The NCUA-managed U.S. Central Federal Credit Union released its2008 audit late in the afternoon on Sept. 11 as NCUA ChairmanDebbie Matz was packing her bags for a town hall tour to discussthe future of the corporate network.

Unfortunately, the end of the week release created confusion forcredit unions and the media, who were left to interpret the 50-pagereport's complicated charge-backs and reversals on their own.

U.S. Central Chief Financial Officer Kathy Brick sent an earlymorning Sept. 14 e-mail to U.S. Central members, apologizing thatthey weren't given access to the audit before the public andpress.

Confusion over the bottom-line audit results became such aproblem, it forced the NCUA to release a statement from Matz toclarify: the $27 billion U.S. Central did not lose any additionalcapital.

“The capital depletion figures, as reported by U.S. Centralthrough June 30, 2009, have not changed. The depletion of allpaid-in capital and 63.7% of membership capital shares remainsvalid,” said Matz in the statement.

Auditors Deloitte and Touche did determine the one bond requiredimpairment to the tune of $9.2 million. That amount will berecognized in third-quarter financial statements, said Scott Hunt,from the NCUA's Office of Corporate Credit Unions. The OTTI willhave little effect on U.S. Central's financial position because thewholesale corporate is generating enough income to quickly coverthe amount.

With the exception of the $9.2 million, all newly recordedlosses as of Dec. 31, 2008 were already recognized on U.S.Central's books in 2009, Hunt said. He called the accountingentries “just a timing difference,” saying nine months ofperspective provided Deloitte & Touche with “the benefit ofmaking a Monday morning quarterback call.”

U.S. Central's audit passes the capital hot potato down toretail corporates, which must now consult with their own auditorsand adjust their capital to cover for U.S. Central's losses in 2008and so far this year as well as their own investment losses. Mostcorporates have delayed recording any capital impairments until theLenexa, Kan.-based credit union's figures had been fullyaudited.

Representatives from five of U.S. Central's retail corporatemembers-Corporate One Federal Credit Union, Southeast CorporateFederal Credit Union, Mid-Atlantic Corporate Federal Credit Union,First Corporate Credit Union and Members United Corporate FederalCredit Union-all said they have already, or will very soon, forwardthe U.S. Central audit to their own audit firms. Several said theyexpect to release their own 2008 audited financial statements andadjusted 2009 statements within the next two to four weeks.

When asked if they will follow the NCUA's guidance to depletecapital 63%, all said they have no reason to doubt U.S. Central'snumbers. However, the decision to impair capital is for corporateauditors to decide.

Members United's Todd Adams did go on the record supporting theNCUA's guidance. He said the corporate is following NCUA guidanceregarding depletion of capital from the impact of U.S. Central andits own investment OTTI. “Further charges related to U.S. Centralbeyond their announced charges to capital will be decided bydiscussions with our outside auditors.”

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