GAO: CDCI CUs Weaker Than Certified Non-CDCI CUs

The Government Accountability Office (GAO) released a report which examined the performance of Community Development Capital Initiative (CDCI) participants of the Troubled Asset Relief Program.

As background, the U.S. Treasury in September 2010 invested $570 million TARP funds into 36 banks and 48 credit unions. The program was only eligible for certified Community Development Financial Institutions (CDFI). As of April 2014, 68 of the original 84 CDCI institutions remained in the program. Six banks and nine credit unions had exited through repayment, while one institution had exited as a result of its subsidiary bank’s failure.

The report found that "remaining CDCI banks generally are financially stronger than certified CDFI banks that did not participate in the program, but remaining CDCI credit unions are generally weaker than nonparticipating CDFI credit unions."

GAO concluded that CDCI credit unions were, in general, smaller and financially weaker than nonparticipating certified CDFI credit unions (non-CDCI credit unions).

As of December 31, 2013,

• the remaining CDCI credit unions had a median return on average assets of 0.27, compared to 0.53 for non-CDCI credit unions.
• Twenty-six percent of CDCI credit unions were unprofitable compared to about 19 percent of non-CDCI credit unions.
• CDCI credit unions had a delinquent loan ratio of 1.78 -- 35 basis points higher than non-CDCI credit unions.
• CDCI credit unions had a median net worth ratio of 7.35, compared with 9.98 for non-CDCI credit unions.
• Forty-one percent of CDCI credit unions had net worth ratios less than 7 percent, while only about 10 percent of non-CDCI credit unions fell below the 7 percent threshold.
• CDCI credit unions had a median ratio of total delinquent loans to net worth of 9.18, compared to 8.30 for non-CDCI credit unions.

In conclusion, with limited access to capital some CDCI credit unions may have difficulty exiting the TARP CDCI program when the dividend or interest rate goes from 2 percent to 9 percent in 2018.

Read the report.