One Assessment Down, CU Execs Gird For The Next. And The Next...
WEST PALM BEACH, Fla.-Credit union CEOs and CFOs were prepared for the latest special assessment being levied by NCUA, but many are urging others to be prepared to pay similar assessments for years to come.
Reaction to the 13-basis-point assessment has been mixed, with CEOs comparing the expense to a growing pile of "dirty clothes," to a "rock and a hard place," to an ongoing "anchor" around the necks of CUs."
And more than one CFO is concerned some of her counterparts don't realize that another assessment is coming later this year.
Christopher Owen, president and CEO of Meriwest Credit Union in San Jose, Calif., noted, "MCU still has a concern that the issue with the corporates will not be resolved over the short term and may continue for some time. We do not see an end game yet."
Mincing no words, Stuart Perlitsch, CEO of Glendale Area Schools, said the "assessment borders on extortion. It is a shakedown of epic proportions and will have devastating unintended financial income statement consequences for credit unions. It is unconscionable the entire credit union community of some 7,000 credit unions are subjected to this assessment for the benefit of less than 1,000 WesCorp FCU member credit unions...Credit unions may be tax-exempt but I am finding these assessments to be quite taxing. We should have taken the TARP. How can credit unions possibly grow capital when the NCUA continues to take it away from us? How can we opt out?"
• Scott Waite, CFO at Patelco CU in San Francisco, said it had budgeted 30 BPs for the corporate assessment and the yet-to-be-determined natural-person CU assessment that is to come. Patelco has reported $16.9-million year-to-date earnings, but will recognize a $4.4-million hit from the June assessment.
• Brad Beal, president, Nevada FCU in Las Vegas, said it had already accrued $700,000 toward the $850,000 hit it is taking, and will expense $150,000 during June.
• Similarly,Wally Murray, president and CEO, Greater Nevada CU in Carson City, believes it had adequately budgeted for "significant" assessments. "We also anticipate that such assessments will continue at least through the duration of the seven-year repayment period for the stabilization fund, although we are hopeful that the need for those related to NCUSIF loss issues will subside over time," said Murray.
• Having already budgeted for the assessment it just paid, Joe Kelly, CEO of STAR Community CU, Chico, Calif., said he has been doing the arithmetic to determine what the pending assessments will be. "CUNA is predicting a range of five basis points to 10 basis points," said Kelly. "We prefer to be conservative in our accrual and be pleasantly surprised, then perhaps at the end of the year take some additional income."
• Joe Robertson, CEO of Our Community CU, Shelton, Wash., said it had been prepared for a 45 BP assessment. "Even if it had been what we were expecting we would have been fine because I've always believed in holding onto capital...It gives you the ability to be more competitive in the marketplace."
• Daniel Marciante, SVP and CFO At Arrowhead CU, San Bernardino, Calif., is predicting assessments will continue for the next five years, and in the short term expects the June assessment will be the smaller of the two in 2010. Arrowhead's June bill was $1.05 million.
• Jeff Disterhoft compares paying the NCUA assessments to washing a pile of clothes that never gets smaller. "While the assessments continue to be a drag on the industry's earnings, the greater concern to me is the circular effect they can have," said the CEO of the $960-million University of Iowa Community CU in Iowa City, Iowa. "Each additional assessment only serves to increase the risk that those credit unions already struggling may end up closing their doors. And each credit union that closes its doors only serves to generate additional assessments. Wash, rinse, and repeat, so to speak."
Disterhoft believes spreading out the payments makes the most sense. "As an industry I think we're seeing clear signs of progress and rebounding earnings, and hope that graduated assessments would perhaps match the growth in earnings most credit unions continue to see."
• Some CUs may not understand that the latest charge is only the first of two this year, suggested Pam Finch, CFO for the $220-million Mid Minnesota FCU in Baxter, Minn. "I am still seeing confusion in credit unions across the country...Many thought this first assessment was the assessment for the year." Finch said MMFCU is projecting the latter-2010 assessment will be another 25 basis points.
• Sundie Seefried sees the assessments as driving further consolidation among small credit unions, especially with the charge that's coming in the fall. "The credit union under $50 million has little room to reduce expenses, and consequently will feel the impact the most," said the CEO of the $212-million Eagle Legacy CU in Arvada, Colo "It is not due to the lack of ability to run a successful credit union that will force the consolidation. It's the assessments-and they are certainly not due to the operations of the small credit unions."
• Evan Clark, CEO of the $230-million Department of Commerce FCU in Washington, said the "key" for most will be the ability to run a tight ship, "because the total cost to prop up the corporates and the natural-person credit unions will probably be in the neighborhood of 40 to 45 basis points of insured shares this year. It will probably take two to three years to clean up all the problems with natural-person credit unions-so two to three more years of 40 to 45 basis points."
Then charges will drop down to 10 to 15 basis points for an additional three to four years to clean up the corporate problems, predicted Clark. "The point here is not whether the assessment is too much or too little. The point is to be very aggressive in making sure this doesn't happen again."
• In Bloomington, Ill., Thomas DeWitt, CEO of the $3.6-billion State Farm FCU, was hoping for lower number. "Although the assessment was within the range projected by NCUA, I was disappointed that it was at the higher end of the range. I think this will put additional pressure on natural-person credit unions in absorbing this additional cost." With share account deposits growing and driving down capital, DeWitt added, "I am hopeful NCUA is factoring in the impacts of these assessments and will determine a lower equity ratio is appropriate at this time to help mitigate this situation."
• Hank Hubbard, CEO of the $30-million Communicating Arts CU in Detroit, told Credit Union Journal, said the CU's strong 14% capital makes the assessments more palatable. "I'd rather just get it over with. But I think NCUA did not want a surplus situation, and have to give money back. They are between a rock and a hard place and just had to make a decision."
• According to Gary Easterling, CEO of the $1.1-billion United FCU in St. Joseph, Mich., the latest assessment is right where he expected it to land. "It probably could be more, but I believe NCUA is trying to minimize the impact on the industry as much as possible."
• Michael Poulos, CEO of the $550-million Michigan First CU in Lathrup Village, Mich., said his CU had budgeted for 15 basis points, and has budgeted another 25 basis points there."
Poulos suggested credit unions not try to read anything into what the 13 basis point charge means-such as a sign that payments will be stretched out. "We don't know what this recent assessment means because we do not have all the information on how the corporates' toxic investments are performing. We don't know how this will play out. All we do know is that these assessments will be a boat anchor around our necks for the next six to seven years."