NCUA Media Advisory

Weekly Corporate Credit Union Update –
May 15, 2009

May 15, 2009, Alexandria, Va. – Normal operations continue without interruption at U.S. Central Federal Credit Union (U.S. Central) and Western Corporate Federal Credit Union (WesCorp).  The following items are of note:

• The release of WesCorp’s year-end audited financial statements is imminent.  The March 31, 2009, financial statements were posted on May 1, 2009.

• U.S. Central released its March 31, 2009, financial statements on May 13, 2009.  U.S. Central met with its external auditors this week and remaining audit procedures are in the process of being finalized.  Year-end audited financial statements expected by mid June.  U.S. Central previously reported to its members that 100% of paid-in-capital (PIC) was exhausted and 63% of membership capital shares (MCS) were depleted by losses exceeding retained earnings.  Though U.S. Central’s best estimate of credit losses is still $2.3 billion, discounting the cash flows from these losses in accordance with Generally Accepted Accounting Principles (GAAP) results in a reduction in OTTI charges to $1.8 billion.  As a result, MCAs are depleted by 23%, not 63% as originally reported on April 30.

• Readers of both WesCorp’s and U.S. Central’s financial statements should keep in mind recent changes adopted by the Financial Accounting Standard Board for OTTI accounting when comparing year-end 2008 to March 31, 2009 financial statements.  Both corporate credit unions have elected to early‐adopt the provisions of FASB Staff Position No. FAS 115‐2 for the quarterly reporting period ended March 31, 2009.  This new GAAP modifies how OTTI is measured and recorded.  In those instances in which OTTI exists, the impairment is separated into 1) the amount of impairment related to credit losses and 2) the amount of the impairment related to all other factors.  Only the credit losses are recorded as a reduction to earnings, while the amount of impairment related to all other factors is recorded as an unrealized loss in other comprehensive income.

• Both WesCorp and U.S. Central have reclassified as available-for-sale those securities that had been classified as held-to-maturity.  This is not a signal of a change in strategy, only an accounting recognition.  The securities classified as held-to-maturity for the most part were subject to OTTI charges.  The accounting treatment was thus essentially equivalent to securities classified as available-for-sale, so operationally it was simpler and more transparent to treat all securities as available-for-sale as a reader of the financial statements can clearly ascertain the unrealized market losses on the securities.  This also provides consistent analysis and reporting going forward.

• Member communication and outreach efforts continue.  WesCorp will hold a town hall meeting on Monday next week.  U.S. Central held a member call on Thursday this week.

• NCUA will be issuing guidance in the form of a Letter to Credit Unions for holders of corporate credit union PIC and MCS accounts explaining the implications of exhausted and depleted PIC and MCS.  On May 13, 2009, NCUA issued a letter to corporate credit unions addressing revisions to the Temporary Corporate Credit Union Share Guarantee Program, the NCUA Board order related to regulatory compliance for capital based limitations, the payment of dividends, and on waiving bylaw provisions related to replenishment of MCS.

• Later this month, the NCUA Board will be considering changes to the Temporary Corporate Credit Union Liquidity Guarantee Program to enhance liquidity by providing longer term funding options for all corporate credit unions.  Credit union support of corporate system liquidity continues to be key to ensuring a successful strategy of mitigating losses on the distressed securities.

Chairman Fryzel stated, “I look forward to testifying next week at the House Committee on Financial Services hearing on H.R. 2351, The Credit Union Share Insurance Stabilization Act.  NCUA has been successful to date in stabilizing the corporate credit union system.  These essential actions have come at a cost.  This, as well as other, important legislation will aid in providing NCUA with tools to resolve the current crisis in a manner that spreads out the cost to insured credit unions.  In addition, I remain committed to working with Congress and the credit union system to pursue necessary reforms to the corporate credit union regulatory framework.”

The National Credit Union Administration charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates and manages the National Credit Union Share Insurance Fund, insuring the accounts of nearly 89 million account holders in all federal credit unions and the majority of state-chartered credit unions. NCUA is funded by credit unions, not federal tax dollars.

- NCUA -