National Credit Union Administration Approves Distribution of $735.7 Million to Eligible Financial Institutions to be Paid in 3rd Quarter 2018

On February 15, 2018, the National Credit Union Administration (NCUA) board approved distribution of $735.7 million in the form of a pro-rata dividend to eligible financial institutions federally insured as of December 31, 2017. Distributions will be paid in the third quarter of 2018.

Background

This vote was taken in response to the September 2017 closure of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF). Upon closure of the TCCUSF, funds were moved to the National Credit Union Share Insurance Fund (NCUSIF). As a result, the NCUSIF increased to a level above what’s considered normal for operating purposes. 

Financial Accounting Standards Board Accounting Standards Codification® (ASC) Section 942-325-35-4 discusses treatment of NCUSIF deposits and premiums and states that, “in years in which the equity of the NCUSIF exceeds normal operating levels, the NCUA is required to make distributions to insured credit unions to reduce the equity of the NCUSIF to normal operating levels.”

This chain of events has left eligible credit unions with questions related to the amount, timing, and reporting of the forthcoming distributions.

Questions

How much will eligible credit unions receive?

The NCUA board will likely communicate to eligible credit unions in the second quarter of 2018. Each eligible credit union’s pro-rata distribution will be based on a calculation using average insured shares reported in quarterly call reports extending to the beginning of the 2009 calendar year.

When will funds be distributed?

Payment of this distribution is expected in the third quarter of 2018.

How should eligible credit unions account for the distribution?

The distribution must be treated as income for eligible credit unions. Although normal NCUSIF return of funds on deposit typically wouldn’t be recorded as income, the nature of the TCCUSF return of funds indicates the distribution doesn’t represent a portion of the NCUSIF deposit made by instructions.

As such, the distribution should be reported in Line 13, Other Operating Income, and the corresponding receivable in Line 22, Other Assets, on the Form 5300 call report.

When should the distribution be recorded?

According to ASC Topic 942-325-35-4, “distributions in connection with that reduction in the equity of the NCUSIF shall be reported in the income statement in the period in which it’s determined that a distribution will be made.”

Although the TCCUSF funds were transferred in the fourth quarter of 2017, the NCUA board didn’t approve and declare the distribution until February 2018. This means that upon approval and communication to eligible credit unions of the distribution in the first quarter of 2018, a payable liability to those eligible credit unions was created. Accordingly, those credit unions should record the distribution receivable and related income within the March 31, 2018, call report.

We’re Here to Help

To learn more about how the distribution could affect you and your financial institution, contact your Moss Adams professional. Additional information about the NCUA’s equity distribution rule is available on the NCUA's frequently asked questions webpage.