ALEXANDRIA, Va. – Credit unions across the country are plunging into the red, trimming healthy net incomes or just staying above water as a result of NCUA’s corporate credit union assessment.
The 25 basis points charge, a total of $2 billion, is projected to wipe out the industry’s entire net income for the third quarter, according to Bill Hampel, chief economist for CUNA. Hampel estimated the NCUA charge will trim the industry’s rebounding profitability from a projected 80 bps to 85 bps for 2011, down to the “mid-60s.”
NCUA projects the corporate charge will drive as many as 1,648 credit unions into the red for the third quarter and an estimated 811 into negative territory for the year.
The charge is holding back some healthy credit unions that are on pace for huge years. The Golden 1 CU, California’s biggest credit union, reported its $15.9 million charge left it with a meager $844,000 net for the third quarter, but a strong $50.9 million net for the first three quarters of the year.
First Entertainment FCU said its $1.8 million charge for the NCUA assessment left it with a small third quarter net of $294,000, instead of what would have been a healthy $2.1 million net; but still with a $4.3 million net for the first three quarters.
California CU reported a $2.3 million NCUA charge left it in a $1.6 million hole for the third quarter; cutting net income for the first three quarters to $4.9 million.
The third quarter hit was compounded because most credit unions chose to take the charge all at once.
Patelco CU said its $7.8 million assessment erased all of its third quarter net income and left it $7.6 million in the red for the period; but still a positive $7.2 million for the year. Scott Waite, chief financial officer for the $3.6-billion credit union, said management decided to take the entire charge all at once. “We expense all when assessed as is appropriate in my opinion,” told Credit Union Journal.
Despite the big charge, the amount realized was $3.7 million less than Patelco budgeted for, said Waite, who still projects the credit union will realize $12 million in net income for all of 2011.
And the NCUA charge clearly exacerbated a bad situation for some credit unions. Evangelical Christian CU, a $1.2-billion California credit union that reported a $10.5 million loss, added a $1.5 million charge for the corporate assessment in the third quarter, making an $11.5 million loss for the first three quarters of 2011.
Troubled Texans CU, under NCUA conservatorship, said a $3.5 million NCUA charge helped push its losses from $11.7 million at mid-year to $26.5 million at the end of the third quarter.
NCUA has assessed federally insured credit unions a total of $3.3 billion for the corporate resolution so far, including charges totaling $1.3 billion in 2009 and 2010. NCUA projects it will need to ask credit unions for approximately another $700 million, or about nine bps, for the corporate assessment next year.
