---
title: "Net Worth Ratio (Credit Unions): definition, formula, and thresholds"
description: "The net worth ratio is the credit-union analog of a bank's leverage ratio, net worth divided by total assets. It is the headline capital measure on the NCUA 5300 Call Report and the basis for credit-union prompt corrective action."
canonical_url: https://www.bankregreports.com/glossary/net-worth-ratio/
source: BankRegReports
category: "Capital"
units: "%"
schedule: "NCUA 5300"
---

# Net Worth Ratio (Credit Unions)

> The net worth ratio is the credit-union analog of a bank's leverage ratio, net worth divided by total assets. It is the headline capital measure on the NCUA 5300 Call Report and the basis for credit-union prompt corrective action.

## Formula

```
Net Worth Ratio = Net Worth / Total Assets
```

Net worth for a credit union is principally its retained earnings (undivided earnings and regular reserves), since cooperatives have no common stock. The NCUA 5300 reports it against total assets; 7% or above is 'well capitalized' for most credit unions. A complex credit union (over $500 million in assets) must also meet a 10% risk-based capital ratio to be well capitalized, or opt into the complex credit union leverage ratio (CCULR) framework instead (12 CFR 702.104 and 702.103).

## Why it matters

Because credit unions cannot issue stock, the net worth ratio is their core solvency cushion and the trigger for NCUA prompt corrective action. It is the single most important capital number for a credit union, mirroring the role of the leverage ratio at banks.

## How to read it

Read the net worth ratio against the NCUA PCA thresholds. Above 7% is well capitalized; the ratio builds only through retained earnings, so a credit union growing assets faster than earnings will see it drift down, a common source of capital pressure in fast-growing cooperatives.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| ≥ 7% | Well capitalized | Meets the NCUA well-capitalized threshold. |
| 6-7% | Adequately capitalized | Above minimums but below the well-capitalized line. |
| 4-6% | Undercapitalized | Below adequacy; restoration measures required. |
| < 4% | Concern | Significantly or critically undercapitalized. |


## Worked example

A credit union with $90 million of net worth (almost entirely undivided earnings) and $1.2 billion in assets has a 7.5% net worth ratio: above the 7% line. Because it has more than $500 million in assets it is a complex credit union, so it also needs a 10% risk-based capital ratio (or a CCULR election) to be well capitalized. If it grew assets 15% in a year with no added net worth, the ratio would fall to about 6.5% ($90 million / $1.38 billion), below the 7% well-capitalized line, unless earnings added about $7 million of net worth.

## Questions

### How is a credit union's net worth ratio different from a bank's capital ratio?

Credit unions cannot raise equity by issuing stock, so net worth is built almost entirely from retained earnings. The net worth ratio (net worth ÷ total assets) is unweighted, making it most comparable to a bank's leverage ratio rather than a risk-based ratio.

### What net worth ratio must a credit union maintain?

Under NCUA prompt corrective action, 7% or higher is well capitalized (complex credit unions also need a 10% risk-based capital ratio or a CCULR election), 6-7% is adequately capitalized and requires a quarterly earnings-retention transfer to net worth, and below 6% triggers escalating restrictions and a required net worth restoration plan.

## Sources

- NCUA 5300 Call Report
- [12 CFR Part 702 (NCUA Prompt Corrective Action)](https://www.ecfr.gov/current/title-12/part-702)

## Related metrics

- [Tier 1 Leverage Ratio](https://www.bankregreports.com/glossary/leverage-ratio/): The tier 1 leverage ratio is a bank's tier 1 capital divided by its average total consolidated assets. Unlike the risk-based ratios it gives every asset the same weight, so it caps how far a bank can stretch its balance sheet whatever the asset mix.
- [Prompt Corrective Action](https://www.bankregreports.com/glossary/prompt-corrective-action/): Prompt Corrective Action (PCA) is the framework that sorts banks into capital categories (from well capitalized to critically undercapitalized) and imposes escalating mandatory restrictions as capital falls. It defines the 'well capitalized' threshold banks aim to clear.
- [Total Equity Capital](https://www.bankregreports.com/glossary/total-equity/): Total equity capital is the bank's net worth on a book basis: common stock, surplus, retained earnings, and accumulated other comprehensive income (AOCI). It is the first cushion that absorbs losses before depositors or the FDIC are exposed.
- [Retained Earnings](https://www.bankregreports.com/glossary/retained-earnings/): Retained earnings are the cumulative profits a bank has kept rather than paid out as dividends. They are a core component of equity capital and the primary engine of organic capital growth.

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