Illiquid Securities, U.S. Central Cause a Delay in Audited Financials
"We've already had our annual meeting, and we just went without audited financials, the first time we've ever done something like that," said President/CEO Bill Walby.
Not only must CenCorp determine the value of its own investments in an illiquid market, it must also decide how it will write down U.S. Central-related losses. The American Institute of Certified Public Accountants' recommendations for corporate credit unions included using U.S. Central's year-end audited financials as evidence to back accounting treatments.
However, U.S. Central's audited 2008 numbers have not been released. Before the conservatorship, the aggregate corporate had anticipated releasing those figures by the end of April. According to U.S. Central spokesman Lyle Neidens, the corporate is working closely with the NCUA auditors to stick to that timeline. However, he described the effort as "still a work in progress."
In the meantime, Walby said his shop continues to communicate with members, "getting as much information out to our members as possible, while recognizing this is not what we normally do."
"Unfortunately, it adds another element of uncertainty to our members as we go forward," he said.
PricewaterhouseCoopers accountants hunkered down at the $1.4 billion Constitution Corporate Federal Credit Union the first week in April, in an effort to endorse year-end numbers for anxious members, and in time for Constitution's April 17 annual meeting.
Complicating matters is an other-than-temporary-impairment that, when combined with the U.S. Central losses, could wipe out retained earnings and impair member capital shares, according to a letter from Constitution Corporate President/CEO Robert Nealon posted on the corporate's Web site, www.constitutioncorp.org.
However, Constitution Corporate "has no current plans to curtail or eliminate membership capital dividends," Nealon wrote.
Spokesman Dan Poulin said Constitution Corporate is hopeful it will settle on year-end numbers by mid-month.
Walby reported to his members that CenCorp did see an increase in unrealized losses but "doesn't believe that there was any OTTI on these securities at year-end." CenCorp's unaudited total unrealized losses increased to $30 million as of Dec. 31, 2008, but the corporate could cover even a total impairment with its $112 million in retained earnings.
Anne Legg, vice president of marketing at San Diego-based Cabrillo Credit Union, said she is in the process of finalizing her 2008 annual report, which includes losses associated with its WesCorp membership. Legg said Cabrillo Chief Financial Officer Joel Hudson was "on top of it," quickly providing up-to-date financial information to the marketing department as the WesCorp drama unfolded, enabling the $167 million credit union to produce its annual report on time.
Legg is also chair of CUNA's Marketing and Business Development Council and said corporate losses have created two separate storylines for credit unions.
"There's the financial side, what to put into your 5300 reports or on the annual report," Legg said. "But there is also an important marketing perspective, which is, 'how do you and your executive team communicate this very interesting year to your members.'"
Although Cabrillo did make a strategic decision to invest in WesCorp, Legg said those losses were also unexpected and indirect. However, rather than distance themselves from corporates, credit unions should instead take the opportunity to remind members of their community history.
Legg said Cabrillo's member service feedback began to change during the fourth quarter last year, as members became aware of growing financial and economic issues.
"It was the first time we saw comments about trust in addition to service satisfaction," Legg said. "Maybe consumers don't know about specific financial challenges or about the problems facing the corporates. However, they are very clear about who they trust for their banking."
She said CUNA's Marketing and Business Development Council has developed language and talking points credit unions can use when explaining losses and financial systems to members.