A comparison to their peers of two billion-dollar credit unions in Texas that plan to convert to mutual savings banks shows no "dire need to convert," according to the financial analyst who compiled the numbers for The Credit Union Journal.
SNL Financial crunched data gathered from credit union call reports to compare would-be converts Community CU, Plano, Texas and OmniAmerican CU, Ft. Worth, to their closest billion-dollar peers, and while some of the numbers may support the CUs' claims about needing to raise capital, SNL's Mike Schaller suggested the numbers don't indicate that either CU isn't still performing well under the credit union charter.
"I don't think either credit union is in dire need to convert," he told The Credit Union Journal. "Both demonstrate low levels compared to their peers in terms of net worth ratio, but I don't think the motivation to convert is anything that has been forced on them by their financial positions."
Critics of Community CU have pointed out that until it recently filed a revised report to NCUA, the credit union had "inexplicably" chosen to report its net worth ratio in such a way as to make it look like the credit union's ratio was getting closer to the "magic number" of 7%-that is the figure that triggers NCUA's Prompt Corrective Action measures.
Calculating Net Worth
Credit unions are given two different ways to calculate the net worth ratio. Calculated one way, Community CU's ratio is 7.38%, calculated the other way, it is 7.68%. When CCU originally filed its December 31, 2004 report, it used the 7.38% number, according to one Community CU member.
"I suspected they were deliberately reporting the lower of their two net worth options. Now, what financial institution purposely wants to make it look like they're not doing as well as they actually are," the source, asking for anonymity, told The Credit Union Journal. "Wouldn't you always choose to make yourself look better if you had the option? If you took the SAT twice and scored higher on one than the other, wouldn't you choose the higher score to send to the schools you were trying to get into? This looked fishy."
But Community CU has since revised its report to reflect the higher 7.68% net worth ratio, and the member noted that it could have been a simple oversight on the part of the credit union, which has declined comment to The Credit Union Journal. "Still, historically, they have always chosen the same way to calculate their net worth ratio, but as soon as they're trying to convince members they need to convert so they can raise capital, they choose a different way to calculate that ratio-a way that just happens to lower their numbers."
Credit unions that are otherwise well run institutions are not typically thought to be manipulators of the reporting system. "I'd like to think that it's not that easy for a credit union to manipulate the numbers, but I'm sure there are some tools at their disposal," Schaller noted."
