Current through Reg. 49, No. 38; September 20, 2024
(a)
Definitions. The words and terms, when used in this chapter, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Net worth means the retained earnings
balance of the credit union as determined under generally accepted accounting
principles. Retained earnings consist of undivided earnings, regular reserves,
and any other appropriations designated by management, the insuring
organization, or the commission. This means that only undivided earnings and
appropriations of undivided earnings are included in net worth. Net worth does
not include the allowance for loan and lease losses account.
(2) Net worth ratio means, with respect to a
credit union, the ratio of the net worth of the credit union to the total
assets of the credit union.
(3)
Total assets means the average of the total assets as measured using one of the
following methods:
(A) Average Quarterly
Balance--the average of quarter-end balances of the four most recent calendar
quarters; or
(B) Average Monthly
Balance--the average of month-end balances over the three calendar months of
the calendar quarter; or
(C)
Average Daily Balance--the average daily balance over the calendar quarter;
or
(D) Quarter-End Balance--the
quarter-end balance of the calendar quarter as reported on the credit union's
call report.
(b) In accordance with the requirements of
§122.104 of the Act, state-chartered credit unions shall set aside a
portion of their current gross income, prior to the declaration or payment of
dividends, as follows:
(1) A credit union with
a net worth ratio below 7.0% shall increase the dollar amount of its net worth
by the following amounts at the indicated intervals until its net worth ratio
equals 7.0% of total assets.
Regardless of the dividend period, net worth must increase
quarterly by an amount equivalent to at least 0.1% per quarter of its total
assets.
(2) For a credit
union in operation less than ten years and having assets of less than $10
million, a business plan must be developed that reflects, among other items,
net worth projections consistent with the following:
(A) 2.0% net worth ratio by the end of the
third year of operation;
(B) 3.5%
net worth ratio by the end of the fifth year of operation;
(C) 6.0% net worth ratio by the end of the
seventh year of operation; and
(D)
7.0% net worth ratio by the time it reaches $10 million in total assets or by
the end of the tenth year of operation, whichever is shorter.
(3) Special reserves. In addition
to the regular reserve, special reserves to protect the interest of members may
be established by board resolution or by order of the commissioner, from
current income or from undivided earnings. In lieu of establishing a special
reserve, the commissioner may direct that all or a portion of the undivided
earnings and any other reserve fund be restricted. In either case, such
directives must be given in writing and state with reasonable specificity the
reasons for such directives.
(4)
Insuring organization's capital requirements. As applicable, a credit union
shall also comply with any and all net worth or capital requirements imposed by
an insuring organization as a condition to maintaining insurance on share and
deposit accounts. For federally-insured credit unions this includes all prompt
corrective action requirements contained within Part 702 of the NCUA Rules and
Regulations.
(5) Decrease in
Required Reserve Transfer. The commissioner, on a case-by-case basis, and after
receipt of a written application, may permit a credit union to transfer an
amount that is less than the amount required under paragraph (1) of this
subsection. A credit union shall submit such statements and reports as the
commissioner may, in his discretion, require in support of a decreased transfer
request. The application must be received no later than 14 days before the
quarter end and shall include but not be limited to:
(A) an explanation of the need for the
reduced transfer amount;
(B)
financial statement reflecting the fiscal impact of the required transfer;
and
(C) documentation supporting
the credit union's ability to resume the required transfer at a future date
certain.
(c)
Revised business plan for new credit unions. A credit union that has been in
operation for less than ten years and has assets of less than $10 million shall
file a written revised business plan within 30 calendar days of the date the
credit union's net worth ratio has failed to increase consistent with its
current business plan. Failure to submit a revised business plan, or submission
of a plan not adequate to either increase net worth or increase net worth
within a reasonable time; or failure of the credit union to implement its
revised business plan, may trigger the regulatory actions described in
subsection (b)(4) of this section.
(d) Unsafe practice. Any credit union which
has less than a 6.0% net worth ratio may be deemed to be engaged in an unsafe
practice pursuant to §
RSA
122.255 of the Finance Code. The
determination may be abated if, the credit union has entered into and is in
compliance with a written agreement or order with the department or is in
compliance with a net worth restoration or revised business plan approved by
the department to increase its net worth ratio. If a credit union has a net
worth ratio below 6.0% or is otherwise engaged in an unsafe practice, the
department may impose the following administrative sanctions in addition to, or
in lieu of, any other authorized supervisory action:
(1) all unencumbered reserves, undivided
earnings, and current earnings are encumbered as special reserves;
(2) dividends and interest refunds may not be
declared, advertised, or paid without the prior written approval of the
commissioner; and
(e) any
changes to the credit union's board of directors or senior management staff
must receive the prior written approval of the commissioner. Supervisory
action. Notwithstanding any requirements in this section, the department may
take enforcement action against a credit union with capital above the minimum
requirement if the credit union's circumstances indicate such action would be
appropriate.
