If you cancel your reservation at least 31 days prior to scheduled arrival, the points return to normal status within the current use year. Any borrowed or banked points used for the ressie are not "unborrowed or unbanked," they remain a part of the current use year.
If you cancel 30 days to 1 day prior to scheduled arrival, all points go into a holding account and can only be used for reservations booked 60 days or less prior to arrival. Holding account points may not be banked, and will expire at the end of the current use year.
If you cancel on your scheduled arrival day, all points are considered "used" and are lost.