1301:9-2-08 Reserves.

(A) Each credit union shall establish and maintain reserves and allowances as required by section 1733.31 of the Revised Code, this rule, and administrative guidelines issued by the superintendent of credit unions.

(B) Pursuant to section 1733.31 of the Revised Code, the superintendent has established the following as additional nonrisk assets:

(1) Prepaid share insurance; other prepaid insurance;

(2) Other prepaid and deferred expenses;

(3) Accrued income on nonrisk assets;

(4) Deposits in corporated credit unions with maturities of two years or less.

(C) Pursuant to division (C) of section 1733.31 of the Revised Code, the superintendent has permitted the following to be included in the calculation of liquidity as additional assets: insured certificates of deposit with a remaining maturity of one year or less.

(D) Reserves for corporate credit unions.

(1) At the end of each dividend cycle and prior to paying a dividend (or, at the option of the corporate credit union, on a monthly basis if dividends are paid more frequently than monthly), sums shall be set aside in a corporate reserve in accordance with the following schedule:

(a) When the credit union’s corporate reserve and undivided earnings are less than two per cent of the assets at the end of the transfer period, the credit union shall set aside an amount equal to .0015 times the number of days in the transfer period divided by three hundred sixty-five.

(b) When the corporate reserve and undivided earnings are equal to or greater than two per cent of the assets but the corporate reserve is less than four per cent of the assets, the credit union shall set aside an amount equal to .0010 times the credit union’s average daily assets for the transfer period times the number of days in the transfer period divided by three hundred sixty-five.

(2) Charges may be made to the corporate reserve for loan losses and for investment losses accrued by factors other than trading losses or market fluctuations. No other charges shall be made except as may be authorized in writing by the superintendent of credit unions. Charges shall be made in accordance with full and fair disclosure requirements as described in the credit union accounting manual, state of Ohio.

(E) Refinance or extension agreements.

For purposes of this paragraph, the following principles shall control:

(1) In the determination of the amount of delinquency of a loan and the proper amount to be added to the allowance for loan losses account, the terms “refinance” and “extension” shall be treated as if they are one and the same.

(a) Credit unions are authorized to grant to members in certain cases an extension of the time in which a loan must be paid off; this is accomplished by an agreement between the credit union and the member borrower.

(b) In making such renegotiated arrangements, the credit union must comply with all provisions of the credit union’s loan policy.

(i) In either case, the loan so negotiated shall be deemed to be of current status only if three consecutive payments are made thereon, pursuant to the new loan terms.

(ii) Should the borrower make three consecutive payments and then default for any reason, the resultant delinquency and allowance for loan losses shall be determined based upon the original terms of the loan and not upon the renegotiated loans.

(2) The new note or extension agreement shall be attached to a copy of the original note in either example given above.

(3) Only one refinance or extension agreement shall be permitted for the purpose of determining delinquency and allowance for loan losses.

(F) Dividends

The board of directors may approve payment of dividends on shares from current earnings only. No dividend may be declared or paid unless the credit union has satisfied the reserve requirements of section 1733.31 of the Revised Code. However, the superintendent may permit the payment of dividends subject to a plan of corrective action.

(G) Liquidity fund

Liquidity represents the capacity of a credit union to most efficiently accommodate decreases in shares and other liabilities, as well as funding increases in loan demand. Liquidity could be adequate or inadequate for different credit unions or for the same credit union at different times. Particular factors and conditions needed in order to determine the proper funding to satisfy liquidity needs are thoroughly discussed in the credit union accounting manual.

Pursuant to division (C) of section 1733.31 of the Revised Code, all credit unions must maintain, as a minimum, a liquidity fund equal to five per cent of its shares. Nothing herein shall prevent the superintendent from requiring a particular credit union or all credit unions to establish a liquidity fund greater than or less than five per cent of total shares unless the superintendent establishes a greater or less amount for particular credit unions or all credit unions. Nothing herein shall preclude a credit union from requesting that the superintendent establish a less restrictive liquidity fund less than five per cent of total shares.

(H) Repossessions.

After the sale of repossessed security, the allowance for loan losses is to be funded in an amount equal to the deficiency balance until the loan is charged-off. A permanent record shall be maintained of all security that is repossessed.

Effective: 07/01/2006

R.C. 119.032 review dates: 03/17/2006 and 11/15/2010

Promulgated Under: 119.03

Statutory Authority: 1733.41

Rule Amplifies: 1733.31

Prior Effective Dates: 2/11/88