Federal disaster-relief package could shield credit unions from losses

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A disaster-relief package signed into law earlier this month could shield credit unions across the country from losses.

The $19.1 billion package includes $3 billion for agricultural programs, including payments for crop and livestock losses due to hurricanes, floods and other severe weather during 2018 and 2019, along with approximately $1.4 billion for recovery efforts in Puerto Rico.

That’s a big deal for credit unions in Nebraska and other parts of the Midwest which suffered from catastrophic flooding this spring. Floods in late March caused the worst natural disaster in Nebraska’s history, with 81 counties and 104 cities issuing disaster declarations, and officials estimating $1.3 billion in damage.

Archer Cooperative Credit Union in Central City was hard hit, with its Dannebrog branch experiencing extensive damage. Lower levels of the branch saw 18 inches of floodwaters destroy its loan office, furniture, ATM and more, said branch manager Jason McIntyre, adding that all electrical wires, phones, data connections and more had to be replaced.

Today, dehumidifiers are still being used with fans circulating air in the basement. “Contractors will be remodeling the lower level offices this coming week,” he said. “Everyone is ready for things to get back to normal.”

Many in the community did not have flood insurance, noted McIntyre, and those who did had deductibles ranging from $5,000 to $10,000.

While Archer Cooperative didn’t see a significant uptick in delinquencies after the flood and offered several disaster-relief loans to members, McIntyre said federal funds are likely to help those members who are delinquent get up to date on their loan payments. Many members have already received FEMA disaster funds, he added, and he suggested the disaster-relief legislation could have a “residual long-term effect” on financial institutions.

McIntyre also indicated the credit union’s agricultural loan portfolio wasn’t hurt by the flood, but plenty of farmers are still in recovery mode, according to Bradley D. Lubben, extension assistant professor and policy specialist at the University of Nebraska-Lincoln.

On the crop side, he said, some of the flooded acreage “recovered quickly” after floodwaters receded and were planted in good conditions.

However, he noted that some other acreage required “substantial rehabilitation” due to severe erosion and/or sand and sediment deposition. “Some of those acres are still being worked on and likely won’t get planted this year and some of those acres are likely lost permanently from production” since rehabilitation costs exceed land value.

In addition, when one accounts for losses for lost grain inventory and lost equipment, the total impact on Nebraska farms is “substantial,” he warned, estimated to be in the hundreds of millions of dollars.

And all of that could spell a lending opportunity for credit unions in the region.

Beyond Nebraska

The Cornhusker State is far from the only area where credit unions are cheering the disaster-relief package. The Carolinas have also suffered from heavy storms and flooding recently, most notably as a result of Hurricane Florence, which struck in September 2018.

Dan Schline, president and CEO of the Carolinas Credit Union League, said that while credit unions in Eastern North Carolina have endured “difficult seasons” in recent years, they’ve been fortunate that damage to their own facilities has been “limited.” Schline expects available disaster-relief funds will help local people “in greatest need” and overcome the problems caused by storms and subsequent flooding.

Across the country, California has faced deadly flooding and historic wildfires. Brett Martinez, president & CEO of the $4.6 billion-asset Redwood Credit Union of Santa Rosa, Calif., said he hopes the federal disaster aid bill will help with the continued recovery but cautioned, “I don’t think we have enough information to know the full impact, but we are glad that relief efforts will be further supported.”

Archer Cooperative’s McIntyre said he is hopeful that additional funding will be available to help Nebraskans. “Many roads and bridges are being repaired, but it seems to be a slow process,” he said. “My family’s farming operation is behind in planting and lost livestock in the floods.”

Lubben believes that federal disaster programs and crop insurance coverage will help Nebraska producers offset some of these losses. But he cautioned that while the existing programs and additional assistance will help, the losses will still “mount up” for farmers following the cumulative losses of the past several years.

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Disaster recovery Natural disasters Delinquencies Ag lending Crisis Management Business continuity Nebraska California North Carolina