DALLAS — Weeks after Kenneth Sorrels was replaced as president/CEO, Credit Union of Texas' return on assets figures reveal a puzzling drop over a short amount of time.
According to data from Callahan & Associates, Inc., the $1.4 billion credit union's ROA nosedived from .88% at the end of 2005 to .39% as of March 2006. Despite repeated calls, no one from CU of Texas responded to Credit Union Times to offer explanation on why the ROA dropped.
Callahan reports that several billion dollar credit unions have experienced significant ROA drops over the past few months. Still, according to NCUA 5300 Call Report Data, CU of Texas had a 7.06% net worth ratio and was considered "well capitalized" as of June 30, 2006.
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On Aug. 28, Sorrels, who had been president/CEO of the credit union for more than 10 years, was replaced with John Lederer, the vice president, general counsel of CU of Texas. Lederer had previously said that "like a lot of credit unions, [it] is having a difficult time with spreads."
Sorrels has also not responded to calls from Credit Union Times.
Meanwhile, Sorrels had a tie to Centrix Financial, LLC, the troubled indirect auto lender, which recently agreed to be acquired by Falcon Investment Advisors, LLC, a private equity investment firm and Everest Reinsurance Holdings, a publicly-held insurance firm. Sorrels, along with several other credit union CEOs and league representatives, served on a "board of advisors" at Centrix to advise company officials about trends, according to Marv Rockford, a Centrix spokesman.
"To the best of my knowledge," Sorrels was not involved in Centrix' current situation and his leaving CU of Texas "is entirely unrelated based on the timing" to Centrix, Rockford said.
The last meeting Sorrels had at Centrix was 18 months ago, Rockford said, adding he could not say what issues the board of advisors had talked about in the past. CU of Texas had more than $13 million in delinquent indirect loans as of June 30, according to NCUA data. It also had $3.8 million in year-to-date indirect loan chargeoffs and $718,678 in recoveries. Point of sale arrangement indirect loans amounted to $124 million while outstanding lending relationships totaled $29 million. In all, total outstanding indirect loans came to $153 million. CU of Texas had offered indirect auto lending through Centrix since January 2002. According to a July 2002 article from CUES' Credit Union Management, the CU said it heard about Centrix through the Texas Credit Union League and while it could offer a similar program on its own, the appeal was that the indirect lender's insurance mitigated risk, Tom Neice, senior vice president/chief operating officer told the publication at the time.
"So far it's been great," Neice said in the article, "but the proof of the pudding will be 18 months from now. Even though it's insured, it's not completely protected from loss. The other issue is prepayment–there is a cost for this insurance that's amortized. We'll have to watch the average life."
Niece also said the CU was "already doing near-prime, as opposed to subprime and that the CU "looks at pricing vs. risk–we have to know we're getting compensated for risk."
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