The $46 million Solutions First Federal Credit Union was founded in 1964 to serve members of the International Association of Machinists and Aerospace workers at Fort Novosel (formerly Fort Rucker).
Its main office is in Enterprise, AL with a branch in Ozark. Over time the credit union has expanded to a community charter for Dale, Coffee, Covington, and Geneva Counties, Alabama with an FOM of over 170,000. Today its ten employees serve 5,000 members.
One event makes this credit union unique in the three decades since the turn of the century. It is the first and only credit union to borrow from the movement funded Central Liquidity Facility (CLF).
During the 2008/2009 financial crisis the NCUSIF borrowed $10 billion from the CLF on behalf of two corporates. There was also an effort to create a special program for credit unions to refinance members home loans that never got off the ground.
So Solutions First is the first stand-alone CLF loan this century. This unusual borrowing was noteworthy enough that it was mentioned by Chairman Harper in the December 2023 board meeting, but without any details.
A “No-Brainer”
At yearend 2023 credit unions continued to face liquidity demands due to the uncertainty caused by bank failures earlier in March and the Federal Reserve’s raising short term rates to almost 5% to fight inflation.
At the 2023 yearend 1,267 credit unions reported total borrowings in excess of $137 billion versus only $44.8 billion at December 2022.
Following the sudden failures of Silicon Valley Bank and two others, the Fed in March 2023 established a special borrowing facility, the Bank Term Funding Program. This became the go-to source for credit unions. The special facility was used by hundreds of credit unions as described in this analysis. The Fed ended the program in March 2024.
Frank Garrett is the CEO at Solutions First, having arrived eleven years earlier from a banking career. He said the approach for a CLF loan had been suggested by NCUA examiners. The credit union was facing ongoing loan demand especially from its indirect lending program. The credit union was funding this with overnight borrowings costing as much as 7%.
By taking a short-term fixed rate $1.0 million CLF loan, the credit union was able to save almost 2%. The process took about thirty days to become a member and receive the loan which was fully collateralized . He called the decision a “no-brainer.”
Since that event, loan demand has diminished dramatically, the credit union has curtailed indirect loans, shares have stabilized and investments yielding as low as 1% matured and been reinvested at 4.5% or more. He was able to prepay the loan in the first quarter of this year.
In this first quarter, the credit union like many others, has slowly started a comeback from a difficult 2023. The prior year saw staff cutbacks, expense reductions and above average delinquencies.
The CLF loan was done with NCUA encouragement, a positive sign. The critical question Is whether this an example to be emulated by others, or merely the last “bird of summer” ?
Good morning Chip. A couple thoughts for you on this from here in Vermont. It’s great that the clf was there for this particular credit Union. However I have to wonder why their CEO didn’t take the route that I did for the Credit Union of Vermont. That is, since it is part of the credit union movement’s mission to provide a deposit taking function, to offer high value CDs to raise the money to fund their indirect lending program. I don’t believe you cited the exact date of the clf loan, but you did mention that such loan save the credit union about 2% cost of funds. Offering members high value CDs at under 5% could have raised the money needed to fund the indirect program while at the same time providing greater value for the members, attracting new members, saving the credit union even more money in terms of its cost of funds, created cross selling opportunities that would have brought additional value for the members and relationship opportunities for the credit union. Of course I don’t know the full story, but all too often I see credit Unions taking the easy road to funding their programs. If in fact the clf is used to simply provide a no-brainer option, then I suggest it comes the cost of value and service to our members and potential members. As such, that practice is a disservice to the credit union and the movement.
Wishing you well,
Brian Fogg, retired CEO and current Advisor to the Credit Union of Vermont