Impact Through Equity Verity Credit Union 2022 Impact Report

YOUR FUTURE, YOUR PARTNER

The current financial system is inequitable, helping the wealthy continue to grow their wealth while others struggle to pay their bills. This is why Verity is being intentional by centering equity in all we do, focusing on creating positive impacts through equitable access to money. We're working to change the system from the inside, co-creating solutions with our members and communities so that everyone has a chance to financially thrive.

The purpose of the annual impact report is to connect our community to the work being done, and what opportunities remain. The work is never done and we will continue to build upon progress year after year. We invite you to read about the impacts and progress made in 2022 as we continue to pour the foundation of a more inclusive credit union.

TABLE OF CONTENTS:

• Letter from the CEO
• Letter from the Board Chair
• Letter from the Supervisory Committee
• Impact through equitable access to funds
• Impact through community connection
• Impact through sustainability
• Impact through small business
• Financials
• Connect with Verity

LETTER FROM THE CEO

As we settle into 2023, it’s with great pride that I reflect on 2022 and the incredible strides we made in addressing member feedback we received in 2021. We started the year with a deep understanding that we needed to make some critical investments in the credit union itself. We prioritized building stronger infrastructures, developing plans to reduce friction for members, and creating new ways to be more available to the community. With continued listening, we garnered more input and member contributions telling us when we got it right and when we got it wrong. The trust and loyalty of our members in providing this critical feedback allowed us to do our job better, resulting in us hitting most of our goals, even when many of our peers were not.

We finished 2022 with strong membership and loan growth, fueled greatly again by our partnership with Solgen Power. During the year, we opened 4,245 solar panel loans and brought in more than 6,400 new members through a variety of channels, including small business and communities historically underserved by financial institutions. We also increased the ability for members to save for their future with special certificates of deposit with no minimum deposit requirements. We ended the year with a strong reserve ratio, higher than expected net income, and an increased operating efficiency. Be sure to check out our financials.

Our mission to drive impact through equitable access to funds was bolstered by our selection as a newly formed Community Development Financial Institution (CDFI) to support the Small Business Flex Fund, which provides small business owners and nonprofits in Washington access to growth capital in low-interest loans of up to $150,000.

We were also selected to join Microsoft’s Partner Network, providing working capital support to small businesses and facilitate growth within underserved communities. Microsoft’s Partner Capital Fund was created to provide $50 million in working capital for businesses within the Microsoft Partner Network. Verity Credit Union joinswill be joining the ranks of a select group of banking partners nationwide to support this fund and will serve as Microsoft’s partner in Washington state for the next year.

This year and beyond, we’ll hold ourselves accountable when we get it wrong and ensure you fully experience our commitment to show up in a meaningful way.

In the fall, we partnered with Zest AI, a leader in automating underwriting with more accurate and inclusive lending insights to expand credit access to underserved communities. This new process for approving credit cards, personal loans, lines of credit, and auto loans uses around 300 data points to assess credit risk, as opposed to one credit score. This partnership also gives more people an opportunity to build credit through better access to it.

In 2023, we will continue to build infrastructure for better communications and better technology for employees and members. We’ll look at our access points to ensure our branches are located in areas that are convenient for members, and develop new products in response to ongoing member feedback.

I’ll resume my work with the committee responsible for urging lawmakers to pass the Washington Future Fund, giving babies from families with very little income a start to building wealth. These “baby bonds” are an important tool to reduce racial wealth inequities, addressing the fact that a baby’s financial future is largely determined by the amount of wealth they are born into, which disproportionately affects Black and Brown people, Latinx, and Indigenous children. And, as a newly-nominated American Heart Association “Woman of Impact,” I’m committed to shedding light on the health inequalities our communities face. As someone who lost her mother at the young age of 50, my hope is to prevent the same for other daughters, sons and family members.

This year and beyond, we’ll hold ourselves accountable when we get it wrong and ensure you fully experience our commitment to show up in a meaningful way. Our member-centric 3-5 year strategy will emphasize better technology, including _____ and ______, improvements in call centers and retail spaces, more loans for the BIPOC community, participation in another affordable housing project in Pierce county, and increasing the number of triple bottom line loans we deliver, putting needed capital into the hands of families, while taking care of the environment and our community.

I look forward to the year to come and what we can accomplish together.

Sincerely,

Tonita Webb, CEO/President

LETTER FROM THE BOARD CHAIR

As I enter into my 5th year as a Verity Board volunteer, I note how Verity’s strengths continue to propel us forward as a member-driven and community-focused financial institution.

Together, we are Your Partners for Your Future.

Your Board, Supervisory Committee and Associates, bring skills from across industries and sectors to ensure varied approaches and inquiries. Our differing life experiences inform discussions about strategy, products and just what it means to be a community-focused financial institution. In the five years of Verity growth I’ve witnessed, the diversity of skills, cultural experiences, age, gender and career backgrounds has transformed. And, in these five years, Verity has thrived for its members.

Together, we are Your Partners for Your Future.

Reflecting back just one year, your Board and the executive team celebrate member growth and asset increases propelling us toward becoming a $1 billion credit union. These milestones follow our strategic schedule even in the midst of national and local challenges, economically, socially and “pandemically”. As Your Partners for Your Future, we have done this at the same time as increasing our ability to serve the underserved.

As our CEO shared, we have attained the competitive honor of becoming a Community Development Financial Institution, joined Microsoft’s Partner Network and addressed inequities around credit access and overdraft protection fees. These are all steps in the right direction and also just steps.

The path ahead is bright and our footing is sure. We’re glad to be in this as Your Partners for Your Future. If you might want to be a part of this with us, please check out our Leadership Volunteer opportunities!!

With gratitude,

Nancy Woodland, Verity Board Chair

LETTER FROM THE SUPERVISORY COMMITTEE

The Supervisory Committee is an independent governing entity of Verity Credit Union that is responsible for making sure the credit union’s financial records are in order and that internal controls are in place to protect the assets of the Credit Union and its members. The Committee does this by making sure that an annual audit is conducted and by making sure that internal controls are tested regularly.

As of December 31, 2022, the Verity Credit Union Supervisory Committee was comprised of two elected volunteers: Zhu Zhu Xiao, Chair; and Tom Holz, member.

The Supervisory Committee meets regularly with management staff to review and evaluate the credit union’s operating policies, ensure internal controls are defined, effective, and followed. The committee reviews and recommends policy changes to Verity’s Board of Directors, and ensures sound operating procedures are adhered to in accordance with established policies.

For the year 2022, the committee retained the independent CPA firm of Moss-Adams LLP to audit and prepare Verity’s financial statements. The credit union’s audit was conducted in accordance with the Engagement Letter. Our independent auditors have issued an unmodified opinion. The financial statements can be found on the Verity Credit Union website.

Zhu Zhu Xiao

Supervisory Committee Chair, 2022

IMPACT THROUGH EQUITABLE ACCESS TO FUNDS

The racial wealth gap persists, and as a long-time financial cooperative, we acknowledge the historic role we’ve played in creating and perpetuating that gap. There is a long history of financial institutions discriminating against BIPOC and limited-income communities through lending practices, mortgage approvals, deposit account fees, and more. While these practices are changing, there is still much more to do.

More than 150 years after the Emancipation Proclamation, Black Americans still own less than 1% of the total wealth in the U.S. According to the Black Wealth Data Center, the average Black American household in 2019 held about $207,000 in assets compared to $1.1 million for White American households. Hispanic households were only slightly more wealthy than Black, with an average of about $245,000 in assets.

But the impacts of inequitable access to financial services can be seen in more than wealth accumulation. According to the Consumer Financial Protection Bureau (CFPB), the 8% of consumers who overdraw their checking accounts more than 10 times each year pay 74% of all overdraft fees nationally. And a 2019 Bankrate survey found that Hispanic customers pay triple in checking account costs each month when compared to White customers, and Black customers pay more than double.

Making financial wellness more accessible to all is one of Verity’s main goals. Verity’s CEO and senior leadership, along with all staff, have been hearing more and more from members about how our programs and services affect their financial lives, both positively and negatively. To support those efforts, we took the following steps in 2022 and plan to build upon them more in the future:

• We continue to support organizations that are specifically supporting generational wealth development, including Black Owned Business Excellence, HomeSight, Habitat for Humanity, Black Homeownership Initiative, and Evergreen Impact Housing Fund.

• We’ve started examining our existing products and services to co-create solutions with existing and future members so that everyone feels welcome at Verity. This includes developing sharia-compliant accounts, reviewing overdraft practices and fees, and examining barriers to opening accounts.
• Partnered with Zest AI for an alternative scoring model to make lending more inclusive and available to those who need it most. This method takes a holistic approach to looking at the creditworthiness of people, making it more equitable and increasing access to people who are credit invisible. On average, financial institutions using Zest AI see 25% more people qualifying for loans.
• Increased rates on promotional Certificates of Deposit with no minimum balance, making the high-rate deposit product more accessible and allowing more people to increase their saving balances and possibly long term wealth. Usually, financial institutions require an opening balance requirement of $500 - $1,000 with CDs. According to a survey from MagnifyMoney.com, about 48% of people who have a CD earn $100,000 or more each year.

IMPACT IN ACTION: OVERDRAFT PROTECTION

Over the course of 2022, we collaborated with our membership to make changes to our Overdraft Protection Program (ODP), which ultimately resulted in reducing our overdraft fee and eliminating the non-sufficient funds (NSF) fee. But we didn’t make those changes without first hearing from you, our members.

We recognize the inherent way fee structures and programs like overdraft protection disproportionately impact historically excluded communities. Overdraft programs, including Verity's, have historically included multiple possible fees depending on an individual's accounts, services, and selected settings, potentially causing a $5 produce purchase to cost more than $50. With this in mind, we approached the revision of our overdraft program with an equity mindset that centers the lived experiences of those most impacted and is created out of a shared vision in partnership with our community.

• About 25% of members who used ODP during 2016-2021 accounted for 88% of all transactions resulting in negative balances.
• 23% of members who used ODP had at least one instance of a negative account balance in 4 out of 6 years reviewed.
• 7.3% of members who used ODP had at least one instance of a negative account balance every year reviewed, accounting for about 46% of all NSF transactions.
• On average, overdraft and NSF fees generated about $1.35 million each year.

In the middle of 2022, we surveyed Verity members about their experiences with overdraft programs and how they thought it should be changed, looking specifically at results from members who had at least one overdraft-related fee during 2021 compared to the rest of Verity’s membership. We also looked at a variety of demographics to ensure we were making decisions based on lived experiences of all groups and not just one.

• 763 members responded to survey (about 2.6% of members surveyed).
• 25% of members who received an overdraft-related fee in 2021 said they have trouble meeting expenses regularly, versus 6% of those who didn’t.
• More than half of members who received an overdraft-related fee said their preference is for a charge to go through, with a fee, rather than the transaction being denied without a fee (31% preferred that option).
• 44% of members who received an overdraft-related fee said they were “very concerned” about the fee amount, versus 20% of members who hadn’t had a overdraft-related fee in past year.

With the above information, we made the following changes to our ODP program, effective January 1, 2023:

• The $28 NSF fee is eliminated. This means if there isn’t enough money in a member’s account when they try to perform a transaction and they aren’t opted-in for overdraft coverage on debit card purchases, the transaction is declined and there is no fee.
• The $28 ODP fee is reduced to $10. This means if someone performs a transaction that draws their account negative and we cover the payment, they will receive a $10 fee.

The reduction in fees related to overdrafts and negative account balances will save members an estimated $850,000+ each year.

And this is just the start of changes to our overdraft program. We’re committed to continuing to listen to our members and partner with them to continue co-creating solutions. But we also know the changes have had immediate impacts. Below are just a few grateful comments received after the announcement was made in late 2022:

As I write this note I am in tears. I have long relied upon Verity's overdraft policies to help me stay housed and off the streets. I am so grateful for this new policy and am looking forward to finally being able to have financial freedom! Thank you so much for your attention to this, and the disparity that banks have traditionally preyed upon people like me in the past. I have been banking with Verity for so long, and I will continue to do so for as long as I can. Thank you so so so much.

Just saying that I love that you changed this policy and love even more the reasoning behind it. Changes and practices like this will keep me banking with Verity.

Good morning. I am a long time member of the credit union and I just want to say thank you so much for making the change that was made regarding nonsufficient fees/overdraft fees. I think it’s safe to say most of us do not want our accounts to go into a negative status. With the rising costs of everything including health insurance every year it makes it hard to survive even if you have a good job. Things happen in life that set you back for a little while but as Maya Angelou stayed “I rise.” Verity credit union has helped many members “rise.” For that l say thank you so much. I appreciate all of you at Verity Credit Union always helping members with a solution to help with financial difficulties.

IMPACTS THROUGH SUSTAINABILITY

Climate change affects us all—no question. But severe weather events and air pollution can have a disproportionate impact on those least able to withstand them. Why? Research is still occurring, but historical impacts of zoning and access to healthcare play a part.

For example, redlining and neighborhood covenants pushed many marginalized communities into less desirable geographies, like flood plains or near industrial centers. Similarly, locations with higher negative impacts to health, like near freeways, are also where property values tend to be lower and therefore more affordable for limited-income families. These societal systems helped highlight the intersectionality between environmental impacts on BIPOC communities and negative health impacts.

According to a study from Princeton University, Black Americans are 75% more likely than White Americans to live in “fence-line” communities, which are areas near commercial facilities that produce noise, odor, traffic, or emissions that directly affect the population. And poor air quality can lead to numerous health problems, including asthma, which affects about 13.4% of Black American children compared to about 7.3% of White American children.

While we at Verity understand we can’t fix climate change, we do believe in the importance of doing what we can to mitigate the negative impacts of climate change through sustainability.

Examples include:

• Being part of the GABV Climate Pledge.
• Encouraging employees to reduce paper and energy usage at our facilities.
• Offering charging stations for electric vehicles at some locations.
• Energy efficient buildings and branches.
• Offering loans specifically geared for supporting individual efforts to reduce reliance on fossil fuels, including loans for environmentally friendly vehicles, bicycles, and solar panels.

IMPACT IN ACTION: PROVIDING LOANS FOR ECO CHANGE

No single person or company can battle climate change alone—creating lasting environmental change is going to take everyone. At Verity, we partner with our members and provide tools for them and their communities to make changes on their own, which in turn spreads positive impacts around them. For example, we created a dedicated loan type for purchasing and installing solar panels, so that people don't need to wait until they build up enough equity in their home to borrow for this home improvement.

We acknowledge these can be expensive investments for households to make, which is why we provide funding and rate discounts to help make them possible.

In 2022, we provided loans to 4,563 members for environmentally-friendly purposes, representing 31.2% percent of our total loan portfolio. The biggest share of those are through our solar lending program, which has expanded to make it possible for people in five states to put solar panels on their homes. In 2022 alone, 4,245 members opened a solar energy loan.

IMPACTS THROUGH SMALL BUSINESS

Small businesses are core to the US economy, both holistically and locally.

But historically, the majority of businesses (big and small) have been owned by Caucasian males. And that trend, while changing for the better, continues. According to the U.S. Census Bureau and the Annual Business Survey, about 1.15 million, or 20% of all businesses with at least one employee, were BIPOC-owned. About 21% of businesses were owned by women, yet more than half the U.S. population identifies as a woman. In Washington in 2019, there were about 137,000 businesses with at least one employee. Of them, almost 11% are Asian-owned, 4% are Hispanic-owned, and only 0.4% are Black-owned.

Why does divide continue? There are a variety of systemic reasons that play into this: small businesses growing to larger businesses that are then passed down within a family, financial system barriers including lending for BIPOC and women, access to business schools and higher education, and many more.

For example, according to data from the Federal Reserve in 2020, about 80% of White-owned businesses received at least a percentage of the funding they requested from a financial institution. But the numbers drop when looking at different groups: 77% for Asian business owners, 69.5% for Hispanic business owners, and only about 60% for Black business owners.

To support small business development by people historically left out of business ownership, Verity took the follow steps in 2022:

• Joined the Washington Small Business Flex Fund to continue to provide loans to businesses negatively impacted by Covid-19.
• Financially supported the third round of the Ready for Business fund, which was started by the GSBA and Comcast in 2020. The program provides microgrants to small businesses who have historically faced systemic barriers to entrepreneurship, including businesses owned by Black, Indigenous, and people ofcColor; women; members of the LGBTQ community; and businesses located in rural areas. In 2022, the fund support 76 businesses.
• Continued to support our strong partner Business Impact NW through their annual Celebrating Dreams event (which supports entrepreneurs who identify as women), Impact Pitch competition, and Small Business Saturday campaign to support local businesses during the holiday shopping season.

IMPACT IN ACTION: WHAT DO WOMEN BUSINESS OWNERS NEED?

Verity’s Chief Lending Officer, Tina Narron, serves on the board of the Washington Women's Business Center and mentors women business owners. She’s been providing suggestions on what women business owners need that is different than their male counterparts.

According to one source, as of 2022, women receive an average loan size of $39,000, while men receive an average loan size of $44,000. Additionally, in 2021 it was reported that less than 3% of venture capital went to women-owned businesses, even though Boston Consulting Group research found that women-founded businesses earned more than twice as much per dollar invested and stronger cumulative revenues at nearly 10% more over a five-year period than those led by men.

This is one of the reasons Verity provides below-market rates on capital for women-owned businesses and nonprofits supporting historically marginalized communities.

Tina, in conjunction with Business Impact NW and the Washington Women’s Business Center, looked into what needs women business owners require that may be different than male business owners. In addition to accessing capital, they discovered there are three other main areas where support needs differ: training and coaching (because women are less likely to have managerial or business ownership experience than men), financial capital, and networking connections. Read the full article about the needs at cuna.org.

FINANCIALS

Below is a high-level look at Verity's balance sheet, as of the end of 2022. For more details, view our full financial report.

INCOME AND EXPENSE

• Total Interest Income: $32,088,837
• Total Interest Expenses: $1,659,240
• Net Interest Income after Provision for Loan Losses: $30,429,597
• Total Non-Interest Income: $8,844,796
• Total Non-Interest Expense: $32,335,818
• Net Income Attributable to Verity Credit Union: $7,772,931

BALANCE SHEET

• Total Assets: $845,106,693
• Total Liabilities: $772,416,045
• Total Members' Equity: $69,226,004
• Non Controlling Interest: $3,464,644
• Total Equity: $72,690,648
• Total Liabilities and Equity: $845,106,693

Financials audited by independent CPA firm Moss-Adams LLP. These statements represent Verity Credit Union and Credit Union Home Mortgage Solutions (CUHMS) consolidated. Verity is part-owner of CUHMS.

IMPACT THROUGH PARTNERSHIP: JOIN US

When you partner with Verity and become a member, you join 40,000 others in supporting socially-responsible banking. Join us in co-creating impactful solutions for you, your family, and your community so that everyone has a chance to thrive.

Already a member? If you're looking to deepen your partnership with Verity and spread equitable impacts, consider one of the following options:

• Join Verity's Board Associate Program or Supervisory Committee
• Connect with us on Facebook, Instagram, or LinkedIn
• Find us at a community event
• Refer a friend or family member to join Verity