ALEXANDRIA, Va. – Thousands of credit unions are expected to report losses for last year in the coming days, the fallout from the continuing recession and from the deterioration of the corporate credit union network.
While hundreds of credit unions charged their assessment last year for the corporate bailout in the 2008 fiscal year, thousands more will be charging additional assessments for 2009, because increasing numbers of corporates ran through their capital – passing the losses down to their natural person credit union members, according to several experts.
Credit unions will be submitting their fourth quarter and year-end financial performance reports to NCUA this week, and are preparing their more comprehensive books for annual audits that will be conducted over the next few weeks.
CUNA Chief Economist Bill Hampel said he expects as many as a third of all credit unions to report red ink for 2009, many of them due to the depletion of their capital in their corporate. But the CUNA economist said it will be impossible to compare industrywide figures in 2009 to 2008 because of the disparity in reporting of corporate bailout expenses.
The corporate crisis, which began to eat into credit union financials in 2008, continued to spread last year, so that corporates all over the country were depleting capital, causing members to take charges to their bottom lines.
In addition, credit union officials are already grappling with the fact that last year’s $1.1 billion assessment from NCUA is going to be followed up with an additional assessment in 2010 and possibly 2011, according to Victor Howe, a partner with credit union accountant McGladrey & Pullen, LLP. Some credit unions may even be taking a charge for the 2010 assessment in 2009, as they accrue reserves for the expected NCUA charge, he said. "They need to talk to their CPAs to determine if the expense can be made in 2009 or 2010," he said.
"Many credit unions have expenses a lot of their capital (depletion) in their corporates for 2009," Howe told The Credit Union Journal Friday.
"Each credit union needs to be monitoring these financial results and taking the necessary write-downs," said the credit union auditor, who is working with dozens of credit unions on year-end financials.
One trend to be watched for 2009 financials is how the recession has spread from the so-called Sand States to the Northeast, Mid-Atlantic states and other parts of the country, said Howe, who works in McGladrey’s Massachusetts office, auditing credit unions all the way down the East Coast. Many East Coast credit unions are still building their allowance for loan losses, whereas many credit unions in California, Nevada, Arizona and Florida have accumulated enough ALL over the past three years. Additional ALL will also be eating into the bottom lines for 2009 in New England and the Mid-Atlantic states, which have seen an increase in loan delinquencies over the past 12 to 18 months, he explained.
Another trend for 2009 will be the effect of new merger accounting rules on those credit unions that have absorbed troubled institutions. Under newly required purchase accounting rules all assets and liabilities of credit unions being acquired must be accounted for at fair value. "It’s a much more complex transaction," said Howe.
