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How a Sudden Influx of Deposits Can Affect Your CU’s Net Worth Ratio
Wednesday, March 28, 2018 7:00 AM

Debbie Rightmire

Deborah L. Rightmire, Asset Liability Management, Cornerstone Credit Union League

The December 2017 update of Cornerstone Credit Union League’s Key Ratio Reports by the ALM Resource is complete. We noted that a number of credit unions had significant asset growth in the second half of the year.

In the aftermath of Hurricane Harvey, several Cornerstone member credit unions received significant inflows of deposits due to their members' receipts of FEMA payments and insurance settlements. Most of these funds will leave the credit union over time. However, because of this rapid increase of deposits, assets were inflated over the short term, and net worth ratios declined as a result.

While this has been more apparent in the Cornerstone region as a result of additional deposits related to Hurricane Harvey, extraordinary increases can occur at any time because of large inflows from natural disasters, company incentive payments, income tax refunds, sale of a member’s business, or a significant deposit of lottery proceeds near the end of the accounting cycle. All of these typically cause a reduction of the credit union’s net worth position over the short term.

The net worth ratio is normally calculated by adding the regular reserve and undivided earnings balances and dividing the sum by total assets on the last day of the accounting period (net worth/assets). The regulators are aware that, while these dramatic deposit inflows may be uncommon, they can extraordinarily impact the credit union’s financial results. Because of the potential to noticeably affect the credit union’s net worth position, the regulator allows credit unions to choose an alternate calculation when they complete the Call Report at the end of each quarter.

Page 12 of the December 2017 Call Report format is the PCA Net Worth Calculation Worksheet. If no entries are made by the credit union, the numerator (net worth) is divided by the denominator (assets) as of the Call Report date to determine a net worth ratio. However, options are available to alter the asset base (denominator) used in the calculation and reduce the amount of decline of the net worth position.

Lines 10, 11, and 12 on page 12 offer the credit union options to adjust the asset election and reduce the impact on their net worth position.

  • Line 10 allows the credit union to choose average of daily assets over the calendar quarter.
  • Line 11 offers the option of using average of the three month-end balances over the calendar quarter.
  • Line 12 allows the option of using the average of the current and three preceding calendar quarter-end balances

In most cases of rapid deposit growth, any of these alternate asset choices as the denominator would very likely produce a more favorable net worth ratio result than simply using stated assets at the end of the accounting period.

When significant unexpected increases in deposits occur, credit unions are encouraged to calculate all three options offered on page 12 to determine the outcome that presents the credit union’s measure of safety and soundness in the most favorable light.

Choosing to adjust your asset election will lessen the impact of unscheduled deposit inflows and improve your net worth position.


Deborah L. Rightmire is VP asset/liability management at Cornerstone Credit Union League, overseeing the operations of ALM Resources. She provides semi-annual ALM analysis and consulting services for credit unions across the U.S. representing nearly 100 billion in combined assets. She speaks for CUNA and Leagues across the nation and is a senior faculty member of Southwest CUNA Management School. Rightmire is a graduate of the University of Alaska.

If you have any questions, please contact her at or 800-442-5762, ext. 6496, or direct at 469-385-6496.