Professional Documents
Culture Documents
Community Development
Credit Unions
June 2008
© National Federation of Community Development Credit Unions, 2008, with support from the
CDFI Data Project.
This report summarizes financial trends as of year-end 2007 for 232 community development credit
unions (CDCUs). These institutions, all members of the National Federation of CDCUs, promote
ownership of assets and savings and provide affordable credit and retail financial services to low-
income people, often with special outreach to minority communities.1
The CDCU sector continued to expand at rates greater than those of mainstream credit unions:
CDCUs grew at higher rates in membership (though less precipitously than in the previous two
years), assets, shares, and net worth. This generally strong financial performance was somewhat
tempered by a major spike in delinquencies. The downturn in loan quality caused by the real
estate crisis has hit credit unions and the financial industry as a whole with some force, though
the rise in CDCU delinquencies is due less to real estate lending than to the general worsening of
the economic climate which the real estate crisis has caused. CDCUs are facing an environment
in which more members are losing jobs and not finding the money for monthly loan repayments,
and perhaps prioritizing mortgage payments, often at mainstream institutions, over other types of
loans they have taken out at CDCUs. At the same time, CDCUs have seen a substantially
smaller percentage increase in the volume of delinquencies and charge-offs, in both real estate
and total loans, than the mainstream, and continued to maintain a strong and level charge-off rate.
It is also critical to note that in the face of a general 14% constriction in mortgage lending
nationally, credit union real estate lending grew substantially, with CDCUs outpacing even the
general credit union rate.
CDCUs showed notable improvements in profitability and net worth ratios, in contrast to the
mainstream’s decline in these performance measures in the face of an unfavorable economic
climate. Increased delinquencies did force CDCUs to raise their provisions for loan loss, and
operating expenses also grew, but all other ROA components rose and led to a net 4 basis point
increase in profitability to 0.88% (FICUs overall showed a decrease from 0.82% to 0.65%).
Especially notable was a 14 basis point increase in fee and other income, which was also the
only ROA component to increase for FICUs as a whole (+6bps). This component has continued
to increase steadily from year-end 2005 for both FICUs and CDCUs.
Another significant CDCU trend is that the growth in deposits has been accompanied by a
redistribution of shares from short term to longer term savings instruments. Share certificates
have faired especially well, growing by 20%.
The challenge faced by CDCUs continues to be sustaining growth momentum while controlling
delinquency and operating expense ratios. CDCU operating expenses are growing slowly, but
steadily, and are historically around 1.5% to 2% higher than the mainstream’s, partly because
distressed communities require additional services, especially financial literacy support and training.
In 2007, operating expenses increased by 0.11%, to 5.12% (FICUs increased by 0.07% to 3.39%).
Another ongoing challenge is the frequency of CDCU mergers. CDCUs continued to merge at a
higher rate than FICUs. The Federation lost 9 CDCU members, or 4.1% of total membership, as a
result of mergers and liquidations (FICUs decreased by 3.12%). The Federation loss is on par with
2006 and substantially less than the 5.8% rate in 2005. The higher CDCU rate can be explained by
the fact that smaller credit unions are more likely to merge to achieve economy of scale, and the
median CDCU is substantially smaller than the median FICU. In fact, the merger rate for FICUs in the
same size category as CDCUs has been roughly the same.
1
The report compares CDCU results to those of all federally insured credit unions (FICUs), referenced from the NCUA
quarterly newsletter for December 31, 2007 and Callahan’s Peer-to-Peer. The dollar and membership numbers are
aggregates for the entire CDCU sector. All ratios are likewise dollar-weighted aggregates. Change is measured from fiscal
year-end 2006. CDCU performance measures from the present and all earlier time periods are always derived from a set of
current CDCUs, credit unions that are Federation members as of the writing of this report.
HIGHLIGHTS
• Profitability, as measured by return on average assets, increased from 0.85% to 0.88% (FICUs
overall showed a decrease from 0.82% to 0.65%).
• Net Worth increased by $39.8 million, or 9.91% (FICUs: +5.28%). The net worth-to-assets ratio
increased from 10.01% to 10.20% (FICUs: decreased from 11.53% to 11.44%).
• Assets rose to $4.33 billion, increasing by $318 million, or 7.93% (FICUs: +6.12%).
• Loans increased by $185 million, or 5.92% (FICUs: +6.58%). The loan-to-share ratio decreased
slightly from 92.16% to 92.10% (FICUs: increased from 82.23% to 83.32%).
• Delinquent loans as a percentage of total loans increased from 1.89% to 2.51% (FICUs
overall showed an increase from 0.68% to 0.93%). Delinquent real estate loans increased
from 1.47% to 2.03% (FICUs increased from 0.34% to 0.67%). Net charged-off loans
increased by $1.7 million, or 6.87%, but a comparable increase in lending led to the charge-
off rate remaining unchanged at 0.78% (FICU charge-off rate increased from 0.45% to
0.50%).
• Operating Expenses were 5.12% of average assets (FICUs: 3.39%), increasing by 0.11% from
year-end 2006 (FICUs: increased by 0.07%).
CAPITAL
• Total net worth increased by $39.8 million in 2007. The aggregate net worth to total assets ratio
increased by 0.19% to 10.20%. The average (non dollar-weighted) net worth ratio for CDCUs stayed
steady at 12.52% (FICUs: increased from 15.08% at the end of 2006 to 15.55% at year-end 2007).
9.60%
9.40%
9.20%
2004 2005 2006 2007
ASSET QUALITY
ASSET DISTRIBUTION
(Millions of Dollars)
Investments,
$375, 9%
Fixed Assets,
$130, 3%
Other, $109, 3%
Net Loans,
$3,275, 75%
Loan Trends: Loans increased by $185 million in 2007, or 5.92% (FICUs: +6.58%). Because of
slightly higher share growth, the loan to share ratio fell slightly, from 92.16% to 92.10% (the FICU
ratio increased from 82.23% to 83.32%.) New vehicle and other loans declined by 4% and 15%
respectively, while all other loan categories grew. The credit union industry as a whole also saw a
2% decline in new auto loans, with all other loan categories growing. First mortgage and other real
estate loans increased substantially, both for CDCUs and FICUs as a whole (FICUs: +12.28% and
8.66%, respectively), as did credit card and other unsecured loans (FICUs: +13.37% and 8.17%,
respectively). Growth in the various loan categories for CDCUs is as follows:
2007 2006
Growth Growth
Loan Category Balances Balances
(Millions) Rate
(Millions) (Millions)
Unsecured Credit Card $134 $123 $11 9%
All Other Unsecured $223 $199 $24 12%
New Vehicle $791 $828 ($37) -4%
Used Vehicle $759 $729 $30 4%
First Mortgage Real Estate $810 $687 $123 18%
Other Real Estate $390 $318 $72 23%
Lease Receivables $0 $1 ($0) -60%
All Other $204 $240 ($36) -15%
The loan distribution graph below shows that 36% of CDCU loans are real estate-secured, while
47% are vehicle loans. For FICUs, that distribution is almost reversed, with 52% in real estate
loans and 33% in vehicle loans.
LOAN DISTRIBUTION
(Millions of Dollars)
Unsecured Credit
All Other , $204 , Card, $134, 4%
6%
All Other
Unsecured, $223,
7%
Other Real Estate,
$390 , 12%
Delinquency Trends: Delinquent loans increased steeply by $24 million (41%) since year-end
2006 (FICUs: increased by 49%), while the delinquent loans to total loans ratio increased from
1.89% in 2006 to 2.51% at year-end 2007. The FICU delinquency ratio also rose sharply in 2007,
from 0.68% to 0.93%. Total delinquent real estate loans greater than 2 months increased from
1.47% to 2.03% (FICUs: increased from 0.34% to 0.67%).
DELINQUENCY
(Millions of Dollars)
12+
$90.0 3.00%
months
$80.0
$70.0 2.51% 2.50%
1.89% 6-12
$60.0 1.72% 1.82% 2.00%
months
$50.0
1.50%
$40.0
2-6
$30.0 1.00%
months
$20.0
0.50%
$10.0
percent
$0.0 0.00%
of loans
2004 2005 2006 2007
The sharp rise in CDCU delinquencies is partly explained by the troubled housing market, but to a
greater degree than for mainstream credit unions, it is also a result of the general downturn in many
regional economies caused by the housing crisis: for CDCUs, real estate loans constituted 29% of
all delinquencies, only 2% more than in 2005, compared to 37% for the mainstream, 19% more
than in 2005. In 2007, CDCU real estate loan delinquency growth constituted 40% of the total
increase in CDCU delinquency, while it was 62% of delinquency growth for the mainstream.
CDCUs are facing an environment in which more members are losing jobs and not finding the
money for monthly loan repayments, and perhaps prioritizing mortgage payments, often at
mainstream institutions, over other types of loans they have taken out at CDCUs.
Loan dollars charged-off increased significantly, by $3.3 million, or 10.90% (FICUs: increased
15.85%), but recoveries on charged-off loans also increased greatly, by 1.7 million, or 26.72%
(FICUs: +5.20%). Net charged-off loans increased by 6.87% ($1.67 million). However, continued
loan growth kept the net charge-off ratio level at 0.78% (FICUs: rose from 0.45% to 0.50%).
Foreclosures increased by 37.29% (FICUs: increased by 102.20%). Net real estate charge-offs
increased slightly from 0.07% to 0.09% of total real estate loans outstanding, compared to a
somewhat more precipitous increase from 0.03% to 0.08% for credit unions as a whole.
1.82% 1.89%
2.00%
1.72%
1.50%
1.00% 0.84%
0.69% 0.78% 0.78%
0.50%
0.00%
2004 2005 2006 2007
There were 1,781 members filing for bankruptcy in 2007. This is a slight increase in member
bankruptcies, from 0.15% to 0.17%. Outstanding loans subject to bankruptcy increased by $3.52
million to $16.63 million, a 26.85% rise.
0.52%
0.34%
0.31%
0.26%
0.17%
0.15%
0.10%
2004 2005 2006 2007
EARNINGS
The return on average assets increased by 3 basis points to 0.88% (FICUs overall showed a decrease
from 0.82% to 0.65%). The rise was due significantly to a 14 basis point increase in fee and other income.
Fee and other income was also the only ROA component to increase for FICUs as a whole (+6bp). This
component has continued to increase steadily from year-end 2005 for both FICUs and CDCUs. FICUs as
a whole experienced an 11 basis point increase in PLL, which was the single greatest contributor to the
decline in their ROA. CDCU operating expenses are historically about 1.8% greater than the
mainstream’s and once again showed an increase, though the FICU rate also increased by 7 basis points
to 3.39%.
Effect
Ratio (% Ave. Assets) As of 2007 As of 2006 on
ROA
Net Interest Margin 4.23% 4.20% +3bp
+ Fee & Other Inc. 2.18% 2.04% +14bp
- Operating Expenses 5.12% 5.02% -10bp
- PLL 0.70% 0.62% -8bp
+ Non-Operating Income 0.29% 0.26% +3bp
= ROA 0.88% 0.85% +3bp
ASSET/LIABILITY MANAGEMENT
SHARE DISTRIBUTION
(Millions of Dollars)
Non-member
Other Shares, $21, Deposits, 120, 3%
1%
Share Drafts,
$536, 14%
IRA/Keogh, $253,
7%
Regular Shares,
$1,101, 30%
Certificates,
$1,321, 35%
Money Market,
$362, 10%
Share Trends: Total shares increased by $203 million, or 5.99% (FICUs: +5.19%). The most
significant change in share distribution from year-end 2006 was a 20% rise in the proportion of share
certificates, which also grew the most in absolute terms. Non-member deposits had the next greatest
percentage increase after share certificates. In general, there was a significant increase in longer-
term savings, while short-term savings showed a corresponding decrease.
Share Maturity in the category of less than 1 year and 1 to 3 years increased, while it decreased
in the category of 3 or more years, as shown in the chart below.
Share Maturity
% of Total Shares % of Total
or Repricing
2007 Shares 2006
Interval
Less than 1
year 86.44% 86.20%
1 to 3 years 10.46% 10.33%
3 or more years 3.09% 3.47%