Using the NCUA’s midpoint estimates of remaining corporate stabilization costs, CUNA Chief Economist Bill Hampel estimates it would take four more years of assessments similar to the 2012 rate of 9.5 basis points to pay off corporate losses.
The NCUA Board last week set the rate and said the assessment payments will be due Oct. 9. Credit unions should expense the assessment in August and report the entire expense on their Sept. 30 Call Reports, the agency said.
However, Hampel said there are two important reasons to lower the annual assessment and spread out the Temporary Corporate Credit Union Stabilization Fund’s repayment process.
First, Hampel advocated lower annual assessments to minimize the effect on credit union net income. Secondly, the CUNA economist said because the remaining TCCUSF balance range of $1.9 billion to $5.2 billion is based upon estimates of the future performance of corporate mortgage backed securities, spreading out payments “decreases the likelihood of an adjustment in the future.”
If corporate stabilization costs are paid off in four years, and the economy outperforms estimates, credit unions would be due a rebate. And, Hampel said, so far NCUA’s initial estimates have been higher than actual costs.
Lowering annual assessments to 5 basis points would spread out the remaining $3.6 billion owed to the U.S. Treasury over seven years, he said.
NAFCU President/CEO Fred Becker provided another case for spreading out the assessment: low-cost Treasury financing.
“We’re paying the 1-year Treasury rate on the fund, and the rate of inflation is greater,” Becker said. “So, I would have preferred to see the (2012) assessment be a little lower, given the fact that in the future, credit unions would be paying with deflated dollars.”
Becker said he also thinks the NCUA could, and may, release more funds from the National Credit Union Share Insurance Fund to repay corporate stabilization costs. The 2011 NCUSIF annual report reported a $279 million distribution from share insurance to corporate stabilization, because the NCUSIF is required to apply surplus to monies owed the U.S. Treasury when its equity ratio climbs above 1.3%.
The NCUA said it anticipates the industry’s annualized Return on Average Assets will fall from 0.89% to 0.81% after the 2012 corporate assessment is paid, and 335 federally insured credit unions will experience negative core income solely due to the assessment.
However, in a Letter to Credit Unions on the topic, the federal regulator said it is telling examiners to “factor out the adverse impact of the assessment when evaluating and rating credit union earnings and net worth performance.”
The letter is available for review on the NCUA’s website.