The NCUSIF’s Valentine’s Day Surprise

Late yesterday NCUA released the independent CPA audits of the four credit union funds it manages.

The one that matters most for credit unions is the NCUSIF’s performance.  Plumbing through the opaque federal accounting presentation reveals much good news.

Bear in mind  when reviewing the highlights below that the FDIC is struggling to increase its insurance ratio.  It has assessed increased premiums  to pay for the hundreds of millions of bank failures in 2023.

Some NCUSIF 2023 Highlights

  • Net income increased to $210 million. This is the best operating result ever and almost double the $119 million recorded 2022.
  • Net insured losses (cash payments less recoveries) were just $1.0 million. Nonetheless he allowance account was increased to $209 million, the largest total since the taxi medallion inflated reserve in 2017.
  • Insured share growth was flat ending at $1.7 trillion. The aggregate net worth ratio for all insured credit union increased to 10.95% from 10.78% at yearend 2022.
  • The Fund’s normal operating level (NOL) grew to over 1.30% at yearend. Each basis point equals $170 million.  Adding the allowance account raises total reserves to over 1.31% or a potential $1.9 billion cushion above the NCUSIF’s lower NOL limit of 1.20%.  Since 2008, the total losses for all the NCUSIF’s preceding 15 years equal $1.877 billion.
  • There is opportunity for even greater returns in 2024. The NCUSIF’s yield on its $22.4 billion investment portfolio was just over 2% in 2023.  Overnight rates are projected to remain above 5% for the first half of 2024.   Adding the current overnights of $5.2 billion plus the $1.4 billion maturing in the first five months, gives a cash portfolio of $6.6 billion yielding 5% or higher, until the Fed begins reducing rates.

The One Missing Number

In the December’s 2022 board meeting, NCUA set an NOL upper cap of 1.33% for the NCUSIF.  Board member Hood had urged that the historical .3% upper limit be restored.

This upper cap matters. All income above this limit in a year must be distributed as a dividend to the Fund’s owners, the credit unions.  This is the fundamental promise in return for credit union’s open-ended 1% deposit underwriting.

To date I have seen no upper cap set for 2024.  Hopefully this means the long term, historically validated limit will be in place for this year.

Restoring this 1.3% cap would make this the perfect Valentine for the credit union system’s uniquely successful  cooperative Fund.  Isn’t it time NCUA shared a little love with credit unions?



One Reply to “The NCUSIF’s Valentine’s Day Surprise”

  1. Chip: One can only hope! Hopefully the Board will properly reflect on the original intent of the statutory requirement to return earnings in excess of the upper cap to the credit unions. But I fear that under the current leadership. the mindset of the decision makers is that the fund and it’s earnings is their’s to do with as they please and NOT the property and capital of credit union members, collaboratively gathered in self-support of a fully funded and viable credit union deposit insurance fund.

    Why else would you hear Chairman Harper speak of his plans to see the cap removed permanently and total control given over NOL to the agency? We let this happen to us and only we can reverse the audacity of this money grab by our regulator and insurer. If our national organizations cannot accomplish this task to take back control of our members capital,then we need to enhance the opportunities for state charted CUs to have an option for a truly CU owned and controlled private deposit choice. Having to refund NCUSIF deposits to CUs who leave for a private insurance option might finally get their attention on Duke St.

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