Credit unions had a phenomenal year in 2001 with share growth over
15%. Unfortunately a little noticed change in The Credit Union Membership
Access Act (HR 1151) could mean that credit unions are on the hook
for insurance fund premiums-in years of exceptional performance
as well as in times of problems.
The new law requires a premium charge if the fund's equity/insured
savings ratio is less than 1.2%. Prior to this, premiums were discretionary
as the NCUA board set the normal operating level each year, unless
the fund's ratio fell below the 1% capital deposit level.
The Results from 2001
This issue is more urgent following the NCUSIF briefing
at NCUA's January Board meeting. Looking at the monthly trends for
all of 2001, total income continues to fall while expenses continue
to rise each month. Total revenue was $29.3 million below budget
and net income was $24 million under budget for the whole year.
The bottom line of $164.1 million was $40.1 million lower than last
year and the lowest amount in the last four years.
As a result, no dividend will be paid to the owners even though
insurance losses are zero for the seventh consecutive year. The
fund's equity ratio will fall to between 1.25-1.26 as of December
The earnings decline and subsequent fall in the equity ratio reflects
- The falling yield on the Fund's $5.0 billion investment portfolio;
- The expenses charged to the Fund of running the Agency (almost
$100 million in 2002) and,
- The double digit increase in insured share growth in 2001 of
Should a combination of these forces continue in 2002, then the
Fund's ratio could easily fall to the 1.2% floor. Note these trends
assume there would be no dividend and the Fund could continue to
avoid any insurance losses.
What is needed most is a plan. If these trends and capital constraints
were in a credit union, examiners would be asking for projections
and options. Clearly the financial model of the NCUSIF and the 1%
deposit is under strain. Is it unreasonable for credit unions who
own the Fund and who are foregoing dividends in "good times"
to see a game plan from the Fund's board of directors-before the
Board asks for more of their money?