Proof of Concept Application Instructions

Proof of Concept (POC) Application
Instructions
Table of Contents
Introduction ............................................................................................................. 2
Overview ................................................................................................................. 3
Critical Elements .....................................................................................................
x Purpose and Core Values.............................................................................. 3
x Field of Membership .................................................................................... 4
x Capital........................................................................................................... 5
x Subscribers ................................................................................................... 6

Analysis of POC Criteria………………………………………………………….6
Scoring Description and Framework……………………………………………...8
Resources ................................................................................................................ 9
Definitions............................................................................................................. 11
Contact Information .............................................................................................. 15

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Introduction
NCUA’s Office of Credit Union Resource and Expansion (CURE) is responsible for
issuing a credit union’s charter. By submitting your information through our automated
system, you demonstrate to NCUA that your group has thoroughly evaluated
requirements for establishing the credit union’s operations. This format does not serve
as your new charter application, but serves as your ability to document the four most
critical elements to establishing a new credit union. These four areas are usually the
greatest challenge for organizing groups to accomplish.
This data collection process is called providing the NCUA your “Proof of Concept”
(POC). The NCUA will review your responses to the POC questions. You will be
advised to:
x
x
x

Submit a formal charter application; or
Provide additional information to support your POC; or
Consider alternative options in providing financial services to your proposed
group.

NCUA strongly recommends that each organizing group perform its due diligence in
advance to obtain a clear understanding of the duties and responsibilities required for
charter approval and credit union operations. The Federal Credit Union Application
Guide (Guide) is the primary reference for chartering.
Each Critical Element will be reviewed and given a score based on the responses.
Each POC will be reviewed and responses will be emailed in approximately 60 days.
For those groups meeting the minimum POC score of 80, CURE will send a formal
invitation to submit a new charter application.
Table 1
Critical Elements

Maximum Points

Purpose and Core Values

25

Field of Membership

25

Capital

25

Subscribers

25

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Office of Credit Union Resources and Expansion
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NCUA will accept POC applications throughout the year. You will receive a
confirmation message once you successfully upload your POC. If you do not receive
acknowledgement, contact CURE to investigate.

Overview
Organizing groups should review the Guide to obtain an understanding about
chartering. The Guide describes every aspect of the credit union’s operations. In
addition, the membership survey helps you determine if you have sufficient support
from the proposed field of membership (FOM) to establish a viable financial institution.

Critical Element #1: Purpose and Core Values
Background
The term “federal credit union” means a cooperative association organized for the
purpose of promoting thrift among its members and creating a source of credit for
provident or productive purposes. Before approving an organization certificate, an
investigation shall be made to determine:
(1) whether the organization certificate conforms to the provisions of the Federal
Credit Union Act:
(2) the general character and fitness of the subscribers: and
(3) the economic advisability of establishing the proposed Federal credit union.

Scoring for Purpose and Core Values
The evaluation for the Purpose and Core Values includes the following:
Step 1: Purpose and Core Value Review
Provide a compelling reason(s) why the formation of a new credit union is in the best
interest of the proposed group. CURE will use responses from the POC submission to
determine if the proposed credit union’s goals and objectives align with the credit union
industry’s mission of, “People Helping People.”
Step 2: Scoring
CURE will score the Purpose and Core Value section of the POC based on the response
provided.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Critical Element #2: Field of Membership
Background
A credit union’s FOM is based on a common bond of the group or groups of people the
credit union intends to serve. 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.
Table 2. Three Types of Common Bond
Occupation

Work in the same employment entity.
Members of a particular religious
organization (i.e. church, mosque,
synagogue, etc.) professional group,
civic or fraternal group or labor union.
Live, work, worship, or attend school in
the same geographic area.

Association
Community

Table 3. Three Types of Memberships
Single Common Bond (SCB)
Multiple Common Bond
(MCB)
Community

A SCB can be occupational based: trade, industry,
or profession (TIP); or associational based.
A MCB may be occupational or associational
based, and/or a combination of occupational and
associational groups.
A community charter must be based on a single,
geographically well-defined local community,
neighborhood, or rural district where individuals
have common interest and interact.

Scoring for the Field of Membership
The evaluation process for the FOM includes the following.
Step 1: FOM Review
CURE will review each POC submission to determine if the proposed credit union
meets the FOM regulatory requirements. Organizing groups that are unable to identify
an acceptable FOM, will receive zero points in this area.
Step 2: Scoring
The scoring criteria for FOM section are based on the responses provided but they must
be supported by need, lack of available services, and demographics of the proposed
FOM.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Critical Element #3: Capital
Background
The actual costs for chartering a federal credit union will vary depending on the unique
circumstances in which the credit union operates. Therefore, funding in the form of
donations and grants, is necessary to cover startup costs and absorb net operating losses
until the credit union achieves positive earnings and can maintain an adequate capital
position. From past experience, newly chartered credit unions require approximately $1
million in startup capital.

Scoring for Capital
Step 1: Capital
CURE will review each POC submission to determine if the organizing group has
identified its operations as basic, intermediate, or complex and understands the capital
required. Understanding the estimated costs for the operations will help organizing
group’s project how much startup capital is required to absorb operating losses and
maintain capital until the credit union is profitable from operations.
Step 2: Scoring
CURE will score the Capital section of the POC based on the response provided. If an
organizing group is unable to identify a credible funding source, charter approval is
unlikely.

Critical Element #4: Subscribers
Background
As defined by the Federal Credit Union Act, subscribers must undergo an appropriate
investigation to determine general character and fitness. Officials and employees are
also required to undergo such an investigation. For purposes of the POC, seven
subscribers must be listed in this section including their email address and telephone
numbers.
When the formal charter application is submitted, A Report of Official and Agreement
to Serve (NCUA 4012) Form is completed by each official and employee in order to
perform the investigation. Be prepared to discuss each individuals anticipated
contribution to chartering and the number of hours per month he or she will volunteer.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Scoring for Subscribers
Step 1: Subscribers
CURE will review each POC submission to determine if the organizing group identified
at least seven individuals to serve as the proposed credit union’s subscribers. Ideally,
the subscribers will have sound understanding or backgrounds in accounting, finance,
business, and banking or related fields.
Step 2: Scoring
CURE will score the Subscriber section of the POC based on the response provided.

Analysis of POC Submission
The reviewers will evaluate each POC using a point scale based on the four Critical
Elements 1) Purpose and Core Values 2) Field of Membership 3) Capital and 4)
Subscribers. The maximum number of points a POC application can earn is 100. A
minimum of 80 points must be earned for an organizing group to receive an invitation
to submit a formal charter application.
Table 4 provides a description of each Critical Element and its corresponding narrative
guidance. Organizing groups must thoroughly support each Critical Element in the
POC application.
Table 4. Criteria
Critical
Element

Description
The organizing group’s ability to identify, understand, and
describe why a newly formed credit union is needed for the
proposed FOM.

#1 - Purpose and
Core Values

Narrative Guidance Purpose and Core Values
x Describe the economic challenges and the reasons why a new
credit union is needed for the proposed FOM. Provide data
to support the case.
x Discuss why this matters to the organizing group and how it
affects the community, area or proposed FOM.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Table 4. Criteria
Critical
Element

Description
The organizing group’s ability to identify a FOM that meets
regulatory guidelines.

#2 - Field of
Membership

Narrative Guidance for FOM:
x Every proposed credit union must establish a legally
recognized FOM.
x Only persons or groups within the FOM by virtue of their
close relationship to the common bond group may join the
proposed credit union.
x NCUA will provide preliminary approval for the proposed
FOM including if the group meets NCUA’s low-income
definition.

The organizing group’s ability to identify and explain funding
sources to cover startup costs to absorb net operating losses until
it achieves positive earnings and maintains adequate capital.
Please note that startup capital is not a loan, investment, or nonmember deposit. Startup capital is a donation pledged as capital
for the formation of the credit union.
#3 - Capital

Narrative Guidance for Capital:
x The amount of funding needed varies and is contingent on
the desired services and operating structure.
x Explain what organizations, entities, companies, etc. will
provide startup capital for the formation of the proposed
credit union.
x Explain what intervals the funds will be pledged to the
proposed credit union.
x NCUA requires commitment letters from all donors pledging
money.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Table 4. Criteria
Critical
Element

Description
The organizer group’s ability to identify seven individuals
needed for the formation of the credit union. These individuals
must agree to a credit check and criminal investigation. Ideally,
these individuals will have backgrounds in finance, accounting,
business, banking, etc. to carry out the duties and responsibilities
of the proposed credit union.

#4 - Subscribers
Narrative Guidance:
x Subscribers must carry out the duties in good faith, in the
best interests of the membership, and with the care a prudent
person in a like position would use under similar
circumstances.

The reviewers will use the scoring descriptions and framework listed in Table 5 to score
the POC applications.
Table 5. Scoring Description and Framework
Score

Score Range Score Description
The responses are highly relevant and leads to a deeper
understanding of how the group will accomplish the
requirements for the Element.
Exceptional
22 – 25

The responses are clear, well-articulated, and relevant
and lead to a better understanding of the Element.
Strong

19 – 21

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Table 5. Scoring Description and Framework
Score

Good

Score Range Score Description
The responses are average and not consistently wellexpressed.
16 – 18

The responses are fair with limited detail.
Fair

13 – 15
The responses lack detail, are difficult to understand,
insufficient, and of poor quality.

Weak

1 – 12

Resources
1. Federal Credit Union Charter Application Guide
2. Federal Credit Union Bylaws
3. The Chartering and Field of Membership Manual
4. NCUA Form 4012
5. NCUA Letter to FCU Board of Directors Duties

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Definitions
Below are commonly used terms in the credit union industry. These definitions are used as a
reference to assist you with the POC and the formal charter application as you proceed
through the application process.
Accounting System – The credit union’s record keeping system; most credit union accounting
systems are computerized.
ACH – Automated Clearing House – a nationwide network that enables participating financial
institutions to distribute and settle electronic payments.
Adequately Capitalized – A credit union is considered adequately capitalized when it has a net
worth ratio of at least 6 percent.
Assets – Assets are items the credit union owns such as loans, cash, investments, and fixed
assets.
Associational Common Bond – a common bond comprised of members and employees of a
recognized association. It includes individuals (natural persons) and/or groups (non-natural
persons) whose members participate in activities developing common loyalties, mutual
benefits, and mutual interests.
Audit - an official examination and verification of accounts and records, especially financial
accounts.
Audited Financial Statements – an organization’s financial statements which have been
prepared and certified by a Certified Public Accountant.
Balance Sheet – The Balance Sheet (sometimes referred to as the Statement of Financial
Condition) shows the financial condition of the credit union as of the date it represents. The
credit unions assets, liabilities and equity (capital) accounts are included on the balance
sheet; income and expense accounts are not included.
Board of Directors – The governing group of volunteers charged with the fiduciary
responsibility of establishing policies and providing strategic direction of a credit union. As
outlined in the Federal Credit Union Act, this group must consist of an odd number of
individuals not less than 5 and not more than 15.
Break-Even – the point at which the credit union is neither making a profit nor operating at a
loss.
Business Model – The business model describes how the credit union will define and promote
itself, produce and distribute its products and services, and build or attract its market.
Business Plan – The Plan prepared by a credit union charter applicant addressing the economic
advisability of a proposed charter.
Capital – A credit union’s capital is defined as the total of its regular reserves, allowance for
loan and lease losses, special reserves, undivided earnings, accumulated unrealized gains or
losses on available-for-sale securities, and that portion of year-to-date net income that has
not yet been closed to the appropriate capital account. Capital accounts provide (1) a
cushion for anticipated and unidentified losses, (2) a base for future growth, and (3) a means

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Office of Credit Union Resources and Expansion
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by which the credit union can meet competitive pressures as they arise. Capital also
provides the credit union a cost-free source of funds.
Charter – The document which authorizes a group to operate as credit union and defines the
fundamental limits of its operating authority, generally including the persons the credit union
is permitted to accept for membership. Charters are issued by the National Credit Union
Administration for federal credit unions; state charters are issued by the designated state
chartering authority.
Commitment Letter – a letter detailing the type of support, subsidies or donations an
organization will provide to the proposed credit union.
Common Bond – The characteristic or combination of characteristics distinguishing a
particular group of persons from the general public. Two common bonds can serve as a
basis for a group forming a federal credit union; occupational – employment by the same
company, related companies or in a trade industry, or profession (TIP); and associational –
membership in the same association.
Community Credit Union – Credit unions whose field of membership consists of persons who
live, work, worship or attend school in the same well-defined local community,
neighborhood, or rural district.
Contingency Plan – A specific set of instructions in place to be followed if certain events
interrupt normal business operations.
Corporate Credit Union – A credit union for natural person credit unions, providing
correspondent services.
Credit Committee – Volunteers selected by the board of directors that assess and make
decisions on member loan applications.
Credit Union – A member owned not-for-profit cooperative financial institution formed to
provide financial services to a specified group of individuals.
Credit Union League – Leagues are trade associations located in most states and provide a
wide variety of services such as education, training, and small credit union counseling.
Some Leagues may also provide products and other services such as audits, legal
consultation, guidance on consumer regulation, etc.
Debit Card – A debit card is a plastic payment card that provides electronic access to a
member’s credit union share account.
Deposit - Deposits are funds placed in a member’s credit union account that can be withdrawn
by the account owner.
Disaster Recovery Plan - A plan developed by the credit union’s board of directors for
continued business operation in the event of a disaster.
Donation – Money, subsidies, assistance and goods given to the credit union from individuals
or organizations which will not be repaid.
Economic Advisability – An overall evaluation of the credit union’s or charter applicant’s
ability to operate successfully.
Federal Credit Union Act – The enabling legislation, passed in 1934, for federal credit unions,
federal insurance, the National Credit Union Administration, and the Central Liquidity
Facility.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Federal Share Insurance – Insurance coverage provided by the National Credit Union Share
Insurance Fund and administered by NCUA. Coverage is provided for qualified accounts in
all federal credit unions and participating state credit unions.
Field of Membership – The persons (including organizations and other legal entities) a credit
union is permitted to accept for membership.
Financial Statements – A presentation of financial data, including accompanying notes,
derived from accounting records of the credit union, and intended to disclose a credit union’s
economic resources or obligations at a point in time, or the changes therein for a period of
time. The balance sheet (or statement of financial condition) and income statement are the
most common credit union financial statements.
Fixed Assets - Tangible assets such as land, building, furniture, etc.; also includes lease
payments as defined in Part 701.36 of the NCUA Rules and Regulations.
Immediate Family Member – a spouse, child/stepchild, sibling/step-sibling, parent/stepparent,
grandparent or grandchild.
Internal Controls - The process established by the credit union’s board of directors, officers
and employees, designed to provide reasonable assurance of reliable financial reporting and
safeguarding of assets against unauthorized acquisition, use, or disposition.
Income Statement- The income statement reflects all income, expenses, gains, and losses of
the credit union for the period for which prepared. Asset, liability and equity (capital)
accounts are not included on the income statement.
Letter of Understanding and Agreement – an agreement between NCUA and credit union
officials establishing reasonable operational goals. These are normally entered into with
new charter applicants for a limited time.
Liabilities – Amounts which the credit union owes to others, such as accounts payable and
borrowed money.
Loan – Money that is provided to a member that must be repaid by that member.
Loan Portfolio – A loan portfolio consists of all of the loans the credit union owns and
manages.
Low-Income Designation – A designation awarded to credit unions who predominately serve
low income members.
Manager – The manager is the person responsible for the day-to-day operations of the credit
union.
Manual Credit Union - A non-automated credit union; a credit union without an electronic
data processing (EDP) system.
Mentor – An individual who provides guidance and assistance to newly chartered, small or
low-income credit unions. All new federal credit unions are encouraged to establish a
mentor relationship with a trained, experienced credit union individual or an existing credit
union.
Minority Depository Institution - A federally insured credit union in which a majority of its
current members, a majority of its board of directors (BOD), and a majority of the community it
services, as designated in its charter, falls within any of the eligible minority groups described
as African American, Asian American, Hispanic American and Native American.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019

Mission Statement – The articulation of why an organization exists, the “business” it engages
in to achieve its purpose, and the values that guide the accomplishment of the mission.
Mobile Payment - a form of transaction that uses mobile devices to make payments from a
user’s credit union account or credit card account.
Multiple Common Bond – A field of membership consisting of more than one group, each of
which has a common bond of occupation or association.
National Credit Union Administration – NCUA is the independent federal agency

created by the U.S. Congress to regulate, charter and supervise federal credit unions.
With the backing of the full faith and credit of the United States, NCUA operates and
manages the National Credit Union Share Insurance Fund, insuring the deposits of
account holders in all federal credit unions and the overwhelming majority of statechartered credit unions.
National Credit Union Share Insurance Fund – The NCUSIF is the federal fund created by
Congress to insure member deposits in federally insured credit unions. The insurance limit
was increased from $100,000 to $250,000 per individual depositor in 2008. Administered
by the NCUA, the NCUSIF is backed by the “full faith and credit” of the U. S. Government.
Net Interest Margin – Credit unions operate by lending and investing cash to generate income,
but they also pay interest to their members. A credit union’s ability to make profit depends
on how much its interest income exceeds its interest expenses – a value known as net
interest. Net interest margin is a percentage calculated from net interest that indicates a
credit union’s return on interest-earning assets over a particular period.
Net Worth – Net worth constitutes the reserve of funds available to manage or absorb the risks
to the credit union.
Occupational Common Bond – Employment by the same entity or related entities of Trade,
Industry, or Profession.
Officials – Credit union officials include members of the board of directors, credit committee or
supervisory committee; the President, Chief Executive Officer, Chief Financial Officer,
Comptroller, General Manager, Treasurer/Manager, Executive Vice President; and attorneys
and accountants of the credit union.
Once a Member, Always a Member - A provision of the Federal Credit Union Act which
permits an individual to remain a member of the credit union until he or she chooses to
withdraw or is expelled from the membership of the credit union. Under this provision,
leaving a group that is named in the credit union’s charter does not terminate an individual’s
membership in the credit union.
Organizations of Such Persons – An organization or organizations composed exclusively of
persons who are within the field of membership of the credit union.
Organizers – The group of individuals organizing the formation of a credit union.
Potential Members – Individuals within the field of membership who have not joined the
credit union.
Profitability – The credit union’s ability to generate earnings as compared to expenses and
other incurred costs during a specific period of time.
Reserves - Earnings allocated for use for a specific purpose, such as the Regular Reserve,
Undivided Earnings and the Allowance for Loan Losses accounts.

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Office of Credit Union Resources and Expansion
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Return on Average Assets – The ROAA is an indicator of how profitable a credit union is
relative to its average assets. ROAA gives an idea as to how efficient credit union
management is at using its assets to generate earnings. Calculated by dividing the credit
union’s annual earnings by its average assets, ROAA is displayed as a percentage.
Secondary Capital – Secondary capital is an uninsured account best described as a
“subordinated” loan to the credit union. It can temporarily count as net worth. In the event
of liquidation, all other debt owed by the credit union must be repaid before the secondary
capital loan is repaid. Only low-income designated credit unions may accept secondary
capital in accordance with the requirements in NCUA’s regulations 701.34 (b).
Senior Executive Officer – Senior Executive Officers generally include credit union’s chief
executive officer (president, treasurer, manager) assistant executive officer (vice president,
assistant treasurer/manager), and/or chief financial officer (controller).
Service Area – the area that can reasonably be served by the service facilities accessible to the
groups within the field of membership.
Share Account – refers to a regular share (savings) account and any other account that is not a
share certificate account.
Share Draft Account - an account from which the holder is authorized to withdraw shares by
means of a negotiable or transferable instrument. Share drafts are equivalent to a checking
account at a bank.
Single Associational Common Bond Credit Union – A credit union whose field of
membership includes members and employees of a recognized association.
Single Common Bond Credit Union – A credit union whose field of membership consists of
one group which has a common bond of occupation or association.
Single Occupational Common Bond Credit Union – A credit union whose field of
membership consists of employees of the same entity or related entity or part of a Trade,
Industry, or Profession.
Sponsor – An entity (i.e., company or organization) within the credit union’s field of
membership that provides monetary support and/or subsidies such as free office space, use
of company copier or staff in legal department, during the chartering process and continuing
after the credit union is chartered.
StartUp Capital – Subsidies (monetary support in the form of contributions and any donated
equipment) to cover all of the start-up costs, as well as the operating costs that cannot be
covered from the income generated from normal operations. All verbal or written start-up
capital commitments pledged must be identified and include the specific commitment and its
terms. All start-up capital sources must prove they have the financial capability to provide
the pledged support and provide credit union organizers with a copy of their audited
financial statements as evidence.
Strategic Plan – A strategic plan is the framework an organization uses to articulate priorities
and goals, and manage results. It includes strategic objectives and a description of how
resources will be deployed to accomplish them.
Statement of Financial Condition – The Statement of Financial Condition (sometimes referred
to as the Balance Sheet) shows the financial condition of the credit union as of the date it
represents. It includes the credit unions asset, liability and equity (capital) accounts; income
and expense accounts are not included on the Statement of Financial Condition.

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Office of Credit Union Resources and Expansion
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Subscribers – As defined by the Federal Credit Union Act, subscribers are any seven or more
natural persons who desire to form a federal credit union. Subscribers are responsible for
preparing the charter application.
Succession Plan – a plan for identifying and developing internal people with the potential to fill
key positions in the credit union as they become available.
Supervisory Committee – Appointed by the board of directors the main responsibilities of the
supervisory committee are to oversee the operations of the credit union and ensure an annual
audit and bi-annual verification of accounts is performed.
Surety Bond - Surety bonds provide for the recovery of losses by the dishonesty of an
employee or official or by the failure of employees to faithfully perform their duties. The
specific losses that will be restored by the bond are listed in the written contract with the
surety company.
Trade, Industry or Profession (TIP) – a single occupational common bond credit union based
on employment in a trade, industry, or profession including employment at any number of
corporations or other legal entities that, while not under common ownership – have a
common bond virtue of producing similar products, providing similar services, or
participating in the same type of business.
Undivided Earnings - The portion of the accumulated earnings of the credit union which are
available for the payment of dividends.

Contact Information
If you need to contact CURE regarding the POC application, send your request by email to [email protected]. Please allow 48 hours for a response.
Below is the contact information for other service areas of CURE.
x
x
x
x

Field of Membership Expansion: [email protected]
Learning: [email protected]
For all other inquiries: [email protected]
Contact us by Phone: 703.518.6610

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019