Secondary Capital II

Secondary Capital II Loans

Secondary Capital I and Secondary Capital II loans are subordinated, long-term debt available to credit unions with low-income designation from their regulator. Although they are loans, secondary capital counts as net worth for regulatory purposes. Secondary capital can be leveraged by growing CDCUs to expand safe and affordable lending to local communities.

Inclusiv offers two types of secondary capital loans products -- Secondary Capital I which includes an expected balloon repayment of principal, and Secondary Capital II, which includes expected repayments of amortized principal.

Secondary Capital II: Eligibility

Secondary Capital II applicants must meet the eligibility requirement for Secondary Capital I and should be likely to receive streamlined approval of secondary capital redemption as outlined below.

Per NCUA’s National Supervisory Policy Manual, to qualify for streamlined approval, the credit union must meet the minimum requirements specified in Section 701.34(d)(1):

1) Request to redeem secondary capital. A request for approval to redeem discounted secondary capital may be submitted in writing at any time, must specify the increment(s) to be redeemed and the schedule for redeeming all or any part of each eligible increment, and must demonstrate to the satisfaction of NCUA that:

(i) The LICU will have a post-redemption net worth classification of “adequately capitalized” under part 702 of this chapter;
(ii) The discounted secondary capital has been on deposit at least two years;
(iii) The discounted secondary capital will not be needed to cover losses prior to final maturity of the account;
(iv) The LICU's books and records are current and reconciled;
(v) The proposed redemption will not jeopardize other current sources of funding, if any, to the LICU; and
(vi) The request to redeem is authorized by resolution of the LICU's board of directors.

and the following criteria:

    • Composite CAMEL rating of 1 or 2
    • The credit union has properly recognized costs and impairments consistent with GAAP
    • Net worth trends are stable or growing, and the credit union will have a post-redemption net worth classification of “well capitalized” under Part 702
    • The credit union’s post redemption capital level will remain sufficient relative to any extraordinary risks associated with its financial and operational activities

*Note: Credit unions that do not receive streamlined approval of secondary capital redemption, but do receive approval of their secondary capital plan, may be considered for funding under the terms of Secondary Capital I.

Secondary Capital II: Terms

Inclusiv makes Secondary Capital II loans of up to $2,000,000 with maturities of 5-10 years. Per regulatory guidelines, at the outset of a Secondary Capital II loan, the entire principal of the loan can be counted toward net worth. In each of the last 5 years of the loan term, the amount of the loan that can be counted toward net worth reduces by 20%. In the last year of the loan, the entire loan principal is booked as a subordinated loan and can no longer be counted as net worth.

Secondary Capital II: How to Apply

For more information about Secondary Capital II loans and to apply, please contact Applications for Secondary Capital are accepted on a continuous basis, but are considered for approval only at the tri-annual meetings of the Community Development Investments Committee.

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