12 CFR 702 Subpart B (1-1-20 ED)

National Credit Union Administration

§ 702.201

(3) Disapproval of reclassified credit union’s
NWRP. A credit union which has been classified significantly undercapitalized shall remain so classified pending NCUA Board approval of a new or revised NWRP.
(4) Submission of multiple unapproved
NWRPs. The submission of more than two
NWRPs that are not approved is considered
an unsafe and unsound condition and may
subject the credit union to administrative
enforcement actions under section 206 of the
FCUA, 12 U.S.C. 1786 and 1790d.
(h) Amendment of NWRP. A credit union
that is operating under an approved NWRP
may, after prior written notice to, and approval by the NCUA Board, amend its NWRP
to reflect a change in circumstance. Pending
approval of an amended NWRP, the credit
union shall implement the NWRP as originally approved.
(i) Publication. An NWRP need not be published to be enforceable because publication
would be contrary to the public interest.
(j) Termination of NWRP. For purposes of
this part, an NWRP terminates once the
credit union is classified as adequately capitalized and remains so for four consecutive
quarters. For example, if a credit union with
an active NWRP attains the classification as
adequately classified on December 31, 2015
this would be quarter one and the fourth
consecutive quarter would end September 30,
2016.

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§ 702.112 Reserves.
Each credit union shall establish and
maintain such reserves as may be required
by the FCUA, by state law, by regulation, or
in special cases by the NCUA Board or appropriate state official.
§ 702.113 Full and fair disclosure of financial condition.
(a) Full and fair disclosure defined. ‘‘Full
and fair disclosure’’ is the level of disclosure
which a prudent person would provide to a
member of a credit union, to NCUA, or, at
the discretion of the board of directors, to
creditors to fairly inform them of the financial condition and the results of operations
of the credit union.
(b) Full and fair disclosure implemented. The
financial statements of a credit union shall
provide for full and fair disclosure of all assets, liabilities, and members’ equity, including such valuation (allowance) accounts as
may be necessary to present fairly the financial condition; and all income and expenses
necessary to present fairly the statement of
income for the reporting period.
(c) Declaration of officials. The Statement of
Financial Condition, when presented to
members, to creditors or to NCUA, shall contain a dual declaration by the treasurer and
the chief executive officer, or in the latter’s
absence, by any other officer designated by
the board of directors of the reporting credit

union to make such declaration, that the report and related financial statements are
true and correct to the best of their knowledge and belief and present fairly the financial condition and the statement of income
for the period covered.
(d) Charges for loan and lease losses. Full
and fair disclosure demands that a credit
union properly address charges for loan
losses as follows:
(1) Charges for loan and lease losses shall
be made timely and in accordance with
GAAP;
(2) The ALLL must be maintained in accordance with GAAP; and
(3) At a minimum, adjustments to the
ALLL shall be made prior to the distribution
or posting of any dividend to the accounts of
members.
§ 702.114 Payment of dividends.
(a) Restriction on dividends. Dividends shall
be available only from net worth, net of any
special reserves established under § 702.112, if
any.
(b) Payment of dividends and interest refunds. The board of directors must not pay a
dividend or interest refund that will cause
the credit union’s capital classification to
fall below adequately capitalized under this
subpart unless the appropriate Regional Director and, if state-chartered, the appropriate state official, have given prior written
approval (in an NWRP or otherwise). The request for written approval must include the
plan for eliminating any negative retained
earnings balance.

Subpart B—Mandatory and
Discretionary Supervisory Actions
EFFECTIVE DATE NOTE: At 80 FR 66706, Oct.
29, 2015, subpart B to part 702 was revised, effective Jan. 1, 2019. At 83 FR 55467, Nov. 6,
2018, the effective date was delayed until
Jan. 1, 2020. At 84 FR 68781, Dec. 17, 2019, the
effective date was further delayed until Jan.
1, 2022. For the convenience of the user, the
revised text is set forth at the end of this
subpart.

§ 702.201 Prompt corrective action for
‘‘adequately
capitalized’’
credit
unions.
(a) Earnings retention. Beginning the
effective date of classification as ‘‘adequately capitalized’’ or lower, a federally insured credit union must increase
the dollar amount of its net worth
quarterly either in the current quarter,
or on average over the current and
three preceding quarters, by an amount
equivalent to at least 1/10th percent
(0.1%) of its total assets, and must

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§ 702.202

12 CFR Ch. VII (1–1–20 Edition)

quarterly transfer that amount (or
more by choice) from undivided earnings to its regular reserve account
until it is ‘‘well capitalized.’’
(b) Decrease in retention. Upon written
application received no later than 14
days before the quarter end, the NCUA
Board, on a case-by-case basis, may
permit a credit union to increase the
dollar amount of its net worth and
quarterly transfer an amount that is
less than the amount required under
paragraph (a) of this section, to the extent the NCUA Board determines that
such lesser amount—
(1) Is necessary to avoid a significant
redemption of shares; and
(2) Would further the purpose of this
part.
(c) Decrease by FISCU. The NCUA
Board shall consult and seek to work
cooperatively with the appropriate
State official before permitting a federally insured State-chartered credit
union to decrease its earnings retention under paragraph (b) of this section.
(d) Periodic review. A decision under
paragraph (b) of this section to permit
a credit union to decrease its earnings
retention is subject to quarterly review
and revocation except when the credit
union is operating under an approved
net worth restoration plan that provides for decreasing its earnings retention as provided under paragraph (b).

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[67 FR 71091, Nov. 29, 2002]

§ 702.202 Prompt corrective action for
‘‘undercapitalized’’ credit unions.
(a) Mandatory supervisory actions by
credit union. A federally insured credit
union which is ‘‘undercapitalized’’
must—
(1) Earnings retention. Increase net
worth and transfer earnings to its regular reserve account in accordance
with § 702.201;
(2) Submit net worth restoration plan.
Submit a net worth restoration plan
pursuant to § 702.206, provided however,
that a credit union in this category
having a net worth ratio of less than
five percent (5%) which fails to timely
submit such a plan, or which materially fails to implement an approved
plan, is classified ‘‘significantly undercapitalized’’
pursuant
to
§ 702.102(a)(4)(ii) above;

(3) Restrict increase in assets. Beginning the effective date of classification
as ‘‘undercapitalized’’ or lower, not
permit the credit union’s assets to increase beyond its total assets (per
§ 702.2(j)) for the preceding quarter unless—
(i) Plan approved. The NCUA Board
has approved a net worth restoration
plan which provides for an increase in
total assets and—
(A) The assets of the credit union are
increasing consistent with the approved plan; and
(B) The credit union is implementing
steps to increase the net worth ratio
consistent with the approved plan;
(ii) Plan not approved. The NCUA
Board has not approved a net worth
restoration plan and total assets of the
credit union are increasing because of
increases since quarter-end in balances
of:
(A) Total accounts receivable and accrued income on loans and investments; or
(B) Total cash and cash equivalents;
or
(C) Total loans outstanding, not to
exceed the sum of total assets (per
§ 702.2(j)) plus the quarter-end balance
of unused commitments to lend and unused lines of credit provided however
that a credit union which increases a
balance as permitted under paragraphs
(A), (B) or (C) cannot offer rates on
shares in excess of prevailing rates on
shares in its relevant market area, and
cannot open new branches;
(4) Restrict member business loans. Beginning the effective date of classification as ‘‘undercapitalized’’ or lower,
not increase the total dollar amount of
member business loans (defined as
loans outstanding and unused commitments to lend) as of the preceding
quarter-end unless it is granted an exception under 12 U.S.C. 1757a(b).
(b) ‘‘Second tier’’ discretionary supervisory actions by NCUA. Subject to the
applicable procedures for issuing, reviewing and enforcing directives set
forth in subpart L of part 747 of this
chapter, the NCUA Board may, by directive, take one or more of the following actions with respect to an
‘‘undercapitalized’’ credit union having

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National Credit Union Administration

§ 702.203

a net worth ratio of less than five percent (5%), or a director, officer or employee of such a credit union, if it determines that those actions are necessary to carry out the purpose of this
part:
(1) Requiring prior approval for acquisitions, branching, new lines of business.
Prohibit a credit union from, directly
or indirectly, acquiring any interest in
any business entity or financial institution, establishing or acquiring any
additional branch office, or engaging in
any new line of business, unless the
NCUA Board has approved the credit
union’s net worth restoration plan, the
credit union is implementing its plan,
and the NCUA Board determines that
the proposed action is consistent with
and will further the objectives of that
plan;
(2) Restricting transactions with and
ownership of CUSO. Restrict the credit
union’s transactions with a CUSO, or
require the credit union to reduce or
divest its ownership interest in a
CUSO;
(3) Restricting dividends paid. Restrict
the dividend rates the credit union
pays on shares to the prevailing rates
paid on comparable accounts and maturities in the relevant market area, as
determined by the NCUA Board, except
that dividend rates already declared on
shares acquired before imposing a restriction under this paragraph may not
be retroactively restricted;
(4) Prohibiting or reducing asset
growth. Prohibit any growth in the
credit union’s assets or in a category of
assets, or require the credit union to
reduce its assets or a category of assets;
(5) Alter, reduce or terminate activity.
Require the credit union or its CUSO
to alter, reduce, or terminate any activity which poses excessive risk to the
credit union;
(6) Prohibiting nonmember deposits.
Prohibit the credit union from accepting all or certain nonmember deposits;
(7) Dismissing director or senior executive officer. Require the credit union to
dismiss from office any director or senior executive officer, provided however,
that a dismissal under this clause shall
not be construed to be a formal administrative action for removal under 12
U.S.C. 1786(g);

(8) Employing qualified senior executive
officer. Require the credit union to employ qualified senior executive officers
(who, if the NCUA Board so specifies,
shall be subject to its approval); and
(9) Other action to carry out prompt
corrective action. Restrict or require
such other action by the credit union
as the NCUA Board determines will
carry out the purpose of this part better than any of the actions prescribed
in paragraphs (b)(1) through (8) of this
section.
(c) ‘‘First tier’’ application of discretionary supervisory actions. An ‘‘undercapitalized’’ credit union having a net
worth ratio of five percent (5%) or
more, or which is classified ‘‘undercapitalized’’ by reason of failing to satisfy a risk-based net worth requirement under § 702.105 or § 702.106, is subject to the discretionary supervisory
actions in paragraph (b) of this section
if it fails to comply with any mandatory supervisory action in paragraph
(a) of this section or fails to timely implement an approved net worth restoration plan under § 702.206, including
meeting its prescribed steps to increase
its net worth ratio.
[65 FR 8584, Feb. 18, 2000, as amended at 67
FR 71092, Nov. 29, 2002]

§ 702.203 Prompt corrective action for
‘‘significantly
undercapitalized’’
credit unions.
(a) Mandatory supervisory actions by
credit union. A federally insured credit
union which is ‘‘significantly undercapitalized’’ must—
(1) Earnings retention. Increase net
worth and transfer earnings to its regular reserve account in accordance
with § 702.201;
(2) Submit net worth restoration plan.
Submit a net worth restoration plan
pursuant to § 702.206;
(3) Restrict increase in assets. Not permit the credit union’s total assets to
increase
except
as
provided
in
§ 702.202(a)(3) and
(4) Restrict member business loans. Not
increase the total dollar amount of
member business loans (defined as
loans outstanding and unused commitments to lend) as provided in
§ 702.202(a)(4).

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§ 702.204

12 CFR Ch. VII (1–1–20 Edition)

(b) Discretionary supervisory actions by
NCUA. Subject to the applicable procedures for issuing, reviewing and enforcing directives set forth in subpart L of
part 747 of this chapter, the NCUA
Board may, by directive, take one or
more of the following actions with respect to any ‘‘significantly undercapitalized’’ credit union, or a director,
officer or employee of such credit
union, if it determines that those actions are necessary to carry out the
purpose of this part:
(1) Requiring prior approval for acquisitions, branching, new lines of business.
Prohibit a credit union from, directly
or indirectly, acquiring any interest in
any business entity or financial institution, establishing or acquiring any
additional branch office, or engaging in
any new line of business, except as provided in § 702.202(b)(1);
(2) Restricting transactions with and
ownership of CUSO. Restrict the credit
union’s transactions with a CUSO, or
require the credit union to divest or reduce its ownership interest in a CUSO;
(3) Restricting dividends paid. Restrict
the dividend rates that the credit
union pays on shares as provided in
§ 702.202(b)(3);
(4) Prohibiting or reducing asset
growth. Prohibit any growth in the
credit union’s assets or in a category of
assets, or require the credit union to
reduce assets or a category of assets;
(5) Alter, reduce or terminate activity.
Require the credit union or its CUSO(s)
to alter, reduce, or terminate any activity which poses excessive risk to the
credit union;
(6) Prohibiting nonmember deposits.
Prohibit the credit union from accepting all or certain nonmember deposits;
(7) New election of directors. Order a
new election of the credit union’s board
of directors;
(8) Dismissing director or senior executive officer. Require the credit union to
dismiss from office any director or senior executive officer, provided however,
that a dismissal under this clause shall
not be construed to be a formal administrative action for removal under 12
U.S.C. 1786(g);
(9) Employing qualified senior executive
officer. Require the credit union to employ qualified senior executive officers

(who, if the NCUA Board so specifies,
shall be subject to its approval);
(10) Restricting senior executive officers’
compensation. Except with the prior
written approval of the NCUA Board,
limit compensation to any senior executive officer to that officer’s average
rate of compensation (excluding bonuses and profit sharing) during the
four (4) calendar quarters preceding the
effective date of classification of the
credit union as ‘‘significantly undercapitalized,’’ and prohibit payment of a
bonus or profit share to such officer;
(11) Other actions to carry out prompt
corrective action. Restrict or require
such other action by the credit union
as the NCUA Board determines will
carry out the purpose of this part better than any of the actions prescribed
in paragraphs (b)(1) through (10) of this
section; and
(12) Requiring merger. Require the
credit union to merge with another financial institution if one or more
grounds exist for placing the credit
union into conservatorship pursuant to
12 U.S.C. 1786(h)(1)(F), or into liquidation
pursuant
to
12
U.S.C.
1787(a)(3)(A)(i).
(c) Discretionary conservatorship or liquidation if no prospect of becoming ‘‘adequately capitalized.’’ Notwithstanding
any other actions required or permitted to be taken under this section,
when a credit union becomes ‘‘significantly undercapitalized’’ (including by
reclassification under section 702.102(b)
above), the NCUA Board may place the
credit union into conservatorship pursuant to 12 U.S.C. 1786(h)(1)(F), or into
liquidation pursuant to 12 U.S.C.
1787(a)(3)(A)(i), provided that the credit
union has no reasonable prospect of becoming ‘‘adequately capitalized.’’
[65 FR 8584, Feb. 18, 2000, as amended at 67
FR 71092, Nov. 29, 2002]

§ 702.204 Prompt corrective action for
‘‘critically undercapitalized’’ credit
unions
(a) Mandatory supervisory actions by
credit union. A federally insured credit
union which is ‘‘critically undercapitalized’’ must—
(1) Earnings retention. Increase net
worth and transfer earnings to its regular reserve account in accordance
with § 702.201;

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National Credit Union Administration

§ 702.204

(2) Submit net worth restoration plan.
Submit a net worth restoration plan
pursuant to § 702.206;
(3) Restrict increase in assets. Not permit the credit union’s total assets to
increase
except
as
provided
in
§ 702.202(a)(3); and
(4) Restrict member business loans. Not
increase the total dollar amount of
member business loans (defined as
loans outstanding and unused commitments to lend) as provided in
§ 702.202(a)(4).
(b) Discretionary supervisory actions by
NCUA. Subject to the applicable procedures for issuing, reviewing and enforcing directives set forth in subpart L of
part 747 of this chapter, the NCUA
Board may, by directive, take one or
more of the following actions with respect to any ‘‘critically undercapitalized’’ credit union, or a director, officer
or employee of such credit union, if it
determines that those actions are necessary to carry out the purpose of this
part:
(1) Requiring prior approval for acquisitions, branching, new lines of business.
Prohibit a credit union from, directly
or indirectly, acquiring any interest in
any business entity or financial institution, establishing or acquiring any
additional branch office, or engaging in
any new line of business, except as provided by § 702.202(b)(1);
(2) Restricting transactions with and
ownership of CUSO. Restrict the credit
union’s transactions with a CUSO, or
require the credit union to divest or reduce its ownership interest in a CUSO;
(3) Restricting dividends paid. Restrict
the dividend rates that the credit
union pays on shares as provided in
§ 702.202(b)(3);
(4) Prohibiting or reducing asset
growth. Prohibit any growth in the
credit union’s assets or in a category of
assets, or require the credit union to
reduce assets or a category of assets;
(5) Alter, reduce or terminate activity.
Require the credit union or its CUSO(s)
to alter, reduce, or terminate any activity which poses excessive risk to the
credit union;
(6) Prohibiting nonmember deposits.
Prohibit the credit union from accepting all or certain nonmember deposits;

(7) New election of directors. Order a
new election of the credit union’s board
of directors;
(8) Dismissing director or senior executive officer. Require the credit union to
dismiss from office any director or senior executive officer, provided however,
that a dismissal under this clause shall
not be construed to be a formal administrative action for removal under 12
U.S.C. 1786(g);
(9) Employing qualified senior executive
officer. Require the credit union to employ qualified senior executive officers
(who, if the NCUA Board so specifies,
shall be subject to its approval);
(10) Restricting senior executive officers’
compensation. Reduce or, with the prior
written approval of the NCUA Board,
limit compensation to any senior executive officer to that officer’s average
rate of compensation (excluding bonuses and profit sharing) during the
four (4) calendar quarters preceding the
effective date of classification of the
credit union as ‘‘critically undercapitalized,’’ and prohibit payment of a
bonus or profit share to such officer;
(11) Restrictions on payments on uninsured secondary capital. Beginning 60
days after the effective date of classification of a credit union as ‘‘critically
undercapitalized,’’ prohibit payments
of principal, dividends or interest on
the credit union’s uninsured secondary
capital accounts established after August 7, 2000, except that unpaid dividends or interest shall continue to accrue under the terms of the account to
the extent permitted by law;
(12) Requiring prior approval. Require
a ‘‘critically undercapitalized’’ credit
union to obtain the NCUA Board’s
prior written approval before doing any
of the following:
(i) Entering into any material transaction not within the scope of an approved net worth restoration plan (or
approved revised business plan under
subpart C of this part);
(ii) Extending credit for transactions
deemed highly leveraged by the NCUA
Board or, if State-chartered, by the appropriate State official;
(iii) Amending the credit union’s
charter or bylaws, except to the extent
necessary to comply with any law, regulation, or order;

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§ 702.204

12 CFR Ch. VII (1–1–20 Edition)

(iv) Making any material change in
accounting methods; and
(v) Paying dividends or interest on
new share accounts at a rate exceeding
the prevailing rates of interest on insured deposits in its relevant market
area;
(13) Other action to carry out prompt
corrective action. Restrict or require
such other action by the credit union
as the NCUA Board determines will
carry out the purpose of this part better than any of the actions prescribed
in paragraphs (b)(1) through (12) of this
section; and
(14) Requiring merger. Require the
credit union to merge with another financial institution if one or more
grounds exist for placing the credit
union into conservatorship pursuant to
12 U.S.C. 1786(h)(1)(F), or into liquidation
pursuant
to
12
U.S.C.
1787(a)(3)(A)(i).
(c) Mandatory conservatorship, liquidation or action in lieu thereof—(1) Action
within 90 days. Notwithstanding any
other actions required or permitted to
be taken under this section (and regardless of a credit union’s prospect of
becoming ‘‘adequately capitalized’’),
the NCUA Board must, within 90 calendar days after the effective date of
classification of a credit union as
‘‘critically undercapitalized’’—
(i) Conservatorship. Place the credit
union into conservatorship pursuant to
12 U.S.C. 1786(h)(1)(G); or
(ii) Liquidation. Liquidate the credit
union
pursuant
to
12
U.S.C.
1787(a)(3)(A)(ii); or
(iii) Other corrective action. Take
other corrective action, in lieu of conservatorship or liquidation, to better
achieve the purpose of this part, provided that the NCUA Board documents
why such action in lieu of conservatorship or liquidation would do so, provided however, that other corrective action may consist, in whole or in part,
of complying with the quarterly timetable of steps and meeting the quarterly net worth targets prescribed in
an approved net worth restoration
plan.
(2) Renewal of other corrective action.
A determination by the NCUA Board to
take other corrective action in lieu of
conservatorship or liquidation under
paragraph (c)(1)(iii) of this section

shall expire after an effective period
ending no later than 180 calendar days
after the determination is made, and
the credit union shall be immediately
placed into conservatorship or liquidation under paragraphs (c)(1)(i) and (ii),
unless the NCUA Board makes a new
determination
under
paragraph
(c)(1)(iii) of this section before the end
of the effective period of the prior determination;
(3) Mandatory liquidation after 18
months—(i) Generally. Notwithstanding
paragraphs (c)(1) and (2) of this section,
the NCUA Board must place a credit
union into liquidation if it remains
‘‘critically undercapitalized’’ for a full
calendar quarter, on a monthly average
basis, following a period of 18 months
from the effective date the credit union
was first classified ‘‘critically undercapitalized.’’
(ii) Exception. Notwithstanding paragraph (c)(3)(i) of this section, the NCUA
Board may continue to take other corrective action in lieu of liquidation if
it certifies that the credit union—
(A) Has been in substantial compliance with an approved net worth restoration plan requiring consistent improvement in net worth since the date
the net worth restoration plan was approved;
(B) Has positive net income or has an
upward trend in earnings that the
NCUA Board projects as sustainable;
and
(C) Is viable and not expected to fail.
(iii) Review of exception. The NCUA
Board shall, at least quarterly, review
the certification of an exception to liquidation under paragraph (c)(3)(ii) of
this section and shall either—
(A) Recertify the credit union if it
continues to satisfy the criteria of
paragraph (c)(3)(ii) of this section; or
(B) Promptly place the credit union
into liquidation, pursuant to 12 U.S.C.
1787(a)(3)(A)(ii), if it fails to satisfy the
criteria of paragraph (c)(3)(ii) of this
section.
(4) Nondelegation. The NCUA Board
may not delegate its authority under
paragraph (c) of this section, unless the
credit union has less than $5,000,000 in
total assets. A credit union shall have
a right of direct appeal to the NCUA
Board of any decision made by delegated authority under this section

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National Credit Union Administration

§ 702.206

within ten (10) calendar days of the
date of that decision.
(d) Mandatory liquidation of insolvent
federal credit union. In lieu of paragraph
(c) of this section, a ‘‘critically undercapitalized’’ federal credit union that
has a net worth ratio of less than zero
percent (0%) may be placed into liquidation on grounds of insolvency pursuant to 12 U.S.C. 1787(a)(1)(A).
[65 FR 8584, Feb. 18, 2000, as amended at 67
FR 71092, Nov. 29, 2002; 75 FR 34620, June 18,
2010]

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§ 702.205 Consultation with State officials on proposed prompt corrective
action.
(a) Consultation on proposed conservatorship or liquidation. Before placing a federally insured State-chartered
credit union into conservatorship (pursuant to 12 U.S.C. 1786(h)(1)(F) or (G))
or liquidation (pursuant to 12 U.S.C.
1787(a)(3)) as permitted or required
under subparts B or C of this part to facilitate prompt corrective action—
(1) The NCUA Board shall seek the
views of the appropriate State official
(as defined in § 702.2(b)), and give him
or her an opportunity to take the proposed action;
(2) The NCUA Board shall, upon timely request of the appropriate State official, promptly provide him or her with
a written statement of the reasons for
the proposed conservatorship or liquidation, and reasonable time to respond to that statement; and
(3) If the appropriate State official
makes a timely written response that
disagrees with the proposed conservatorship or liquidation and gives
reasons for that disagreement, the
NCUA Board shall not place the credit
union into conservatorship or liquidation unless it first considers the views
of the appropriate State official and
determines that—
(i) The NCUSIF faces a significant
risk of loss if the credit union is not
placed into conservatorship or liquidation; and
(ii) Conservatorship or liquidation is
necessary either to reduce the risk of
loss, or to reduce the expected loss, to
the NCUSIF with respect to the credit
union.

(b) Nondelegation. The NCUA Board
may not delegate any determination
under paragraph (a)(3) of this section.
(c) Consultation on proposed discretionary action. The NCUA Board shall
consult and seek to work cooperatively
with the appropriate State official before taking any discretionary supervisory
action
under
§§ 702.202(b),
702.203(b), 702.204(b), 702.304(b) and
702.305(b) with respect to a federally insured State-chartered credit union;
shall provide prompt notice of its decision to the appropriate State official;
and shall allow the appropriate State
official to take the proposed action
independently or jointly with NCUA.
[65 FR 8584, Feb. 18, 2000, as amended at 67
FR 71092, Nov. 29, 2002; 75 FR 34620, June 18,
2010]

§ 702.206 Net worth restoration plans.
(a) Schedule for filing—(1) Generally. A
federally insured credit union shall file
a written net worth restoration plan
(NWRP) with the appropriate Regional
Director and, if State-chartered, the
appropriate State official, within 45
calendar days of the effective date of
classification as either ‘‘undercapitalized,’’ ‘‘significantly undercapitalized’’
or ‘‘critically undercapitalized,’’ unless
the NCUA Board notifies the credit
union in writing that its NWRP is to be
filed within a different period.
(2) Exception. An otherwise ‘‘adequately capitalized’’ credit union that
is reclassified ‘‘undercapitalized’’ on
safety and soundness grounds under
§ 702.102(b) is not required to submit a
NWRP solely due to the reclassification, unless the NCUA Board notifies
the credit union that it must submit
an NWRP.
(3) Filing of additional plan. Notwithstanding paragraph (a)(1) of this section, a credit union that has already
submitted and is operating under a
NWRP approved under this section is
not required to submit an additional
NWRP due to a change in net worth
category (including by reclassification
under § 702.102(b)), unless the NCUA
Board notifies the credit union that it
must submit a new NWRP. A credit
union that is notified to submit a new
or revised NWRP shall file the NWRP
in writing with the appropriate Regional Director within 30 calendar days

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§ 702.206

12 CFR Ch. VII (1–1–20 Edition)

of receiving such notice, unless the
NCUA Board notifies the credit union
in writing that the NWRP is to be filed
within a different period.
(4) Failure to timely file plan. When a
credit union fails to timely file an
NWRP pursuant to this paragraph, the
NCUA Board shall promptly notify the
credit union that it has failed to file an
NWRP and that it has 15 calendar days
from receipt of that notice within
which to file an NWRP.
(b) Assistance to small credit unions.
Upon timely request by a credit union
having total assets of less than $10 million (regardless how long it has been in
operation), the NCUA Board shall provide assistance in preparing an NWRP
required to be filed under paragraph (a)
of this section.
(c) Contents of NWRP. An NWRP
must—
(1) Specify—
(i) A quarterly timetable of steps the
credit union will take to increase its
net worth ratio so that it becomes
‘‘adequately capitalized’’ by the end of
the term of the NWRP, and to remain
so for four (4) consecutive calendar
quarters. If ‘‘complex,’’ the credit
union is subject to a risk-based net
worth requirement that may require a
net worth ratio higher than six percent
(6%) to become ‘‘adequately capitalized’’;
(ii) The projected amount of earnings
to be transferred to the regular reserve
account in each quarter of the term of
the
NWRP
as
required
under
§ 702.201(a), or as permitted under
§ 702.201(b);
(iii) How the credit union will comply
with the mandatory and any discretionary supervisory actions imposed on
it by the NCUA Board under this subpart;
(iv) The types and levels of activities
in which the credit union will engage;
and
(v) If reclassified to a lower category
under § 702.102(b), the steps the credit
union will take to correct the unsafe or
unsound practice(s) or condition(s);
(2) Include pro forma financial statements, including any off-balance sheet
items, covering a minimum of the next
two years; and
(3) Contain such other information as
the NCUA Board has required.

(d) Criteria for approval of NWRP. The
NCUA Board shall not accept a NWRP
plan unless it—
(1) Complies with paragraph (c) of
this section;
(2) Is based on realistic assumptions,
and is likely to succeed in restoring
the credit union’s net worth; and (3)
Would not unreasonably increase the
credit union’s exposure to risk (including credit risk, interest-rate risk, and
other types of risk).
(e) Consideration of regulatory capital.
To minimize possible long-term losses
to the NCUSIF while the credit union
takes steps to become ‘‘adequately capitalized,’’ the NCUA Board shall, in
evaluating an NWRP under this section, consider the type and amount of
any form of regulatory capital which
may become established by NCUA regulation, or authorized by State law and
recognized by NCUA, which the credit
union holds, but which is not included
in its net worth.
(f) Review of NWRP—(1) Notice of decision. Within 45 calendar days after receiving an NWRP under this part, the
NCUA Board shall notify the credit
union in writing whether the NWRP
has been approved, and shall provide
reasons for its decision in the event of
disapproval.
(2) Delayed decision. If no decision is
made within the time prescribed in
paragraph (f)(1) of this section, the
NWRP is deemed approved.
(3) Consultation with State officials. In
the case of an NWRP submitted by a
federally insured State-chartered credit union (whether an original, new, additional, revised or amended NWRP),
the NCUA Board shall, when evaluating the NWRP, seek and consider the
views of the appropriate State official,
and provide prompt notice of its decision to the appropriate State official.
(g) NWRP not approved—(1) Submission
of revised NWRP. If an NWRP is rejected by the NCUA Board, the credit
union shall submit a revised NWRP
within 30 calendar days of receiving notice of disapproval, unless it is notified
in writing by the NCUA Board that the
revised NWRP is to be filed within a
different period.
(2) Notice of decision on revised NWRP.
Within 30 calendar days after receiving
a revised NWRP under paragraph (g)(1)

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National Credit Union Administration

Pt. 702, Subpt. B, Nt.

of this section, the NCUA Board shall
notify the credit union in writing
whether the revised NWRP is approved.
The Board may extend the time within
which notice of its decision shall be
provided.
(3) Disapproval of reclassified credit
union’s NWRP. A credit union which
has been classified ‘‘significantly
undercapitalized’’
under
§ 702.102(a)(4)(ii) shall remain so classified pending NCUA Board approval of a
new or revised NWRP.
(h) Amendment of NWRP. A credit
union that is operating under an approved NWRP may, after prior written
notice to, and approval by the NCUA
Board, amend its NWRP to reflect a
change in circumstance. Pending approval of an amended NWRP, the credit
union shall implement the NWRP as
originally approved.
(i) Publication. An NWRP need not be
published to be enforceable because
publication would be contrary to the
public interest.
[65 FR 8584, Feb. 18, 2000, as amended at 67
FR 71092, Nov. 29, 2002]
EFFECTIVE DATE NOTE: At 80 FR 66706, Oct.
29, 2015, subpart B to part 702 was revised, effective Jan. 1, 2019. At 83 FR 55467, Nov. 6,
2018, the effective date was delayed until
Jan. 1, 2020. At 84 FR 68781, Dec. 17, 2019, the
effective date was further delayed until Jan.
1, 2022. For the convenience of the user, the
revised text is set forth as follows:

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Subpart B—Alternative Prompt Corrective Action for New Credit
Unions
§ 702.201 Scope and definition.
(a) Scope. This subpart B applies in lieu of
subpart A of this part exclusively to credit
unions defined in paragraph (b) of this section as ‘‘new’’ pursuant to section 216(b)(2) of
the FCUA, 12 U.S.C. 1790d(b)(2).
(b) New credit union defined. A ‘‘new’’ credit
union for purposes of this subpart is a credit
union that both has been in operation for
less than ten (10) years and has total assets
of not more than $10 million. Once a credit
union reports total assets of more than $10
million on a Call Report, the credit union is
no longer new, even if its assets subsequently decline below $10 million.
(c) Effect of spin-offs. A credit union formed
as the result of a ‘‘spin-off’’ of a group from
the field of membership of an existing credit
union is deemed to be in operation since the
effective date of the spin-off. A credit union
whose total assets decline below $10 million

because a group within its field of membership has been spun-off is deemed ‘‘new’’ if it
has been in operation less than 10 years.
(d) Actions to evade prompt corrective action.
If the NCUA Board determines that a credit
union was formed, or was reduced in asset
size as a result of a spin-off, or was merged,
primarily to qualify as ‘‘new’’ under this
subpart, the credit union shall be deemed
subject to prompt corrective action under
subpart A of this part.
§ 702.202 Net worth categories for new credit unions.
(a) Net worth measures. For purposes of this
part, a new credit union must determine its
capital classification quarterly according to
its net worth ratio.
(b) Effective date of net worth classification
of new credit union. For purposes of subpart B
of this part, the effective date of a new credit
union’s classification within a capital category in paragraph (c) of this section shall be
determined as provided in § 702.101(c); and
written notice of a decline in net worth classification in paragraph (c) of this section
shall be given as required by § 702.101(c).
(c) Net worth categories. A credit union defined as ‘‘new’’ under this section shall be
classified—
(1) Well capitalized if it has a net worth
ratio of seven percent (7%) or greater;
(2) Adequately capitalized if it has a net
worth ratio of six percent (6%) or more but
less than seven percent (7%);
(3) Moderately capitalized if it has a net
worth ratio of three and one-half percent
(3.5%) or more but less than six percent (6%);
(4) Marginally capitalized if it has a net
worth ratio of two percent (2%) or more but
less than three and one-half percent (3.5%);
(5) Minimally capitalized if it has a net
worth ratio of zero percent (0%) or greater
but less than two percent (2%); and
(6) Uncapitalized if it has a net worth ratio
of less than zero percent (0%).

TABLE 1 TO § 702.202—CAPITAL CATEGORIES
FOR NEW CREDIT UNIONS
A new credit union’s capital classification is
Well Capitalized .................................
Adequately Capitalized ......................
Moderately Capitalized .......................
Marginally Capitalized ........................
Minimally Capitalized .........................
Uncapitalized ......................................

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7% or above.
6 to 7%.
3.5% to 5.99%.
2% to 3.49%.
0% to 1.99%.
Less than 0%.

(d) Reclassification based on supervisory criteria other than net worth. Subject to
§ 702.102(b), the NCUA Board may reclassify a
well capitalized, adequately capitalized or
moderately capitalized new credit union to
the next lower capital category (each of such
actions is hereinafter referred to generally

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Pt. 702, Subpt. B, Nt.

12 CFR Ch. VII (1–1–20 Edition)

as ‘‘reclassification’’) in either of the circumstances prescribed in § 702.102(b).
(e) Consultation with state officials. The
NCUA Board shall consult and seek to work
cooperatively with the appropriate state official before reclassifying a federally insured
state-chartered credit union under paragraph
(d) of this section, and shall promptly notify
the appropriate state official of its decision
to reclassify.

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§ 702.203 Prompt corrective action for adequately capitalized new credit unions.
Beginning on the effective date of classification, an adequately capitalized new credit union must increase the dollar amount of
its net worth by the amount reflected in its
approved initial or revised business plan in
accordance with § 702.204(a)(2), or in the absence of such a plan, in accordance with
§ 702.106 until it is well capitalized.
§ 702.204 Prompt corrective action for moderately capitalized, marginally capitalized, or minimally capitalized new credit
unions.
(a) Mandatory supervisory actions by new
credit union. Beginning on the date of classification as moderately capitalized, marginally capitalized or minimally capitalized (including by reclassification under § 702.202(d)),
a new credit union must—
(1) Earnings retention. Increase the dollar
amount of its net worth by the amount reflected in its approved initial or revised business plan;
(2) Submit revised business plan. Submit a
revised business plan within the time provided by § 702.206 if the credit union either:
(i) Has not increased its net worth ratio
consistent with its then-present approved
business plan;
(ii) Has no then-present approved business
plan; or
(iii) Has failed to comply with paragraph
(a)(3) of this section; and
(3) Restrict member business loans. Not increase the total dollar amount of member
business loans (defined as loans outstanding
and unused commitments to lend) as of the
preceding quarter-end unless it is granted an
exception under 12 U.S.C. 1757a(b).
(b) Discretionary supervisory actions by
NCUA. Subject to the applicable procedures
set forth in subpart L of part 747 of this
chapter for issuing, reviewing and enforcing
directives, the NCUA Board may, by directive, take one or more of the actions prescribed in § 702.109(b) if the credit union’s net
worth ratio has not increased consistent
with its then-present business plan, or the
credit union has failed to undertake any
mandatory supervisory action prescribed in
paragraph (a) of this section.
(c) Discretionary conservatorship or liquidation. Notwithstanding any other actions required or permitted to be taken under this

section, the NCUA Board may place a new
credit union which is moderately capitalized,
marginally capitalized or minimally capitalized (including by reclassification under
§ 702.202(d)) into conservatorship pursuant to
12 U.S.C. 1786(h)(1)(F), or into liquidation
pursuant to 12 U.S.C. 1787(a)(3)(A)(i), provided that the credit union has no reasonable
prospect of becoming adequately capitalized.
§ 702.205 Prompt corrective action for
uncapitalized new credit unions.
(a) Mandatory supervisory actions by new
credit union. Beginning on the effective date
of classification as uncapitalized, a new credit union must—
(1) Earnings retention. Increase the dollar
amount of its net worth by the amount reflected in the credit union’s approved initial
or revised business plan;
(2) Submit revised business plan. Submit a
revised business plan within the time provided by § 702.206, providing for alternative
means of funding the credit union’s earnings
deficit, if the credit union either:
(i) Has not increased its net worth ratio
consistent with its then-present approved
business plan;
(ii) Has no then-present approved business
plan; or
(iii) Has failed to comply with paragraph
(a)(3) of this section; and
(3) Restrict member business loans. Not increase the total dollar amount of member
business loans as provided in § 702.204(a)(3).
(b) Discretionary supervisory actions by
NCUA. Subject to the procedures set forth in
subpart L of part 747 of this chapter for
issuing, reviewing and enforcing directives,
the NCUA Board may, by directive, take one
or more of the actions prescribed in
§ 702.109(b) if the credit union’s net worth
ratio has not increased consistent with its
then-present business plan, or the credit
union has failed to undertake any mandatory supervisory action prescribed in paragraph (a) of this section.
(c) Mandatory liquidation or conservatorship.
Notwithstanding any other actions required
or permitted to be taken under this section,
the NCUA Board—
(1) Plan not submitted. May place into liquidation
pursuant
to
12
U.S.C.
1787(a)(3)(A)(ii), or conservatorship pursuant
to 12 U.S.C. 1786(h)(1)(F), an uncapitalized
new credit union which fails to submit a revised business plan within the time provided
under paragraph (a)(2) of this section; or
(2) Plan rejected, approved, implemented. Except as provided in paragraph (c)(3) of this
section, must place into liquidation pursuant
to 12 U.S.C. 1787(a)(3)(A)(ii), or conservatorship pursuant to 12 U.S.C. 1786(h)(1)(F), an
uncapitalized new credit union that remains
uncapitalized one hundred twenty (120) calendar days after the later of:

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(i) The effective date of classification as
uncapitalized; or
(ii) The last day of the calendar month following expiration of the time period provided in the credit union’s initial business
plan (approved at the time its charter was
granted) to remain uncapitalized, regardless
whether a revised business plan was rejected,
approved or implemented.
(3) Exception. The NCUA Board may decline
to place a new credit union into liquidation
or conservatorship as provided in paragraph
(c)(2) of this section if the credit union documents to the NCUA Board why it is viable
and has a reasonable prospect of becoming
adequately capitalized.
(d) Mandatory liquidation of uncapitalized
federal credit union. In lieu of paragraph (c) of
this section, an uncapitalized federal credit
union may be placed into liquidation on
grounds of insolvency pursuant to 12 U.S.C.
1787(a)(1)(A).
§ 702.206 Revised business plans (RBP) for
new credit unions.
(a) Schedule for filing—(1) Generally. Except
as provided in paragraph (a)(2) of this section, a new credit union classified moderately capitalized or lower must file a written revised business plan (RBP) with the appropriate Regional Director and, if statechartered, with the appropriate state official, within 30 calendar days of either:
(i) The last of the calendar month following the end of the calendar quarter that
the credit union’s net worth ratio has not increased consistent with the-present approved
business plan;
(ii) The effective date of classification as
less than adequately capitalized if the credit
union has no then-present approved business
plan; or
(iii) The effective date of classification as
less than adequately capitalized if the credit
union has increased the total amount of
member business loans in violation of
§ 702.204(a)(3).
(2) Exception. The NCUA Board may notify
the credit union in writing that its RBP is to
be filed within a different period or that it is
not necessary to file an RBP.
(3) Failure to timely file plan. When a new
credit union fails to file an RBP as provided
under paragraphs (a)(1) or (a)(2) of this section, the NCUA Board shall promptly notify
the credit union that it has failed to file an
RBP and that it has 15 calendar days from
receipt of that notice within which to do so.
(b) Contents of revised business plan. A new
credit union’s RBP must, at a minimum—
(1) Address changes, since the new credit
union’s current business plan was approved,
in any of the business plan elements required
for charter approval under chapter 1, section
IV.D. of appendix B to part 701 of this chapter, or for state-chartered credit unions
under applicable state law;

(2) Establish a timetable of quarterly targets for net worth during each year in which
the RBP is in effect so that the credit union
becomes adequately capitalized by the time
it no longer qualifies as ‘‘new’’ per § 702.201;
(3) Specify the projected amount of earnings of net worth increases as provided under
§ 702.204(a)(1) or 702.205(a)(1);
(4) Explain how the new credit union will
comply with the mandatory and discretionary supervisory actions imposed on it by
the NCUA Board under this subpart;
(5) Specify the types and levels of activities in which the new credit union will engage;
(6) In the case of a new credit union reclassified to a lower category under § 702.202(d),
specify the steps the credit union will take
to correct the unsafe or unsound condition
or practice; and
(7) Include such other information as the
NCUA Board may require.
(c) Criteria for approval. The NCUA Board
shall not approve a new credit union’s RBP
unless it—
(1) Addresses the items enumerated in
paragraph (b) of this section;
(2) Is based on realistic assumptions, and is
likely to succeed in building the credit
union’s net worth; and
(3) Would not unreasonably increase the
credit union’s exposure to risk (including
credit risk, interest-rate risk, and other
types of risk).
(d) Consideration of regulatory capital. To
minimize possible long-term losses to the
NCUSIF while the credit union takes steps
to become adequately capitalized, the NCUA
Board shall, in evaluating an RBP under this
section, consider the type and amount of any
form of regulatory capital which may become established by NCUA regulation, or authorized by state law and recognized by
NCUA, which the credit union holds, but
which is not included in its net worth.
(e) Review of revised business plan—(1) Notice
of decision. Within 30 calendar days after receiving an RBP under this section, the NCUA
Board shall notify the credit union in writing whether its RBP is approved, and shall
provide reasons for its decision in the event
of disapproval. The NCUA Board may extend
the time within which notice of its decision
shall be provided.
(2) Delayed decision. If no decision is made
within the time prescribed in paragraph
(e)(1) of this section, the RBP is deemed approved.
(3) Consultation with state officials. When
evaluating an RBP submitted by a federally
insured state-chartered new credit union
(whether an original, new or additional
RBP), the NCUA Board shall seek and consider the views of the appropriate state official, and provide prompt notice of its decision to the appropriate state official.

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(f) Plan not approved—(1) Submission of new
revised plan. If an RBP is rejected by the
NCUA Board, the new credit union shall submit a new RBP within 30 calendar days of receiving notice of disapproval of its initial
RBP, unless it is notified in writing by the
NCUA Board that the new RBP is to be filed
within a different period.
(2) Notice of decision on revised plan. Within
30 calendar days after receiving an RBP
under paragraph (f)(1) of this section, the
NCUA Board shall notify the credit union in
writing whether the new RBP is approved.
The Board may extend the time within
which notice of its decision shall be provided.
(3) Submission of multiple unapproved RBPs.
The submission of more than two RBPs that
are not approved is considered an unsafe and
unsound condition and may subject the credit union to administrative enforcement action pursuant to section 206 of the FCUA, 12
U.S.C. 1786 and 1790d.
(g) Amendment of plan. A credit union that
has filed an approved RBP may, after prior
written notice to and approval by the NCUA
Board, amend it to reflect a change in circumstance. Pending approval of an amended
RBP, the new credit union shall implement
its existing RBP as originally approved.
(h) Publication. An RBP need not be published to be enforceable because publication
would be contrary to the public interest.
§ 702.207 Incentives for new credit unions.
(a) Assistance in revising business plans.
Upon timely request by a credit union having total assets of less than $10 million (regardless how long it has been in operation),
the NCUA Board shall provide assistance in
preparing a revised business plan required to
be filed under § 702.206.
(b) Assistance. Management training and
other assistance to new credit unions will be
provided in accordance with policies approved by the NCUA Board.
(c) Small credit union program. A new credit
union is eligible to join and receive comprehensive benefits and assistance under
NCUA’s Small Credit Union Program.

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§ 702.208 Reserves.
Each new credit union shall establish and
maintain such reserves as may be required
by the FCUA, by state law, by regulation, or
in special cases by the NCUA Board or appropriate state official.
§ 702.209 Full and fair disclosure of financial condition.
(a) Full and fair disclosure defined. ‘‘Full
and fair disclosure’’ is the level of disclosure
which a prudent person would provide to a
member of a new credit union, to NCUA, or,
at the discretion of the board of directors, to
creditors to fairly inform them of the finan-

cial condition and the results of operations
of the credit union.
(b) Full and fair disclosure implemented. The
financial statements of a new credit union
shall provide for full and fair disclosure of
all assets, liabilities, and members’ equity,
including such valuation (allowance) accounts as may be necessary to present fairly
the financial condition; and all income and
expenses necessary to present fairly the
statement of income for the reporting period.
(c) Declaration of officials. The Statement of
Financial Condition, when presented to
members, to creditors or to NCUA, shall contain a dual declaration by the treasurer and
the chief executive officer, or in the latter’s
absence, by any other officer designated by
the board of directors of the reporting credit
union to make such declaration, that the report and related financial statements are
true and correct to the best of their knowledge and belief and present fairly the financial condition and the statement of income
for the period covered.
(d) Charges for loan and lease losses. Full
and fair disclosure demands that a new credit union properly address charges for loan
losses as follows:
(1) Charges for loan and lease losses shall
be made timely in accordance with generally
accepted accounting principles (GAAP);
(2) The ALLL must be maintained in accordance with GAAP; and
(3) At a minimum, adjustments to the
ALLL shall be made prior to the distribution
or posting of any dividend to the accounts of
members.
§ 702.210 Payment of dividends.
(a) Restriction on dividends. Dividends shall
be available only from net worth, net of any
special reserves established under § 702.208, if
any.
(b) Payment of dividends and interest refunds. The board of directors may not pay a
dividend or interest refund that will cause
the credit union’s capital classification to
fall below adequately capitalized under subpart A of this part unless the appropriate regional director and, if state-chartered, the
appropriate state official, have given prior
written approval (in an RBP or otherwise).
The request for written approval must include the plan for eliminating any negative
retained earnings balance.

Subpart C—Alternative Prompt
Corrective Action for New
Credit Unions
EFFECTIVE DATE NOTE: At 80 FR 66722, Oct.
29, 2015, subpart C to part 702 was removed,
effective Jan. 1, 2019. At 83 FR 55467, Nov. 6,
2018, the effective date was delayed until

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