NCUSIF Premium of 12.42 Basis Points (Update 1)

The National Credit Union Administration (NCUA) Board voted on September 16 to impose an assessment of 12.42 basis points of insured deposits as part of a Restoration Plan for the National Credit Union Share Insurance Fund. The premium is expected to raise $933 million returning the NCUSIF’s equity ratio to 1.30 percent using the most current data for insured shares.

NCUA will send federally-insured credit unions an invoice for the premium in late October or early November. The payment will be due by November 22, 2010.

As of August 31, 2010, increased loss provisions resulted in a decline in the NCUSIF’s equity ratio to 1.176 percent. NCUA reported that "realized losses in failed credit unions and continued increase in negative trends in credit union CAMEL codes have resulted in the NCUSIF recording $642 million in provision for insurance loss expenses year-to-date through August. This provision for insurance loss expense, combined with low earnings on NCUSIF assets, resulted in a $570 million reduction in the NCUSIF’s Retained Earnings." Additionally, NCUA is expecting the provision for insurance loss expense at $350 million for the remainder of 2010.

Because the equity ratio of the NCUSIF declined below 1.20 percent, NCUA must establish and implement a plan to restore the equity ratio to 1.20 percent. The premium assessment is the Restoration Plan.

NCUA staff considered a smaller premium but concluded that given projected losses and insured deposit growth the NCUSIF equity ratio would fall below 1.20 percent requiring another restoration plan.

NCUA estimates that the premium will cause the projected industry ROA for 2010 to fall by 10.4 basis points and will lower the aggregate net worth ratio by 9 basis points from 9.88 percent to 9.79 percent.

Additionally, 392 federally-insured credit unions out of the 5,332 (7.35%) credit unions with positive core net income at June 30, 2010 may experience negative core net income for 2010 due to the premium. Sixty credit unions out of the 6,997 (0.9%) with a net worth ratio over 7 percent as of June 30, 2010 may see their net worth ratio fall below 7 percent and 19 credit unions may see their net worth ratio slip below 6 percent -- becoming undercapitalized.

Earlier this year, NCUA levied an assessment of 13.4 basis points of insured deposits in June to repay borrowings from Treasury associated with the Temporary Corporate CU Stabilization Fund.

Therefore, the combined NCUSIF premium and the Stabilization Fund assessment will equal 0.2582 percent of insured shares. This combined assessment will reduce the industry's ROA for 2010 by 22 basis points, causing 855 credit unions to possibly experience a loss for 2010.

At the November Board meeting, NCUA will provide an estimate for a combined range for the NCUSIF premium and Corporate Stabilization Fund assessment in 2011.