Credit Union Financial Statement Analysis
Next Level Training
As mentioned in the profile to this blog, I am a nerd. Over the past few decades, I have studied credit unions as an academic researcher. I have been a member of credit unions even more decades than I have been studying them. I have read lots of articles on how boards of directors and managers should analyze the financial statements of credit unions. And most of them miss the fundamental concepts that are unique to credit unions.
Having studied also the economic theory of the credit union,
I realize that a potential Achilles heel of the credit union movement is weak oversight
from their volunteer board of directors.
Even if a board member (or for that matter a manager) has a good
background in finance, that does not mean that they can understand whether a
credit union’s performance is considered “good”. The economic “objective function” differs
from that of for-profit entities.
The need to train credit union leaders was recognized by the
National Credit Union Administration. In
fact, training to read credit union financial statements is now required of all
federally chartered credit unions[i]. Within six months of appointment to the
board, new board members must be able to have basic financial analysis
skills. I am a member of two credit
unions. I hope the directors of my
credit union have more than just basic knowledge of how to read and analyze
financial statements.
Since credit unions are important to me, I decided I would
add my own two cents to the discussion of how to analyze financial statements
of credit union. As a university
professor, that meant that I had to write my own short text (okay about 130
pages plus tables, etc.) that were aimed at what I felt all managers and board
members should understand to both strategically plan for their credit unions,
and monitor their performance in accomplishing the stated strategic plans of
the institution.
And since I have also spent decades teaching finance to
young adult learners (as well as to MBA students of all ages), I have designed
a two day seminar workshop that will take learners of all abilities through
some training on how to read THEIR credit union’s
financial statements. The seminar’s
outline goes something like this:
1.
Historical Development of Cooperative Lending
Institutions – This is important to understand because it helps credit union
leaders understand the differences in business models between banks and credit
unions. Academically, I would say
something about the objective function (as I did above), but only nerds like
that kind of talk.
2.
Important Components of the American Credit
Union Business Model – There are some components of cooperative lending that
are unique to the credit unions in the United States that leaders must
understand (for instance the tax exemption and where it really came from). But most importantly, these wrinkles add to a
more complete understanding of the conceptual business model. Only after we
conceptually understand the general credit union business model, can we really
get to understand the specific business model of our credit union.
3.
Credit Union Financial Statements – Only after we truly understand both the
general business model of credit unions, and the specific business model of our
credit union can we begin to see measures of how well our credit union is doing
using financial statements. The
introduction of financial statements for YOUR credit union comes only after
participants have begun to think through their credit unions optimal business
model. Our first pass through the
financial statements is not to ask how well we are doing. Instead it is to ask the question how well do
I understand what business model my credit is really following.
4.
Using Financial Ratios to Assess the Business
Model and the Institution’s Health – Just as we get participants starting to
see the business model in the financial statements provided by their credit
union, we start looking at financial ratios.
We will look at two systems of ratios (and then a set of stand-alone
ratios):
a.
Bauer Analysis – In the Bauer Analysis, we show
through ratios the relationship between measures of key components of the
credit union business model. It allows
managers and board members specifically how much a change in one component will
cost in another key component.
b.
CAMELS Analysis – We will spend some time talking
about the CAMELS system, and explain how ratio analysis can help start that
discussion and understanding with board members.
c.
Other Important Ratios – We will then introduce
stand-alone ratios that should help credit union leaders draw some conclusion
about their institution.
This seminar/workshop is so different from any other
training available to credit union leaders that perhaps the best way to
showcase it is through a series of video presentations. In this first video presentation, I describe
the overall concepts of the seminar/workshop, and give some background on what
I have broadly set as the first of three broad objectives of the training
event.
I will cover the next two objectives (and their videos in subsequent blog postings.
We will offer the seminar/workshop as soon as I can figure out how best to market it. If you would like to get on a waiting list, please email me.
We will offer the seminar/workshop as soon as I can figure out how best to market it. If you would like to get on a waiting list, please email me.
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