More than one year after the World Health Organization declared COVID-19 a pandemic, optimistic signs are appearing on the health and economic fronts.
On the health front, active case counts and hospitalizations are lower, and vaccine manufacturing is ramping up. The United States is administering nearly 2.5 million vaccine doses every day and has administered more than 100 million in total.
Approximately 14% of the U.S. population is fully vaccinated, and more than 25% have received at least one shot. President Biden is calling on states to make all adults eligible for the vaccine by May 1, and vaccine supplies should allow all American adults to be vaccinated by the end of May. There is hope that a return to normal could come relatively soon.
On the economic front, things are trending up as well. Retail sales in January jumped 5.3%; however, severe weather in February prompted a 3% drop that month. A recent survey indicates 56% of Americans plan on taking a vacation this year. That’s below the typical 70% but well above the 21% that have reported vacation travel since the pandemic began.
After losing 22 million jobs at the start of the pandemic, the number of unemployed Americans is now approximately 10 million. That’s a large number, but Congress passed the American Rescue Plan on March 11, putting into motion $1.9 trillion in government support. Finally, more economists are predicting a robust second half of 2021 as Americans start to spend some of the estimated $1.5 trillion they are holding in excess savings.
Although these indicators are promising, there is still plenty of work ahead. Thousands of small businesses are struggling and tens of thousands permanently closed their doors last year. Reduced income, food and housing concerns, and childcare needs continue to challenge households across the country.
For credit unions, these challenges present opportunities to build on member and community investments made in 2020.
For members, despite the year’s uncertainty, credit unions kept credit flowing. Loan originations surpassed 2019’s record-setting total by more than 23%. Consumer loan originations reached a record high even though balances in consumer loan categories declined as members paid down debt. In mortgage lending, 1.2 million members took advantage of historically low interest rates by funding a purchase or refinancing to conserve cash flow.
For communities, credit unions stepped forward with innovative partnerships and programs to show their support. For example:
Desert Financial Credit Union ($6.6B, Phoenix, AZ) collaborated with the city of Tempe, AZ, to provide companies with five to 50 employees microloans of $5,000 to $20,000 with a 90-day payment deferral.
Meriwest Credit Union ($1.9B, San Jose, CA), Self- Help FCU ($1.5B, Durham, NC), and UMe FCU ($281.7M, Burbank, CA) partnered with a non-profi CDFI to increase access to credit for businesses owned by women, people of color, and rural entrepreneurs.
Lake Trust Credit Union ($2.2B, Brighton, MI) provided the Detroit-based United Community Housing Coalition with a $5 million loan that was backed by a $4.5 million guarantee from a philanthropic organization. The loan allows the housing agency to provide immediate help while it waits for a decision from the state legislature and governor as to how to administer federal aid targeted to tenants who owe back rent and face eviction.
Concern For Community
These initiatives are particularly important when considering the seventh cooperative principle: concern for community. In its Guidance Notes on the Cooperative Principles, the International Cooperative Alliance (ICA) states, “cooperatives emerge from and are rooted in the communities in which they conduct their business operations. Their success is based on their ability to support these communities to develop in a sustainable way.”
For many credit unions, their community is a geographic area. For some, it is a connection through work, religion, or military service. Regardless, the founding stories of all credit unions affirm how they emerged from and are rooted in community. Credit unions support the sustainability of the communities they serve, and there is an unbreakable link tying each credit union’s own sustainability to that of its community.
Last year presented unprecedented challenges to many communities, and the initiatives above show new ways in which credit unions put the seventh cooperative principle into action. Many other credit unions supported their communities in more traditional ways — through fee waivers, loan deferments, forbearance, and emergency loans — even as they themselves faced financial and operational pressures and uncertainties.
One of the great strengths of the cooperative structure is that it is designed to take a long-term view. This is why credit unions did not hesitate at the beginning of the pandemic to act in support of their members and communities. Instead, a familiar refrain echoed across the movement: “We have capital for a rainy day, and it’s now raining.”
The Role Of The NCUA In 2021
As 2021 begins, challenges remain. Liquidity is surging and another round of government relief is going out to Americans. Persistently low interest rates and slowing loan growth is putting pressure on earnings. Mortgage rates are moving up, and refinance activity is falling. That means lower fees from mortgage loan sales, which were a key source of revenue in 2020. These dynamics together are putting stress on capital ratios.
A key question in the new year is: What position will the NCUA take as credit unions navigate these unprecedented times? There is new leadership at the agency, but there is also a legacy. The NCUA’s current chair, Todd Harper, served as the chief policy advisor from 2011-2017 under then-chair Debbie Matz. What lessons from his prior tenure will he bring into his new role? Will regulators reflect on the lessons of the Great Recession? Specifically, will they recognize that economic cycles can place some credit unions — such as those in the “Sand States” during the last downturn — under financial stress, but that does not mean near-term trends will continue for an extended period? Will the NCUA use its authority to help credit unions navigate this period, or will it constrain and penalize credit union activities by focusing on ROA and capital ratios? Will the NCUA impose an unnecessary assessment at exactly the wrong time, limiting credit unions’ ability to serve their communities, as it did in 2009?
The good news is, credit unions remain financially sound, even given today’s financial pressures. More than 99% of credit union assets remained above the 7% “well capitalized” net worth ratio at year-end 2020. In fact, Callahan modeled what the industry will look like at the end of 2021 with 10% asset growth and ROA holding at 2020 levels: Nearly 98% of assets remain well capitalized under that scenario.
Near-term financial pressures will persist in 2021, but the strength of the credit union movement comes from members, not financial outcomes. Support the resiliency of members and communities by investing in them. After all, if the sustainability of the community is at risk, so, too, is the sustainability of the credit union.
This article appeared originally in Credit Union Strategy & Performance. Read More Today.