Observers need not look far to see one of the prime drivers of credit union growth, according to NCUA board member Deborah Matz, who released a study last week examining how the move to community charters has affected safety and soundness.
In remarks before NAFCU's Congressional Caucus last week, Matz said that since the CU Membership Access Act of 1998 was passed, the number of federal community charters has more than doubled-from just over 400 to well over 900. More than 14% of all federal credit unions now have community charters.
Matz acknowledged that growth may lead some on Capital Hill to question, "Why are credit unions growing so large, and are they still safe?"
"As a regulator, first and foremost, I am concerned about safety and soundness," Matz affirmed. "This is why I asked NCUA's Office of Examination & Insurance to conduct a study of the reasons for community charter conversions and their impact on the financial health of credit unions."
The study released by Matz finds that in the aggregate, credit unions that convert to community charters maintain high CAMEL ratings and generate long-term loan growth.
The study outlines four major benefits of community charters: Greater membership diversity; broader economies of scale; wider variety of services; and larger pools of qualified volunteers.
She said the study found that community charters have a higher percentage of CAMEL 1 and 2 ratings and that the vast majority of community charters maintain their high CAMEL ratings in the years after converting. Matz said the study further found loan growth at community charters exceeds most of their peers in each of the first five years after converting, although community charters can expect slightly lower earnings in the short term. That's because share growth is highest in the first year, and it takes some time before loan growth catches up, she said.
"Anticipating this phenomenon must be part of the credit union's plan," Matz emphasized. "Before approving a community charter, NCUA makes every effort to determine that the credit union is financially strong and that their projections are realistic."
