PART 1263—MEMBERS OF THE BANKS Authority: 12 U.S.C. 1422, 1423, 1424, 1426, 1430, 1442, 4511, 4513. Source: 81 FR 3277, Jan. 20, 2016, unless otherwise noted. Subpart A—Definitions § 1263.1 Definitions. For purposes of this part: Adjusted net income Affiliate (1) Directly or indirectly, or acting through one or more other persons, owns, controls, or has the power to vote twenty-five (25) percent or more of the outstanding shares of any class of voting securities of the other entity, including shares of common or preferred stock, general or limited partnership shares or interests, or similar interests that entitle the holder: (i) To vote for or to select directors, trustees, or partners (or individuals exercising similar functions) of that entity; or (ii) To vote on or to direct the conduct of the operations or other significant policies of that entity; (2) Controls in any manner the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of the other entity; or (3) Otherwise has the power to exercise, directly or indirectly, a controlling influence over the management or policies of the other entity through a management agreement, common directors or management officials, or by any other means. Aggregate unpaid loan principal Allowance for loan and lease losses Appropriate regulator (1) In the case of an insured depository institution or a CDFI credit union, an appropriate Federal banking agency or appropriate State regulator, as applicable; or (2) In the case of an insurance company, an appropriate State regulator accredited by the NAIC. Captive CDFI credit union CDFI Fund CFI asset cap Class A stock Class B stock Combination business or farm property Community development financial institution CDFI et seq. et seq. Community financial institution or CFI (1) The deposits of which are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq. (2) The total assets of which, as of the date of a particular transaction, are less than the CFI asset cap, with total assets being calculated as an average of total assets over three years, with such average being based on the institution's regulatory financial reports filed with its appropriate regulator for the most recent calendar quarter and the immediately preceding 11 calendar quarters. Composite regulatory examination rating Consolidation CRA et seq. CRA performance evaluation De novo insured depository institution Dwelling unit Enforcement action Federal share insurance et seq. Funded residential construction loan Gross revenues Home mortgage loan (1) A loan, whether or not fully amortizing, or an interest in such a loan, which is secured by a mortgage, deed of trust, or other security agreement that creates a first lien on one of the following interests in property: (i) One-to-four family property or multifamily property, in fee simple; (ii) A leasehold on one-to-four family property or multifamily property under a lease of not less than 99 years that is renewable, or under a lease having a period of not less than 50 years to run from the date the mortgage was executed; or (iii) Combination business or farm property where at least fifty (50) percent of the total appraised value of the combined property is attributable to the residential portion of the property, or in the case of any community financial institution, combination business or farm property, on which is located a permanent structure actually used as a residence (other than for temporary or seasonal housing), where the residence constitutes an integral part of the property; or (2) A security representing: (i) A right to receive a portion of the cash flows from a pool of long-term loans, provided that, at the time of issuance of the security, all of the loans meet the requirements of paragraph (1) of this definition; or (ii) An interest in other securities, all of which meet the requirements of paragraph (2)(i) of this definition. Insurance company Insured depository institution (1) An insured depository institution as defined in section 2(9) of the Bank Act, as amended (12 U.S.C. 1422(9)); and (2) To the extent provided under § 1263.19, a non-federally-insured credit union. Long-term Manufactured housing Multifamily property (1) Real property that is solely residential and includes five or more dwelling units; (2) Real property that includes five or more dwelling units combined with commercial units, provided that the property is primarily residential; or (3) Nursing homes, dormitories, or homes for the elderly. NAIC Non-federally-insured credit union Nonperforming loans and leases (1) Loans and leases that have been past due for 90 days (60 days, in the case of credit union applicants) or longer but are still accruing; (2) Loans and leases on a nonaccrual basis; and (3) Restructured loans and leases (not already reported as nonperforming). Nonresidential real property One-to-four family property (1) Real property that is solely residential, including one-to-four family dwelling units or more than four family dwelling units if each dwelling unit is separated from the other dwelling units by dividing walls that extend from ground to roof, such as row houses, townhouses, or similar types of property; (2) Manufactured housing if applicable State law defines the purchase or holding of manufactured housing as the purchase or holding of real property; (3) Individual condominium dwelling units or interests in individual cooperative housing dwelling units that are part of a condominium or cooperative building without regard to the number of total dwelling units therein; or (4) Real property which includes one-to-four family dwelling units combined with commercial units, provided the property is primarily residential. Operating expenses Other real estate owned i.e., Regulatory examination report Regulatory financial report Residential mortgage loan (1) A home mortgage loan; (2) A funded residential construction loan; (3) A loan secured by manufactured housing whether or not defined by State law as secured by an interest in real property; (4) A loan secured by a junior lien on one-to-four family property or multifamily property; (5) A security representing: (i) A right to receive a portion of the cash flows from a pool of loans, provided that, at the time of issuance of the security, all of the loans meet the requirements of one of paragraphs (1) through (4) of this definition; or (ii) An interest in other securities that meet the requirements of paragraph (5)(i) of this definition; (6) A home mortgage loan secured by a leasehold interest, as defined in paragraph (1)(ii) of the definition of “home mortgage loan,” except that the period of the lease term may be for any duration; or (7) A loan that finances one or more properties or activities that, if made by a member, would satisfy the statutory requirements for the Community Investment Program established under section 10(i) of the Bank Act (12 U.S.C. 1430(i)), or the regulatory requirements established for any Community Investment Cash Advance program. Restricted assets Total assets Unrestricted cash and cash equivalents [81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017] Subpart B—Membership Application Process § 1263.2 Membership application requirements. (a) Application. (1) Applicant review. (2) Duty to supplement. (b) Digest. (c) File. (1) Digest. (2) Required documents. (3) Additional documents. (4) Decision resolution. [81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017] § 1263.3 Decision on application. (a) Authority. (b) Decision resolution. (1) That the statements in the digest are accurate to the best of the Bank's knowledge, and are based on a diligent and comprehensive review of all available information identified in the digest; and (2) The Bank's decision and the reasons therefor. Decisions to approve an application should state specifically that: (i) The applicant is authorized under the laws of the United States and the laws of the appropriate State to become a member of, purchase stock in, do business with, and maintain deposits in, the Bank to which the applicant has applied; and (ii) The applicant meets all of the membership eligibility criteria of the Bank Act and this part. (c) Action on applications. [81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017] § 1263.4 Automatic membership. (a) Automatic membership for certain charter conversions. (b) Automatic membership for transfers. (c) Automatic membership, in the Bank's discretion, for certain consolidations. (i) 90 percent or more of the consolidated institution's total assets are derived from the total assets of the disappearing member institution (or institutions); and (ii) The consolidated institution provides written notice to such Bank, within 60 calendar days after the effective date of the consolidation, that it desires to be a member of the Bank. (2) The provisions of § 1263.24(b)(4)(i) shall apply, and upon approval of automatic membership by the Bank, the provisions of § 1263.24(c) shall apply. § 1263.5 Appeals. (a) Appeals by applicants. Filing procedure. (2) Documents. (i) Bank's decision resolution. (ii) Basis for appeal. (b) Record for appeal. Copy of membership file. (2) Additional information. (c) Deciding appeals. Subpart C—Eligibility Requirements § 1263.6 General eligibility requirements. (a) Requirements. (1) It is duly organized under tribal law, or under the laws of any State or of the United States; (2) It is subject to inspection and regulation under the banking laws, or under similar laws, of any State or of the United States or, in the case of a CDFI, is certified by the CDFI Fund; (3) It makes long-term home mortgage loans; (4) Its financial condition is such that advances may be safely made to it; (5) The character of its management is consistent with sound and economical home financing; (6) Its home financing policy is consistent with sound and economical home financing; and (7) It has complied with any applicable requirement of paragraphs (b) and (c) of this section. (b) Additional eligibility requirement for insured depository institutions other than community financial institutions. (c) Additional eligibility requirement for applicants that are not insured depository institutions. (d) Ineligibility. (e) Treatment of captives previously admitted to membership. (1) Captives admitted prior to September 12, 2014. (A) After making or renewing the advance, its total outstanding advances to that captive would not exceed 40 percent of the captive's total assets; and (B) The new or renewed advance has a maturity date no later than February 19, 2021. (ii) A Bank shall terminate the membership of any captive described in paragraph (e)(1)(i) of this section no later than February 19, 2021, as provided under § 1263.27. After termination, the Bank shall require the liquidation of any outstanding indebtedness owed by, and the settlement of all other outstanding business transactions with, such terminated captive, and shall redeem or repurchase the Bank stock owned by the captive in accordance with § 1263.29; provided that the Bank may allow the captive to repay any outstanding advance made or last renewed in accordance with the applicable requirements then in effect and having a maturity date later than its date of termination in accordance with its terms and delay the repurchase of any Bank stock held in support of that advance until after the advance has been repaid, in accordance with the Bank's capital plan. (2) Captives admitted on or after September 12, 2014. (ii) A Bank shall terminate the membership of any captive described in paragraph (e)(2)(i) of this section no later than February 19, 2017, as provided under § 1263.27. Upon termination, the Bank shall require the liquidation of any outstanding indebtedness owed by, and the settlement of all other outstanding business transactions with, such terminated captive, and shall redeem or repurchase the Bank stock owned by the captive in accordance with § 1263.29; provided that all advances outstanding to that member must be repaid in full by the termination date. § 1263.7 Duly organized requirement. An applicant shall be deemed to be duly organized, as required by section 4(a)(1)(A) of the Bank Act (12 U.S.C. 1424(a)(1)(A)) and § 1263.6(a)(1), if it is chartered by a State or federal agency as a building and loan association, savings and loan association, cooperative bank, homestead association, insurance company, savings bank, or insured depository institution or, in the case of a CDFI applicant, is incorporated under State or tribal law. § 1263.8 Subject to inspection and regulation requirement. An applicant shall be deemed to be subject to inspection and regulation, as required by section 4(a)(1)(B) of the Bank Act (12 U.S.C. 1424 (a)(1)(B)) and § 1263.6(a)(2) if, in the case of an insured depository institution or insurance company applicant, it is subject to inspection and regulation by its appropriate regulator. A CDFI applicant that is certified by the CDFI Fund is not subject to this requirement. § 1263.9 Makes long-term home mortgage loans requirement. An applicant shall be deemed to make long-term home mortgage loans, as required by section 4(a)(1)(C) of the Bank Act (12 U.S.C. 1424(a)(1)(C)) and § 1263.6(a)(3), if, based on the applicant's most recent regulatory financial report filed with its appropriate regulator, or other documentation provided to the Bank, in the case of a CDFI applicant that does not file such reports, the applicant originates or purchases long-term home mortgage loans. § 1263.10 Ten percent requirement for certain insured depository institution applicants. An insured depository institution applicant that is subject to the 10 percent requirement of section 4(a)(2)(A) of the Bank Act (12 U.S.C. 1424(a)(2)(A)) and § 1263.6(b) shall be deemed to comply with that requirement if, based on the applicant's most recent regulatory financial report filed with its appropriate regulator, the applicant has at least 10 percent of its total assets in residential mortgage loans, except that any assets used to secure mortgage-backed securities as described in paragraph (5) of the definition of “residential mortgage loan” set forth in § 1263.1 shall not be used to meet this requirement. § 1263.11 Financial condition requirement for depository institutions and CDFI credit unions. (a) Review requirement. (1) Regulatory financial reports. (2) Financial statement. (i) The most recent independent audit of the applicant conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the applicant; (ii) The most recent independent audit of the applicant's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company but not on the applicant separately; (iii) The most recent directors' examination of the applicant conducted in accordance with generally accepted auditing standards by a certified public accounting firm; (iv) The most recent directors' examination of the applicant performed by other external auditors; (v) The most recent review of the applicant's financial statements by external auditors; (vi) The most recent compilation of the applicant's financial statements by external auditors; or (vii) The most recent audit of other procedures of the applicant. (3) Regulatory examination report. (4) Enforcement actions. (5) Additional information. (b) Standards. (1) Recent composite regulatory examination rating. (2) Capital requirement. (3) Minimum performance standard (A) Earnings. (B) Nonperforming assets. (C) Allowance for loan and lease losses. (ii) For applicants that are not required to report financial data to their appropriate regulator on a quarterly basis, the information required in paragraph (b)(3)(i) of this section may be reported on a semi-annual basis. (iii) An applicant that is a CDFI credit union or a non-federally-insured credit union must meet the performance trend criteria in paragraph (b)(3)(i) of this section irrespective of its composite regulatory examination rating. (c) Eligible collateral not considered. [81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017] § 1263.12 Character of management requirement. (a) General. (1) Enforcement actions. (2) Criminal, civil or administrative proceedings. (3) Criminal, civil or administrative monetary liabilities, lawsuits or judgments. (b) CDFIs other than CDFI credit unions. (1) Criminal, civil or administrative proceedings. (2) Criminal, civil or administrative monetary liabilities, lawsuits or judgments. § 1263.13 Home financing policy requirement. (a) Standard. (b) Written justification required. § 1263.14 De novo insured depository institution applicants. (a) Presumptive compliance. (b) Makes long-term home mortgage loans requirement. (c) 10 percent requirement. Conditional approval. (2) Approval may become final. (3) Approval may become void. (d) Home financing policy requirement. Conditional approval. (2) Approval may become final. (3) Approval may become void. (e) Other rules. § 1263.15 Recently consolidated applicants. An applicant that has recently consolidated with another institution is subject to the requirements of §§ 1263.7 to 1263.13 except as provided in this section. (a) Financial condition requirement. (1) All regulatory financial reports that the applicant has filed as a consolidated entity; and (2) Pro forma (b) Home financing policy requirement. (c) Makes long-term home mortgage loans requirement; 10 percent requirement. pro forma § 1263.16 Financial condition requirement for insurance company and certain CDFI applicants. (a) Insurance companies. (i) Based on the information contained in the applicant's most recent regulatory financial report filed with its appropriate regulator, that the applicant meets all of its minimum statutory and regulatory capital requirements and the capital standards established by the NAIC; and (ii) Based on the applicant's most recent audited financial statements, that the applicant's financial condition is such that the Bank can safely make advances to it. (2) In making the determination required under paragraph (a)(1)(ii) of this section, the Bank shall use audited financial statements that have been prepared in accordance with generally accepted accounting principles, if they are available. If they are not available, the Bank may use audited financial statements prepared in accordance with statutory accounting principles. (b) CDFIs other than CDFI credit unions. Review requirement. (i) Financial statements. (ii) CDFI Fund certification. (iii) Additional information. (2) Standards. (i) Net asset ratio. (ii) Earnings. (iii) Loan loss reserves. (iv) Liquidity. § 1263.17 Rebuttable presumptions. (a) Rebutting presumptive compliance. (b) Rebutting presumptive noncompliance. (c) Presumptive noncompliance by insurance company applicant with “subject to inspection and regulation” requirement of § 1263.8. (d) Presumptive noncompliance with financial condition requirements of §§ 1263.11 and 1263.16 Applicants subject to § 1263.11. (2) Applicants subject to § 1263.16. (e) Presumptive noncompliance with character of management requirement of § 1263.12 Enforcement actions. (i) Regulator confirmation. (ii) Written analysis. (2) Criminal, civil or administrative proceedings. (i) Regulator confirmation. (ii) Written analysis. (3) Criminal, civil or administrative monetary liabilities, lawsuits or judgments. (i) Regulator confirmation. (ii) Written analysis. (f) Presumptive noncompliance with home financing policy requirements of §§ 1263.13 and 1263.14(d). (1) Regulator confirmation. (2) Written analysis. § 1263.18 Determination of appropriate Bank district for membership. (a) Eligibility. (2) An institution eligible to become a member of a Bank under the Bank Act and this part may be a member of the Bank of a district adjoining the district in which the institution's principal place of business is located, if demanded by convenience and then only with the approval of FHFA. (b) Principal place of business. (c) Designation of principal place of business (i) At least 80 percent of the institution's accounting books, records, and ledgers are maintained, located or held in such designated State; (ii) A majority of meetings of the institution's board of directors and constituent committees are conducted in such designated State; and (iii) A majority of the institution's five highest paid officers have their place of employment located in such designated State. (2) Written notice of a designation made pursuant to paragraph (c)(1) of this section shall be sent to the Bank in the district containing the designated State, FHFA, and the institution. (3) The notice of designation made pursuant to paragraph (c)(1) of this section shall include the State designated as the principal place of business and the Bank of which the subject institution is eligible to be a member. (4) If the board of directors of the Bank in the district where the institution maintains its home office fails to make the designation requested by the member or applicant pursuant to paragraph (c)(1) of this section, then the member or applicant may request in writing that FHFA make the designation. (d) Transfer of membership. (2) In the event that the Banks involved fail to agree on a method of orderly transfer, FHFA shall determine the conditions under which the transfer shall take place. (e) Effect of transfer. (f) Insurance companies and CDFIs. (2) A Bank may deem an institution to conduct the predominant portion of its business activities in a particular State if any two of the following three factors are present: (i) The institution's largest office, as measured by the number of employees, is located in that State; (ii) A plurality of the institution's employees are located in that State; or (iii) The places of employment for a plurality of the institution's senior executives are located in that State. (3) If a Bank cannot designate a State as the principal place of business under paragraph (f)(1) of this section, and cannot otherwise identify a geographic location from which the institution actually conducts the predominant portion of its business activities, it shall designate the State of domicile or incorporation as the principal place of business for that institution. (4) For purposes of paragraph (f)(2) of this section, the term “senior executive” means all officers at or above the level of “senior vice president” and includes the positions of president, executive vice president, chief executive officer, chief financial officer, chief operating officer, general counsel, as well as any individuals who perform functions similar to those positions whether or not the individual has an official title. (g) Records. § 1263.19 Non-federally-insured credit unions. (a) Applicants. (1) Notice. (2) Request to regulator. (3) Completion of application. (i) A written statement from the applicant's appropriate State regulator that the applicant met all of the eligibility requirements for Federal share insurance as of the date of the request sent pursuant to paragraph (a)(2) of this section; (ii) A written statement from the applicant's appropriate State regulator that it cannot or will not make a determination regarding the applicant's eligibility for Federal share insurance; or (iii) A written statement from the applicant, prepared no earlier than the end of the six-month period beginning on the date of the request sent pursuant to paragraph (a)(2) of this section, certifying that the applicant did not receive from its appropriate State regulator within that six-month period either a response as described in paragraph (a)(3)(i) or (ii) of this section or a response stating that the applicant did not meet all of the eligibility requirements for Federal share insurance as of the date of the request sent pursuant to paragraph (a)(2) of this section. (b) Members canceling Federal share insurance. [82 FR 25723, June 5, 2017] Subpart D—Stock Requirements § 1263.20 Stock purchase. (a) Minimum purchase requirement. (b) Issuance of stock. (c) Reports. § 1263.21 [Reserved] § 1263.22 Annual calculation of stock holdings. A Bank shall calculate annually each member's required minimum holdings of Bank stock using calendar year-end financial data provided by the member to the Bank, pursuant to § 1263.31(d), and shall notify each member of the result. The notice shall clearly state that the Bank's calculation of each member's minimum stock holdings is to be used to determine the number of votes that the member may cast in that year's election of directors and shall identify the State within the district in which the member will vote. A member that does not agree with the Bank's calculation of the minimum stock purchase requirement or with the identification of its voting State may request FHFA to review the Bank's determination. FHFA shall promptly determine the member's minimum required holdings and its proper voting State, which determination shall be final. § 1263.23 Excess stock. (a) Sale of excess stock. (b) Restriction. Subpart E—Withdrawal, Termination and Readmission § 1263.24 Consolidations involving members. (a) Consolidation of members. (b) Consolidation into nonmember In general. (2) Notification. (3) Application. (4) Outstanding indebtedness. (i) The initial 60 calendar-day notification period; (ii) The 60 calendar-day period following receipt of a notification that the consolidated institution intends to apply for membership; and (iii) The period of time during which the Bank processes the application for membership. (5) Approval of membership. (6) Disapproval of membership. (c) Dividends on acquired Bank stock. § 1263.25 [Reserved] § 1263.26 Voluntary withdrawal from membership. (a) In general (2) A Bank shall notify FHFA within 10 calendar days of receipt of any notice of withdrawal or notice of cancellation of withdrawal from membership. (b) Effective date of withdrawal. (c) Stock redemption periods. § 1263.27 Involuntary termination of membership. (a) Grounds. (1) Fails to comply with any requirement of the Bank Act, any regulation adopted by FHFA, or any requirement of the Bank's capital plan; (2) Becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or State law; or (3) Would jeopardize the safety or soundness of the Bank if it were to remain a member. (b) Stock redemption periods. (c) Membership rights. § 1263.28 [Reserved] § 1263.29 Disposition of claims. (a) In general. (b) Bank stock. § 1263.30 Readmission to membership. (a) In general. (b) Exceptions. Subpart F—Other Membership Provisions § 1263.31 Reports and examinations. As a condition precedent to Bank membership, each member: (a) Consents to such examinations as the Bank or FHFA may require for purposes of the Bank Act; (b) Agrees that reports of examination by local, State, or Federal agencies or institutions, or by any private entity providing share insurance to a member that is a non-federally-insured credit union or a CDFI credit union, may be furnished by such authorities or entities to the Bank or FHFA upon request; (c) Agrees to give the Bank or the appropriate Federal banking agency, upon request, such information as the Bank or the appropriate Federal banking agency may need to compile and publish cost of funds indices and to publish other reports or statistical summaries pertaining to the activities of Bank members; (d) Agrees to provide the Bank with calendar year-end financial data each year, for purposes of making the calculation described in § 1263.22; and (e) To the extent applicable, agrees to provide to the Bank, within 20 days of filing, copies of reports of condition and operations required to be filed with: (1) The member's appropriate Federal banking agency; (2) The member's appropriate State regulator; or (3) Any private entity providing share insurance to a member that is a non-federally-insured credit union or a CDFI credit union. [81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25723, June 5, 2017] § 1263.32 Official membership insignia. Members may display the approved insignia of membership on their documents, advertising and quarters, and likewise use the words “Member Federal Home Loan Bank System.”