- Provide office space, fixed assets, or back office support at low or no-cost;
- Subsidize operating expenses, or permit the new federal credit union to piggy back off them using the mentor’s vendor; and
- Make a low or no-cost, non-member deposit.

Other Supportive Resources
Sponsor - A sponsor is usually an entity (i.e., company or organization) within the credit union’s field of membership. A sponsor could assist with monetary support (e.g., donations for start-up costs or operational costs after chartered), non-monetary support (e.g., purchase or donation of furniture, computer, etc.), or subsidies (e.g., free office, use of company copier or staff in legal department, etc.).

Natural Persons - Individuals can also support the credit union. Natural persons can donate their time or funds that can go towards covering the chartering process and costs (e.g., membership survey, legal reviews, etc.), start-up costs for the new credit union (computer, furniture, supplies, etc.), or operational costs after chartered.

Most leagues/associations distribute a periodic newsletter containing updated and helpful information about the credit union industry.

Survey the Potential Membership
Complete this step ONLY after the Department has granted preliminary approval of your field of membership.

The membership survey is one of the more important steps in the chartering process. The data gathered from the survey will reveal the level of interest and support for the credit union. It will also help you better understand the specific financial needs of the membership, how they might use the credit union, and which products and services to offer and when. The results of the membership survey drive the business plan and financial projections and support the reasonableness and achievability of the projected outcomes. The results must clearly indicate support for a new credit union and its desired services.

Designing the Membership Survey Form
The organizing group must design a membership survey form that gathers enough information to aid in developing and supporting the products and services set forth in the business plan along with pro-forma financial projections and related assumptions. A membership survey needs, for example, to gather such information to:

- Gauge the level of interest in the credit union;
- Determine the number of individuals willing to join the credit union immediately after it is chartered;
- Determine the amount of initial deposits you can expect as well as the amount of monthly deposits thereafter (without this information you will be unable to create reasonable financial projections);
- Establish the types of products and services desired;
- Determine the types of products and services to offer and when to offer them;
- Decide what your office hours will be; and
- Recruit volunteers to serve as officials and on committees.

Conducting the Membership Survey
Who should you survey?

After developing the survey form, the next step is to conduct the survey. Ideally, you would survey all persons within the field of membership, which is a possibility for smaller groups. However, for larger groups, and to control pre-chartering costs, surveying a random sample of the membership may be more reasonable.

How to perform a random survey?
There are two types of sampling for a random survey.
• A statistically valid sample, and
• A targeted sample.

See below for a discussion on each type.

A statistically valid random sample contains two key components:

- Every individual within the field of membership must have an equal chance of being selected; and

- The number of responses must be a fair representation of the entire field of membership.

Equal Chance for Selection
A simple statistically valid random sample involves surveying every ninth person from a list of potential members. However, such a selection method is not required. You may survey the membership using other forms of random sampling. Examples of other forms of statistically valid random samples are illustrated as follows:

- If the field of membership consists of members of five churches, offering the survey form to all attendees at all five churches on a given Sunday would be considered statistically valid random sampling. If you only survey the members of one of the five churches, or limit the survey to a segment of individuals (e.g., those under the age of 25 or those with children), it would not be considered a statistically valid random sample.
- If the field of membership consists of a community charter, conducting the survey at a number of different locations throughout the community would be considered statistically valid random sampling. However, if only one segment of the community or one geographic area (e.g., one city in a county) was surveyed, and not all segments of the community or various geographic areas had an opportunity to receive the survey, the distribution would not be deemed a statistically valid random sample.

A targeted random sample does not contain the two key components found in a statistically valid sample. Also, a specific number of responses are not required in a targeted random sample. Due to these shortcomings, the results from a targeted random sample cannot be extrapolated and applied to the entire field of membership population.

The example below illustrates the differences in applying the results of a statistically valid random sample survey compared to a targeted random sample.

EXAMPLE: Assume the field of membership population is 5,000, surveys are sent to 1,000 random individuals, and 500 individuals responded to the survey. Out of the 500 responses, 150 or 30 percent expressed an interest in joining the credit union within its first two years of operations.

If the results of the 150 were based on a statistically valid sample, one could extrapolate the 30 percent favorable response rate (150/500) and apply it to the entire field of membership population. You can assume approximately 1,500, or 30 percent of the 5,000 individuals in the population would be interested in joining the credit union within its first two years of operation.

The two-year annual growth projections in the pro-forma financial projections could then be developed with this in mind. For example, the projected new members for year one and year two could be 500 and 1,000, respectively resulting in total new members after two years of 1,500.

If the results of the 150 were based on a targeted random sample, the survey results could not be applied to the entire population. Instead, the two year annual growth projections in the pro-forma would be based solely on achieving a total of 150 new members over the next two years -- possibly, 50 new members the first year and 100 the second year, for a total of 150 after two years.

Regardless of whether a survey is conducted based on a statistically valid random sample or a targeted random sample, it is inappropriate to survey only those individuals who you believe are interested in joining the credit union while excluding others within the field of membership. That is not a random sample and the survey results and all data gathered from the survey would be unreliable and considered a weak foundation for developing a business plan and financial projections.

NOTE: Contact the Department first if you have questions about whether your random sampling method is proper before performing a survey.

Number of Responses Required
The next factor to consider when conducting a statistically valid random sample of the potential membership is the number of survey responses you must receive to adequately predict the desires of the potential membership. The number of required survey responses will vary depending on the size of the population. You may use the table below to determine the number needed based on the number of total potential members, also known as the population size.

How will you know how many surveys to send out in order to receive the required number of responses? It is highly unlikely that you will receive a 100 percent response rate to the membership survey. Thus, the final factor to consider when conducting a random sample of the potential membership is the anticipated response rate from the sample of members. Incorporators must use judgment in estimating the survey response rate as it will differ for each potential field of membership.

Applicants should be aware a low response rate may be an indication the potential membership is not supportive of a new credit union. If a low actual response rate is experienced, the credit union should be able to provide reason(s) why the potential membership is not being responsive to the survey.

Completion of the Preliminary Stage
Compilation and submission of the Application to Form the Credit Union follows after the preliminary work (Phase 1) above is completed by the organizing group.

Most credit union officials volunteer their time and are often not compensated. In this step, identify the individuals selected to initially serve as officials of the credit union, including:

A)       Board of Directors – must have an odd number not less than 5 members.

B)      Supervisory Committee Members, and Credit Committee Members (if the credit union will have supervisory committee and/or credit committee)

For management employees, refer to the Management and Staffing section below.

In limited cases, volunteers may serve concurrently on the Board of Directors and either the Supervisory or Credit Committee. However, applicable laws and regulations and Principles of Sound Internal Control may place restrictions on individuals from simultaneously serving in certain conflicting positions.

When selecting directors, be confident they possess or can quickly acquire the skills to:

A)      Carry out the duties of a director in good faith, in the best interests of the membership, and with such care as an ordinarily prudent person in a like position would use under similar circumstances;

B)      Administer the affairs of the credit union fairly, impartially, and without discrimination;

C)      Direct management’s operations in conformity with the Federal Credit Union Act, NCUA Rules and Regulations, Tennessee state law pertaining to credit unions, other applicable law, and sound business practices; and

D)     Have a working familiarity with basic finance and accounting practices, including the ability to read and understand the credit union’s balance sheet and income statement and to ask, as appropriate, substantive questions of management and the internal and external auditors.

Directors should possess the requisite financial skills within six months of being appointed or elected.

Each prospective incorporator, director and officer of the proposed credit union must subject themselves to a background check and complete NCUA Form 4012 found here: NCUA Form 4012.   This evaluation is performed through a review of each individual’s resume along with information obtained during the application process.

Create the Business Plan

The proposed business plan must demonstrate the economic viability of the credit union, it must be supported by the following key information:

A)      Survey Results (field of membership support);

B)      Funding for Start-Up Costs (financial and in-kind support); and

C)      Identification of Officials and Management (management support).

The business plan has three main objectives:

1)      Clearly document support for the credit union via the survey results, along with commitment letters reflecting sponsor support, evidence of donations, and other commitments;

2)      Detail the incorporators’ goals and objectives and clearly states how and when the credit union will meet them; and

3)      Clearly demonstrate that the goals are realistic and achievable based on the assumptions provided, and the goals agree with the financial projections. The financial projections and assumptions, which are addressed in the next step of this guide, must show the credit union can generate sufficient income and has adequate financial resources to cover the cost of operations, dividends on share deposits, and build reserves.

A mentor credit union may be a good resource for assisting incorporators with developing their business plan, financial projections, and assumptions.

There are a number of sections to a business plan. The major sections are listed below. Each section should be separately organized under its own tab so it can be easily updated based on feedback you will receive on your business plan from the Department.

Mission Statement

Prepare a brief statement describing the purpose of the credit union. For example: “It is the purpose of this credit union to promote thrift among its members and create a source of credit for provident and productive purposes.” You can also review existing credit union’s websites for mission statement examples.

Analyze market conditions, including geographic, demographic, employment, income, housing, and other economic data. At a minimum, the analysis should answer the following questions:

a) What financial services and service providers are available to the membership? For example, identify the number of credit unions, banks, savings and loan institutions, check cashing facilities, pawn shops, and/or other alternative financial institutions available.
b) What type of products do the financial providers offer (or not offer)?
c) What is the economic condition of the membership? For example, is the sponsor company growing or downsizing, or is the community considered affluent or low income?
d) Why is there a need for this credit union, and what is that need?
e) Who will be the credit union’s competitors, and how will the credit unions compete?

The data and analysis performed on the market generally helps subscribers develop the credit union’s business plan, marketing plan, projections, and assumptions.

Describe and summarize the membership survey results and analyses performed by the subscribers and organizer, and detail the financial services needed/desired by the membership.

This section discusses projections for the dollar amount and number of loans and shares, and the number of members for the first two years of operation. The intent of this section is to provide benchmarks upon which the credit union and the Department can measure the success of the group and its business plan. The goals should be broken down by each loan and share product type and expressed in annual periods. The goals should agree with the financial projections submitted in the application.  Include a discussion of the basis for each goal and identify the section of the membership survey supporting the goal.

Discuss the number of employees, their titles, and the anticipated compensation and benefits in this section of the business plan. Include a job description for each job title as well as a training schedule. Staff should have experience or expertise in offering and managing the products and services to be offered. The more sophisticated the products and services, the greater the experience and expertise required. Incorporators must demonstrate that each employee is either qualified to handle the responsibilities outlined in the job description, or identify the necessary training to adequately prepare the employee prior to opening the credit union. The training plan should also include how the employees will be trained on using the data processing system, and identify the associated training costs.

All management arrangements and agreements with third parties (i.e., another credit union, etc.) must be in writing and reviewed by an attorney representing the credit union’s interest. Submit draft copies of all agreements to the Department.

Be sure to incorporate all compensation and benefits and training costs into the pro-forma financial statements.

Identify the location and cost of the credit union’s proposed office and discuss why this location was selected. Draft copy of a purchase, lease or rental agreement should be reviewed by an attorney representing the proposed credit union. Submit a copy of the draft agreement and attorney review to the Department. If a specific location has not yet been determined, identify the planned location and the cost of space in the area, supported by written estimates for at least three locations. A specific location will need to be determined prior to the credit union finalizing its charter application and any decision made by the Commissioner.   

Also include in this section any planned leasehold improvements, need for office equipment and supplies, safeguarding of assets (security equipment and plans), insurance coverage, utility costs, etc., and incorporate these expenses into the pro-forma financial statements.

Additionally, state the proposed hours the office will be open to members to transact business

Identify the data processing system(s) selected for use by the credit union. Discuss why the system(s) were selected and the cost of the system(s). Draft copies of the proposed hardware and software purchase or lease agreements, maintenance contracts, and vendor estimates of other ongoing costs should be reviewed by an attorney representing the proposed credit union’s interest, and these documents and reviews should be submitted to the Department. The Department will also evaluate if any limitation on the terms of any draft contract would be necessary. Incorporate the associated costs (e.g., fixed assets, amortization and depreciated expense, etc.) into the pro-forma balance sheets and income statements.

The proposed credit union must have surety bond coverage which complies with the requirements of the NCUA found here: Surety Bond Coverage.  

The proposed credit union would need to purchase additional or enhanced coverage when circumstances warrant. Incorporators should perform an internal risk assessment and consider factors such as the amount of cash on hand, cash in transit, and the nature and risks inherent in any services offered, such as automated clearing house (ACH), wire transfer, and remittance services. Also, any needed insurance plans/programs to cover credit union operations in addition to the surety bond coverage must be evaluated.

The associated costs for the surety bond and insurance plans/programs must be incorporated into the pro-forma financial statements and evidence of the proposed coverage submitted to the Department and the NCUA.

Incorporators must ensure the level of funding and support is sufficient to operate the credit union for providing the services deemed important by the members, as reflected in the membership survey. The credit union’s financial projections should include all of the monetary support and subsidizing that are detailed in this section of the business plan.

Incorporators need to explain and support how the credit union will continue operations after Year 2 while remaining solvent (positive net worth).  Include assumptions in this section and provide support in the form of annual pro-forma financial projections (including balance sheet and income statement projections) demonstrating when the subscribers anticipate the credit union will generate positive net income absent grants from outside sources. Submit pro-forma financial projections. 

Discuss the number of directors and members for each committee, including a supervisory committee, and credit committee if being used. Detail the terms of each official and the training to be provided prior to, and after opening, the proposed credit union. Also, discuss how you plan to find and train future credit union officials and the succession plan for replacing the CEO/manager. Some potential training topics for officials are:

a) Understanding Board Governance – Board’s duties, powers, and responsibilities;
b) Understanding financial statements and key financial trends and conditions;
c) Understanding the risks of operating a credit union and how to identify and control these risks;
d) Understanding economic trends and their effect on the credit union;
e) Developing an effective business plan with goals and measurable outcomes;
f) Conducting effective meetings;
g) Assessing and evaluating a CEO/Manager;
h) Communicating with other officials and staff effectively; and
i) Working and communicating with your regulator and insurer.

Incorporate the associated training costs into the pro-forma financial statements.

If a written management arrangement or agreement will be used, discuss how management and staff will continue after the term of the arrangement/agreement ends.
 

Using the membership survey, which represents a statistically valid random sample or targeted random sample, the results are tallied, and a written analysis developed, before finalizing the pro-forma financial statement projections and assumptions.

Once the results from the membership survey are tallied, analyzed, and conclusions reached, subscribers will use the results to develop assumptions for membership, loans, shares, usage of products and services, etc. and projections for the pro-forma financial statements.

Detailed pro-forma financial statements consist of a balance sheet and income statement for the first two years of operation, as well as membership, delinquency, and net charge off projections. 

Include in this section written, detailed assumptions explaining how each line item category on the balance sheet and income statement was calculated and include the basis for the assumption (survey results, industry averages, etc.). Additionally, as previously mentioned, discuss plans for operating independently. Submit financial projections beyond Year 2 through the year the credit union plans to operate profitably absent grant money. For example, if the credit union believes it will be profitable in Year 5, prepare and include pro-forma financial projections through Year 5.

Describe how the proposed credit union will market the credit union to potential members. Specifically identify the advertising venues and methods to be used and include the cost for each. Some examples of marketing strategies are:

a) Advertisement in the local newspaper for Friday, Saturday, and Sunday papers each quarter at a cost of $1,300;
b) Word of mouth advertising via on-site visits at three local organizations once a week at a cost of $15 for the membership materials provided to the three local organizations. On-site visits will be handled by the manager on Wednesday mornings before the office opens;
c) High school yearbook advertising costing $75;
d) Table rental for distribution of credit union materials at community festival at $20; and
e) School sports field advertisement for a donation of $100.
f) Table rental for distribution of credit union materials at community festival at $20; and
g) School sports field advertisement for a donation of $100.

The frequency and cost for the advertisement can be easily illustrated via a rollout marketing calendar. An example of a marketing calendar for year one is below. The marketing venues or methods are listed in the left margin with the periods listed in the top header and the cost of the marketing strategy is inserted where the row intersects the column. The marketing strategies, such as those identified above, should correspond with the information provided in the marketing calendar.

If the credit union will serve a local community, neighborhood, or rural district, the marketing plan should incorporate the analysis of the area’s demographic characteristics, along with a discussion about how the credit union will reach out and effectively serve all segments of the population.

Also, discuss what activities and events are planned within the credit union’s service area and/or groups to promote the credit union’s services and products, and represent itself as a responsible corporate citizen. For example, participation in the local Chambers of Commerce, city’s Vendor Fair, annual Food Drive event, etc.

Customize the standard bylaws to meet the needs of the credit union by downloading an “MS Word” version of the most recent federal credit union bylaws found on the NCUA's website or the Standard Credit Union Bylaws Approved by the Department found here: Standard Bylaws Approved by the Department.

If you wish to seek approval for a non-standard amendment to the credit union bylaws, contact the Department to discuss in greater detail before submitting a written request to amend the bylaws. 

The board of directors of a credit union charter is ultimately responsible for establishing the policies of the credit union. It is through written policies and the resulting procedures that the board of directors and management control the operations of the credit union. Policies and procedures should specifically address the impact on the credit union’s operation and should be reviewed and adjusted as necessary, but at least annually. The specific policies and procedures required for a new credit union will depend on its particular offerings, membership, and environment.

Incorporators should become familiar with applicable laws and rules and regulations, consumer regulations, and safe and sound business practices in order to develop many of the policies below. Incorporators may consider seeking assistance from their mentor credit union(s) in drafting credit union policies. If policies are obtained from a mentor credit union, modify the policies to fit the operations of the proposed new credit union.

A list of the basic written policies is below. Some may not be applicable depending on the new credit union’s products and services, membership, etc.

Allowance for Loan and Lease Losses (ALLL) Policy
Asset Liability Management (ALM) Policy
Bank Secrecy Act (BSA)/Customer Identification Program (CIP)
Cash Policy Fair Lending Policy and Loan Policy
Director Fiduciary Duties
Disaster Recovery and Business Continuity/Resumption Policy
E-Commerce Policy
Identity Theft Red Flags, Credit Report Address Discrepancies, and Records Disposal
Investment Policy
Liquidity Policy
Loan Charge-Off Policy
Office of Foreign Assets Control (OFAC) Policy
Policies for Advanced Services
Privacy Policy
Procedures for Major Operational Areas
Reimbursement Policy
Truth-in-Savings (TIS)
Vendor Management/Third Party Relationships

The proposed credit union must submit a share insurance application to the NCUA.  The NCUA application for insurance of accounts and additional NCUA requirements can be found in the General Questions section of the following link:  Frequently Asked Questions for New State-Charter Applicants and Federal Share Insurance.