As the chartering of new credit unions picks up after the pandemic slowed such activity to a trickle, newcomers have to take a different approach to the market that emphazes digital access and financial equity.
The nation’s newest credit union — Community First Fund Federal Credit Union in Lancaster, Pennsylvania — intends to create financial equity through wealth-building opportunities for individuals and families, especially African Americans, Latinos, immigrants and women, according to its mission statement. The credit union will serve the community of approximately 550,000 in Lancaster County.
Plans for the credit union have been in the works for three years, according to Joan Brodhead, Community First Fund FCU’s senior executive vice president and chief strategic initiatives officer. Although the founders considered delaying the plans due to the pandemic, they ultimately decided they had the capital in place and should go forward.
Brodhead said COVID-19 lockdowns also highlighted the economic gulf between most Americans and those without access to mainstream banking, which made the idea of getting the credit union up and running quickly even more important.
“I think the pandemic pointed out some of the disparities there and continued to point our focus in thinking it was the right thing to do at the right time,” she said.
Like many other organizations, credit unions learned during the pandemic that not every employee needs to be on site, and they also learned how to better serve members remotely, said Geoff Bacino, a credit union consultant and former National Credit Union Administration board member.
Those lessons will be valuable to any groups seeking to charter new credit unions, Bacino said. Investors now have a better road map of the proper steps that must be taken to get a de novo from the drawing board to brick and mortar.
“The three current [NCUA] board members are all supportive of new charters being formed,” he said. “Buy-in from the board is key to this process moving smoothly.”
Two have been chartered so far this year. The NCUA granted a federal charter to Community First Fund FCU on June 30; and the regulator chartered
The key for many credit unions will be their digital capabilities, said Vincent Hui, managing director at Cornerstone Advisors.
That does not mean branches will go away but that credit unions will have more flexibility in how they think about channels — new organizations can look at their capabilities with a fresh set of eyes toward their target field of membership and not get bogged down by legacy elements such as branch networks and old systems, Hui said.
“However, I would not expect a tidal wave of new credit unions as it still requires a lot of time and resources to successfully launch a de novo,” he said.
New federal credit union charters have been few and far between in recent years. There was
One of the two new charters granted by the NCUA in 2019 was for Maine Harvest Federal Credit Union, which today holds $3 million in assets.
Scott Budde, the Unity, Maine-based credit union’s president, CEO and co-founder, said he is not so sure the current economic environment is conducive to the formation of more credit unions.
“I would guess we will see fewer,” he said. “But I definitely think we’ll see another wave of consolidation due to margin pressure. The declines in [net interest margin] are the worst for the industry in decades.”
Maine Harvest’s lending is limited to commercial agriculture loans. The organization put the first loan on the books in March 2020, which Budde joked was “great timing” because of the pandemic.
“I think the hardest thing for us about getting started has been the sudden adverse change in the rate environment,” he said. “We have a very restricted investment policy that in this environment reduces our investment income to almost nothing.”
As the second credit union chartered this year, Community First Fund FCU’s field of membership is initially limited to Lancaster County. The group envisions growth coming in other, nearby markets where it already has lending operations. Construction on its first branch in Lancaster will begin later this month, and it’s scheduled to open later this year.
The credit union’s sponsor is the Community First Fund, a private, independent nonprofit community development financial institution whose mission is to provide capital in places where it is not usually available. The CDFI already makes commercial loans in 20 counties across Pennsylvania, New Jersey and Delaware.
During its first year of operations, Community First Fund FCU will provide its membership with regular share and share draft accounts, direct deposit and vehicle loans, among other products and services.
Pending the NCUA’s granting it a low-income credit union designation, the credit union will offer nonmember deposits, Brodhead said. The credit union is still developing specific products but will feature modest minimum balance requirements and modest fees.
“We’re definitely going to encourage people to get some financial literacy training,” Brodhead said.
She added that there is a lot of distrust of financial institutions among the unbanked and underbanked population, so part of the credit union’s job wll be to change that.
The city of Lancaster has 50,000 residents, and the poverty rate there is about 30%. The Hispanic population accounts for about 35% of the city’s population and is marked by widespread underbanked consumers.
Almost 100% of Community First Fund FCU’s executive committee and the vast majority of the management team have credit union and/or banking experience. “So we knew exactly what the regulatory world was going to expect,” Brodhead said.
