Generally, an organizing group should expect a minimum of one year to complete the charter application process. The complexity of the PFCU’s business model and the time the organizers take to complete all three phases of the process, including providing all necessary documentation, are major factors affecting the timeline. The NCUA strives to complete the review of the charter application, provide a charter decision, and complete the chartering process (in the case of a charter approval) within 180 calendar days from receipt of a complete charter application.
The amount of necessary start-up and capital funding will depend upon the actual start-up costs, operating expenses, and asset size, among other elements, identified in the business plan and pro forma financial projections. These figures will be different for every PFCU.
When you are estimating how much funding you will need, consider using $500,000 at a minimum, or $100,000 per $1 million if projected assets are greater than $5 million during the first five years of the PFCU’s operation. The NCUA will evaluate the adequacy of your projected capital amount during the review of the business plan and financial projections you submit in Phase 2.
Funding, usually in the form of cash or in-kind donations, is necessary to cover the following:
- Start-up costs of the PFCU;
- Net operating losses until the PFCU achieves positive net earnings; and
- The amount needed to achieve and maintain an appropriate capital position.
The amount of funding necessary will vary depending on factors including:
- The initial services the PFCU plans to offer;
- The costs related to providing services;
- The anticipated level of risk in the business model; and
- The proposed operating structure.
For example, more branches and services or higher-risk business plans often equate to a need for more funding. A higher-risk business plan might include complex products or services or high concentrations of certain loan products.
The business plan documents, including the pro forma financial statements, must be completed to assess capital adequacy. The pro forma financial statements should reflect that you can achieve a net worth ratio of at least 7 percent of total assets, the statutory definition of “well-capitalized,” over time. An example would be projections that show the net worth ratio increasing to a “well-capitalized” level within the projection period, which is typically at least three years, but could be extended over a longer time horizon if net worth growth is projected to be slower.
Generally, a charter will not be approved if projected net worth is less than 6 percent, the statutory definition of “adequately capitalized.”
The NCUA assigns a Consumer Access Coordinator to work with a PFCU through the chartering process. The coordinator can provide guidance, will review all documentation submitted by the PFCU, and provide feedback to the organizer. However, the organizing group is responsible for submitting a workable plan.
Once the new credit union is chartered, the NCUA assigns a District Examiner and a Supervisory Examiner from the applicable NCUA regional office. The District Examiner will become the regular point-of contact and will complete examinations and conduct other supervisory activities of the new federal credit union.