[Federal Register Volume 74, Number 231 (Thursday, December 3, 2009)]
[Rules and Regulations]
[Pages 63277-63284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28218]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741

RIN 3133-AD63


National Credit Union Share Insurance Fund Premium and One 
Percent Deposit

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: Section 741.4 of NCUA's rules describes the procedures for the 
capitalization and maintenance of the National Credit Union Share 
Insurance

[[Page 63278]]

Fund (NCUSIF). The current rule, however, does not adequately address 
how credit unions that enter or depart the NCUSIF system in a given 
calendar year are affected by any NCUSIF premium or deposit 
replenishment assessments in that same year. NCUA is now adopting 
amendments to Sec.  741.4 to clarify these procedures. The final rule 
also adds Appendix A to Part 741, which repeats various examples of the 
application of Sec.  741.4, as discussed in the preamble to the 
proposed rule.

DATES: This rule is effective January 4, 2010.

FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-
6540; and Paul Peterson, Director, Applications Section, Office of 
General Counsel, National Credit Union Administration, at the same 
address and telephone number.

SUPPLEMENTARY INFORMATION:

A. Background and Comments

    NCUA proposed amendments to Sec.  741.4 in July 2009. 74 FR 36618 
(July 24, 2009). The amendments address how a credit union that enters 
NCUSIF coverage, or departs from NCUSIF coverage, in any given year 
calculates its share of any deposit replenishment assessment, premium 
assessment, or equity distribution in that year.
    As described in the preamble to the proposed rule, both the Federal 
Credit Union Act (Act) and the prior version of Sec.  741.4 address 
NCUSIF's authority to assess federally insured credit unions for 
deposit replenishment and premiums when necessary to maintain NCUSIF's 
equity ratio. 74 FR 36618, 36619 (July 24, 2009). The current rule, 
however, does not clearly state NCUA's policy for calculating NCUSIF 
premium or deposit replenishment assessments for credit unions that 
enter or depart the NCUSIF system in a year when an assessment occurs. 
This final rule amends Sec.  741.4 to clarify these issues and other 
related issues.
    NCUA received five comment letters on the proposal--two from 
national credit union trade associations, two from state credit union 
leagues, and one from an individual credit union. All commenters 
expressed support for the proposal and found it a helpful clarification 
of NCUA's current policies. Except as noted below, the Board is now 
adopting the rule as proposed.
    Two commenters requested the final rule include a requirement for 
NCUA to provide detailed information about the cause, type, and amount 
of NCUSIF's expenses in connection with any assessments. The Board has 
not adopted such a requirement. By definition, all of NCUSIF's expenses 
result from insuring member shares, providing special assistance to 
avoid liquidation, and related administrative expenses. 12 U.S.C. 
1783(a). Premium and one percent deposit replenishment assessments 
occur when NCUSIF expenses cause its equity ratio and/or available 
asset ratio to fall below certain levels. The Act allows NCUA to assess 
premiums when NCUSIF's equity ratio falls below the normal operating 
level established by the Board and requires NCUA to assess premiums 
when the equity ratio falls below 1.2 percent. 12 U.S.C. 1782(c)(2)(B)-
(C). The Act also allows NCUA to expend the one percent deposit as 
necessary and provides for replenishment of the one percent deposit 
under procedures established by NCUA. 12 U.S.C. 1782(c)(1)(B)(iv).
    Two commenters also expressed concern that when, as now, NCUSIF 
assessments resulting from expenses incurred in one year are spread 
over multiple years, credit unions leaving NCUSIF and paying a pro-
rated premium assessment for one year receive an unfair benefit because 
they escape the assessments in subsequent years. NCUA has made every 
attempt to treat credit unions leaving and entering NCUSIF equitably, 
but agrees credit unions leaving NCUSIF in the midst of a multi-year 
cycle of assessments may not pay their full share of the cost of NCUSIF 
coverage. The FCU Act requires, however, that credit unions converting 
to private share insurance pay pro-rated premium assessments. 12 U.S.C. 
1786(d)(3). NCUA believes it is consistent with the FCU Act to also 
apply pro-rated premium assessments to credit unions leaving NCUSIF for 
other reasons, as stated in paragraph (j)(1)(iii) of the rule.
    At this time, the Board is not adopting the proposed changes to 
Sec.  741.4(k) and Sec.  701.6(d) regarding late payment penalties for 
NCUSIF assessments and the federal credit union operating fee. The 
Board has decided to delay consideration of these potential changes 
until a later time, possibly 2011. Accordingly, the current provisions, 
providing for an administrative fee, interest, and the costs of 
collection, remain in force. One commenter on the late payment 
provisions asked that the regulation provide for partial waivers of 
late payment penalties. The Board has determined that the current 
language of Sec. Sec.  741.4(k) and 701.6(d) would permit partial 
waivers. The same commenter also requested NCUA take a credit union's 
good faith effort to make timely payment into account when imposing 
penalties. The rule permits waiver ``if circumstances warrant'' and the 
Board will certainly consider a credit union's good faith efforts to 
pay in a timely manner when considering a penalty waiver request.
    The only change from the current version of subsection 741.4(k) 
adopted in this final rule is the addition, in paragraph (4), of 
references to the penalties for late payment permitted under the FCU 
Act. The same provisions were proposed as paragraph (2) of this 
subsection.
    The proposal specifically sought comments on whether the examples 
of specific calculations contained in that preamble should be 
incorporated in the rule text or in an appendix to the rule. The only 
commenter to address this issue requested including the examples in an 
appendix, and the final rule adopts this approach. Appendix A to Part 
741 is entitled Examples of Partial-Year NCUSIF Assessment and 
Distribution Calculations Under Sec.  741.4.
    One commenter suggested the proposal would be more clear if NCUA 
reversed the conditional and directive clauses in subparagraphs 
(i)(1)(ii)-(v) and (j)(1)(ii)-(iii). NCUA considered this suggestion 
but believes keeping the conditional clause first in these paragraphs 
facilitates determination of which situation applies in a particular 
year.
    The Board is also adopting some minor recommendations from agency 
staff that clarify certain terms and procedures in several sections. 
The final rule revises the language in paragraphs (j)(1)(i) and 
(j)(2)(ii) of the proposal describing how the impairment of the one 
percent deposit affects the refundability of the deposit. The revised 
language states a credit union leaving NCUSIF coverage is entitled to a 
refund of ``the full amount of its NCUSIF deposit paid, less any 
amounts applied to cover NCUSIF losses that exceed NCUSIF retained 
earnings.'' The Board also clarifies that for voluntary credit union 
liquidations, the one percent deposit refund is determined by whether 
any amount of the deposit has been applied to cover NCUSIF losses 
exceeding earnings as of the date of liquidation, which is the date 
members vote to liquidate. 12 CFR 710.1(b).
    The Board has revised paragraph (h) to remove a possible source of 
confusion. The intent of the proposal was to establish a deadline for 
NCUA to invoice for one percent deposit replenishments. As drafted, the 
proposal required the invoice to be sent no later than the annual or 
semiannual

[[Page 63279]]

adjustments based on ``insured shares as of December 31.'' The 
reference to the adjustment and the date was potentially confusing. As 
the current regulation has no specific invoicing deadline and none of 
the comments addressed this topic, the second sentence of paragraph (h) 
has been simplified to ``The NCUSIF may invoice credit unions in an 
amount necessary to replenish the one percent deposit at any time 
following the effective date of the depletion.'' The Board expects that 
invoicing for future one percent deposit replenishments will occur as 
soon as practicable but does not find it necessary to set a specific 
deadline at this time.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small credit unions, defined as those under ten 
million dollars in assets. This rule clarifies existing requirements 
and will not impose any new regulatory requirements. The rule will not 
have a significant economic impact on a substantial number of small 
credit unions, and, therefore, a regulatory flexibility analysis is not 
required.

Paperwork Reduction Act

    NCUA has determined that the rule would not increase paperwork 
requirements under the Paperwork Reduction Act of 1995 and regulations 
of the Office of Management and Budget. 44 U.S.C. 3501 et seq.; 5 CFR 
part 1320.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Act of 1996 (Pub. L. 104-
121) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by Section 551 of the Administrative Procedures 
Act. 5 U.S.C. 551. NCUA does not believe this final rule is a ``major 
rule'' within the meaning of the relevant sections of SBREFA. NCUA has 
submitted the rule to the Office of Management and Budget for its 
determination in that regard.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The rule would not have substantial direct 
effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that the rule would not affect family well-
being within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

List of Subjects in 12 CFR Part 741

    Credit unions, Insurance.

    By the National Credit Union Administration Board on November 
19, 2009.
Mary F. Rupp,
Secretary of the Board.

0
For the reasons set forth above, NCUA amends 12 CFR part 741 as 
follows.

PART 741--REQUIREMENTS FOR INSURANCE

0
1. The authority citation for part 741 continues to read as follows:

    Authority:  12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d: 31 
U.S.C. 3717.


0
2. Revise Sec.  741.4 to read as follows:


Sec.  741.4  Insurance premium and one percent deposit.

    (a) Scope. This section implements the requirements of Section 202 
of the Act (12 U.S.C. 1782) providing for capitalization of the NCUSIF 
through the maintenance of a deposit by each insured credit union in an 
amount equaling one percent of its insured shares and payment of an 
insurance premium.
    (b) Definitions. For purposes of this section:
    Available assets ratio means the ratio of:
    (i) The amount determined by subtracting all liabilities of the 
NCUSIF, including contingent liabilities for which no provision for 
losses has been made, from the sum of cash and the market value of 
unencumbered investments authorized under Section 203(c) of the Act (12 
U.S.C. 1783(c)), to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (iii) Shown as an abbreviated mathematical formula, the available 
assets ratio is:
[GRAPHIC] [TIFF OMITTED] TR03DE09.000

    Equity ratio means the ratio of:
    (i) The amount of NCUSIF's capitalization, meaning insured credit 
unions' one percent capitalization deposits plus the retained earnings 
balance of the NCUSIF (less contingent liabilities for which no 
provision for losses has been made) to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (iii) Shown as an abbreviated mathematical formula, the equity 
ratio is:
[GRAPHIC] [TIFF OMITTED] TR03DE09.001


[[Page 63280]]


    Insured shares means the total amount of a federally-insured credit 
union's share, share draft and share certificate accounts, or their 
equivalent under state law (which may include deposit accounts), 
authorized to be issued to members, other credit unions, public units, 
or nonmembers (where permitted under the Act or equivalent state law), 
but does not include amounts in excess of insurance coverage as 
provided in part 745 of this chapter. For a credit union or other 
entity that is not federally insured, ``insured shares'' means, for 
purposes of this section only, the amount of deposits or shares that 
would have been insured by the NCUSIF under part 745 had the 
institution been federally insured on the date of measurement.
    Modified premium/distribution ratio means one minus the premium/
distribution ratio.
    Normal operating level means an equity ratio not less than 1.2 
percent and not more than 1.5 percent, as established by action of the 
NCUA Board.
    Premium/distribution ratio means the number of full remaining 
months in the calendar year following the date of the institution's 
conversion or merger divided by 12.
    Reporting period means calendar year for credit unions with total 
assets of less than $50,000,000 and means semiannual period for credit 
union with total assets of $50,000,000 or more.
    (c) One percent deposit. Each insured credit union must maintain 
with the NCUSIF during each reporting period a deposit in an amount 
equaling one percent of the total of the credit union's insured shares 
at the close of the preceding reporting period. For credit unions with 
total assets of less than $50,000,000, insured shares will be measured 
and adjusted annually based on the insured shares reported in the 
credit union's 5300 report for December 31 of each year. For credit 
unions with total assets of $50,000,000 or more, insured shares will be 
measured and adjusted semiannually based on the insured shares reported 
in the credit union's 5300 reports for December 31 and June 30 of each 
year.
    (d) Insurance premium charges--(1) In general. Each insured credit 
union will pay to the NCUSIF, on dates the NCUA Board determines, but 
not more than twice in any calendar year, an insurance premium in an 
amount stated as a percentage of insured shares, which will be the same 
percentage for all insured credit unions.
    (2) Relation of premium charge to equity ratio of NCUSIF. (i) The 
NCUA Board may assess a premium charge only if the NCUSIF's equity 
ratio is less than 1.3 percent and the premium charge does not exceed 
the amount necessary to restore the equity ratio to 1.3 percent.
    (ii) If the equity ratio of the NCUSIF falls to between 1.0 and 1.2 
percent, the NCUA Board is required to assess a premium in an amount it 
determines is necessary to restore the equity ratio to at least 1.2 
percent, as provided for in the restoration plan adopted under Section 
202(c)(2)(D) of the Act (12 U.S.C. 1782(c)(20)(D)). If the equity ratio 
of the NCUSIF falls below 1.0 percent, the NCUA Board is required to 
assess a deposit replenishment charge in an amount it determines is 
necessary to restore the equity ratio to 1.0 percent and to assess a 
premium charge in an amount it determines is necessary to restore the 
equity ratio to, at least 1.2 percent, as provided for in the 
restoration plan adopted under Section 202(c)(2)(D) of the Act (12 
U.S.C. 1782(c)(20)(D)).
    (e) Distribution of NCUSIF equity. If, as of the end of a calendar 
year, the NCUSIF exceeds its normal operating level and its available 
assets ratio exceeds 1.0 percent, the NCUA Board will make a 
proportionate distribution of NCUSIF equity to insured credit unions. 
The distribution will be the maximum amount possible that does not 
reduce the NCUSIF's equity ratio below its normal operating level and 
does not reduce its available assets ratio below 1.0 percent. The 
distribution will be after the calendar year and in the form determined 
by the NCUA Board. The form of the distribution may include a waiver of 
insurance premiums, premium rebates, or distributions from NCUSIF 
equity in the form of dividends. The NCUA Board will use the aggregate 
amount of the insured shares from all insured credit unions from the 
final reporting period of the calendar year in calculating the NCUSIF's 
equity ratio and available assets ratio for purposes of this paragraph.
    (f) Invoices. The NCUA provides invoices to all federally insured 
credit unions stating any change in the amount of a credit union's one 
percent deposit and the computation and funding of any NCUSIF premium 
or deposit replenishment assessments due. Invoices for federal credit 
unions also include any annual operating fees that are due. Invoices 
are calculated based on a credit union's insured shares as of the most 
recently ended reporting period. The invoices may also provide for any 
distribution the NCUA Board declares in accordance with paragraph (e) 
of this section, resulting in a single net transfer of funds between a 
credit union and the NCUA.
    (g) New charters. A newly-chartered credit union that obtains share 
insurance coverage from the NCUSIF during the calendar year in which it 
has obtained its charter will not be required to pay an insurance 
premium for that calendar year. The credit union will fund its one 
percent deposit on a date to be determined by the NCUA Board in the 
following calendar year, but will not participate in any distribution 
from NCUSIF equity related to the period prior to the credit union's 
funding of its deposit.
    (h) Depletion of one percent deposit. All or part of the one 
percent deposit may be used by the NCUSIF if necessary to meet its 
expenses. The NCUSIF may invoice credit unions in an amount necessary 
to replenish the one percent deposit at any time following the 
effective date of the depletion.
    (i) Conversion to Federal insurance.
    (1) A credit union or other institution that converts to insurance 
coverage with the NCUSIF will:
    (i) Immediately fund its one percent deposit based on the total of 
its insured shares as of the last day of the most recently ended 
reporting period prior to the date of conversion;
    (ii) If the NCUSIF assesses a premium in the calendar year of 
conversion, pay a premium based on the institution's insured shares as 
of the last day of the most recently ended reporting period preceding 
the invoice date times the institution's premium/distribution ratio;
    (iii) If the NCUSIF declares, in the calendar year of conversion on 
or before the date of conversion, an assessment to replenish the one-
percent deposit, pay nothing related to that assessment;
    (iv) If the NCUSIF declares, at any time after the date of 
conversion through the end of that calendar year, an assessment to 
replenish the one-percent deposit, pay a replenishment amount based on 
the institution's insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date; and
    (v) If the NCUSIF declares a distribution in the year following 
conversion based the NCUSIF's equity at the end of the year of 
conversion, receive a distribution based on the institution's insured 
shares as of the end of the year of conversion times the institution's 
premium/distribution ratio. With regard to distributions declared in 
the calendar year of conversion but based on the NCUSIF's equity from 
the end of the preceding year, the converting institution will receive 
no distribution.

[[Page 63281]]

    (2) A federally-insured credit union that merges with a 
nonfederally insured credit union or other nonfederally insured 
institution (the ``merging institution''), where the federally insured 
credit union is the continuing institution, will:
    (i) Immediately on the date of merger increase the amount of its 
NCUSIF deposit by an amount equal to one percent of the merging 
institution's insured shares as of the last day of the merging 
institution's most recently ended reporting period preceding the date 
of merger;
    (ii) With regard to any NCUSIF premiums assessed in the calendar 
year of merger, pay a two-part premium, with one part calculated on the 
merging institution's insured shares as described in paragraph 
(i)(1)(ii) of this section, and the other part calculated on the 
continuing institution's insured shares as of the last day of its most 
recently ended reporting period preceding the date of merger; and
    (iii) If the NCUSIF declares a distribution in the year following 
the merger based the NCUSIF's equity at the end of the year of merger, 
receive a distribution based on the continuing institution's insured 
shares as of the end of the year of merger. With regard to 
distributions declared in the calendar year of merger but based on the 
NCUSIF's equity from the end of the preceding year, the institution 
will receive a distribution based on its insured shares as of the end 
of the preceding year.
    (j) Conversion from, or termination of, Federal share insurance.
    (1) A federally insured credit union whose insurance coverage with 
the NCUSIF terminates, including through a conversion to, or merger 
into, a nonfederally insured credit union or a noncredit union entity, 
will:
    (i) Receive the full amount of its NCUSIF deposit paid, less any 
amounts applied to cover NCUSIF losses that exceed NCUSIF retained 
earnings, immediately after the final date on which any shares of the 
credit union are NCUSIF-insured;
    (ii) If the NCUSIF declares a distribution at the end of the 
calendar year of conversion, receive a distribution based on the 
institution's insured shares as of the last day of the most recently 
ended reporting period preceding the date of conversion times the 
institution's modified premium/distribution ratio; and
    (iii) If the NCUSIF assesses a premium in the calendar year of 
conversion or merger on or before the day in which the conversion or 
merger is completed, pay a premium based on the institution's insured 
shares as of the last day of the most recently ended reporting period 
preceding the conversion or merger date times the institution's 
modified premium/distribution ratio. If the institution has previously 
paid a premium based on this same assessment that exceeds this amount, 
the institution will receive a refund of the difference following 
completion of the conversion or merger.
    (2) Notwithstanding the requirements of paragraph (j)(1) of this 
section:
    (i) Any insolvent credit union that is closed for involuntary 
liquidation will not be entitled to a return of its deposit;
    (ii) Any solvent credit union that is closed due to voluntary or 
involuntary liquidation will be entitled to a return of its deposit 
paid, less any amounts applied to cover NCUSIF losses that exceed 
NCUSIF retained earnings, prior to final distribution of member shares; 
and
    (iii) The Board reserves the right to delay return of the deposit 
to any credit union converting from or terminating its federal 
insurance, or voluntarily liquidating, for up to one year if the Board 
determines that immediate repayment would jeopardize the NCUSIF.
    (k) Assessment of administrative fee and interest for delinquent 
payment. Each federally insured credit union must pay to the NCUA an 
administrative fee, the costs of collection, and interest on any 
delinquent payment of its capitalization deposit or insurance premium. 
A payment will be considered delinquent if it is postmarked or 
electronically posted later than the date stated in the invoice 
provided to the credit union. The NCUA may waive or abate charges or 
collection of interest, if circumstances warrant.
    (1) The administrative fee for a delinquent payment shall be an 
amount as fixed from time to time by the NCUA Board based upon the 
administrative costs of such delinquent payments to the NCUA in the 
preceding year.
    (2) The costs of collection shall be calculated as the actual hours 
expended by NCUA personnel multiplied by the average hourly cost of the 
salaries and benefits of such personnel.
    (3) The interest rate charged on any delinquent payment shall be 
the U.S. Department of the Treasury Tax and loan Rate in effect on the 
date when the loan payment is due as provided in 31 U.S.C. 3717.
    (4) The Act contains specific penalties and other consequences for 
delinquent payments, including, but not limited to:
    (i) Section 202(d)(2)(B) of the Act (12 U.S.C. 1782(d)(2)(B)) 
provides that the Board may assess and collect a penalty from an 
insured credit union of not more than $20,000 for each day the credit 
union fails or refuses to pay any deposit or premium due to the fund; 
and
    (ii) Section 202(d)(3) of the Act (12 U.S.C. 1782(d)(3)) provides, 
generally, that no insured credit union shall pay any dividends on its 
insured shares or distribute any of its assets while it remains in 
default in the payment of its deposit or any premium charge due to the 
fund. Section 202(d)(3) further provides that any director or officer 
of any insured credit union who knowingly participates in the 
declaration or payment of any such dividend or in any such distribution 
shall, upon conviction, be fined not more than $1,000 or imprisoned 
more than one year, or both.

0
3. Add Appendix A to 12 CFR Part 741 to read as follows:

Appendix A to Part 741--Examples of Partial-Year NCUSIF Assessment and 
Distribution Calculations Under Sec.  741.4

    The following examples illustrate the calculation of deposit and 
premium assessments under each circumstance addressed in paragraphs 
(i) and (j) of Sec.  741.4.
    A. Direct Conversion to NCUSIF Insurance
    1. Paragraph (i)(1)(i) provides that a credit union or other 
institution that converts to insurance coverage with the NCUSIF will 
immediately fund its one percent deposit based on the total of its 
insured shares as of the last day of the most recently ended 
reporting period prior to the date of conversion.
    i. The following hypothetical illustrates the application of 
this provision. Assume Main Street Credit Union completes its 
conversion from nonfederal to federal insurance on May 15 of Year 
One. Assume further that Main Street credit union had 1,000 insured 
shares for the end of month in December of the previous year (Year 
zero), 1,100 insured shares for at the end of May, the month of 
conversion, and 1,200 insured shares at the end of June. This 
information is presented in this Table A:\1\
---------------------------------------------------------------------------

    \1\ Although Main Street Credit Union was not federally insured 
as of December 31 of Year Zero, proposed Sec.  741.4(b)(3) provides 
that ``For a credit union or other entity that is not federally 
insured, `insured shares' means, for purposes of this section only, 
the amount of deposits or shares that would have been insured by the 
NCUSIF under part 745 had the institution been federally insured on 
the date of measurement.''

[[Page 63282]]



                                                     Table A
----------------------------------------------------------------------------------------------------------------
                                                                                 End of month,
                                                                End of month,    May, year one
                                                                December, year       (month       End of month,
                                                                     zero          conversion     June, year one
                                                                                   completed)
----------------------------------------------------------------------------------------------------------------
Main Street Credit Union's Federally Insured Shares..........           1,000            1,100            1,200
----------------------------------------------------------------------------------------------------------------

    ii. Paragraph (i)(1)(i) requires that on the date of its 
conversion, Main Street fund its one percent deposit based on ``the 
total of its insured shares as of the last day of the most recently 
ended reporting period prior to the date of conversion.'' Since Main 
Street has less than $50,000,000 in assets, its reporting period is 
annual, and ends on December 31. 12 CFR 741.4(b)(6) (definition of 
``reporting period''). Main Street had $1,000 in insured shares on 
that date, and one percent of that is $10, and so that is the amount 
Main Street must immediately remit to the NCUSIF to establish its 
one percent deposit.
    2. Paragraph (i)(1)(ii) provides that a credit union or other 
institution that converts to insurance coverage with the NCUSIF 
will, if the NCUSIF assesses a premium in the calendar year of 
conversion, pay a premium based on the institution's insured shares 
as of the last day of the most recently ended reporting period 
preceding the invoice date times the institution's premium/
distribution ratio * * *.
    i. To illustrate the application of paragraph (i)(1)(ii), take 
the same facts in hypothetical A related to the conversion of Main 
Street from nonfederal to federal insurance. Now, further assume 
that on the previous March 15, NCUA had declared a premium 
assessment, and on September 15 following the conversion NCUA sent 
out the invoices for the March 15 assessment. Also assume that Main 
Street had grown to 1,300 insured shares at the end of September, 
the month the invoices were sent to Main Street and other credit 
unions. This information is presented in this Table B:

                                                     Table B
----------------------------------------------------------------------------------------------------------------
                                                                End of month,
                                               End of month,    May, year one                     End of month,
                                               December, year       (month       End of month,   September, year
                                                    zero          conversion     June, year one     one (month
                                                                  completed)                      invoice sent)
----------------------------------------------------------------------------------------------------------------
Main Street Credit Union's Federally Insured           1,000            1,100            1,200            1,300
 Shares.....................................
----------------------------------------------------------------------------------------------------------------

    ii. Paragraph (i)(1)(ii) requires Main Street pay a premium 
based on the institution's ``insured shares as of the last day of 
the most recently ended reporting period preceding the invoice date 
times the institution's premium/distribution ratio.'' Again, because 
Main Street is under $50 million in assets, the most recently ended 
reporting period preceding the September 15 invoice date is all the 
way back to December of Year Zero, when Main Street had $1,000 in 
shares. Main Street's ``premium/distribution ratio,'' as defined in 
Sec.  741.4(b)(5), is ``the number of full remaining months in the 
calendar year following the date of the institution's conversion or 
merger divided by 12.'' Since Main Street completed its conversion 
in May, there are seven full months remaining in the calendar year 
(June through December), and Main Street's premium/distribution 
ratio is seven divided by 12. Accordingly, Main Street's premium 
will be assessed on $1,000 times seven divided by 12, or about 
$583.\2\ Note that if Main Street's assets had exceeded $50 million 
as of June 30, it would have had semiannual reporting periods under 
Sec.  741.4(b)(6), and its ``insured shares as of the last day of 
the most recently ended reporting period preceding the invoice 
date'' would have been its insured shares as of June 30, Year One, 
and not as of December 31, Year Zero.
---------------------------------------------------------------------------

    \2\ Main Street's actual premium charge will be this $583 
divided by the aggregate insured shares of all federally insured 
credit unions times the aggregate premium for all federally insured 
credit unions.
---------------------------------------------------------------------------

    3. Paragraphs (i)(1)(iii) and (iv) describe the responsibility 
of a credit union or other entity converting to federal insurance to 
replenish a depleted NCUSIF deposit, as follows: A credit union or 
other institution that converts to insurance coverage with the 
NCUSIF will, if the NCUSIF declares, in the calendar year of 
conversion but on or before the date of conversion, an assessment to 
replenish the one-percent deposit, pay nothing related to that 
assessment; if the NCUSIF declares, at any time after the date of 
conversion through the end of that calendar year, an assessment to 
replenish the one-percent deposit, pay a replenishment amount based 
on the institution's insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date.
    i. Paragraph (i)(1)(iii) clarifies that a converting credit 
union has no responsibility to pay anything toward the replenishment 
of a depleted deposit that is declared on or before the date of 
conversion, even if NCUA sends out invoices related to the depletion 
after the date of conversion. Paragraph (i)(1)(iv) requires that a 
converting credit union replenish its deposit with regard to a 
depletion declared after the date of conversion through the end of 
the calendar year. Again, assume the same facts for Main Street as 
in Table B, but that the deposit depletion was announced in June, 
after Main Street converted, and that NCUA sent the invoices in 
September.

                                                     Table B
----------------------------------------------------------------------------------------------------------------
                                                                End of month,
                                               End of month,    May, year one                     End of month,
                                               December, year       (month       End of month,   September, year
                                                    zero          conversion     June, year one     one (month
                                                                  completed)                      invoice sent)
----------------------------------------------------------------------------------------------------------------
Main Street Credit Union's Federally Insured           1,000            1,100            1,200            1,300
 Shares.....................................
----------------------------------------------------------------------------------------------------------------


[[Page 63283]]

    ii. Main Street would receive an invoice amount ``based on the 
[Main Street's] insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date.'' Since 
Main Street has less than $50 million in shares, the most recently 
ended reporting period preceding the September invoice date was 
December 31, Year Zero, and it would pay for the replenishment based 
on $1,000 in insured shares. If Main Street, however, had had $50 
million or more in assets on June 30, its most recently ended 
reporting period preceding the invoice date would have been the 
semiannual period ending on June 30, and Main Street would have used 
its insured shares as of June 30 to calculate the replenishment 
amount due to the NCUSIF.
    4. Under the Federal Credit Union Act, distributions, if any, 
are declared once a year, early in the year, based on excess funds 
in the NCUSIF as of the prior December 31. Paragraph (i)(1)(v) 
describes the right of a credit union or other entity converting to 
federal insurance to receive a distribution from the NCUSIF, 
specifically: A credit union or other institution that converts to 
insurance coverage with the NCUSIF will, if the NCUSIF declares a 
distribution in the year following conversion based the NCUSIF's 
equity at the end of the year of conversion, receive a distribution 
based on the institution's insured shares as of the end of the year 
of conversion times the institution's premium/distribution ratio. 
With regard to distributions declared in the calendar year of 
conversion but based on the NCUSIF's equity at the end of the 
preceding year, the converting institution will receive no 
distribution.
    i. To illustrate how paragraph (i)(1)(v) works, assume that Main 
Street Credit Union converts to federal insurance in May of Year 
One, and that the NCUA declares a distribution in January of Year 
Two based on the NCUSIF equity as of December 31 of Year One. Then 
Main Street will be entitled to a pro rata portion of the 
distribution, calculated on its insured shares as of December 31 of 
Year One times its premium/distribution ratio. Since it converted in 
May of Year One, and there were seven full months remaining in Year 
One at on the date of conversion, Main Street's premium/distribution 
ratio under Sec.  741.4(b)(6) equals seven divided by 12.
    ii. On the other hand, if the NCUA declared a distribution a 
year earlier, that is, in January of Year One based on the NCUSIF's 
equity ratio as of December 31 in Year Zero, then under paragraph 
(i)(1)(v) Main Street would receive no part of this distribution. 
Main Street is not entitled to any part of this distribution because 
Main Street, which completed its conversion in Year One, did not 
contribute in any way to the excess funds in the NCUSIF as of the 
end of Year Zero.
    B. Conversion to NCUSIF Coverage Through Merger with a Federally 
Insured Credit Union.
    Paragraph (i)(2) addresses the NCUSIF premiums, deposit 
replenishments, and distribution calculations when a nonfederally 
insured credit union or entity converts to NCUSIF coverage by 
merging with a federally insured credit union.
    1. Paragraph (i)(2)(i) provides that a federally-insured credit 
union that merges with a nonfederally-insured credit union or other 
non-federally insured institution (the ``merging institution''), 
where the federally-insured credit union is the continuing 
institution, will immediately on the date of merger increase the 
amount of its NCUSIF deposit by an amount equal to one percent of 
the merging institution's insured shares as of the last day of the 
merging institution's most recently ended reporting period preceding 
the date of merger.
    i. To illustrate this provision, and the other provisions of 
paragraph (i)(2) related to mergers of nonfederally insured entities 
into federally-insured credit unions, consider the following 
hypothetical. Nonfederally-insured Credit Union A merges into 
federally-insured Credit Union B on August 15 of Year One. The 
relevant insured shares of Credit Union A and Credit Union B at 
various dates before and after the merger are reflected in Table D:

                                                     Table D
----------------------------------------------------------------------------------------------------------------
                                                                                   End of month    End of Month
                                                   End of month                    August, year     September,
                                                  December, year   End of month     one (month       year one
                                                       zero       June, year one      merger      (month invoice
                                                                                    completed)         sent)
----------------------------------------------------------------------------------------------------------------
Credit Union A Insured shares...................           1,000           1,100             N/A             N/A
Credit Union B Insured shares...................           9,000           9,900          12,900          14,000
----------------------------------------------------------------------------------------------------------------

    ii. Paragraph (i)(2)(i) requires that Credit Union B, the 
continuing credit union, immediately increase the amount of its 
deposit with the NCUSIF in an amount ``equal to one percent of the 
merging institution's insured shares as of the last day of the 
merging institution's most recently ended reporting period preceding 
the date of merger.'' Since Credit Union A, the merging institution, 
has less than $50 million in assets, its reporting period is the 
calendar year, and its most recently ended reporting period 
preceding the August merger date is December 31 in Year Zero. Credit 
Union A had $1,000 in insured shares on that date. Accordingly, 
Credit Union B, the continuing credit union, must immediately 
increase the amount of its deposit with the NCUSIF by one percent of 
$1,000, or $10. Note that if Credit Union A had been a larger credit 
union, with $50 million or more in assets on June 30 in Year One, 
then Credit Union B would have used Credit Union A's insured shares 
as of June 30 in this calculation.
    2. Paragraph (i)(2)(ii), relating to NCUSIF premium assessments, 
provides that the continuing institution will, with regard to any 
NCUSIF premiums assessed in the calendar year of merger, pay a two-
part premium, with one part calculated on the merging institution's 
insured shares as described in subparagraph (1)(ii) above, and the 
other part calculated on the continuing institution's insured shares 
as of the last day of its most recently ended reporting period 
preceding the date of merger.
    i. Paragraph (i)(2)(ii) provides for a two-part calculation, 
with the first part relating to the merging credit union and the 
second part relating to the continuing credit union. Assuming the 
facts as in Table D, and assuming the premium is assessed sometime 
in Year One, calculate the insured shares of Credit Union A, the 
merging credit union, as in the example for paragraph (i)(1)(ii). 
Once again, because Credit Union A is under $50 million in assets, 
the most recently ended reporting period preceding the invoice date 
is December of Year Zero, when Credit Union A had $1,000 in shares. 
The merger was completed in August, leaving four full months in the 
calendar year, so the premium/distribution ratio is four divided by 
12. Accordingly, this part of the premium will be assessed on $1,000 
times four divided by 12, or about $333. Then calculate the insured 
shares of Credit Union B, the continuing credit union, ``as of the 
last day of its most recently ended reporting period preceding the 
merger date.'' Since Credit Union B is also under $50 million in 
assets, ``the last day of the most recently ended reporting period'' 
is also December 31 of Year Zero. Credit Union B's insured shares on 
that date were $9,000, and so the combined insured shares for 
purposes of the premium assessment is $9,333. Note that if Credit 
Union B had $50 million or more in assets on June 30 of Year One, 
then Credit Union B's ``most recently ended reporting period 
preceding the merger date'' would have been June 30 of Year One, and 
not December 31 of Year Zero. The Board is aware that the NCUA might 
declare a NCUSIF premium, invoice it, and receive the premiums in 
Year One from the continuing institution before the continuing 
institution consummates its merger. In that case, the Board would 
invoice the continuing credit union again after the merger, but only 
for the difference between the amount previously invoiced and the 
amount calculated under paragraph (i)(2)(ii).
    3. Paragraph (i)(2)(iii) prescribes the procedures for 
calculating the NCUSIF distribution when a nonfederally insured 
credit union or entity merges into a federally insured credit union. 
Paragraph (i)(2)(iii)

[[Page 63284]]

provides that the federally insured credit union will, if the NCUSIF 
declares a distribution in the year following the merger based on 
the NCUSIF's equity at the end of the year of merger, receive a 
distribution based on the continuing institution's insured shares as 
of the end of the year of merger. With regard to distributions 
declared in the calendar year of merger but based on the NCUSIF's 
equity from the end of the preceding year, the institution will 
receive a distribution based on its insured shares as of the end of 
the preceding year.
    i. This formula recognizes that the merging institution did not 
contribute to the NCUSIF equity as of the end of the year preceding 
the merger and so no distribution is allotted against the merging 
institution's shares. As for distributions based on the NCUSIF 
equity at the end of the year of merger, this formula does not 
include any pro rata reduction for the merging institution's 
contribution. The Board determined that a pro rata reduction was 
unnecessary, given the generally small relative size of merging 
institutions to continuing institutions, and the fact that the 
Federal Credit Union Act does not require any sort of pro rata 
reduction or other pro rata calculation with regard to 
distributions.
    C. Conversion from, or termination of, Federal share insurance.
    Paragraph (j)(1) addresses direct insurance conversions and 
conversions by merger. Paragraph (j)(2) addresses liquidations and 
insurance termination.
    1. Paragraph (j)(1)(i) provides that a federally insured credit 
union whose insurance coverage with the NCUSIF terminates, including 
through a conversion to, or merger into, a nonfederally insured 
credit union or a noncredit union entity, will receive the full 
amount of its NCUSIF deposit paid, less any amounts applied to cover 
NCUSIF losses that exceed NCUSIF retained earnings, immediately 
after the final date on which any shares of the credit union are 
NCUSIF-insured.
    i. To illustrate the application of this paragraph (j)(1)(i), 
consider the following hypothetical. Assume Anytown Credit Union, a 
credit union with $30 million in assets, converts from federal to 
nonfederal insurance on November 15. Also assume Anytown Credit 
Union had $20 million in insured shares as of the previous December 
31, the end of its most recent reporting period. 12 CFR 741.4(b)(5), 
(c). The NCUSIF would return one-percent of $20 million, or $200,000 
to Anytown Credit Union immediately following the effective date of 
its conversion. Note that, if Anytown Credit Union had reported $50 
million or more in assets on June 30, then June 30 would have been 
the end of its most recent reporting period. Now further assume 
that, on July 15 of that same year, the NCUSIF had announced an 
expense that reduced the equity ratio from 1.3 to .75, which would 
have included a write-off (depletion) of 25%, or 25 basis points, of 
the one-percent deposit. The amount of the deposit returned to 
Anytown would be reduced by 25%, from $200,000 to $150,000. If the 
NCUSIF had announced expenses reducing the equity ratio to .75 after 
the November 15 conversion date, this announcement would have no 
effect on Anytown and it would still receive the full $200,000 from 
the NCUSIF.
    2. Paragraph (j)(1)(ii) provides that a federally insured credit 
union whose insurance coverage with the NCUSIF terminates, including 
through a conversion to, or merger into, a nonfederally insured 
credit union or a noncredit union entity, will, if the NCUSIF 
declares a distribution at the end of the calendar year of 
conversion, receive a distribution based on the institution's 
insured shares as of the last day of the most recently ended 
reporting period preceding the date of conversion times the 
institution's modified premium/distribution ratio.
    i. To illustrate the application of this paragraph (j)(1)(ii), 
again assume Anytown Credit Union converts to nonfederal insurance 
on November 15, and in January of the following year, the NCUSIF 
declares a distribution based on the NCUSIF's equity ratio as of 
December 31. Anytown would receive a pro rata distribution 
calculated as its $20 million in insured shares multiplied by the 
modified premium/distribution ratio. Anytown's modified premium/
distribution ratio, from the definition in Sec.  741.4(b)(5), is one 
minus Anytown's premium/distribution ratio, which is one minus the 
ratio of the full number of months remaining in the year divided by 
twelve, which is one minus (one divided by twelve), which is eleven 
divided by twelve. So Anytown would receive a pro rata distribution 
based on $20 million of insured shares times eleven-twelfths, or 
based on about $18.33 million in shares.\3\
---------------------------------------------------------------------------

    \3\ Anytown's actual distribution would be $18.33 million times 
the aggregate amount of the distribution divided by the aggregate 
amount of all insured shares at all federally insured credit unions.
---------------------------------------------------------------------------

    3. Paragraph (j)(1)(iii) provides that a federally insured 
credit union whose insurance coverage with the NCUSIF terminates, 
including through a conversion to, or merger into, a nonfederally 
insured credit union or a noncredit union entity, will, if the 
NCUSIF assesses a premium in the calendar year of conversion or 
merger on or before the day in which the conversion or merger is 
completed, pay a premium based on the institution's insured shares 
as of the last day of the most recently ended reporting period 
preceding the conversion or merger date times the institution's 
modified premium/distribution ratio. If the institution has 
previously paid a premium based on this same assessment that exceeds 
this amount, the institution will receive a refund of the difference 
following completion of the conversion or merger.
    i. To illustrate these premium provisions, again assume Anytown 
Credit Union is a credit union with $30 million in assets that 
converts from federal to nonfederal insurance on November 15 of Year 
One, and that Anytown Credit Union had $20 million in insured shares 
as of the previous December 31 (of Year Zero), the end of its most 
recent reporting period. Further assume that NCUA declares a premium 
on February 12 of Year One and invoices the premium on November 15. 
Since the premium was declared ``on or before the day in which 
[Anytown's] conversion [was] completed,'' Sec.  741.4(j)(1)(iii) 
applies. Anytown would then pay a premium based on $20 million (its 
``insured shares as of the last day of the most recently ended 
reporting period preceding the conversion or merger date'') times 
eleven-twelfths (its ``modified premium/distribution ratio''), or 
based on about $18.33 million. Note that NCUA might have already 
have invoiced Anytown for the premium sometime between February 12 
and Anytown's merger on November 15. If so, Anytown will likely 
receive a refund of some of this earlier premium, as provided in the 
last sentence of Sec.  741.1(j)(1)(iii), since it may have overpaid 
the earlier premium.

[FR Doc. E9-28218 Filed 12-2-09; 8:45 am]
BILLING CODE 7535-01-P