NCUA Chairman Todd M. Harper Remarks at the 2024 Minority Depository Institution Symposium

As Prepared for Delivery on October 8, 2024

Introduction

Good morning, all. And, thank you, Martha, for the kind introduction. The work of you and your team in the Office of Credit Union Resources and Expansion, as well as the many others across the agency who often toil behind the scenes, will ensure the success of this year's Minority Depository Institution Symposium.

Thanks, as well, to all of you here for participating in this year's MDI Symposium.

Ninety years ago, President Franklin Delano Roosevelt signed the Federal Credit Union Act to ensure the continued health of the credit union system in this country, and safeguard credit union members' choice of financial providers.

In his second inaugural address less than three years later, President Roosevelt captured the spirit of this landmark legislation, and provided the criteria for success in fulfilling its purpose. Specifically, he said, "[t]he test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."

Looking at today's financial system, it's clear we still have a long way to go and much work to do. For centuries, minority communities have often found themselves left out, ignored, and neglected by the financial mainstream. As a result, people of color were not only denied basic economic opportunities, but they also found themselves trapped in a self-perpetuating cycle of debt and poverty.

And, that's where Minority Depository Institutions have stepped in to address these longstanding inequities. In fact, that important role evokes one of my favorite early childhood memories.

The Little Engines That Could

When I was very young, my favorite book was The Little Engine That Could. I have fond memories of it as the first book I read on my own. Though, truth be told, my grandmother read it to me so many times that I was more likely reciting the words from memory than actually reading the words on the page. No doubt, many of you here are familiar with this classic American folktale. And, you may be wondering why I bring up this charming little story now.

Well, in my mind, the little engine that successfully pulled the train over the mountain is, in many ways, a fitting representation of the work of MDI credit unions, the challenges they face, and their accomplishments. Like the little blue engine that transported toys and treats to the children eagerly waiting in the valley, MDIs recognized an unmet need and committed themselves to achieving their missions of advancing equity and economic opportunity for their members.

"While MDIs tend to be smaller-sized financial institutions, with average assets of about $184 million, their financial performance - such as return on average assets, net worth ratios, and net interest margins - last year was comparable to that of billion-dollar-plus credit unions overall."

And, the story's applicability extends beyond the little engine who ultimately got the job done. The part of the book that's frequently overlooked is the three previous engines who refused to help the train passengers, because they thought either the task was beneath them, or they were simply incapable of carrying such a large load. To me, those characters conjure up the traditional financial institutions that have far too often neglected communities of color and other marginalized populations, including the disabled, people of non-Christian religious beliefs, and the LGBTQ+ community.

By contrast, MDI credit unions are the engines that stepped in when others wouldn't, said "I think I can, I think I can," and provided much-needed financial products and services to under-resourced communities and populations.

What's more, just as our little blue engine hero assumed what appeared to be an oversized responsibility, so, too, do MDI credit unions punch well above their weight. In fact, MDIs, as a whole, often boast earnings as strong as credit unions five or even ten times their size, demonstrating that good principle can go hand in hand with good business.

Promising Numbers

Consider these facts: As of the end of the second quarter of 2024, 490 credit unions - more than one in 10 of all federally insured credit unions - have the MDI designation. These MDI credit unions serve more than 6.6 million people and hold more than $90 billion in assets. Of those nearly 500 credit unions, 393 also hold the low-income credit union designation.

While MDIs tend to be smaller-sized financial institutions, with average assets of about $184 million, their financial performance - such as return on average assets, net worth ratios, and net interest margins - last year was comparable to that of billion-dollar-plus credit unions overall. In fact, last year, MDI credit unions had a return on average assets of 80 basis points. That's the same rate of return earned by credit unions between $1 billion and $10 billion in size.

What's more, in 2023, MDI credit unions had another year of solid performance in other metrics. MDIs reported growth rates in membership, assets, and lending that exceeded those of the credit union system overall. And, MDI credit unions increased their use of the NCUA's payday alternative loans product, an important option for borrowers who might have otherwise turned to predatory payday lenders.

These efforts demonstrate how MDI credit unions - with a clear and focused mission, a strong sense of purpose, dedicated staff and management, and a strong and supportive membership base - can perform well in today's marketplace while expanding opportunities for their members and communities.

And, despite being more likely to serve financially distressed communities, MDI credit unions have maintained solid capital levels. Over the last 10 years, the share of MDIs with net worth ratios of 7 percent or more - which meets the statutory definition of well-capitalized - has never dropped below 91 percent. And, as of the end of the second quarter on June 30, MDI credit unions maintained a net worth ratio of 11.99 percent; that's 115 basis points better than the industry average.

But, these numbers only tell part of the story. Over their history, MDI credit unions have been innovative in reaching underserved communities, tailoring financial products and services to members' needs, and helping those members improve their financial standing and economic futures.

A Challenging Economic Environment and Outlook

All that said, now is not the time for MDIs or credit unions in general to rest on their laurels and become complacent.

According to the credit union performance data for the second quarter of 2024 released last month, there are growing signs of concern in loan performance, capital, and earnings across the credit union system and at specific institutions. The delinquency rates for auto, credit card, mortgage, and commercial loans for federally insured credit unions increased, and charge-offs have steadily risen. In fact, the delinquency rate at federally insured credit unions is the highest in a decade, and the delinquency rate of MDI credit unions exceeds the industry average.

"These efforts demonstrate how MDI credit unions - with a clear and focused mission, a strong sense of purpose, dedicated staff and management, and a strong and supportive membership base - can perform well in today's marketplace while expanding opportunities for their members and communities."

That last point shouldn't cause anyone concern because MDI credit unions are stretching to meet their member financial needs, and when their members run into financial difficulties those same MDI credit unions step in to prevent a delinquency from becoming a charge-off.

That all said, this overall increase in industry delinquencies may indicate that many households are experiencing greater financial strain and stretching their budgets just to make ends meet. With the tightening of household budgets, we're also seeing two patterns concerning regular shares, as some members are drawing down their savings while others with greater resources invest in longer-term share certificates to capitalize on higher interest rates.

Moreover, rising balances on secondary home loans, credit cards, and payday alternative loans are all likely signs of household financial stress. And, those rising balances could eventually lead to losses at all credit unions, including MDI credit unions.

Fortunately, the median net interest margin for MDI credit unions is 3.94 percent. That's 100 basis points better than credit unions with $1 billion or more in assets. And, MDI credit unions with a loan-to-share ratio of 79.7 percent - that's about five percentage points below the industry average - have room to grow their lending and do even more in the communities they serve. So, MDI credit unions have the capacity to weather the economic rocky road that may lie ahead.

Benefits of MDI Designation

The challenging economic environment and uncertain financial outlook are all the more reason for MDI credit unions to fully avail themselves of the support and assistance offered by the NCUA, starting with access to the agency's MDI Preservation Program. With that access, an MDI credit union can request technical assistance through its assigned NCUA regional office, supervisory examiner, or district examiner. Such technical assistance can address critical issues like strategic planning, new product development, recordkeeping assistance, budgeting support, and other important needs.

MDI credit unions also have access to the NCUA's Learning Management System, which offers no-cost training materials tailored to MDIs' specific needs. Additionally, the NCUA will provide technical assistance to groups interested in chartering new MDI credit unions, as stated in the March 2024 update to the policies governing NCUA's MDI Preservation Program. Lastly, MDIs with a low-income designation are eligible for financial assistance through grants and loans, including mentoring grants.

"But, these numbers only tell part of the story. Over their history, MDI credit unions have been innovative in reaching underserved communities, tailoring financial products and services to members' needs, and helping those members improve their financial standing and economic futures."

Among the success stories of 2023 are the chartering of one new MDI credit union; approving field-of-membership expansions that gave MDIs the chance to reach 4.7 million potential new members; and providing $1.4 million in Community Development Revolving Loan Fund grants to 42 MDI credit unions.

And, in the 2024 Revolving Loan Fund grant round, 39 MDI credit unions with the low-income designation received approximately $1.4 million in technical assistance grants.

Unfortunately, the 2024 congressional appropriation did not include universal MDI credit union eligibility as it did in 2023, resulting in the exclusion of approximately 100 MDIs without low-income designation from this year's grant round. However, the NCUA is working with Congress to re-instate the eligibility for all MDIs to access the funding available through the Community Development Revolving Loan Fund.

MDI Support Availability

To my earlier point about fully leveraging the NCUA's MDI credit union support resources, the agency has budgeted thousands of examiner hours specifically for supporting MDI credit unions.

To give you a sense of the extent of those resources and how much more you can use them to your institution's benefit, in 2023, 159 MDI credit unions received a total of 2,651 hours of support through the Small Credit Union and MDI Support Program. That is, unfortunately, less than half of the available hours allocated for MDI support last year. We have the capacity to do more - much more - to support you and your members. All you need to do is ask.

In fact, the 2024 budget for the program is nearly 9,100 total hours, which includes 4,500 hours for small credit unions and 4,602 hours for MDI support. As of August 31, however, MDI credit unions had used just 1,033 support hours, less than a quarter of the allotted support hours with only a few months left in the year.

"The challenging economic environment and uncertain financial outlook are all the more reason for MDI credit unions to fully avail themselves of the support and assistance offered by the NCUA, starting with access to the agency's MDI Preservation Program."

Make no mistake, the agency's support offerings are anything but a solution looking for a problem. Instead, they reflect the NCUA's strong commitment to MDI credit unions and demonstrate that the agency stands ready to work with MDIs to better serve their members, strengthen their communities, and achieve their growth goals.

Our work here is aimed at helping you to achieve your financial goals and strategic plans, so that your MDI credit union can better serve your members, increase financial equity, improve the economic viabilities of your served communities, and build household wealth.

On that point, let me be clear. Ultimately, MDIs should never refrain from using the NCUA resources available to them. And, let's get the word out to all MDI credit unions that no-cost support designed especially for them is readily accessible. Will you help us to spread that word?

A Story of Hope and Perseverance

Before I close, I'd like to say a few words about our upcoming keynote speaker, Arlo Washington, and his video presentation.

Arlo is the CEO of People Trust Community Federal Credit Union in Little Rock, Arkansas. For years, Arlo has been a leader in his community and to the more than half a million residents in Pulaski and Saline counties that People Trust serves.

Given his role in changing the financial lives of the credit union's nearly 1,000 members, it's fitting that Arlo recently added an acting credit to his resume. The 2023 Oscar-nominated documentary, The Barber of Little Rock, chronicles his inspiring journey from opening his first barbershop and later Washington Barber College to establishing the People Trust Community Loan Fund and Federal Credit Union. If you haven't seen it already, I encourage you to watch the video on YouTube. I've watched it and believe that it's 35 minutes very well spent.

"Our work here is aimed at helping you to achieve your financial goals and strategic plans, so that your MDI credit union can better serve your members, increase financial equity, improve the economic viabilities of your served communities, and build household wealth."

In the film, Arlo says his purpose in life is to, quote, "advance equity, create opportunities, and build the community." That personal mission statement aligns fully with the philosophy that underlies the credit union movement.

And, at People Trust's grand opening in December 2022, the NCUA presented a commemorative charter plaque with the inscription describing its mission to, quote, "restore confidence in the financial system through access to cooperative credit and to close the racial wealth gap in Arkansas." These words capture the spirit of MDI credit unions and express why we must continue to ensure MDI credit unions not only survive but thrive over the next 90 years of the federal credit union system.

Closing

In closing, let me circle back to my early childhood favorite book, The Little Engine That Could. The little blue engine's famous refrain of "I think I can, I think I can" has, for generations and across every field of human endeavor, been a rallying cry for beating the odds.

By answering the call and delivering the goods, MDI credit unions are putting a greater number of members on the path to financial security. And, their role in meeting the credit and savings needs of historically under-resourced communities is critical to creating a financial system that works for all Americans.

That's good for families of color as they seek to build intergenerational wealth, that's good for building a stronger economy, and that's good for the future of our democracy, which depends on a vibrant and growing middle class to remain stable and viable.

"By answering the call and delivering the goods, MDI credit unions are putting a greater number of members on the path to financial security. And, their role in meeting the credit and savings needs of historically under-resourced communities is critical to creating a financial system that works for all Americans."

As such, MDI credit unions' passion for - and success in - advancing economic equity and financial security represent a light of hope and opportunity for historically marginalized populations across the country. And, if we are to remain faithful to the credit union movement's bedrock principle of "people helping people," all of us - the NCUA, MDI credit unions, Congress, and other stakeholders in the nation's financial system - must do everything we can to ensure that light is never extinguished and burns even brighter for future generations.

I, for one, am fully committed to that worthwhile goal as credit unions run deep within the fabric of my family. Not only did my father start a teachers' credit union in Illinois in the 1960s, but his father also established a credit union at a soap factory in Indiana in the 1930s. Their efforts over the last 90 years have contributed to the financial stability of my family. And, we need to work to ensure that more Americans secure that financial stability for their families.

So, please enjoy this MDI Symposium and make the most of your time during the next three days. I encourage you to listen, engage, network, ask questions, and learn throughout the technical sessions, breakout sessions, and exhibits. In doing so, you can bring home valuable connections and insights on knowing, serving, and reaching your communities even better.

Thank you. As always, be safe. Be well. Be kind.

And, with that, please join me learning more about the work of Arlo Washington and People Trust Community Federal Credit Union.

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