Minority Credit Unions Continue to Face Challenges

Minority-owned and managed credit unions play a critical role in providing financial services to communities that have been traditionally underserved or unbanked. In fact, they are frequently the only federally insured financial institutions available in these communities, yet these vital institutions face a number of challenges.

NCUA is tasked with supporting and preserving minority depository institutions and encouraging the formation of new ones. Each year, the agency submits to Congress a report detailing these efforts. This article summarizes that report and provides an overview of the state of minority depository institutions during the reporting period of June 30, 2015 to June 30, 2016.

You can find additional information about the state of minority depository institutions and NCUA’s ongoing efforts to support and preserve them in the Minority Depository Institutions Annual Report, which is available online at http://go.usa.gov/x9Hqx.

Continuing to See a Decline in Numbers

As of June 30, 2016, NCUA regulated or supervised 603 federally insured credit unions that qualify as minority depository institutions. These institutions represented 10 percent of all federally insured credit unions, and had total assets of nearly $38.2 billion and are owned by nearly 4.3 million members with shares totaling $32.5 billion. The total shares and assets of minority depository institutions represented approximately 3 percent of the total shares and assets in all federally insured credit unions. The 4.3 million members owning these minority depository institutions represented 4 percent of the total members of all federally insured credit unions.

States with the highest concentration of minority depository institutions were:

  • Texas, with 90 institutions;
  • California, with 57 institutions;
  • New York, with 51 institutions;
  • Hawaii, with 41 institutions;
  • Louisiana, with 39 institutions; and
  • Illinois, with 37 institutions.

States or U.S. territories with no credit unions designated as minority depository institutions include Alaska, Idaho, Iowa, Kentucky, Maine, Nebraska, New Hampshire, North Dakota, Oregon, Rhode Island, Vermont, Wyoming and Guam.

The number of minority depository institutions declined from 651 to 603, or 7.4 percent over the reporting period, while their total assets increased from $37.9 billion to nearly $38.2 billion. Since June 30, 2013, the number of minority depository institutions declined from 805 to 603, representing a decrease of 202 institutions or 25 percent over the four-year period. Although some of the decline is due to changes in the definition of minority depository institutions and self-certifications, a considerable portion was due to mergers and liquidations.

The most significant declines occurred in Black American and multi-cultural institutions. Black American credit unions declined from 389 to 301, or 23 percent. Multi-cultural institutions, comprising more than one racial or ethnic group, declined from 208 to 121, or 42 percent. Hispanic credit unions declined from 137 to 113, or 18 percent. Asian American credit unions declined at a modest rate of 7 percent, from 58 to 54. The number of Native American institutions increased by one during the reporting period.

The number of Black American institutions still comprises half of all minority depository institutions. However, compared to Asian American and Hispanic American institutions, these institutions had, on average, a smaller share deposit balance per member and a smaller asset size per institution. Members of Black American institutions had an average share deposit of $5,790, compared to members who had an average share deposit of $11,746 in Asian American institutions and $7,908 in Hispanic American institutions.

Members in Native American institutions had the lowest average share balance at $4,073.

The vast majority of minority depository institutions, 81 percent, had assets of less than $50 million. This number was higher than the percentage of similarly sized credit unions in the overall system. Here, approximately two-thirds of all federally insured credit unions had less than $50 million in assets. Approximately 8 percent of minority depository institutions had total assets ranging from $50 million to $100 million, and another 11 percent had assets in excess of $100 million.

When comparing minority depository institutions year-over-year by size, the number of smaller institutions has decreased slightly faster than larger minority depository institutions. For instance, institutions with less than $1 million in assets decreased 8 percent, from 168 to 154, between 2015 and 2016. Minority depository institutions with assets between $1 million and $1 billion decreased at a rate of 7 percent during the reporting period, with a decrease of 35 minority depository institutions. Meanwhile, the number of institutions with more than $1 billion in assets grew from five to six.

Due to their small asset sizes, minority depository institutions are challenged by a lack of sufficient resources. Most operate with a limited number of paid or volunteer staff. Many lack the resources to recruit and retain highly skilled and experienced employees or managers. This demonstrates a need for financial and technical assistance to help these credit unions with expanding their operations, services and fields of membership.

Analyzing Key Metrics for Minority Depository Institutions

In the latest report, we analyzed several key performance metrics for minority credit unions, including their composite CAMEL ratings, net worth ratios, return on average assets and loan delinquency levels. Here are some highlights from our analysis:

  • 533 minority depository institutions, or 88 percent, fall into the range of composite CAMEL ratings of 1 to 3. Twelve percent of minority depository institutions, totaling 70, had a composite CAMEL rating of 4 or 5, as compared to nearly 4 percent for all federally insured credit unions. The largest concentration of minority depository institutions with composite CAMEL ratings of 4 or 5 were those with assets of less than $10 million. This was consistent with federally insured credit unions with a rating of 4 or 5, which also primarily had assets of less than $10 million.
  • 96 percent of all minority depository institutions (577 institutions) were considered well-capitalized, by statute, with a net worth ratio of 7 percent or above, while 3 percent (18 institutions) were adequately capitalized with a net worth of 6.00–6.99 percent. However, the remaining 1 percent (8 institutions) were categorized as undercapitalized with their net worth ratios ranging from -1.49 percent to 5.87 percent.
  • The median annualized return-on-average assets ratio among all minority depository institutions was 0.43 percent, compared to 0.35 percent for all federally insured credit unions.
  • 336 minority depository institutions (56 percent) had loan delinquency ratios in excess of 1 percent. The average loan delinquency ratio for all minority depository institutions was 4.35 percent, while the average loan delinquency ratio was 1.58 percent for all federally insured credit unions as of June 30, 2016.

Looking Ahead

Minority depository institutions continued to experience challenges during the reporting period, though there were several bright spots including the fact that most minority credit unions are considered well-capitalized. However, these institutions continue to face increasing competition, along with changing demographics and consumer preferences.

Moving forward, NCUA plans to further examine the challenges and barriers hindering the preservation and growth of minority depository institutions. NCUA will also work to identify proactive solutions that will enable these entities to thrive in 2017 and beyond.