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The Oregon Administrative Rules contain OARs filed through June 15, 2014
 
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DEPARTMENT OF CONSUMER AND BUSINESS SERVICES,
DIVISION OF FINANCE AND CORPORATE SECURITIES

 

DIVISION 720

CREDIT UNIONS (Share Drafts)

Corporate Central Credit Union

441-720-0100

Scope and Application

The scope and application of OAR 441-720-0110 through 441-720-0150 are intended to permit the Oregon chartered corporate central credit union to exercise certain powers conferred on federally chartered corporate credit unions under 12 CFR Part 704.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

441-720-0110

Definitions

The following definitions are adopted for the purposes of this Division:

(1) "Average Daily Assets" means the daily average of net assets calculated on the basis of assets at the close of each day in the period.

(2) "CLF" means Central Liquidity Facility.

(3) "CMO" means Collateralized Mortgage Obligation.

(4) "Capital" means the total of all corporate reserves (regular or statutory reserves, as applicable), all undivided earnings, net income, and membership capital share deposit (or equivalent) accounts.

(5) "Equity Reserves," pursuant to ORS 723.730(1), means regular or statutory reserves, and all undivided earnings, which shall be used to finance expansion, pay dividends, absorb losses or be expended for any other bona fide corporate purpose.

(6) "MCSD" means membership capital share deposit.

(7) "Membership Capital Share Deposit" account means a share, deposit, or other account that:

(a) Is established, at a minimum, as a 12-month notice account;

(b) Is limited to members;

(c) Is not subject to share insurance coverage by the NCUSIF; and

(d) In the event of liquidation of the corporate central credit union, is payable only after satisfaction of all liabilities of the liquidation estate, including uninsured obligations to shareholders and the NCUSIF. In any event, an MCSD account shall not be repayable until notice that the accountholder credit union intends to withdraw MCSD account funds from the corporate central credit union, except in the case of a credit union that is placed into liquidation, is purchased and assumed, or is merged. MCSD accounts cannot be used to pledge borrowings. If the corporate central credit union issues MCSD accounts, it shall disclose, at least annually to its members, the terms and conditions under which such accounts are issued.

(8) "NCUSIF" means the National Credit Union Share Insurance Fund.

(9) "Net Assets" means total assets less CLF stock subscriptions, CLF loans guaranteed by the NCUSIF, U.S. Central CLF certificates, and member reverse repurchase transactions.

(10) "Primary Capital" means all corporate reserves and undivided earnings.

(11) "REMIC" means Real Estate Mortgage Investment Conduit.

(12) "Risk-Based Capital" means the total of primary capital and secondary capital (up to 100 percent of primary capital).

(13) "Risk-Weighted Assets" means the sum of total balance sheet assets and off-balance sheet credit equivalent amounts multiplied by their appropriate risk weights.

(14) "SEC" means the Securities and Exchange Commission.

(15) "Secondary Capital" means MCSD or equivalent accounts (except for MCSD accounts owned by other corporate central credit unions unless the MCSD account is held by a corporate central credit union whose members are primarily other corporate central credit unions and other organizations recognized under Section 501(c)(6) of the Internal Revenue Code), allowance for loan and lease losses up to a maximum of 1.25 percent of risk-weighted assets, and term subordinated debt weighted by remaining maturity as indicated:

(a) Five years or more until maturity: 100 percent;

(b) Four years to less than five years: 80 percent;

(c) Three years to less than four years: 60 percent;

(d) Two years to less than three years: 40 percent;

(e) One year to less than two years: 20 percent; and

(f) Less than one year remaining maturity: 0 percent. MCSD accounts upon which the accountholder has given the corporate central credit union notice of intent to withdraw may no longer be considered secondary capital.

(16) "United States Government-Sponsored Corporations and Enterprises" means agencies originally established or chartered to serve public purposes specified by Congress, but whose obligations are not explicitly guaranteed by the full faith and credit of the United States Government.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

441-720-0120

Risk Weights and Risk Categories

The following risk weights and risk categories are established for purposes of OAR Chapter 441, Division 720:

(1) Category One. Zero Percent Risk Weight.

(a) Coin and currency on hand or physically in transit;

(b) Balances due from and claims on Federal Reserve Banks;

(c) Claims on and portions of claims that are unconditionally guaranteed by the United States Government or its agencies;

(d) Claims Collateralized by cash or eligible deposits;

(e) CLF subscriptions, including U.S. Central CLF Certificates, and CLF Pass-Through Loans from the CLF through U.S. Central to the corporate central credit union;

(f) Asset Accounts related to Member Reverse Repurchase Agreements without indemnity obligation;

(g) Claims on or unconditionally guaranteed by sovereign central governments of "AAA" rated countries; and

(h) Accrued interest receivable on any of the above.

(2) Category Two. Twenty Percent Risk Weight:

(a) Items, other than coin and currency, in process of collection;

(b) Claims on or portions of claims guaranteed by United States Government-sponsored corporations and enterprises;

(c) Claims conditionally guaranteed by the United States Government or its agencies or by United States Government-sponsored corporations and enterprises;

(d) Claims or portions of claims (including Repurchase Agreements) collateralized by securities issued by the United States Government or its agencies or by United States Government-sponsored corporations and enterprises;

(e) General obligation claims on state and local governments located in the United States;

(f) Claims on United States depository institutions (including Federal Funds sold) or claims on depository institutions (including Federal Funds sold) chartered in countries rated AAA, other than the United States, provided the depository institution meets at least one of the following conditions:

(A) The institution has a short-term debt rating not lower than A-2 (or equivalent) by any firm recognized by the SEC as qualified to assign risk ratings to various instruments required to be registered with the SEC;

(B) The institution has a long-term debt rating not lower than A- (or equivalent) by any firm recognized by the SEC as qualified to assign risk ratings to various instruments required to be registered with the SEC; or

(C) The institution has an issuer rating not lower than B/C (or equivalent) by any firm recognized by the SEC as qualified to assign risk ratings to various instruments required to be registered with the SEC.

(g) Claims on a corporate central credit union;

(h) Asset accounts related to Member Reverse Repurchase Agreements with indemnity obligations;

(i) Delivery Versus Payment (DVP) Repurchase Transactions in which the corporate central credit union receives the securities collateralizing the transactions, and the corporate central credit union is authorized to invest in these securities;

(j) Tri-party repurchase transactions with broker-dealers having at least $100 million in capital which are collateralized by securities that the corporate central credit union is authorized to invest in;

(k) Asset-backed securities rated no lower than AAA with remaining weighted average lives of three years or less;

(l) All federally issued CMOs/REMICs and privately issued CMOs/REMICs as defined in Section 3(a)(41) of the Securities Exchange Act of 1934, excluding CMOs/REMICs collateralized by whole loan mortgages, that comply with the following limitations:

(A) An investment in a fixed-rate CMO/REMIC must have an expected average life not to exceed five years given an immediate and sustained increase of 300 basis points in mortgage loan commitment rates. This average life standard shall apply at the time of purchase and on any subsequent review date assuming market interest rates and prepayment speeds at the time that the test is applied. The corporate central credit union shall use the average of the prepayment estimates of several major securities broker-dealers as the prepayment assumption for the underlying mortgages. In computing the expected average life of a CMO/ REMIC investment, it must be assumed that the anticipated rate of prepayment remains constant over the remaining life of the mortgage collateral. This limitation does not apply if principal payments of the investment are specifically matched to principal payments of the corresponding liability;

(B) If the CMO/REMIC has a variable interest rate with a cap, then the lesser of the highest interest rate cap or the final interest rate cap during the average life at the time of purchase must be at least 200 basis points above the rate of the corresponding liability that it is matched against. This limitation does not apply if principal payments of the investment are specifically matched to principal payments of the corresponding liability;

(C) Any CMO/REMIC security downgraded below AA-(or equivalent) by the same SEC-recognized rating agency used when the investment was purchased, if material in amount, shall be divested;

(D) Privately issued CMO/REMIC securities shall not exceed five percent of the corporate central credit union's net assets for any single issuer.

(m) Secured loans to credit unions; and

(n) Accrued interest receivable on any of the above.

(3) Category Three. 50 Percent Risk Weight;

(a) Asset-backed securities rated no lower than AAA with remaining weighted average lives greater than three years;

(b) All CMOs/REMICs collateralized by whole loan mortgages that otherwise meet the requirements of paragraphs (2)(l)(A) through (D) of this rule;

(c) Accrued interest receivable on any of the above.

(4) Category Four. 100 percent Risk Weight which is hereby assigned to all other assets including, but not limited to:

(a) Loans to and investments in Credit Union Service Organizations;

(b) Unsecured loans to credit unions;

(c) All fixed assets, including land, buildings, furniture, fixtures, equipment, automobiles, and leasehold improvements;

(d) All Hold-in-Custody Repurchase Agreements;

(e) MCSD deposits in a corporate central credit union;

(f) Stripped Mortgage-Backed Securities;

(g) Residual Interests of CMOs/REMICs;

(h) Zero Coupon Securities with a maturity date more than five years from the purchase settlement date of the security;

(i) Claims, including commercial paper and corporate bonds, on United States chartered corporations and bank holding companies;

(j) Mutual Funds that do not qualify for a lower risk weighting;

(k) Prepaid Assets;

(l) Accounts Receivable and other receivables;

(m) NCUSIF Deposits;

(n) Mortgage servicing rights;

(o) Intangible assets; and

(p) Accrued interest receivable on any of the above.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

Corporate Reserves

441-720-0130

Minimum Capital Ratio

(1) The corporate central credit union shall maintain a minimum ratio of risk-based capital to risk-weighted assets as follows:

(a) By no later than December 31, 1992, primary capital shall be at least four percent of risk-weighted assets, or the corporate central credit union will develop and implement a plan acceptable to the Director for achieving an adequate level of primary capital consistent with the provisions of OAR Chapter 441, Division 720. This plan shall be submitted to the Director;

(b) By January 1, 1994, total capital shall equal at least eight percent of risk-weighted assets, or the corporate central credit union will develop and implement a plan acceptable to the Director for achieving an adequate level of capital consistent with the provisions of OAR Chapter 441, Division 720. This plan shall be submitted to the Director.

(2) The Director may modify the corporate central credit union's reserve requirements under special circumstances.

(3) The corporate central credit union's qualifying capital base shall consist of primary and secondary capital of which at least 50 percent shall be composed of primary capital.

(4) For purposes of calculating the amount of secondary capital, term subordinated debt shall not exceed 50 percent of secondary capital.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

441-720-0140

Procedures, Risk-Weight Ratios and Computations

(1) Procedures. Balances sheet assets and credit equivalent amounts for off-balance sheet items are assigned to a risk-weight category. The total dollar amount in each category shall be multiplied by the risk-weight assigned to that category. The sum of the categories comprises risk-weighted assets.

(2) Frequency. The corporate central credit union shall calculate the ratio of capital to risk-weighted assets each month. A record of such calculation shall maintained.

(3) Risk Weights for Balance Sheet Assets. Each balance sheet asset shall be assigned a risk weight of 0 percent, 20 percent, 50 percent, and 100 percent as set forth in OAR 441-720-0120.

(4) Other Considerations:

(a) An investment in the shares of a mutual fund is assigned to the risk category appropriate to the highest risk-weighted asset that the fund is permitted to hold. In addition, if the fund engages in the use of forwards, options, futures, or similar activities other than when used to reduce interest rate risk, then investments in the fund will be assigned to the 100 percent risk category; and

(b) Accruals will be assigned the risk-weighting of the underlying asset that they represent.

(5) Credit Conversion Factors for Off-Balance Sheet Items. Off-balance sheet items will be risk-weighted each month using the following credit conversion factors:

(a) Zero Percent Credit Conversion Factor. Unused portions of credit lines with original maturities of six months or less, or which are unconditionally cancelable;

(b) 50 Percent Credit Conversion factor:

(A) Unused portions of credit lines with original maturities exceeding six months; and

(B) Commitments to participate in a loan or loan package;

(c) 100 Percent Credit Conversion Factor:

(A) Irrevocable standby letters of credit guaranteeing financial performance, including VISA letters of credit issued by corporate central credit unions on behalf of their members, or standby letters of credit backing Industrial Revenue Bonds;

(B) Forward Commitments to purchase an asset or perform under a lease contract; and

(C) Securities held in safekeeping loaned with indemnification.

(d) Those items and credit conversion factors addressed on a case-by-case basis by the Director.

(6) Risk-based Capital Ratios:

(a) The primary capital ratio is computed by dividing primary capital by total risk-weighted assets;

(b) The total capital ratio is computed by dividing risk-based capital by total risk-weighted assets; and

(c) Month-end amounts will be used to calculate corporate central credit union capital ratios.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

441-720-0150

Required Reserve Transfers

(1) The amount that the corporate central credit union is required to transfer or set aside in corporate reserves is based on both the corporate central credit union's primary and total capital ratios.

(2) Ranges of capital ratios have been established as set forth in OAR 441-720-0130. These ratios shall be associated with one of the six corresponding categories set forth in section (5) of this rule in determining the required reserve transfer.

(3) To qualify for a lower reserve transfer category, the capital ratios must fall in both the primary and total capital ratio ranges of the applicable category.

(4) The corporate central credit union shall set aside an amount equal to the appropriate required reserve transfer percentage times the corporate central credit union's average daily assets for the transfer period times the number of days in the transfer period divided by 365. Until January 1, 1994, transfers shall be based on the level of primary capital only.

(5) For purposes of determining the required reserve transfer, the following categories are established:

(a) Category 1. Category 1 requires a corporate reserve transfer percentage of at least 25 basis points of average daily assets when either the primary capital ratio is less than four percent or the total capital ratio is less than eight percent. A corporate reserve transfer percentage greater than 25 basis points of average daily assets is required if needed to bring either or both of the capital ratios up to the minimum acceptable level, or the corporate central credit union would have to obtain approval from the Director to operate below the minimum capital levels;

(b) Category 2. Category 2 requires a corporate reserve transfer percentage of 20 basis points of average daily assets when either the primary capital ratio is greater than four percent and less than six percent or the total capital ratio is greater than eight percent and less than nine percent;

(c) Category 3. Category 3 requires a corporate reserve transfer percentage of 15 basis points of average daily assets when either the primary capital ratio is greater than six percent and less than eight percent or the total capital ratio is greater than nine percent and less than 12 percent;

(d) Category 4. Category 4 requires a corporate reserve transfer percentage of ten basis points of average daily assets when either the primary capital ratio is greater than eight percent and less than 10 percent or the total capital ratio is greater than 12 percent and less than 15 percent;

(e) Category 5. Category 5 requires a corporate reserve transfer percentage of five basis points of average daily assets when either the primary capital ratio is greater than ten percent and less than 12 percent or the total capital ratio percentage is greater than 15 percent and less than 18 percent;

(f) Category 6. Category 6 requires a corporate reserve transfer percentage of zero basis points when the primary capital ratio is greater than 12 percent and the total capital ratio percentage is greater than 18 percent.

(6) Corporate credit unions must provide reserves necessary for full and fair disclosure.

Stat. Auth.: ORS 723.102, ORS 723.156 & ORS 723.730
Stats. Implemented: ORS 723.730
Hist.: FCS 5-1992, f. & cert. ef. 12-21-92

441-720-0160

Fidelity Bond Coverage for Corporate Credit Union

A corporate central credit union referred to in ORS 723.730, shall:

(1) On and following January 1, 1998, meet the requirements of 12 CFR 704.18.7, Fidelity Bond Coverage, except as provided in section (2) of this rule.

(2) For the purpose of meeting Oregon requirements for fidelity bond coverages, all references to the "National Credit Union Administration" or "NCUA" in section (1) and (2) of this rule shall mean the Director of the Department of Consumer and Business Services acting through the Administrator of the Division of Finance and Corporate Securities.

Stat. Auth.: ORS 723.730(2)
Stats. Implemented: ORS 723.730(2)
Hist.: FCS 4-1997, f. 12-12-97, cert. ef. 1-1-98

Federal Tie-In Rules

441-720-0200

Purpose, Authority for Federal Tie-In Rules

ORS 723.156 authorizes the Director to grant to state chartered credit unions powers federally chartered credit unions have notwithstanding state law, if it would serve the public convenience and advantage, and equalize and maintain the quality of competition between state chartered credit unions and federally chartered credit unions. The tie-in rules hereafter adopted are done pursuant to 723.156.

Stat. Auth.: ORS 723.102
Stats. Implemented: ORS 723.156
Hist.: FID 5-1986, f. & ef. 8-27-86; Renumbered from 805-072-0250; Renumbered from 441-710-0160, FCS 2-2005, f. & cert. ef. 8-25-05

441-720-0210

Adoption of Federal Regulations Concerning Purchase, Sale and Pledge of Eligible Obligations

(1) A credit union may purchase, in whole or in part, within the limitations of the board of directors' written purchase policies:

(a) Eligible obligations of its members, from any source, if either:

(A) They are loans it is empowered to grant; or

(B) They are refinanced with the consent of the borrowers, within 60 days after they are purchased, so that they are loans it is empowered to grant.

(b) Eligible obligations of a liquidating credit union's individual members, from the liquidating credit union;

(c) Student loans, from any source, if the purchaser is granting student loans on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary market; and

(d) Real estate-secured loans, from any source, if the purchaser is granting real estate secured loans on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary mortgage market. A pool must include a substantial portion of the credit union's members' loans and must be sold promptly.

(2) A credit union may make purchases in accordance with section (1) of this rule provided:

(a) The board of directors or investment committee approves the purchase;

(b) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the credit union's office; and

(c) For purchases from a liquidating credit union, any advance written approval required from the director is obtained before consummation of such purchase.

(3) The aggregate of the unpaid balance of eligible obligations purchased under paragraph (a)(A) and subsection (b) of section (1) of this rule may not exceed 5% of the paid-in and unimpaired capital and surplus of the credit union. In calculating this 5% limitation, the credit union can exclude an indirect lending or indirect leasing arrangement that is classified as a loan and not the purchase of an eligible obligation because the credit union makes the final underwriting decision and the sales or lease contract is assigned to the credit union promptly after it is signed by the member and the dealer or leasing company.

(4) A credit union may sell, in whole or in part, to any source, eligible obligations of its members, and obligations and loans purchased in accordance with subsections (b), (c) and (d) of section (1) of this rule, within the limitations of the board of directors' written sale policies, provided:

(a) The board of directors or investment committee approves the sale; and

(b) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the credit union's office.

(5) A credit union may pledge, in whole or in part, to any source, eligible obligations of its members, and obligations and loans purchased in accordance with subsections (b), (c) and (d) of section (1) of this rule, within the limitations of the board of directors' written pledge policies, provided:

(a) The board of directors or investment committee approves the pledge;

(b) Copies of the original loan documents are retained; and

(c) A written agreement covering the pledging arrangement and identifying the eligible obligations is retained in the credit union's office.

(6) A credit union may agree to service any eligible obligation it purchases or sells in whole or in part.

(7) The total indebtedness owing to any credit union by any person, inclusive of retained and reacquired interests, shall not exceed the loan limit described in ORS 723.512.

Stat. Auth.: ORS 723.102

Stats. Implemented: ORS 723.156, 723.512, 723.526 & 723.602

Hist.: FCS 2-2005, f. & cert. ef. 8-25-05

Investments

441-720-0215

Procedures Required Prior to Exercise of Certain Investment Powers

(1) A credit union shall not exercise the investment powers granted credit unions by OAR 441-720-0220 and 441-720-0225, unless it first adopts investment procedures and policies covering the type of investment programs it intends to engage in.

(2) The investment policies and procedures shall:

(a) Describe the particular type of investment it intends to engage in, summarize the procedures and policies developed for each program and describe investment objectives for the program;

(b) Name the person who will do the investing and any professionals who will be used as adviser; and

(c) Show the ability and training of the person that qualifies the person to do the investing.

Stat. Auth.: ORS 723.102
Stats. Implemented: ORS 723.156 & 723.602
Hist.: FID 5-1986, f. & ef. 8-27-86; Renumbered from 805-072-0260; Renumbered from 441-710-0180, FCS 2-2005, f. & cert. ef. 8-25-05

441-720-0220

Investments in Investment and Borrowing Repurchase Agreements, Bankers Acceptances, Participation in Federal Funds Authorized; Adoption of Federal Statutes, Regulations on Such Investments

A state credit union is authorized to invest in investment and borrowing repurchase agreements, bankers acceptances and federal funds permissible for federal credit unions as described in the following provisions.

(1) A credit union may sell Federal funds to a financial institution defined in ORS 706.008, as long as the interest or other consideration received from the financial institution is at the market rate for Federal funds transactions.

(2) A credit union may enter into an investment repurchase transaction so long as:

(a) Any securities the credit union receives are permissible investments for federal credit unions;

(b) The credit union, or its agent, either:

(A) Takes physical possession or control of the repurchase securities; or

(B) Is recorded as owner of them through the Federal Reserve Book Entry Securities Transfer System.

(c) The credit union, or its agent, receives a daily assessment of their market value, including accrued interest;

(d) The credit union maintains adequate margins that reflect a risk assessment of the securities and the term of the transaction; and

(e) The credit union has entered into signed contracts with all approved counterparties.

(3) A credit union may enter into a borrowing repurchase transaction so long as:

(a) The transaction meets the requirements of section (2) of this rule;

(b) Any cash the credit union receives is subject to a borrowing limit of 50% of paid-in and unimpaired capital and surplus;

(c) Any investments the credit union purchases with that cash are permissible for credit unions; and

(d) The investments purchased with that cash mature no later than the maturity of the borrowing repurchase transaction.

(4) A credit union may invest in banker's acceptances issued by a financial institution defined in ORS 706.008.

Stat. Auth.: ORS 723.102
Stats. Implemented: ORS 723.156 & 723.602
Hist.: FID 5-1986, f. & ef. 8-27-86; Renumbered from 805-072-0265; Renumbered from 441-710-0190, FCS 2-2005, f. & cert. ef. 8-25-05

441-720-0225

Adoption of Federal Statutes, Rulings, Policy Regarding Mortgage Assumptions

(1) A state credit union is authorized to exercise the powers to allow nonmembers to assume real estate mortgages of members conferred on a federally chartered credit union as follows:

(a) The assumption is in conjunction with the nonmember's purchase of the member's principal residence;

(b) The nonmember assumes only the remaining unpaid balance of the loan;

(c) The terms of the loan remain unchanged; and

(d) There is no extension of the original maturity date specified in the loan agreement with the member.

(2) An assumption is impermissible if the original loan was made with the intent of having a nonmember assume the loan.

Stat. Auth.: ORS 723.102
Stats. Implemented: ORS 723.156 & 723.602
Hist.: FID 5-1986, f. & ef. 8-27-86; Renumbered from 805-072-0270; Renumbered from 441-710-0200, FCS 2-2005, f. & cert. ef. 8-25-05

441-720-0230

Adoption of Federal Statutes and Regulations Concerning Loan Participations

(1) Federal Tie-In: A state credit union is authorized to participate in making loans with financial institutions as defined in ORS 706.008 within the limitations of the board of directors' written participation loan policies, provided:

(a) No credit union may obtain an interest in a participation loan if the sum of that interest and any indebtedness owed to the credit union by the borrower exceeds 10 per cent of the credit union's unimpaired capital and surplus;

(b) A written master participation agreement is properly executed, acted upon by the credit union's board of directors, or if the board has so delegated in its policy, by the investment committee or senior management official(s) and retained in the credit union's office. The master agreement must include provisions for identifying, either through a document that is incorporated by reference into the master agreement, or directly in the master agreement, the participation loan or loans prior to their sale; and

(c) A credit union may sell to or purchase from any participant the servicing of any loan in which it owns a participation interest.

(2) An originating lender which is a state credit union must:

(a) Originate loans only to its members;

(b) Retain an interest of at least 10 per cent of the face amount of each loan;

(c) Retain the original or copies of the loan documents; and

(d) Require the credit committee or loan officer to use the same underwriting standards for participation loans used for loans that are not being sold in a participation agreement unless there is a participation agreement in place prior to the disbursement of the loan. Where a participation agreement is in place prior to disbursement, either the credit union's loan policies or the participation agreement shall address any variance from non-participation loan underwriting standards.

(3) A participant state credit union that is not an originating lender must:

(a) Participate only in loans it is empowered to grant, having a participation policy in place that sets forth the loan underwriting standards prior to entering into a participation agreement;

(b) Participate in participation loans only if made to its own members or members of another participating credit union;

(c) Retain the original or a copy of the written participation loan agreement and a schedule of the loans covered by the agreement; and

(d) Obtain the approval of the board of directors or investment committee of the disbursement of proceeds to the originating lender.

(4) Additional State Requirements:

(a) In addition to the requirements of the federal provisions stated in this rule, a state credit union must file with the Director:

(A) A representation that the board of directors has adopted written policies and procedures concerning loan participations and recourse;

(B) An undertaking that it will not keep or acquire any loan participation interest which exceeds the loan to one borrower requirements in ORS 723.512 and, except for this provision, will follow the guidelines for loan participations stated in this rule; and

(C) An undertaking that each loan agreement will contain a provision that provides complete access to the agency to all records of each participant concerning the loan transaction.

(b) Any provision of subsection (a) of this section except paragraph (a)(B) of this section may be waived or modified by order of the Director if no undue risk is created by the waiver or modification and the credit union has policies, procedures, and strategies covering the changed items or where it is necessary for regulatory purposes.

Stat. Auth.: ORS 723.102
Stats. Implemented: ORS 723.156
Hist.: FCS 10-1987, f. 11-13-87, ef. 12-1-87; Renumbered from 805-072-0280; Renumbered from 441-710-0220, FCS 2-2005, f. & cert. ef. 8-25-05

Member Business Loans

441-720-0300

Definitions

(1) "Associated member" means any member with a shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower.

(2) "Construction or development loan" means a financing arrangement for acquiring property or rights to property, including land or structures, with the intent to convert it to income-producing property such as residential housing for rental or sale; commercial use; industrial use; or similar uses.

(3) "Director" means the Director of the Department of Consumer and Business Services.

(4) "Immediate family member" means a spouse or other family member living in the same household.

(5) "Loan-to-value ratio or LTV ratio" means the aggregate amount of all sums borrowed including outstanding balances plus any unfunded commitment or line of credit from all sources on an item of collateral divided by the market value of the collateral used to secure the loan.

(6) "Net Worth" means retained earnings as defined under Generally Accepted Accounting Principles. Retained earnings normally includes undivided earnings, regular reserves and any other appropriations designated by management or regulatory authorities. It does not include the Allowance for Loan and Lease Losses account.

(7) "NCUA" means the National Credit Union Administration.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0305

Member Business Loan

(1) A member business loan includes any loan, line of credit, or letter of credit (including any unfunded commitments), of which the proceeds will be used for the following purposes:

(a) Commercial;

(b) Corporate;

(c) Other business investment property or venture; or

(d) Agricultural.

(2) Exceptions. The following are not considered a member business loan:

(a) A loan secured by a lien on a 1 to 4 family dwelling that is the member's primary residence;

(b) A loan fully secured by shares in the credit union making the extension of credit or fully secured by deposits in other financial institutions;

(c) Loan(s) to a member or an associated member which, when added together, are equal to less than $50,000.

(d) A loan where a federal or state agency (or any political subdivision of a state) fully insures or guarantees repayment, or provides an advance commitment to purchase the loan in full; or

(e) A loan granted by a corporate credit union to another credit union.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0310

Implementation of Member Business Loan Program

(1) It is the responsibility of the board of directors to:

(a) Adopt specific member business loan policies and review them at least annually.

(b) Send a copy of the policies to the Director prior to beginning the program.

(c) Make certain that management of the credit union:

(A) Utilizes the services of an individual with at least two years direct experience with the type of lending the credit union will be engaging in; except that,

(B) If the credit union is engaged in construction and development lending, the qualified individual must have five years direct experience.

(d) The qualified individual does not have to be on staff, but the expertise must be readily available.

(e) The experience requirement can be met through various approaches. For example, the credit union may use:

(A) The services of a credit union service organization,

(B) An employee of another credit union,

(C) An independent contractor, or

(D) Other third parties.

(2) The actual decision to grant a loan must be made by the originating credit union.

(3) A Credit Union Service Organization (CUSO) may not grant or fund a member business loan, but may provide member business loan services to a credit union.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0315

Member Business Loan Policies and Procedures

Prior to engaging in member business lending, a credit union must adopt member business loan policies and procedures. At a minimum, the policies and procedures must address the following:

(1) Types of business loans to be made;

(2) Identification of trade area to be served;

(3) The maximum amount of credit union assets, relative to net worth, that will be invested in member business loans;

(4) The maximum amount of credit union assets, relative to net worth, that will be invested in a given category or type of member business loan;

(5) The maximum amount of credit union assets, relative to net worth, that will be loaned to any one member or group of associated members, subject to 441-720-0330;

(6) The qualifications and experience (minimum of 2 years experience) of personnel involved in making and administering business loans;

(7) Initial and ongoing analysis and documentation of the ability of the borrower to repay the loan;

(8) Receipt and periodic updating of financial statements and other documents, including tax returns;

(9) Documentation sufficient to support each request for an extension of credit, or an increase in an existing loan or line of credit, except where the board of directors finds that the required documentation is not generally available for a particular type of loan and states the reasons for those findings in the credit union's written policies. The documentation must include the following:

(a) Balance sheet, income statement and tax returns;

(b) Cash flow analysis, history of borrower and business, and analysis of leveraging;

(c) Comparison with industry average or similar analysis;

(10) Collateral requirements must include all of the following:

(a) Loan-to-value ratios;

(b) Determination of value;

(c) Determination of ownership;

(d) Steps to be taken to secure various types of collateral;

(e) Frequency of reevaluation of the value and marketability of the collateral; and

(f) Insurance, if applicable.

(11) Interest rates and maturities of business loans;

(12) General loan procedures which include:

(a) Loan monitoring; including loan review and grading system;

(b) Servicing and follow-up;

(c) Collections;

(d) Loan officer limits; and

(e) Borrower Documentation; such as loan agreement, note, security agreement, borrowing authority, and commitment letter.

(13) Identification of individuals prohibited from receiving member business loans.

(14) Procedures for adequate safeguards to minimize potential environmental liability.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0320

Collateral and Security Requirements

(1) All member business loans must be secured by collateral in accordance with this section, except for the following:

(a) A credit card line of credit granted to nonnatural person members that is limited to routine purposes normally made available under such lines of credit; or

(b) A loan made by a credit union where the loan and the credit union meet each of the following criteria:

(A) The amount of the loan does not exceed $50,000;

(B) The aggregate of unsecured member business loan under this paragraph (1)(b) does not exceed 10% of the credit union's net worth;

(C) The loan is guaranteed or insured by a financially responsible guarantor or insurer and the credit union has determined that the guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement;

(D) The credit union has a net worth of at least 7%; and

(E) The credit union submits reports to the Division with its NCUA 5300s, providing numbers and such other detail as may be required by the Director to demonstrate compliance with this paragraph (1)(b).

(2) In the case of a member business loan secured by collateral on which the credit union will have a first lien, the credit union may grant the loan with a LTV ratio in excess of 80% only where the value in excess of 80% is:

(a) Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union; or

(b) Insured or guaranteed, or subject to advance commitment to purchase, by an agency of the Federal government, state, or any of its political subdivisions. In no event may the LTV ratio exceed 95%;

(3) In the case of a member business loan secured by collateral on which the credit union will have a second priority lien, the credit union may not grant the loan with a LTV ratio in excess of 80%; and

(4) In the case of member business loans secured by the same collateral,

(a) On which the credit union will have a first lien as well as other lesser priority liens, the credit union may grant the loans with a LTV ratio in excess of 80% only if section (2) of this rule is satisfied. In no event may the LTV ratio exceed 95%; and

(b) On which the credit union will have lesser priority liens but no first lien, the credit union may not grant loans with a LTV ratio in excess of 80%.

(5) Principals, other than a not for profit organization as defined by the Internal Revenue Service Code (26 U.S.C. 501) must assume personal liability and guarantee the loan.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0325

Recordkeeping Requirements

The credit union must separately identify member business loans in its records and in the aggregate on its financial reports.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0330

Aggregate Loans to a Member or Associated Members

The aggregate amount of outstanding member business loans (including any unfunded commitments) to a member or group of associated members may not exceed the greater of:

(1) 15% of the credit union's net worth; or

(2) $100,000.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0335

Calculation of the Aggregate 15% Limit

For purposes of complying with the provisions of OAR 441-720-0330, a credit union must:

(1) Calculate the numerator by adding together the total outstanding balance of member business loans to any one member, or group of associated members. From this amount, subtract any portion:

(a) Secured by shares in the credit union;

(b) Secured by deposits in another financial institution;

(c) Fully or partially insured or guaranteed by any agency of the Federal government, state, or its political subdivisions;

(d) Subject to an advance commitment to purchase by any agency of the Federal government, state, or its political subdivisions; and

(2) Divide the numerator by the net worth of the credit union.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0340

Aggregate Member Business Loan Limit for a Credit Union

The aggregate limit on the amount of a credit union's member business loan outstandings, including any unfunded commitments, is the lesser of:

(1) 1.75 times the credit union's net worth; or

(2) 12.25 percent of the credit union's total assets.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0345

Exceptions to the Aggregate Member Business Loan Limit for a Credit Union

A credit union can qualify for an exception from the aggregate member business loan limit if the credit union meets any one of the following:

(1) Designated as a low-income credit union in accordance with the requirements of 12 U.S.C. 1757a;

(2) Participates in the Community Development Financial Institutions program;

(3) Originally chartered for the purpose of making member business loans and can provide documentary evidence such as the charter, bylaws, business plan, field of membership, board minutes or loan portfolio.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0350

Exception Procedure

To obtain an exception:

(1) The credit union must submit documentation to the Director substantiating it meets the criteria of one of the exceptions in 441-720-0345.

(2) The Director shall notify the credit union of the Director's decision.

(3) The Director will forward the agency's decision to NCUA.

(4) If granted, the exception does not expire unless it is revoked by the Director.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0355

Construction and Development Lending

A credit union that makes a member business loan for construction and development of commercial or residential property is subject to the following requirements:

(1) The aggregate of all such loans must not exceed 15% of net worth of the credit union. To determine the aggregate, a credit union may exclude any portion of a loan:

(a) Secured by shares in the credit union.

(b) Secured by deposits in another financial institution.

(c) Fully or partially insured or guaranteed by any agency of the federal government, state, or its political subdivisions; or

(d) Subject to an advance commitment to purchase by any agency of the federal government, or by a state government, or its political subdivisions;

(2) The borrower must have a minimum of:

(a) 25% equity interest in the project being financed, except if the loan is for land development the equity interest must be 35%; and

(b) The funds may be released only after onsite, written inspections by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documentation.

(3) The credit union may not make such loans unless it utilizes the services of an individual who has at least five years direct experience in development and construction lending.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0360

Classification of Member Business Loans to Reserve for Potential Losses

Non-delinquent member business loans may be classified based upon factors such as the adequacy of analysis, supporting documentation, or grades given based upon the financial strength of the borrower. The credit union must classify potential loss loans as either substandard, doubtful, or loss. The criteria for determining the classification of loans are:

(1) SUBSTANDARD. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. The loan classified has a well-defined weakness or weaknesses that jeopardize the liquidation of debt. The loan is characterized by the distinct possibility that the credit union will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

(2) DOUBTFUL. A loan classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include: proposed merger, acquisition, or liquidation actions; capital injection; perfecting liens on collateral; and refinancing plans.

(3) LOSS. A loan classified loss is considered uncollectible and of such little value that its continuance as a loan is not warranted. This classification does not necessarily mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0365

Minimum Reserves for Potential Loan Losses

The following schedule sets the minimum amount the credit union must reserve for classified loans:

Classification -- Amount Required

Substandard - 10% of outstanding balance unless other factors (for example, history of such loans at the credit union) indicate a greater or lesser amount is appropriate.

Doubtful - 50% of the outstanding balance.

Loss - 100% of the outstanding balance.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0370

Prohibited Member Business Loans

(1) A credit union may not grant a member business loan to the following:

(a) The credit union's chief executive officer;

(b) Any assistant chief executive officers;

(c) The chief financial officer; or

(d) Any associated member or immediate family member of anyone listed in subsections (a) through (c) of this section.

(2) Equity agreement/Joint Ventures. The credit union may not grant a member business loan if any additional income received by the credit union or senior management employees is tied to the profit or sale of the business or commercial endeavor for which the loan is made.

(3) Loans to directors. A credit union may not grant a member business loan to a director unless the board of directors approves in advance granting the loan and the director is recused from the decision making process.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0375

Available Waivers for Specific Loan Types

A credit union may seek a waiver for a type of member business loan in the following areas:

(1) Loan to value ratios under 441-720-0320.

(2) Unsecured loan limit under 441-720-0320 not to exceed $100,000.

(3) Maximum loan amount to one borrower or associated group of borrowers under 441-720-0330.

(4) Construction and development loan limits under 441-720-0355.

(5) Requirement for personal liability and guarantee under 441-720-0320.

(6) If a credit union is requesting a waiver of appraisal requirements of 12 C.F.R. 722.3 from the NCUA, the credit union shall:

(a) File the request with the Director; and

(b) If the Director approves the request, the Director will promptly forward the request to the Regional Director of Region VI of the NCUA (or if it is the Corporate Credit Union to the Director of the Office of Corporate Credit Unions of NCUA) for decision under NCUA rules at 12 C.F.R. 723.12; or

(c) If the Director does not approve the request, the Director will return the request to the credit union with reasons for the disapproval and provide the NCUA with notice of the Director's decision.

(d) The waiver is not effective until the Regional Director of Region VI of the NCUA (or the Director of the Office of Corporate Credit Unions) approves it in accordance with NCUA rules at 12 C.F.R. 723.12.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

441-720-0380

Waiver Procedure

(1) A credit union must submit a request to the Director to obtain a waiver under OAR 441-720-0375. The waiver request must contain the following:

(a) A copy of the member business loan policy;

(b) The higher limit sought, if applicable;

(c) An explanation of the need to raise the limit, if applicable;

(d) Documentation supporting the credit union's ability to manage this activity; and

(e) Analysis of the credit union's prior experience making member business loans, including:

(A) The history of loan losses and loan delinquency;

(B) Loan volume and cyclical or seasonal patterns;

(C) Diversification;

(D) Concentrations of credit to one borrower or group of associated borrowers in excess of 15% of net worth;

(E) Underwriting standards and practices;

(F) Types of loans grouped by purpose and collateral;

(G) The qualifications of personnel responsible for underwriting and administering member business loans; and

(H) Any other information deemed relevant by the credit union or requested by the Director.

(2) The Director will:

(a) Review the information provided by the credit union in its request;

(b) Evaluate the level of risk to the credit union;

(c) Consider the credit union's historical CAMEL composite and component ratings;

(d) Notify the credit union when the waiver request is deemed complete;

(e) Notify the credit union of the action taken within 45 calendar days of receiving a complete request, and, if the Director approves the waiver request as not detrimental to the safety and soundness of the credit union nor contrary to the public interest, issue an order subject to NCUA approval granting the waiver; and

(f) Provide a copy of the waiver request under 12 C.F. R. 723.11 to NCUA, Region VI (or if it is the Corporate Credit Union to the Director of the Office of Corporate Credit Unions) for their review and approval.

(3) The waiver is not effective until the Director approves it by order.

(4) If granted, the waiver does not expire unless it is revoked by the Director.

Stat. Auth.: ORS 723.102 & 723.156
Stats. Implemented: ORS 723.156 & 723.502
Hist.: FCS 2-2002, f. & cert. ef. 8-27-02

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