October 31, 2008

The Bank reserves the right not to extend credit to any member that does not meet its underwriting criteria.

Prior to accepting a commitment for an advance or disbursing an advance, credit and collateral analyses will be performed to ensure compliance with Federal Housing Finance Board regulations and advances guidelines, and to verify the borrowing institution's financial integrity.

Borrowing capacity, as determined by the member's ability to repay principal and interest, will be reviewed as outlined in the Borrowing Capacity section of this policy. At a minimum, the following will be reviewed:

1. capital adequacy;
   
   
2. availability of qualified collateral;
   
   
3. prospects for future earnings;
   
   
4. trends in operating ratios;
   
   
5. interest-rate risk;
   
   
6. liquidity;
   
   
7. slow-loan and nonperforming-asset ratios;
   
   
8. adequacy of valuation reserves;
   
   
9. rate of asset growth; and
   
   
10. composition of assets.

Members with a ratio of tangible capital to total assets below five percent may be required to supply additional information at the time of application and on a quarterly or more frequent basis to permit evaluation of their earnings performance. This information may include:

• a business plan;
  
  
• a six-month forecast of cash flow;
  
  
• a six-month earnings projection;
  
  
• a detailed summary of outstanding commitments to be funded; and
  
  
• a detailed summary of outstanding investment securities and mortgages.

Members in delivery collateral status typically are required to submit Supplement A to Application for Advance to the Bank in writing at least three business days prior to the expected commitment date of the advance. However, advances that mature within six months and that do not involve the disbursement of new funds do not require the submission of Supplement A. In addition, in situations where a member has an immediate need for liquidity, and where an advance disbursement will be fully secured by qualified collateral in delivery status, the Bank may allow the member to submit Supplement A within three business days after disbursement of the advance. (Please note that the Bank considers transfer of an IDEAL Way advance to an overnight or other regular advance a disbursement of new funds. This is because the member's remaining IDEAL Way line of credit with the Bank increases when an IDEAL Way advance is transferred.) Supplement A provides essential credit underwriting information to the Bank for these members.

• Each member is required to immediately notify the Bank of any Material Adverse Effect. A Material Adverse Effect is one or more of the following:
  
  

  • The occurrence of any event or series of events with the cumulative effect of adversely impacting the business, operations properties, assets, or condition (financial or otherwise) of such member or any of its affiliates or its parent;
    
    
  • The impairment of such member's ability to perform its obligations under its advances agreement or other agreements with the Bank; and
    
    
  • The impairment of the Bank's ability to enforce its rights under the advances agreement or other agreements with such member.