It is nearly five months after Hurricane Katrina ripped through the Gulf Coast, but 12 credit unions here in the Big Easy still aren't working out of their own offices. But on the other hand, the dire predictions of mass liquidations and mergers haven't materialized, either.
The bottom line as 2005 draws to a close: there is still much to be done in the Gulf Coast as credit unions-and people in general-struggle to piece their lives and their livelihoods back together.
"I have only approved one merger since Katrina hit, but I know there are some who are talking about it," said Keith Morton, acting director for NCUA's Region IV office. "The fact is, some of them probably would have been talking about mergers anyway. The big question continues to be the storms' impact on members, and it's still going to take some time for that all to shake out."
With most credit unions in the region offering deferred loan payments of about 90 days, the "magic day" when some of the first loan payments came due again was Dec. 1. Both Morton and Alonzo Swann, NCUA Region III Director, said they have yet to see a spike in delinquencies or defaults.
"The immediate question was, 'What has happened to my field of membership's ability to pay a loan?' But long term, if members are displaced and dispersed, how will credit unions continue to compete with other financial institutions in areas where the members now live, and in New Orleans, in particular, if that city shrinks in population? The competition for who is left there just gets harder and harder."
The result: many credit unions in Morton's region are considering diversifying their fields of membership by converting to community charters, adding new SEGs if they can, and adding underserved communities-a strategy that has been implemented in Swann's region, as well.
"I expected to see that [FOM diversification], but so far, it really hasn't happened," Swann noted.
Morton said NCUA has 11 economic development specialists in the area who are helping CUs get grants to assist with day-to-day operations, assisting in planning sessions with CU boards, as well as helping with policies and operations and low-income CDFI applications.
The agency had a town hall meeting in the region to go over some of the challenges CUs are facing in the wake of both Hurricanes Katrina and Rita and will be following up with another meeting in January.
"We hope to help them get through this very difficult time, and it really has been difficult, both professionally and personally," Morton offered. "We'll go into a credit union, and we want to talk with them and help them, but they're so busy that sometimes it's like, 'Hey, we appreciate you're here, NCUA, but we really don't have time to deal with you right now.' "
While neither Morton nor Swann expects to see numerous mergers or liquidations, they're not ruling out the possibility that type of activity is to come. "We hope we don't have to resort to liquidation," Morton said. "There are a few particularly challenged credit unions, because of what has happened to their field of membership, based on the anecdotal information that we have. We don't want to take action against these credit unions. We want to be patient and work with them."
In New Orleans, where the floodwaters came-and stayed for several weeks-anything touched by the water is beyond salvage, greatly impeding the ability for the city to rebuild.
"I was just there yesterday, and people are getting worn thin," Morton related. "There's a lot of despair. There's a lot of hope, too, but there's a lot of despair. The devastation-it's just amazing the depth and breadth of it. There are parts of the city that will be uninhabited for years to come."
"In a lot of cases, there are jobs available, but people don't want to come back if there aren't any schools for their children," Morton continued. "Very few have reopened, but more are supposed to be reopening in January, and at least three of the universities-Tulane, Loyola and Xavier-will start up again in January. That's going to make a big difference. But even if you've got a job to come back to, and you've got a school for your kids, you still need a home, and housing is a huge issue."
For as much as NCUA is practicing patience and forebearance with credit unions, and credit unions are practicing the same with their members, both Morton and Swann said there comes a time when a line has to be drawn and someone has to say, "I'm sorry, but we can't help you anymore."
"And it's happening now," Morton observed. "One credit union was telling me how a member came in and said he couldn't make his payment, but he wanted to borrow $2,000. The credit union asked, 'And what account do you want me to take that from?' The member wasn't expecting that. The member figured this was a credit union, and of course they'll give me money. But the credit union is looking at the fact that the member is unemployed, he can't make the payments on his existing loan, he's been given a deferment-but how can they possibly make that loan?"
"Where it's going to happen," Swann suggested, "is in discussions with individual members. That's where it's going to come out. Step one is: are they back? Step two is: are they employed? Step three is: is the house repairable?"
One of the bright spots, however, is auto loans. Because those are mostly insured, credit unions have seen decent payouts on auto loans, Morton suggested.
"We're going to work with them. They need to manage their risk, and if they can absorb their losses and mitigate their risk, then we're going to work with them," he said.
Swann agreed, adding, "We aren't at PCA triggers, at this time. On the Mississippi side, my credit unions were all very well capitalized." But there is still a lot of anxiety.
"Credit unions are anxiously awaiting legislative action on flood insurance and reconstruction assistance," he reported. "We've had a lot of deposits flood in without much outflow, yet, so capital has been diluted from what is probably just temporary money. We're watching it."
To put a human perspective on that, Swann related how one credit union executive told him he has no flood insurance on his home and probably has about $80,000 worth of repairs for which he hopes to take out a loan. "But the problem is, what's the value of the house," Swann asked. "In some cases, people may have to borrow more than the value of the house, assuming there is no government assistance."
Moving forward, both Morton and Swann suggested credit unions can expect their examiners to be taking a much closer look at their disaster plans.
"We will be looking to see if you've tested it. It used to be that we looked to make sure you had it, but now there will be a much more in-depth look at it," Swann offered. "We'll be looking for more testing and understanding."
Indeed, NCUA is working on a post-Katrina assessment of disaster planning both industry and agency wide, Morton noted, adding, "We may see some possible changes, either in regulations or in white papers and guidance."
And credit unions weren't the only ones who learned something from the 2005 hurricane season.
"We used to be reactionary in disaster, now we are more proactive. Our whole planning process has already changed, and we were able to implement much of that for Wilma as a result of Katrina, and I'm sure in [Region IV] they were more prepared for Rita because of Katrina," Swann suggested. "What I learned is that communication is key. Everyone has to be involved-NCUA, state supervisors, leagues. As an example, the Florida league pre-placed five satellite phones before Wilma even made landfall. We had our examiners ready. They called their credit unions ahead of time, took down multiple contact numbers, went over disaster plans. They were ready."
