LAKE BLUFF, Ill.-No one disputes that a faltering economy has been a major contributor to thousands of CU balance sheets showing flat income or even losing money, but some observers also see the problem as being one of NCUA's own making-at least in part.
Data obtained by Credit Union Journal shows that 4,800 CUs (68% of 7,031 total credit unions) paid assessments to the corporate stabilization fund during the first three quarters of 2012. Of those, 21% (1,032 out of 4,800) had negative net income before paying assessments, while only 3.75% (180 credit unions) would have had positive net income for the year had they not paid in to the stabilization fund. Taken as a whole, those credit unions represent more than 17% of total CUs.
Moebs $ervices CEO Mike Moebs told Credit Union Journal that the numbers raise some pretty alarming flags. "That tells us that we have the potential of losing another 1,000 credit unions, and in pretty short order," said Moebs. "They can't produce positive net income and can't even produce positive net income after the assessments."
The bigger issue, he continued, is the corporate credit union system as a whole. "We can't dig our way out of this," he said, pointing out that even a robust economic recovery won't make much difference.
"We've got a $20-billion problem, and apart from the interest off of that $20 billion, we're only putting in $651 million to pay for it," said Moebs. "We don't even have enough money to pay the principal and interest. We have enough to pay the interest, pay a bit toward the principal, but we don't have enough."
Not The Only Culprit
Other analysts, however, do not share Moebs' doom and gloom over the assessments-particularly their role in credit union profitability (or lack thereof).
CUNA Economist Mike Schenk echoed many others in his position that assessments have "played a role, but it isn't the only culprit detracting from the bottom line."
"We had this improvement in 2012-ROA went up about 15 points because of a decline in the corporate stabilization expense," said Schenk. "We know this year expenses will be about the same as what they were last year, so that improvement we experienced last year won't be something we experience this year."
Many credit union CEOs, however, aren't so quick to dismiss the assessments. "Let's face it, the NCUA assessments are a contributing cause and, for several credit union, the primary cause of their losses," said Stuart Perlitsh, CEO of Glendale Area Schools FCU in California. "Net worth growth is impeded because the NCUA assessment collection plate-including their 7.50% pay raises-trumps credit union income."
Perlitsh noted that low interest rates on both investments and lending combined with assessments have created a situation where bottom lines are declining at almost the same rate as CU liquidations and conservatorships are increasing. "It's a negative trend, and we will continue to see it more in 2013."
On the other hand, credit unions have become more accustomed to the assessments and are doing a better job of incorporating the costs into budgets.
"The first year that the assessment was charged, it placed great strain on credit unions because it was an unexpected expense," said Laida Garcia, CEO at floridacentral CU. "At this point, we know approximately what will be assessed each year and plan accordingly. While the assessment clearly impacts bottom lines, credit unions budget for this expense and take it into account when drafting their business plans. Credit union ROAs are expected to fall around 0.80 in 2013, so the assessment should not cause most credit unions to be in the red."
Even if credit unions don't end up in the red, however, there's plenty else they could be doing with those assessment funds. Tommy Cobb, CEO at Tuscaloosa CU, pointed out that his CU's most recent assessment was $70,000-an amount that could've paid for five ATMs, increased member returns by 10%, covered full family insurance coverage for all employees for one year or (over 10 years) paid for a new branch.