The 'C' In CDCU? Contrarians

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NEW YORK-Contrary to what many might have expected, community development credit unions have continued to hold their own during the worst recession since World War II, a new study reveals.

The report, commissioned by the National Federation of Community Development Credit Unions, found that CDCU membership grew by 41,000 in 2009, boosted deposits by more than 16% and held its net worth ratio above 9.5%.

Federation CEO Cliff Rosenthal said the recession's effect has been "extremely uneven" for low-income credit unions with some in Texas and the northeastern United States faring well while others in California and other sand states are in "considerable pain."

"There was real pain and that was reflected in the drop of net worth resulting from the corporate meltdown and deposit insurance hits. But people are bringing deposits to our credit unions and that is good news," he explained.

While assets and outstanding loans grew in 2009, loan origination fell by $50 million year over year and net worth declined from 9.8% to 9.5%. Median return on assets also fell from .36% to -.09%. Nevertheless, CDCUs still outperformed all CUs in many areas, including asset growth, deposit growth, membership growth and portfolio growth. CDCUs' net worth decline of 29 basis points was also significantly better than the 70 basis points the entire industry experienced.

Loan origination and portfolio management remain difficult prospects for many low-income CUs. "What we're experiencing is similar to other financial institutions, namely is that there has been a drop in credit score and an increased reluctance to borrow because [members] are running very scared in this economy," said Rosenthal, who noted that CDCUs do not have much wiggle room when it comes to changing credit standards.

Grants and secondary capital infusions have helped some CDCUs keep their net worth ratios stable, and Rosenthal hopes that a Treasury program that grants financial institutions up to 3.5% of assets in secondary capital will help bring in additional funds to boost bottom lines. "We have been working extremely hard to try and help our CUs to get over the barriers with that. Our best information is that approximately 80 applications have been favorably recommended by NCUA at this point," he said.

A January supervisory letter from the regulator could also help, as it exhorted examiners to take the unique nature of CDCUs into account when making judgments. Rosenthal said the Federation is committed to ensuring that examiners pay heed to the board's directive. "We are not sure whether that message is getting through. We know it is has been delivered by [NCUA] board members Matz and Hyland but we continue to get anecdotal report that their examiners haven't seen that guidance from the board or are just discarding it."

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