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Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Rules and Regulations TABLE 2RESTORE TO ACCRUAL
Action
Condition identified
Additional consideration
Restore to Accrual on All Loans except Commercial or Member Business Loan Workouts.

When a loan is less than 90 days past due and the credit union expects repayment of the remaining contractual principal and interest within a reasonable period, or When 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 see ASC 31030 for accrual of interest income under the accretable yield method.
Formal restructure with a current, well documented credit evaluation of the borrowers financial condition and prospects for repayment under the revised terms.

See Glossary definitions for well secured and in the process of collection. Interest payments received while the loan was in nonaccrual status and applied to reduce the recorded investment in the loan must not be reversed and income credited. Likewise, accrued but uncollected interest reversed or charged-off at the point the loan was placed on nonaccrual status cannot be restored to accrual.

Restore to Accrual on Commercial or Member Business Loan Workouts.

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Glossary 14
Capitalization of Interest constitutes the addition of accrued but unpaid interest to the principal balance of a loan.
Cash Basis method of income recognition is set forth in GAAP and means while a loan is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis provided no doubt exists about the collectability of the remaining recorded investment in the loan.15
Charge-off means a direct reduction credit to the carrying amount of a loan carried at amortized cost resulting from uncollectability with a corresponding reduction debit of the ALLL. Recoveries of loans previously charged off must be recorded when received.
Commercial Loan is defined consistent with Section 723.2 of the NCUAs MEMBER
BUSINESS LOANS; COMMERCIAL
LENDING Rule, 12 CFR 723.2.
Generally accepted accounting principles GAAP means official pronouncements of the FASB as memorialized in the FASB
Accounting Standards Codification as the source of authoritative principles and standards recognized to be applied in the 14 Terms defined in the Glossary will be italicized on their first use in the body of this guidance.
15 Acceptable accounting practices include allocating contractual interest payments among interest income, reduction of the recorded investment in the asset, and recovery of prior charge-offs. If this method is used, the amount of income that is recognized would be equal to that which would have been accrued on the loans remaining recorded investment at the contractual rate; and, accounting for the contractual interest in its entirety either as income, reduction of the recorded investment in the asset, or recovery of prior charge-offs, depending on the condition of the asset, consistent with its accounting policies for other financial reporting purposes.

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The evaluation must include consideration of the borrowers sustained historical repayment performance for a minimum of six timely consecutive payments comprised of principal and interest. In returning a loan to accrual status, a credit union may take into account sustained historical repayment performance for a reasonable time prior to the restructured terms.
Interest payments received while the commercial or member business loan was in nonaccrual status and applied to reduce the recorded investment in the loan must not be reversed and income credited.
Accrued but uncollected interest reversed or chargedoff at the point the commercial or member business loan was placed on nonaccrual status cannot be restored to accrual.

preparation of financial statements by federally insured credit unions in the United States with assets of $10 million or more.
In the process of collection means collection of the loan is proceeding in due course either:
1 Through legal action, including judgment enforcement procedures, or 2 In appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future, i.e., generally within the next 90 days.
Member Business Loan is defined consistent with 723.8 of the NCUAs MEMBER BUSINESS LOANS;
COMMERCIAL LENDING Rule, 12 CFR
723.8.
New Loan means the terms of the revised loan are at least as favorable to the credit union i.e., terms are market-based, and profit driven as the terms for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the credit union, and the revisions to the original debt are more than minor.
Past Due means a loan is determined to be delinquent in relation to its contractual repayment terms including formal restructures, and must consider the time value of money. Credit unions may use the following method to recognize partial payments on consumer credit, i.e., credit extended to individuals for household, family, and other personal expenditures, including credit cards, and loans to individuals secured by their personal residence, including home equity and home improvement loans. A payment equivalent to 90 percent or more of the contractual payment may be considered a full payment in computing past due status.

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Recorded Investment in a Loan means the loan balance adjusted for any unamortized premium or discount and unamortized loan fees or costs, less any amount previously charged off, plus recorded accrued interest.
Troubled Debt Restructuring is as defined in GAAP and means a restructuring in which a credit union, for economic or legal reasons related to a member borrowers financial difficulties, grants a concession to the borrower that it would not otherwise consider.16 The restructuring of a loan may include, but is not necessarily limited to:
1 The transfer from the borrower to the credit union of real estate, receivables from third parties, other assets, or an equity interest in the borrower in full or partial satisfaction of the loan, 2 A modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, or 3 A combination of the above.
A loan extended or renewed at a stated interest rate equal to the current market interest rate for new debt with similar risk is not to be reported as a restructured troubled loan.
Well secured means the loan is collateralized by: 1 A perfected security interest in, or pledges of, real or personal property, including securities with an estimable value, less cost to sell, sufficient to recover the recorded investment in the loan, as well as a reasonable return on that amount, or 2 by the guarantee of a financially responsible party.
16 FASB ASC 31040, Troubled Debt Restructuring by Creditors.

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