Credit unions and their members benefit from a new round of PPPs

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Credit unions are bracing for another round of Paycheck Protection Program loans this month as many business members have been exhausted by nine months of pandemic disruption.

The $900 billion relief package crafted by Congress in December includes $284 billion for another round of Paycheck Protection Program (PPP) loans for small businesses. The loans are guaranteed by the US Small Business Administration and are designed to be canceled in whole or in part by the SBA.

The CUNA and other business groups had been lobbying Congress for more relief, including PPP funding.

Jordan van Rijn, senior economist for CUNA, said the relief will help businesses and allow credit unions to continue serving their members.

“It gets really difficult,” van Rijn said. “At first a lot of people thought businesses could close for two or three months and reopen, but now it’s dragging on for seven, eight, nine months, almost a year now. It’s really hard for businesses to weather this storm without significant relief. »

The SBA is expected to begin accepting applications Jan. 14, “if not sooner,” said Jeremy Gilpin, executive vice president of Greater Commercial Lending, a CUSO of Greater Nevada Credit Union, Carson City, Nevada ($1.3 billion). active, 77,511 members) .

In early rounds, Greater Commercial Lending granted $583 million out of a pool of $600 billion. Greater Commercial Lending’s share in the early rounds was around 0.1%. If that holds true for the new round, as Gilpin expects, it would award about $276 million this year.

From April to July, 934 credit unions issued 1.2 million PPP loans for $9.7 billion, supporting 1.2 million jobs, according to SBA data. Banks accounted for 95% of the $521 billion in PPP loans made through July 31. Credit unions provided 2% of the total value of PPP loans, but 4% of the number of loans.

This round allows former recipients to reapply, but has restrictions designed to ensure smaller businesses get more of the money, including lowering the maximum loan from $10m last year to $2m. dollars this year.

Loan proceeds can be used for a wider range of expenses and remain forgivable, and the law contains new provisions designed to allow more tax deductions.

The program allows credit unions to deepen their relationships with member companies. And it also has more tangible benefits. For one thing, the SBA pays fees to lenders when amounts are forgiven.

The fees are 5% of the amount granted for loans up to $350,000, 3% for loans between $350,000 and $2 million and 1% for loans of $2 million or more.

In previous rounds, if all credit union loans had been below $350,000, they would have received $485 million in fee income.

An amount of this magnitude would have significantly boosted non-interest revenue, which rose 14.4% to $12.2 billion.

This also translates to a 0.07% annualized gain in average assets in the second quarter when the annualized return on average assets was 0.61% and an additional 0.07% in the third quarter when the ROA was 0.80%.

“We saw a big increase in this figure and assumed that part of it was related to PPP loans. Part of this is also due to mortgage fees and secondary market mortgage sales,” van Rijn said.

“We thought credit union revenue was going to drop due to the low interest income environment, but all of these fees (and other operating income) actually boosted credit union revenue in the third quarter. . Some of that was potentially due to those PPP loans,” he said.

PPP loans made up about 4.6% of bank loan portfolios, but less than 1% of credit union loans as of September 30.

However, PPP loans have also had an outsized impact on parts of credit union portfolios.

For example, the volume of all non-home loans issued between April 1 and September 30 was $179.5 billion, up 3.7% from the six-month period in 2019. However, if you remove the 9.7 billion dollars of PPP loans, non-real estate loans the production of real estate loans fell by 1.9%.

PPP loans had to be registered somewhere, and the NCUA opted to have credit unions place them on the balance sheet under the “All Other Unsecured Loans/Lines of Credit” account – usually made up of consumer signature loans. .

PPP loans are excluded from the caps for member business loans, so placing them under unsecured personal loans excludes them from commercial loan calculations.

The balance was $53.7 billion as of September 30, up 17.7% from a year earlier. Total loans only increased by 6.3%.

“This category over the past 12 months has grown faster than any other category,” van Rijn said. “That’s probably a big part of that – PPP loans. Once they’re forgiven, it could lead to a drop in that category.

For example, if PPP loans were excluded from the September 30 balance, unsecured personal loans would have fallen 3.6% to $44 billion.

And while the loans increase a credit union’s assets, van Rijn said the amount is excluded from its net worth calculations, preventing the loans from eroding net worth ratios.

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