[Federal Register Volume 59, Number 55 (Tuesday, March 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6622]


[[Page Unknown]]

[Federal Register: March 22, 1994]


-----------------------------------------------------------------------

FEDERAL HOUSING FINANCE BOARD
[No. 93-88]

 

Members of the Federal Home Loan Banks

AGENCY: Federal Housing Finance Board.

ACTION: Notice of guidelines for delegated approval of Federal Home 
Loan Bank membership applications.

-----------------------------------------------------------------------

SUMMARY: The Federal Housing Finance Board (``Finance Board'') is 
publishing its guidelines that set forth the procedures for assessing 
whether an application for membership in a Federal Home Loan Bank 
(``FHLBank'') can be approved by a FHLBank under delegated authority.

DATES: These guidelines were effective as of November 17, 1993.

FOR FURTHER INFORMATION CONTACT: Amy R. Maxwell, Assistant Director, 
District Banks Directorate, (202) 408-2882, or Sharon B. Like, 
Attorney-Advisor, Office of Legal and External Affairs, (202) 408-2930, 
Federal Housing Finance Board, 1777 F Street, NW., Washington, DC 
20006.

SUPPLEMENTARY INFORMATION: In order to address the significant changes 
that the Financial Institutions Reform, Recovery and Enforcement Act of 
1989, Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989) (``FIRREA'') made 
to the membership provisions in the Federal Home Loan Bank Act (``Bank 
Act''), the Finance Board on August 17, 1993, published a final rule 
concerning membership in the FHLBank System (``final membership 
regulation''), 58 FR 43522 (1993), codified at 12 CFR Part 933.
    Under Sec. 933.3(a) of the final membership regulation, the board 
of directors of a FHLBank is delegated the authority to approve 
applications for membership that meet all of the criteria set forth in 
the Bank Act, the final membership regulation and policy guidelines to 
be established by the Finance Board. This notice sets forth the policy 
guidelines established by the Finance Board that must be met for a 
membership application to be approved by a FHLBank pursuant to the 
FHLBank's delegated authority. See 12 CFR 933.3(a). Applications for 
membership that do not meet the criteria for delegated approval 
nevertheless may meet the criteria for membership in the statute and 
regulation and may be approved by the Finance Board. See 12 CFR 
933.3(c).

GUIDELINES FOR DELEGATED APPROVAL OF FEDERAL HOME LOAN BANK MEMBERSHIP 
APPLICATIONS

I. Background

    Section 933.3(a) of the Finance Board's membership regulation 
provides for delegation of the authority to approve membership 
applications to the board of directors of each FHLBank, provided the 
applications meet all of the statutory and regulatory criteria and 
conditions set forth by the Finance Board. See 12 CFR 933.3(a). These 
guidelines describe the criteria that must be met for a membership 
application to be approved by a FHLBank pursuant to delegated 
authority.

II. Documentation

A. Delegation Criteria

    To be approved for membership by the FHLBank, the Applicant must 
meet the following delegation criteria:
    1. The institution must meet all of the statutory requirements for 
membership set forth in the Federal Home Loan Bank Act and implemented 
in the Finance Board's membership regulation, including:
     Duly organized under the laws of any State or of the 
United States, 12 U.S.C. 1424(a)(1)(A); 12 CFR 933.4(a)(1);
     Subject to inspection and regulation under the banking 
laws, or under similar laws, of the State or of the United States, 12 
U.S.C. 1424(a)(1)(B), 12 CFR 933.4(a)(2);
     Makes long-term home mortgage loans, 12 U.S.C. 
1424(a)(1)(C), 12 CFR 933.4(a)(3);
     Has at least 10 percent of its total assets in residential 
mortgage loans, 12 U.S.C. 1424(a)(2)(A), 12 CFR 933.4(b);
     Financial condition is such that advances may be safely 
made, 12 U.S.C. 1424(a)(2)(B), 12 CFR 933.4(a)(4); and
     Character of management and home-financing policy are 
consistent with sound and economical home financing, 12 U.S.C. 
1424(a)(2)(C), 12 CFR 933.4(a)(5).
    2. The institution must meet all of the Finance Board Review 
Standards for membership, including:
     CAMEL or MACRO rating of ``1'' or ``2'' (see infra section 
3);
     The institution received a Community Reinvestment Act 
(``CRA'') Performance Evaluation rating of ``Satisfactory'' or better 
in its most recent evaluation. If the Applicant has not been reviewed 
for CRA purposes since July 1, 1990 when the new rating system was 
established, but received a CRA rating of ``2'' or better under the old 
system, the delegation criteria for this item has been satisfied.
    If, after reasonable efforts have been undertaken to obtain the CRA 
evaluation, only the CRA rating is available, the rating may be used in 
processing the application;
     The institution's capital ratios as of the most recent 
reporting period meet or exceed all capital requirements imposed by its 
appropriate Federal and State banking agency, and a capital plan 
imposed by the institution's Federal or State regulator is not in 
effect;
     The institution reported earnings from operations (net of 
securities gains/losses and/or extraordinary items) in four out of six 
quarters immediately preceding its application for membership, with 
earnings reported from operations in the most recent quarter for which 
such financial information is available;
     Neither the institution, nor any of its directors or 
senior officers, at the time of application, is subject to any 
enforcement actions by the institution's appropriate Federal or State 
banking agency;
     The institution received an unqualified auditor's opinion 
conducted according to Generally Accepted Auditing Standards as of the 
most recent fiscal year-end, or has one of the following acceptable 
alternatives to audited financial statements:

--Holding company audit;
--Director's examination/report;
--Internal audit; or
--Published financial statements;

     Performance trends reflect no significant deterioration in 
financial condition since the date of the last regulatory examination:

--CAMEL ``1'' rated institutions by definition automatically meet this 
Review Standard;
--CAMEL ``2'' rated institutions satisfy this Review Standard if they 
meet all five financial ratios set forth under section 3 of the 
delegation criteria, infra.; and

     Character of management reflects that neither the 
Applicant nor any of its directors or senior management has been the 
subject of criminal, civil or administrative proceedings reflecting 
upon creditworthiness, business judgment, or moral turpitude since the 
most recent examination by the institution's primary regulator; and 
that there are no known potential monetary liabilities, no material 
pending lawsuits, or unsatisfied judgments against the institution, as 
indicated in the certification by the Applicant.
    3. The institution must meet the following delegation criteria:
     The institution received a composite CAMEL or MACRO rating 
of ``1'' in its most recent examination completed by either its 
appropriate Federal or State banking agency within the two-year period 
immediately preceding its application for membership; or
    The institution received a composite CAMEL or MACRO rating of ``2'' 
in its most recent examination completed by its appropriate Federal or 
State banking agency within the two-year period immediately preceding 
its application for membership, and met the following conditions in 
four of the six quarters immediately preceding the institution's 
application for membership, including the most recent quarter:
    (i) The annualized return on average assets (net of securities 
gains/losses and/or extraordinary items) was greater than or equal to 
60 basis points;
    (ii) The ratio of non-performing loans plus other real estate owned 
(``OREO'') to total loans plus other real estate owned was less than 4 
percent;
    (iii) The ratio of non-performing assets to equity plus loan loss 
reserves was less than 30 percent;
    (iv) The ratio of loan loss reserves to non-performing loans was 
greater than or equal to 60 percent; and
    (v) The ratio of domestic risk real estate loans to total domestic 
loans was less than 35 percent.

    Note: Exhibit A provides the calculation methodology, using the 
appropriate Federal Deposit Insurance Corporation (``FDIC'') Report 
of Condition and Income (``Call Report'') line items.
    Exhibit B provides the calculation methodology, using Ferguson 
and Company BankSource data.

B. Delegation Procedures

    After determining an application is eligible for delegated 
approval, the following procedures should be followed:
    1. An application digest and financial condition analysis shall be 
prepared with documentation as outlined in these guidelines. (This 
requirement shall apply regardless of whether the application is 
forwarded to the Finance Board for approval or approved under delegated 
authority).
    All documentation and analyses for delegated applications shall be 
kept on file and subject to review by the Finance Board's Examination 
and Regulatory Oversight Division to ensure completeness and compliance 
with these guidelines. When necessary, a letter to the file noting that 
by the request of the regulator the examination report was returned or 
destroyed is sufficient documentation that an examination report was 
reviewed.
    2. Pursuant to section 933.3(b) of the Finance Board's membership 
regulation, the FHLBank must notify the Finance Board of any approval 
action within 10 calendar days of approval. See 12 CFR 933.3(b). The 
following information must be provided to the Finance Board on a weekly 
basis for all approvals during the reporting period (see Exhibit C):
     Date of approval
     Institution name and location
     Charter type
     Insurer
     Holding Company
     Total assets (date)
     Residential mortgage loans ratio (date)
     Qualified thrift investments ratio (date)
     CAMEL rating (date) and regulator
     CRA rating (date) and regulator
     Risk-based and leverage capital (requirements vs. ratios)
     Adjusted earnings (x/6 quarters)
     Enforcement actions
     Audit opinion (date)
     Performance trends
     Character of management certification
     Adjusted Return on Average Assets (``ROAA'')
     Non-performing loans to total loans ratio
     Non-performing assets to equity ratio
     Loan loss reserve to non-performing loans ratio
     Domestic risk real estate loans to total domestic loans
    The definition and methodology for the last five items above are 
found in Exhibits A and B. The last five items do not need to be 
calculated for CAMEL or MACRO ``1'' rated institutions.
    In addition, the FHLBank must send the completed ``Makes Long-term 
Home Mortgage Loans: Assessment Worksheet'' and the completed docket 
number request form along with the Delegated Approval Worksheet (See 
Exhibit C) for all delegated approvals.
    3. The FHLBank must also submit to the Finance Board a monthly 
report, within five business days after the close of the month, that 
includes minimum stock purchases by new members during the month. These 
reports shall be prepared in connection with and pursuant to current 
guidelines developed by the Finance Board's Financial Reporting and 
Operations Division.

III. Special Conditions

A. Applications Not Eligible for Delegation

    Certain applications must be submitted to the Finance Board for 
review and approval, regardless of compliance with these guidelines. 
This includes applications from the following:
     Insurance companies;
     De novo institutions;
     Credit unions;
     Institutions resulting from a merger or acquisition within 
the six quarters immediately preceding their application for 
membership, where the disappearing entity accounted for 25 percent or 
greater of the combined assets of the applicant at the time of the 
merger, or where the applicant accounts for less than 75 percent of the 
combined assets of the resulting entity; or
    Institutions in the process of acquiring another institution within 
the two quarters following the date of the digest, where the 
disappearing entity accounts for 25 percent or greater of the combined 
assets of the applicant at the time of the merger, or where the 
applicant accounts for less than 75 percent of the combined assets of 
the resulting entity; and
     Institutions that fail to comply with all of the 
conditions for delegated approval, as outlined above.

B. Examination Report Issues

    The FHLBank must obtain and review the institution's most recent 
examination report. This examination must have been conducted within 
the two-year period immediately preceding the application for 
membership. If any of the following apply, the application may not be 
approved under delegated authority:
     Stale examination. The most recent examination was 
conducted more than two years prior to the date of receipt by the 
FHLBank of the institution's application for membership.
     State examination. The most recent examination was 
conducted by the State regulator, the examination rating is known, but 
the State will not permit the FHLBank access to the examination report 
for review; and a federal examination report has been obtained for 
review, but was conducted more than two years prior to the date of the 
application.
     State examination. The most recent examination was 
conducted by the State regulator, the examination rating is known and 
resulted in a rating of CAMEL 3 or worse, but the State will not permit 
the FHLBank access to the examination report for review; and the most 
recent federal examination report has been obtained for review and was 
conducted within the two year time frame, and the federal examination 
resulted in a rating of CAMEL 1 or 2.

    Dated: November 17, 1993.

    By the Federal Housing Finance Board.
Philip L. Conover,
Managing Director.

Exhibit A--Calculation of Performance Ratios--Using Federal Deposit 
Insurance Corporation Report of Condition and Income Line Items

    The following summary provides the calculation methodology for 
the five qualifying performance ratios, assuming an Applicant 
received a composite CAMEL rating of ``2'' in its most recent 
examination and the FHLBank needs to assess whether membership 
approval can be delegated. Ratios must be calculated for each of the 
most recent six quarters and must meet or exceed designated 
thresholds in at least four of these six quarters, including the 
most recent quarter. The summary utilizes the Federal Deposit 
Insurance Corporation (``FDIC'') Report of Condition and Income 
(``Call Report'') as the primary source of financial data:\1\
---------------------------------------------------------------------------

    \1\ ``RIAD#'' and ``RCON#'' refer to the line numbers in the 
Call Report that contain the financial data for each component of 
the particular performance ratio calculation
---------------------------------------------------------------------------

(1) Annualized Return on Average Assets (adjusted):
    Threshold: Greater than or equal to .60 percent
    Calculation:
    RIAD 4301: Income (loss) bef. taxes, extra. items & other 
adjustments--
    RIAD 4091: Gain (loss) on sec. not held in trading
    Divided by:
    RIAD 4301: Income (loss) bef. taxes, extra. items & other 
adjustments
    Multiplied by:
    RIAD 4300: Income (loss) bef. extra. items & other adjustments
    Divided by:
    RIAD 4340: Net income (loss)
    Multiplied by:
    Unadjusted ROAA*

    *Unadjusted ROAA equals annualized RIAD 4340 on a quarterly 
basis divided by RCON 3368.
(2) Nonperforming loans & OREO to total loans & OREO:
    Threshold: Less than 4.00 percent
    Calculation:
    RCON 5525: Total 90+ day past due loans-
    RCON 3506: 90+ day debt securities+
    RCON 5526: Total nonaccrual loans-
    RCON 3507: Nonaccrual debt securities+
    RCON 1616: Restructured loans+
    RCON 2150: Other real estate owned
    Divided by:
    RCON 2122: Total loans and leases+
    RCON 2150: Other real estate owned
(3) Nonperforming assets to equity + loan loss reserves:
    Threshold: Less than 30.00 percent
    Calculation:
    RCON 5525: Total 90+ day past due loans and debt securities+
    RCON 5526: Total nonaccrual loans and debt securities+
    RCON 1616: Restructured loans+
    RCON 2150: Other real estate owned
    Divided by:
    RCON 3210: Total equity capital+
    RCON 3123: Allowance for loan losses+
    RCON 3128: Allocated transfer risk reserve
(4) Loan loss reserves to non-performing loans:
    Threshold: Greater than or equal to 60.00 percent
    Calculation:
    RCON 3123: Allowance for loan losses+
    RCON 3128: Allocated transfer risk reserve
    Divided by:
    RCON 5525: Total 90+ day past due loans-
    RCON 3506: 90+ day debt securities+
    RCON 5526: Total nonaccrual loans-
    RCON 3507: Nonaccrual debt securities+
    RCON 1616: Restructured loans
(5) Domestic risk real estate loans to total domestic loans:
    Threshold: Less than 35.00 percent
    Calculation:
    RCON 1415: Construction and land development+
    RCON 1420: Secured by farmland+
    RCON 1460: Secured by multi-family (5 or more)+
    RCON 1480: Nonfarm nonresidential properties
    Divided by:
    RCON 2122: Total loans and leases

Exhibit B--Calculation of Performance Ratios--Using Ferguson & Company 
BankSource Data

    The following summary provides the calculation methodology for 
the five qualifying performance ratios, assuming an Applicant 
received a composite CAMEL rating of ``2'' in its most recent 
examination and the FHLBank needs to assess whether membership 
approval can be delegated. Ratios must be calculated for each of the 
most recent six quarters and must meet or exceed designated 
thresholds in at least four of these six quarters including the most 
recent quarter. The summary utilizes the Ferguson database as the 
primary source of financial data:
(1) Annualized Return on Average Assets (adjusted):
    Threshold: Greater than or equal to .60 percent
    Calculation:
    Operating income (loss) bef. taxes & extra. items /
    Income (loss) bef. taxes & extra. items
    Multiplied by:
    Net income (loss) bef. extra. items /
    Net income (loss)
    Multiplied by:
    Unadjusted ROAA
(2) Nonperforming loans & OREO to total loans & OREO:
    Threshold: Less than 4.00 percent
    Calculation:
    Total 90+ day past due loans +
    Total nonaccrual loans +
    Restructured loans +
    OREO
    Divided by:
    Total loans +
    OREO
(3) Nonperforming assets to equity + loan loss reserves:
    Threshold: Less than 30.00 percent
    Calculation:
    Total 90+ day past due loans +
    90+ day debt securities +
    Nonaccrual loans +
    Nonaccrual debt securities +
    Restructured loans +
    OREO
    Divided by:
    Total equity +
    Loan loss reserve +
    Allocated transfer risk
(4) Loan loss reserves to non-performing loans:
    Threshold: Greater than or equal to 60.00 percent
    Calculation:
    Loan loss reserve +
    Allocated transfer risk
    Divided by:
    Total 90+ day past due loans +
    Total nonaccrual loans +
    Restructured loans
(5) Domestic risk real estate loans to total domestic loans:
    Threshold: Less than 35.00 percent
    Calculation:
    Total construction and development loans +
    Secured by farmland loans +
    5 or more family unit loans +
    Nonfarm, nonresidential loans
    Divided by:
    Total domestic loans and leases

BILLING CODE 6725-01-U

TN22MR94.015


[FR Doc. 94-6622 Filed 3-21-94; 8:45 am]
BILLING CODE 6725-01-C