KANSAS CITY, Mo.-Credit union CFOs around the country are anticipating the special assessment NCUA will charge later this year will be larger than the projection CUNA made in a recent analysis.
The result: Many are sticking with forecasts and budgeting to pay more.
The report, crafted by economist Bill Hampel, lays out the case for a latter-2010 assessment in a narrow 6 to 10 basis point range. Combined with the earlier 13.4 BP assessment charge, that would leave the total assessment very much on the low end of NCUA board member Mike Fryzel's November 2009 projection of 15 to 40 BPs for both assessments in 2010.
"Personally, and after talking with many CFOs I think they would agree, I believe that CUNA's estimate of 6-10 BPs is too low," Brandon Michaels, CFO at Mazuma Credit Union told Credit Union Journal. "Bill Hampel did a great white paper on [the] losses, but it's based on history, not projections. While projections may be a component of their estimates, their methodology is predicated on what has occurred in the past."
After analyzing credit unions hit hardest by the recession and financial crisis, the CUNA report concluded that actual losses from potentially failing CUs to be about $1.2 billion, slightly above the $1.1 billion the insurance fund already budgeted. The trade group's "optimistic case" calls for only $700 million in losses, which would mean there would be no need for additional reservations for losses in 2011. But the worst-case scenario calls for $2.2 billion in losses and an up to 15 BPs assessment in 2011, in addition to this year's assessment.
"Their estimates are as good or bad as the next person's," Michaels added. "Many CFOs are projecting about 20 BPs for the next premium, for a total 2010 expense of around 35 to 40 BPs."
Steve Smith, CFO at Charlotte-based Sharonview FCU, confirmed that prior to the CUNA white paper most CFOs were projecting a 20 to 25 BP second-half assessment. While some have lowered their estimates closer to CUNA's after the report was released at the beginning of July, Smith is standing pat at budgeting for 20 BPs and hoping for better news.
"We like to plan for the worst-case scenario and hope for the best," he said.
Concerns Over PCA
Net worth at many credit unions is likely to fall into Prompt Corrective Action territory before the year is over, and that will drive the assessment into the higher end of estimates, predicted Peg Lamb, CFO at Marine CU in La Crosse, Wis.
"Because we are going to see more CUs in that range, we're naturally going to see more losses," she explained. "Based on that, I would expect that the share insurance fund assessment will be closer to 25 basis points. Nothing right now is going to override my gut. My gut tells me that we're still looking at major issues that we're going to have to pay for."
Though he disagreed with the final analysis, Michaels praised Hampel and CUNA for doing the heavy lifting in an effort to help credit unions' budget for the upcoming assessment. He also criticized NCUA for not being transparent on corporate bond valuations and other information relevant to determining the assessment figures.
"How did they come up with their numbers? Without the help of CUNA and the insight and information they have obtained, it would be very difficult and time consuming for any one CFO to figure it out," he said. "I think NCUA has a responsibility to give clear, concise, and transparent information regarding the charges that will be assessed in the near future."
