Due to recent declines in the equity markets, some credit unions may experience an increased flow of funds coming into their organization at a time of weak loan demand and low investment returns. This “flight-to-safety” for some credit unions could result in the need to submit a “Net Worth Restoration Plan”.

The Net Worth Restoration Plan commonly referred to as NWRP serves as a blueprint for the board and management to restore and maintain for four consecutive quarters the credit union’s net worth ratio to 6% or greater and to establish a financial framework for the 1/10th percent (0.1%) quarterly earnings waivers transfers.

Understanding the implications of the credit union having an inadequate level of net worth is important.  Your primary goal should be safeguarding the member’s deposits through sound policies and practices, and by creating and sustaining a sufficient amount of net worth and reserves to absorb possible losses without endangering the stability of the credit union.

Your plan needs to meet the criteria set forth in NCUA Rules and Regulations 702.206-NWRP including:

  1. A quarterly timetable of steps necessary to increase the credit union’s net worth ratio to “adequately capitalized” by the end of the NWRP’s term and to remain “adequately capitalized” for an additional four quarters;
  2. The projected earnings transfer to the regular reserve each quarter during the term of the NWRP;
  3. Plans for complying with the mandatory supervisory actions or MSAs and discretionary supervisory actions or DSAs imposed on the credit union by the regional director;
  4. Types and levels of activities in which the credit union will engage; and
  5. Pro forma financial statements.

The NWRP states specific goals and objectives based on reasonable assumptions, financial trends, and projections.

This blog entry you have just read was written by Edward Lis, Vice President of Finance and a former senior executive. If you enjoyed this article I encourage you to learn more about Edward by visiting www.edwardlis.com.

Edward B. Lis is a well respected  credit union executive  known by his peers as being decisive; a visionary; communicative; and energetic.  He has led during difficult economic times driving change, achieving objectives, and effectively managing projects moving from a vision and strategy phase to implementation and final execution.

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