One year after Hurricane Katrina and the storm surge has given way to subsequent deposit and loan surges.
Those credit unions have told The Credit Union Journal that high among the myriad number of lessons that have been learned after the enormous disaster is the value of asset-liability management skills. Funds flowed out as members tapped savings after the storm, flowed back in as insurance and FEMA checks were received, and now are flowing back out as members seek to rebuild.
Case in point is Singing River Federal Credit Union, which at one point had four feet of water in the lobby of its main office. SRFCU President James B. Smith said insurance money accounted for most of the credit union's growth in 2005, followed by FEMA disbursements.
SRFCU has seen a wild ride of huge deposits followed by loan applications. Before Katrina, SRFCU had $105 million in assets, which swelled to $136 million due to insurance and government cash, and which now rests at $129 million.
All of that rebuilding has led to a 17% surge in growth during the first five months of 2006 alone (see chart). Smith said he's been forced to raise interest rates on loans and offer higher rates on CDs to slow down growth and regain some control.
"Frankly, we can't handle that kind of growth," he said. "The money will eventually go out. The economy is good in the sense that people are borrowing."
For Singing River and other credit unions and banks along the Gulf Coast are bracing again as up to $6 billion in government funding is starting to reach the affected areas. Homeowners who had insurance but still suffered flood damage outside the designated flood zone will be eligible for loans up to $150,000. Smith said roughly 100 of his members might apply, meaning another potentially huge inflow of $15,000,000 could hit the credit union.
Meanwhile, Smith reported he recently had an "interesting debate" with regulators who argued that so many loans were producing more risk for the credit union. Smith countered that his balance sheet is in better shape than before Katrina, and that the increase in loan volume and can't be dealt with in a normal examination.
"This thing we went through isn't in a textbook, anywhere," he said. Down the coastline in hard-hit Biloxi, Municipal Credit Union's Nancy K. Boney said that while her credit union didn't have the physical damage that Singing River did, her fiscal fight has been nearly identical. Prior to the hurricane, BMCU held $6.9 million in assets. That ballooned to $8.3 million by the end of the 2005, a big change for a small credit union. Six months after the storm and Boney told The Credit Union Journal that her members were holding onto their deposits as they fought with insurance companies and waited to see what Washington would do, if anything. A year later, that wait is over.
"It's all going out as quickly as it came in," Boney said.
Boney noted that in less than two months this summer, Biloxi Municipal's vehicle and signature loan volume leaped 10%, requiring CU staff to make daily checks of loan interest rates. Boney said BMCU is practicing sound financial procedures, but it has required a significant management effort. "It [ALM] has been the biggest struggle. None of the numbers make any sense. It's not anything you could plan for," Boney said.
The story is similar in New Orleans, where the affects of the storm, even one year later, have been well chronicled. At ASI Credit Union 34-year CU veteran, Audrey Cerise echoed Smith and Boney's emphasis on ALM and the struggle to effectively deal with all that cash. "This is something we've never been through before," Cerise said.
Cerise noted that prior to Katrina, ASI's average loan-to-share ratio hovered between 50% and 60%. Since the storm, that same ratio has gone as high as 95%. Incredibly, Cerise said, on July 31, 2005, ASI had assets of $200 million and on Sept. 30, 2005, assets were at $300 million. By December of 2005 assets hit a high of $310 million before declining currently to approximately $280 million.
And ASI FCU has faced another challenge not included in many disaster plans: its membership has moved. Prior to the arrival of Katrina, ASI FCU served approximately 90,000 members; today, that figure is approximately 77,000. Cerise said a quick glance at data on delinquencies show members have relocated to places like Houston, Bedford, Texas and Jackson, Miss. "They're everywhere; they're just gone," she said. "We've grown in loans and shares but we've lost 12,000 members."
The decrease in members is having no effect on lending. In fact, Cerise said, mortgages at ASI are "up unbelievably" and the credit union is now planning to sell many of those loans on the secondary market. Cerise also said the credit union is seeing more interest in small business loans.
If there is a bright spot in all ASI has been through, Cerise said it has been in the good relationship it has had with regulators. "They've been very good to us. They've been there next to us, helping us," she said.
In the dark days after Katrina, Cerise admits she didn't see a future for the credit union whose "true underserved" membership was in serious trouble. ASI now does not have a branch in the areas damaged by the storm. It closed three branches but opened two more, bringing its branch network to 14.
"Not only did we make it, we're stronger than before," she said. "It's a great day at ASI. We start most days by saying that."
HOW KATRINA AFFECTED SINGING RIVER CU'S NUMBERS
Jan-05 to Aug-05 to Aug-05 to FYTD
Dec-05 Dec-06 Jul-06 2006
Asset Growth 35.45% 19.29% 11.61% -6.44%
Loan Growth 42.25% 11.50% 23.89% 11.11%
Membership +2,341 +874 +1,305 +431
Delinquency .32% to .12% .45% to .12% .45% to .15% 15%
Capital Ratio 10.25% to 8.02% 9.42% to 8.02% 9.42% to 8.98% 8.98%
