12 C.F.R. PART 611—ORGANIZATION
Title 12 - Banks and Banking
Authority: Secs. 1.3, 1.4, 1.13, 2.0, 2.1, 2.10, 2.11, 3.0, 3.2, 3.21, 4.12, 4.15, 4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0–7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2011, 2013, 2021, 2071, 2072, 2091, 2092, 2121, 2123, 2142, 2183, 2203, 2208, 2209, 2243, 2244, 2252, 2278a–9, 2278b–6, 2279a–2279f–1, 2279aa–5(e)); secs. 411 and 412 of Pub. L. 100–233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100–399, 102 Stat. 989, 1003, and 1004.
Link to an amendment published at 71 FR 44420, Aug. 4, 2006. Source: 37 FR 11415, June 7, 1972, unless otherwise noted.
Source: 71 FR 5761, Feb. 2, 2006, unless otherwise noted.
(a) Qualifications. (1) Each bank and association board of directors must establish and maintain a policy identifying desirable director qualifications. The policy must explain the type and level of knowledge and experience desired for board members, explaining how the desired qualifications were identified. The policy must be periodically updated and provided to the institution's nominating committee. (2) Each Farm Credit institution board must have a director who is a financial expert. Boards of directors for associations with $500 million or less in total assets as of January 1 of each year may satisfy this requirement by retaining an advisor who is a financial expert. The financial advisor must report to the board of directors and be free of any affiliation with the external auditor or institution management. A financial expert is one recognized as having education or experience in: Accounting, internal accounting controls, or preparing or reviewing financial statements for financial institutions or large corporations consistent with the breadth and complexity of accounting and financial reporting issues that can reasonably be expected to be raised by the institution's financial statements. (b) Training. Each bank and association board of directors must establish and maintain a policy for director training that includes appropriate implementing procedures. The policy must identify training areas supporting desired director qualifications. Each Farm Credit bank and association must require newly elected or appointed directors to complete director orientation training within 1 year of assuming their position and require incumbent directors to attend training periodically to advance their skills. Effective Date Note: At 71 FR 5761, Feb. 2, 2006, and 71 FR 18168, Apr. 11, 2006, §611.210(a)(2) was added, effective Apr. 5, 2007.
(a) Eligibility, number and term. (1) Eligibility. No candidate for an outside director position may be a director, officer, employee, agent, or stockholder of an institution in the Farm Credit System. Farm Credit banks and associations must make a reasonable effort to select outside directors possessing some or all of the desired director qualifications identified pursuant to §611.210(a) of this part. (2) Number. Stockholder-elected directors must constitute at least 60 percent of the members of each institution's board. (i) Each Farm Credit bank must have at least two outside directors. (ii) Associations with total assets exceeding $500 million as of January 1 of each year must have no fewer than two outside directors on the board. However, this requirement does not apply if it causes the percent of stockholder-elected directors to be less than 75 percent of the board. (iii) Associations with $500 million or less in total assets as of January 1 of each year must have at least one outside director. (3) Terms of office. Banks and associations may not establish a different term of office for outside directors than that established for stockholder-elected directors. (b) Removal. Each institution must establish and maintain procedures for removal of outside directors. When the removal of an outside director is sought before the expiration of the outside director's term, the reason for removal must be documented. An institution's director removal procedures must allow for removal of an outside director by a majority vote of all voting stockholders voting, in person or by proxy, or by a two-thirds majority vote of the full board of directors. The outside director subject to the removal action is prohibited from voting in his or her own removal action. Effective Date Note: At 71 FR 5761, Feb. 2, 2006, and 71 FR 18168, Apr. 11, 2006, §611.220(a)(2)(i) and (ii) were added, effective Apr. 5, 2007.
Source: 53 FR 50392, Dec. 15, 1988, unless otherwise noted.
(a) No person shall be eligible for membership on a bank or association board who is or has been, within 1 year preceding the date the term of office begins, a salaried officer or employee of any bank or association in the System. (b) No bank or association director shall be eligible to continue to serve in that capacity and his or her office shall become vacant if after election as a member of the board, he or she becomes legally incompetent or is convicted of a felony or held liable in damages for fraud. (c) No bank director shall, within 1 year after the date when he or she ceases to be a member of the board, serve as a salaried officer or employee of such bank, or any association with which the bank has a discount or agent relationship. (d) No director of an association shall, within 1 year after he or she ceases to be a member of the board, serve as a salaried officer or employee of such association. [53 FR 50392, Dec. 15, 1988, as amended at 54 FR 37095, Sept. 7, 1989] (a) Each System institution shall adopt policies and procedures that are designed to assure that the elections of board members are conducted in an impartial manner. (b) No employee or agent of a Farm Credit institution shall take any part, directly or indirectly, in the nomination or election of members to the board of directors of a Farm Credit institution, or make any statement, either orally or in writing, which may be construed as intended to influence any vote in such nominations, or elections. This paragraph shall not prohibit employees or agents from providing biographical and other similar information or engaging in other activities pursuant to policies and procedures for nominations and elections. This paragraph does not affect the right of an employee or agent to nominate or vote for stockholder-elected directors of an institution in which the employee or agent is a voting member. (c) No property, facilities, or resources of any System institution shall be used by any candidate for nomination or election or by any other person for the benefit of any candidate for nomination or election, unless the same property, facilities, or resources are simultaneously available and made known to be available for use by all declared candidates. (d) No director, employee, or agent of a System institution shall, for the purpose of furthering the interests of any candidates for nomination or election, furnish or make use of records that are not made available for use by all declared candidates. (e) No Farm Credit institution may in any way distribute or mail, whether at the expense of the institution or another, any campaign materials for director candidates. Institutions may request biographical information, as well as the disclosure information required under §620.21(d), from all declared candidates who certify that they are eligible, restate such information in a standard format, and distribute or mail it with ballots or proxy ballots. [53 FR 50392, Dec. 15, 1988, as amended at 71 FR 5761, Feb. 2, 2006] Nominating committees must conduct themselves in the impartial manner prescribed by the policies and procedures adopted by their institution under §611.320. (a) Composition. The voting stockholders of each bank and association must elect a nominating committee of no fewer than three members. No individual may serve on a nominating committee who, at the time of selection to or during service on a nominating committee, is an employee, director, or agent of that bank or association. A nominating committee member may not be a candidate for election to the board in the same election for which the committee is identifying nominees. (b) Responsibilities. It is the responsibility of each nominating committee to identify, evaluate, and nominate candidates for stockholder election to a bank or association board of directors. (1) Each nominating committee must nominate individuals whom the committee determines meet the eligibility requirements to run for director positions. The committee must endeavor to assure representation from all areas of the institution's territory and as nearly as possible all types of agriculture practiced within the territory. (2) The nominating committee must evaluate the qualifications of the director candidates. The evaluation process must consider whether there are any known obstacles preventing a candidate from performing the duties of the position. (3) Each committee must nominate at least two candidates for each director position being voted on by stockholders. If two nominees cannot be identified, the nominating committee must provide written explanation to the existing board of the efforts to locate candidates or the reasons for disqualifying any other candidate that resulted in fewer than two nominees. (c) Resources. Each bank and association must provide its nominating committee reasonable access to administrative resources in order for the committee to perform its duties. Banks and associations must, at a minimum, provide their nominating committees with a current list of stockholders, the most recent bylaws, the current director qualifications policy, and a copy of the policies and procedures that the bank or the association has adopted pursuant to §611.320(a) assuring impartial elections. On the request of the nominating committee, the institution must also provide a summary of the current board self-evaluation. The bank or association may require a pledge of confidentiality by committee members prior to releasing evaluation documents. [71 FR 5762, Feb. 2, 2006] Effective Date Note: At 71 FR 5762, Feb. 2, 2006, and 71 FR 18168, Apr. 11, 2006, §611.325 was added, effective Apr. 5, 2007.
(a) No bank or association may use signed ballots in stockholder votes. Each bank and association must adopt policies and procedures to ensure that all information and materials regarding how or whether an individual stockholder has voted remain confidential, including with respect to the institution, its directors, stockholders, or employees, or any other person except: (1) An independent third party tabulating the vote; or (2) The Farm Credit Administration. (b) A bank or association may use balloting procedures, such as an identity code on the ballot, that can be used to identify how or whether an individual stockholder has voted only if the votes are tabulated by an independent third party. In weighted voting, the votes must be tabulated by an independent third party. An independent third party that tabulates the votes must certify in writing that such party will not disclose to any person (including the institution, its directors, stockholders, or employees) any information about how or whether an individual stockholder has voted, except that the information must be disclosed to the Farm Credit Administration if requested. (c) Once a bank or association receives a ballot, the vote of that stockholder is final, except that a stockholder may withdraw a proxy ballot before balloting begins at a stockholders' meeting. (d) A bank or association may give a stockholder voting by proxy an opportunity to give voting discretion to the proxy of the stockholder's choice, provided that the proxy is also a stockholder eligible to vote. [63 FR 64843, Nov. 24, 1998] (a) Each bank and association must adopt policies and procedures that assure the security of all records and materials related to a stockholder vote including, but not limited to, ballots, proxy ballots, and other related materials. (b) Bank and association procedures must assure that ballots and proxy ballots are provided only to stockholders who are eligible to vote. (c) Ballots and proxy ballots must be safeguarded before the time of distribution or mailing to voting stockholders and after the time of receipt by the bank or association until disposal. In an election of directors, ballots, proxy ballots and election records must be retained at least until the end of the term of office of the director. In other stockholder votes, ballots, proxy ballots, and records must be retained for at least 3 years after the vote. (d) The voting procedures of each institution must provide for the establishment of a tellers committee or other designated group of persons which must be responsible for validating ballots and proxies and tabulating voting results. An institution and its officers, directors, and employees may not make any public announcement of the results of a stockholder vote before the tellers committee or other designated persons have validated the results of the vote. [53 FR 50392, Dec. 15, 1988, as amended at 63 FR 64843, Nov. 24, 1998] In the election of directors, each System institution shall comply with the applicable cooperative principles set forth in §615.5230 of this chapter. [63 FR 39225, July 22, 1998] (a) Farm Credit System banks are authorized to pay fair and reasonable compensation to directors for services performed in an official capacity at a rate not to exceed the level established in section 4.21 of the Farm Credit Act of 1971, as amended, unless the FCA determines that such a level adversely affects the safety and soundness of the institution. (b) The bank director compensation level established in section 4.21 of the Act shall be adjusted to reflect changes in the Consumer Price Index (CPI) for all urban consumers, as published by the Bureau of Labor Statistics, in the following manner: Current year's maximum compensation = Prior year's maximum compensation adjusted by the prior year's annual average percent change in the CPI for all urban consumers. Adjustments will be made to the bank director statutory compensation limit beginning from October 28, 1992 (the date of enactment of the Farm Credit Banks and Associations Safety and Soundness Act of 1992). Additionally, each year the FCA will distribute a bookletter to all FCS banks that communicates the CPI adjusted bank director statutory compensation limit. (c)(1) A Farm Credit bank is authorized to pay a director up to 30 percent more than the statutory compensation limit in exceptional circumstances where the director contributes extraordinary time and effort in the service of the bank and its shareholders. (2) Banks must document the exceptional circumstances justifying additional director compensation. The documentation must describe: (i) The exceptional circumstances justifying the additional director compensation, including the extraordinary time and effort the director devoted to bank business; and (ii) The amount and the terms and conditions of the additional director compensation. (d) Each bank board shall adopt a written policy regarding compensation of bank directors. The policy shall address, at a minimum, the following areas: (1) The activities or functions for which attendance is necessary and appropriate and may be compensated, except that a Farm Credit System bank shall not compensate any director for rendering services on behalf of any other Farm Credit System institution or a cooperative of which the director is a member, or for performing other assignments of a non-official nature; (2) The methodology for determining each director's rate of compensation; and (3) The exceptional circumstances under which the board would pay additional compensation for any of its directors as authorized by paragraph (c) of this section. (e) Directors may also be reimbursed for reasonable travel, subsistence, and other related expenses in accordance with the bank's policy. [59 FR 37411, July 22, 1994, as amended at 64 FR 16618, Apr. 6, 1999; 65 FR 8023, Feb. 17, 2000] Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.
Each Farm Credit Bank or Agricultural Credit Bank is authorized, in accordance with section 7.6 of the Act, to transfer certain authorities to Federal land bank associations. The regulations in this subpart set forth the procedures and voting and approval requirements applicable to such transfers. (a) The boards of directors of a bank and an association which seek to transfer authorities may adopt appropriate resolutions approving such transfer and providing for the submission of such a proposal to their respective stockholders for a vote. (b) The resolutions accompanied by the following information shall be submitted to the Farm Credit Administration for review and approval: (1) Any proposed amendments to the charters of the institutions; (2) A copy of the transfer plan as required under §611.520 of this part; (3) An information statement that complies with the requirements of §611.515; (4) The proposed bylaws of the bank and the association, as applicable; and (5) Any additional information the boards of directors wish to submit in support of the request or that the Farm Credit Administration requests. (a) Upon receipt of the board of directors resolution and the accompanying documents, the Farm Credit Administration shall review the request and either deny or give its preliminary approval to the request. (b) If the request is denied, written notice stating the reasons for the denial shall be transmitted to the chief executive officer of the bank and the association who shall promptly notify their respective boards of directors. (c) Upon approval of the proposed transfer of authorities by the stockholders as provided in §611.510, the secretary of the bank and the secretary of the association shall forward to the Farm Credit Administration a certified record of the results of the stockholder votes. (d) Each institution shall notify its stockholders not later than 30 days after the stockholder vote of the final results of the vote. If no petition for reconsideration is filed with the Farm Credit Administration in accordance with §611.525, the transfer shall be effective on the date specified in the transfer plan, or at such later date as may be required by the Farm Credit Administration to grant final approval. Notice of final approval shall be transmitted to the institutions involved. (e) The effective date of a transfer may not be less than 35 days after mailing of the notification to stockholders of the results of the stockholder vote, or 15 days after the date of submission to the Farm Credit Administration of all required documents for the Agency's consideration of final approval, whichever occurs later. If a petition for reconsideration is filed within 35 days after the date of mailing of the notification of stockholder vote, the constituent institutions must agree on a second effective date to be used in the event the transfer is approved on reconsideration. The second effective date may not be less than 60 days after stockholder notification of the results of the first vote, or 15 days after the date of the reconsideration vote, whichever occurs later. [53 FR 50393, Dec. 15, 1988, as amended at 63 FR 64844, Nov. 24, 1998] (a) Upon receipt of approval of a resolution by the Farm Credit Administration, the bank and the association shall call a meeting of their voting stockholders. Each institution shall notify each stockholder that the resolution has been filed and that a meeting will be held in accordance with the institution's bylaws. The stockholders meeting of the bank and the association shall be held within 60 days of receipt of the approval from the Farm Credit Administration. (b) The notice of meeting to consider and act upon the directors' resolution shall be accompanied by an information statement that complies with the requirements of §611.515. (c) The proposal shall be approved if agreed to by: (1) A majority of the stockholders of the bank voting in person or by proxy, with each association entitled to cast a number of votes equal to the number of its voting stockholders; (2) A majority of the stockholders of the association voting, in person or by proxy; (3) The Farm Credit Administration. (a) The bank and association shall prepare an information statement which will inform stockholders about the provisions of the proposed transfer of authorities and the effect of the proposal on the bank and the association. (b) The information statement for each institution involved shall contain the following materials as applicable to the institution: (1) A statement either on the first page of the materials or on the notice of the stockholders meeting, in capital letters and boldface type, that: THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE CONTRARY SHALL BE MADE OR RELIED UPON. (2) A description of the material provisions of the plan under §611.520 and the effect of the transaction on the institution, its stockholders, and the territory to be served. (3) A statement enumerating the potential advantages and disadvantages of the proposed transfer including, but not limited to, changes in operating efficiencies, one-stop service, branch offices, local control, and financial condition. (4) A summary of the provisions of the charter and bylaws following the transfer that differ materially from the charter or bylaws currently existing. (5) A brief statement by the board of directors of the institution setting forth the board's opinion on the advisability of the transfer. (6) A presentation of the following financial data: (i) An audited balance sheet and income statement and notes thereto of the bank or the association, as applicable, for the preceding 2 fiscal years. (ii) If the transfer of authority includes any material transfer of assets, a balance sheet and income statement of the bank and the association showing its financial condition before the transfer of authority and a pro forma balance sheet and income statement for the bank or association, as applicable, showing its financial condition after the transfer. The statements shall meet the following conditions: (A) Such financial statements shall be presented in columnar form, showing the financial condition as of the end of the most recent quarter of the institution, and operating results since the end of the last fiscal year through the end of the most recent quarter of the institution. (B) If the request is made within 90 days after the end of the fiscal year, the institution's financial statements shall be as of the most recent fiscal yearend. (C) If the request is made within 45 days after the end of the most recent quarter, the institution's financial statements shall be as of the end of the quarter preceding the quarter just ended. (D) If the request is made more than 45 days after the end of the most recent quarter, the institution's financial statements shall be as of the end of that quarter. (E) The financial statements must be accompanied by appropriate notes, describing any assets being transferred and including data relating to high-risk assets and other property owned, allowance for loan losses, and current year-to-date chargeoffs. (F) The amount and nature of start-up costs estimated to be associated with the transfer. (7) A description of the type and dollar amount of any financial assistance that has been provided to the bank or the association, as applicable, during the past year; the conditions on which the financial assistance was extended, the terms of repayment or retirement, if any; and, the liability for repayment of this assistance by the bank or the association if the transfer were approved. (8) A statement as to whether the bank or the association, as applicable, would require financial assistance during the first 3 years of operation, the estimated type and dollar amount of the assistance, and terms of repayment or retirement, if known. (9) A statement indicating the possible tax consequences to stockholders and whether any legal opinion, ruling or external auditor's opinion has been obtained on the matter. (10) A presentation of the association's interest rate and fee programs, interest collection policy, capitalization plan and other factors that would affect a borrower's cost of doing business with the association. (11) A description of any event subsequent to the date of the last quarterly report, but prior to the stockholder vote, that would have a material impact on the financial condition of the bank or the association. (12) A statement of any other material fact or circumstances that a stockholder would need in order to make an informed and responsible decision, or that would be necessary in order to provide a disclosure that is not misleading. (13) A form of written proxy, together with instructions on its purpose, use and authorization by the stockholder. The proxy instructions must ensure the secrecy of the stockholder's ballot if the stockholder votes by proxy. (14) A copy of the plan of transfer provided for in §611.520 of this part. (c) No bank or association director, officer, or employee shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to a stockholder of the association in connection with a transfer under this subpart. [53 FR 50393, Dec. 15, 1988, as amended at 58 FR 48790, Sept. 20, 1993] The transfer of authorities and assets, as appropriate, shall occur pursuant to a written plan which shall be agreed to by the bank and the association involved. The written plan shall include the following: (a) An explanation of the value of the equity ownership as of the last monthend held by stockholders of the bank and the association and the impact, if any, of the transfer on the value of that equity. (b) If the plan provides for a transfer of assets, a description of the terms and conditions upon which such transfer will occur, including, but not limited to, any warranties or representations regarding the value of such assets. (c) A description of how the association would obtain loan funds after the transfer. (d) A statement on how the expenses connected with the transfer are to be borne by the affected parties. (e) A statement of any conditions which must be satisfied prior to the effective date of the transfer, including but not limited to approval by stockholders and approval by the Farm Credit Administration. (f) A statement that prior to the effective date of the transfer the board of directors of the bank or the association may rescind its resolution and void the transfer, with the concurrence of the Farm Credit Administration, on the basis that: (1) The information disclosed to stockholders contained material errors or omissions; (2) Material misrepresentations were made to stockholders regarding the impact of the transfer; (3) Fraudulent activities were used to obtain the stockholders' approval; or, (4) An event occurred between the time of the vote and the transfer that would have a significant adverse impact on the future viability of the association. (g) A designation of those persons who have authority to carry out the plan of transfer, including the authority to execute any documents necessary to perfect title, on behalf of the bank and the association. (a) Stockholders have the right to reconsider the approval of the transfer provided that a petition signed by 15 percent of the stockholders of either institution involved in the transfer is filed with the Farm Credit Administration within 35 days after the date of mailing of the notification of the final results of the stockholder vote required under §611.505(d) and such petition is approved by the Farm Credit Administration. (b) A special stockholders meeting shall be called by the institution to vote on the reconsideration following the Farm Credit Administration's approval of a stockholder petition to reconsider the transfer. If a majority of stockholders of any institution involved in the transfer votes against the transfer, the transfer is not approved. Source: 53 FR 50393, Dec. 15, 1988, unless otherwise noted.
(a) An amendment to a bank charter may relate to any provision that is properly the subject of a charter, including, but not limited to, the name of the bank, the location of its offices, or the territory served. (b) The Farm Credit Administration may make changes in the charter of a bank as may be requested by that bank and approved by the Farm Credit Administration pursuant to §611.1010 of this part. (c) The Farm Credit Administration may, in accordance with the provisions of the Act, make changes in the charter of a bank as may be necessary or expedient to implement the provisions of the Act. (a) A bank may recommend a charter amendment to accomplish any of the following actions: (1) A merger or consolidation with any other bank or banks operating under title I or III of the Act; (2) A transfer of territory with any other bank operating under the same title of the Act; (3) A change to its name or location; (4) Any other change that is properly the subject of a bank charter; (b) Upon approval of an appropriate resolution by the bank board, the certified resolution, together with supporting documentation, shall be submitted to the Farm Credit Administration for preliminary or final approval, as the case may be. (c) The Farm Credit Administration shall review the material submitted and either approve or disapprove the request. The Farm Credit Administration may require submission of any supplemental materials it deems appropriate. If the request is for merger, consolidation, or transfer of territory, the approval of Farm Credit Administration will be preliminary only, with final approval subject to a vote of the bank's stockholders. (d) Following receipt of the Farm Credit Administration's written preliminary approval, the proposal shall be submitted for approval to the voting stockholders of the bank. A proposal shall be approved if agreed to by a majority of the stockholders of each bank voting, in person or by proxy, at a duly authorized stockholder meeting with each association entitled to cast a number of votes equal to the number of the association's voting shareholders. (e) Upon approval by the stockholders of the bank, the request for final approval and issuance of the appropriate charter or amendments to charter for the banks involved shall be submitted to the Farm Credit Administration. (a) As authorized under sections 7.0 and 7.12 of the Act, a bank may merge or consolidate with one or more banks operating under the same or different titles of the Act. (b) Where two or more banks plan to merge or consolidate, the banks shall jointly submit to the Farm Credit Administration the documents itemized in §§611.1122(a)(1) through (4), (6), (7), 611.1122(e), and 611.1123. In interpreting those sections, the word “bank” shall be read for the word “association.” (c) No bank director, officer, or employee shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to any stockholder of the bank in connection with a bank merger or consolidation. (d) Upon approval of a proposed bank merger or consolidation by the stockholders of each constituent bank, the following documents shall be submitted from the constituent banks to the Farm Credit Administration for final approval and issuance of the appropriate charters or amendments to charter: (1) A certified copy of the stockholders' resolution, on which the stockholders cast their votes, from each constituent bank; (2) A certification of the stockholder vote from the corporate secretary of each bank or from an independent third party; (3) An Agreement of Merger or Consolidation duly executed by those authorized to sign on behalf of each constituent bank. Any application for the issuance of a charter to a new production credit association or Federal land bank association shall meet the requirements of sections 2.0 or 2.10, respectively, of the Act. Any application for the issuance of a charter for an agricultural credit association shall meet the requirements of section 2.0 of the Act. (a) An amendment to an association charter may relate to any provision that is properly the subject of a charter, including, but not limited to, the name of the association, the location of its offices, or the territory served. (b) The Farm Credit Administration may make changes in the charter of an association as may be requested by that association and approved by the Farm Credit Administration pursuant to §611.1121 of this part. (c) The Farm Credit Administration may, by order of the Chairman and on its own initiative, make changes in the charter of a Federal land bank association or a production credit association where the Chairman determines that the change is necessary for the accomplishment of the purposes of the Act. [50 FR 20400, May 16, 1985, as amended at 51 FR 41945, Nov. 20, 1986] This section shall apply to any request by an association to amend its charter. (a) An association which proposes to amend its charter shall submit a request to its supervising bank containing the following information: (1) A statement of the provision(s) of the charter that the association proposes to amend and the proposed amendment(s); (2) A statement of the reasons for the proposed amendment(s), the impact of the amendment(s) on the association and its stockholders, and the requested effective date of the amendment(s); (3) A certified copy of the resolution of the board of directors of the association approving the amendment(s); (4) Any additional information or documents that the association wishes to submit in support of the request or that may be requested by the supervising bank. (b) Upon receipt of a proposed amendment from an association, the district bank shall review the materials submitted and provide the association with its analysis of the proposal within a reasonable period of time. Concurrently, the bank shall communicate its recommendation on the proposal to the Farm Credit Administration, including the reasons for the recommendation, and any analysis the bank believes appropriate. Following review by the bank, the association shall transmit the proposed amendment with attachments to the Farm Credit Administration. (c) Upon receipt of an association's request for a charter amendment, the Farm Credit Administration shall review the materials submitted and either approve or disapprove the request. The Farm Credit Administration may require submission of any supplemental materials it deems appropriate. (d) The Farm Credit Administration shall notify the association of its approval or disapproval of the amendment request, and provide a copy of such communication to the bank. A notification of approval shall be accompanied by a copy of the charter, as amended. [50 FR 20400, May 16, 1985, as amended at 51 FR 32441, Sept. 12, 1986] This section shall apply to any request for approval of a proposed merger or consolidation of associations. A merger involves the combination of one or more associations into a continuing constituent association, which retains its charter and bylaws (except as amended to effect the merger proposal). A consolidation involves the combination of two or more associations into a newly organized association having a new charter and bylaws. (a) Where two or more associations plan to merge or consolidate, or where the district board has adopted a reorganization plan for the associations in the district, the associations involved shall jointly submit a request to the district bank containing the following: (1) In the case of a merger, a copy of the charter of the continuing association reflecting any proposed amendments. In the case of consolidation, a copy of the proposed charter of the new association; (2) A statement of the reasons for the proposed merger or consolidation, the impact of the proposed transaction on the associations and their stockholders, and the planned effective date of the merger or consolidation; (3)(i) A certified copy of the resolution of the board of directors of each association recommending approval of the merger or consolidation; or (ii) In the case of a district reorganization plan, a certified copy of the resolution of the board of directors of each association recommending either approval or disapproval of the proposal. (4) A copy of the agreement of merger or consolidation; (5) Two signed copies of the continuing or proposed Articles of Association; (6) All of the information specified in paragraph (e) of this section; and (7) Any additional information or documents each association wishes to submit in support of the request or that the supervising bank or the Farm Credit Administration requests. (b) Upon receipt of a request for approval of an association merger or consolidation, the district bank shall review the materials submitted to determine whether they comply with the requirements of these regulations and shall communicate with the associations concerning any deficiency. When the bank approves the request to merge or consolidate it shall notify the associations and the Farm Credit Administration of its approval together with the reasons for its approval and any supporting analysis the bank deems appropriate. The associations shall jointly submit the proposal together with required documentation to the Farm Credit Administration for preliminary approval. (c) Upon receipt of an association merger or consolidation request, the Farm Credit Administration shall review the request and either deny or give its preliminary approval to the request. When a request is denied, written notice stating the reasons for the denial shall be transmitted to the associations and a copy provided to the bank. When a request is preliminarily approved, written notice of the preliminary approval shall be given to the associations and a copy provided to the bank. Preliminary approval by the Farm Credit Administration shall not constitute approval of the merger or consolidation. Approval of a merger or consolidation shall be only pursuant to paragraph (g) of this section. (d) Upon receipt of preliminary approval by the Farm Credit Administration of a merger or consolidation request, each constituent association shall call a meeting of its voting stockholders. The meeting shall be called on written notice to each stockholder entitled to vote on the transaction, and held in accordance with the terms of each association's bylaws. The affirmative vote of a majority of the voting stockholders of each association present and voting or voting by written proxy at a meeting at which a quorum is present shall be required for stockholder approval of a merger or consolidation proposal. (e) Notice of the meeting to consider and act upon a proposed merger or consolidation of associations shall be accompanied by the following information covering each constituent association. (1) A statement either on the first page of the materials or on the notice of the stockholders' meeting, in capital letters and bold face type, that: THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE CONTRARY SHALL BE MADE OR RELIED UPON. (2) A description of the material provisions of the agreement of merger or consolidation and the effect of the proposed merger or consolidation on the associations, their stockholders, the new or continuing board of directors, and the territory to be served. In addition, a copy of the agreement must be furnished with the notice to stockholders. (3) A summary of the provisions of the charter and bylaws of the continuing or new association that differ materially from the existing charter or bylaw provisions of the constituent associations. (4) A brief statement by the boards of directors of the constituent associations setting forth the basis for the boards' recommendation on the merger or consolidation. (5) A description of any agreement or arrangement between a constituent association and any of its officers relating to employment or termination of employment and arising from the merger or consolidation. (6) A presentation of the following financial data: (i) A balance sheet and income statement for each constituent association for each of the 2 preceding fiscal years. (ii) A balance sheet for each constituent association as of a date within 90 days of the date the request for preliminary approval is forwarded to the Farm Credit Administration presented on a comparative basis with the corresponding period of the prior fiscal year. (iii) An income statement for the interim period between the end of the last fiscal year and the date of the required balance sheet presented on a comparative basis with the corresponding period of the preceding fiscal year. The balance sheet and income statement format shall be that contained in the association's annual report to stockholders; shall contain any significant changes in accounting policies that differ from those in the latest association annual report to stockholders; and shall contain appropriate footnote disclosures, including data relating to high-risk assets and other property owned, and allowance for loan losses, including net chargeoffs as required in paragraph (e)(10) of this section. (7) The financial statements (balance sheet and income statement) shall be in sufficient detail to show separately all significant categories of interest-earning assets and interest-bearing liabilities and the income or expense accrued thereon. (8) Attached to the financial statements for each constituent association, either: (i) A statement signed by the chief executive officer and each member of the board of directors of the association that the various financial statements are unaudited, but have been prepared in all material respects in accordance with generally accepted accounting principles (except as otherwise disclosed therein) and are, to the best of the knowledge of the board, a fair and accurate presentation of the financial condition of the association; or (ii) A signed opinion by an independent certified public accountant that the various financial statements have been examined in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances, and, as of the date of the statements, present fairly the financial position of the association in conformity with generally accepted accounting principles applied on a consistent basis, except as otherwise noted thereon. (9) A presentation for each constituent association regarding its policy on accounting for loan performance, together with the number and dollar amount of loans in all performance categories, including those categorized as high-risk assets. (10) Information of each constituent association concerning the amount of loans charged off in each of the 2 fiscal years preceding the date of the balance sheet, the current year-to-date net chargeoff amount, and the balance in the allowance for loan losses account and a statement regarding whether, in the opinion of management, the allowance for loan losses is adequate to absorb the risk currently existing in the loan portfolio. This information may be appropriately included in the footnotes to the financial statements. (11) A management discussion and analysis of the financial condition and results of operation for the past 2 fiscal years for each constituent institution. This requirement can be satisfied by including the materials contained in the management discussion and analysis of each institution's most recent annual report. (12) A discussion of any material changes in financial condition of each constituent institution from the end of the last fiscal year to the date of the interim balance sheet provided. (13) A discussion of any material changes in the results of operations of each constituent institution with respect to the most recent fiscal-year-to-date period for which an income statement is provided. (14) A discussion of any change in the tax status of the new institution from those of the constituent institutions as a result of merger or consolidation. A statement on any adverse tax consequences to the stockholders of the institution as a result of the change in tax status. (15) A statement on the proposed institution's relationship with an independent public accountant, including any change that may occur as a result of the merger or consolidation. (16) A pro forma balance sheet of the continuing or consolidated association presented as if the merger or consolidation had occurred as of the date on the balance sheets required in paragraph (e)(6) of this section, as recommended to the stockholders. A pro forma summary of earnings for the continuing or consolidated association presented as if the merger or consolidation had been effective at the beginning of the interim period between the end of the last fiscal year and the date of the balance sheets. (17) A description of the type and dollar amount of any financial assistance that has been provided during the past year or will be provided by the supervising bank or other party to assist the constituent or the continuing or new association(s), the conditions on which financial assistance has been or will be extended, the terms of repayment or retirement, if any, and the impact of the assistance on the subject association(s) or the stockholders. (18) A presentation for each constituent association of interest rate comparisons for the last 2 fiscal years preceding the date of the balance sheet, together with a statement of the continuing or new association's proposed interest rate and fee programs, interest collection policies, capitalization rates, dividends or patronage refunds, and other factors that would affect a borrower's cost of doing business with the continuing or new association. Where agreement has not been reached on such matters, current related information shall be presented for each constituent association. (19) A description for each constituent association of any event subsequent to the date of the financial statements, but prior to the merger or consolidation vote, that would have a material impact on the financial condition of the constituent or continuing or new association(s). (20) A statement of any other material fact or circumstance that a stockholder would need in order to make an informed decision on the merger or consolidation proposal, or that is necessary to make the required disclosures not misleading. (21) Where proxies are to be solicited, a form of written proxy, together with instructions on the purpose and authority for its use, and the proper method for signature by the stockholder. (f) No bank or association, or director, officer, or employee thereof, shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to a stockholder of any association in connection with an association merger or consolidation. (g) Upon approval of a proposed merger or consolidation by the stockholders of the constituent associations, a certified copy of the stockholders' resolution shall be forwarded to the Farm Credit Administration. Each constituent association shall notify its stockholders not later than 30 days after the stockholder vote of the final results of the vote. If no petition is filed with the Farm Credit Administration to reconsider the vote, upon final approval by the FCA, the merger or consolidation shall be effective on the date specified in the merger agreement or at such later date as may be required by the Farm Credit Administration to grant final approval. Notice of final approval shall be transmitted to the associations and a copy provided to the affiliated bank. (h) No director, officer, or employee of a bank or an association shall make an oral or written representation to any person that a preliminary or final approval by the Farm Credit Administration of an association merger or consolidation constitutes, directly or indirectly, either a recommendation on the merits of the transaction or an assurance concerning the adequacy or accuracy of any information provided to any association's stockholders in connection therewith. (i) The notice and accompanying information required under paragraph (e) of this section shall not be sent to stockholders until preliminary approval of the merger or consolidation has been given by the Farm Credit Administration. (j) Where a proposed merger or consolidation will involve more than three associations, the Farm Credit Administration may require the supplementation, or allow the condensation or omission of any information required under paragraph (e) of this section in furtherance of meaningful disclosure to stockholders. Any waiver sought under this paragraph shall be obtained before preparation of the financial statements and accompanying schedules required under paragraph (e) of this section. (k) The effective date of a merger or consolidation may not be less than 35 days after the date of mailing of the notification to stockholders of the results of the stockholder vote, or 15 days after the date of submission to the Farm Credit Administration of all required documents for the Agency's consideration of final approval, whichever occurs later. If a petition for reconsideration is filed within 35 days after mailing of the notification to stockholders of the results of the stockholder vote, the constituent institutions must agree on a second effective date to be used in the event the merger or consolidation is approved on reconsideration. The second effective date may not be less than 60 days after stockholder notification of the results of the first vote, or 15 days after the date of the reconsideration vote, whichever occurs later. [50 FR 20400, May 16, 1985; 50 FR 32165, Aug. 9, 1985, as amended at 51 FR 32441, Sept. 12, 1986; 53 FR 50396, Dec. 15, 1988; 56 FR 2674, Jan. 24, 1991; 58 FR 48790, Sept. 20, 1993; 63 FR 64844, Nov. 24, 1998] (a) Associations operating under the same title of the Act may merge or consolidate voluntarily only pursuant to a written agreement. The agreement shall set forth all of the terms of the transaction, including, but not limited to, the following: (1) The proposed effective date of the merger or consolidation. (2) The proposed name and headquarters location of the continuing or consolidated association. (3) The names of the persons nominated to serve as directors until the first regular annual meeting of the continuing or consolidated association to be held after the effective date of the merger or consolidation. Any director of a constituent association may be designated in the agreement to serve as a director of the continuing or consolidated association for a period not to exceed his or her current term, after which he or she must stand for reelection. However, the terms of the agreement must provide for the election of at least one director at each annual meeting subsequent to the effective date of the merger or consolidation. The bylaws of the continuing or consolidated association shall reflect the provisions of the merger or consolidation agreement regarding director terms. (4) A statement of the formula to be used to exchange the stock of the constituent associations for the stock of the continuing or consolidated association. No fractional shares of stock shall be issued. (5) A statement of any conditions which must be satisfied prior to the effective date of the proposed transaction, including but not limited to approval by stockholders, the supervising bank, and the Farm Credit Administration. (6) A statement of the representations or warranties, if any, made or to be made by any association, or its officers, directors, or employees that is a party to the proposed transactions. (7) A statement that the board of directors of each constituent association can terminate the agreement before the effective date upon a determination by an association, with the concurrence of the Farm Credit Administration, that: (i) The information disclosed to stockholders contained material errors or omissions; (ii) Material misrepresentations were made to stockholders regarding the impact of the merger or consolidation; (iii) Fraudulent activities were used to obtain stockholders' approval; or (iv) An event occurred between the time of the vote and the merger that would have a significant adverse impact on the future viability of the continuing institution. (8) A description of the legal opinions or rulings (including those related to tax matters), if any, that have been obtained or furnished by any party in connection with the proposed transaction. Also, refer to paragraph (a)(5) of this section. (9) The capitalization plan and capital structure for the new institution and a statement that the capitalization plan shall comply with applicable FCA regulations. (10) Provision for the employee benefits plan, its subsequent continuation or adaptation by the board of directors of the proposed institution following the merger or consolidation. (11) A statement of the authority of those persons designated to carry out the terms of the agreement, including the authority to waive provisions of the agreement and to execute any documents necessary to perfect title, on behalf of the constituent associations. (b) As an attachment to the agreement, set forth those provisions of the charter and bylaws of the continuing or consolidated association which differ from the existing charter or bylaw provisions of the constituent associations. (c) Stockholders have the right to reconsider the approval of the merger provided that a petition signed by 15 percent of the stockholders eligible to vote of one or more of the constituent institutions is filed with the Farm Credit Administration within 35 days after the date of mailing the notification of the final results of the stockholder vote required under §611.1122(g). The Farm Credit Administration will review the petition to determine whether it complies with the requirements of section 7.9 of the Act. Following a determination that the petition complies with the applicable requirements, a special stockholders meeting shall be called by the institution to reconsider the vote. If a majority of the stockholders voting, in person or by proxy, of any one of the constituent institutions that is a party to the merger vote against the merger, the merger shall not take place. [50 FR 20400, May 16, 1985, as amended at 51 FR 32442, Sept. 12, 1986; 53 FR 50396, Dec. 15, 1988] This section shall apply to any request submitted to the Farm Credit Administration to modify association charters for the purpose of transferring territory from one association to another. (a) Territorial adjustments, except as specified in paragraph (m) of this section, require approval of a majority of the voting stockholders of each association present and voting or voting by written proxy at a duly authorized meeting at which a quorum is present. (b) When two or more associations agree to transfer territory, each association shall submit a proposal to the district bank containing the following: (1) A statement of the reasons for the proposed transfer and the impact the transfer will have on its stockholders and holders of participation certificates; (2) A certified copy of the resolution of the board of directors of each association approving the proposed territory transfer; (3) A copy of the agreement to transfer territory that contains the following information: (i) A description of the territory to be transferred. (ii) Transferor association's plan to transfer loans and the types of loans to be transferred. (iii) Transferor association's plan to retire and transferee association's plan to issue equities held by holders of stock, participation certificates, and allocated equities, if any, and a statement by each association that the book value of its equities is at least equal to par. (iv) An inventory of the assets to be sold by the transferor association and purchased by the transferee association. (v) An inventory of the liabilities to be assumed from the transferor association by the transferee association. (vi) A statement that the holders of stock and participation certificates whose loans are subject to transfer have 60 days from the effective date of the territory transfer to inform the transferor association of their decision to remain with the transferor association for normal servicing until the current loan is paid. (vii) A statement that the transfer is conditioned upon the approval of the stockholders of each constituent association. (viii) The effective date of the proposed territory transfer. (4) A copy of the stockholder disclosure statement provided for in paragraph (f) of this section; and (5) Any additional relevant information or documents that the association wishes to submit in support of its request or that may be required by the Farm Credit Administration. (c) Upon receipt of documents supporting a proposed territory transfer, the district bank shall review the materials submitted and provide the associations with its analysis of the proposal within a reasonable period of time. The bank shall concurrently advise the Farm Credit Administration of its recommendation regarding the proposed territory transfer. Following review by the bank, the associations shall transmit the proposal to the Farm Credit Administration together with all required documents. (d) Upon receipt of an association's request to transfer territory, the Farm Credit Administration shall review the request and either deny or give preliminary approval to the request. When a request is denied, written notice stating the reasons for the denial shall be transmitted to the associations, and a copy provided to the bank. When a request is preliminarily approved, written notice of the preliminary approval shall be transmitted to the associations, and a copy provided to the bank. Preliminary approval by the Farm Credit Administration shall not constitute approval of the territory transfer. Final approval shall be granted only in accordance with paragraph (h) of this section. (e) Upon receipt of preliminary approval by the Farm Credit Administration, each constituent association shall, by written notice, and in accordance with its bylaws, call a meeting of its voting stockholders. The affirmative vote of a majority of the voting stockholders of each association present and voting or voting by written proxy at a meeting at which a quorum is present shall be required for stockholder approval of a territory transfer. (f) Notice of the meeting to consider and act upon a proposed territory transfer shall be accompanied by the following information covering each constituent association: (1) A statement either on the first page of the materials or on the notice of the stockholders' meeting, in capital letters and bold face type, that:
THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE CONTRARY SHALL BE MADE OR RELIED UPON. (2) A copy of the Agreement to Transfer Territory and a summary of the major provisions of the Agreement. (3) The reason the territory transfer is proposed. (4) A map of the association's territory as it would look after the transfer. (5) A summary of the differences, if any, between the transferor and transferee associations' interest rates, interest rate policies, collection policies, service fees, bylaws, and any other items of interest that would impact a borrower's lending relationship with the institution. (6) A statement that all loans of the transferor association that finance operations located in the transferred territory shall be transferred to the transferee association except as otherwise provided for in this section or in accordance with agreements between the associations as provided for in §614.4070 of this chapter. (7) Where proxies are to be solicited, a form of written proxy, together with instructions on the purpose and authority for its use, and the proper method for signature by the stockholders. (8) A statement that the associations' bylaws, financial statements for the previous 3 years, and any financial information prepared by the associations concerning the proposed transfer of territory are available on request to the stockholders of any association involved in the transaction. (g) No bank or association, or director, officer, or employee thereof, shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to a stockholder of any association in connection with a territory transfer. (h) Upon approval of a proposed territory transfer by the stockholders of the constituent associations, a certified copy of the stockholders' resolution for each constituent association and one executed Agreement to Transfer Territory shall be forwarded to the Farm Credit Administration. The territory transfer shall be effective when thereafter finally approved and on the date as specified by the Farm Credit Administration. Notice of final approval shall be transmitted to the associations and a copy provided to the bank. (i) No director, officer, or employee of a bank or an association shall make an oral or written representation to any person that a Preliminary or final approval by the Farm Credit Administration of a territory transfer constitutes, directly or indirectly, a recommendation on the merits of the transaction or an assurance concerning the adequacy or accuracy of any information provided to any association's stockholders in connection therewith. (j) The notice and accompanying information required under paragraph (f) of this section shall not be sent to stockholders until preliminary approval of the territory transfer has been granted by the Farm Credit Administration. (k) Where a territory transfer is proposed simultaneously with a merger or consolidation, both transactions may be voted on by stockholders at the same meeting. Only stockholders of a transferee or transferor association shall vote on a territory transfer. (l) Each borrower whose real estate or operations is located in a territory that will be transferred shall be provided with a written Notice of Territory Transfer immediately after the Farm Credit Administration has given final approval of the territory transfer. The Notice shall inform the borrower of the transfer of the borrower's loan to the transferee association and the exchange of related equities for equities of like kinds and amounts in the transferee association. If a like kind of equity is not available in the transferee association, similar equities shall be offered that will not adversely affect the interest of the owner. The Notice shall give the borrower 60 days from the effective date of the territory transfer to notify the transferor association in writing if the borrower decides to stay with the transferor association for normal servicing until the current loan is paid. Any application by the borrower for renewal or for additional credit shall be made to the transferee association, except as otherwise provided for by an agreement between associations in accordance with §614.4070 of this chapter. (m) This section shall not apply to territory transfers initiated by order of the Chairman of the Farm Credit Administration or to territory transfers due to the liquidation of the transferor association. (n) Where a proposed action involves the transfer of a portion of an association's territory to an association operating in a different district, such proposal must comply with the provisions of this section and §611.1090 of this part. [51 FR 32442, Sept. 12, 1986] (a) Issuance of charters. When issuing charters or certificates of territory for districtwide mergers or consolidations of associations, the Farm Credit Administration will not issue any charters or certificates of territory that include the territory of one or more associations whose stockholders voted to disapprove the merger or consolidation. (b) A district bank shall not take any of the following actions with respect to an association that has determined to not participate in a districtwide merger or consolidation: (1) Discriminate in the provision of any financial service and assistance, including, but not limited to, access to loan funds and rates of interest on loans and discounts offered by the district bank to associations and their member/borrowers; (2) Discriminate in the provision of any related services that are offered by the district bank to associations and their member/borrowers; (3) Discriminate in the provision of any professional assistance that may be normally provided by the district bank to associations; or (4) Discriminate in the provision of any technical assistance that may be normally provided by the district bank to associations. (c) This regulation does not prohibit a district bank from taking any action with respect to an association, including, but not limited to, charging different rates of interest or different prices for services, or declining to provide financial assistance; provided that any such action is fully documented and based on an objective analysis of applicable criteria that are uniformly and consistently applied by the district bank to all associations in the district. [51 FR 32443, Sept. 12, 1986, as amended at 60 FR 34099, June 30, 1995] (a) Section 5.17(a)(6) of the Act authorizes the FCA to regulate the borrowing, repayment, and transfer of funds and equities between institutions of the System, including banks, associations, and service organizations organized under the Act. This section sets forth the circumstances and procedures under which the FCA may direct such a transfer of funds and equities based on its determination with respect to the financial condition of one or more institutions of the System. For purposes of this section, the term “bond” refers to long-term notes, bonds, debentures, or other similar obligations, or short-term discount notes issued by one or more banks pursuant to section 4.2 of the Act. (b) The FCA may direct a transfer of funds or equities by one or more banks of the System to another bank of the System where it determines that: (1) The receiving institution will not be able to make payments of principal or interest on bonds for which it is primarily liable within the meaning of section 4.4(a) of the Act; or (2) The common or preferred stock, participation certificates, or allocated equities of the receiving institution have a book value less than their par or stated values; or (3) The total bonds outstanding for which the receiving institution is primarily liable exceed 20 times the combined capital and surplus accounts of the bank; or (4) Based on application to it of one or more of the following ratios, the receiving institution is not financially viable in that it will not be able to continue to extend new or additional credit or financial assistance to its eligible borrowers: (i) The ratio of stock to earned net worth (including legal reserve, unallocated and reserved surplus, undistributed earnings, and allowance for losses) exceeds 2 to 1; (ii) The ratio of the outstanding bonds to capital and surplus exceeds 15 to 1; (iii) Nonearning assets (any noninterest-bearing assets, including but not limited to cash, noninterest-earning loans, net fixed assets, other property owned, accrued interest receivable, and accounts receivable) exceed 15 percent of total assets; (iv) Lendable net worth (interest-earning assets less interest-bearing liabilities) is zero or less. (c) The FCA may direct a transfer of funds or equities between two or more Federal land bank associations or two or more production credit associations in district where it determines that such transfer: (1) Is necessary to provide financial support to the district bank in which those associations are stockholders based on application of the criteria to the bank as set forth in paragraph (b) of this section; or (2) Is necessary to provide financial support to one or more other like associations in the district based on application of the criteria set forth in paragraph (b)(2) or (b)(4) of this section to the associations, provided that in applying paragraph (b)(4)(ii) of this section the ratio of outstanding indebtedness to capital and surplus of the receiving association(s) shall not exceed 9 to 1; or (3) Is an integral part of a plan that has been adopted by other institutions of the System, and approved by the FCA, under which those institutions will extend financial assistance to the district bank in which those associations are stockholders. (d) A direction by the FCA for a transfer of funds or equities pursuant to this section shall be signed by the Chairman and shall establish the amount, timing, duration, repayment, and other terms of assessments necessary to accomplish such transfer, taking into consideration the financial condition of each institution to be assessed. Where the FCA directs a transfer of funds or equities between associations under paragraph (c) (1) or (2) of this section, it may authorize the district bank in which such associations are stockholders to accomplish the necessary assessments through debits and credits to the accounts of the bank. [50 FR 36986, Sept. 11, 1985. Redesignated at 51 FR 8666, Mar. 13, 1986, as amended at 51 FR 41945, Nov. 20, 1986; 58 FR 48790, Sept. 20, 1993; 59 FR 21643, Apr. 26, 1994] Source: 66 FR 16843, Mar. 28, 2001, unless otherwise noted.
(a) What is the process for chartering a service corporation? A Farm Credit bank or association (you or your) may organize a corporation acting alone or with other Farm Credit banks or associations to perform, for you or on your behalf, any function or service that you are authorized to perform under the Act and Farm Credit Administration (we, us, or our) regulations, with two exceptions. Those exceptions are that your corporation may not extend credit or provide insurance services. To organize a service corporation, you must submit an application to us following the applicable requirements of paragraph (c) of this section. If what you propose in your application meets the requirements of the Act, our regulations, and any other conditions we may impose, we may issue a charter for your service corporation making it a federally chartered instrumentality of the United States. Your service corporation will be subject to examination, supervision, and regulation by us. (b) Who may own equities in your service corporation? All Farm Credit banks and associations are eligible to become stockholders in your service corporation. Your service corporation may also issue non-voting and voting stock to persons that are not Farm Credit institutions, provided that at least 80 percent of the voting stock is at all times held by Farm Credit institutions. For the purposes of this subpart, we define persons as individuals or legal entities organized under the laws of the United States or any state or territory thereof. (c) What must be included in your application to form a service corporation? Your application for a corporate charter must include: (1) The certified resolution of the board of each organizing bank or association authorizing the incorporation; (2) A request signed by the president(s) of the organizing bank(s) or association(s) to us to issue a charter, supported by a detailed statement demonstrating the need and the justification for the proposed entity; and (3) The proposed articles of incorporation addressing, at a minimum, the following: (i) The name of your corporation; (ii) The city and state where the principal offices of your corporation are to be located; (iii) The general purposes for the formation of your corporation; (iv) The general powers of your corporation; (v) The procedures for a Farm Credit bank or association or persons that are not Farm Credit institutions to become a stockholder; (vi) The procedures to adopt and amend your corporation's bylaws; (vii) The title, par value, voting and other rights, and authorized amount of each class of stock that your corporation will issue and the procedures to retire each class; (viii) The notice and quorum requirement for a meeting of shareholders, and the vote required for shareholder action on various matters; (ix) The procedures and shareholder voting requirements for the merger, voluntary liquidation, or dissolution of your corporation or the distribution of corporate assets; (x) The standards and procedures for the application and distribution of your corporation's earnings; and (xi) The length of time your corporation will exist. (4) The proposed bylaws, which must include the provisions required by §615.5220(b) of this chapter; (5) A statement of the proposed amounts and sources of capitalization and operating funds; (6) Any agreements between the organizing banks and associations relating to the organization or the operation of the corporation; and (7) Any other supporting documentation that we may request. (d) What will we do with your application? If we approve your completed application, we will issue a charter for your service corporation as a corporate body and a federally chartered instrumentality. We may condition the issuance of a charter, including imposing minimum capital requirements, as we deem appropriate. For good cause, we may deny your application. (e) Once your service corporation is formed, how are its articles of incorporation amended? Your service corporation's articles of incorporation may be amended in either of two ways: (1) The board of directors of the corporation may request that we amend the articles of incorporation by sending us a certified resolution of the board of directors of the service corporation that states the: (i) Section(s) to be amended; (ii) Reason(s) for the amendment; (iii) Language of the articles of incorporation provision, as amended; and (iv) Requisite shareholder approval has been obtained. The request will be subject to our approval as stated in paragraphs (a) and (c) of this section. (2) We may at any time make any changes in the articles of incorporation of your service corporation that are necessary and appropriate for the accomplishment of the purposes of the Act. (f) When your service corporation issues equities, what are the disclosure requirements? Your service corporation must provide the disclosures described in §615.5255 of this chapter. [66 FR 16843, Mar. 28, 2001, as amended at 70 FR 53907, Sept. 13, 2005] (a) What regulations apply to a service organization? Because a service organization is formed by banks and associations, it is subject to applicable Farm Credit Administration (we, our) regulations. (b) Who examines a service organization? We examine service organizations. (c) What types of service organizations are subject to our regulations and examination? All incorporated service corporations and unincorporated service organizations formed by banks and associations are subject to our regulations and examination. (a) What is a title VIII service corporation? A title VIII service corporation is a service corporation organized for the purpose of exercising the authorities granted under title VIII of the Act to act as an agricultural mortgage marketing facility. (b) How do I form a title VIII service corporation? A title VIII service corporation is formed and subject to the same requirements as a service corporation formed under §611.1135, with one exception. The Federal Agricultural Mortgage Corporation or its affiliates may not form or own stock in a title VIII service corporation. Source: 67 FR 17909, Apr. 12, 2002, unless otherwise noted.
Link to an amendment published at 71 FR 44420, Aug. 4, 2006. The regulations in this subpart apply to each bank and association that desires to terminate its System institution status and become chartered as a bank, savings association, or other financial institution. Assets means all assets determined in conformity with GAAP, except as otherwise required in this subpart. GAAP means “generally accepted accounting principles” as that term is defined in §621.2(c) of this chapter. OFI means an “other financing institution” that has a funding and discount agreement with a Farm Credit bank under section 1.7(b)(1) of the Act. Successor institution means the bank, savings association, or other financial institution that the terminating bank or association will become when we revoke its Farm Credit charter. (a) Adoption of commencement resolution. Your board of directors must begin the termination process by adopting a commencement resolution stating your intention to terminate Farm Credit status under section 7.10 of the Act. (b) Advance notice. Within 5 days after adopting the commencement resolution, you must: (1) Send a certified copy of the commencement resolution to us and the Farm Credit System Insurance Corporation (FCSIC). If your institution is an association, also send a copy to your affiliated bank. If your institution is a bank, also send a copy to your affiliated associations, the other Farm Credit banks, the Federal Farm Credit Banks Funding Corporation (Funding Corporation), and the Farm Credit System Financial Assistance Corporation (FAC); (2) Mail an announcement to all equity holders stating you are taking steps to terminate Farm Credit status and describing the following: (i) The process of termination; (ii) The expected effect of termination on equity holders, including the effect on borrower rights and the consequences of any stock retirements before termination; (iii) The type of charter the successor institution will have; and (iv) Any bylaw creating a special class of borrower stock and participation certificates under paragraph (f) of this section. (c) Bank negotiations on joint and several liability. If your institution is a terminating bank, within 10 days of adopting the commencement resolution, your bank and the other Farm Credit banks must begin negotiations to provide for your satisfaction of liabilities (other than your primary liability) under section 4.4 of the Act. The Funding Corporation may, at its option, be a party to the negotiations to the extent necessary to fulfill its duties with respect to financing and disclosure. The agreement must comply with the requirements in §611.1270(c). (d) Disclosure to customers after commencement resolution. Between the date of the commencement resolution and the termination date, you must give the following information to your customers: (1) For each applicant who is not a current stockholder, describe at the time of loan application: (i) The effect of the proposed termination on the borrower's loan; and (ii) Whether the borrower will continue to have any of the borrower rights provided under the Act and regulations. (2) For any equity holders who ask to have their equities retired, explain that the retirement would extinguish the holder's right to exchange those equities for an interest in the successor institution. In addition, inform holders of equities entitled to your residual assets in liquidation that retirement before termination would extinguish their right to dissent from the termination and have their equities retired. (e) Terminating bank's right to continue issuing debt. Through the termination date, a terminating bank may continue to participate in the issuance of consolidated and Systemwide obligations to the same extent it would be able to participate if it were not terminating. (f) Special class of stock. Notwithstanding any requirements to the contrary in §615.5230(b) of this chapter, you may adopt bylaws providing for the issuance of a special class of stock and participation certificates between the date of adoption of a commencement resolution and the termination date. Your stockholders must approve the special class before you adopt the commencement resolution. The equities must comply with section 4.3A of the Act and be identical in all respects to existing classes of equities that are entitled to the residual assets of the institution in a liquidation, except for the value a holder will receive in a termination. In a termination, the holder of the special class of stock receives value equal to the lower of either par (or face) value, or the value calculated under §611.1280(c) and (d). A holder must have the same right to vote (if the equity is held on the voting record date) and to dissent as holders of similar equities issued before the commencement resolution. If the termination does not occur, the special classes of stock and participation certificates must automatically convert into shares of the otherwise identical equities. (a) Statements about termination. Neither the institution nor any director, officer, employee, or agent may make any untrue or misleading statement of a material fact, or fail to disclose any material fact, about the termination to a current or prospective equity holder. (b) Representations regarding FCA approval. Neither the institution nor any director, officer, employee, or agent may make an oral or written representation to anyone that a preliminary or final approval of the termination by us is, directly or indirectly, either a recommendation on the merits of the proposal or an assurance that the information you give to your equity holders is adequate or accurate. (a) Adoption of termination resolution. Your board must adopt a termination resolution authorizing the application for termination and for a new charter. (b) Contents of termination application. Send us an original and five copies of the termination application for review and preliminary approval. If you send us the application in electronic form, you must send us at least one hard copy application with original signatures. The application must contain: (1) A certified copy of the termination resolution; (2) A copy of the plan of termination required under §611.1222; (3) An information statement that complies with §611.1223; (4) All other information that you give to current or prospective equity holders in connection with the termination; and (5) Any additional information that either we request or your board of directors wishes to submit in support of the application. (c) Requirement to update application. You must immediately send us any material changes to information in the plan of termination, including financial information, that occur between the date you file the application and the termination date. In addition, send us copies of any additional written information on the termination that you give to current or prospective equity holders before termination. If we receive the termination application required in §611.1220 less than 30 days after receiving the advance notice, we may in our discretion disapprove the application. The plan of termination must include: (a) Copies of all contracts, agreements, and other documents on the proposed termination and organization of the successor institution. (b) A statement of how you will transfer assets to, and have your liabilities assumed by, the successor institution. (c) Your plan to retire outstanding equities or convert them to equities of the successor institution. (d) A copy of the charter application for the successor institution, with any exhibits or other supporting information. (e) A statement, if applicable, whether the successor institution will continue to borrow from a Farm Credit bank and how such a relationship will affect your provision for payment of debts. The plan of termination must include evidence of any agreement and plan for satisfaction of outstanding debts (including amounts you owe to the FAC because of the termination). (a) Plain language requirements. (1) Present the contents of the information statement in a clear, concise, and understandable manner. (2) Use short, explanatory sentences, bullet lists or charts where helpful, and descriptive headings and subheadings. (3) Minimize the use of glossaries or defined terms. (4) Write in the active voice when possible. (5) Avoid legal and highly technical business terminology. (b) Disclaimer. Place the following statement in boldface type in the material sent to equity holders, either on the notice of meeting or the first page of the information statement:
The Farm Credit Administration has not determined if this information is accurate or complete. You should not rely on any statement to the contrary. (c) Summary. The first part of the information statement must be a summary that concisely explains: (1) Which stockholders have a right to vote on termination; (2) The material changes the termination will cause to the rights of stockholders, borrowers, and other equity holders; (3) The effect of those changes; (4) The potential benefits and disadvantages of the termination; (5) The right of certain stockholders to dissent and receive payment for their existing equities; and (6) The proposed termination date. (d) Remaining requirements. The rest of the information statement must contain the following: (1) Plan of termination. Describe the plan of termination. (2) Benefits and disadvantages. Provide the following information: (i) An enumerated statement of the anticipated benefits and potential disadvantages of the termination; (ii) An explanation of the preliminary exit fee estimate, with any adjustments we require, and estimated expenses of termination and organization of the successor institution; and (iii) An explanation of the board's basis for recommending the termination. (3) Initial board of directors. List the initial board of directors and senior officers for the successor institution, with a brief description of the business experience of each person, including principal occupation and employment during the past 5 years. (4) Bylaws and charter. Summarize the provisions of the bylaws and charter of the successor institution that differ materially from your bylaws and charter. The summary must state: (i) Whether the successor institution will require a borrower to hold an equity interest as a condition for having a loan; and (ii) Whether the successor institution will require stockholders to do business with the institution. (5) Changes to equity. Explain any changes in the nature of equity investments in the successor institution, such as changes in dividends, patronage, voting rights, preferences, retirement of equities, and liquidation priority. If equities protected under section 4.9A of the Act are outstanding, the information statement must state that the Act's protections will be extinguished on termination. (6) Effect of termination on statutory and regulatory rights. Explain the effect of termination on rights granted by the Act and FCA regulations. You must explain the effect termination will have on borrower rights granted in the Act and part 617 of this chapter. (7) Loan refinancing by borrowers. (i) State, as applicable, that borrowers may seek to refinance their loans with the System institutions that already serve, or will be permitted to serve, your territory. State that no System institution is obligated to refinance your loans. (ii) If we have assigned your territory to another System institution before the information statement is mailed to equity holders, or if another System institution is already chartered to make the same type of loans you make in your territory, identify such institution(s) and provide the following information: (A) The name, address, and telephone number of the institution; and (B) An explanation of the institution's procedures for borrowers to apply for refinancing. (iii) If we have not assigned the territory before you mail the information statement, give the name, address, and telephone number of the System institution specified by us and state that borrowers may contact the institution for information about loan refinancing. (8) Equity exchanges. Explain the formula and procedure to exchange equity in your institution for equity in the successor institution. (9) Employment, retirement, and severance agreements. Describe any employment agreement or arrangement between the successor institution and any of your senior officers or directors. Describe any severance and retirement plans that cover your employees or directors and state the costs you expect to incur under the plans in connection with the termination. (10) Exit fee calculation. Explain how the exit fee will be calculated. (11) New charter. Describe the nature and type of financial institution the successor institution will be and any conditions of approval of the new chartering authority or regulator. (12) Differences in successor institution's programs and policies. Summarize any differences between you and the successor institution on: (i) Interest rates and fees; (ii) Collection policies; (iii) Services provided; and (iv) Any other item that would affect a borrower's lending relationship with the successor institution, including whether a stockholder's ability to borrow from the institution will be restricted. (13) Capitalization. Discuss expected capital requirements of the successor institution, and the amount and method of capitalization. (14) Sources of funding. Explain the sources and manner of funding for the successor institution's operations. (15) Contingent liabilities. Describe how the successor institution will address any contingent liability it will assume from you. (16) Tax status. Summarize the differences in tax status between your institution and the successor institution, and explain how the differences will affect stockholders. (17) Regulatory environment. Describe briefly how the regulatory environment for the successor institution will differ from your current regulatory environment, and any effect on the cost of doing business or the value of stockholders' equity. (18) Dissenters' rights. Explain which equity holders are entitled to dissenters' rights and what those rights are. The explanation must include the estimated liquidation value of the stock, procedures for exercising dissenters' rights, and a statement of when the rights may be exercised. (19) Financial information. (i) Present the following financial data: (A) A balance sheet and income statement for each of the 3 preceding fiscal years; (B) A balance sheet as of a date within 90 days of the date you mail the termination application to us, presented on a comparative basis with the corresponding period of the previous 2 fiscal years; (C) An income statement for the interim period between the end of the last fiscal year and the date of the balance sheet required by paragraph (d)(19)(i)(B) of this section, presented on a comparative basis with the corresponding period of the previous 2 fiscal years; (D) A pro forma balance sheet of the successor institution presented as if termination had occurred as of the date of the most recent balance sheet presented in the statement; and (E) A pro forma summary of earnings for the successor institution presented as if the termination had been effective at the beginning of the interim period between the end of the last fiscal year and the date of the balance sheet presented under paragraph (d)(19)(i)(D) of this section. (ii) The format for the balance sheet and income statement must be the same as the format in your annual report and must contain appropriate footnote disclosures, including data on high-risk assets, other property owned, and allowance for losses. (iii) The financial statements must include either: (A) A statement signed by the chief executive officer and each board member that the various financial statements are unaudited but have been prepared in all material respects in conformity with GAAP (except as otherwise disclosed) and are, to the best of each signer's knowledge, a fair and accurate presentation of the financial condition of the institution; or (B) A signed opinion by an independent certified public accountant that the various financial statements have been examined in conformity with generally accepted auditing standards and included such tests of the accounting records and other such auditing procedures as were considered necessary in the circumstances, and, as of the date of the statements, present fairly the financial position of the institution in conformity with GAAP applied on a consistent basis, except as otherwise disclosed. (20) Subsequent financial events. Describe any event after the date of the financial statements, but before the date you send the termination application to us, that would have a material impact on your financial condition or the condition of the successor institution. (21) Other subsequent events. Describe any event after you send the termination application to us that could have a material impact on any information in the termination application. (22) Other material disclosures. Describe any other material fact or circumstance that a stockholder would need to know to make an informed decision on the termination, or that is necessary to make the disclosures not misleading. (23) Ballot and proxy. Include a ballot and proxy, with instructions on the purpose and authority for their use, and the proper method for the stockholder to sign the proxy. (24) Board of directors certification. Include a certification signed by the entire board of directors as to the truth, accuracy, and completeness of the information contained in the information statement. If any director refuses to sign the certification, the director must inform us of the reasons for refusing. [67 FR 17909, Apr. 12, 2002, as amended at 69 FR 10906, Mar. 9, 2004; 71 FR 5762, Feb. 2, 2006] (a) FCA review period. We will review a termination application and either give preliminary approval or disapprove the application no later than 60 days after we receive the application. (b) Reservation of right to disapprove termination. In addition to any other reason for disapproval, we may disapprove a termination if we determine that the termination would have a material adverse effect on the ability of the remaining System institutions to fulfill their statutory purpose. (c) Conditions of final FCA approval. We will give final approval to your termination application only if: (1) Your stockholders vote in favor of termination in the termination vote and in any reconsideration vote; (2) You give us executed copies of all contracts, agreements, and other documents submitted under §611.1222; (3) You have paid or made adequate provision for payment of debts, including responsibility for any contingent liabilities, and for retirement of equities; (4) A Federal or State chartering authority has granted a new charter to the successor institution; (5) You deposit into escrow an amount equal to 110 percent of the estimated exit fee plus 110 percent of the estimated amount you must pay to retire equities of dissenting stockholders and Farm Credit institutions, as described in §611.1255(c); and (6) You have fulfilled any other condition of termination we have imposed. (d) Effective date of termination. If we grant final approval, we will revoke your charter, and the termination will be effective on the last to occur of: (1) Fulfillment of all conditions listed in paragraph (c) of this section; (2) Your proposed termination date; (3) Ninety (90) days after we receive the notice described in §611.1240(e); and (4) Fifteen (15) days after any reconsideration vote. (a) Stockholder meeting. You must call the meeting by written notice in compliance with your bylaws. The stockholder meeting to vote on the termination must occur within 60 days of our preliminary approval (or, if we take no action, within 60 days of the end of our approval period). (b) Voting record date. The voting record date may not be more than 70 days before the stockholders' meeting. (c) Information statement. You must provide all equity holders with a notice of meeting and the information statement required by §611.1223 at least 30 days before the stockholder vote. (d) Voting procedures. The voting procedures must comply with §611.330. You must have an independent third party count the ballots. If a voting stockholder notifies you of the stockholder's intent to exercise dissenters' rights, the tabulator must be able to verify to you that the stockholder voted against the termination. Otherwise, the votes of stockholders must remain confidential. (e) Notice to FCA and equity holders of voting results. Within 10 days of the termination vote, you must send us a certified record of the results of the vote. You must notify all equity holders of the results within 30 days after the stockholder meeting. If the stockholders approve the termination, you must give the following information to equity holders: (1) Stockholders who voted against termination and equity holders who were not entitled to vote have a right to dissent as provided in §611.1280; and (2) Voting stockholders have a right, under §611.1245, to file a petition with the FCA for reconsideration within 35 days after the date you mail to them the notice of the results of the termination vote. (f) Requirement to notify new equity holders. You must provide the information described in paragraph (e)(1) of this section to each person that becomes an equity holder after the termination vote and before termination. (a) Right to reconsider termination. Voting stockholders have the right to reconsider their approval of the termination if a petition signed by 15 percent of the stockholders is filed with us within 35 days after you mail notices to stockholders that the termination was approved. If we determine that the petition complies with the requirements of section 7.9 of the Act, you must call a special stockholders' meeting to reconsider the vote. The meeting must occur within 60 days after the date on which you mailed to stockholders the results of the termination vote. If a majority of the stockholders voting, in person or by proxy, vote against the termination, the termination may not take place. (b) Stockholder list and expenses. You must, at your expense, timely give stockholders who request it a list of the names and addresses of stockholders eligible to vote in the reconsideration vote. The petitioners must pay all other expenses for the petition. You must pay expenses that you incur for the reconsideration vote. (a) Preliminary exit fee estimate—terminating association. You must provide a preliminary exit fee estimate to us when you submit the termination application. Calculate the preliminary exit fee estimate in the following order: (1) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month period as of the quarter end immediately before the date you send us your termination application. (2) Any amounts we refer to in this section are average daily balances unless we specify that they are not. Amounts that are not average daily balances will be referred to as “dollar amount.” (3) Compute the average daily balances based on financial statements that comply with GAAP. The financial statements, as of the quarter end immediately before the date you send us your termination application, must be independently audited by a qualified public accountant, as defined in §621.2(i) of this chapter. We may, in our discretion, waive the audit requirement if an independent audit was performed as of a date less than 6 months before you submit the termination application. (4) Make adjustments to assets as follows: (i) Add back expenses you have incurred related to termination. Related expenses include, but are not limited to, legal services, accounting services, auditing, business planning, and application fees for the termination and reorganization. (ii) Subtract the following: (A) The dollar amount of your estimated payment (to your affiliated bank) related to FAC obligations as described in §611.1260(d); and (B) The dollar amount of your estimated taxes due to the termination. (iii) Adjust for the dollar amount of significant transactions you reasonably expect to occur between the quarter end before you file your termination application and termination. Examples of these transactions include, but are not limited to, gains or losses on the sale of assets, retirements of equity, loan repayments, and patronage distributions. Do not make adjustments for future expenses related to termination, such as severance or special retirement payments, or stock retirements to dissenting stockholders and Farm Credit institutions. (5) Subtract from liabilities any liability that we treat as regulatory capital under the capital or collateral requirements in subparts H and K of part 615 of this chapter. (6) Make any adjustments we require under paragraph (c) of this section. (7) After making these adjustments to assets and liabilities, subtract liabilities from assets. This is your preliminary total capital for purposes of termination. (8) Multiply assets as adjusted above by 6 percent, and subtract this amount from preliminary total capital. This is your preliminary exit fee estimate. (b) Preliminary exit fee estimate—terminating bank. (1) Affiliated associations that are terminating with you must calculate their individual preliminary exit fee estimates as described in paragraph (a) of this section. (2) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month period as of the quarter end immediately before the date you send us your termination application. (3) Any amounts we refer to in this section are average daily balances unless we specify that they are not. Amounts that are not average daily balances will be referred to as “dollar amount.” (4) Compute the average daily balances based on bank-only financial statements that comply with GAAP. The financial statements, as of the quarter end immediately before the date you send us your termination application, must be independently audited by a qualified public accountant, as defined in §621.2(i) of this chapter. We may, in our discretion, waive this requirement if an independent audit was performed as of a date less than 6 months before you submit the termination application. (5) Make adjustments to assets and liabilities as follows: (i) Add back to assets the following: (A) Expenses you have incurred related to termination. Related expenses include, but are not limited to, legal services, accounting services, auditing, business planning, and application fees for the termination and reorganization; and (B) Any specific allowance for losses, and a pro rata portion of any general allowance for loan losses, on direct loans to associations that you do not expect to incur before or at termination. (ii) Subtract from your assets and liabilities an amount equal to your direct loans to your affiliated associations that are not terminating. (iii) Subtract the following from assets: (A) Equity investments in your institution that are held by nonterminating associations and that you expect to transfer to another System bank before or at termination. A nonterminating association's investment consists of purchased equities, allocated equities, and a share of the bank's unallocated surplus calculated in accordance with the bank's bylaw provisions on liquidation. We may require a different calculation method for the unallocated surplus if we determine that using the liquidation provision would be inequitable to stockholders; (B) The dollar amount of your estimated termination payment to the FAC, as described in §611.1270(d); and (C) The dollar amount of estimated taxes due to the termination. (iv) Subtract from liabilities any liability that we treat as regulatory capital under the capital or collateral requirements in subparts H and K of part 615 of this chapter. (v) Adjust for the dollar amount of significant transactions you reasonably expect to occur between the quarter end before you file your termination application and termination. Examples of these transactions include, but are not limited to, retirements of equity, loan repayments, and patronage distributions. Do not make adjustments for future expenses related to termination, such as severance or special retirement payments, or stock retirements to dissenting stockholders and Farm Credit institutions. (6) Add to assets the dollar amount of estimated termination payments of the terminating associations related to FAC obligations. (7) Make any adjustments we require under paragraph (c) of this section. (8) After the above adjustments, combine your balance sheet with the balance sheets of your terminating associations after they have made the adjustments required in paragraph (a) of this section. Subtract liabilities from assets. This is your preliminary total capital estimate for purposes of termination. (9) Multiply the assets of the combined balance sheet after the above adjustments by 6 percent. Subtract this amount from the preliminary total capital estimate of the combined balance sheet. The remainder is the preliminary exit fee estimate of the bank and terminating affiliated associations. (10) Your preliminary exit fee estimate is the amount by which the preliminary exit fee estimate for the combined entity exceeds the total of the individual preliminary exit fee estimates of your affiliated terminating associations. (c) Three-year look-back. (1) We will review your transactions over the 3 years before the date of the termination resolution under §611.1220. Our review will include, but not be limited to, the following: (i) Additions to or subtractions from any allowance for losses; (ii) Additions to assets or liabilities, or subtractions from assets or liabilities, due to transactions that are outside your ordinary course of business; (iii) Dividends or patronage refunds exceeding your usual practices; (iv) Changes in the institution's capital plan, or in implementing the plan, that increased or decreased the level of borrower investment; (v) Contingent liabilities, such as loss-sharing obligations, that can be reasonably quantified; and (vi) Assets that may be overvalued, undervalued, or not recorded on your books. (2) If we determine the account balances do not accurately show the value of your assets and liabilities (whether the assets and liabilities were booked before or during the 3-year look-back period), we will make any adjustments we deem necessary. (3) We may require you to reverse the effect of a transaction if we determine that: (i) You have retired capital outside the ordinary course of business; (ii) You have taken any other actions unrelated to your core business that have the effect of changing the exit fee; or (iii) You incurred expenses related to termination prior to the 12-month average daily balance period on which the exit fee calculation is based. (4) We may require you to make these adjustments to the preliminary exit fee estimate that is disclosed in the information statement, the final exit fee calculation, and the calculations of the value of equities held by dissenting stockholders, Farm Credit institutions that choose to have their equities retired at termination, and reaffiliating associations. (a) Final exit fee calculation—terminating association. Calculate the final exit fee in the following order: (1) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month period preceding the termination date. Assume for this calculation that you have not paid or accrued the items described in paragraph (a)(4)(ii) of this section. (2) Any amounts we refer to in this section are average daily balances unless we specify that they are not. Amounts that are not average daily balances will be referred to as “dollar amount.” (3) Compute the average daily balances based on financial statements that comply with GAAP. The financial statements, as of the termination date, must be independently audited by a qualified public accountant, as defined in §621.2(i) of this chapter. (4) Make adjustments to assets and liabilities as follows: (i) Add back expenses related to termination incurred in the 12 months before termination. Related expenses include, but are not limited to, legal services, accounting services, auditing, business planning, payments of severance and special retirements, and application fees for the termination and reorganization. (ii) Subtract from assets the following: (A) The dollar amount of your termination payment (to your affiliated bank) related to FAC obligations as described in §611.1260(d); and (B) The dollar amount of taxes you will have to pay due to the termination; (iii) Subtract from liabilities any liability that we treat as regulatory capital under the capital or collateral requirements in subparts H and K of part 615 of this chapter. (iv) Make the adjustments that we require under §611.1250(c). For the final exit fee, we will review and may require additional adjustments for transactions between the date you adopted the termination resolution and the termination date. (5) After making these adjustments to assets and liabilities, subtract liabilities from assets. This is your total capital for purposes of termination. (6) Multiply assets by 6 percent, and subtract this amount from total capital. This is your final exit fee. (b) Final exit fee calculation—terminating bank. (1) The individual exit fees of affiliated associations that are terminating with you must be calculated as described in paragraph (a) of this section. (2) Base your exit fee calculation on the average daily balances of assets and liabilities for the 12-month period preceding the termination date. Assume for this calculation that you have not paid or accrued the items described in paragraph (b)(5)(iii)(B) and (C) of this section. (3) Any amounts we refer to in this section are average daily balances unless we specify that they are not. Amounts that are not average daily balances will be referred to as “dollar amount.” (4) Compute the average daily balances based on bank-only financial statements that comply with GAAP. The financial statements, as of the termination date, must be independently audited by a qualified public accountant, as defined in §621.2(i) of this chapter. (5) Make adjustments to assets and liabilities as follows: (i) Add back the following to your assets: (A) Expenses you have incurred related to termination. Related expenses include, but are not limited to, legal services, accounting services, auditing, business planning, payments of severance and special retirements, and application fees for the termination and reorganization. (B) The dollar amount of the termination payments to you by the terminating associations related to FAC obligations. (C) Any specific allowance for losses, and a pro rata share of any general allowance for losses, on direct loans to associations that are paid off or transferred before or at termination. (ii) Subtract from your assets and liabilities your direct loans to affiliated associations that were paid off or transferred in the 12-month period before termination or at termination. (iii) Subtract from your assets the following: (A) Equity investments held in your institution by affiliated associations that you transferred at termination or during the 12 months before termination; (B) The dollar amount of your termination payment to the FAC; and (C) The dollar amount of taxes paid or accrued due to the termination; (iv) Subtract from liabilities any liability that we treat as regulatory capital (or that we do not treat as a liability) under the capital or collateral requirements in subparts H and K of part 615 of this chapter. (v) Make the adjustments that we require under §611.1250(c). For the final exit fee, we will review and may require additional adjustments for transactions between the date you adopted the termination resolution and the termination date. (6) After the above adjustments, combine your balance sheet with the balance sheets of terminating associations after making the adjustments required in paragraph (a) of this section. (7) Subtract combined liabilities from combined assets. This is the total capital of the combined balance sheet. (8) Multiply the assets of the combined balance sheet after the above adjustments by 6 percent. Subtract this amount from the total capital of the combined balance sheet. This amount is the combined final exit fee for your institution and the terminating affiliated associations. (9) Your final exit fee is the amount by which the combined final exit fee exceeds the total of the individual final exit fees of your affiliated terminating associations. (c) Payment of exit fee. On the termination date, you must: (1) Deposit into an escrow account acceptable to us and the FCSIC an amount equal to 110 percent of the preliminary exit fee estimate, adjusted to account for stock retirements to dissenting stockholders and Farm Credit institutions, and any other adjustments we require. (2) Deposit into an escrow account acceptable to us an amount equal to 110 percent of the equity you must retire for dissenting stockholders and System institutions holding stock that would be entitled to a share of the remaining assets in a liquidation. (d) Pay-out of escrow. Following the independent audit of the institution's account balances as of the termination date, we will determine the amount of the final exit fee and the amounts owed to stockholders to retire their equities. We will then direct the escrow agent to: (1) Pay the exit fee to the Farm Credit Insurance Fund; (2) Pay the amounts owed to dissenting stockholders and Farm Credit institutions; and (3) Return any remaining amounts to the successor institution. (e) Additional payment. If the amount held in escrow is not enough to pay the amounts under paragraph (d)(1) and (2) of this section, the successor institution must pay any remaining liability to the escrow agent for distribution to the appropriate parties. The termination application must include evidence that, after termination, the successor institution will pay any remaining amounts owed. (a) General rule. If your institution is a terminating association, you must pay or make adequate provision for the payment of all outstanding debt obligations and assessments. (b) No OFI relationship. If the successor institution will not become an OFI, you must either: (1) Pay debts and assessments owed to your affiliated Farm Credit bank at termination; or (2) With your affiliated Farm Credit bank's concurrence, arrange to pay any obligations or assessments to the bank after termination. (c) Obligations to other Farm Credit institutions. You must pay or make adequate provision for payment of obligations to any Farm Credit institution (other than your affiliated bank) under any loss-sharing or other agreement. (d) FAC payments. Before termination, you must pay the estimated present value of future assessments and payment obligations to your affiliated Farm Credit bank to the extent required by subparagraphs (c)(5)(F) and (d)(1)(C)(v) of section 6.26 of the Act. The FAC must make the present value estimations, subject to our approval, based on an appropriate discount rate. The appropriate discount rate is the non-interest-bearing U.S. Treasury security rate for securities with a maturity as near as possible to the period remaining until the terminating association's obligations under this paragraph would be due (but before the due date). (a) Safety and soundness restrictions. Notwithstanding anything in this subpart to the contrary, we may prohibit a bank from retiring the equities you hold in the bank if the retirement would cause the bank to fall below its regulatory capital requirements after retirement, or if we determine that the bank would be in an unsafe or unsound condition after retirement. (b) Retirement agreement. Your affiliated bank may retire the purchased and allocated equities held by your institution in the bank according to the terms of the bank's capital revolvement plan or an agreement between you and the bank. (c) Retirement in absence of agreement. Your affiliated bank must retire any equities not subject to an agreement or revolvement plan no later than when you or the successor institution pays off your loan from the bank. (d) No retirement of unallocated surplus. When your bank retires equities you own in the bank, the bank must pay par or face value for purchased and allocated equities, less any impairment. The bank may not pay you any portion of its unallocated surplus. (e) Exclusion of equities from capital ratios. If another Farm Credit institution makes an agreement to retire equities you hold in that institution after termination, we may require that institution to exclude part or all of those equities from assets and capital when the institution calculates its capital and net collateral ratios under subparts H and K of part 615 of this chapter. (a) General rule. If your institution is a terminating bank, you must pay or make adequate provision for the payment of all outstanding debt obligations, and provide for your responsibility for any probable contingent liabilities identified. (b) Satisfaction of primary liability on consolidated or Systemwide obligations. After consulting with the other Farm Credit banks, the Funding Corporation, and the FCSIC, you must pay or make adequate provision for payment of your primary liability on consolidated or Systemwide obligations in a method that we deem acceptable. Before we make a final decision on your proposal and as we deem necessary, we may consult with the other Farm Credit banks, the Funding Corporation, and the FCSIC. (c) Satisfaction of joint and several liability and liability for interest on individual obligations. (1) You and the other Farm Credit banks must enter into an agreement, which is subject to our approval, covering obligations issued under section 4.2 of the Act and outstanding on the termination date. The agreement must specify how you and your successor institution will make adequate provision for the payment of your joint and several liability to holders of obligations other than those obligations on which you are primarily liable, in the event we make calls for payment under section 4.4 of the Act. You and your successor institution must also provide for your liability under section 4.4(a)(1) of the Act to pay interest on the individual obligations issued by other System banks. As a part of the agreement, you must also agree that your successor institution will provide ongoing information to the Funding Corporation to enable it to fulfill its funding and disclosure duties. The Funding Corporation may, at its option, be a party to the agreement to the extent necessary to fulfill its duties with respect to financing and disclosure. (2) If you and the other Farm Credit banks are unable to reach agreement within 90 days before the proposed termination date, we will specify the manner in which you will make adequate provision for the payment of the liabilities in question and how we will make joint and several calls for those obligations outstanding on the termination date. (3) Notwithstanding any other provision in these regulations, the successor institution will be jointly and severally liable for consolidated and Systemwide debt outstanding on the termination date (other than the obligations on which you are primarily liable). The successor institution will also be liable for interest on other banks' individual obligations as described in section 4.4(a)(1) of the Act and outstanding on the termination date. The termination application must include evidence that the successor institution will continue to be liable for consolidated and Systemwide debt and for interest on other banks' individual obligations. (d) Payment to the FAC. (1) Before termination, you must pay to the FAC the amounts required by section 6.9(e)(3)(C)(ii) of the Act and by subparagraphs (c)(5)(E)(i) and (d)(1)(C)(iv) of section 6.26 of the Act. To make the calculations for section 6.26, you must include your retail loan volume, the retail loan volume of the associations that are terminating with you, and the retail loan volume of the affiliated associations that continue their direct lending relationships with the successor institution, but you must not include the retail loan volume of associations that reaffiliate with another bank and transfer or repay their direct loan on or before termination. (2) The FAC must make the present value estimations, subject to our approval, based on an appropriate discount rate. The appropriate discount rate is the non-interest-bearing U.S. Treasury security rate for securities with a maturity as near as possible to the period remaining until your obligations under this paragraph would be due (but before the due date). (3) If your bank or your predecessor bank has redeemed early any preferred stock issued to the FAC, we may require you to confirm in writing that your successor institution will assume responsibility for any and all of your contingent liabilities under any FAC-preferred stock redemption agreement and indemnification agreement. (a) Retirement at option of equity holder. If your institution is a terminating institution, System institutions that own your equities have the right to require you to retire the equities on the termination date. (b) Value of equity holders' interests. You must retire the equities in accordance with the liquidation provisions in your bylaws unless we determine that the liquidation provisions would result in an inequitable distribution to stockholders. If we make such a determination, we will require you to distribute the equity in accordance with another method that we deem equitable to stockholders. Before you retire any equity, you must make the following adjustments to the amount of stockholder equity as stated in the financial statements on the termination date: (1) Make deductions for any FAC obligations and taxes due to the termination that you have not yet recorded; (2) Deduct the amount of the exit fee; and (3) Make any adjustments described under §611.1250(c) that we may require as we deem appropriate. (c) Transfer of affiliated association's investment. As an alternative to equity retirement, an affiliated association that reaffiliates with another Farm Credit bank instead of terminating with its bank has the right to require the terminating bank to transfer its investment to its new affiliated bank when it reaffiliates. If your institution is a terminating bank, at the time of reaffiliation you must transfer the purchased and allocated equities held by the association, as well as its share of unallocated surplus, to the new affiliated bank. Calculate the association's share before deduction of the exit fee as of the month end preceding the reaffiliation date (or the termination date if it is the same as the reaffiliation date) in accordance with the liquidation provisions of your bylaws, unless we determine that the liquidation provisions would result in an inequitable distribution. If we make such a determination, we will require you to distribute the association's share of your unallocated surplus in accordance with another method that we deem equitable to stockholders. Before you distribute any unallocated surplus, you must make the following adjustments to stockholder equity as stated in the financial statements as of the month end preceding the reaffiliation date (or the termination date if it is the same as the reaffiliation date): (1) Add back any deductions of FAC obligations due to the termination, taxes due to the termination, and the exit fee; and (2) Make any adjustments described under §611.1250(c) that we may require as we deem appropriate. (d) Prohibition on certain affiliations. No Farm Credit institution may retain an equity interest otherwise prohibited by law in a successor institution. (a) Definition. A dissenting stockholder is an equity holder (other than a System institution) in a terminating institution on the termination date who either: (1) Was eligible to vote on the termination resolution and voted against termination; (2) Was an equity holder on the voting record date but was not eligible to vote; or (3) Became an equity holder after the voting record date. (b) Retirement at option of a dissenting stockholder. A dissenting stockholder may require a terminating institution to retire the stockholder's equity interest in the terminating institution. (c) Value of a dissenting stockholder's interest. You must pay a dissenting stockholder according to the liquidation provision in your bylaws, except that you must pay at least par or face value for eligible borrower stock (as defined in section 4.9A(d)(2) of the Act). If we determine that the liquidation provision is inequitable to stockholders, we will require you to calculate their share in accordance with another formula that we deem equitable. (d) Calculation of interest of a dissenting stockholder. Before you retire any equity, you must make the following adjustments to the amount of stockholder equity as stated in the financial statements on the termination date: (1) Deduct any FAC obligations and taxes due to the termination that you have not yet recorded; (2) Deduct the amount of the exit fee; and (3) Make any adjustments described under §611.1250(c) that we may require as we deem appropriate. (e) Form of payment to a dissenting stockholder. You must pay a dissenting stockholder for his equities as follows: (1) Pay cash for the par or face value of purchased stock, less any impairment; (2) For equities other than purchased equities, you may: (i) Pay cash; (ii) Cause or otherwise provide for the successor institution to issue, on the date of termination, subordinated debt to the stockholder with a face value equal to the value of the remaining equities. This subordinated debt must have a maturity date of 7 years or less, must have priority in liquidation ahead of all equity, and must carry a rate of interest not less than the rate (at the time of termination) for debt of comparable maturity issued by the U.S. Treasury plus 1 percent; or (iii) Provide for a combination of cash and subordinated debt as described above. (f) Payment to holders of special class of stock. If you have adopted bylaws under §611.1210(f), you must pay a dissenting stockholder who owns shares of the special class of stock an amount equal to the lower of the par (or face) value or the value of such stock as determined under §611.1280(c) and (d). (g) Notice to equity holders. The notice to equity holders required in §611.1240(e) must include a form for stockholders to send back to you, stating their intention to exercise dissenters' rights. The notice must contain the following information: (1) A description of the rights of dissenting stockholders set forth in this section and the approximate value per share that a dissenting stockholder can expect to receive. State whether the successor institution will require borrowers to be stockholders or whether it will require stockholders to be borrowers. (2) A description of the current book and par value per share of each class of equities, and the expected book and market value of the stockholder's interest in the successor institution. (3) A statement that a stockholder must return the enclosed form to you within 30 days if the stockholder chooses to exercise dissenters' rights. (h) Notice to subsequent equity holders. Equity holders that acquire their equities after the termination vote must also receive the notice described in paragraph (g) of this section. You must give them at least 5 business days to decide whether to request retirement of their stock. (i) Reconsideration. If a reconsideration vote is held and the termination is disapproved, the right of stockholders to exercise dissenters' rights is rescinded. If a reconsideration vote is held and the termination is approved, you must retire the equities of dissenting stockholders as if there had been no reconsideration vote. (a) Disclosure of credit and loan information. At the request of a borrower seeking refinancing with another System institution before you terminate, you must give credit and loan information about the borrower to such institution. (b) No reassignment of territory. If, at the termination date, we have not assigned your territory to another System institution, any System institution may lend in your territory, to the extent otherwise permitted by the Act and the regulations in this chapter. You may not require a waiver of contractual borrower rights provisions as a condition of borrowing from and owning equity in the successor institution. Institutions that become other financing institutions on termination must comply with the applicable borrower rights provisions in the Act and part 617 of this chapter. [67 FR 17909, Apr. 12, 2002, as amended at 69 FR 10906, Mar. 9, 2004]
Title 12: Banks and Banking
PART 611—ORGANIZATION
Section Contents
§ 611.210 Director qualifications and training.
§ 611.220 Outside directors.
§ 611.310 Eligibility for membership on bank and association boards and subsequent employment.
§ 611.320 Impartiality in the election of directors.
§ 611.325 Bank and association nominating committees.
§ 611.330 Confidentiality in voting.
§ 611.340 Security in voting.
§ 611.350 Application of cooperative principles to the election of directors.
§ 611.400 Compensation of bank board members.
§ 611.500 General.
§ 611.501 Procedures.
§ 611.505 Farm Credit Administration review.
§ 611.510 Approval procedures.
§ 611.515 Information statement.
§ 611.520 Plan of transfer.
§ 611.525 Stockholder reconsideration.
§ 611.1000 General authority.
§ 611.1010 Bank charter amendment procedures.
§ 611.1020 Requirements for mergers or consolidations of banks.
§ 611.1030 [Reserved]
§ 611.1040 Creation of new associations.
§ 611.1120 General authority.
§ 611.1121 Charter amendment procedures.
§ 611.1122 Requirements for mergers or consolidations.
§ 611.1123 Merger or consolidation agreements.
§ 611.1124 Territorial adjustments.
§ 611.1125 Treatment of associations not approving districtwide mergers.
§ 611.1130 Inter-System transfer of funds and equities.
§ 611.1135 Incorporation of service corporations.
§ 611.1136 Regulation and examination of service organizations.
§ 611.1137 Title VIII service corporations.
§ 611.1200 Applicability of this subpart.
§ 611.1205 Definitions that apply in this subpart.
§ 611.1210 Commencement resolution and advance notice.
§ 611.1215 Prohibited acts.
§ 611.1220 Filing of termination application.
§ 611.1221 Filing of termination application—timing.
§ 611.1222 Plan of termination—contents.
§ 611.1223 Information statement—contents.
§ 611.1230 FCA review and approval.
§ 611.1240 Voting record date and stockholder approval.
§ 611.1245 Stockholder reconsideration.
§ 611.1250 Preliminary exit fee estimate.
§ 611.1255 Exit fee calculation.
§ 611.1260 Payment of debts and assessments—terminating association.
§ 611.1265 Retirement of a terminating association's investment in its affiliated bank.
§ 611.1270 Repayment of obligations—terminating bank.
§ 611.1275 Retirement of equities held by other System institutions.
§ 611.1280 Dissenting stockholders' rights.
§ 611.1285 Loan refinancing by borrowers.
§ 611.1290 Continuation of borrower rights.
Subpart A [Reserved]
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Subpart B—Bank and Association Board of Directors
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§ 611.210 Director qualifications and training.
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§ 611.220 Outside directors.
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Subpart C—Election of Directors and Other Voting Procedures
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§ 611.310 Eligibility for membership on bank and association boards and subsequent employment.
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§ 611.320 Impartiality in the election of directors.
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§ 611.325 Bank and association nominating committees.
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§ 611.330 Confidentiality in voting.
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§ 611.340 Security in voting.
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§ 611.350 Application of cooperative principles to the election of directors.
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Subpart D—Rules for Compensation of Board Members
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§ 611.400 Compensation of bank board members.
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Subpart E—Transfer of Authorities
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§ 611.500 General.
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§ 611.501 Procedures.
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§ 611.505 Farm Credit Administration review.
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§ 611.510 Approval procedures.
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§ 611.515 Information statement.
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§ 611.520 Plan of transfer.
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§ 611.525 Stockholder reconsideration.
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Subpart F—Bank Mergers, Consolidations and Charter Amendments
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§ 611.1000 General authority.
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§ 611.1010 Bank charter amendment procedures.
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§ 611.1020 Requirements for mergers or consolidations of banks.
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§ 611.1030 [Reserved]
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§ 611.1040 Creation of new associations.
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Subpart G—Mergers, Consolidations, and Charter Amendments of Associations
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§ 611.1120 General authority.
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§ 611.1121 Charter amendment procedures.
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§ 611.1122 Requirements for mergers or consolidations.
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§ 611.1123 Merger or consolidation agreements.
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§ 611.1124 Territorial adjustments.
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§ 611.1125 Treatment of associations not approving districtwide mergers.
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Subpart H—Rules for Inter-System Fund Transfers
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§ 611.1130 Inter-System transfer of funds and equities.
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Subpart I—Service Organizations
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§ 611.1135 Incorporation of service corporations.
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§ 611.1136 Regulation and examination of service organizations.
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§ 611.1137 Title VIII service corporations.
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Subparts J–O [Reserved]
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Subpart P—Termination of System Institution Status
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§ 611.1200 Applicability of this subpart.
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§ 611.1205 Definitions that apply in this subpart.
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§ 611.1210 Commencement resolution and advance notice.
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§ 611.1215 Prohibited acts.
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§ 611.1220 Filing of termination application.
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§ 611.1221 Filing of termination application—timing.
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§ 611.1222 Plan of termination—contents.
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§ 611.1223 Information statement—contents.
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§ 611.1230 FCA review and approval.
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§ 611.1240 Voting record date and stockholder approval.
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§ 611.1245 Stockholder reconsideration.
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§ 611.1250 Preliminary exit fee estimate.
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§ 611.1255 Exit fee calculation.
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§ 611.1260 Payment of debts and assessments—terminating association.
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§ 611.1265 Retirement of a terminating association's investment in its affiliated bank.
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§ 611.1270 Repayment of obligations—terminating bank.
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§ 611.1275 Retirement of equities held by other System institutions.
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§ 611.1280 Dissenting stockholders' rights.
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§ 611.1285 Loan refinancing by borrowers.
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§ 611.1290 Continuation of borrower rights.
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