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Financial Trends in CDCUs reports economys impact
NEW YORK (8/6/09)--The economy's impact throughout 2008 on community development credit unions (CDCUs) was mixed, according to a new report released by the National Federation of Community Development Credit Unions. CDCUs experienced overall increases in total assets and membership served, and modest growth in real estate, commercial and industrial, and member business lending. But the economy resulted in the loss of 18 CDCUs due to mergers and liquidations last year, said the federation's "Financial Trends in Community Development Credit Unions: 2008." Assets of the CDCUs grew 5.2% or $224 million on a base of $4.3 billion. This figure outpaced the 2.13% growth in their net worth, causing their aggregate net worth-to-asset ratio to decrease to 9.99% from 10.29%. Managing operating expenses continues to be an area of difficulty for many CDCUs. "It is the nature of the CDCU business that expenses exceed those of credit unions that do not primarily serve low-income populations," said federation President/CEO Cliff Rosenthal. "The driving factors include small average share and loan balances, limited payroll deductions, the typically small size of the institutions themselves, and the high level of personal service required in low-income communities," Rosenthal added. The 18 credit unions liquidated or merged represents a loss of 9% of the federation's membership--on par with the highest losses of the past 10 years. Even though they did not engage in the toxic lending that caused the economic turmoil, the impact on CDCUs with their mission of serving low-income communities has been disproportionately high, said the report. "The loss of so many CDCUs…represents a terrible blow for the underserved communities these institutions serve," said Pablo DeFilippi, federation director of membership services. "Without them, many communities will be left without access to affordable financial services, not to mention vital developmental services such as financial education and asset-building programs that these institutions have historically provided." When CDCUs merge with other CDCUs, "we have invariably witnessed the closing of branches in the lowest-income neighborhoods, further disfranchising those communities," DeFilippi said. Sustaining growth while controlling delinquencies and operating costs will continue to be a major challenge for CDCUs. Alice Greenwald, federation community development investments director, explained that the low interest-rate environment means many CDCUs are having trouble generating sufficient income from their loans and investments to offset their expenses. "We're doing all we can to help CDCUs weather the financial crisis, such as providing our members with secondary capital, which is deeply subordinated debt that can be counted as institutional net worth, but the demand from our members far exceeds our resources," Greenwald said. The federation said that $17 million in grants recently awarded to nine CDCUs by the Treasury Department's Community Development Financial Institutions Fund will help. The federation also is pressing the National Credit Union Administration to convert low-interest loans from its Community Development Revolving Loan Fund into secondary capital to help boost the CDCUs' net-worth ratios. Other key findings for 2008:
* CDCUs' membership grew 2% to 1,036,779; * Their profitability (return on average assets) decreased to 0.06% from 1.01%; * Net worth rose $9 million or 2.13% but net worth-to-assets ratios declined; * Loans rose by $208 million or 6.27% with loans to assets rising to 77.75% from 76.98% the year before; * Delinquent loans as a percentage of total loans rose to 2.88% from 2.25%, with the net charge-off rate increasing to 1.20% from 0.76%. The media ratio in 2008 was 3.79%, up from 3.43% in 2007; * Operating expenses were 5.16% of average assets, an eight basis point increase from year-end 2007; and * Shares/deposits increased by $250 million or 6.58%.
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