NCUA Chairman Todd M. Harper’s Remarks at the NCUA’s 2023 MDI Symposium

As Prepared for Delivery on October 3, 2023

Good morning, everyone. And, thank you, Ron, for that kind introduction.

Thanks, as well, to all of you for attending and participating in this Minority Depository Institution Symposium. I hope you make the most of your time during the next two days to learn, network, plan, and grow. And by growth, I mean working together to develop a comprehensive strategy to boost the visibility, financial prospects, and opportunities for minority depository institutions and their members across the credit union system.

The timing of this week’s discussion come at an inflection point for the industry. After all, the credit union system, like the broader financial services sector, is undergoing and far-reaching transformation in terms of technology, services, consumer preferences, and competition. It is vital to the long-term financial prospects of the industry, the economic health of underserved communities, and the strength and well-being of our nation that MDIs remain an essential part of that financial system as this transformation unfolds.

Currently, one out of every ten credit unions are MDIs, and the overwhelming majority of these MDIs are small credit unions with less than $100 million in assets. Yet, in fulfilling the credit union system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means, MDIs exceed expectations.

In doing so, MDIs embody the credit union ethos. And, by serving historically under-resourced communities, MDIs are advancing efforts to close the racial wealth gap, foster greater economic growth in underserved communities, build brighter financial futures for all Americans, and increase the ability of people of color to pass on intergenerational wealth to their families.

This MDI Symposium also builds on broader government efforts that are also working to achieve these goals, including the Community Development Financial Institutions Fund, the Emergency Capital Investment Program, and the Interagency Task Force on Property Appraisals and Valuation Equity.

MDI Performance and Challenges

Speaking of exceeding expectations, while MDIs tend to be small institutions, with average assets of about $133 million, they are generally well-capitalized. And, MDI performance in 2022 in some categories was stronger than the credit union system overall. Assets and membership both increased, while net worth and return on average assets were also robust. Last year, MDIs reported $42.2 billion in loans outstanding in 2022, an $8 billion increase from the previous year.

Yet, MDIs face specific challenges such as potentially higher exposure to credit risk due to their smaller asset sizes and memberships who may have not established credit or who live paycheck to paycheck. As a result, MDIs must frequently build larger reserves to mitigate credit risk while continuing to lend to consumers with lower credit scores.

MDIs also must earn the trust of citizens in their communities, who have often been victims of predatory lending by exploitive financial services providers.¹

To be fair, the NCUA did not always have insight into MDIs’ performance relative to peer credit unions. But, in our ongoing effort to increase support for MDIs, the agency added new information to the quarterly performance data summary for the second quarter of 2023, which was released last month.

Specifically, the NCUA now captures the aggregate financial performance of MDIs, and this new peer group data will help us better track MDI performance. The data for this period showed that 498 federally insured MDI credit unions collectively held more than $66 billion in assets and served more than 5 million members.² The upward trend in loans has continued from 2022, with MDIs reporting $43.9 billion in loans outstanding, up more than 12 percent from the same time last year.³

In looking at the second quarter data for MDIs, two things stood out. First, although the total assets of MDIs average just over $100 million, their return on average assets was as strong as credit unions with greater than $1 billion in assets. Both types of credit unions reported a return on average assets of 82 basis points —that’s better than all other peer groups.

Second, the MDI charge-off rate was 53 basis points — that’s 5 basis points lower than the delinquency rate of the largest credit unions holding more than $1 billion in assets.⁴ What these data points show is that small credit unions and MDIs with a strategic focus and effective leadership can compete and succeed amidst the uncertainty of an evolving economic environment and technological landscape.

That’s good news for you, your members, your communities, and our nation. And, that good news gives us something to build on over the next two days as we chart the future of the NCUA’s MDI preservation efforts and the options your credit unions have to support growth within underserved communities.

CDRLF Announcement

Another piece of good news was the decision of Congress to more than double the funding available for Community Development Revolving Loan Fund grants in 2023, to $3.5 million. As a result, the NCUA was able to award more grants and bigger grants to eligible institutions this year.

Speaking of eligibility, at the NCUA’s request, Congress also allowed all MDIs, regardless of whether they are a low-income credit union, to receive grants and loans for this round. That decision increased MDIs’ access to funds that can support underserved outreach efforts, capacity building, consumer financial protection, digital services and cybersecurity, and training.

Those two changes — the increased funding and more flexible eligibility criteria — allowed the NCUA to increase the number of grantees from 90 last year to 142 this year, and more than double the total dollar amount of technical assistance grants awarded to eligible institutions.

During this year’s funding round, the NCUA also piloted two new grant initiatives that can benefit MDIs in serving their members. The first is the Impact Through Innovation pilot initiative which addresses underserved communities by focusing on banking deserts, affordable housing, credit invisibles, and fintechs.

And, the second is the Small Credit Union Partnership pilot initiative that allows small credit unions, to pool their resources to achieve their growth objectives. Last week, the NCUA announced the 2023 Community Development Revolving Loan Fund grant recipients. The agency awarded $3.1 million in technical assistance grants. In this 2023 round, 42 MDI credit unions received a total of $1.4 million in grant awards. That is a five-fold jump in the total dollar amount from last year, when 16 MDIs were awarded a total of $270,000 in grants. Of the 42 MDI credit union awardees this year, 23 received grants specifically targeted to helping them build capacity. The other grants were for projects to improve digital services and security, outreach to the underserved, and staff training.

Going forward, the NCUA will continue to engage Congress and the administration on additional funding by requesting $10 million for the Community Development Revolving Loan Fund, which will further expand the reach and impact of the grants.⁵

MDI-Specific Examinations

The NCUA’s support for MDIs also extends to the agency’s policies and practices. Over the last year, we have taken important steps to ensure the examination process works with MDIs in achieving their mission. In meeting with credit unions, I have often heard about how difficult it is to evaluate MDI performance against other comparably sized non-MDIs during the examination process.

To rectify this, the NCUA started using new procedures to examine MDIs this year to give actionable results and a more constructive basis for comparison. This switch in peer metrics better tailors our exam procedures to the unique business models of MDIs, which often allow for higher expenses and delinquencies when compared to federally insured credit unions overall.

Together, the new MDI-specific procedures represent an important evolution of the examination process. With these changes, the NCUA will have a more accurate picture of an MDI credit union’s performance and MDIs will have better metrics to benchmark their work against their true peers.

MDI Preservation Program

As part of the NCUA’s commitment to helping MDIs not only survive but thrive, the agency established the MDI Preservation Program in 2015. Since then, the agency has listened to and incorporated feedback from MDIs to grow and improve this vital initiative. And, we continue to evaluate the ideas and suggestion we have received to further enhance our MDI preservation efforts.

To that end, the NCUA established its Small Credit Union and MDI Support Program last year, which dedicates field resources to help these credit unions address operating concerns in areas such as staff training, strategic planning, examinations, and improving earnings.

For 2023, the agency budgeted 10,000 staff hours across its three regional offices for the initiative, which includes 5,500 hours for direct support to MDI credit unions. Additionally, in June, the NCUA Board proposed an amendment to the Interpretive Ruling and Policy Statement 13-1 that governs MDIs, to simplify the definition of “community it services, as designated in its charter” to refer to an MDI credit union’s field of membership.

The proposed revisions would also facilitate the ability of MDIs in the NCUA’s merger registry to bid on a potentially failing MDI, and thereby preserve the endangered institution’s MDI status and provide a measure of continuity to the community it serves.⁶ Specifically, in the event of the potential failure of an MDI, the agency would contact MDI credit unions in the NCUA’s merger registry, which qualify to bid on a particular failing institution, to measure their interest. Agency staff would then offer technical assistance to any MDI credit union desiring to bid, in addition to providing MDI credit unions with an additional two weeks to submit a bid, whenever possible.

Together, these changes would bring the NCUA emergency merger process in line with that of the FDIC. They would also increase the likelihood of preserving the character of merged out MDI credit union. The comment period on this proposal closed in late August, and staff are now evaluating the feedback received.

The NCUA Board hopes to finalize these changes to the MDI preservation in the coming months.

Closing

Promoting service, opportunity, and financial security are fundamental to the work of MDI credit unions. Their community presence means an entrepreneur — whom other financial institutions might have overlooked — gets the loan needed to start a business and begins the process of creating jobs and building intergenerational wealth. It also means a young couple who lives in an under-resourced neighborhood can begin saving for a new home, a rainy day, or their child’s college education.⁷

Through their work, MDIs are putting the American dream within reach of those who would otherwise be left without access to safe, fair, and affordable financial products and services to build their financial futures. The NCUA has made important strides during the last year in supporting minority depository institutions, maximizing their potential, and advancing fairness within the financial system.

But, there is plenty of work to do. That is why we are gathered here this week; to roll up our sleeves, think big, dig deep, and chart the course for all MDIs and specifically your MDI in the years ahead.

I would like to close with a quote from Dr. Martin Luther King, Jr. At the March for Integrated Schools in April 1959, he urged all to “[m]ake a career of humanity. Commit yourself to the noble struggle for equal rights. You will make a better person of yourself, a greater nation of your country, and a finer world to live in.”

Fittingly, this plea is enshrined on the south wall of the MLK Memorial at the Tidal Basin, less than six miles from where we meet today. MDI credit unions have indeed answered that very call. And, Dr. King’s words continue to inspire — and challenge — us to act. As such, a “career in humanity” means the work is never completed. It promises a difficult but rewarding journey, but it is, at its core, a lifelong pursuit.

I thank you for continuing your journey with us and participating in this year’s MDI Symposium.

I hope you find it informative, helpful, and enlightening. We’ve got much more work to do and more promises to make and keep in the next two days, but those efforts will ultimately lead us to creating a better financial system that works for everyone.

With that, I will turn the floor over to Mr. Brenton Peck, Director of Financial Services Solutions for the Financial Health Network, our facilitator for the symposium.

Thank you.