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E-Mail: eclark@docfcu.org

Phone: 202-482-1082

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Friday
May272011

Voluntary NCUA assessments

After reading the NAFCU write up on the voluntary NCUA assessments I did a calculation of what it would cost my credit union, Department of Commerce FCU.  We're a $250 million credit union located in Washington, DC.  We have approximately $220 million in member shares.  We are very profitable.  We do not believe in having lots of liquidity around in this low rate environment.  Our goal is to be borrowed overnight at least a few days from FHLB every quarter.

I assumed a six percent share growth rate, uninsured shares of $30,000,000 that remained constant over time.  Recently we bought a beautiful bond with a yield of 3.23% so I assumed that as the opportunity cost over time of the voluntary assessment.  I assumed we would contribute 36 basis points for NCUA to reach the $1.5 billion threshold and 12 basis points to reach the $500 million threshold.  That would mean about $209,000 for 12 basis points and $627,000 for 36 basis points.

Given these assumptions and the assumptions for future assessments that NCUA provided for each of these scenarios here's the calculations I came up with.

Total cost over 11 years of no voluntary contribution:                               $2,994,840

Total cost over 11 years with a 12 basis point voluntary contribution        $2,938,953

Total cost over 11 years with a 36 basis point voluntary contribution        $2,983,530

 

Total cost plus opportunity cost of 12 basis point voluntary contribution    $3,012,651

Total cost plus opportunity cost of 36 basis point voluntary contribution     $3,206,125

One more point I didn't consider and that is that the amount contributed would decline as assessment amounts are taken from the prepaid amount so the total plus opportunity cost is probably less. 

The conclusion I reach from the above scenario is that the difference between not voluntarily contributing and voluntarily contributing is chump change given an 11 year window.  I would be inclined to be in favor of making a voluntary assessment if it assists the NCUA in assisting the movement because the incremental difference over the 11 year time horizon is so small. 

If you have questions or would like to see my calculations please call me at 202-482-1082 or drop me a line:  eclark@docfcu.org .

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