12 C.F.R. Subpart D—Reserves
Title 12 - Banks and Banking
(a) Special reserve. Each federally-insured 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. (b) Regular reserve. Each federally-insured credit union shall establish and maintain a regular reserve account for the purpose of absorbing losses that exceed undivided earnings and other appropriations of undivided earnings, subject to paragraph (c) of this section. Earnings required to be transferred annually to a credit union's regular reserve under subparts B or C of this part shall be held in this account. (c) Charges to regular reserve after depleting undivided earnings. The board of directors of a federally-insured credit union may authorize losses to be charged to the regular reserve after first depleting the balance of the undivided earnings account and other reserves, provided that the authorization states the amount and provides an explanation of the need for the charge, and either— (1) The charge will not cause the credit union's net worth classification to fall below “adequately capitalized” under subparts B or C of this part; or (2) If the charge will cause the net worth classification to fall below “adequately capitalized,” the appropriate Regional Director and, if State-chartered, the appropriate State official, have given written approval (in an NWRP or otherwise) for the charge. (d) Transfers to regular reserve. The transfer of earnings to a federally-insured credit union's regular reserve account when required under subparts B or C of this part must occur after charges for loan or other losses are addressed as provided in paragraph (c) of this section and §702.402(d), but before payment of any dividends to members. [65 FR 8584, Feb. 18, 2000, as amended at 67 FR 71093, Nov. 29, 2002] (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 federally-insured 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 federally-insured 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 the 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 losses. Full and fair disclosure demands that a credit union properly address charges for loan losses as follows: (1) Charges for loan losses shall be made in accordance with generally accepted accounting principles (GAAP); (2) The allowance for loan and lease losses (ALL) established for loans must fairly present the probable losses for all categories of loans and the proper valuation of loans. The valuation allowance must encompass specifically identified loans, as well as estimated losses inherent in the loan portfolio, such as loans and pools of loans for which losses have been incurred but are not identifiable on a specific loan-by-loan basis; (3) Adjustments to the valuation ALL will be recorded in the expense account “Provision for Loan and Lease Losses”; (4) The maintenance of an ALL shall not affect the requirement to transfer earnings to a credit union's regular reserve when required under subparts B or C of this part; and (5) At a minimum, adjustments to the ALL shall be made prior to the distribution or posting of any dividend to the accounts of members. (a) Restriction on dividends. Dividends shall be available only from undivided earnings, if any. (b) Payment of dividends if undivided earnings depleted. The board of directors of a “well capitalized” federally-insured credit union that has depleted the balance of its undivided earnings account may authorize a transfer of funds from the credit union's regular reserve account to undivided earnings to pay dividends, provided that either— (1) The payment of dividends will not cause the credit union's net worth classification to fall below “adequately capitalized” under subpart B or C of this part; or (2) If the payment of dividends will cause the net worth classification to fall below “adequately capitalized,” the appropriate Regional Director and, if State-chartered, the appropriate State official, have given prior written approval (in an NWRP or otherwise) to pay a dividend. [65 FR 8584, Feb. 18, 2000, as amended at 67 FR 71093, Nov. 29, 2002]
Title 12: Banks and Banking
PART 702—PROMPT CORRECTIVE ACTION
Subpart D—Reserves
§ 702.401 Reserves.
§ 702.402 Full and fair disclosure of financial condition.
§ 702.403 Payment of dividends.
