GLENDALE, Calif.-For the same reason many believe the best way to remove a Band-Aid is quickly, a number of credit unions are saying they prefer to write down whatever their final tab will be for NCUA's Corporate Stabilization Plan.
No reason to drag out the pain, CUs told Credit Union Journal. That opinion comes despite strong opposition to NCUA's plan by many, with support or opposition based on respective credit unions' capital and the likelihood the assessment will push them under Prompt Corrective Action (PCA) requirements.
As CUNA's GAC made clear last week, what is actually going to be required of CUs is unclear, as is the accounting treatment to be given the assessment. Nationally, auditors and CPAs are waiting for clear direction from the American Institution of Certified Public Accountants (AICPA), and during GAC several trade group representatives said credit unions should not expect any favorable treatment. The AICPA is considering issuing guidance to count the write-down as a 2008 event, credit union leaders and CPAs explained (see related story).
Glendale Area Schools FCU here is in a wait-and-see mode until NCUA comes out with stronger direction on how the assessment should be written down, said CEO Stuart Perlitsh, who added that his $250-million CU is hoping that alternatives to the current corporate bailout plan will surface.
"I believe what the NCUA is suggesting is that it should be an immediate expense, and it should be incurred and expensed at the time they impose this extortion upon us," said Perlitsh, who makes no secret of his opposition to the plan. "I have yet to meet a CEO who agrees to this at all. It's a shakedown. We are framing a letter to the GAO and are going to ask for an investigation of the NCUA, because we think they conspired with the corporates to cover this up."
If CapCom Credit Union SVP and CFO Peggy Lamb had her "druthers," she'd take the hit now, but only if the NCUA does not come calling for more cash later on. "If I were a betting woman, I'd say this probably isn't the end," she predicted. "If that's the case, spreading it out over a number of years would be a much easier pill to swallow."
Awaiting AICPA Decision
Lamb, a member of the CUNA CFO Council, said she is among those awaiting AICPA. "I am hearing that we should have something by end of this week," she told Credit Union Journal at press time. "Originally we were told that the AICPA was moving toward requiring that both the premium and the guarantee would be booked as 2009 events. Now we are hearing rumors that they are starting to feel that it was a 2008 event."
Lamb, whose credit union is based in Lansing, Mich., feels that accounting for the assessment as a 2008 event will avert some tough PR. "If we book it in 2009 and show it as negative earnings, then we have to explain to our members why we are not making any money, and are in fact losing money at a time when we are saying we are safe, sound, and secure."
In Jacksonville, Fla., David Tuyo, SVP and CFO of the $350-million First Florida Credit Union, said that in his conversations he finds colleagues' opinions split between those that are well capitalized and prefer to write down the assessment this year, and those with lower net worth that prefer to spread out payments.
"I would like to see us recognize the expense now," said Tuyo. "It is something that we can accrue for. Spreading it out over five to eight years is really overstating earnings, because we know what's coming in the future."
Steve Devan, CEO of the $80-million Grossmont Schools FCU in El Cahon, Calif., is another who'd like to get the assessment taken care of in 2009. "My preference is not to let this draw out, because it diminishes our income statement results for an extended period of time," he said. "If we drag it out and there is a correction in the market and normal returns are expected, then we're sitting with this 8,000-pound gorilla in the room that's holding us down."
When the assessment is accounted for makes no difference to Allene Ashmore, treasurer and manager of the $2.7-million Orange County Teachers CU in Texas, who said her credit union may consider dissolving before paying the assessment. "I don't think we'll be here in five years anyway," said Ashmore, whose CU, which has 21% capital, is "getting smaller every year. Even if we had to take $100,000 out of our undivided earnings, it won't have that big of an impact. The impact is going to come if we dissolve later. Then that $100,000 won't be there for us to divide among our members."
Ashmore confirmed that many of the small credit unions she has spoken with are saying this may be the year to merge. "But not our credit union," insisted Ashmore, who took a strong stance against running the assessment through the income statement. "I can tell you one Orange, Texas credit union that is not going to run it through their income statement. (NCUA) is going to have to walk in here and force me to do it. And as far as that talk about the smaller credit unions not being able to do without the corporates, that's a bunch of stuff."
