Exhibit 10.1
Sample Reserve Requirements Policy
Policy:
Reserve Requirements
Applicable Laws/Regulations:
Federal Credit Union Act (FCUA),
Section 216 National Credit Union
Administration (NCUA) Rules and
Regulations, 12 CFR 702.12, 12 CFR 703,
Federal Reserve Regulation D,
12 CFR 204
Areas of Responsibility:
Finance/Treasury
Last Board Review:
January 20XX
Last Revision:
March 20XX
GENERAL
The FCUA and NCUA’s implementing rules and regulations spell out in detail the requirements for
setting aside reserve funds to cover losses from loans and other losses. The reserves will be carried on the
balance sheet of the credit union as “regular reserves,” a capital account.
In addition, the Federal Reserve Board’s (Fed’s) Regulation D requires monetary reserves to be
maintained on deposit with the Federal Reserve to meet liquidity demands. These reserves are classified
as an asset of the credit union.
PURPOSE AND OBJECTIVES
Hometown Federal Credit Union (Hometown FCU) will retain regular reserves and undivided earnings in
sufficient amounts to ensure that the credit union remains financially sound, achieves and maintains a
capital-to-asset ratio of at least 10 percent, and meets regulatory requirements.
The credit union will maintain regular reserves to offset loan and other losses equaling a minimum of 6
percent of outstanding loans and risk assets.
To meet its liquidity needs, the credit union will hold in reserve an amount equal to the annual indexed
amount as set by the Federal Reserve and published as an amendment to 12 CFR 204.
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8/11 Policies and Procedures for Credit Unions
Exhibit 10.1
Sample Reserve Requirements Policy (cont.)
RESPONSIBILITIES
At the end of each accounting period, the credit union’s chief financial officer (CFO) assumes
responsibility for calculating and reporting reserves. When reserves fall below the requirements, the CFO
will, with the approval of the board of directors, allocate additional funds from undivided earnings to
maintain the statutory reserve requirements.
When the total of the regular reserve and the ALL exceeds the maximum applicable percentage
established by regulation, the CFO will request authorization from the board to transfer the excess to
undivided earnings. Such a transfer can only be made with the board’s consent. Before authorizing such a
transfer, the board will consider present and anticipated reserve needs and ensure that full and fair
disclosure requirements are met.
REVIEW REQUIREMENTS
The board of directors of Hometown FCU will review the reserve accounts at least annually to determine
their adequacy and to ensure that they are in compliance with regulatory guidelines and requirements.
REPORTING REQUIREMENTS
The credit union’s financial statements will provide full and fair disclosure of the reserve accounts. The
statement of financial condition will contain a dual declaration by the treasurer and the president of the
credit union that the report and related financial statements are true and correct and that they fairly present
the financial position and results of operations for the period covered by the statement.
PROCEDURES FOR MAINTAINING THE REGULAR RESERVE ACCOUNT
Compute the Total Regular Reserve
The total regular reserves are the totals of the ALL, the allowance for investment losses, and the regular
reserve less the following deductions:

The debit balance in the provision for loan losses

The portion of the debit balance associated with the provision for investment losses
If there is a credit balance in the provision for loan losses and/or provision for investment losses, add the
credit to the regular reserve and the ALL in determining the total regular reserves.
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Reserve Requirements Policy and Procedures 8/11
Exhibit 10.1
Sample Reserve Requirements Policy (cont.)
Compute the Percentage of Gross Income for Transfer to the Regular Reserve
After the risk assets and total regular reserves have been computed, calculate the total regular reserve to
risk asset percentage by dividing risk assets into the total regular reserve and multiplying the result by 100
to convert the ratio to a percentage. Using this percentage and the following chart, determine the
percentage of gross income to be transferred to the regular reserve:
Percentage of Total Regular Reserve to Risk
Assets
Percentage of Gross Income to Be
Transferred
Less than 4 percent
10 percent
4 percent or more but less than 6 percent
5 percent
6 percent or more
No transfer required
When Regular Reserve Falls Below Requirement
When the regular reserve account falls below the 6 percent of outstanding loans and risk assets, the
account will be increased (credited) at the end of each accounting period in the following order:
1. When there is a credit balance in the provision for loan losses:

Debit undivided earnings.

Credit regular reserves.
2. When there is a credit balance in the regular reserve account, debit each of the following accounts
in order to bring the regular reserve balance (if negative) to zero, or to where it needs to be:

Undivided earnings

Appropriated undivided earnings

Reserve for contingencies and other reserves (exclusive of the special reserve for losses)
When the regular reserve reaches the required amount, the amounts debited from other capital
accounts can be returned from any areas with excesses.
3. Take undivided earnings to a negative balance if necessary to bring regular reserves to the
appropriate balance.
4. Credit the special reserve for losses and debit the regular reserve with the authorization of the
NCUA board as stipulated in Part 702, Subpart A of the NCUA Rules and Regulations.
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8/11 Policies and Procedures for Credit Unions
Exhibit 10.1
Sample Reserve Requirements Policy (cont.)
When Regular Reserve Exceeds Requirement
If at the end of the accounting period the regular reserve account exceeds the statutory requirement, the
CFO, with the approval of the board of directors, will debit the regular reserve and credit undivided
earnings sufficiently to bring the regular reserve back to the 6 percent requirement.
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