In July of 2020, Membership Capital Account holders from the Southwest Corporate Federal Credit Union (Southwest Corporate) will receive a partial distribution. Below are frequently asked questions related to this distribution.
Member Capital Distribution
Why is the distribution for Southwest Corporate happening this year?
All five corporate asset management estates (U.S. Central, Western Corporate, Members United Corporate, Southwest Corporate, and Constitution Corporate, (AMEs)) still have potential obligations to reimburse the NCUA for guaranty payment obligations made on the NCUA Guaranteed Notes (NGNs), which represent more senior claims in the payout priorities.1 The obligation to reimburse the NCUA for guaranty payments totals approximately $2.4 billion between now and the middle of 2021. NCUA 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.
Using a conservative provisioning approach and audited year-end 2019 financial statements, and in accordance with standard operating procedures for the 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 holders of Southwest Corporate. This distribution can occur, regardless of current and future economic events, as it is based solely on cash reserves, and not dependent upon the performance of any other remaining asset or obligation.Close and return to top
How will the current economic environment affect future distributions?
Economic events, including the fallout from COVID-19, 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.Close and return to top
How much is the total 2020 Southwest Corporate member capital distribution?
The member capital distribution is approximately $171.3 million, or 42.46 percent of member capital. Member capital holders for Southwest Corporate may receive additional distributions in the future, depending on the performance of, market conditions, and sale date for Southwest Corporate’s remaining legacy assets.Close and return to top
When and how will the distributions be made?
Member capital distributions will be remitted via electronic funds transfer (EFT) in July of 2020, 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. Please complete the authorization agreement for EFT payments (opens new window)) to make necessary updates to EFT information. 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.Close and return to top
Who will receive these distributions?
Southwest Corporate member capital holders of record with the liquidating agent will receive member capital account distributions. After accounting for mergers, purchases and assumptions, and liquidations, almost 900 open credit unions will receive a distribution.Close and return to top
What accounting entry should a credit union initially make to record its member capital distribution?
Southwest Corporate member capital holders can utilize the membership-capital account (MCA) balance as noted on the November 2010 claim receipt and multiply that balance using the 42.46 percent stated above to arrive at its estimated distribution. A capital holder 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 2.46 percent member capital distribution to be $106,150, 42.46 percent of its $250,000 claim receipt. Credit union ABC would make the following journal entry:
Credit:Other Operating Income$106,150
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 on line item 14 – Other Operating Income. The corresponding receivable should be reported on the Statement of Financial Condition on line item 24c – All Other Assets.Close and return to top
Will capital holders of other corporate AMEs receive a distribution this year?
No. Only the Southwest Corporate AME has sufficient funds at this time for a member capital distribution in 2020. Using its audited 2020 financial statements, the liquidating agents will perform this analysis again in 2021 to determine if sufficient funds are available at that time for additional distributions to Southwest Corporate capital holders or the capital holders of any other AMEs.Close and return to top
Does this distribution affect the NCUSIF equity ratio?
It does not. Southwest Corporate AME 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 Southwest Corporate 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 Southwest Corporate’s shareholders of record at the time of liquidation.Close and return to top
Where can I find more information?
For updates and more detailed information, visit these sites:
- Corporate Asset Management Estate Recoveries and Claims;
- NGN Questions and Answers; (opens new window)
- Corporate System Resolutions Costs; and
- NGN Program