ALEXANDRIA, Va.—A call report change for the fourth quarter of 2019 by NCUA could adversely impact the net worth of some credit unions that have acquired a bank, analysts assert.
The NCUA changed line 7 of its PCA Worksheet (see page 56 of the Call Report Instructions) dealing with Adjusted Retained Earnings acquired through Business Combinations, noted Keith Leggett, the former senior vice president and senior economist at the ABA.
NCUA in the fourth quarter wrote in its call report instructions that this provision only applies to "business combinations with another credit union. This provision does not extend to a credit union that acquires a bank through merger," stated Leggett.
“This change will hit the net worth for any credit union that had included adjusted retained earnings from a bank merger in its net worth. For example, IBM Southeast Employees Credit Union in Delray Beach, Fla., saw a $31-million decline in its net worth between the third and fourth quarters,” said Leggett.
‘Fewer and Smaller Deals’
“Also, this Call Report change may affect the number of credit union deals for banks going forward,” Leggett asserted.
Peter Duffy, managing director at Piper Sandler, told Leggett, "We believe this change, while not surprising, will result in fewer and smaller deals."
However, Michael Bell, a lawyer at Howard & Howard who has done a majority of bank mergers into credit unions, told Leggett, "None of the transactions I have been working on have been negatively affected by this call report change."
"Personally I think the change in treatment is mathematically incorrect, but we continue to plow ahead," Bell was quoted as saying.