[Federal Register Volume 62, Number 61 (Monday, March 31, 1997)]
[Rules and Regulations]
[Pages 15089-15094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8000]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 620 and 630

RIN 3052-AB62


Disclosure to Shareholders; Disclosure to Investors in Systemwide 
and Consolidated Bank Debt Obligations of the Farm Credit System; 
Quarterly Report

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA or Agency) adopts final 
amendments to its regulations governing the preparation, filing, and 
distribution of Farm Credit System (FCS or System) bank and association 
reports to shareholders and investors. The rule implements a statutory 
amendment that supersedes the regulatory requirement that FCS 
institutions disseminate quarterly reports to shareholders.
    The rule also imposes a new notice requirement designed to improve 
shareholder access to timely information and disclosure regarding 
adverse events affecting their institutions. Under the new regulations, 
FCS institutions must prepare and distribute a notice to shareholders 
when their permanent capital falls below the regulatory minimum 
standard.
    To facilitate the presentation of financial statements by FCS 
institutions in a manner that conforms with generally accepted 
accounting principles (GAAP), the rule removes the requirement that 
banks must present their financial statements on a combined basis with 
their related associations.
    The rule also makes other technical changes to FCA regulations 
governing disclosure to shareholders and investors.

DATES: The final rule shall become effective upon the expiration of 30 
days after this publication during which either or both Houses of 
Congress are in session. Notice of the effective date will be published 
in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Policy Analyst, Policy Development and Risk Control, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498;

      or

William L. Larsen, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

    On August 28, 1996, the FCA proposed amendments to its regulations 
governing disclosure to shareholders and investors.<SUP>1 The 
rulemaking implements section 211 of the Farm Credit System Reform Act 
of 1996 (1996 Act),<SUP>2 addresses two regulatory petitions received 
by the Agency, and takes other related actions. To conform with the 
1996 Act, the FCA proposed amending subpart C of part 620 to eliminate 
existing regulatory requirements for distribution of quarterly reports 
to shareholders. To improve shareholder access to timely information 
and disclosure regarding adverse events affecting their institutions, 
the FCA proposed a new requirement that System institutions provide 
notice to shareholders in the event of noncompliance with regulatory 
permanent capital requirements, followed by subsequent notices in 
situations of continued deterioration in permanent capital. The FCA 
also responded to petitions of System institutions by proposing to 
remove the requirement that banks present their

[[Page 15090]]

financial statements on a combined basis with their related 
associations and to allow incorporation by reference of information 
contained in offering documents for Farm Credit debt securities into 
the Systemwide financial reports to investors.<SUP>3 The FCA also 
proposed technical changes to clarify the reporting requirements of 
related organizations in their disclosure to shareholders and 
investors.
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    \1\  See 61 FR 53331, October 11, 1996.
    \2\  Pub. L. 104-105, 110 Stat. 162 (Feb. 10, 1996). Section 211 
of the 1996 Act provides that ``the requirements of the Farm Credit 
Administration governing the dissemination to stockholders of 
quarterly reports of System institutions may not be more burdensome 
or costly than the requirements applicable to national banks.'' 
Section 211 applies only to dissemination requirements and does not 
affect the requirement that FCS institutions continue to prepare and 
file quarterly reports with the FCA in accordance with the quarterly 
report filing and content requirements of part 620.
    \3\  See 12 CFR Part 630.
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    The FCA received two comment letters on the proposed rule. The Farm 
Credit Council (FCC) submitted a letter based on input from individual 
members and the System's Accounting Standards Work Group. The Farm 
Credit Services of the Midlands, PCA/FLCA (Midlands), also commented. 
In general, the commenters supported the FCA's proposal to implement 
the 1996 Act, while also raising specific concerns and suggestions for 
change. As set forth below, the final regulations retain much of the 
content of the proposed regulations, but clarify and ease some proposed 
requirements in response to comments.

II. Final Amendments

A. Quarterly Reports

    The commenters supported the FCA's proposal to implement section 
211 of the 1996 Act regarding dissemination of quarterly reports to 
shareholders. The FCA adopts as final the amendments to subpart C of 
part 620 and related provisions <SUP>4 as proposed.
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    \4\  Sections 620.1(o) and 620.2(a), (b)(3)(i), (f) through (i).
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    Under the final regulations, routine distribution of quarterly 
reports by System institutions to shareholders is voluntary rather than 
mandatory. The FCA emphasizes that FCS institutions are not prohibited 
by the 1996 Act or these regulations from continuing to publish or 
distribute quarterly reports to their shareholders. Moreover, each FCS 
bank and direct lender association is required to make quarterly 
reports available to shareholders on request and must continue to file 
quarterly reports with the FCA. Associations are no longer required to 
distribute quarterly reports along with their information statements, 
regardless of the date of their annual meetings.
    Midlands commented on current Sec. 615.5250(a)(2) of this chapter, 
which requires institutions to provide prospective borrowers with a 
copy of the institution's most recent quarterly report (if more recent 
than the annual report) prior to loan closing, at which time the 
borrower must purchase equities as a condition for obtaining a loan. 
Midlands agreed that prospective borrowers have the right to current 
association financial information, but, citing logistical problems in 
supplying an accurate number of quarterly reports to its branches, 
suggested that the requirement be changed to require only notice of 
availability of quarterly reports to prospective borrowers. The FCA 
continues to believe that it is important to provide the most current 
financial information at the time a borrower is required to purchase 
the institution's equities. Thus, the current requirement is unchanged. 
Any logistical problems that may be associated with providing a copy of 
the quarterly report to prospective borrowers will have to be addressed 
through available facilities such as fax, copier, and electronic or 
overnight mail.

B. Notice to Shareholders

    The FCA proposed that notice be provided to shareholders when an 
institution's capital falls below the regulatory minimum permanent 
capital standard. Proposed Sec. 620.15(a) would have required each FCS 
bank and direct lender association to prepare, file with the FCA, and 
distribute to shareholders, a notice within 20 days following the 
monthend that the institution initially determines that it is not in 
compliance with the minimum permanent capital standards established in 
part 615 of FCA regulations. Under certain circumstances, reporting 
institutions also would have been required to prepare and distribute a 
subsequent notice to shareholders. If the reporting institution's 
permanent capital ratio decreased by one-half of 1 percent or more from 
the level reported in a notice, the reporting institution would be 
required to distribute another notice to shareholders within 20 days of 
the end of the current month. In addition, the FCA proposed minimum 
content requirements for notices under new Sec. 620.17.
    The FCC raised objections to the proposed requirement that notice 
be provided to shareholders in instances of noncompliance with the 
permanent capital standard. The FCC asserted that the proposed notice 
requirement in Sec. 620.15(a) is unnecessary and could be confusing or 
even misleading taken out of the context of an institution's financial 
statements and Management's Discussion and Analysis of Financial 
Condition and Results of Operations. The FCC also found it difficult to 
reconcile the notice requirement with the elimination of quarterly 
report dissemination by the 1996 Act.
    After consideration of these comments, the FCA continues to believe 
that the notice requirement will benefit shareholders and impose no 
undue burdens on System institutions. For the reasons set forth below 
and as noted in the preamble to the proposed rule, the FCA issues a new 
subpart D relating to the preparation and distribution of a notice to 
shareholders substantially as proposed.
    As discussed above, the FCA has deleted the quarterly report 
dissemination requirement in accordance with the 1996 Act. The FCA 
believes that the limited notice to shareholders is necessary to 
provide shareholders with timely notice of important information that 
affects the ability of the institution to distribute earnings and 
retire stock.<SUP>5 The Farm Credit Act of 1971, as amended (Act), 
encourages borrower/shareholder participation in management, control, 
and ownership of FCS institutions.<SUP>6 In the Farm Credit Amendments 
Act of 1985,<SUP>7 Congress expressly authorized the FCA to regulate 
disclosure to shareholders. Unlike shareholders of companies subject to 
Securities and Exchange Commission (SEC) disclosure requirements who 
have access to an established marketplace for financial information 
based on SEC filings,<SUP>8 System shareholders rely primarily on FCS 
institutions to provide them with current information regarding their 
institutions. The FCA believes it is critical that shareholders receive 
timely notice of material changes in the capital position of the 
institutions they own so that they are equipped to exercise their 
ownership role.
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    \5\  See 12 U.S.C. 2154a(d)(1), which states that: ``* * * the 
board of directors of a System institution may not reduce the 
permanent capital of the institution through the payment of 
patronage refunds or dividends or retirement of stock, if after or 
due to such action, the permanent capital of the institution would 
thereafter fail to meet the minimum capital adequacy standards 
established under section 2154a of this title.'' See also 12 CFR 
615.5215.
    \6\  See 12 U.S.C. 2001(b).
    \7\  Pub. L. 99-205, 99 Stat. 1678 (Dec. 23, 1985). See section 
5.19(b)(1) of the Act.
    \8\  In addition to annual and quarterly filings, under sections 
13 or 15(d) of the Securities Exchange Act of 1934, registrants are 
required to file a current report with the SEC within 5-15 days 
(depending on the event) upon determination of the occurrence of any 
of the following events: (1) changes in control of registrant, (2) 
significant acquisition or disposition of assets, (3) bankruptcy or 
receivership, (4) changes in registrant's certifying accountant, (5) 
other events that the registrant deems of significant importance to 
security holders, and (6) resignations of registrant's directors 
because of a disagreement with the registrant on any matter relating 
to the registrant's operation, policies, or practices. The SEC does 
not require current reports to be distributed to shareholders.
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    In proposing these regulations, the FCA sought to balance the 
competing considerations of providing adequate

[[Page 15091]]

notice to shareholders concerning their investments and minimizing 
regulatory burden on FCS institutions. FCS institutions required to 
file and distribute a notice will incur costs associated with preparing 
and distributing the materials. However, since notice is required only 
in those extraordinary circumstances where an institution is not in 
compliance with the FCA's minimum permanent capital standard,<SUP>9 the 
FCA does not expect the regulations will significantly increase 
regulatory burden on System institutions. In the limited instances when 
notice is required, the rule will help ensure timely and adequate 
disclosure to shareholders/members who have investments at risk and 
rely on the dependable credit services of the FCS institutions. In 
addition, such notices will inform shareholders of the effect that 
failure to meet the minimum capital standard has on their institution's 
ability to retire stock and distribute earnings.
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    \9\  All FCS institutions were in compliance with the regulatory 
minimum permanent capital standard as of December 31, 1996.
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    The FCC also expressed concern that both the time period for 
calculating noncompliance with permanent capital requirements and the 
timeframe allowed by the proposed rule for distributing the notice are 
inadequate. Under proposed Sec. 620.15(a), each Farm Credit bank and 
direct lender association required to prepare a notice would have been 
required to distribute the notice to shareholders within 20 days 
following the monthend that the institution initially determines that 
it is not in compliance with the minimum permanent capital standard 
prescribed under Sec. 615.5205 of this chapter. The FCC noted that 
existing regulations only require that an institution's permanent 
capital ratio (PCR) be reported on a quarterly basis. The FCC suggested 
that the FCA substitute the phrase ``end of the fiscal quarter'' for 
``monthend'' in Sec. 620.15(a) and ``any subsequent quarterend'' for 
``any subsequent monthend'' in proposed Sec. 620.15(b).
    The FCA declines to adopt a quarterly timeframe for the initial 
notice of noncompliance with the PCR because it would undermine the 
goal of disseminating this information to shareholders quickly. 
Moreover, there is no added burden on FCS institutions in connection 
with calculation of the PCR. Although FCS institutions are only 
required by current regulations to report their PCR on a quarterly 
basis, Sec. 615.5205(a) of this chapter requires that each FCS 
institution shall at all times maintain permanent capital at a level of 
at least 7 percent of its risk-adjusted assets. The FCA further expects 
FCS institutions to have procedures in place that permit calculation of 
their PCR on any given date.<SUP>10
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    \10\ FCA Bookletter No. 256-OFA, Permanent Capital Ratio-Average 
Daily Balance, May 24, 1990.
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    In response to the argument that monthly notices of subsequent 
deterioration would be burdensome, the FCA accepts the suggestion of 
the FCC to modify final Sec. 620.15(b) to require subsequent notices 
following the end of any subsequent fiscal quarter instead of the end 
of any subsequent month as proposed. The FCA does not believe that this 
change seriously disadvantages shareholders. Once alerted by the 
initial notice, concerned shareholders may elect to follow up on their 
institution's condition more often than quarterly if they wish.
    The FCC also commented that it is likely that an institution 
required to distribute a notice of noncompliance with regulatory 
minimum capital standards would need to provide additional supplemental 
information to make the information more meaningful. The FCC suggested 
that the required timeframe for distributing the notice and any 
subsequent notices in proposed Sec. 620.15 (a) and (b) be changed from 
20 days to 45 days. The FCA agrees that additional information may make 
the disclosures more meaningful to shareholders and, to facilitate such 
additional disclosure, has decided to increase the timeframe for 
preparation and distribution of the initial notice by 10 days. Final 
Sec. 620.15(a) thus requires distribution of the notice within 30 days 
following the monthend that the institution initially determines that 
it is not in compliance with the minimum permanent capital standards.
    The FCA adopts the suggestion of the FCC to permit distribution of 
a subsequent notice to shareholders within 45 days following the end of 
any subsequent quarter at which the institution's PCR decreases by one-
half of 1 percent or more from the level reported in the most recent 
notice distributed to shareholders. This timeframe for preparation and 
distribution of subsequent notices to shareholders under Sec. 620.15(b) 
will coincide with the time allowed institutions to prepare and file 
their quarterly reports with the FCA under Sec. 620.2. Final 
Sec. 620.15(c) and the content requirements for the notice in 
Sec. 620.17 are adopted as proposed.
    The FCA also invited comments on the use of the total surplus to 
risk-adjusted assets standard <SUP>11 to determine the point at which 
shareholders would be informed that their institution is experiencing 
financial difficulties. Both commenters opposed the use of the total 
surplus ratio as the trigger for the notice requirement. The FCC 
commented that the total surplus to risk-adjusted assets ratio is not 
always an indicator of impaired financial condition and thus, such 
notices could unnecessarily alarm shareholders when the institution 
continues to have a reasonable margin to protect its investment. The 
FCC also argued that the FCA should provide additional notice and 
opportunity for comment before adopting a notice requirement triggered 
by failure to meet the total surplus standard, which was not in effect 
at the time the notice requirement was proposed.
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    \11\ The total surplus to risk-adjusted assets standard is part 
of the new capital requirements recently adopted by the FCA. See 62 
FR 4429, January 30, 1997.
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    The FCA believes that persuasive arguments exist for adopting a 
total surplus trigger for the notice to shareholders, as explained in 
the proposed and final capital regulations.<SUP>12 However, the FCA has 
decided not to adopt a total surplus standard as the triggering point 
for the notice at this time. Rather, the FCA will carefully monitor 
implementation of the new capital standards and will consider changing 
the notice trigger from the PCR to the total surplus ratio as FCS 
institutions gain experience with the new standards.
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    \12\ See 60 FR 38521, July 27, 1995. See also ``Basis for 
Conclusions and Positions Taken in the Final Capital Adequacy 
Regulations'' at 62 FR 4429, 4434, January 30, 1997.
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III. Combined Financial Statement Presentation Requirements

    The FCA proposed removing the requirement that banks must present 
the financial statements of the bank and its related associations on a 
combined basis. The intent of the proposal was to facilitate the 
presentation of financial statements by FCS institutions in a manner 
that conforms with GAAP. Under the proposed regulations, banks that 
present their financial statements on a stand-alone basis would be 
required to present, in the footnotes to their financial statements, a 
condensed statement of condition and statement of income for their 
related associations on a combined basis. The FCA adopts the 
regulations substantially as proposed.
    In its comment concurring with this proposal, the FCC requested 
that the FCA clarify the language of Sec. 620.2(g)(2) to indicate that 
banks presenting their financial statements on a stand-alone

[[Page 15092]]

basis are only required to present the supplemental combined statements 
in the footnotes accompanying their annual reports. The final 
regulations include this suggested clarification. Further, the FCC 
requested that the FCA confirm that once a reporting entity is 
determined under GAAP to be the preferred reporting entity, it would 
require a significant change in facts and circumstances to change the 
reporting basis of such entity. The FCA agrees that, under GAAP, it 
would require a significant change in facts and circumstances to 
support a change in a reporting entity's method of financial statement 
presentation (e.g., from reporting on a combined basis to reporting on 
a stand-alone basis).
    In general, the FCA believes the relationship between a bank and 
its related associations is an important one that warrants discussion 
in the financial statements to achieve full and complete disclosure 
regardless of how the bank presents its financial statements. In 
adopting the regulations substantially as proposed, the FCA reiterates 
its position that presentation of combined financial statements 
conforms with GAAP and is the most appropriate method of disclosure to 
shareholders of FCBs and their related associations. Similarly, based 
on the financial and operational interdependence of the banks and their 
associations, and the banks' joint and several liability for Systemwide 
debt securities, the FCA believes combined financial statements 
continue to provide the most meaningful disclosure under GAAP for 
purposes of the System's reports to investors.
    Under final Sec. 620.4, any bank that presents its financial 
statements on a combined basis must distribute its annual report to the 
shareholders of related associations. Where bank preparation of bank-
only financial statements is supported by GAAP, the regulation does not 
require that the bank distribute its annual report to the shareholders 
of related associations in ordinary circumstances. However, 
Sec. 620.4(b)(2) provides that for periods where the bank has 
experienced a significant event that has a material effect on the 
associations, the bank's annual report must be distributed to the 
related associations' shareholders.

IV. Technical Changes to Part 620

    The FCA proposed several technical changes to part 620 to clarify 
the reporting requirements of related organizations. The FCA received 
no comments on the proposed changes. The amendments are adopted as 
proposed.

V. Report to Investors

    Lastly, the FCA proposed to add new Sec. 630.3(f), which would 
permit the Federal Farm Credit Banks Funding Corporation to incorporate 
by reference information contained in offering documents for Farm 
Credit debt securities into the Systemwide financial reports to 
investors. The FCA received one comment in support of the new section 
and adopts Sec. 630.3(f) as proposed.

VI. Regulatory Impact

    The FCA has determined that the final regulations will not have a 
significant effect on the general economy and are not a significant 
regulatory action under Executive Order 12866. In addition, the final 
regulations pertain only to FCS institutions and, therefore, will not 
conflict with the rules and regulations of other financial regulatory 
agencies. Due to the nature of the regulations, it is unlikely that the 
regulations will have any material impact on governmental entitlements, 
grants, user fees, or loan programs.

List of Subjects

12 CFR Part 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.

12 CFR Part 630

    Accounting, Agriculture, Banks, banking, Credit, Organization and 
functions (Government agencies), Reporting and recordkeeping 
requirements, Rural areas.

    For the reasons stated in the preamble, parts 620 and 630 of 
chapter VI, title 12 of the Code of Federal Regulations are amended to 
read as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

    1. The authority citation for part 620 continues to read as 
follows:

    Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12 
U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101 
Stat. 1568, 1656.

Subpart A--General

    2. Section 620.1 is amended by redesignating paragraphs (o), (p), 
and (q) as new paragraphs (p), (q), and (r), respectively, and adding 
new paragraph (o) to read as follows:


Sec. 620.1  Definitions.

* * * * *
    (o) Report refers to the annual report, quarterly report, notice, 
or information statement required by this part unless otherwise 
specified.
* * * * *
    3. Section 620.2 is amended by revising paragraphs (a), (b)(3)(i), 
and (f) through (i) to read as follows:


Sec. 620.2  Preparing and filing the reports.

* * * * *
    (a) Three copies of each report required by this section, including 
financial statements and related schedules, exhibits, and all other 
papers and documents that are part of the report shall be filed with 
the Chief Examiner, Farm Credit Administration, McLean, Virginia 22102-
5090, or with such other Farm Credit Administration offices as the 
Chief Examiner designates. The Farm Credit Administration must receive 
the report within the period prescribed under applicable subpart 
sections. The reports shall be available for public inspection at the 
issuing institution and the Farm Credit Administration office with 
which the reports are filed. Bank reports shall also be available for 
public inspection at each related association office.
    (b) * * *
    (3)(i) For each quarterly report or notice filed under this 
section, each member of the board or one of the following board members 
formally designated by action of the board to certify reports of 
condition and performance on behalf of the individual board members: 
The chairperson of the board; the chairperson of the audit committee; 
or a board member designated by the chairperson of the board.
* * * * *
    (f) No disclosure required by subparts B and E of this part shall 
be deemed to violate any regulation of the Farm Credit Administration.
    (g) Each Farm Credit institution shall present its reports in 
accordance with generally accepted accounting principles and in a 
manner that provides the most meaningful disclosure to shareholders.
    (1) Any Farm Credit institution that presents its annual and 
quarterly financial statements on a combined or consolidated basis 
shall also include in the report the statement of condition and 
statement of income of the institution on a stand-alone basis. The 
stand-alone statements may be in summary form and shall disclose the 
basis of presentation if different from accounting policies of the 
combined or consolidated statements.
    (2) Any bank that prepares its financial statements on a stand-
alone basis shall provide in the footnotes

[[Page 15093]]

accompanying its annual report supplemental information containing a 
condensed statement of condition and statement of income for the bank's 
related associations on a combined basis. The condensed statements may 
be unaudited and shall disclose the basis of presentation if different 
from accounting policies of the bank-only statements.
    (h)(1) Each annual report or notice shall include a statement in a 
prominent location within the report or notice that the institution's 
quarterly reports are available free of charge on request. The 
statement shall include approximate dates of availability of the 
quarterly reports and the telephone numbers and addresses where 
shareholders may obtain a copy of the reports.
    (2) Each association shall include a statement in a prominent 
location within each report that the shareholders' investment in the 
association may be materially affected by the financial condition and 
results of operations of the related bank and (if not otherwise 
provided) that a copy of the bank's financial reports to shareholders 
will be made available free of charge on request. The statement shall 
also include the telephone numbers and addresses where shareholders may 
obtain copies of the related bank's financial reports.
    (3) Each institution shall, after receiving a request for a report, 
mail or otherwise furnish the report to the requestor. The first copy 
of the requested report shall be provided to the requestor free of 
charge.
    (i) Any events that have affected one or more related organizations 
of the reporting institution that are likely to have a material effect 
on the financial condition, results of operations, cost of funds, or 
reliability of sources of funds of the reporting institution shall be 
considered significant events for the reporting institution and shall 
be disclosed in the reports. Any significant event affecting the 
reporting institution that occurred during the preceding fiscal 
quarters that continues to have a material effect on the reporting 
institution shall be considered significant events of the current 
fiscal quarter and shall be disclosed in the reports.

Subpart B--Annual Report to Shareholders

    4. Section 620.4 is amended by revising paragraph (b) to read as 
follows:


Sec. 620.4  Preparing and distributing the annual report.

* * * * *
    (b)(1) Any bank that presents its financial statements on a 
combined basis shall distribute its annual report to the shareholders 
of related associations within the period required by paragraph (a) of 
this section. Each bank shall coordinate such distribution with its 
related associations.
    (2) Any bank that presents its financial statements on a bank-only 
basis shall distribute its annual report to the shareholders of related 
associations within the period required by paragraph (a) of this 
section in all instances where the bank experiences a significant event 
that has a material effect on the associations. Each bank shall 
coordinate such distribution with its related associations.
* * * * *
    5. Section 620.5 is amended by revising paragraph (g)(2)(vi) to 
read as follows:


Sec. 620.5  Contents of the annual report to shareholders.

    (g) * * *
    (2) * * *
    (vi) Discuss any events affecting a related organization that are 
likely to have a material effect on the reporting institution's 
financial condition, results of operations, cost of funds, or 
reliability of sources of funds.
* * * * *

Subpart C--Quarterly Report

    6. The heading for subpart C is revised as set forth above.
    7. Section 620.10 is revised to read as follows:


Sec. 620.10  Preparing the quarterly report.

    (a) Each Farm Credit bank and direct lender association shall 
prepare a quarterly report within 45 days after the end of each fiscal 
quarter, except that no report need be prepared for the fiscal quarter 
that coincides with the end of the fiscal year of the institution.
    (b) The report shall contain, at a minimum, the information 
specified in Sec. 620.11 and, in addition, such other material 
information (including significant events) as is necessary to make the 
required disclosures, in light of the circumstances under which they 
are made, not misleading.
    8. Part 620 is amended by redesignating subparts D, E, and F as new 
subparts E, F, and G, respectively, and adding a new subpart D to read 
as follows:

Subpart D--Notice to Shareholders


Sec. 620.15  Notice.

    (a) Each Farm Credit bank and direct lender association shall 
prepare, file with the Farm Credit Administration, and distribute a 
notice to shareholders, within 30 days following the monthend that the 
institution initially determines that it is not in compliance with the 
minimum permanent capital standard prescribed under Sec. 615.5205 of 
this chapter.
    (b) An institution that has given notice to shareholders pursuant 
to paragraph (a) of this section or subsequent notice pursuant to this 
paragraph shall also prepare, file with the Farm Credit Administration, 
and distribute to shareholders a notice within 45 days following the 
end of any subsequent quarter at which the institution's permanent 
capital ratio decreases by one-half of 1 percent or more from the level 
reported in the most recent notice distributed to shareholders.
    (c) Each institution required to prepare a notice under Sec. 620.15 
(a) or (b) shall distribute the notice to shareholders by mail or 
otherwise furnish the information required in the notice by publishing 
it in any publication with circulation wide enough to be reasonably 
assured that all of the institution's shareholders have access to the 
information in a timely manner.


Sec. 620.17  Contents of the notice.

    (a) The information required to be included in a notice must be 
conspicuous, easily understandable, and not misleading.
    (b) A notice, at a minimum, shall include:
    (1) A statement that:
    (i) Briefly describes the regulatory minimum permanent capital 
standard established by the Farm Credit Administration and the notice 
requirement of Sec. 620.15(a);
    (ii) Indicates the institution's current level of permanent 
capital; and
    (iii) Notifies shareholders that the institution's permanent 
capital is below the Farm Credit Administration regulatory minimum 
standard.
    (2) A statement of the effect that noncompliance has had on the 
institution and its shareholders, including whether the institution is 
currently prohibited by statute or regulation from retiring stock or 
distributing earnings or whether the Farm Credit Administration has 
issued a capital directive or other enforcement action to the 
institution.
    (3) A complete description of any event(s) that may have 
significantly contributed to the institution's noncompliance with the 
minimum permanent capital standard.
    (4) A statement that the institution is required by regulation to 
distribute another notice to shareholders within 45

[[Page 15094]]

days following the end of any subsequent quarter at which the 
institution's permanent capital ratio decreases by one half of 1 
percent or more from the level reported in the notice.

Subpart E--Association Annual Meeting Information Statement

    9. Section 620.20 is amended by removing paragraph (c) and revising 
paragraph (b) to read as follows:


Sec. 620.20  Preparing and distributing the information statement.

* * * * *
    (b) The statement shall incorporate by reference the annual report 
to shareholders required by subpart B of this part and contain the 
information specified in Sec. 620.21 and such other material 
information as is necessary to make the required statement, in light of 
the circumstances under which it is made, not misleading.

PART 630--DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND CONSOLIDATED 
BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM

    10. The authority citation for part 630 is revised to read as 
follows:

    Authority: Secs. 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 
2252, 2254).

Subpart A--General

    11. Section 630.3 is amended by redesignating existing paragraphs 
(f) and (g) as new paragraphs (g) and (h), respectively, and adding new 
paragraph (f) to read as follows:


Sec. 630.3  Publishing and filing the report to investors.

* * * * *
    (f) Information in documents prepared for investors in connection 
with the offering of debt securities issued through the Federal Farm 
Credit Banks Funding Corporation may be incorporated by reference in 
the annual and quarterly reports in answer or partial answer to any 
item required in the reports under this part. A complete description of 
any offering documents incorporated by reference must be clearly 
identified in the report (e.g., Federal Farm Credit Banks Consolidated 
Systemwide Bonds and Discount Notes--Offering Circular issued on 
[insert date]). Offering documents incorporated by reference in either 
an annual or quarterly report prepared under this part must be filed 
with the Chief Examiner, Farm Credit Administration, McLean, Virginia 
22102-5090, either prior to or at the time of submission of the report 
under paragraph (h) of this section. Any offering document incorporated 
by reference is subject to the delivery and availability requirements 
set forth in Sec. 630.4(a) (5) and (6).
* * * * *
    Dated: March 20, 1997.
Jeanette Brinkley,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 97-8000 Filed 3-28-97; 8:45 am]
BILLING CODE 6705-01-P