Corporate Bailout Stymies CU Rebound

Credit Union Journal Daily Briefing  |  Tuesday, January 26, 2010
ALEXANDRIA, Va. – Expenses accrued by natural person credit unions to pay for the meltdown of the corporate network are continuing to flood the movement in red ink, pushing thousands of otherwise profitable credit unions into the loss column again for 2009, according to fourth quarter financial performance reports being filed with NCUA this week.

Last year’s NCUA assessment for the corporate bailout, combined with write-downs on corporate capital, are expected to push as many as 25% of credit unions from the black into the red, according to Tun Wai, chief economist for NAFCU.

He said many credit unions are combining the 15 basis point premium they paid to NCUA last year with the write-down on their corporate capital and reporting it as a single number as an NCUSIF Stabilization cost, making it difficult to determine the details of the corporate expenses. "We don’t know if this represents everything they have accrued for their corporate expenses or is this just the 15 basis points (NCUA assessment)," Wai told The Credit Union Journal yesterday.

California credit unions, already battered by the poor economy, appear to be the most affected.
Western FCU, in Manhattan Beach, Calif., for example, had all of its $5.6 million operating net wiped out by a $10.4 million charge, creating a $4.9 million loss for 2009. Contra Costa CU, in Martinez, Calif., reported a $477,000 operating net for 2009, but a $3.8 million expense for the corporates pushed it into the red to the tune of $3.3 million. San Francisco FCU reported a solid $1.3 million operating net for the year, but a $4.8 million expense for its corporate exposure made that into a $3.5 million loss.

At $8.6 billion credit union giant BECU, a $58.8 million corporate charge turned a $17.4 million operating profit into a $41.4 million loss for the year.

Credit Union of Texas, which has had a difficult few years, reported a healthy $3 million operating net for 2009, but a $10 million expense under NCUSIF Stabilization created a $7 million loss for the year.

Corporate expenses also pushed many struggling credit unions deeper into the red. It increased a $40.6 million operating loss at Texans CU to $51.2 million; pushed a $23.7 million operating loss at Coastal FCU up to a loss of $40.1 million; and a $31.7 million operating loss at GTE FCU to a $44 millioin loss for 2009.

For Kinecta FCU, it took a $46.2 million operating loss and made it into a $71.3 million loss. And for Suncoast Schools FCU it almost doubled a $39.2 million operating loss to a $77 million loss for 2009.

Even some of the best performers are reporting much lower net income because of the corporates. Fairwinds CU, in Orlando, Fla., had a $13.1 million operating net reduced to just $2.4 million after recording a $10.7 million "NCUSIF" expense; Digital FCU saw its $9.3 million operating gain become a $4.3 million net after taking a $5 million NCUSIF charge; Stanford FCU saw its net income almost halved to $7.6 million after the corporate expense; and Addison Avenue FCU had a healthy $4.3 million net for 2009 trimmed to just $1.5 million after accounting for the corporate expenses.

Because of the disparity in reporting, NAFCU’s Wai cautioned on comparing credit unions. Some credit unions, he noted, charged their NCUSIF expenses and write-downs on their own corporate capital in 2008, so corporate charges will not show up in their 2009 financials. Others are delaying taking the full write-down on so-called depleted in their corporates. He suggested it will be at least three years before credit union financials will be consistent again and observers will be able to make accurate comparisons.