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Largest US credit unions expect 2018 refunds to be the first of a few

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Largest US credit unions expect 2018 refunds to be the first of a few

Some of the largest credit unions in the country are content with the refunds headed their way later this year but will be less so if those payments end up being a one-off.

At its Feb. 15 board meeting, the National Credit Union Administration approved a $735.7 million dividend payment from the share insurance fund to be made in the third quarter of 2018. The agency in 2017 closed the corporate credit union stabilization fund and transferred its assets and liabilities to the share insurance fund.

The $735.7 million refund represents a portion of the contributions made to stabilize corporate credit unions in the wake of the financial crisis.

State Employees' CU, the nation's second-largest credit union by assets, stands to receive $20.2 million in 2018 refunds. President and CEO Michael Lord said in an interview that any return of member funds lost during the corporate credit union "debacle" is welcome. "That's better than zero," he said.

Lord said he would have preferred the NCUA wait longer to issue the refunds in order to accommodate the performance of the guaranteed notes and the asset management estates.

The nation's largest credit union, Navy FCU, is expected to receive more than $33 million in refunds this year after contributing nearly $193 million to the stabilization fund. President and CEO James Dawson Jr. said in an interview last summer that he expected to receive about $70 million.

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First Technology FCU President and CEO Gregory Mitchell said in an interview that he is happy with the $3.8 million the credit union will get in the third quarter. He advocated for the refunds coming sooner rather than later but added that he expects to see more down the road. Absent something "catastrophic" happening in the industry, the share insurance fund should be in a strong enough position to enable future refunds, he said. "I'm pretty optimistic that we'll get more."

The NCUA board in September 2017 indicated there was a possibility of further distributions of anywhere from $600 million to $1.1 billion. NCUA spokesman John Fairbanks said in February, however, that the agency was not making any further projections. "We are not mentioning another distribution, because of several variables," he said.

For example, there are still guaranteed notes holders to be paid down the road, he said. The underlying assets anchoring those securities may continue their good performance or — if the economy slows or falls into recession — may stop cash-flowing as well. In such a scenario, the regulator would need some of the remaining funds to meet those obligations, Fairbanks said.

But NCUA Chairman J. Mark McWatters said at a subsequent industry event that the agency "anticipates" the payment of further distributions.

Pentagon FCU President and CEO James Schenck said the credit union is hoping the coming rebate is the first of many years of payments. "My expectation is that they owe the industry future payments in addition to 2018," he said.

In conjunction with the closing of the stabilization fund, the NCUA said it had to guard against reasonably foreseeable adverse economic conditions, so it raised the normal operating level of the share insurance fund to 1.39% from 1.30%. In doing so, it held back some funds that could have been returned to credit unions.

Suncoast CU President and CEO Kevin Johnson said in an interview that the net operating level of 1.39% is a "bit high," and that he would have preferred to see more money returned to credit unions considering that there still may be a small chance of further deterioration of the legacy assets from the failed corporates.

He said the credit union is pleased with the planned refund and realizes the NCUA must be conservative in predicting future losses, but added that he would be "very disappointed" if there are not more coming. "We feel there is room for NCUA to improve their efficiency and reduce their budget thereby requiring a lower [normal operating level]," he said.

State Employees' CU's Lord said projections of additional rebates seem reasonable, given the current state of the economy and the performance so far of the guaranteed notes and asset management assets, but that he realizes actual results can "make a mess" of projections. "I recall that the projected cash flows of the original securities which brought the U.S. and world economies to their knees were provided as evidence that everything was fine," he said. "We remain hopeful that additional rebates are in our members' future."

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