70.162 Allocations of surplus and contingency reserves; district banks. 70.163 Same; Central Bank. 70.164 Same; lien on allocated surplus. 70.165 Same; cancellation and retirement of allocations of surplus of defaulting borrowers. 70.165a Cancellation and retirement of stock and other equities of borrower in liquidation or dissolution. AUTHORITY: §§ 70.1 to 70.165a issued under sec. 8, 46 Stat. 14, as amended, sec. 6, 47 Stat. 14, as amended, secs. 34, 38, 41, 48 Stat. 262, 264, as amended; 12 U.S.C. 665, 1134c, 1134j, 1141f. Additional authority is cited in parentheses following the sections affected. SOURCE: §§ 70.1 to 70.165a appear at 26 F.R. 9009, Sept. 26, 1961; 26 F.R. 9382, Oct. 5, 1961, except as otherwise noted. NOTE: That part of each section number which follows the decimal is the same as the section number of the corresponding provision in the Manual for Banks for Cooperatives. Subpart-Cooperatives Eligible for processing, distributing, and/or furnishing farm supplies and/or farm business services: Provided, however, That such associations are operated for the mutual benefit of the members thereof as such producers or purchasers and conform to one or both of the following requirements: First. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; and Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum. And in any case to the following: Third. That the association shall not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. All business transacted by any cooperative association for or on behalf of the United States or any agency or instrumentality thereof shall be disregarded in determining the volume of member and nonmember business transacted by such association. § 70.2 Determination of eligibility. Whether a loan may be made to a cooperative association by a bank for cooperatives depends upon two factors: First, does the association meet the eligibility requirements set forth in § 70.1; and second, is the association primarily engaged in one or more of the functions listed in § 70.1. § 70.3 Effect on eligiblity of handling other than farm supplies. The banks for cooperatives are authorized to make loans to eligible farmers' cooperative associations to enable them to handle goods, other than farm supplies, used on farms and in farm homes only when the making of such loans is directly connected with and reasonably necessary for the performance by such an association of its primary functions falling within the scope of the purposes broadly described in § 70.1. The authority for the banks for cooperatives to make such loans is contingent upon an administrative determination, based upon reasonably convincing evidence, that the handling of such goods by a cooperative is incidental to and necessary for the effectuation of the cooperative's principal activities of processing, preparing for market, handling, or marketing farm products, or purchasing, testing, grading, processing, distributing, or furnishing farm supplies, or furnishing farm business services. If it should appear, in connection with any application, that the handling of such goods by the association had become, or by virtue of the credit sought might reasonably be expected to become, dominant over the functions which confer the initial eligibility, the loan should not be made. § 70.4 Policy determination required. Before a loan may be made to an eligible association for an eligible purpose, it must be determined that the loan would be in furtherance of the policy declared in section 1 of the Agricultural Marketing Act, as amended (12 U.S.C. 1141), and that the association applying for the loan has an organization, management, and business policies of such character as to insure the reasonable safety of the loan and the furtherance of such policy (12 U.S.C. 1141e (b)). § 70.5 Required voting control in cooperative associations; generally. Loans may not be made to a cooperative association unless at least 90 percent of the voting media are held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1, except as provided in § 70.7. § 70.6 Same; policy on retirement of nonproducer ownership of voting media in cooperative associations. If all the voting media of a cooperative association borrowing from a bank for cooperatives, except a mutual insurance company, are not held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1, the bank, as a matter of policy, should suggest or insist upon the adoption by the cooperative of satisfactory measures designed to assure that substantially all voting media will be so held. § 70.7 Same; mutual insurance companies. Loans may not be made to a mutual insurance company furnishing farm business services, such as fire, windstorm or hail insurance, unless at least 75 percent of the voting media are held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1. $ 70.8 Nonmember business defined; "nonmember". The term "nonmember," as used in § 70.1, refers to all persons who are not members whether farmers or not, and the business done with members and with nonmembers should be computed accordingly. § 70.9 Same; business with members that are not producers or cooperatives. In determining eligibility, all business transacted with members that are neither producers, nor cooperative associations as defined in § 70.1, shall be deemed to be nonmember business. § 70.10 Same; business through separate marketing and supply departments. Where an association maintains separate marketing and farm supply departments and where it acquires products from its members for marketing and in turn sells those products (either processed or in the same form) to other members through its supply department, two distinct functions are involved and the volume thereof should be included in the business done by both the marketing and farm supply departments in computing its volume of member and nonmember business. § 70.11 Same; incidental activities. If an association is predominately either a marketing or a purchasing association and if the purchasing or marketing activities are occasional and incidental to its main function, they should be disregarded in computing member and nonmember business. § 70.12 Farm supplies. The term "farm supplies" includes all supplies that are normally adapted to the furtherance of the production of farm products or in the conduct of farm operations. Items such as oil and gasoline and lumber and other building materials are “farm supplies” when they are acquired by farmers in the furtherance of farm operations. Clothing, groceries, furniture, and other household articles are not so directly identified with such production or operations as to entitle them to be classified as "farm supplies." § 70.13 Eligibility of certain specific activities; telephone companies. A farmers' cooperative telephone company, furnishing a "farm business service" and otherwise eligible, may borrow from a bank for cooperatives, subject to the following additional restriction. In considering the eligibility of such an as sociation from the standpoint of member and nonmember business, it should be borne in mind that at least 50 percent of its gross income must be derived from farmer members; therefore, the bank should determine whether the company may be required by State law to serve the public generally. If it may be so required, no loan should be made. An exception to this policy might be an isolated case where the type of territory served by such a cooperative might preclude the possibility of nonfarmer business becoming predominant. In such circumstances and if the association may not be required by state authorities to extend its operations to other areas, a loan need not be rejected merely because the cooperative is required to serve the general public. § 70.14 Same; cold storage companies. A bank for cooperatives is authorized to make loans to a cooperative cold storage company of farmers engaged in the renting of lockers for storage purposes and performing related services provided at least half of its operating income is derived from its farmer members, if the cooperative is otherwise qualified and eligible. § 70.15 Same; fish and oysters. Fish and oysters which are produced under fully controlled conditions are considered to be agricultural commodities within the meaning of the Agricultural Marketing Act, as amended. Insofar as these products are concerned, cooperatives handling them, if such associations are otherwise qualified, are eligible to borrow from the banks for cooperatives. § 70.16 Same; woodland products. If otherwise eligible, loans may be made to an association engaged in the handling, processing, and marketing of wood or wood products produced by farmers in connection with their farming operations, including tree farming. § 70.17 Organizations not eligible. The following types of organizations are not eligible to borrow from a bank for cooperatives: Credit unions and cooperative banks; rural hospital and health association; and soil conservation, irrigation, and reclamation districts. Subpart-Loan Policies § 70.20 Unconditional liability of bor rower. A bank for cooperatives is not authorized to make a loan under any conditions where the obligation of the maker to pay such indebtedness could be regarded as being other than unqualified and unconditional, regardless of the nature of the security therefor or other special or unusual conditions. § 70.22 Lending limits of district banks. Except with the written approval of the Director of Cooperative Bank Service, the lending limits of each district bank for cooperatives are hereby fixed so that loans to any one borrower outstanding at any time (exclusive of participations therein sold to others) may not exceed the following percentages of the net worth of the bank as of the close of the preceding fiscal year: (a) Facility loans, 20 percent; (b) Operating capital loans, 20 percent; (c) Commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent; (d) The sum of facility and operating capital loans, 20 percent; (e) The sum of facility, operating capital, and commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent; Provided, however, That a loan made within established limits, but which becomes excessive by virtue of a subsequent decrease in the net worth of the bank, may be retained and liquidated in an orderly manner. § 70.23 Lending limits of the Central Bank for Cooperatives. The total loans from the Central Bank for Cooperatives to any one farmers' cooperative association, exclusive of commodity loans, or of operating capital loans to finance commodities within the limits of Government price support programs, shall not at any time exceed 25 percent of the net worth of the bank. § 70.24 Limitation on lending operations of Central Bank. Pursuant to the provisions of law that any regulation affecting the lending operations of the banks for cooperatives shall be consistent with the principle that the Central Bank for Cooperatives shall make loans only in cases where it § 50.154 Loans on commodities covered by price support programs. Notwithstanding the regulations covering other loans made by an association, loans may be made to members on any commodity for which a Commodity Credit Corporation price support program is in effect, at such rate of interest and upon such terms as the board of directors of the Bank may prescribe subject to the following conditions: (a) The commodity offered as security for the loan shall be eligible for price support under a CCC price support program and shall be stored in a bonded public warehouse; (b) The member shall have complied with all CCC eligibility requirements; (c) The loan shall mature not later than 30 days prior to the expiration of the period during which the CCC loan or other price support may be obtained on the commodity and shall be secured by pledge of negotiable warehouse receipts covering the commodity; and (d) The borrower shall appoint the association as his attorney-in-fact to obtain a CCC loan (or other such price support as is available) in the event that the borrower fails to do so prior to maturity or repayment of the loan. $ 50.161 APPROVALS OF LOANS quired. Executive committee action re Unless otherwise provided in the bylaws of the association, or unless otherwise authorized by the board of directors of the association and by the Bank, no loan shall be made unless the executive committee has given prior approval thereto. Where executive committee action is required, no loan shall be made unless application therefor has received the unanimous approval of the qualified members of the executive committee present at the meeting at which such action is taken. § 50.162 Disqualification for interest. A director or officer of an association shall absent himself during the deliberations upon an application for a loan in which he or a member of his immediate family (as defined in § 50.142) has a legal or equitable interest. $ 50.163 "Official" loans. (a) Loans to the following shall be subject to prior approval by the Bank: A director or officer of the association. (b) Loans to the following shall be subject to prior approval by the board of directors of the Bank: (1) A member of the Federal Farm Credit Board. (2) An officer, employee, or agent of the Bank. (c) Loans to the following shall be subject to prior approval by the board of directors of the Bank and by the Farm Credit Administration. (1) A director of the Bank. (2) An officer (as distinguished from an employee) of the Farm Credit Administration. (d) A loan to a partnership, firm, or corporation in which any of the aforesaid directors, officers, employees, agents, or a member of the Federal Farm Credit Board is a member or stockholder shall be subject to the same prior approval as a loan to such person individually. (e) Any loan shall be subject to the same prior approval as required for loans to directors, officers, employees, agents, or a member of the Federal Farm Credit Board if any such person will receive more than $1,000 of the proceeds; or if more than $1,000 will be used in connection with real or personal property in which any such person has a legal or equitable interest; or if any such person is a creditor of or endorser for the borrower to the extent of more than $1,000; Provided, however, That the board of directors of the Bank may prescribe an amount other than $1,000 for any of these purposes. § 50.164 Excess loans. (a) Except with the prior approval of the Bank, no loan shall be made to a borrower if the sum of his obligations to the association, whether as borrower, comaker, endorser, or guarantor, will exceed 15 percent of the unimpaired capital and surplus of the association, or such lesser amount as may be specified for any association by the board of directors of the Bank; nor shall the total of such obligations of a borrower exceed 35 percent of the association's unimpaired capital and surplus without the prior approval of the Bank and the Farm Credit Administration. (b) The term "obligation (s)", as used in paragraph (a) of this section refers to the total commitment, in the case of new or repeat loans, and includes the unpaid balance, undisbursed commit ment, and any proposed additional ad- Subpart B-Investments and INVESTMENTS § 50.201 Amount of investment and approved securities. Each production credit association shall maintain investments in securities approved for that purpose by the Farm Credit Administration in an aggregate amount not less than 35 percent of its capital and surplus at the close of its fiscal year (exclusive of any capital stock held by the Governor), or such larger amount as may be prescribed or approved by the bank. The following classes of obligations are approved for such investment: (a) Bonds and other direct obligations of the United States. (b) Consolidated Federal farm loan bonds and consolidated debentures of the banks for cooperatives. (c) Soil and water conservation loans and farm ownership loans made under programs administered by the Farmers Home Administration, when payment thereof is guaranteed by the United States. [26 F.R. 9703, Oct. 14, 1961] § 50.202 Commodity Credit Corpora tion loans. An association is authorized to invest in loans to farmers made pursuant to commodity loan programs of the Commodity Credit Corporation, when payment thereof is assured by agreements of that Corporation. [23 F. R. 6195, Aug. 13, 1958] DIVIDENDS § 50.211 Class A and class B stock. Upon approval by the Bank, an association may pay dividends on its outstanding class A and class B stock, without preference, or on class A stock alone, at a rate not to exceed 7 percent per annum, when it has met all dividend requirements prescribed by the board of directors of the Bank, has retired all of its class A stock owned by the Governor, and its surplus account (after payment of dividends) is in an amount at least equal to the minimum amount prescribed by the Bank: Provided, That, ex Except with the approval of the Bank the depositaries for the funds of the association shall be banks insured by the Federal Deposit Insurance Corporation. § 50.331 Acquisition of office quarters. The purchase or construction of a building or the purchase of a site therefor by an association for its office quarters shall be subject to the prior approval of the board of directors of the Bank so long as the Governor is the holder of any stock in the association. An association in which the Governor holds no stock shall obtain the prior approval of the board of directors of the Bank when the total investment by the association in all such |