By Ray Birch
COLLIERVILLE, Tenn.—Calling it a “PPP grant” for credit unions, Southern Security FCU has received more than $1 million in income from Rapid Response Program (RRP) funds so far this year, dollars SSFCU says will get it from “point A to point B” and through the pandemic.
That’s the outlook of CEO of the $227-million Southern Security FCU, who said the funds have addressed two critical issues within its operations that were brought on by the pandemic.
“We got $1.5 million, the full amount we asked for. The money was very much needed and it came at the right time for us,” Graeter said, noting it worked with Tacoma, Wash.-based CU Strategic Planning to obtain the grant.
As CUToday.info reported here, some 244 credit unions in total received $401.8 million in awards from the Treasury Department’s new Rapid Response Program (RRP) as part of $1.25-billion in COVID 19 relief funds that are going to 863 community development financial institutions (CDFIs) overall.
In Southern Security FCU’s case, the funds are helping to provide what it needs to fill a gap created by a marked decline in non-interest income during the pandemic. As has been the case with many CUs, Graeter said SSFCU has watched as swipe fees on debit and credit have declined, especially early on in the health crisis.
Yet what really hurt the CU’s bottom line has been the waiver of numerous fees for members, such as overdrafts, and not charging for the work it takes to rework a loan or a refinancing, Graeter emphasized.
“We saw a substantial reduction in all of our fee income numbers,” said Graeter. “With interchange, people just weren't out doing transactions. They were at home, particularly in the early months of the health crisis in 2020.”
A Tough Stretch
That led to a tough stretch of about eight months for non-interest income, explained Graeter.
“Revenue is pretty much back now to where it was before the pandemic, but we faced some really challenging times,” Graeter said.
While the credit union has yet to suffer any significant level of loan losses, and reserves set aside for defaults have been much larger than needed, Graeter said Southern Security completed a large number of loan modifications for members to help them get through the COVID-19 crisis.
“Those things cost money, and we did not charge members for doing them,” noted Graeter. “Every time you refinance someone, do a cash-out or a modification—even a skip-a-pay—we’re waiving those fees because members needed the help. And that's what credit unions are here for, to help members in tough times.”
Demands on Employees
In addition to lost fee income, providing that assistance has required more time from employees who might otherwise be focused on working to generate new revenue or other business, Graeter said.
“There are title searches that had to be done…Just a lot of staff time spent, especially sitting down and just talking with members to see how we could help them,” Graeter said.
Also similar to what many CUs have experienced, at the same time the credit union’s income took a nose dive, deposits were climbing from the multiple stimulus payments, which sent net worth plummeting.
Stabilizing Ratios
Graeter emphasized that just as important as it is for the credit union to regain the revenue it has lost during the health crisis, it needed to stabilize the ratios the draw NCUA’s scrutiny.
“All of your regulatory ratios are divided by your average assets. So, on top of the fact the income was stretched, you are not rolling in as much into your equity. The fact that our asset number was growing astronomically made our ratios look really stretched,” said Graeter, who emphasized the NCUA has understood the CU’s situation and worked well with Southern Security during the pandemic. “We have an enormous amount of asset growth and it's basically from deposits that stem
med from the government payouts to individuals. We're very liquid, we have lots of cash and, obviously, that affects your totals.
“What this grant money did was give us the ability to put the money into income to offset the lower ratio numbers,” continued Graeter. “Now we have a million and a half dollars more in income. Our net worth ratio looks a lot better.”
The credit union’s net worth stood at 10.59% at the close of 2019, and 8.14% through June of 2021, according to Call Report data.
Other Pressures
Graeter added that tight net interest margins haven’t been making things any easier.
“For most institutions, it’s the same thing: earnings are strapped and margins are compressed,” the CEO explained. “The loans that are rolling off of our books were at higher rates than the new ones that we’re putting on—mortgage loan rates have been a historical lows and auto loan rates as well.”
Graeter said the RRP funds came along at the right time for Southern Security, just as did the PPP loans that helped to keep small businesses afloat.
“I guess you could call this PPP grant for our credit union,” Graeter said.