HOUSTON — With a March 31 deadline looming, credit unions are struggling with how to account for the combined 62 basis point assessment and impairment NCUA is requiring to shore up U.S. Central Credit Union.
Many CUs have gotten conflicting guidance from their auditors, and the auditors themselves earlier told Credit Union Journal they are awaiting further guidance from the American Institute of CPAs and NCUA. At a California/Nevada league meeting last week, one CEO remarked, "I defy you to tell me what it is our auditor's opinion actually says."
Work is also ongoing in Congress to allow credit unions to spread the assessment over five and perhaps as many as eight years. At issue is NCUA's plan to inject a $1-billion capital note into U.S. Central and compel natural person credit unions to shore up the share insurance fund to the tune of an estimated $4.7 billion.
Of those credit unions that are able to do so, many have indicated they will record the hit against their 2008 statement. But if a poll conducted last week by the CUNA CFO Council listserv is any indication, a majority of CUs will be recording at least a portion of the hit in 2009. Yet as the CFO who initially posted the question on the listserv told Credit Union Journal, it would appear a lot of CUs are still struggling with the decision.
"This informal survey of 116 credit unions shows how credit union financial professionals are torn on the subject," said Melissa Domingues, vice president of finance at First Service CU, who posted the poll and tallied the results as of March 18. "I have heard of various credit unions getting different guidance from different audit firms and even different examiners. I also know that some credit unions are not getting audited financial statements from their auditors until the audited financial statements are released from U.S. Central and other entities. Therefore, only one thing is consistent...there is no consistency!" Domingues shared the following results of the poll:
- 22% of respondents said they will book the impairment and assessment in 2008.
- 23% said they planned to book the impairment in 2008 and the assessment in 2009.
- 55% said they will book both the impairment and assessment in 2009.
NAFCU Economist Tun Wai, who has also been in touch with a number of credit unions about their plans regarding when and how to book the hit on the general balance sheet, agreed, saying "it's all over the place. AICPA gave that discretion, and credit unions are looking at their options and exercising them.
"If you look at the prior year's income and you think things are going to get tougher, it may make sense to reopen the 2008 books," he continued. "But some credit unions have already paid out bonus dividends, and if you already have that drain on your net income, 2008 might not make sense."
Wai noted that some of the credit unions he's talked with didn't even realize that they had to make the decision by March 31. CU Journal asked several members of the CUNA CFO Council to share how they came to their respective decisions on when to book these events.
Melissa Domingues, VP finance
First Service CU, Houston
Assets: $205 million
Members: 35,089
Decision: Still unsure
At press time, First Service CU's management team's meeting with the board on this very topic was still just days away, so Domingues said the management team is "leaning towards recommending booking the impairment in 2008 and the assessment in 2009."
"My thoughts are that the impairment is due to events that occurred in 2008. Just because NCUA announced the stabilization plan in 2009 does not mean it was not based on 2008 events," Domingues told CU Journal. "In fact, during recent meetings, webinars, etc. where NCUA is involved, they are inevitably asked why the plan was just released and implemented if there were so many massive problems. Their answer has always been (that I have heard so far) that this had been going on for quite some time and a multitude of events, discussions among NCUA leaders, decisions, etc. lead up to the 'announcement' of the plan. Therefore, it seems that the announcement came after events had occurred and decisions had been made with at least some of these events and decisions occurring in 2008."
Pam Finch, CFO
Mid Minnesota FCU, Baxter, Minn.
Assets: $200 million
Members: 32,524
Decision: Booking both in 2009
"There has been a lot of time and energy spent by the credit union industry and the accounting industry deciding on what type of subsequent event the NCUSIF impairment and premium assessment are considered," observed Finch, who also serves as vice chair on the CUNA CFO Council's executive committee. "Unfortunately, a common resolution was not found. Based on my experience in public accounting and what I understand the circumstances surrounding this event to be, I believe the action taken by the NCUA is a Type 2 event which requires disclosure to our Dec. 31, 2008 financial statements with actual recording of the entries in our January 2009 financial results.
"It is our belief that the NCUSIF deposit did not become impaired because of the losses existing at US Central at December 31, 2008," she explained. "We believe it became impaired because of how NCUA chose to address the loss. Therefore it was the NCUA actions on Jan. 28, 2009 that impaired the NCUSIF deposit."
Finch added that the credit union has applied the same thought process to the premium assessment, as this liability is also a result of NCUA actions taken on Jan. 28. "Neither the assessment nor the impairment of the NCUSIF existed prior to that date," she concluded.
MJ Koon, SVP-CFO
Ent FCU, Colorado Springs, Colo.
Assets: $2.5 billion
Members: 193,449
Decision: Booking both in 2008
"You hear some credit unions saying they made a profit in 2008, and they already know they're to lose money in 2009, so rather than show a loss two years in a row, let's just load up 2009," Koon said. "It's all very political."
Ent considered splitting it down the middle, and booking one event in 2008 and the other in 2009, but it decided to put it all into 2008.
"We were lucky, we had a really good 2008, so even booking it there, we still show a profit in 2008," she said. Another reason 2008 made sense for Ent: at press time its annual meeting was still just hours away, so the management team would have an opportunity to explain its decision and what is happening.
"We want to avoid any misinterpretation of our performance by our members," she added. "We have to post our performance every month in our service centers. If they suddenly see a $6.2 million loss, we don't want them to say, 'head for the hills!' Our CEO will have the opportunity to explain what is happening at our annual meeting."
But Koon said she can see both sides of this decision. "Personally, I could have interpreted this on either side, and our CPA said it could go either way," she told CU Journal. "I have heard about a number of firms who say that it must be booked in 2009, and I am wondering if some of those firms are smaller ones that don't have a lot of credit union clients and don't really understand what is going on with the industry right now. I think if credit unions are in that situation, they should go back and have some quality conversations with their CPA firms to make sure they really understand what all is going on right now."
Brad Barnes, VP finance
Air Academy FCU, Colorado Springs, Colo.
Assets: $450 million
Members: 44,029
Decision: Booking both in 2009.
The hardest part about the decision is the fact that credit unions were given so much leeway to begin with, Barnes said, which is eliminating any sort of consistency across the board.
"My personal opinion is that AICPA decided it was acceptable to go either way with this because they were getting pressure from credit unions that already losses on their books," he suggested. "What we agonized over was that we would take it in 2008 if that's what all credit unions did, but that's not what happening. The problem is that not everyone is doing the same thing, even though the same thing is happening to all of us."
That lack of consistency, he said, means a lack of transparency for credit union members, who are left trying to figure out what all of this really means. As for Air Academy, Barnes said it reached its conclusions based on a strict interpretation of the accounting rules-and that same interpretation will guide the credit union should Congress grant NCUA the authority to allow CUs to spread some of the impact over as many as five years.
"The way the rules are written, if a loss is probable, and you know that it is probable, you have to show that loss immediately," he said. "We have already done this. We booked it in February 2008. "We wouldn't be handling it correctly if we spread it out over five years, so we won't make any change."
