Allowance for Loan Loss Policy

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					Hudson River Community Credit Union ______________________________________


Policy Title: Allowance for Loan Loss Policy
Responsible Department: Finance

Approved by the board: November 18, 2009           Effective Date: November 18, 2009




General Policy Statement

The credit union will comply with FAS 5-Allowance for Small Balance Homogeneous
Pools of Loans, when evaluating loans for potential losses.

This policy does not address compliance with FAS 114 Accounting by Creditors for
Impairment of a Loan due to the fact the credit union does not grant large balance
business and agricultural loans.


Guidelines

(1) LOAN SEGMENT IDENTIFICATION
      (A) Loan Pools-Management will segment the credit union loan portfolio into
          several broad categories of loans. Each category will demonstrate similar risk
          characteristics. The assignment of categories will be reviewed annually to
          insure that they are still appropriate. At this time the loan portfolio is
          segmented as follows:
              New Car Loans
              Used Car Loans
              Home Equity Loans
              Unsecured Loans
              VISA Loans
              First Mortgages
                   nd
              2 Mortgages
              Motorcycles, ATV & Snowmobiles
              Motor homes and RVs
              Business Loans
              Misc Loans
              Other Secured Loans
              Student Loans




(2) SEGMENT DOCUMENTATION-The credit union will utilize the loan trial balance
on a monthly basis for the dollar concentrations by segment and branch.
Hudson River Community Credit Union ______________________________________



(3) ESTIMATING LOAN LOSSES-Management will utilize a net loan loss ratio
calculated by loan segment and branch to determine required funding levels in the
allowance for loan losses. Ratios will be based on a rolling 36 months,
      Net Loan Loss ratio = (Charged Off Dollars for Loan Type – Recoveries)

                                     Average Loan Balance for Loan Type

The loss ratios will be extended by current balances in loan segments. An example of
this calculation is in Appendix I. Utilization of these current portfolio concentrations we
believe will keep the calculation dynamic in nature and will truly reflect losses inherent
in the portfolio. Adjustments needed to the allowance greater than + or - .01% of loans
will be posted in the current month.

Projected loan loss ratios may be modified based on any one of the following factors:
     Changes in local or national economic factors.
     Changes in loan policy or underwriting standards.
     Shifts in industry trends.

Current delinquency will not be evaluated on an individual basis. In theory current
delinquency is already accounted for in the valuation by utilizing current risk scores and
current portfolio concentrations and actually is the realization of the loss ratios applied.
Eliminating current delinquency we believe will skew the statistical theory of our
methodology and account for loan losses twice. Adjustment of loss ratios quarterly and
utilization of current portfolio concentrations we believe will more accurately reflect the
true loss in the portfolio.

Courtesy Pay Program Loss Valuation

Share draft principal losses and recoveries associated with the Courtesy Pay Program will
be debited/credited from and to the Courtesy Pay Allowance for Loan Loss.
Annually, management will determine a targeted loss ratio based upon the previous
year’s net charge- off’s and average negative balance. Monthly this ratio will be used to
determine the allowance balance by multiplying the negative month-end share draft
balances by the ratio.
This amount will be posted to the allowance general ledger 719-002.


(5) BOARD REPORTING-The CEO will provide a summary report to the Board of
Directors on the Allowance Calculation as part of their monthly packet and will add this
report to their consent agenda.

(6) SUPERVISORY COMMITTEE OVERSIGHT-The Supervisory Committee will
incorporate into their annual audit procedures the following:
     Review of compliance with the ALL policy components; lending policies and
       charge-off policy.
Hudson River Community Credit Union ______________________________________


    Validation of the Allowance methodology.
    Ensure proper reporting to the Board of their findings with regard to the above
     referenced items.
Hudson River Community Credit Union ______________________________________



                                  Appendix I
Sample Calculation:


Balance =                      Trial Balance as of Month End


Net Loan Loss ratio =   (Charged Off Dollars for Loan Type – Recoveries)

                               Average Loan Balance for Loan Type


Allowance Balance =     Balance × Net Loss Ratio




Loan Type               Balance          Net Loan Loss         Allowance Balance
                                             Ratio
New Auto          $12,000,000                0.75%                      $ 90,000
Unsecured Loans    $6,500,000                2.34%                      $152,100
ALLOWANCE                                                               $242,100
ALLOWANCE BALANCE                                                       $235,000
ALLOWANCE ADJUSTMENT                                                     $ 7,100

				
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