Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations 15089

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.

(ii) The terms of payment if they differ

from prompt payment set out in section

46.2(z) and (aa) of this part, and the

parties have expressly agreed to such

terms in writing before the affected

transactions occur.

10. A new § 46.49 is added to read as

follows:

§ 46.49 Written notifications and

complaints.

(a) Written notification, as used in

section 6(b) of the Act, means:

(1) Any written statement reporting or

complaining of a PACA violation(s)

filed by any officer or agency of any

State or Territory having jurisdiction

over licensees or persons subject to

license, or any other interested person

who has knowledge of or information

regarding a possible violation, other

than an employee of an agency of USDA

administering this Act or a person filing

a complaint under Section 6(c);

(2) Any written notice of intent to

preserve the benefits of the trust

established under section 5 of this Act;

or

(3) Any official certificate(s) of the

United States Government or States or

Territories of the United States.

(b) Any written notification may be

filed by delivering it to any office of

USDA or any official thereof responsible

for administering the Act. A written

notification which is so filed, or any

expansion of an investigation resulting

from any indication of additional

further violations of the Act found as a

consequence of an investigation based

on written notification or complaint,

shall also be deemed to constitute a

complaint under section 13(a) of this

Act.

(c) Upon becoming aware of a

complaint under Section 6(a) or 6(b) of

this Act, the Secretary will determine if

reasonable grounds exist for an

investigation of such complaint for

disciplinary action. If the investigation

substantiates the existence of violations,

a formal disciplinary complaint may be

filed by the Secretary as described

under Section 6(c)(2) of the Act.

(d) Whenever an investigation,

initiated as a result of a written

notification or complaint under Section

6(b) of the Act, is commenced, or

expanded to include new violations,

notice shall be given by the Secretary to

the subject of the investigation within

thirty (30) days of the commencement or

expansion of the investigation. Within

one hundred and eighty (180) days after

giving initial notice, the Secretary shall

provide the subject of the investigation

with notice of the status of the

investigation, including whether the

Secretary intends to issue a complaint

under Section 6(c)(2) of this Act,

terminate the investigation, or continue

or expand the investigation. Thereafter,

the subject of the investigation may

request in writing, no more frequently

than every ninety (90) days, a status

report from the Chief of the PACA

Branch who shall respond thereto

within fourteen (14) days of receiving

the request. When an investigation is

terminated, the Secretary shall, within

fourteen (14) days, notify the subject of

the investigation of the termination. In

every case in which notice or response

is required under this subsection such

notice or response shall be

accomplished by personal service or by

posting the notice or response by

certified mail to the last known address

of the subject of the investigation.

Dated: March 21, 1997.

Eric M. Forman,

Acting Director, Fruit and Vegetable Division.

[FR Doc. 97–7807 Filed 3–28–97; 8:45 am]

BILLING CODE 3410–02–P

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.

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.1 The rulemaking

implements section 211 of the Farm

Credit System Reform Act of 1996 (1996

Act),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
15090 Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations

3 See 12 CFR Part 630.

4 Sections 620.1(o) and 620.2(a), (b)(3)(i), (f)

through (i).

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.

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.3 The FCA also

proposed technical changes to clarify

the reporting requirements of related

organizations in their disclosure to

shareholders and investors.

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 4 as proposed.

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

§ 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 § 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

§ 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

§ 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.5 The Farm

Credit Act of 1971, as amended (Act),

encourages borrower/shareholder

participation in management, control,

and ownership of FCS institutions.6 In

the Farm Credit Amendments Act of

1985,7 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,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.

In proposing these regulations, the

FCA sought to balance the competing

considerations of providing adequate
Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations 15091

9 All FCS institutions were in compliance with

the regulatory minimum permanent capital

standard as of December 31, 1996.

10FCA Bookletter No. 256–OFA, Permanent

Capital Ratio-Average Daily Balance, May 24, 1990.

11The 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.

12See 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.

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,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.

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

§ 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 § 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

§ 620.15(a) and ‘‘any subsequent

quarterend’’ for ‘‘any subsequent

monthend’’ in proposed § 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,

§ 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 riskadjusted assets. The FCA further expects

FCS institutions to have procedures in

place that permit calculation of their

PCR on any given date.10

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 § 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

§ 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 § 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 § 620.15(b) will

coincide with the time allowed

institutions to prepare and file their

quarterly reports with the FCA under

§ 620.2. Final § 620.15(c) and the

content requirements for the notice in

§ 620.17 are adopted as proposed.

The FCA also invited comments on

the use of the total surplus to riskadjusted assets standard 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.

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.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.

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 § 620.2(g)(2)

to indicate that banks presenting their

financial statements on a stand-alone
15092 Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations

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 § 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,

§ 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

§ 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 § 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:

§ 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:

§ 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
Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations 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:

§ 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:

§ 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:

§ 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

§ 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

§ 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 § 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 § 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.

§ 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 § 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
15094 Federal Register / Vol. 62, No. 61 / Monday, March 31, 1997 / Rules and Regulations

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:

§ 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 § 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:

§ 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

§ 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

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 96–ANE–34; Amendment 39–

9956; AD 97–05–12]

RIN 2120–AA64

Airworthiness Directives; General

Electric Aircraft Engines CT7 Series

Turboprop Engines

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule; request for

comments.

SUMMARY: This amendment adopts a

new airworthiness directive (AD) that is

applicable to General Electric Aircraft

Engines (GE) CT7 series turboprop

engines. This action requires eddy

current inspection of disk holes of stage

1 and 2 gas generator turbine (GGT)

disks for cracks, and, if necessary,

replacement with serviceable parts. This

amendment is prompted by a report of

a stage 2 GGT disk failure. The actions

specified in this AD are intended to

prevent a stage 1 or 2 GGT disk failure,

which could result in an uncontained

engine failure and damage to the

aircraft.

DATES: Effective April 15, 1997.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of April 15,

1997.

Comments for inclusion in the Rules

Docket must be received on or before

May 30, 1997.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), New England

Region, Office of the Assistant Chief

Counsel, Attention: Rules Docket No.

96-ANE–34, 12 New England Executive

Park, Burlington, MA 01803-5299.

The service information referenced in

this AD may be obtained from GE

Aircraft Engines, 1000 Western Ave.,

Lynn, MA 01910; telephone (617) 594–

3140, fax (617) 594–4805. This

information may be examined at the

FAA, New England Region, Office of the

Assistant Chief Counsel, 12 New

England Executive Park, Burlington,

MA; or at the Office of the Federal

Register, 800 North Capitol Street, NW.,

suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Dave Keenan, Aerospace Engineer,

Engine Certification Office, FAA, Engine

and Propeller Directorate, 12 New

England Executive Park, Burlington, MA

01803–5299; telephone (617) 238–7139,

fax (617) 238–7199.

SUPPLEMENTARY INFORMATION: The

Federal Aviation Administration (FAA)

has received a report of a General

Electric Aircraft Engines (GE) CT7 series

turboprop engine, installed on a SAABSCANIA SF340 aircraft, that

experienced an uncontained stage 2 gas

generator turbine (GGT) failure during

takeoff. The investigation revealed that

the failure was caused by a crack in a

disk cooling hole. The most likely cause

of the cracking was machining damage

to the disk cooling hole during

manufacturing. This condition, if not

corrected, could result in a stage 1 or 2

GGT disk failure, which could result in

an uncontained engine failure and

damage to the aircraft.

The FAA has reviewed and approved

the technical contents of GE (CT7-TP

Series) Alert Service Bulletin (SB) A72–

393, dated November 26, 1996, that lists

by serial number (S/N) affected stage 1

and 2 GGT disks, and (CT7-TP Series)

SB 72–390, Revision 1, dated December

11, 1996, that describes the procedures

for eddy current inspection (ECI) of disk

holes for cracks.

Since an unsafe condition has been

identified that is likely to exist or

develop on other engines of the same

type design, this AD is being issued to

prevent stage 1 or 2 GGT disk failure,

which could result in an uncontained

engine failure and damage to the

aircraft. This AD requires a one-time ECI

for cracks of disk holes of stage 1 and

2 GGT disks, and, if necessary,

replacement with serviceable parts. The

inspection compliance time is at the

next GGT module removal, or 9 months

after the effective date of this AD,

whichever occurs first. The actions are

required to be accomplished in

accordance with the SBs described

previously.

Since a situation exists that requires

the immediate adoption of this

regulation, it is found that notice and

opportunity for prior public comment

hereon are impracticable, and that good