Missouri Code of State Regulations › Title 20 - DEPARTMENT OF COMMERCE AND INSURANCE › Division 1140 - Division of Finance › Chapter 2 - Banks and Trust Companies › Section 20 CSR 1140-2.110 - Management and Other Fees Paid by State-Chartered Banks

Current through Register Vol. 49, No. 14, July 15, 2024
PURPOSE: This rule formalizes the policy of the
				  Division of Finance toward bonuses, management fees, consultant's fees and
				  other fees paid by state-chartered banks to officers, directors, shareholders
				  or their related interests which do not provide commensurate services. This
				  rule is not intended to establish salary policy for active salaried
				  officers.
(1) Payments of
				bonuses, other than to fulltime salaried employees, management fees,
				consultant's fees and other fees which bear little or no relationship to the
				type, level, quality or value of services received, when paid to officers,
				directors, shareholders or their related interest are unsafe and unsound as
				they can result in dissipation of earnings and capital, have adverse effects on
				the financial interests of minority shareholders and, in some cases, may result
				in a finding by the Internal Revenue Service or preferential dividends with the
				bank being held liable for additional income taxes.
(2) The cash-flow requirements of the stock
				holder, whether to service the acquisition debt or otherwise, may not be
				considered in establishing management fees, consultant's fees or other fees.
				These cash-flows, instead, should be generated from outside sources or from a
				prudent dividend policy which must be consistent with the bank's need for an
				adequate capital structure.
(3)
				Management fees, consultant's fees and other fees paid by state-chartered banks
				must be based on and bear a direct relationship to the fair market value of the
				services received. The bank may purchase and pay for only the services that
				meet the legitimate needs of the bank. The provider must possess the necessary
				expertise to deliver the services. The provider may recover overhead costs to
				the extent that the costs represent a legitimate and integral part of the
				services provided.
(4)
				State-chartered banks which pay management and consultant fees to insiders or
				related interests will be required to maintain permanent records in sufficient
				detail to indicate to the directors and bank examiners the specific services
				which were performed and the basis upon which the costs were assessed. State
				bank examiners will review all these fees to identify instances where they are
				excessive. In those cases where the fees are not properly documented, where the
				amounts cannot be justified, or both, it will be the responsibility of the
				directors to obtain appropriate documentation or to seek
				reimbursement.
(5) Banks in chain
				banking organizations or owned by multibank holding companies frequently pay
				management fees, consulting fees or other fees to insiders and their interests
				on a
pro rata
basis. However, the
pro rata
method is not an appropriate method of allocation in all cases. To assist in
				allocating these fees, this rule includes a list of some of the more common
				types of services which may be rendered. Opposite each of these services is a
				classification indicating how the expense normally should be billed. These
				guidelines are not absolutes but deviations will be reviewed on a case-by-case
				basis for compliance with the intention of this rule.
Classification of Holding
						  Company Expenses
Service Provided E
xpense Classification
Electronic data processing
Individual subsidiary billing
Corporate audit
Individual subsidiary billing
Loan review
Individual subsidiary billing
Mergers and establishment of branches (including site
						  planning)
Individual subsidiary billing
Tax preparation other than consolidated returns
Individual subsidiary billing
Corporate tax plan and consolidated returns
Pro rata
basis
Personnel operations- training, evaluation and
						  compensation
Individual subsidiary billing
Holding company executive management and staff salaries
						  and wages
Pro rata
basis
Regulatory relations and planning
Pro rata
basis
General legal services
Pro rata
basis
Specific legal service (lawsuits, court proceedings,
						  administrative hearings, briefs, opinions)
Individual subsidiary billing
Marketing operations- research
Pro rata
basis
Marketing development and advertising programs-general
Pro rata
basis
Marketing development and advertising programs-specific
						  (for example,
de novo
bank)
Individual subsidiary billing
Security measures and procedures
Individual subsidiary billing
Investment advice
Individual subsidiary billing
Money desk operations
Individual subsidiary billing
Holding company occupancy costs
Pro rata
basis
*Original authority: 361.105, RSMo
					 1967.