The end of 2008 found 18 fewer than community development credit unions than at the start of the year, according to the National Federation of Community Development Credit Unions, the national trade association for CDCUs.
Interestingly, the National Federation attributed the loss to an ongoing weakness in many CDCUs that led their dissolution under the economic downturn's pressure.
"It is in the nature of the CDCU business that expenses exceed those of credit unions which do not primarily serve low-income populations," said National Federation 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," he added.
These difficulties, coupled with high unemployment and foreclosure rates, contributed to the loss of 18 CDCUs in 2008 (about 9% of the federation's total membership) due to mergers and liquidations, on par with the highest losses of the past 10 years, the National Federation said when reporting on the year.
So while CDCUs and credit unions in general, did not engage in the toxic, anticonsumer lending that caused much of the economic turmoil, the impact on CDCUs with their mission of serving low-income communities has been disproportionately high.
"The loss of so many CDCUs (most of which are low-income designated and CDFI certified) represents a terrible blow for the underserved communities these institutions serve," said Federation Director of Membership Services Pablo DeFilippi.
"Without them, many communities will be left without access to affordable financial services, not to mention vital developmental services such as the financial education and asset building programs that these institutions have historically provided. Typically, except when CDCUs are allowed to merge wither other CDCUs, we have invariably witnessed the closing of branches in the lowest-income neighborhoods, further disfranchising those communities," he said.
Based on the federation's analysis, sustaining growth while controlling delinquencies and operating costs, will continue to be a major challenge for CDCUs.
"With the low-interest rate environment, many CDCUs are having trouble generating sufficient income from their loans and investments to offset their expenses," explained the federation's Community Development Investments Director Alice Greenwald. "We're doing all we can to help CDCUs weather the financial crisis, such as by 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."
Still, even with the bad news, the National Federation reported some good news coming out of 2008.
There were overall increases in total assets and membership served, as well as modest growth in real estate, commercial and industrial, and member business lending, the federation said. The organization also found that while CDCUs experienced solid asset growth of 5.2% ($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 from 10.29% to 9.99%.
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