Contact: Rafael Morales, Communications Officer
212-809-1850 ext. 206
(May 3, 2006 - Washington, D.C.) On Monday August 29, the levees breached, and the disaster assumed cataclysmic proportions. ASI set up a much reduced operation at the DOW FCU in Baton Rouge, LA, some 80 miles from their suburban New Orleans headquarters. Some of it systems continued to function: Its audio response system was working, its ACH transactions were posting, and its web site was up. But instead of its previous 100 phone lines, now it had only six lines to try to serve its enormous membership. By September 2, it became clear that ASI FCU’s disaster site and the switch that authorizes ATM transactions were not communicating. As a result, ASI’s off-line limits of $300 were in effect. By September 8, member overdraws from their accounts reached $3 million dollars.
Gradually, additional offices of the 14-branch credit union reopened. The credit union joined a shared branch network by September 14, and its off-line transactions ended. Finally, by September 19, ASI FCU was back to its headquarters and resumed switching its own ATM transactions, stopping the hemorrhaging of cash. Four branches had been destroyed, and one damaged. Fifty employees did not return to work. The treasurer, overwhelmed by the massive requirements of balancing accounts, retired.
In the weeks and months that followed, ASI faced many more problems, some of them unanticipated. Its assets grew virtually overnight, by $110 million – some 57% -- driving down its net worth ratio and putting it in fear of Prompt Corrective Action sanctions. The management team cut costs drastically, selling one branch, eliminating raises and bonuses, and even cutting pay. It looked for ways to rebuild capital, which fell from more than 9% to 4.76% primarily because of the influx of funds members received from FEMA and insurance companies. Nearly eight months later, these shares remain in the credit union, because members have been unable to commence rebuilding on any significant scale. On the positive side, the $6 million in ATM overdraws ASI suffered has shrunk to $2.8 million, as members have made good on the funds.
As a low-income-designated credit union, ASI FCU is entitled to accept secondary capital loans, which improve its net worth. The National Federation’s “Community Development Relief and Rebuilding Fund” provided $300,000 to help the credit union rebuild its capital. But Ms. Cerise worries about the effect on ASI’s balance sheet when Louisiana’s reconstruction fund becomes operational, pumping amounts as high as $150,000 into the accounts of member homeowners. ASI recognized millions of dollars of losses by year-end 2004, but the losses, she says, have been contained. The credit union is solvent, and in fact has recorded good income because of its investments. But even its long-standing business relationships – for example, with VISA – have suffered from ASI’s lowered capital ratio, even though the credit union is decidedly solvent and has demonstrated excellent trends.
Hope Community Credit Union is a much smaller institution, headquartered in Jackson, MS but had recently opened a branch in New Orleans just prior to Hurricane Katrina. The credit union operates under the aegis of the Enterprise Corporation of the Delta (ECD), which is headed by CEO Bill Bynum. Mr. Bynum is one of the most widely recognized and influential figures in the community economic development movement, and serves as chair of the CDFI Fund’s Community Development Advisory Board.
The credit union “did not take a big physical hit,” Mr. Bynum noted; the early accounts of the flooding and looting of its New Orleans office were fortunately exaggerated. But as an organization with an extensive regional agenda, ECD is concerned with the damage done throughout the Gulf area. The response of government has been extremely inadequate, he noted; the Small Business Administration, for example, has only spent a small portion of the billions at its disposal. To make matters worse, “The sharks – the predatory lenders – are already in the water in Mississippi,” Bynum said.
The Hope Community Credit Union has responded by expanding a much-needed branch in Biloxi. Working through a network of partner nonprofit organizations, it has signed up over 3,000 new members, many of whom were previously unbanked. ECD and the credit union have made “Bridge Loans” to nonprofits, waived interest on some loans (thanks to some of the funding it has received), set up escrow accounts for members to assist them in dealing with contractors, and much more. According to Bynum, ECD/Hope “has taken full advantage of its core functions as a CDFI, yet has stretched even further” to expand its non-financing functions, providing more financial counseling than ever before to members in the reconstruction process.
“The disaster brought home to us how crucial CDFIs, including credit unions like ASI FCU and Hope Community CU, are to the financial infrastructure,” said Rosenthal. The Federation raised nearly $1 million from individuals; member CDCUs; Federation board members and staff; and major donors including the National Credit Union Foundation, Jewish FundS for Justice with support from the UJA-Federation of New York, and the John D. and Catherine T. MacArthur Foundation.
The Community Development Relief and Rebuilding Fund has provided grants and secondary capital investments that have assisted a number of credit unions in Louisiana and Mississippi, both CDCUs and others, to embark on the long road of reconstruction. Additional assistance will be available to CDCUs, added Rosenthal, for the next, massive phase of rebuilding.
Pictured above: ASI FCU CEO Audrey Cerise presents at the CDFI Institute, April 2006.