ALEXANDRIA, Va. — Costs associated with NCUA's corporate bailout, as well as last month's failures of U.S. Central FCU and WesCorp FCU, are wreaking havoc on the first quarter financials of credit unions, pushing many of them into the red for the first time.
The retroactive assessment of some of its share of the corporate bailout costs back to the fourth quarter of 2008 wiped out a healthy $21-million net for The Golden 1 CU and pushed the credit union into the red for last year. "It took our $21 million in profit and turned it into a $23 million loss. It was sickening," said Teresa Halleck, president of the $7.5-billion credit union, of the $44 million charge.
That was even before the nation's sixth-largest CU took a $41.4-million charge representing its lost capital in WesCorp, pushing it into the red to the tune of $54.9 million for the first quarter.
Credit unions all over the country are struggling with how to account for the various costs associated with the corporate bailout.
NCUA has recommended CUs account for the 69 bp impairment of their 1% National CU Share Insurance Fund deposit in the first quarter and wait to account for the other 30 bps when NCUA charges the expected premium in the fourth quarter. But some have chosen to take the entire 99 bp charge in the first quarter. Others have not taken any charge, yet.
Others still, like The Golden 1, have opted to take the charges retroactively to the fourth quarter in 2008, reasoning on the advice of their auditors that's when the events related to the corporate bailout occurred.
"There's no way a credit union can account for it (all) and not go into the red," CUNA Economist Bill Hampel said of the total 99 basis point cost for the $5.9-billion corporate bailout.
While an estimated 25% of CUs were expected to lose money this year, Hampel figures the corporate bailout costs will push another half of all CUs into the red-meaning as much as 80% of all credit unions will report a loss for 2009 if the expected 99 bp charge goes through.
So some credit unions that would have reported a profitable first quarter are reporting a loss just because of the bailout charges.
Westerra CU, in Colorado, for example, reported net income of $1 million before the charge and a $6 million loss after accruing $7 million for costs associated with the corporate bailout. American Eagle FCU, in Connecticut, had net income of $803,767 for the first quarter but was forced to report an $8.5-million loss because of a $9.3 million charge for the corporate bailout.
Credit Union of Texas, which has been struggling with large losses the past two years, was prevented from finally moving back into the black because an $8.6-million charge for the bailout wiped out $3.4 million in first quarter net, creating a $5.2-million loss for the period.
San Antonio FCU reported its first loss last week because an $11-million charge for the bailout erased a $6.6-million first quarter net and created a $4.5-million loss.
Navy FCU reported a whopping $166.9-million loss for the first quarter-the biggest ever in credit union history-because a $217-million charge it took for the corporate bailout wiped out $50.2 million in net income for the quarter. A spokesman for the nation's biggest credit union said its auditor, Pricewaterhousecoopers, recommended that Navy Fed take the entire 99 bps charge in the first quarter-representing both the impairment of the 1% NCUSIF deposit and the forthcoming 30 bps premium.
"We've been doing terrifically without the charge," said Jennifer Sadler, a Navy Fed spokesperson, noting $3 billion of first mortgages, $2.5 billion of new deposits and 86,000 members added to the books of the credit union in the first quarter. "Business is very, very good for us," she added.
Pentagon FCU saw almost all of its $28.7-million net for the first quarter erased by a $27.7-million charge for the corporate bailout, leaving it with a net of just $1 million for the quarter-compared to a first quarter net last year of $34.1 million. But State Employees CU in North Carolina was still able to report net income of $36.4 million even after a $20 million charge for the corporate bailout.
For members of WesCorp the toll is much greater. The double charge for the corporate bailout and the WesCorp failure took a modest first quarter loss at Kinecta FCU and turned it into a gaping loss of $51.3 million. "We actually broke even, only about a $1-million loss, for the first quarter," said Simone Lagomarsino, president of the $4-billion credit union, of the dual charges of $29.8 million for the corporate bailout and the $20.6 million charge for its WesCorp stock.
The dual charges, totaling $44.3 million, took what would have been a healthy $36-million net for Star One CU and turned it into a big $32.4-million loss for the first quarter. "We just decided to take it all at once, rather than later," said Rick Heldenbrant, president of the $4.6-billion credit union.
But just as troubling is the fact that Star One took a $15-million charge for its WesCorp stock-and charges of $5 million more for impairment of its capital in Members United Corporate FCU and one other corporate. That means hundreds of other credit unions are either taking charges or preparing to take charges on their capital in other corporates.
What's more the WesCorp charge is spread all across the country, as the corporate giant's 1,022 members came from a nationwide field of membership. So credit unions like Florida's Suncoast Schools FCU, already struggling under huge losses, has yet to add the $9 million it expects to charge for its WesCorp capital, according to Tom Dorety, president of the $5.8-billion Tampa, Fla., credit union. Suncoast, Florida's largest credit union, reported a $53.6-million loss for the first quarter, comprised of a $23-million operating loss and $30.6-million charge for the corporate bailout. Dorety said the first quarter charge only includes the impairment of the 1% NCUSIF deposit and not the expected premium, on the advice of the Suncoast auditor.
