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Credit Unions Just Got a Little More Transparent

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In December 2009, my friend Arianna Huffington called with this idea to educate "ordinary" people about the financial system. At the time, I directed Institutional Risk Analytics to prepare and launch a pro bono zip code tool to search for best of breed small and mid-sized banks. We called that project "Move Your Money". The tool has been running ever since and, as of today, has been used over 1.3 million times and counting.

For people needing detailed information about banks, the "Move Your Money" tool is backed up by a commercial system that extracts professional analytics from IRA's Professional Bank Monitor risk analysis engine and packages into an online shopping cart for consumers. The cart system itself owes its origin to a challenge from the good folks at CBS Evening News back in 2008 to explain the arcane world of banking in terms consumers could do something with at a reasonable price compared to what one charges a Wall Street investment house for such math grinding information. Distilling thousands of reporting numbers into simple letter grades was the result.

From the outset of "Move Your Money", consumer demand to see performance and risk information on credit unions came roaring through the grapevine. People love credit unions which they see as a socially responsible alternative to being a bank customer. What's not to like about a place that calls your deposit dollar a "share" in the collective.

But it takes time to study these institutions behavior patterns and the patterns of their regulating authority, the National Credit Union Administration (NCUA). The rules are different and the metrics are not directly comparable to the norms and expectations imposed on banks by the Banking Act gaggle of regulators at the FDIC, FFIEC, OCC, OTS and Fed. For long-term solutions to a long term crisis, I decided it was better to take the time to study things in a considered fashion. And that included a painstaking process to gather an understanding of what systemic issues credit unions pose.

Strangely, professional demand for transparency about credit unions remains nil in the world of Wall Street. No traded securities you see. But competitively, banks have noted that an increasing number of credit unions have taken on business models that compete directly with community banks for the same customers and that's begun to make them want to get a bead on these competitors a might more.

So after much bleary eyed staring at NCUA 5300 reports and talking to all manner of people about what keeps them up at night about credit unions, on June 1, 2012 Institutional Risk Analytics released our first credit union performance summary reports into our online tools systems. There are roughly 6,100-plus of them spanning some large institutions to truly small credit "unions" in the original sense of the description of these entities. Like IRA's bank engine, coverage is 100 percent. If it reports to its regulator, there's an IRA report on it. What does a portion of one of these look like?
Sample
as of December-2011
Profitability IndicatorROANet IncomeTotal Assets
GOOD PERFORMANCE0.82%$280,496$34,331,846
Business
Analysis


Efficiency Heat Map IndicatorAVERAGE
Efficiency Ratio135.01%
Non-Interest Expense
$732,625
less Assessments
NCUSIF Insurance
$0
Corp CU Stabilization
$67,645
Other Member Ins.
$9,000
divided by
Interest Income
$1,070,968
less Interest Expense
$799,101
plus Non-Interest Income
$214,020

Business Efficiency Ratio tests the cost of operating versus available income. Lower numbers are better.
Lending


Lending as % of Assets
28.29%

Troubled Lending Heat Map IndicatorLOW
Trouble Rate1.55%
Texas Ratio0.44%
Over 60 Days Delinquent Amount
$150,256
Total Lending
$9,712,738

Texas Ratio Denominator Items:
Member Shares$29,636,652
Undivided Profits$0
Intangible Assets$4,286,671
Prov. for Loan Loss$41,272
Negligible Exposure
Investing

Investing as % of Assets
66.71%

Return on Investments
1.49%
Income from Investments
$341,518
Total Investments
$22,903,437
Portion of CU Investments that are Deposits in Commercial Banks, S&L's and Savings Banks
$21,705,000
Corporate
Credit Unions


Corporate Credit Union Exposure as % of Assets
3.80%


Assets at Corp CU's
Cash Deposits
$1,305,722
Member Capital
$0
Paid-In Capital
$0
Other Investments
$0

Borrowings from Corp CU's
Corp CU Credit Line
$0
Borrowed, LOC
$0
Borrowed, Term
$0
Temporary Corporate Credit Union Stabilization Fund Assessment
$67,645
Credit Union Service Organization (CUSO)

Investments in CUSO's
$0
Amt. Loaned to CUSO's
$0
Aggregate Cash Outlay in CUSO's
$0

A CUSO is a subsidiary of the CU that handles loan, credit card and other servicing functions.
Source: IRA/NCUA 5300 Reports
With this first iteration of IRA analytics, you can see if they are making money. Not all do. You can see what their cost of doing business looks like. You can get a picture of their lending base, any trouble that may be in it, and how well protected the members are from troubled loans. You can see how much they are investing and, of those investments, how much are actually deposits in the banks. You can see how exposed they are to a somewhat troubled group of entities known as Corporate Credit Unions that require special assessment stabilization subsidies to stay afloat right now. And you can see to what degree they have certain types of key subsidiary investments in something called a Credit Union Service Organization (CUSO), these are entities similar to the mortgage and credit card servicing units at banks. Some of the measures we have synthesized appear like the bank measures used by IRA. This is to help professionals analyze and compare CU's to banks more easily. No it was not easy to get them to be somewhat comparable given the differences in regulatory philosophy in play.

What does appear to emerge is that credit unions are on average somewhat more expensive to operate than banks. Many of them are stellar operations worthy of people's money. Still, not all of them are well run businesses but then again neither are all banks. Management philosophy runs the gamut and their asset allocation strategies are as varied as their bank cousins. The bottom line is that it is not a homogeneous industry and the industry deserves as much scrutiny by its members as banks do by their customers. As of today, it's not as opaque as it used to be.

Note that for the time being, the quality filter strips out the riskier banks from the zip code lists that marks the consumer protection aspect of the "Move Your Money" tool remains disabled for credit unions in the MYM free site. The MYM Courtesy CU finder tool shows all of them. I'm still working on that part.

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