1. (a) In accordance with the requirements of Act, §9.01, state-chartered credit unions shall set aside a portion of their current gross income, prior to the declaration or payment of dividends, at the close of each dividend period, as follows.

   1. (1) A credit union in operation for more than four years and having assets of $500,000 or more shall set aside 10 per centum of gross income until the regular reserve shall equal 4 per centum of the total of outstanding loans and risk assets, then 5 per centum of gross income until the regular reserve shall equal 6 per centum of the total of outstanding loans and risk assets. The totals of the Regular Reserve, the Allowance for Loan Losses Account and the Allowance for Investment Losses shall be combined for determining the applicable percentage of gross income to be transferred to the Regular Reserve.
   2. (2) A credit union in operation less than four years or having assets of less than $500,000 shall set aside 10 per centum of gross income until the regular reserve shall equal 7-1/2 per centum of the total of outstanding loans and risk assets, then 5 per centum of gross income until the regular reserve shall equal 10 per centum of the total of outstanding loans and risk assets.
   3. (3) Whenever the regular reserve falls below the stated per centum of the total of outstanding loans and risk assets, it shall be replenished by regular contributions in such amounts as may be needed to maintain the stated reserve goals.
   4. (4) Special reserves. In addition to the regular reserve, special reserves to protect the interest of members may be established by board resolution or by order of the commissioner, from current income or from undivided earnings. In lieu of establishing a special reserve, the commissioner may direct that all or a portion of the undivided earnings and any other reserve fund be restricted. In either case, such directives must be given in writing and state with reasonable specificity the reasons for such directives.

2. (b) Reserves to be used only as follows:

   1. (1) to charge off uncollectible loans;
   2. (2) to make other distributions as allowed by law and approved by the commissioner.

3. (c) For the purpose of establishing the reserves, all assets except the following shall be considered risk assets:

   1. (1) cash on hand;
   2. (2) deposits and/or shares in federally or state-insured banks, savings and loan associations, and credit unions that have a remaining maturity of five years or less;
   3. (3) assets that have a remaining maturity of five years or less and are insured by, fully guaranteed as to principal and interest by, or due from the United States Government, its agencies, the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. Collateralized mortgage obligations that are comprised of government guaranteed mortgage loans shall be included in this asset category;
   4. (4) loans to other credit unions that have a remaining maturity of five years or less;
   5. (5) student loans insured under the provisions of Title IV, Part B of the Higher Education Act of 1965 (20 United States Code §1071, et seq.) or similar state insurance programs that have a remaining maturity of five years or less;
   6. (6) loans that have a remaining maturity of five years or less and are fully insured or guaranteed by the Federal or a state government or any agency of either;

   7. (7) shares or deposits in a corporate credit union that have a remaining maturity of five years or less, other than Membership Capital Share Deposit accounts. A corporate credit union is defined as a credit union that:

      1. (A) is operated primarily for the purpose of serving other credit unions;
      2. (B) is designated by the National Credit Union Administration as a corporate credit union; and
      3. (C) limits natural person members to the minimum required by state or federal law to charter and operate the credit union;
   8. (8) common trust investments, including mutual funds, which deal exclusively in investments authorized by the Federal Credit Union Act that are either carried at the lower cost or market, or are marked to market value monthly;
   9. (9) prepaid expenses;
   10. (10) accrued interest on non-risk investments;
   11. (11) loans fully secured by a pledge of shares or deposits in the credit union, equal to and maintained to at least the amount of the loan outstanding;
   12. (12) loans which are purchased from liquidating credit unions and guaranteed by the National Credit Union Administration;
   13. (13) National Credit Union Share Insurance Fund Guaranty Accounts;
   14. (14) investments in shares of the National Credit Union Administration Central Liquidity Facility;
   15. (15) assets included in paragraphs (2), (3), (4), (5), (6), and (7) of this subsection with maturities greater than five years are exempt from risk assets if the asset is being carried on the credit union's records at the lower of cost or market, or are being marked to market value monthly;

   16. (16) assets included in paragraphs (2), (3), (4), (5), (6), and (7) of this subsection with remaining maturities greater than five years are exempt from risk assets provided they meet the following criteria, irrespective of whether or not the asset is being carried on the credit union's records at the lower of cost or market, or are being marked to market value monthly:

       1. (A) the interest rate is reset at least annually;
       2. (B) the interest rate of the instrument is less than the maximum allowable interest rate for the instrument on the date of the required reserve transfer;
       3. (C) the interest rate of the instrument varies directly (not inversely) with the index upon which it is based and is not reset as a multiple of the change in the related index;

   17. (17) fixed assets:

       1. (A) any office, branch office, suboffice, service center, parking lot, or any other facility or real estate where the credit union transacts business;
       2. (B) furniture, fixtures and equipment including all office furnishings, office machines, computer hardware and software, automated terminals, heating and cooling equipment; and
   18. (18) deposit in the National Credit Union's capitalization account balance of 1.0% of insured shares.

Source Note:The provisions of this §91.901 adopted to be effective March 8, 1984, 9 TexReg 1156; amended to be effective July 8, 1994, 19 TexReg 4940; amended to be effective March 17, 1995, 20 TexReg 1525.