At the September Board meeting, CFO Eugene Schied presented the forecast for the NCUSIF’s year end NOL. The ratio he gave was 1.28%. The slide showed the outcome and the formula, but not the numbers used to calculate the ratio.
NCUA’s public affairs officer Joseph Adamoli has provided that data.
Large Slowdown in Share Growth Last Six months of 2021
NCUA staff projected yearend insured shares totaling $ 1.597 trillion. This would be an 8.8% growth from 2020’s yearend total of $1.468 trillion.
Since we know the midyear insured shares were $1.580 trillion, this indicates NCUA believes credit unions will add just $17 billion more in the second half of the year.
The 2020 yearend share growth was 20.9%; the 12-month growth at June 30, 2921 was 15.4%. Therefor NCUA foresees a significant decline in new deposits from these actual double digit trends.
Net Income for the NCUSIF
The yearend retained earnings are estimated to be $ 4.701 billion which would be a decline from the NCUSIF’s July report of $4.739 billion. In other words, NCUA projects an operating loss for the final five months of approximately $38 million versus a positive net income through July of $118 million.
There was no information to explain the decline in net income. Since monthly investment income more than covers all operating expenses, the agency must be projecting an increase in the insurance loss expense.
2021 NCUSIF Equity Ratio
NCUA’s two yearend forecasts of $4.7 billion of retained earnings and insured shares of $1.597 trillion, results in the fund’s equity ratio of .294%, or almost at the 1.3% historical NOL level.
This forecast shows the importance of the NOL cap. For if retained earnings exceed the NOL, then any overage must be paid in dividends to credit unions.
If instead of negative net income for the final five months, the NCUSIF were to report a gain of just $52.8 million, the equity ratio would be right at .3%. Even that result would be less than half the net reported in the first seven months.
Transparency and Responsibility
No matter how close NCUA’s estimates prove to be, the first conclusion is that this will be a good year for the NCUSIF, even if share growth ends up higher than the forecasted 8.8%.
The estimates also demonstrate the importance of resetting the NOL based on actual historical performance versus hypothetical scenarios with no objective validation.
We don’t know if there will be an NCUSIF update during today’s Board meeting. If there is, the credit union owners have the data necessary to track performance which is one of credit union’s most important responsibilities.
For if the owners and contributors of the 1% perpetual underwriting show little interest in the NCUSIF’s performance, the prospect of a dividend or effective use of the fund’s investments, then the accountability for oversight built into this unique co-op model will break down.
The transparency from NCUA is helpful, but only if credit unions use it to monitor the fund and provide comments to the board. For the next big NCUSIF decision will be setting a new NOL level (currently 1.38) at one of the two monthly board meetings remaining this year.