| (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 §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.
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| Source Note: The provisions of this §91.901 adopted to be effective March 8, 1984, 9 TexReg 1156; amended to be effective July 8, 1994, 19 TexReg 4940; amended to be effective March 17, 1995, 20 TexReg 1525; amended to be effective August 14, 2000, 25 TexReg 7636; amended to be effective July 11, 2004, 29 TexReg 6633; amended to be effective November 11, 2007, 32 TexReg 7923; amended to be effective November 8, 2009, 34 TexReg 7628; amended to be effective November 8, 2015, 40 TexReg 7666; amended to be effective November 24, 2019, 44 TexReg 7041; amended to be effective October 9, 2022, 47 TexReg 6431 |
