COVID-19 Impact: Balancing Patronage Dividends And Loan Loss Reserves

Dixie Abramian
Firefighters First FCU CEO Dixie Abramian

EDITOR'S NOTE: Below is an excerpt from an article in featuring an interview with Firefighters First CU CEO Dixie Abramian discussing how the credit union handled patronage dividends and rebates this year.

In a year that presented no shortage of economic uncertainties, credit unions that paid out dividends and rebates had to do so while balancing the tradition against their own financial realities. For many, the need to build loan loss reserves pushed back against the desire to reward member-owners for their patronage at a time when many needed to build their own cash reserves.

Firefighters First Federal Credit Union ($1.8B, Los Angeles, CA) paid out $2.1 million in dividends to almost 42,000 of its 53,000 members on Dec. 31, 2020.

The cooperative based its profit-sharing bonus on loans, shares, certificates, and use of investment, insurance, and business services, with a few exclusions, says CEO Dixie Abramian. Plus, the member had to be in good standing with the credit union and current on their property taxes.

The Golden State cooperative has returned more than $50 million to members since 1981, says Abramian, who has been with the credit union for 29 of those years, the past four as CEO.

Did you think differently about the dividend this year because of the pandemic? If so, how?

Dixie Abramian: It was even more important and rewarding to give back to career firefighters and their families.

How did you balance the need to pay out the dividend against the need to reserve cash for a possible downturn?

DA: Historically, our capital ratio combined with several other key metrics, including liquidity and overall balance sheet strength, has been the general barometer for determining whether to pay an interest refund and dividend bonus.

The pandemic brought an unexpected influx of shares, resulting in a record high liquidity ratio. Naturally, the inflow of shares had an adverse effect on the capital ratio. However, all other metrics at year-end were strong, especially considering the pandemic. In the end, we determined the capital ratio decrease was a product of the unplanned inflow of shares and not of the strength of our credit union as a whole.

From a consumer perspective, the worst appears to be behind us, especially with our field of membership. At this time, the possible negative situation we face are shares leaving the credit union. However, we stand ready to take rate action and manage our balance sheet to maintain a competitive, but reasonable, net interest margin.

Have you increased your reserves? If so, how much? If not, why not?

DA: Yes, we increased our year-over-year allowance for loan loss reserve for the period ending Dec. 31 by $248,999, consistent with our relatively flat net loan growth and associated underlying member risk.

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