Louisiana CU Expands Subordinated Debt, Reflecting National Trend

Subordinated debt has mushroomed among credit unions this year under new NCUA rules that expanded eligibility, including at EFCU Financial Credit Union in Baton Rouge, La.

EFCU Financial announced Tuesday that it closed on a $5 million subordinated debt loan Nov. 30 from National Cooperative Bank, an Arlington, Va., financial institution serving cooperatives and what it called “socially responsible organizations.”

The Louisiana credit union has experienced fast growth. In the 12 months ending June 30, its assets grew 16% to $794.5 million and membership grew 10% to 58,830. By Sept. 30, it had $911.4 million in assets and 60,242 members.

The credit union went from no subordinated debt at the start of the year to $5 million by June 30 and $10 million by Sept. 30.

As a low-income designated credit union, the NCUA allows it to include subordinated debt in its net worth. Its net worth ratio was 9.09% as of Sept. 30, with subordinated debt accounting for about 1% of assets.

A news release from the credit union and the bank said the credit union plans to use the additional $5 million in subordinated debt “to support the future growth of EFCU in its geographic footprint and provide tools and resources to bolster its resiliency exiting the COVID-19 pandemic.”

Tyler Grodi, EFCU Financial’s president/CEO, said the credit union “looks forward to increasing our initiatives to support the greater Baton Rouge metropolitan area.”

“As our credit union continues to make strides to assist more members with the financial products and services needed to improve their lives, we believe that we will all have a brighter future,” Grodi said. “We see the potential before us, and we are grateful for the opportunity to expand our resources to make a larger impact,” Grodi said.

Bill Stewart, the bank’s vice president and credit union market leader, said the National Cooperative Bank has been providing subordinated debt to low-income credit unions for the past seven years.

“We are very proud of our many partnerships within the credit union movement and we strongly believe that this program, along with other initiatives like our fee-free settlement services for qualified credit unions, helps bolster mission-oriented credit unions and their ability to create meaningful impact in the communities they serve,” Stewart said.

At the end of 2021, 19 credit unions held $5.9 million in subordinated debt. By June 30, there were 37 credit unions holding $2.9 billion in subordinated debt. Those 37 credit unions had a combined $124.8 billion in assets and 8 million members, according to NCUA data.

According to Dallas-based ALM First Financial Advisors, reasons credit unions use subordinated debt include to:

• Expand products, services and lending.
• Support organic growth.
• Support branch purchases, mergers or acquisitions.
• Diversify sources of capital.
• Increase statutory capital.