Capital Positions Will Impact Decisions

By Ray Birch

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HARRISBURG, Penn.—Should refunds from the corporate stabilization fund be paid to credit unions in 2018, the funds will be put to good use, according to several CEOs who noted that when—or if—the money goes directly back to members will depend on capital positions at the time.

As reported, the NCUA board has indicated that between $600-million and $800-million could be returned to credit unions next year as the Temporary Corporate Credit Union Stabilization Fund winds down a decade after the financial crisis.

But how would credit unions handle those unbudgeted payouts? In this, the first of a two-part series, CEOs who spoke with said funds will have to be dealt with within the context of capital levels uncer pressure from increasing regulatory expenses, earnings pressures and the low net-interest-margin environment. And one CEO says the money could go to create more jobs within the credit union.

All of the leaders agree, however, that small credit unions are in need of the money the most, as their capital levels continue to remain flat or even declining.

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Greg Smith

Pennsylvania State Employees CU here is a perennial strong performer, growing to $5 billion in assets today. But CEO Greg Smith said he, like most other CEOs, has had his eyes on NCUA to see when a refund might be coming.

Long Time Coming

“I was hoping they would take the issue up soon, as NCUA has been telegraphing it for some time,” Smith said. “It would have been nice if they refunded the money this year, but I understand the agency faced timing issues.”

Based on refund projections Smith has heard from CUNA—Smith said CUNA has estimated about 20 basis points (based on assets) for each credit union—PSECU would receive a sizeable refund.

“That works out to about $10 million for us,” said Smith.

But Smith reminded that how NCUA will calculate the refund has yet to be determined.

At the July 20 board meeting, the agency approved a proposal to address how Share Insurance Fund Equity Distributions will be made. Should the stabilization fund be closed this year, as NCUA proposed at the meeting, remaining legacy assets will be transferred to the Share Insurance Fund, from which NCUA can then make distributions.

NCUA’s proposal outlined three methods for determining payouts to credit unions: insured share balances at the close of 2017, the average of insured shares over the last four call report periods, or a system based on what credit unions actually paid into the stabilization fund, which the agency acknowledged would be the most difficult option.

How the funds will be distributed at PSECU is a decision Smith said his board will make when details are finalized by NCUA.

“We are close to 11% capital now, and I don’t know if our board feels the need to go much above that,” said Smith. “If that is the case, they would probably choose to return a refund to our members.”

PSECU over the years has focused on giving members money back on an ongoing basis through market-leading loans and deposit rates. The CU in the last five years also has been issuing an annual relationship award, which has returned a total of $52 million.

Smith said if the money is returned to members it could go back through even better rates as well as a larger annual giveback.

Back Into Capital

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Scott Wilson

Scott Wilson, CEO at the $537-million SeaComm FCU in Massena, N.Y., told that any refunds will go back into his credit union’s capital, now at 13.44%.

“That will help to offset some of the capital depletion we had when the corporates were conserved and we began paying into the stabilization fund,” said Wilson. “SeaComm has continued to pay above-market rates on our deposit accounts, especially in maturity based accounts as a way to reward our members for their continued trust in us as their cooperative.”  

More ‘Meaningful’ Information Needed

Bernie McLaughlin, CEO of the $766-million Point Breeze CU in Hunt Valley, Md., hopes to get some answers on the refund his credit union might receive. He said the $600-$800 million NCUA has projected could be returned next year, and $1.4-$1.7 million overall longer term, sounds like a lot of money but is not “meaningful” information for CUs right now.

It would be more important to know how much money it means for each specific credit union,” he said. “In our case, it most likely would be applied to our general operating budget, which helps all members in the form of flexibility in paying better rates, increased infrastructure spending and the like. Other credit unions may have other ideas and needs. It simply depends upon what the needs are for each individual credit union.”  

In part two of this series, will offer additional views by CEOs on their plans for dealing with a potential refund from the TCCUSF.

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Copyright Year: 2019
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