12 C.F.R. Subpart K—Surplus and Collateral Requirements
Title 12 - Banks and Banking
Source: 62 FR 4447, Jan. 30, 1997, unless otherwise noted.
For the purposes of this subpart, the following definitions shall apply: (a) The terms deferred-tax assets that are dependent on future income or future events, institution, permanent capital, and total capital shall have the meanings set forth in §615.5201. (b) Core surplus. (1) Core surplus means: (i) Undistributed earnings/unallocated surplus less, for associations only, an amount equal to the net investment in the bank; (ii) Nonqualified allocated equities (including stock) that are not distributed according to an established plan or practice, provided that, in the event that a nonqualified patronage allocation is distributed, other than as required by section 4.14B of the Act, or in connection with a loan default or the death of an equityholder whose loan has been repaid (to the extent provided for in the institution's capital adequacy plan), any remaining nonqualified allocations that were allocated in the same year will be excluded from core surplus. (iii) Perpetual common or noncumulative perpetual preferred stock (other than allocated stock) that is not retired according to an established plan or practice, provided that, in the event that stock held by a borrower is retired, other than as required by section 4.14B of the Act or in connection with a loan default to the extent provided for in the institution's capital plan, the remaining perpetual stock of the same class or series shall be excluded from core surplus; (iv) A capital instrument or a particular balance sheet entry or account that the Farm Credit Administration has determined to be the functional equivalent of a component of core surplus. The Farm Credit Administration may permit an institution to include all or a portion of such instrument, entry, or account as core surplus, permanently or on a temporary basis, for purposes of this subpart. (2) For associations only, other allocated equities may also be included in the core surplus ratio to the extent permitted by §615.5330(b) if the following conditions are met: (i) The allocated equities are includible in total surplus; and (ii) The allocated equities, if subject to a plan or practice of revolvement or retirement, are not scheduled or intended to be revolved or retired during the next 3 years, provided that, in the event that such allocated equities included in core surplus are retired, other than as required by section 4.14B of the Act, or in connection with a loan default or the death of an equityholder whose loan has been repaid (to the extent provided for in the institution's capital adequacy plan), any remaining such allocated equities that were allocated in the same year will be excluded from core surplus. (3) The deductions that must be made by an institution in the computation of its permanent capital pursuant to §615.5207(f), (g), (i), and (k) shall also be made in the computation of its core surplus. Deductions required by §615.5207(a) shall also be made to the extent that they do not duplicate deductions calculated pursuant to this section and required by §615.5330(b)(2). (4) Equities issued by System institutions and held by other System institutions shall not be included in the core surplus of the issuing institution or of the holder, unless approved pursuant to paragraph (b)(1)(iv) of this section, except that equities held in connection with a loan participation shall not be excluded by the holder. This paragraph shall not apply to investments by an association in its affiliated bank, which are governed by §615.5301(b)(1)(i). (5) The core surplus of an institution shall exclude the net effect of all transactions covered by the definition of “accumulated other comprehensive income” contained in the Statement of Financial Accounting Standards No. 130, as promulgated by the Financial Accounting Standards Board. (6) The Farm Credit Administration may, if it finds that a particular component, balance sheet entry, or account has characteristics or terms that diminish its contribution to an institution's ability to absorb losses, require the deduction of all or a portion of such component, entry, or account from core surplus. (c) Net collateral means the value of a bank's collateral as defined by §615.5050 (except that eligible investments as described in §615.5140 are to be valued at their amortized cost), less an amount equal to that portion of the allocated investments of affiliated associations that is not counted as permanent capital by the bank. (d) Net collateral ratio means a bank's net collateral, divided by the bank's total liabilities. (e) Net investment in the bank means the total investment by an association in its affiliated bank, less reciprocal investments and investments resulting from a loan originating/service agency relationship, including participations. (f) Nonqualified allocated equities means allocations of earnings designated to the institution's members that are not deducted from the gross taxable income of the allocating institution at the time of allocation. (g) Perpetual stock or equity means stock or equity not having a maturity date, not redeemable at the option of the holder, and having no other provisions that will require the future redemption of the issue. (h) Qualified allocated equities means allocations of earnings that are deducted from the gross taxable income of the allocating institution and designated to the institution's members. (i) Total surplus means: (1) Undistributed earnings/unallocated surplus; (2) Allocated equities, including allocated surplus and stock, that are not subject to a plan or practice of revolvement or retirement of 5 years or less and are eligible to be included in permanent capital pursuant to paragraph(4)(iv) of the definition of permanent capital in §615.5201; and (3) Common and perpetual preferred stock (other than allocated stock) that is not purchased or held as a condition of obtaining a loan, provided that the institution has no established plan or practice of retiring such stock; (4) Term preferred stock that is not purchased or held as a condition of obtaining a loan, up to a maximum of 25 percent of the institution's permanent capital (as calculated after deductions required in the permanent capital ratio computation). The amount of includible term stock must be reduced by 20 percent (net of redemptions) at the beginning of each of the last 5 years of the term of the instrument; (5) The total surplus of an institution shall exclude the net effect of all transactions covered by the definition of “accumulated other comprehensive income” contained in the Statement of Financial Accounting Standards No. 130, as promulgated by the Financial Accounting Standards Board. (6) A capital instrument or a particular balance sheet entry or account that the Farm Credit Administration has determined to be the functional equivalent of a component of total surplus. The Farm Credit Administration may permit one or more institutions to include all or a portion of such instrument, entry, or account as total surplus, permanently or on a temporary basis, for purposes of this subpart. (7) The Farm Credit Administration may, if it finds that a particular component, balance sheet entry, or account has characteristics or terms that diminish its contribution to an institution's ability to absorb losses, require the deduction of all or a portion of such component, entry, or account from total surplus. (8) Any deductions made by an institution in the computation of its permanent capital pursuant to §615.5207 shall also be made in the computation of its total surplus. (j) Total liabilities means liabilities valued in accordance with generally accepted accounting principles (GAAP), except that total liabilities shall exclude the following: (1) As set forth in Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as promulgated by the Financial Accounting Standards Board— (i) Adjustments to the carrying amount of any liability designated as being hedged; and (ii) Any derivative recognized as a liability that is designated as a hedging instrument. (2) Term preferred stock to the extent such stock is included as total surplus in the computation of the bank's total surplus ratio pursuant to §615.5301(i). [62 FR 4447, Jan. 30, 1997; 62 FR 19219, Apr. 21, 1997; 63 FR 39228, July 22, 1998; 68 FR 18534, Apr. 16, 2003; 70 FR 35356, June 17, 2005] (a) Total surplus. (1) Each institution shall achieve and at all times maintain a ratio of a least 7 percent of total surplus to the risk-adjusted asset base. (2) The risk-adjusted asset base is the total dollar amount of the institution's assets adjusted in accordance with §615.5301(i)(7) and weighted on the basis of risk in accordance with §615.5210. (b) Core surplus. (1) Each institution shall achieve and at all times maintain a ratio of core surplus to the risk-adjusted asset base of a least 3.5 percent, of which no more than 2 percentage points may consist of allocated equities otherwise includible pursuant to §615.5301(b). (2) Each association shall compute its core surplus ratio by deducting an amount equal to the net investment in the bank from its core surplus. (3) The risk-adjusted asset base is the total dollar amount of the institution's assets adjusted in accordance with §§615.5301(b)(3) and 615.5330(b)(2), and weighted on the basis of risk in accordance with §615.5210. (c) An institution shall compute its risk-adjusted asset base, total surplus, and core surplus ratios using average daily balances for the most recent 3 months. [63 FR 39228, July 22, 1998, as amended at 70 FR 35356, June 17, 2005] (a) Each bank shall achieve and at all times maintain a net collateral ratio of at least 103 percent. (b) At a minimum, a bank shall compute its net collateral ratio as of the end of each month. A bank shall have the capability to compute its net collateral ratio a day after the close of a business day using the daily balances outstanding for assets and liabilities for that date. [63 FR 39229, July 22, 1998] (a) Noncompliance and reporting. An institution that meets the minimum applicable surplus ratios and net collateral ratio established in §§615.5330 and 615.5335 at or after the end of the quarter in which these regulations become effective and subsequently falls below one or more minimum requirements shall be in violation of the applicable regulations. Such institution shall report its noncompliance to the Farm Credit Administration within 20 calendar days following the month end in which the institution initially determines that it is not in compliance with the requirements. (b) Initial compliance and reporting requirements. (1) An institution that fails to satisfy one or more of its minimum applicable surplus and net collateral ratios at the end of the quarter in which these regulations become effective shall report its initial noncompliance to the Farm Credit Administration within 20 days following such quarter end and shall also submit a capital restoration plan for achieving and maintaining the standards, demonstrating appropriate annual progress toward meeting the goal, to the Farm Credit Administration within 60 days following such quarter end. If the capital restoration plan is not approved by the Farm Credit Administration, the Agency shall inform the institution of the reasons for disapproval, and the institution shall submit a revised capital restoration plan within the time specified by the Farm Credit Administration. (2) Approval of compliance plans. In determining whether to approve a capital restoration plan submitted under this section, the FCA shall consider the following factors, as applicable: (i) The conditions or circumstances leading to the institution's falling below minimum levels, the exigency of those circumstances, and whether or not they were caused by actions of the institution or were beyond the institution's control; (ii) The overall condition, management strength, and future prospects of the institution and, if applicable, affiliated System institutions; (iii) The institution's capital, adverse assets (including nonaccrual and nonperforming loans), allowance for loss, and other ratios compared to the ratios of its peers or industry norms; (iv) How far an institution's ratios are below the minimum requirements; (v) The estimated rate at which the institution can reasonably be expected to generate additional earnings; (vi) The effect of the business changes required to increase capital; (vii) The institution's previous compliance practices, as appropriate; (viii) The views of the institution's directors and senior management regarding the plan; and (ix) Any other facts or circumstances that the FCA deems relevant. (3) An institution shall be deemed to be in compliance with the surplus and collateral requirements of this subpart if it is in compliance with a capital restoration plan that is approved by the Farm Credit Administration within 180 days following the end of the quarter in which these regulations become effective.
Title 12: Banks and Banking
PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS
Subpart K—Surplus and Collateral Requirements
§ 615.5301 Definitions.
§ 615.5330 Minimum surplus ratios.
§ 615.5335 Bank net collateral ratio.
§ 615.5336 Compliance and reporting.
