2020 in review, from COVID upheaval to the taxi medallion mess

December 28, 2020 5:00 AM

It's safe to say very little went according to plan in 2020.

As credit unions assessed the end of one decade and the start of another, a global pandemic quickly forced the industry to pivot to the biggest public health crisis in a century — one that continues to have a substantial impact on the banking landscape and the broader economy.

COVID-19 forced a host of changes across the financial services space, and much of Credit Union Journal's reporting throughout the year has touched on that. What follows is a look at some of the stories and issues that had the biggest impact, including the move to remote work, the industry's focus on serving members and employees alike, and a few big stories that may have been forgotten in such a chaotic year.

CUs go remote

One of the biggest changes of the year was also arguably the fastest. As the pandemic broke wide in March, credit unions across the country quickly sent back-office employees and others to work from their homes.

Most industry figures agree that transition was pulled off relatively seamlessly, and many CUs and organizations serving the movement that might never have considered permitting remote work have found it to be a workable arrangement. One of the biggest takeaways has also been that credit unions can move more quickly than they may have thought, given that the shift to telecommuting, at times, involved hundreds of employees or more and was pulled off in a matter of weeks.

In many cases, a substantial number of credit union employees continue to work from their homes, and it remains unclear when financial institutions will begin bringing employees back to the office en masse. A variety of factors are in play, including the size of the institution, the credit union’s field of membership, geographic location and widespread availability of a COVID-19 vaccine.

Despite the success, the transition has not been without its challenges. Workers in a variety of industries, including financial services, report that mental health and job satisfaction have declined. CUs have also had to balance staffing needs, state and local shutdown orders and more. And with the pandemic not likely to abate before the midpoint of next year, the industry could be dealing with these issues for the foreseeable future.

Prioritizing diversity

The financial services sector responded to a summer of social justice protests by taking steps to diversify their own workforces, with an emphasis on their leadership ranks and boards of directors.

Large and small institutions, from Wells Fargo to Piedmont Federal Savings Bank in North Carolina, have announced plans to work more closely with historically Black colleges and universities to recruit Black candidates from those schools.

Piedmont teamed with North Carolina A&T State University to create year-long banker development program, with a goal of diversifying its leadership ranks. Under Chief Executive Charlie Scharf, Wells has pledged to increase Black representation in leadership from 6% currently to 12% within five years.

Banks and credit unions alike announced plans in the summer and fall to increase their internal diversity, with many making hires at the C-level to focus on broadening equity and inclusion efforts. PNC Financial Services Group and JPMorgan Chase both added officers at the executive level to focus on diversity, and a number of midsize and large credit unions have taken similar steps. Such measures aim not just to broaden the perspectives of these institutions’ executive teams, but also to ensure financial services providers reflect the broader demographics of the communities they serve.

In the wake of social justice protests this summer, some financial institutions also announced plans to diversify their boards. SchoolsFirst Federal Credit Union, one of the nation’s largest credit unions, recently added a Black member, a Hispanic member and an Asian member to its board after coming under fire earlier in the year for its lack of diversity.

Banks ranging from Fifth Third Bancorp to smaller ones like Emprise Bank have recently announced the addition of a Black female director to their boards.

The trend is part of a broader one across many industries. A September study by the nonprofit group 2020 Women on Boards found that this year women gained board seats at a faster rate than men among companies in the Russell 3000 index. Women of color advanced faster than any other group, though they still hold the fewest board seats overall.

For public companies in at least one state, legislation is a contributing factor. In September, California followed up on its 2018 board mandate on gender diversity by adding a requirement that at least one director be from an underrepresented group, whether by race or sexual orientation.

Growth strategies hit road blocks

One of 2019’s biggest stories was the increase in the number of credit unions purchasing banks along with more traditional mergers, but 2020 flipped that on its head.

In January, Colorado regulators blocked Elevations Credit Union’s bid to buy Cache Bank & Trust’s assets, and by the time the pandemic hit two months later, those types of deals had virtually dried up. In May, 2019’s biggest deal, which would have seen Suncoast Credit Union in Florida acquire Apollo Bank, was called off as a result of the pandemic.

But by the fall, the number of deals where a credit union buys a bank had begun to increase to roughly one per month, and many observers have suggested the pace could pick up further as the pandemic slows.

Perhaps surprisingly, the pace of credit unoin mergers stayed at normal levels through the first half of the year, according to second-quarter analysis from CEO Advisory Group. However, third-quarter data showed an increase.

NCUA board member Todd Harper continues to caution that the industry won’t feel the full extent of the economic crisis until next year, and if unemployment stays high and delinquencies or charge-offs rise, more credit unions could find themselves forced to find a merger partner.

2020 was also remarkable for two comparatively abnormal merger situations — instances in which members of credit unions set to be absorbed voted to shoot down a merger. In early July, members of Northwest Iowa Credit Union rejected a deal that would have seen them join Siouxland Federal Credit Union. Just over a week later, the members of Partners Financial FCU voted against a merger with Peoples Advantage Federal. While the two events were out of the ordinary and happened in quick succession, they were ultimately anomalies, and did not represent any sort of broader trend.

FOM saga comes to an end

The National Credit Union Administration’s biggest victory in 2020 didn’t come as a result of the board passing any particular rule or policy, but in the Supreme Court’s June decision not to consider an appeal from the American Bankers Association that challenged the agency’s controversial 2016 revision to its field-of-membership rule.

That rule, which allowed credit unions to broadly expand their membership across wide geographic areas, led to banks suing the agency in late 2016, claiming four provisions of the measure violated the Federal Credit Union Act. In 2018, a federal judge struck down two parts of the rule but an appeals court ultimately upheld most of the original rule. NCUA revised the statute to fight charges from the banks that credit unions were being given the green light to engage in redlining, but banks continued to press forward with appeals until the nation’s highest court let a lower court’s ruling stand.

It’s still unclear how many institutions are attempting to use the final rule to grow their membership, but the number of active intuitions fell by a year-over-year average of nearly 3.5% while the suit made its way through the courts, according to NCUA data. Some industry figures suggested in the wake of the court’s decision that field-of-membership requirements are outdated and should be eliminated entirely but, not surprisingly, bankers pushed back against that view.

Bigger challenges could be ahead. With lending slowing substantially as a result of the pandemic and economic downturn, credit union membership growth rates could see further declines in the 2021 and beyond.

Taxi medallion loan sale leads to new headaches for NCUA

The industry was also largely able to close the book on ongoing issues with the taxi cab industry and credit unions serving those drivers early in the year.

In February, NCUA sold the majority of its taxi medallion loan portfolio to Marblegate Asset Management. While the agency never provided specifics, reporting from the Wall Street Journal at the time indicated the deal was for $350 million and included as many as 4,500 loans.

NCUA acquired those loans through its conservatorship and liquidation of several credit unions that had high concentrations of medallion loans on the books, including LOMTO Federal Credit Union, Melrose Credit Union and others. Losses to the National Credit Union Share Insurance Fund as a result of failures at some of those institutions were in excess of $760 million.

The regulator may have been glad to get that portfolio off its books, but at least initially the sale caused headaches of its own. A day after the sale was announced, dozens of New York cabbies descended on the agency’s Alexandra, Va., headquarters to protest the deal and air their concerns. They worried that rather than working with the drivers, Marblegate could double down on collections efforts at a time when drivers were already struggling due to the rise of services such as Uber and Lyft — and that was a month before the pandemic brought much of the country to a standstill.

Within days, a New York Congressman accused the agency of “abandoning” cab drivers and Jim Nussle, CEO of the Credit Union National Association, said during the trade group’s annual Governmental Affairs Conference in Washington that CUNA was considering utilizing a Freedom of Information Act request to get more information about the sale, which was brokered behind closed doors. However, with the pandemic becoming widespread weeks later, CUNA ultimatley never acted on that and does not expect further movement on the issue.

For his part, NCUA Chairman Rodney Hood defended the sale, noting at GAC that all the way back in 2012 an internal audit advised selling the portfolio as soon as possible.

Going the extra mile

This year has forced banks and credit unions to get creative with their employee benefits.

Some institutions have become makeshift day care centers for employees who have children learning virtually because of the coronavirus. United Bank in Atmore, Ala., converted spare offices into computer labs to let parents bring their school-age children to work while ensuring the students could still participate in their virtual classes.

Others have taken it upon themselves to make sure employees are well fed. Landings Credit Union in Tempe, Ariz., completed a massive order from Costco so workers wouldn’t have to venture out for groceries. It even threw in $50 for each worker to spend on whatever they needed.

American Savings Bank in Honolulu has provided more than 206,000 meals to employees. The bank catered breakfast, lunch and dinner for workers seven days a week for two months.

Vista Bank is thinking about the emotional and spiritual needs of its employees. John Steinmetz, the Dallas bank’s president and chief executive, was considering hiring a part-time chaplain for workers who need additional support right now.

Credit Union of Texas in Allen has added a benefit that addresses the pandemic more directly. It started providing free COVID-19 antibody tests for all of its employees in July. The process takes about 90 seconds with a medical technician drawing a small amount of blood with a finger stick. The worker gets the results about 15 minutes later.

Keeping workers safe and healthy and supporting them emotionally have been high priorities for bank and credit union leaders because it’s the right thing to do and because staffers are likely to spread the word that their employers are being helpful during these difficult times.

“I believe our next generation of workers is looking at how companies and institutions responded to COVID-19 and it may be the deciding factor if they want to build a career here,” said Patricia Husic, the president and CEO of Centric Financial in Harrisburg, Pa.