BLOOMINGTON, Minn. — Credit union auditors are laying out the options for how credit unions can account for their share of the corporate bailout costs and the impairment of capital in WesCorp FCU, but are leaving it up to their clients to decide how they will report the charges.
"It's purely a timing thing," said Greg Schwartz, audit partner for McGladrey & Pullen, one of the leading auditors for credit unions. "The bottom line is, as of 12/31 this year everyone will have reported the same thing."
McGladrey, which audits as many as 500 credit unions, is referring its clients to the Technical Practice Aid provided by the American Institute of Certified Public Accounts in February when advising credit unions on how to account for the costs related to NCUA's corporate credit union bailout.
The so-called TPA said that credit unions could choose to take the charges related to the impairment of their 1% NCUSIF deposit in either 2008 or the first quarter of 2009.
The Justification for 2008
The justification for going back and taking the charge in 2008 is that the events that caused the charge, that is the deterioration of U.S. Central and the other corporates, necessitating NCUA's guarantee of all corporate deposits-occurred in 2008.
Of course, those events only amounted to a portion of the NCUSIF impairment, a 51-basis-point impairment. The remainder, of 18 bps, occurred as a result of NCUA's March 20 conservatorship of WesCorp FCU and U.S. Central FCU.
Some credit unions, The Golden 1 CU, for instance, decided to apply the 51 bps impairment to its fourth quarter 2008 financials and the additional 18 bps to its first quarter 2009 financials. This was done with the concurrence of the credit union's auditor KPMG.
Other CUs are applying the full 69 bps impairment to their first quarter financials. This is what NCUA recommended, but did not direct. NCUA left the final decision up to each credit union with the advice of its auditors.
For the other portion of the corporate bailout charge - the 30 bp premium NCUA said it expects to charge in the third quarter to replenish the reserves of the NCUSIF-auditors are also recommending that credit unions take the charge for the first quarter, as suggested in the AICPA's guidance.
Navy FCU, on the advice of its auditor, Pricewaterhousecooperss, decided to take the entire charge for the corporate bailout, $217.1 million for the impairment and the premium, in the first quarter.
Some or all of these charges may be reversed later on if, for example, NCUA accrues fewer losses on WesCorp and U.S. Central, reducing the costs of the failures, or if Congress passed proposed legislation that would allow credit unions to spread out these costs for as long as eight years, according to Schwartz.
WesCorp Charges Get Special Treatment
On the accounting for capital investments with WesCorp, credit unions are being advised to take a charge for the full amount of their WesCorp capital, as NCUA believes it has been consumed by losses at the corporate. But many credit unions have opted to wait to do that. Suncoast Schools FCU, for instance, struggling with a first quarter loss of $53.6 million loss, comprised of a $23 million operating loss and $30.6 million charge for the corporate bailout, has opted to delay charging its $9 million of WesCorp capital, probably until the second quarter, according to Tom Dorety, president of the $5.8 billion credit union. With losses pushing capital at Florida's largest credit union down to just 6.05% at March 31, this could delay the day of reckoning when Suncoast Schools would have to provide a capital restoration plan to NCUA under prompt corrective action rules.
