Low-Income Communities & the Great Recession

Posted by on February 20, 2011

Low-Income Communities and the Great Recession: Mid-2010 Trends Report

(February 15, 2011 – New York, NY)  The National Federation of Community Development Credit Unions (Federation) has released its semi-annual analysis of trends among credit unions serving predominantly low-income communities.  The report for the period through June 30, 2010 notes three forces shaping the credit union movement in general: unabated recession; redoubled regulatory pressure and regulatory fees charged to credit unions; and positive media coverage urging consumers to “move your money” from large banks to community-based institutions.

“Resilience amid stress” best captures the condition of community development credit unions (CDCUs), according to Cliff Rosenthal, President and CEO of the Federation and co-author of the study with Cathi Min Kyung Kim, Assistant Director of Community Development Investments at the Federation.

By several indicators, CDCU growth outpaced that of the credit union industry at large:

. CDCU assets increased at an annual growth rate of 6.38%, compared to the industry-wide increase of 4.37%.
. The CDCU loan portfolio increased modestly, at an annual rate of 0.92%, in contrast to an annualized decline of -2.14% for the overall credit union industry portfolio.
. The collective Return on Assets (ROA) of 41 basis points for CDCUs was virtually the same as that of all federally insured credit unions.

However, economic stress did exact a heavy toll:

. The typical CDCU was marginally unprofitable with an ROA of -.07%, due in part to the deposit insurance charges of 22 basis points imposed by the regulator, the National Credit Union Administration (NCUA).
. Thirteen CDCUs were either merged or liquidated, a higher proportion than the overall credit union industry. Mitigating this trend, four of these institutions were merged into other CDCUs, thus ensuring continued service to low-income communities.

“The profile of the CDCU movement began to change dramatically in the first half of the year,” said Rosenthal.  “The announcement of the Treasury Department’s Community Development Capital Initiative (CDCI) brought a major influx of credit unions into the Federation’s ranks.”  Collective assets of Federation member CDCUs more than doubled from $5.25 billion to $11.3 billion, while combined membership increased by 60% from 1.072 million to 1.688 million.

To ensure consistency of analysis, the credit unions that joined early in the year were excluded from the mid-year trend analysis.  “We expect the picture at year-end 2010 numbers to show major changes reflecting the impact of these additional CDCUs and the investment of $69.9 million in secondary capital from the Treasury Department’s CDCI program in September 2010,” commented Rosenthal.

The complete report is available on the Federation’s website at: http://www.cdcu.coop/i4a/pages/index.cfm?pageid=624.