CUSOs have emerged as an important organizational option for the credit union system over the past decade. The two primary kinds of CUSO's-wholly-owned by one credit union and multi-owned by credit unions and/or private firms-have continued to play major roles in credit union success. Or have they? Unlike other sectors of the credit union system, such as the corporate network, the data collected on CUSOs is so scanty and inconsistent that there is even difficulty in creating a master list of all the CUSO's. The situation is likely to become more confusing in the near term. One of the key legal reasons for establishing a CUSO was to offer broker-dealer services to members. Now that most credit unions have elected to "house" this activity within the credit union legal structure as a result of Graham, Leach, Briley legislation, the potential for data distortion becomes much greater. For example, in a credit union with an active broker dealer program, a successful representative can easily earn more than $100,000 in an up-market year. With dozens of credit unions bringing this salary expense into the credit union with no offsetting balance sheet assets, the credit union's reported expense ratio and average salaries will show a jump. Prior to this change, a CUSO's "net income" was reported in the credit union's investment or service revenue. By eliminating the broker-dealer as a separate entity, dozens of credit unions' numbers are going to show an unusual change in 2004 compared with previous year's data. Current Data Sources There are three primary sources of CUSO data. The first is from NCUA call reports. At yearend 2003 the following are some of the totals from the CUSO schedule D: Selected December 31, 2003 CUSO Data * 2,049 credit unions report an invest in, or a loan to, a CUSO; * $668,297,389 is the total invested or loaned; * 602 credit unions report having wholly owned CUSO's in which $305 million has been invested or loaned; * 5,023 credit unions reported affiliations with multi-owned CUSO's. The difficulties in using this data to follow CUSO activity are manifold. While the data can be used to infer the number of credit unions with CUSO involvements, the importance of the CUSO for a credit union is impossible to determine. Moreover there are wide differences in reporting interpretations, for example, of the term "cash outlay." Finally, there is no comprehensive summary for multi-owned CUSO's because each owner only reports a small portion of the whole picture. The second source of data is the CUSO's themselves. The obstacles begin with trying to find who to contact even in the case of the single credit union CUSO. No master list exists. Some wholly owned CUSOs are operating businesses with budgets and plans; others are "shell" companies set up by credit unions as either pass- through entities or for future business efforts. The multi-owned CUSOs are easier to identify, but there is no consistency in the publishing of their financial performance or making this information available to non- owners. Some of these organizations are very large. Both PSCU Financial Services and the C0-0P Network have more than $100 million in assets and serve millions of members daily. While NCUA regulations require all CUSOs to have a third party audit, there is no requirement that this information be made publicly available. The third source of data is from surveys of CUSOs or their parent credit unions conducted by Callahan's and other organizations following the state of CUSOs. Surveys are a primary source for our publication, The Directory of Credit Union Cooperatives. However surveys are only as effective as the responses and the kind of information these private businesses are willing to disclose. Data about CUSO performance is important for one simple reason-CUSOs, especially multi-owned firms, are increasingly critical to credit union performance. Several of these entities are raising millions of dollars in capital to implement plans to help credit unions compete using cooperative strategies, often to gain a foothold in new markets. In 2003, for example, some of the fund-raising efforts initiated include CUDL's $10 million share offering and CUSO Financial Services' fourth capital round totaling $6.0 million. The new national trust company, Members Trust Company FSB, organized by Suncoast Schools FCU and CUNA Mutual has raised more than $17 million with the subscription still open. These capital goals suggest the magnitude of business efforts being planned. Multi-owned CUSO's are active in virtually every area of credit union activity from human resources, data processing, technology applications, card services, marketing, shared branching, ATM's, mortgage processing, real estate brokering, Trust services, indirect auto lending and even R& D initiatives. CUSOs owned by many credit unions routinely make their financial information available to their credit union owners, prospective owners and current and potential customers. These disclosures are often necessary to support long-term contracts and the due diligence efforts of credit unions. But there is another advantage from data – making cross industry comparisons. Just as credit unions do a "reality check" by looking at other credit unions' performance in their peer group, CUSO managers are seeking benchmarking indicators for their lines of business. One way to resolve this situation would be to establish a CUSO Data Exchange where CUSOs could send their annual reports to be analyzed and published in a standard format. There are approximately 125 multi-owned CUSOs where this activity could be completed easily and with consistency. The Internet could be used to both collect and re-publish the information. The Exchange would report which CUSO's file and which do not-and make this data available to the entire credit union community. For the 500-600 wholly owned CUSOs, the first need is to create a common template that all could use to report results. There will be a wide divergence of size and business lines, but the core balance sheet and income statement data could be collected along with activity measures that would help users find similar programs for comparison. As credit unions grow in their public ambitions and size, the role of CUSOs will become more essential. Credit unions comprise 6.4% of all financial institution assets. Cooperation is the key to creating national scale and competitive cost structures. A key to creating more successful CUSOs faster, is providing information about their scope and success. Such data can help credit unions understand and support the critical mission of CUSOs. That effort can begin with a national CUSO Data Exchange using 2003 yearend financial reports. Our firm would be willing to support such an effort and contribute data from the CUSO we manage for 40 credit union owners. If there are other CUSO managers that would like to contribute to this effort, please email me at [email protected].