Ten years ago almost to the day, Hurricane Katrina barreled through the Gulf states, wreaking havoc on Louisiana, Alabama, Mississippi and elsewhere.
Aside from at least 1,800 deaths, an estimated $108-billion in property damage and millions of lives forever changed, the epic tempest submerged much of the city of New Orleans, created hundreds of thousands of displaced residents and inflicted huge amounts of damage and suffering upon one of the most poverty-stricken corners of the U.S.
Credit unions serving the local populace also endured much the same tribulations as their neighbors—nowhere more so than in the state of Louisiana, particularly New Orleans, the epicenter of massive flooding in the aftermath of Katrina, caused by failed levee protection systems surrounding the city and region.
According to the Filene Research Institute, a few months after Katrina struck, 63 credit unions in New Orleans and Mississippi suffered damage. By May 2006, 16 credit unions—15 in New Orleans alone—no longer operated as independent institutions in the area, either merging or moving to higher ground.
It wasn't just the credit unions that left in droves: so did the hundreds of thousands of people, including credit union members from all income groups and classes—the number of credit union members and workers in the city plunged. Ben Rogers, research director at Filene, noted that in the immediate aftermath of Katrina, New Orleans-based credit unions experienced an 8.5% reduction in employees; while low-income credit unions in the Big Easy saw an almost 26% decline in the number of employees. "The figures for New Orleans are not too surprising, given that roughly one-third of the city's jobs were gone almost a year after the storm," Rogers said. "Credit unions suffered enormous losses through physical damage, the loss of surrounding businesses, and employee personal losses following Katrina."
But now, ten years—and a few other major storms and a crippling recession—later, many credit unions in the state appear to have rebounded, having learned some painful lessons along the way.
Cami Crouchet, EVP of strategic services at the Louisiana Credit Union League (LCUL), cited NCUA data between December 2005 and March 2015, noting the number of credit union members in Louisiana has increased from 1.1-million to 1.23-million; membership growth on a year-to-date basis has ranged from 0.1% to 2.3% over that decade-long period; the average-loan-balance- per-member has jumped from $7,378 to $10,504; and the average-savings-balance-per-member increased from $5,138 to $7,227.
Crouchet added that same data shows all Katrina-affected credit unions in Louisiana were operational as of Sept. 16, 2005, just two weeks after the storm passed. "However, the level of operation varied greatly for each credit union," she qualified.
Firemen's Fire and Water
When Katrina hit, Crouchet was working at the New Orleans Firemen's Federal Credit Union, now a $158-million institution based in Metairie, a suburb of New Orleans. "After the credit union's recovery, [we] saw 50% of its long-time management team leave for various reasons—people who we thought would retire from the credit union," she said.
Nineteen employees at Firemen's lost all or part of their homes, while the credit union itself completely lost one branch, and sustained major damage to its main office.
"We banded together and put one foot in front of the other until all office construction was done and all employees had fixed or found new homes," she said.
She estimates that about a dozen credit unions in Louisiana disappeared or merged between the onslaught of Katrina and the end of 2006.
LCUL played an important role in stewarding the state's credit unions through some very perilous days. Crouchet explained that in the aftermath of the hurricane, LCUL became the "PR surrogate" for credit unions in need.
"They [LCUL] paired potential donors with credit unions; became the clearing-house for National CU Foundation grants to credit union employees; and continuously directed [the] press to stories that needed to be told," she said.
Indeed, Katrina prompted the league to form the Louisiana CU Foundation in 2007—the foundation now serves as a statewide disaster relief reserve fund for credit unions. For example, it provides Emergency Quick Cash Grants to credit union employees that are displaced or are incurring extraordinary expenses for everyday needs caused by natural disasters.
Crouchet also praised NCUA for its efforts in alleviating the misery and confusion in the wake of the disaster.
"NCUA continuously updated its website with credit union status information and fielded phone calls from members," she said. "[They] also paired needy credit unions with host credit unions for temporary relocation."
The bulk of the financial assistance received by local credit unions came from within the credit union movement itself. "State leagues mobilized for fund-raisers and donations from foundations; credit unions in other states offered office space or sent gift cards, checks, and even clothing," she explained. "A lot of assistance [also came] from the NCUF."
Pelican: Helping Hands
Pelican State Credit Union, a $245-million institution based in Baton Rouge (about 75 miles northwest of New Orleans), did not suffer a direct impact upon its infrastructure from Katrina, but it became deeply involved in the rescue process, assisting fellow credit unions in need.
Following a request from NCUA, Pelican extended a hand to Orleans Public Schools Federal Credit Union of New Orleans. "We managed [Orleans Public] for six months post-Katrina, including operations and board meetings, along with an appointed NCUA representative," said Leigh Porta, AVP of marketing and business development at Pelican. "They had no staff or board members in the area to pick up the pieces, so Pelican stepped in."
In fact, when the water finally subsided three weeks after the hurricane, some of Pelican's vice presidents actually had to physically break into the abandoned credit union because the keys no longer worked. "They had to climb through the ceiling tiles and drop into the former branch lobby," Porta described.
It was a grim scene: with no electricity to power the air conditioning, mold was growing all the way to the ceiling of the first floor. "There was several inches of sludge on the ground, inside and outside, that made it very slippery," she said. "It was extremely hot and humid. The vaults had to be opened with a blow-torch because of mold and water damage. Pelican took all the contaminated money from the credit union, salvaged what we could, and returned it to the Federal Reserve. " Orleans Public Schools FCU has since closed.
Pelican also assisted Jefferson Financial Credit Union (now a $380-million institution based in Metairie) as they shared the same core processor. "So we invited this credit union to set up operations in our board room," Porta noted. "They began operating remote services out of Pelican's board room such as Internet, home banking, ATMs, shared branching, audio response and call center. Additionally, an IT staff member from Jefferson was a houseguest of a Pelican VP for four weeks following the hurricane because he could not find anywhere else to stay in the Greater Baton Rouge area."
Pelican took even more drastic steps with Chalmette Refinery Credit Union by acquiring it. "It was in danger of closing its doors and Pelican stepped in to prevent those members from losing their accounts," Porta explained. "We merged [with] Chalmette on Jan. 1, 2006, hired employees, and continued to serve the employees of the refinery.
Pelican's efforts were also bolstered by the private sector.
"You would be surprised how many vendors opened up and worked with us," said Jeff Conrad, Pelican CEO.
"It was a huge cooperative effort. Everybody kind of dropped the red tape," added Paige Corcoran, Pelican's VP of lending. "Processes and partnerships that typically required contracts and months of due diligence became very easy. Businesses were accommodating and aggressive in making things happen because everyone knew that these members needed access to their funds, and the credit unions needed to get up and running as soon as possible."
Fraud and Crimes
One of the most unpleasant repercussions arising from Katrina had to do with those individuals who exploited the calamity for their own personal gain.
Indeed, in one of the most egregious cases, a local minister named Aaron Frazier was eventually convicted by a federal court for pilfering more than $13,000 in the weeks following Katrina from ASI Federal Credit Union of Harahan, a suburb of New Orleans. According to prosecutors in the case, Frazier took advantage of a computer snafu at an ASI locale and took out thousands of dollars, despite having only about $150 in his account. A total of nine people stole more than $90,000 from ASI in this way.
On the whole, ASI estimated as many as 10,000 members overdrew their accounts as a result of the computer crash in the days after Katrina.
Crouchet of LCUL said some members took advantage of off-line ATM limits at credit unions immediately after the storm; and in one instance losses started at over $1 million before collection efforts commenced. "[Some] credit unions opened accounts for displaced individuals under special permission from NCUA to serve members outside of the [field of membership]," she noted. "[But] many of these 'Katrina Victim' accounts proved to be fraudulent."
Shared Branching
Shared branching took on a starring role during the recovery efforts.
Crouchet stated that while not all credit unions now use shared branching in the event of emergencies so that members can have access to their funds, there has nonetheless been a large increase in the number of participants and outlet owners for such systems.
Indeed, LCUL was able to connect 21 credit unions to shared branching within 24 to 48 hours after the storm made landfall.
"Compared to other financial institutions, Louisiana credit unions were open for service faster due to the shared branching system already in existence," she noted. "This was instrumental in getting cash into evacuated members' hands quickly. Shared branching proved to be the most valuable resource for both credit unions and their members and now plays a critical part in their disaster preparedness."
In addition, in the days immediately following Hurricane Katrina and Hurricane Rita [in September 2005], six Louisiana and two Mississippi credit unions joined shared branching as part of their disaster recovery plans.
"Due to the urgency, many credit unions were connected within 48 hours of their request," Crouchet said. "These efforts allowed an estimated 400,000 additional credit union members to gain access to their accounts through shared branching."
Moreover, at the time of Katrina, there were 63 shared branching locations in Louisiana and almost 2,000 locations across the country available to serve credit union members, who are part of the shared branching network.
"Today, we stand strong with nearly 150 locations in Louisiana and over 5,500 nationwide," Crouchet added.
Changed Demographics
Since Katrina, the City of New Orleans has lost many residents and sustained other significant changes. According to The Data Center of Southeast Louisiana, the population of Orleans Parish (coterminous with the city) plummeted from 484,674 in April 2000 (pre-Katrina) to an estimated 230,172 in July 2006. By July 2014, the population climbed back to 384,320 — still only 79% of what it was in 2000.
In addition, almost 100,000 blacks have left the city since 2000, reducing the African-American representation in the overall population to about 59% from two-thirds. Meanwhile, the number of Hispanics has spiked by 81% since 2000.
For credit unions in New Orleans, this translates into fewer available potential black members, but perhaps new sources of business from the booming Latino population, as well as from younger professionals from all walks of life who are moving to the city to take advantage of the job growth and entrepreneurship movement that has taken hold here.
The Next Katrina?
Crouchet said most credit unions in the state have invested significant efforts into their "business continuity" (or disaster recovery) planning since Katrina.
"However, as evidenced by Hurricane Isaac [August 2012], when flooding occurred in areas that had never flooded before, some credit unions were caught off guard," she cautioned. "Luckily, because they have amassed resources they didn't have prior to Katrina (like vendor relationships, contractors, staff with [business continuity] experience, partnerships with other credit unions, etc.), they were able to rebound quickly and members only experienced a minor impact on service."
Interestingly, Crouchet noted, a novel and unexpected event like the ice storms of December 2013 presented more of a concern than the threat of a another hurricane due to the learning curve required in handling icy roads and to prepare credit union locations in the warm Deep South for temperatures below freezing.
To prepare for potential further natural catastrophes, Crouchet noted that local credit unions have invested a "significant amount" of their budgets into third-party business continuity vendors, in addition to enhanced core processor back-ups and redundancy.
"Dollars [were] also allocated to items such as hot- sites, generators, cloud technology, website, mobile services, card access and staff training," she added.
Conrad of Pelican warned that the recovery process takes time. "If we have to go through this experience again, things that I know that we have in place now—the back-up generators, back-up fuel source, the contact lines for board members and employees—give us confidence in our disaster recovery plan," he said. "People aren't thinking quite as clearly during a disaster, so the more procedures you have planned out and documented in advance, the better off you're going to be."
Moreover, the Federal Emergency Management Agency (FEMA), the government agency that was widely criticized for its failure to adequately respond to the hurricane in 2005, has since revised its floodplain maps since Katrina, and flood insurance is now required in many areas, Crouchet indicated.
"Most credit unions had ample building coverage, but many did not have high enough coverage limits on technology and other fixed assets," she said. "Insurance carriers, such as CUNA Mutual, made it a priority to analyze coverage options and limits with credit unions to ensure future needs are met."
Finally, Rogers of Filene cautioned that credit unions in the storm-afflicted area still have much work ahead of them. "High insurance and land costs mean that many businesses and homeowners may never rebuild," he said. "The further development of ties between firms means that if another disaster hits this area, financial institutions, especially credit unions, will be better prepared. The strength of cooperative networks and the loyalty of employees and members have helped bring many firms [come] back, and the development of better disaster plans makes a repeat of the difficult post-Katrina days much less likely."
