Wachovia Wells Fargo NEXT Awards Statement

Vision

The mission of Bethex FCU is to provide for the financial service needs of our low-income
membership and to educate our members in the use of these services, with the ultimate aim of
bringing them into the financial mainstream and contributing to the revitalization of our
community as a whole (which, sadly, is one of the poorest in the country). Our great ambition
is to significantly expand our array of pioneering financial services tailored to the underserved
while scaling up to become a self-sufficient institution. We know that actualizing this vision
will involve streamlining operations and upgrading our technical infrastructure while focusing
on radically innovative programs that can both maximize community development impact and
leverage the credit union’s growth and profitability in the teeth of our community’s harsh
economic realities.

To understand the challenging – but also potentially rewarding – nature of our vision, it is
important to describe the environment of severe economic adversity in the area we serve. The
Bronx congressional district where most Bethex members live has the highest poverty rate
(40.8%) in the United States. Child poverty is an even more severe 53.9%. Many of the poor
are recent immigrants from the Caribbean, South America, and West Africa. The area also has
the lowest owner-occupied housing rate in the country, 19.5%, limiting home equity wealth-
building. Not surprisingly, there is a dearth of banks in the Bronx compared to other New
York boroughs and major U.S. cities; conversely, some 74 pawnbrokers operate in the
borough and Bethex’s very formation some 40 years ago was initiated by welfare mothers
who could not redeem their pawnshop pledges.

Bethex’s impact can only be understood in the context of these challenging conditions. The
credit union provides savings accounts to over 9,000 members; it offers business, home, and
auto loans; it is a vital provider of financial education; and it is a critical catalyst for
innovative community partnerships. These basics are not just basic, but vital, in the South
Bronx.

However, our vision is not merely to survive, but to thrive in this environment - and to
critically effect the environment so it begins to thrive as well – by focusing on groundbreaking
programs with exceptional community development impact that also have the potential to feed
back into growth and self sufficiency for Bethex.

Bethex FCU has been providing small business financing and technical assistance to its
members since 1989. Our loan portfolio includes 46 business loans outstanding, ranging from
under $1,000 to $250,000, with an average size of about $20,159. Almost all business loans
are granted to minority or women-owned enterprises, and usually finance start-up businesses,
which are typically ignored by mainstream financial institutions. All loans are SBA-
guaranteed. Bethex was the first credit union in New York City to be an SBA-approved
lender.

Bethex is also looking to advance its groundbreaking depository programs and services. Our
credit union is partnering with the “Opportunity NYC” program, an initiative personally
sponsored by Mayor Blumberg. This program encourages low-income people to become
banked by rewarding them with a $50 deposit into their newly opened savings account. It also
aims to change dysfunctional behavior by providing monetary rewards for constructive
actions such a attending to the family’s health needs, maintaining good school attendance, and
getting job training. When Bethex first introduced the program in 2007 it immediately
generated significant impact: 157 new accounts were opened totaling $39,265 in that year. By
year-end 2009, program participation had nearly doubled to 279 accounts worth $67,372.

In 1998, Bethex formed a groundbreaking partnership with two Bronx check cashing outlets.
As of now, there are 12 Rite Check and 140 Pay-O-Matic outlets that enable credit union
members to deposit money in their Bethex accounts using a Point of Banking (POB) terminal
at the check casher. Bethex checks are cashed for free, while other checks are cashed at a rate
of 1.65% of the face value. Many check cashers are open 24/7, expanding credit union hours.
The check cashers also provide marketing opportunities. In fact, Bethex is planning to open a
window at a busy check casher and possibly create a replicable model. In New York, check
cashers are tightly regulated, and their popularity among low-income people in our
community is a reality that we have learned to use to everyone's advantage.

As Bank Secrecy Act compliance burdens are making commercial banks increasingly hostile
to Money Service Businesses (MSBs), Bethex has welcomed them (gaining 38 new MSB
members since 2006), developing a new revenue source, while also providing an important
service to immigrants. Several standard fees are charged to these establishments, as well as a
minimum monthly fee, making this a very profitable line of business. At the same time, there
is also a positive community development impact: supporting a large number of MSBs
stimulates competition and diversity, keeping prices down and increasing specialization and
expertise in specific countries.

A critical component of our vision is financial education and technical assistance for
members. Our business borrowers may know their trade very well, but do not have a high
level of formal education or knowledge of advanced financial concepts, taxation, and the legal
intricacies of running a business. Our business loan consultants try to bridge this gap by
providing extensive development services to every borrower, including assistance with
business/marketing plan and strategy; preparation of financial statements; aid filling out tax
forms and other documentation; and negotiation of leases and contracts.

Bethex has been operating a Volunteer Income Tax Assistance (VITA) site for the last eight
years. It is one of the few community organizations that continue to provide this vital service;
our previous partners are no longer involved, and many other VITA sites in New York have
closed. The site serves all community residents, not just credit union members.

In the last four years our VITA Program has consistently and dramatically increased the
number of tax returns completed and the dollar value of tax refunds and credits. Last year we
completed 1,129 returns for $1,877,221 in tax refunds, including $826,088 in Earned Income
Tax Credit (EITC). Preliminary results for the 2010 tax year show that we achieved new
highs, completing 1,140 returns for $2,057,703 in tax refunds. Our VITA clients are
overwhelmingly the urban working poor, minorities, and immigrants, populations most in
need of free tax advice and preparation.
Use of Funds

Grant
We would like to use the grant proceeds for three critical projects: improving our technical
infrastructure, expanding our VITA work, and expanding our small business lending. We will
would like to purchase two JetCash Dispenser System machines with a self-contained cash
vault which accurately maintains internal control for each teller cash count. A friction feed
system dispenses bills far more accurately and efficiently than would be done by hand, and an
automatic audit trail eliminates the need for manual documentation. Bethex has a low-
income, working poor membership that tends to have an excessive amount of over the counter
transactions, between 142 and 338 per day. Teller functions are labor intensive. At day-end,
tellers count their cash boxes to reconcile the cash and checks received and disbursed during
the day. They are not permitted to go home until they reconcile their cash drawer, which can
take an hour or more, often with the head teller also staying behind. The JetCash Dispensers
would provide much quicker and more accurate cash counts and would also recognize and
eliminate counterfeit bills.

Also in line with our desire to streamline teller services, we would like to purchase a four
teller banking window at our main branch, which is located in the basement of a Section 8
subsidized rental apartment building. Currently, our credit union uses an antiquated banking
window which was originally donated by another credit union over 16 years ago and never
properly installed. We currently have only two teller stations, which hampers the efficiency
of our cash services. Our teller lines sometimes extend out the door and into the street. Also,
it is difficult to communicate with a teller. The new purchase will change the current two-
window station into four new separate teller windows. Each teller window will have its own
microphone capability to facilitate communication. Also, one of the windows will be used to
give out loan application and provide credit union information without slowing down the
teller lines, currently a common occurrence.

We would also like to substantially expand our small business lending. A portion of the award
would be used to provide loan loss reserves for small business loans. We current limit our
small business lending to 90% SBA-guaranteed loans, but the additional LLR cushion would
allow us to expand into the SBA Express Loan program where loans are only 50%
guaranteed. We are also looking to hire a full-time small business loan consultant. Currently,
we can only afford a part-time consultant, who is responsible not only for underwriting and
originating the loans, but for all aspects of pre- and post-loan developmental and technical
assistance to the borrower, significantly limiting the number of business loans we can
originate.

We would also like to expand our VITA program. As indicated above, our program is
immensely popular with the community and is growing steadily year by year. However, we
are always creaking at the seams during tax time, as we do not have the personnel to
adequately serve everyone who arrives at the door. Our VITA staff regularly stays past
midnight on tax preparation days, in addition to the regular work day they have already put in.
The staff is under great strain processing long lines of people and completing often complex
tax returns with the necessary degree of precision. At the same time, we have conducted only
limited advertising of our services for fear of burdening our resources beyond the limit; but
we are sure that we have only scratched the surface of potential demand. We would like to
use the grant proceeds to fund another part-time employee to work as Quality Reviewer and
Tax Preparation Instructor, reducing the burden on the person who currently shoulders these
duties alone. At the same time, this gives us an opportunity to amplify our publicity campaign
without fear of overstraining our resources with additional clients. We are also getting at least
5 calls a week requesting assistance with late filing and re-filings, which are currently being
turned down, as we do not have funding beyond the tax season. We would like to be able to
finance an employee to continue assisting tax filers after April 15th.

Low-interest Loan
The Governing Board of Bethex FCU has established a strategic goal of raising the credit
union’s loan deployment to 75% of shares by next year. We have steadily increased our
annual loan originations, due largely to increases in SBA-7A-guaranteed small business loans.
We anticipate this trend to continue as the economy improves. However, our current
deployment is only 47%, so an additional impulse is necessary. We see this impulse coming
first from new Express SBA small business loans, which we have not chosen to originate
because of the low 50% guarantee rate, but which would become tolerable if secured by new
loan loss reserves from the NEXT Grant. We anticipate being able to generate at least
$200,000 in additional loans annually from this new source. Furthermore, we recently
developed a powerful and fail-safe strategy for increasing loan deployment by purchasing
loan participations in taxicab medallions. Each of these loans is about $125,000 and averages
5.5% interest return over a term of three to ten years. The loans are seasoned before purchase
and default is very rare, due to the threat of losing the highly valuable (worth about $400,000)
and sought-after cab medallion that serves as collateral. We recently acquired six of these
loans and conservatively anticipate being able to add at least 3 more annually from outside
sources and two from loans originated by us, for a total anticipate amount of $425,000 in new
loans annually. We therefore anticipate being able to put the low-interest loan provided by the
NEXT awards to good use, easily covering the debt while earning a substantial return on the
interest rate spread.

All of the uses of the NEXT Award funds described above will serve as a critical catalyst in
Bethex’s strategic vision of developing programs that maximize community development
impact and at the same leverage income and self-sufficiency in the harsh environment of its
economically distressed community. The funds will expand small business financing and aid
essential small business and tax counseling programs while at the same time improving the
credit union’s service efficiency and outputs, loan deployment, income generation, and net
worth. An improvement in net worth will have an add-on effect of allowing more low or no-
interest non-member deposits, some of which have had to be withdrawn in the past to steady
the net worth ratio.

Leadership

All leadership personnel at Bethex are highly experienced financial managers who have
shown a life-long commitment to community service and development. However, the Board
chair, Lillian Bent, and the President/CEO, Joy Cousminer, stand out.

Ms. Bent spent over 30 years in the financial services industry in a variety of management
positions. She joined the Bethex Board following her retirement as manager of Union
Settlement FCU, another low-income community development credit union located in
Harlem. Ms. Bent served on the boards of a limited equity housing cooperative, a revolving
loan fund, and the East Harlem Community Counsel for Fair Banking. She was honored with
the National Federation of Community Development Credit Unions (NFCDCU) highest
award in 2005, the Annie Vamper Award.

From 1952 to 1980 Joy Cousminer taught English and Citizenship for immigrants in the
Bronx and provided basic education to women in the City’s Aid for Dependent Children
Program. This experience led her to recognize the need for a community financial institution.
In 1970, together with the “welfare mothers” who comprised her Adult Basic Education Class,
Joy founded Bethex as an alternative to the pawnshops and loan sharks that the women had
been using. Ms. Cousminer has accumulated unmatched knowledge of community
development finance, and has been recognized repeatedly for her work with the underserved.
She was awarded the NFCDCU Annie Vamper Award, the Bronx Visionary Award from
South Bronx Overall Economic Development Corporation, and a Visionary Award from the
Neighborhood Economic Development Advocacy Project. In February 2006, Ms. Cousminer
received the Herb Wegner Individual Achievement Award, considered the highest honor in
the credit union movement.

All staff members, except for Joy, are minority residents of the surrounding community. All
but one are fluent in Spanish and highly experienced in serving low-income and immigrant
populations.

The leadership and staff have shown a remarkable track record of flexibility and innovative
adaptability to changing market conditions. Bethex was the first credit union to be an SBA-
guaranteed lender in New York. It was the first to recognize that the reality of check cashers
could be used for community development purposes, establishing a groundbreaking symbiotic
partnership with two check cashing chains. Bethex quickly spotted an opportunity to develop
the money transmitter business after the tightening of banking regulations; money transmitters
are currently its most profitable service. Most recently, Bethex moved quickly to take
advantage of the opportunity to purchase low-risk and highly remunerative taxicab medallion
loan participations.

The most difficult challenges facing the leadership relate to the fact that the credit union is
operating in an environment of extreme economic distress. Most residents are poorly
educated, unemployed, or working poor. They have little understanding of the financial
system and are unsophisticated in their use of credit union services. Many are recent
immigrants with low English proficiency. The credit union consequently suffers from high
teller usage, low loan deployment, high delinquency and charge-off rates, and low net worth.
As described above, the leadership is meeting these challenges by looking realistically at its
environment, understanding its opportunities, and pursuing them through radically innovative
development programs, partnerships, and revenue sources.

Innovation

As described above, innovation plays an essential role at our credit union. Without it, we
simply would not be able to survive. On the membership and community development side,
innovations such as the check cashing partnerships, SBA small business lending, and our
VITA work allow us to offer our members products, services, education, and convenience that
low-income credit unions generally cannot afford to provide. On the business side, our
innovative partnerships with check cashers, money transmitters, and taxicab medallion lenders
have led to extremely profitable revenue streams, while at the same time enhancing member
services, expanding deposit accounts and credit, and reducing money transmission costs. In
future years, we hope to innovate precisely in this manner, dovetailing community
development impact with profitability and sustainability.

We believe our innovative programs have had great impact. Our SBA portfolio expands small
business credit in an area where it is urgently needed, and also supports 260 jobs at the
establishments we finance. The Goal Saver loan works to develop credit histories; our
financial education and technical assistance programs help with everything from business plan
writing to tax preparation; and “Opportunity NYC” accounts match savings and encourage
positive financial habits, preparing our low-income and immigrant members to become
mainstream financial consumers. Pioneering check casher and MSB partnerships provide
members with exceptional service, convenience, and low costs.

Our credit union also offers the community development industry a strong and possibly
replicable model for self-sustainable operation in the most economically distressed areas of
the country, successfully serving large low-income and immigrant populations based on the
hard experience of what low-wealth people actually want and need.

This award would significantly enhance our capacity for innovation by sustaining and
expanding the pioneering programs we already offer, such as VITA and small business
lending. At the same time, it would help us leverage innovative new lending programs, such
as medallion participation loans, to achieve self-sufficient profitability in an otherwise
inhospitable environment.