The NCUA reported March 28 that following a twice-annual review,the highest estimated amount credit unions have yet to pay incorporate assessments has declined by $900 million.

That leaves just $1.6 billion to $3.9 billion in assessments yetto pay, less than the $4.1 billion that credit unions have alreadypaid in corporate assessments since 2009.

However, the NCUA said that wouldn't mean a reduction in theestimated 2013 corporate assessment, which remains between 8 and 11basis points. The exact amount will be revealed sometime thissummer during an NCUA Board meeting.

The narrower range of projected remaining assessments reflectsthe actual performance of the failed corporate credit unions'legacy assets to date and updated projections for the futureperformance of the NCUA Guaranteed Notes. Factors include changesin housing prices, interest rates, unemployment rates and mortgageprepayments. NCUA uses BlackRock, an independent securitiesvaluation firm, to project the future performance of the legacyassets in NGNs, a key component of this analysis.

NCUA Director of Examination and Insurance Larry Fazio toldCredit Union Times the board will set future assessmentsbased on a number of factors, including projected loss ranges, theeffect assessments would have on credit union financial reports,and remaining payments on borrowings to the U.S. Treasury worth$5.1 billion.

The Treasury's variable rates are based upon the one-yearTreasury rate, and Fazio said should that rise it would play intothe board's decision.

Additionally once the NGNs end, he said, there will be somevalue left to the legacy assets that will become available to bemonetized.

NAFCU President/CEO Fred Becker said by the NCUA's owndetermining factors, the 2013 corporate assessment should bereduced.

The current Treasury rate is lower than the rate of inflation,Becker said, and credit unions should be allowed to use those lowrates to their advantage, repaying corporate stabilization costsmore slowly with smaller annual assessments.

As the corporate stabilization fund winds down and NGNs mature,the underlying legacy assets will also mature and be worthapproximately $2.5 billion, a windfall that will likely be returnedto credit unions. The question facing the NCUA Board is whether torepay Treasury borrowings before legacy assets mature and return arebate to credit unions, or extend Treasury credit terms tocoincide with the stabilization fund's wind down.

Complicating the equation is the need to also estimate futurerevenue generated by the fund. In 2012, according to auditedstatements, the stabilization fund generated $1.67 billion in netincome from operations, with a little less than half coming fromcorporate assessments.

CUNA Chief Economist Bill Hampel said that the revised $2.75billion midpoint of estimated remaining corporate assessments couldbe fully paid with just over three assessments at last year's rateof 9.5 basis points of insured shares. Spread over nine years theannual assessment would only be about 2.5 basis points.

Hampel also said during an April 1 press call that should theNCUA rebate extra money to credit unions after corporate losses arerepaid, it could create problems for industry accountants. As thecorporate stabilization fund winds down, he said, the NCUA willhave about $2.5 billion in excess funds that would probably bereturned to credit unions. Because credit unions will have alreadyrecorded the expenses when recording annual assessments, therebated funds would have to be added back to balance sheets asincome.

“I'd expect the accounting profession would have an interestingtime figuring out if that assessment is an expense, knowing therecould be a future rebate,” Hampel said.

Yes and no, say industry CPAs.

Dan Mahalak, principal at the St. Clair Shores, Mich.-basedaccounting firm Cindrich Mahalak & Co., said he thinks creditunions would record any NCUA corporate windfall as income for thatyear.

Timing could present a problem for accountants, Mahalak added,as could the reasons for the rebate. Should the NCUA rebate moneyin January, it could be interpreted as a “fix” for the prior year'sassessment. However, if a rebate would occur later, it wouldn'tpresent a problem for the previous year's financial reports.

The reasons for a rebate will also affect accounting treatments,Mahalak said.

“To me, it's contingent upon what caused the assessment to beoverstated,” Mahalak said. “Was this something the NCUA or creditunion should have known beforehand? Was the NCUA too cautious tosay anything about a potential recovery?”

Mahalak added that the NCUA is unlikely to miss the mark bymuch, but if the agency does, it will err on the side ofovercharging.

“When we get to that point, a lot will be said about the factthat this is it, the corporate stabilization effort is finallyover,” he said. “And the NCUA isn't going to want to haveunderstated that loss estimate and have to collect more assessmentsif everybody thinks we're done.”

Jeff Paille, partner at the Rochester, N.Y.-based accountingfirm The Bonadio Group, said recent good news about reduced lossestimates and securities lawsuit recoveries aren't likely to translate intoincome for credit unions in the near future.

“It's too early to understand the value of that to naturalperson credit unions at this point. We're just not there yet,”Paille said.

In the same way credit unions aren't supposed to accrueprojected corporate assessment expenses, they shouldn't plan toreceive any rebates either, he said.

Both Paille and Mahalak said credit unions do frequently accrueassessment costs against their advice. They also said even thoughcredit unions receive exam or audit exceptions for the practice,because the assessment bill comes in the fall, by yearend the fundsare already off the books.

“The only risk is that the NCUA expects to see that costrecorded in the third quarter call report, so credit unions thataccrue throughout year have to reconcile previous financial reportsso all the expense accrues in the third quarter,” Paille said.

Total corporate resolution costs are estimated to be between$11.3 billion and $13.6 billion. In addition to the $4.1 billion inassessments, corporate credit union member capital worth $5.6billion was also used to recover losses.

A Q&A sheet released by the agency March 28 read that allcorporate legacy assets have incurred $6.1 billion in lossesthrough fourth quarter 2012. That number now exceeds the $5.6billion in capital seized from the five failed corporates, “underscoring that those institutions wereinsolvent.”

The NCUA released the new projections early. Updatedfigures are available at NCUA.gov. n