The check is in the mail — kind of.

The National Credit Union Administration’s governing board approved a plan Thursday that provides credit unions with a $736 million equity distribution from the industry’s share insurance fund, bumps that fund’s equity ratio up to 1.39 percent and forestalls what officials said would have been a $1.3 billion premium charge.

“This distribution is historic, larger than the cumulative amount of all previous cash distributions since the capitalization of the share insurance fund,” Board Member Rick Metsger said.

Chairman J. Mark McWatters also hailed Thursday’s action, although he lamented that a relative handful of institutions that wrote large checks in 2009 and 2010 to resolve the corporate credit union crisis won’t receive a payout because they subsequently converted to private share insurance.

“That’s an inherent unfairness,” McWatters said, adding that agency officials spent a “considerable amount of time” studying the issue.

Despite McWatters’ misgivings, the Federal Credit Union Act requires a credit union to file at least one call report during the year for with the dividend is being paid, in this instance 2017, in order to claim a share of the equity distribution, according to NCUA Deputy General Counsel Lara Rodriguez.

Congress could have arranged otherwise when it approved NCUA’s plan to resolve the corporate credit union situation, but it was silent on the issue of how any returns might be distributed.

“I suspect no one thought this day would come,” McWatters said. “The linkage to the people who wrote the checks…just isn’t there.”

Mark McWatters Rick Metsger NCUA Board
The National Credit Union Administration's April 2018 board meeting marked two years during which Chairman Mark McWatters, left, and Board Member Rick Metsger have operated as a two-person committee as the agency waits for a vacant seat to be filled by presidential appointment.

Individual credit unions should receive their payouts in the third quarter of this year, according to NCUA Chief Financial Officer Rendell L. Jones, and the regulator will soon unveil a special calculator on its website to help CUs determine just how big a check they'll get.

Prior to the board’s September 2017 decision to fold the Temporary Corporate Credit Union Stabilization Fund into the share insurance fund, the stabilization fund was not scheduled to expire until 2021. The merger, which took effect in October, added about $4 billion to the share insurance fund, which increasing the equity ratio to 1.46% at the end of 2017, thus making a dividend possible.

The National Credit Union Share Insurance Fund’s balance totaled $16.7 billion as of Dec. 31, and NCUA will calculate each eligible credit union’s share of the any returns using a formula based on the average of the insured shares they reported in the previous 36 call reports.

The last time NCUA approved a share insurance fund dividend was 2007 for $52 million, Metsger said.

According to officials, had the two funds not been merged, the share insurance fund’s equity ratio would have fallen below the statutory minimum 1.2% equity ratio, triggering the need for a premium charge to make up the shortfall.

“When you add the $736 million credit unions will receive to the more than $1.3 billion in premiums they will avoid, the total is more than $2 billion,” Metsger said. “This is a huge benefit to credit unions and a lot of money for provident and productive purposes.”

McWatters and Metsger both pointed out that payouts are not a rebate or a dividend on assessments paid, since those funds are gone. Rather, they insisted the equity distribution will come from legal recoveries and the improved value of the underlying assets NCUA approved.

Trades react

The reaction from the national credit union trade associations was mixed, with the National Assocation of Federally-Insured Credit Unions saying the regulator has not gone far enough in its efforts to make credit unions whole.

"The money credit unions will have returned to them belongs to their members and is critical to the products and services they offer," NAFCU President and CEO Dan Berger said in a statement. "That is why NAFCU has consistently pushed for the NCUA to give all of the funds back to credit unions as soon as possible. While we are grateful credit unions will get some money back soon, NAFCU will continue to aggressively fight for credit unions to get all their money back, not just the small portion they're due to receive."

The Credit Union National Association praised NCUA for issuing payouts this year — a move the group pushed for — but didn't offer a position beyond that, with President and CEO Jim Nussle saying in a statement that CUNA was "closely reviewing the details" of NCUA's plan.

Other board actions

In other board actions, Jones provided a briefing on the share insurance fund’s year-end status, noting a significant uptick in the reserve tied to specific problem credit unions, which totaled $818.6 million as of Dec. 31. Another $107 million was earmarked as a general reserve. By contrast, the total reserve balance at the end of 2016 totaled $196 million.

Specific reserves are allocated when a credit union’s losses can be classified as both “probable and estimable,” Jones said.

Jones declined to identify the specific credit unions against whom the agency is reserving.