By Stephen LaBarbera, CPA – Manager, Doeren Mayhew

With the news that the National Credit Union Association (NCUA) Board of Directors approved a distribution (or dividend) of $736 million from the National Credit Union Share Insurance Fund (NCUSIF), we have been receiving many questions from clients on the proper accounting for this type of cash distribution.

Before reviewing the accounting, it should be noted the average refund amount will likely be considered less than significant. This is highlighted by the estimated refund to total asset ratio for federally insured credit unions as of Sept. 30, 2017 of only 5.4 basis points.*

Additionally, the distribution was approved because equity in the NCUSIF exceeds the newly approved “normal operating level” of 1.39 percent. This was partly the result of transferring the Temporary Corporate Credit Union Stabilization Fund into the NCUSIF. Therefore, this distribution will be treated as a dividend, reducing equity in the NCUSIF back to normal operating levels, rather than impact a credit union’s NCUSIF deposit.  As such, a credit union will continue to be required to deposit and maintain in the NCUSIF 1 percent of its insured shares.

The most applicable codified guidance is 942-325-35-4 “National Credit Union Share Insurance Fund Deposits and Premiums,” which provides recognition and measurement provisions for credit unions and corporate credit unions as it relates to NCUSIF deposits and premiums.

942-325-35-4b: In years in which the equity of the National Credit Union Share Insurance Fund exceeds normal operating levels, the National Credit Union Administration is required to make distributions to insured credit unions to reduce the equity of the National Credit Union Share Insurance Fund to normal operating levels. Such distributions may be in the form of a waiver of insurance premiums, premium rebates, or cash payments. Distributions in connection with that reduction in the equity of the National Credit Union Share Insurance Fund shall be reported in the income statement in the period in which it is determined that a distribution will be made.”

The guidance provides the distribution should be reported in the income statement in the period in which it is determined a distribution will be made.  The NCUA Board approved the distribution on Feb. 15, 2018, and the next reporting period end is Mar. 31, 2018.  Therefore, based on the above detailed guidance, credit unions should recognize the distribution into income by Mar. 31, 2018.

The NCUA released a final rule “Requirements for Insurance; National Credit Union Share Insurance Fund Equity Distributions setting a clarified distribution framework that a credit union may use to calculate its distribution amount. Additionally, the NCUA provided helpful answers to questions on calculating the distribution, that may be found at “Frequently asked Questions Regarding NCUA’s Equity Distribution Rule.” In this release, the NCUA warns credit unions about using certain calculators currently available. More specifically calculations that are overly simple or calculators released before the methodology was approved.

Using the NCUA’s final rule, Doeren Mayhew’s Financial Institutions Group has provided a Share Distribution Accounting Guide to help estimate the refund at your institution. Once a credit union accurately estimates its total estimated distribution, this amount should be recognized into Non-Interest Income by Mar. 31, 2018, with an offsetting entry posted to Receivable for NCUSIF Refund.

Although likely not considered significant enough for disclosure, our credit union CPAs recommend consideration be given to including a subsequent event footnote (Type 2) in the Dec. 31, 2017 audited financial statements. If applicable, this footnote should disclose the anticipated refund amount recognized into income in the subsequent period.

Still have questions about the share insurance distribution and how to account for it, contact the credit unions auditors at Doeren Mayhew.

Want to reach the author? Email Stephen LaBarbera or call him at 704.341.0970.