ALEXANDRIA, Va. – Costs associated with NCUA’s corporate bailout are wreaking havoc on the first quarter financials of credit unions, pushing many of them into the red for the first time, and wiping out net income for many more.
"There’s no way a credit union can account for it (all) and not go into the red," said Bill Hampel, chief economist for CUNA, of the 99 basis point cost for the $5.9 billion corporate bailout.
NCUA has recommended that credit unions 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 bp when NCUA charges the expected premium in the fourth quarter. But some credit unions have chosen to take the entire 99 bp charge in the first quarter. Others have not taken any charge in the first quarter.
While an estimated 25% of credit unions were expected to lose money this year, the corporate bailout costs will push another half of all credit unions 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, according to Hampel.
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 yesterday because an $11. million charge for the bailout erased a $6.6 million first quarter net and created a $4.5 million loss. DFCU Financial, the Dearborn, Mich., credit union giant, reported a $4.7 million loss after accruing a $14 million charge that wiped out net income of $9.3 million for the quarter.
Yesterday, Navy FCU reported a $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.
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 North Carolina SECU was still able to report net income of $36.4 million even after a $20 million charge for the corporate bailout.
For other credit unions the costs of the corporate bailout just made a bad quarter even worse. Coastal FCU, in North Carolina, had an $11.9 million loss for the quarter even before the bailout costs, then accrued another $14.4 million in costs for the bailout–creating a $26.3 million loss for the first quarter.
Star One CU, in California, would have reported an $8.2 million loss for the quarter, but combined it with a $24.3 million charge for the corporate bailout to create a $32.4 million loss for the quarter.
Del-One FCU, in Delaware, would have reported a $303,030 loss for the quarter, but also took a charge of $1.6 million for the corporate bailout–creating a $1.9 million loss.
And other credit unions in California and elsewhere who were members of WesCorp FCU are waiting for guidance from NCUA on how to treat their capital in WesCorp, which may have to be charged off altogether, exacerbating the industry’s woes.
