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The CARES Act and its Impact on Alloya’s Member Credit UnionsApril 3, 2020

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DisclosureThis Power Point / Connection Call will contain “Todd’s personal opinions”, “interpretations of endlessly

changing guidance that may change again during the course of the Call”, “Possible Alloya Board approval before certain actions can take place” and “possible forward-looking statements,” which are statements that provide projections of results of operations or of financial conditions or state other forward-looking

information, such as expectations about future conditions and descriptions of future plans and strategies. Forward-looking statements often contain words such as “anticipate,” “believe,” “could,”

“continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project” or other words of similar meaning. Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Our ability to project results accurately or to predict the effects of plans or strategies is inherently limited. Although we believe that the expectations

reflected in our forward-looking statements are based on what we consider to be reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking

statements.

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Details Regarding Distribution of $349 BillionIs This a Moving Target?

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Moving Target• Last night at 10:00 pm I received a copy of the “Interim Final Rule” Paycheck Protection Program

(PPP), which is effective immediately.

• The SBA eliminated the 30-day comment period before finalizing the rule, but they will entertain comment letters over the next 30 days.

• JP Morgan Chase announced last night that they will not be ready to process borrower applications today, the first day the program is “open” – what risks or what additional information might they need?

• Many large financial institutions also announced that they will only provide PPP loans to small businesses that were a customers prior to February 15, 2020. I speculate that this may be due to BSA and Know Your Customer requirements.

• Alternatively, some FinTechs appear to be positioning themselves to use the PPP to gain market share and provide loans to small businesses that they have never served previously.

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Agenda• Background (temporary programs, all expire on December 31, 2020).

• Credit Union as a Lender under the Paycheck Protection Program (PPP)

• Small Business (Credit Union?) as a Borrower under the Paycheck Protection Program

• CARES ACT Strengthens the Central Liquidity Facility (CLF)

• Open Forum / Q&A

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Background

Mission: Support Credit Union SuccessBreaking Down $2 TrillionCARES Act Financial Provisions

Recipient Provision Primary Mechanisms

State and Local Governments $340 Billion

• COVID-19 Response Efforts: $274 Billion• States with high case numbers running out of cash: $150 Billion (included in above)

• Miscellaneous:• Higher Education: $14 Billion• K-12 Schools: $13 Billion• Programs for families and children: $5.3 Billion• Community Development block grants: $5 Billion

Public Health $154 Billion

• Hospitals: $100 Billion (for those responding to Covid-19)• Veterans’ health care: $20 Billion• Medicine and Supplies: $16 Billion (to the Strategic National Stockpile for

equipment including ventilators and masks)• Drug Access: $11 Billion

Federal Safety Net / Other $26 Billion

• Food Stamps: $15.5 Billion• Child Nutrition: $9 Billion Up to $10,000 for immediate operating costs• Other food programs for Reservations, Territories, food banks, etc.• Voting: $400 Million for states to prepare for early voting• JFK Center for the Arts: $25 Million

Mission: Support Credit Union SuccessRecipient Provision Primary Mechanisms

Individuals $550 Billion

• Cash Payments: $290 Billion• $1,200 per individual; $500 for each child• Sliding scale: Full payment at up to $75k income to none at $99k• Individual payment amounts and scales doubled for couples

• Additional Unemployment Payments: $260 Billion• Add $600 per week from Federal Gov’t to State payments

Industries $504 Billion

• Primarily Loans, estimated cost of $504 Billion – must be repaid, and are subject to public disclosures and other requirements. Oversight conducted by an inspector general and a new 5-person congressional committee.

• Passenger airlines: $25 Billion in direct grants and another $25 Billion in loans or loan guarantees

• Airplane manufacturers: up to $17 Billion• Retail workers: Unemployment insurance to replace 100% of pay for four months

Small Businesses $377 Billion

• Paycheck Protection Program: $349 Billion Loans (maximum $10 Million), to be forgiven (become grants) when used for employee salaries, paid sick and medical leave, insurance premiums, mortgages, rent, and utilities. • Forgivability is based on retaining employees• Firms 500 people or fewer• Covered period is Feb 15 – June 30,2020

• Emergency Grants: $10 Billion Up to $10,000 for immediate operating costs• Relief for Existing Loans: $17 Billion Coverage for six months of payments for

small businesses already using SBA loans• SBA Salaries and Expenses: $675 Million

Breaking Down $2 TrillionCARES Act Financial Provisions

Today’s session focuses here

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Why? What is the Purpose/Intent?• The spirit and intent of the PPP is to encourage small businesses (less than

500 employees) to retain employees during the coronavirus pandemic.– The size of the loans are roughly based on 2.5 months of payroll

– Loan forgiveness is driven by retention of employees.

• Ideally, small businesses will look at this as an option to retain their employees through June 30, 2020.

• If successful, the program would take pressure off the unemployment services.

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CARES Act Paycheck Protection Program• The terms of these new 7(a) PPP loans are as follows:

– Ideal: Small businesses (credit unions?) document payroll as of 2/15/20. If they maintain most of their payroll (75%) through June 30, 2020, the loan becomes a grant.

– Covered Period: Loans must be made by June 30, 2020

– Loan Size: Equal to 2.5 months worth of payroll costs up to a maximum of $10 million

– Eligibility: Generally 500 employees or less

– Guaranty: 100% by the SBA (full faith and credit)

– Term/ Maturity: If a small business maintains payroll, the loan is forgiven (grant), otherwise it becomes a regular SBA loan with a 2-year maturity for the small business.

– Interest rate: Fixed at 1.0% (changed last night – up from 0.5%)

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Credit Union as a Lender under the Paycheck Protection Program (PPP)

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Can a Credit Union Become a Lender?

• Yes. Credit unions will be automatically qualified by the SBA upon transmission of the Lender Agreement (available later today on our specially created web page). Credit unions designated as “Troubled” or under enforcement action do not quality automatically.

• Historically, becoming an SBA-approved lender required significant effort. Alloya, itself, was trying to follow normal SBA approval processes earlier this week and our experience included significant administration and time delays.

• There is precedent for a fast-track process. Credit unions are not familiar with tools used during the past financial crisis. For example, a $1 billion bank could apply and receive $30 million of TARP capital funds with a 2-page application sent directly to the Treasury.

• A credit union is only approved as a PPP lender under this program through December 31, 2020.

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Why Would a Credit Union Become a Lender?• Small businesses in their communities are suffering as they implement pandemic plans and

may experience reduced revenues.

• Small business leaders are faced with a tough decision to maintain payroll or release staff to the unemployment lines.

• Almost all small businesses have a need in a national pandemic COVID-19 scenario and continued employment through June 30 would take pressure off unemployment lines/services.

• Alloya has applied to be an approved CARES ACT lender and may make loans for credit unions(?), associate members, CUSOs and credit union partners.

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Doing the MathCredit Union Lender Example

Approved PPP Lender Under the Care Act (authority expires Dec 31, 2020)Works with its small businesses and provides $100 million in PPP loans.

Payroll Protection Loans Originated 100,000,000$

SBA Fee Received (3-5% w/in 3 days) 5%

SBA Fees Received 5,000,000$

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Small Business (Credit Union?) as a Borrower under the

Paycheck Protection Program (PPP)

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Who Are the Ideal Borrowers?• Appraisal firms that were busy in the first quarter but have greatly reduced business in the second

quarter? Home moving services?

• A technology company that supports retail businesses that has decent cash flow now but stressed future projections?

• A church that cancels weekly services and there is a strain on payroll?

• A golf course this is trying to maintain its greens keepers and other long-term support staff?

• A local delivery business that is booming in this environment but otherwise meets the requirements?

• A retail business that has closed its front doors but is maintaining staff and trying to sell online?

• A credit union that has closed its lobby and is trying to find work for some of its employees.

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Can a Credit Union Become a Borrower?• Unknown. Confusing/conflicting guidance and instructions. Treasury does not specifically restrict.

NCUA does not specifically restrict. SBA’s standard operating procedures (SOP), last updated in April 2019 (1 year ago) appear to be the only authoritative document that seems to restrict institutions that engage primarily in lending. It is interesting that the SBA’s SOP have not been reviewed as part of a temporary CARES ACT program.

• Right now, it appears that it may represent too much of a risk for a lender like Alloya to provide a loan to a credit union without additional guidance from the SBA. Specifically, what if the SBA comes back in the future and tells Alloya we should not have approved this loan? What if the credit union meets its payroll and believes the loan should be forgiven regardless of SBA opinion? Would the credit union sue Alloya and have a strong case? It is easy to project that Alloya may have $200 million of demand. Alloya cannot afford to write off $200 million in this worst-case scenario. However, we may work with a few pilot credit unions today to further understand the options.

• Alloya will post updates on its site at alloyacorp.org as it learns more about its ability to provide PPP loans directly to credit unions.

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Can a Credit Union Become a Borrower?

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Why Would a Small Business (Credit Union?) Become a Borrower?

• Maintain its payroll through June 30, 2020. This is basically the only requirement to meet loan forgiveness.

• The services credit unions provide are essential to their communities and they remain focused on uninterrupted payment services even while trying to support these needs working from home.

• I believe any dollar a credit union receives would be put to best use and ultimately support and benefit people and their communities (not investors’ pockets).

Would Credit Unions Be the Best Use of Funds?Credit Unions Always Make a Strong Case

EXTRAORDINARY efforts by credit unions are already underway throughout the nation:• Deferral of loan payments when income suffers due to a job loss or

coronavirus. Many credit unions are implementing plans to help their members that are now unemployed because they work in a service industry such as hotel, restaurant, entertainment, etc. or are unable to work due to the coronavirus. Credit unions are working with each person to better understand their financial needs in this difficult time and provide as much relief as possible.

• Small business assistance. The CARES Act provisions can be overwhelming for a small business to interpret. One credit union is providing small businesses with access to a law firm to help them sort through the CARES Act impact.

Would Credit Unions Be the Best Use of Funds?Credit Unions Always Make a Strong Case

Continued…• Volunteer work. Credit unions support many jobs that are difficult to perform

remotely. One credit union is looking to see if their team can perform volunteer acts such as supporting a charitable call bank while working from home (e.g., supporting a call center for the Red Cross).

• Increased charitable donations in their communities. With lower income, charitable donations suffer. One credit union is giving away $250,000 to be distributed in smaller increments by their staff and board members within their community.

Let’s do what we can to keep this good work going.

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Doing the MathCredit Union / Small Business Borrower Example

Receives SBA approval to be a PPP borrower under the program.Has payroll, rent and utility costs of $100,000 per monthWill maintain payroll from 2/15/20 through June 30, 2020

Payroll, rent and utility monthly cost 100,000$

Loan is 2 1/2 times this monthly cost 2.50

PPP Loan 250,000$

Assuming payroll is maintained, this loan becomes a grant and is forgiven.The lender receives payment of principal and interest from the SBA.

PPP Borrower CertificationsAlloya has developed points of view and is offering help regarding the certifications that must be initialed on the PPP loan application. Comments are in berry beneath each certification.

Certifications: The Business and each 20% or greater owner must certify to the following:

1. Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

The COVID-19 pandemic and forced many credit unions to shut lobbies and implement “work from home” plans. Lower interest rates are reducing margins. Credit unions provide critical financial support to individuals and businesses in their communities. Maintaining capabilities to do so is particularly important during times of greatest need. Throughout the pandemic, credit unions are attempting to continue providing services through increasingly remote and electronic channels, which strains operational models and budgets.

2. The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; I understand that if the funds are used for unauthorized purposes, the federal government may pursue criminal fraud charges.

Credit unions may follow “work from home” guidelines to protect their employees and members. During these times, not all employees are able to contribute at the same level, and yet credit unions want to retain them for their contributions both during the pandemic and after.

PPP Borrower Certifications

3. Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan will be provided to the lender.

Credit unions should be able to easily use their 5300 information and payroll records to fulfill this request.

4. Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than twenty-five percent(25%) of the forgiven amount may be for non-payroll costs.

If the calculated loan request amount is based on at least 75% payroll costs, then this forgiveness requirement should be satisfied.

5. During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under this program.

Please let us know if you have or are planning to apply for another CARES Act Loan.

Comments on PPP Loan Application Certifications, continued…

PPP Borrower Certifications

6. I further certify that the information provided in this application and the information that I have provided in all supporting documents and forms is true and accurate. I realize that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.

If you have questions, please let us know.

7. I acknowledge that the lender will calculate the eligible loan amount using tax documents I have submitted. I affirm that these tax documents are identical to those I submitted to the IRS. I also understand, acknowledge and agree that the Lender can share the tax information with SBA's authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Amounts could be verified using credit union’s appropriate regulatory filings.

Comments on PPP Loan Application Certifications, continued…

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CARES Act Strengthens the Central Liquidity Facility (CLF)

Thank You, NCUA Leadership

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CARES Act Temporarily Strengthens the Central Liquidity Facility (CLF)

• The CARES Act includes important legislative changes that strengthens the CLF program.

• Alloya, as a corporate credit union, can act as an agent on behalf of its credit unions. Alloya could invest approximately $230 million in the CLF acting as an agent for all its member credit unions under $250 million in assets.

• Alloya can also become a direct member in the CLF for this first time in history by investing $20 million. This investment would provide Alloya with direct access to the CLF.

• Combined, $250 million of capital would provide CLF with access to $4 billion of liquidity ($250 million times 16 times = $4 billion).

• The other 10 corporate credit unions will most likely do the same. In total, $18 billion of system liquidity could be created at the CLF through this program.

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Open Forum

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DisclosureThis Power Point / Connection Call will contain “Todd’s personal opinions”, “interpretations of endlessly

changing guidance that may change again during the course of the Call”, “Possible Alloya Board approval before certain actions can take place” and “possible forward-looking statements,” which are statements that provide projections of results of operations or of financial conditions or state other forward-looking

information, such as expectations about future conditions and descriptions of future plans and strategies. Forward-looking statements often contain words such as “anticipate,” “believe,” “could,”

“continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project” or other words of similar meaning. Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Our ability to project results accurately or to predict the effects of plans or strategies is inherently limited. Although we believe that the expectations

reflected in our forward-looking statements are based on what we consider to be reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking

statements.