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The National Federation of Community Development Credi


The National Federation of Community Development Credit Unions ... ROA: 'It's a big boat.' Lots and lots of CUs would have negative ROA. ... – PowerPoint PPT presentation

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Title: The National Federation of Community Development Credi

The CDCU Movement and the Crisis of the CU
February 18, 2009
Presentations by
  • Cliff Rosenthal, President and CEO
  • The National Federation of Community
    Development Credit Unions
  • Melanie Stern, Assistant Director
  • Cathi Kim, Portfolio Associate
  • Community Development Investment Program
  • Brian Gately, Director of Technical Assistance

Before the Crisis
  • 2007
  • A normal, not bad year

Decent Growth
Mergers Liquidations About Average
  • 11 Members
  • Approximately 4.7 of membership
  • Slightly higher than industry average
  • All were under 2.4 million in assets.

2007 Losses ROA Not Great, Not Shocking
The Net Worth Picture
  • 12 of CDCUs were less than well-capitalized
    level of 7.
  • 5.2 of CDCUs were below adequately capitalized
    level of 6

What Changed in 2008?
  • Mergers and Liquidations Up Sharply
  • 9 of the Federations membership 18 CDCUs
    went under.
  • Matches highest level of last 10 years
  • Net Worth Still substantial but dropping.
  • ROA dropped significantly.

Net Worth Ratios
  • Median net worth of CDCUs is still high 10.92
  • But it dropped by 35 basis points (0.35) in Q4
    of 2008.
  • 26 CDCUs (12.1) had less than 7 Net Worth (28
    in 2007 but many of those gone)
  • 7.4 percent had less than 6 NW.

Profitability Return on Assets (ROA)
  • 79 (36.4) of CDCUs had negative ROA in 2008.
  • Much worse than 2007 (52 CDCUs 22.3 of all
  • Includes some massive, multi-million dollar
    losses at some larger CDCUs.

What if NCUAs Proposal is Enacted?
  • Huge increase in unprofitability (negative ROA)
  • Significant but not overwhelming increase in PCA
    danger for CDCUs

  • If CUs take a 62 b.p. hit
  • 135 CUs (62.2) would have negative ROA.
  • 58 of these have less than 5 million
  • But majority of larger ones also affected
  • 23 of 38 that are 10 - 50 million
  • 9 of 14 that are over 50 million

Net Worth Ratios
  • If CUs give up 56 bp in Net Worth
  • 39 CDCUs (18) would then have less than 7 (up
    from 26 CDCus now
  • 22 CDCUs (10.1) would have less than 6 (up from

  • ROA Its a big boat.
  • Lots and lots of CUs would have negative ROA.
  • Not the end of the world, but
  • Cutbacks in CDCU staffing, service, growth,
  • Net Worth
  • Worse for us than for other CUs.
  • NCUA Well be flexible.
  • Dilemma
  • Do you trust NCUAs flexibility?
  • For how long?

Changes in the Air?
  • Plans for avoid/minimize loss to natural-person
  • Change law to allow corporates to access CLF?
  • Corporates to absorb loss?
  • Spread NCUSIF premium over 5 years?
  • What if there is a total collapse of the
    Corporate CU system how will it affect you?

GAAP? (Generally Accepted Accounting Principles)
  • NCUA has gone on record indicating that
  • Credit unions under 10 million in assets have
    the option of asking their accountant/auditor to
    sign off on a direct charge to reserves/undivided
    earnings rather than running the increased NCUSIF
    premium through 2009 expenses
  • It may be possible to book expenses in 2008
    instead of 2009

GAAP? (Generally Accepted Accounting Principles)
  • What are the advantages?
  • Credit union may avoid showing a loss for 2009,
    thus making their financial statement look better
    to members and funders plus possibly avoiding
    hitting anyones radar screen for having
    perennial losses (if losses have been incurred in
    previous periods)
  • The effect is psychological the overall effect
    on net worth will be the samehowever in todays
    environment, psychology is important
  • Another option NCUA mentions is possibly booking
    some losses in 2008, instead of 2009, however
    this would probably require restating 2008
    results (unless they are not yet published).

Other Issues Bankruptcy Modification (Mortgage
Cram Down)
  • Any exposure?
  • Your views?

A Ray of Hope A New Era for CDFI Fund?
  • Our TARP request for 1 billion didnt make it.
  • 100 million in CDFI Fund in Stimulus Package
    in addition to regular appropriation
  • Greater appropriations in the future?
  • Key ally running Fund Donna Gambrell
  • CDFI Fund certification is essential to take
    advantage of opportunities in the years ahead.
  • Keep applying!

Federation Services and Resources
Federation Advocacy
  • Trying to increase CDCU share of CDFI Fund
  • Advocating to improve CDFI Fund procedures
  • Offering alternatives to NCUA

Federation Resources
  • Technical Assistance Department
  • Assistance w/ Net Worth Restoration Plans
  • Strategic Planning (new circumstances need new
  • Best Practices (e.g., working/negotiating w/ your
    regulator, ALLL calculation, PCA, ALM, crisis
    management, etc.)
  • CDFI Certification/Fundraising

Federation Resources
  • The Community Development
  • Investment Program (CDIP)
  • The Capitalization Program
  • The CDCU Mortgage Center, LLC

Available to Members in 2009
  • 1 million for mortgage purchases
  • 2.3 million for Secondary Capital
  • 1.0 million for PRIDEs (risk-sharing Predatory
    Relief and Intervention Deposits)
  • (Additional funds are geographically restricted.)

Other Federation Services
  • Education and Training CDCU Institute
  • Home Ownership Counseling
  • IDA Consulting
  • Special outreach programs
  • Disability Outreach Network
  • Latino CU Network
  • Faith-based CU network
  • Youth Credit Union project

The 35 Annual Conference on Serving the
  • Tempe Mission Palms (Phoenix), Arizona
  • June 11 13, 2009
  • On-line registration through

National Federation of Community Development
Credit Unions 116 John Street, 33rd Floor New
York, New York 10038 crosenthal_at_cdc 800-437-8711