1. Immediately before the payment of a dividend, the credit union shall determine its gross earnings. A legal reserve for contingencies shall be set aside from the gross earnings in accordance with the following:
a. A credit union in operation for more than four years and having assets of five hundred thousand dollars or more shall set aside the following amounts in the following order:
(1) Ten percent of the gross income until the legal reserve equals four percent of the total outstanding loans and risk assets.
(2) Five percent of the gross income until the legal reserve equals six percent of the total outstanding loans and risk assets.
b. A credit union in operation for less than four years or having assets of less than five hundred thousand dollars shall set aside the following amounts in the order set forth:
(1) Ten percent of the gross income until the legal reserve equals seven and one-half percent of the total outstanding loans and risk assets.
(2) Five percent of the gross income until the legal reserve equals ten percent of the total outstanding loans and risk assets.
If the legal reserve falls below the percent of the total outstanding loans and risk assets required for a credit union by this subsection, the credit union shall replenish the legal reserve by regular contributions in the amounts needed to reach the required reserve. However, the superintendent may waive the reserve requirement when in the superintendent's opinion the waiver is necessary or desirable. The legal reserve shall belong to the credit union and shall be used to meet losses. The reserve shall not be distributed to members as interest or dividends except on liquidation of the credit union or in accordance with a plan approved by the superintendent.
2. For the purpose of establishing legal reserves, the following shall not be considered risk assets:
a. Cash on hand.
b. Deposits and shares in federal or state banks, savings and loan associations, and credit unions.
c. Assets which are insured by, fully guaranteed as to principal and interest by, or due from the United States government.
d. Loans to other credit unions.
e. Student loans insured under the provisions of Title XX, United States Code, section 1071 to section 1087 or similar state programs.
f. Loans insured by the federal housing administration under Title XII, United States Code, section 1703.
g. Common trust investments which deal in investments authorized in section 533.4.
h. Prepaid expenses.
i. Accrued interest on nonrisk investments.
j. Furniture and equipment.
k. Land and buildings.
3. The superintendent may require a credit union to set aside additional amounts as a special reserve if an examination of its assets should disclose that its legal reserve is inadequate.
[C27, 31, 35, § 9305-a17; C39, § 9305.17; C46, 50, 54, 58, 62, 66, 71, 73, 75, 77, 79, 81, § 533.17]
84 Acts, ch 1197, § 6; 85 Acts, ch 242, §6
Referred to in § 533.24
Iowa General Assembly
Search: Iowa Code 1995
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