Pay Attention to These Metrics During the Pandemic

Oregon regulator Janet Powell encourages credit unions to invest more time being present in their communities and speaking with members.

Janet Powell, Secretary/Treasurer Manager, Credit Union Program, Oregon Dept. of Consumer and Business Services

7/14/2020

Editor’s Note: The following article was written by Ray Birch and published on CUToday July 9. NWCUA obtained permission to republish it in Anthem.

While most credit unions are paying close attention to their net worth ratios during the coronavirus pandemic, one state regulator is urging CUs to pay close attention to several other metrics, as well as another rather nontraditional number, as well.

Janet Powell, manager of credit union programs at the Oregon Division of Financial Regulation, told CUToday.info she is hopeful credit unions are watching how much of their time they are dedicating to being present in the community and communicating with members. Powell believes those credit unions that invest more in those two areas have the best chance to come out the other end of the pandemic in good shape.

“How each credit union is affected by the COVID-19 crisis comes down to the credit union’s field of membership and how they’re located geographically,” Powell said. “How has the virus hit those communities, and then separate from that, how have the stay-at-home orders impacted the communities since they were issued?”

People need to be reminded the credit union is open and healthy, according to Powell.

“I think when you do that you raise the level of confidence in the credit union and there’s better trust during this crisis,” she said. “I think you need to do that as much as possible to maintain the spirit of your members. That’s why communication can make the difference for credit unions.”

More to It

Powell said it is easy for regulators just to look at performance numbers in call reports, such as net worth ratios and liquidity levels. But she believes there is more to a successful credit union than just its financials.

“What drives those numbers, especially now, is the attitude of your members,” said Powell. “One of the things I’ve always been concerned about in times like this is the ability of people to repay. But if people use their stimulus money and unemployment money—whatever income they are getting now—to make their payments to the credit union because they care about the credit union, that will make the difference. Talking to your members now will help build that loyalty.”

Powell noted small credit unions typically do a very good job of remaining close with their members, which will help them during the pandemic. She said she does not agree the pandemic will drive many small credit unions to merge.

Janet Powell

“I have faith in the small credit unions and their CEOs,” she said. “When we’re doing exams, we know the CEOs very well, and we know how they make decisions. If we have concerns about that, and about their financial performance report, we are talking to them about that. We pay close attention to how our CEOs are making decisions regarding their fields of membership and what the credit union  needs to do to survive and do well.”

Challenging Decisions

That decision-making is becoming more challenging, as CU leaders wrestle with weighing reducing fees and deferring loans at the same time fee income is seeing a sharp decline and loan volume has cratered. All of that and more is adding up to some very difficult decisions for CU leaders, Powell acknowledged.

“What is important here is that credit unions do projections,” Powell said. “Regulators are saying work with your members if you can, waive fees if you can…What each credit union is able to do will be different. But they need to calculate what will be the impact on their balance sheet. Know how much money they normally take in, how much they make in fees and what happens if they don’t have any of that the income. What does our cash flow normally look like and what happens if loan payments are not coming in for three months.”

Credit unions, too, must recognize consumer behavior is changing and it is uncertain what member behavior will look like after the pandemic ends.

“And behavior may change for the credit union, too,” suggested Powell. “Expenses, for example, will change. Travel is an expense that probably not many credit unions are incurring right now, but they probably have more technology expenses. Coming out of this maybe credit unions won’t need as many employees as they used, or maybe employees will be doing different types of work. Maybe credit unions that were projecting to build new branches will put those plans on hold. Strategic plans and business plans will change.”

Other Numbers to Watch

For now, Powell said Oregon’s state examiners will be watching at least one number more closely.

“I think it’s important that the allowance account is being funded at this time,” said Powell. “And even though the delinquencies aren’t showing up and the net charge-offs (aren’t increasing), we know at some point something will hit. You simply can’t ignore the environmental factors. What credit unions should know is how much more should we increase our allowance account, and be evaluating that as they’re going through the year—on a quarterly or even monthly basis and not waiting until the delinquencies hit.”

What may also challenge some credit unions, added Powell, is the weight of the pandemic on leadership.

“I think the ones that may struggle from the pandemic are those that were not doing well heading into the crisis, with declining membership,” she said. “And the only other concern is CEOs and boards just get tired. These are hard times for everyone. If we are respectful to each other and support each other we can make it through this.”

View this article on CUToday here.