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Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations Restoration to Accrual Status for All Loans Except Commercial and Member Business Loan Workouts A nonaccrual loan may be restored to accrual status when:
Its past due status is less than 90 days and the credit union expects repayment of the remaining contractual principal and interest within a reasonable period;
It otherwise becomes both well secured and in the process of collection; or The asset is a purchased impaired loan and it meets the criteria under GAAP for accrual of interest income under the accretable yield method. See ASC 31030.
In restoring all loans to accrual status, if the credit union applied any interest payments received while the loan was in nonaccrual status to reduce the recorded investment in the loan, the credit union must not reverse the application of these payments to the loans recorded investment and must not credit interest income. Likewise, a credit union cannot restore the accrued but uncollected interest reversed or charged-off at the point the loan was placed on nonaccrual status to accrual; it can only be recognized as income if collected in cash or cash equivalents from the member.

Restoration to Accrual Status on Commercial and Member Business Loan Workouts 13
A formally restructured commercial or member business loan workout need not be maintained in nonaccrual status, provided the restructuring and any charge-off taken on the loan are supported by a current, welldocumented credit evaluation of the borrowers financial condition and prospects for repayment under the revised terms.
Otherwise, the restructured loan must remain in nonaccrual status.
The credit unions evaluation must include consideration of the borrowers sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status. A
sustained period of repayment performance is a minimum of six consecutive payments, and includes timely payments under the restructured loans terms of principal and interest in cash or cash equivalents. In returning the commercial or member business workout loan to accrual status, a credit union may consider sustained historical repayment performance for a reasonable time prior to the restructuring.
Such a restructuring must improve the collectability of the loan in accordance with a reasonable repayment schedule and does not relieve the credit union from the
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responsibility to promptly charge off all identified losses.
The following graph provides an example of a schedule of repayment performance to demonstrate a determination of six consecutive payments. If the original loan terms required a monthly payment of $1,500, and the credit union lowered the borrowers payment to $1,000 through formal commercial or member business loan restructure, then based on the first row of the graph, the sustained historical repayment performance for a reasonable time prior to the restructuring would encompass five of the pre-workout consecutive payments that were at least $1,000 months 1 through 5. In total, the six consecutive repayment burden would be met by the first month post workout month 6.
In the second row, only one of the preworkout payments would count toward the six consecutive repayment requirement month 5, because it is the first month in which the borrower made a payment of at least $1,000 after failing to pay at least that amount. Therefore, the loan would remain on nonaccrual for at least five post-workout consecutive payments months 6 through 10
provided the borrower continues to make payments consistent with the restructured terms.

Pre-workout
Post-workout
Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

$1,500
1,500

$1,200
1,200

$1,200
900

$1,000
875

$1,000
1,000

$1,000
1,000

$1,000
1,000

$1,000
1,000

$1,000
1,000

$1,000
1,000

After a formal restructure of a commercial or member business loan, if the restructured loan has been returned to accrual status, the loan otherwise remains subject to the nonaccrual standards of this policy. If any interest payments received while the commercial or member business loan was in nonaccrual status were applied to reduce the
recorded investment in the loan the application of these payments to the loans recorded investment must not be reversed and interest income must not be credited.
Likewise, accrued but uncollected interest reversed or charged-off at the point the commercial or member business workout loan was placed on nonaccrual status cannot
be restored to accrual; it can only be recognized as income if collected in cash or cash equivalents from the member.
The following tables summarize nonaccrual and restoration to accrual requirements previously discussed:

TABLE 1NONACCRUAL CRITERIA
Action
Condition identified
Additional consideration
Nonaccrual on All Loans

90 days or more past due unless loan is both well-secured and in the process of collection; or The loan is maintained on the Cash basis because there is a deterioration in the financial condition of the borrower, or for which payment in full of principal or interest is not expected.
Continue on nonaccrual at workout point and until restore to accrual criteria are met.

See Glossary definitions for well secured and in the process of collection.

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Nonaccrual on Commercial or Member Business Loan Workouts.

during previous calendar years by debiting the allowance for loan and lease losses account on the balance sheet. The use of this method presumes that credit union managements additions to the allowance through charges to the provision for
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See Table 2Restore to Accrual.

loan and lease losses on the income statement have been based on an evaluation of the collectability of the loan and lease portfolios and the accrued interest receivable account.

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13 This policy is derived from the Interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts the NCUA and the other financial regulators issued on October 30, 2009.

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