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March 2023 Corporate Capital Credit Union Notification

In March 2023, membership capital account holders from the U.S. Central Federal Credit Union (U.S. Central) and Constitution Corporate Credit Union (Constitution) will receive partial distributions, along with paid in capital holders of U.S. Central. In addition, Southwest Corporate Federal Credit Union (Southwest) and Members United Corporate Federal Credit Union (Members United) shareholders will receive a dividend distribution. Below are frequently asked questions related to the distributions.

Member Capital and Dividend Distribution

Why are the distributions for U.S. Central, Members United, Constitution and Southwest happening at this time?

NCUA’s regulations permit distributions to depleted capital holders only after all more senior claims have been fully paid or sufficient provisions have been made for them.1 Using a conservative provisioning approach, and in accordance with standard operating procedures for the Asset Management Estates (AMEs), the liquidating agent has compared each AME’s cash to its remaining obligations. This analysis shows that funds are available for a distribution to member capital account (MCA) holders of U.S. Central and Constitution, and paid in capital (PIC) holders of U.S. Central. In addition, NCUA’s regulations permit a liquidating dividend to be paid when a surplus remains after making distribution in full on senior claims. Surplus funds are available to Southwest and Members United shareholders in the form of an interim dividend payment. The distributions can occur, regardless of current and future economic events, as they are based solely on cash reserves, and not dependent upon the performance of any other remaining asset or obligation.

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How will the current economic environment affect future distributions?

Economic events, including increasing interest rates, will impact the amount and timing of any future distributions as the future performance, and ultimate monetization of remaining assets will depend on underlying market conditions, and investor demand for the remaining legacy assets.

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How much are the total March 2023 Corporate Member Capital distributions?

The member capital account distributions for March 2023 (based on December 31, 2022, financial statements) are shown in the chart below. Member capital account holders may receive additional distributions in the future, depending on market conditions and the sale of remaining legacy assets.

AME MCA Claims Satisfied (12/31/2022) % of MCA
U.S. Central $83 million 4.9%
Constitution $3 million 4.6%
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How much is the total March 2023 Corporate Paid in Capital distribution?

The paid in capital account distribution for March 2023 (based on December 31, 2022, financial statements) is shown in the chart below.

AME PIC Claims Satisfied (12/31/2022) % of PIC
U.S. Central $63 million 21.1%
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How much is the total March 2023 Dividend payment?

The dividend distribution for March 2023 (based on December 31, 2022, financial statements) is shown in the chart below. Member shareholders may receive additional dividends in the future, depending on market conditions and the sale of remaining legacy assets.

AME Dividends Paid (12/31/2022) % of Shares
Members United $41 million 0.47%
Southwest $27 million 0.30%
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When and how will the distributions be made?

The distributions will be remitted via electronic funds transfer (EFT) by March 31, 2023, using the banking information the liquidating agent has on file.2 If the credit union previously provided its EFT information to the NCUA and no changes are required, no further action is needed. If NCUA does not have your EFT information or you are unsure, please complete the authorization agreement for EFT payments to make necessary updates. If the NCUA does not have EFT information on file, we will reach out to distribution recipients to complete the authorization agreement for EFT payments. The liquidating agent will work with each non-credit union distribution recipient to ensure timely receipt of the distribution.

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Who will receive the planned March 2023 distributions?

U.S. Central and Constitution member capital holders of record with the liquidating agent, U.S. Central paid in capital holders of record with the liquidating agent, and Southwest and Members United shareholders will receive payments. After accounting for mergers, purchases and assumptions, and liquidations, over 2,470 active credit unions and over 260 other shareholders will receive a distribution.

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Will capital holders of other corporate AMEs receive a distribution this year?

The four corporate AMEs referenced above have sufficient funds at this time for member capital shares, paid in capital shares, or dividend distributions effective December 31, 2022, with distribution in March 2023. Currently, funds are not available for a distribution to Western Corporate Credit Union (Western). Based on December 2022 financials, Western AME owes funds to the NCUSIF. The table below shows amounts due to the Share Insurance Fund.

Amount ($ in millions) at 6/30/22 U.S. Central Western Members United Southwest Constitution
Outstanding Claims due to NCUSIF 0 -2,405.3 0 0 0
Projected Recovery to NCUSIF 0 71.7 0 0 0
Projected Loss to NCUSIF 0 -2,333.6 0 0 0

Western capital holders are not projected to receive any recovery of capital. The liquidating agent will perform this analysis semi-annually to determine if sufficient funds are available at that time for additional distributions.

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Is the Liquidating Agent planning additional distributions in 2023?

The Liquidating Agent’s projections are point-in-time estimates, subject to change, and largely dependent on the Liquidating Agent’s ability to affect, and orderly liquidate, post-securitized assets and legal settlements.

The liquidating agent reviews the financial information of each corporate AME every 6 months (after June and December) to determine if cash funds are available for distribution. Notice of that potential is sent out via email to the affected credit unions, using the email address on record with NCUA. Our current projection for eventual payment to each AME can be found on NCUA’s website.

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What AMEs are projected to receive a liquidating dividend?

We anticipate a liquidating dividend (surplus) will remain after all claims are paid for Southwest and Members United. Under 12 U.S.C. §1787(b)(11)(B) any case in which funds remain after all accountholders, creditors, other claimants, and administrative expenses are paid, the liquidating agent shall distribute such funds to the credit union's shareholders. The dividend will be based on the share and certificate balance at the time of liquidation, not capital balance.

We are making the third interim liquidating dividend to Southwest shareholders in the first quarter of 2023, based on December 31, 2022, financials. The interim dividend is set at 0.30 percent. We are also making the first interim liquidating dividend to Members United shareholders, with the dividend set at 0.47 percent.

The timing and amount of future distributions will depend on future performance, the availability of cash through the orderly liquidation of assets, payment of senior claims, and the resolution of the current outstanding lawsuits.

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Does this distribution affect the NCUSIF equity ratio?

It does not. The four corporate AMEs already reimbursed the Share Insurance Fund for all Share Insurance Fund payments related to the liquidation process. This distribution represents surplus recoveries from the monetization of these Corporates’ assets. Once the Share Insurance Fund is repaid, any remaining funds (after monetization) must be distributed first to the capital holders, and then (should funds remain) as a pro rata dividend to each of the Corporate’s shareholders of record at the time of liquidation.

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What accounting entry should a credit union initially make to record its member capital distribution or dividend?

A corporate member capital or paid in capital holder can utilize the membership-capital account (MCA) balance as noted on the 2010 claim receipt, and multiply that balance using the percent stated above to arrive at its estimated distribution. A capital shareholder may recognize that amount in its income statement as other operating income and record a receivable on its balance sheet for the same amount.

For example, Credit Union ABC calculates its payment from the capital distribution to be $106,150. Credit union ABC would make the following journal entry:

Debit:Accounts Receivable$106,150
Credit:Other Operating Income$106,150

Southwest share and certificate shareholders can look at the balance of record on October 31, 2010, per their corporate statement, and multiply that balance using the percent stated to arrive at their estimated dividend. We realize that most affected credit unions might not have this information since it is more than ten years ago. A letter with that information will be mailed in March to the affected credit unions detailing the specific amount of the dividends. When those funds arrive, they should be noted as a credit to Other Operating Income.

No credit union is required to record an accrual for the distribution or dividend in 2023.

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How should credit unions record the distribution and report the distribution on the Call Report?

For Call Report purposes, if necessary, the member capital distribution should be reported on the Statement of Income and Expense under – Other Operating Income. The corresponding receivable (if you have one) should be reported on the Statement of Financial Condition under – All Other Assets. If you have received payment then the posting will be to cash.

No credit union is required to record an accrual for the distribution or dividend in 2023.

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Footnotes


1 12 C.F.R. §709.5
2 If a technical issue limits a credit union’s ability to receive the payout through EFT, the payout will be issued in the form of a check and mailed. The NCUA will address these situations on a case-by-case basis.

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