Title: PROPOSED RULE--Organization; Eligibility and Scope of Financing; Loan Policies and Operations; Disclosure to Shareholders; Accounting and Reporting Requirements; Title V Conservators and Receivers--12 CFR Parts 611, 613, 614, 620, 621, and 627
Issue Date: 06/08/1993
Agency: FCA
Federal Register Cite: 58 FR 32071
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 613, 614, 620, 621, and 627

RIN 3052-AB32

Organization; Eligibility and Scope of Financing; Loan Policies and Operations; Disclosure to Shareholders; Accounting and Reporting Requirements; Title V Conservators and Receivers


ACTION: Proposed rule.

[*32071]

SUMMARY: The Farm Credit Administration (FCA) proposes amended regulations to update its accounting and reporting requirements, promote consistency with industry practices pertaining to problem loan accounting and reporting issues, and ensure that the regulations on accounting and reporting requirements are consistent with generally accepted accounting practices. Among other changes, the FCA proposes to revise the existing loan performance categories to eliminate the term "nonperforming" and the categories of "other high risk loans" and "other restructured and reduced rate loans." The definitions of the proposed revised loan performance categories clarify the required reporting treatment of problem loans to improve the utility of disclosures to shareholders and the FCA and obviate potential conflicting interpretations of problem loan classification among reporting institutions. Technical and conforming changes are proposed throughout the agency's regulations. FCA expects to publish final regulations in 4th quarter 1993, to be effective as of December 31, 1993.

DATES: Comments should be received on or before July 8, 1993.

ADDRESSES: Comments should be mailed or delivered (in triplicate) to Patricia W. DiMuzio, Division Director, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090. Copies of all comments received will be available for examination by interested parties in the Regulation Development Division, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT: Linda C. Sherman, Policy Analyst, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4498, TDD (703) 883-4444.

or

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


SUPPLEMENTARY INFORMATION:

I. Background

On March 13, 1986, the FCA adopted its current regulations on Accounting and Reporting Requirements, 12 CFR part 621 (See 51 FR 8661). These regulations were developed in large part to set requirements and standards for institutions to use in accounting for high risk assets and disclosing loan performance characteristics. Part 621 includes specific standards and reporting requirements for nonperforming loan categories, which include nonaccrual, formally restructured, other restructured and reduced rate, and other high risk loans.

The impetus for using the nonperforming designation and various nonperforming categories came from guidelines issued by the Securities and Exchange Commission (SEC). In the early 1980's, the SEC's Industry Guide 3, "Statistical Disclosure by Bank Holding Companies" used the term "nonperforming" to mean: (1) Nonaccrual loans; (2) renegotiated loans that provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower; (3) accrual loans that are past due 90 days or more; and (4) loans that are current but about which there are serious doubts as to the ability of the borrower to comply with present loan repayment terms. The SEC subsequently revised Guide 3 to include a requirement for the disclosure of risk elements, which include substantially all assets that previously would have been referred to as "nonperforming" assets plus other types of identified risk, such as potential problem loans, foreign loans outstanding, and loan concentrations.

In issuing final regulations, the FCA adopted the terms "nonperforming loans" (nonaccrual, formally restructured, other restructured and reduced rate, and other high risk loans) and "nonperforming assets" (nonperforming loans and acquired property) in recognition of their wide usage by the financial services industry, and to promote consistency in reporting and financial disclosures.

II. Issues Prompting Need for Changes

Since the regulations were issued in 1986, the FCA has developed interpretive guidance in the area of problem loan accounting. However, the term "nonperforming loans" and its components have been subject to varying interpretations and differences in institutional interpretations of problem loan classifications continue to exist. There are also diverse practices within the financial services industry and its regulators.

The term "nonperforming loans" is not widely used by other financial regulators in their official releases and published guidelines. Instead, depository institutions are required to disclose nonaccrual loans, accrual loans past due 90 days or more, and restructured loans in their regulatory call reports. In addition, institutions subject to SEC rules are required to disclose such loans, as well as potential problem loans, in their published financial statements as outlined in the SEC's Guide 3. Even though the SEC has adopted terminology using "Risk Elements" (versus "nonperforming assets") for disclosure purposes, the terms "nonperforming loans" and "nonperforming assets" are still used in the financial services industry and the financial press. In a review of the published financial statements of thirty of the largest United States bank holding companies, approximately 85 percent of those surveyed used one or both of these categories, and most used the term "nonperforming loans" to describe nonaccrual and restructured loans. In addition, the term "nonperforming assets" typically consisted of nonperforming loans and other real estate owned. Accruing loans past due 90 days or more were also disclosed, but not as a component of nonperforming loans. In the financial press, the term "nonperforming loans" is frequently used along with corresponding dollar amounts and ratios. However, this usage is seldom accompanied by a definition of nonperforming, which makes comparison of data more difficult.

The FCA believes there is a need to promote comparability of financial disclosures of problem loans by System institutions with similar disclosures by other financial institutions. In consideration of these factors, the FCA proposes to amend part 621 as it pertains to performance categories and related issues.

Questions have arisen regarding how performance categories should be applied to System assets. While the FCA and the System have provided guidance on these issues, there is a need for regulatory clarification that can be consistently applied throughout the System. For example, the use of the term "other high risk" has caused confusion over the perceived [*32072] relationship between performance classifications and credit classifications, even though a direct correlation between these two classification systems was never intended. The proposed regulations attempt to provide a clear distinction between accounting treatment of an asset and the classification of credit risk.

Some institutions have also requested clarification of the criteria for placing loans in nonaccrual, and expressed concern that existing criteria are not consistently applied to restructures or reamortizations, loans which are in-substance delinquencies, and loans in bankruptcy or foreclosure. In some cases they claim that inconsistent application of the concept "in process of collection" has resulted in current loans being placed in nonaccrual because of the lack of an effective collection effort. The proposed regulations attempt to link performance classifications more closely to evidence of repayment capacity.

Clarification has also been requested regarding interpretation of the rule of aggregation. Issues of concern include: (1) Whether all loans to a single borrower should be automatically aggregated, regardless of credit risk; and (2) whether the rule of aggregation should apply to all nonperforming categories, or only to individual performance categories. Applying the criteria without considering independent credit risk could result in loans being placed inappropriately in nonaccrual and distorting the financial position of an institution.

Other issues clarified in the proposed regulations include application of payments on nonaccrual loans, criteria for returning loans to accrual status, and accounting for the allowance for loan losses.

III. Advanced Notice of Proposed Rulemaking

Prior to developing a revised approach to problem loan accounting in part 621, the FCA sought comment from the System and the public through an advance notice of proposed rulemaking (ANPRM). See 57 FR 58997 (December 14, 1992). In the ANPRM, the FCA posed several questions regarding financial disclosures of problem loans by System institutions. The FCA received 22 comment letters, 17 of which were from agricultural credit associations (ACAs), three from Farm Credit banks (FCBs), and one each from the Farm Credit Council (FCC) and the American Institute of Certified Public Accountants (AICPA).

In general, all the commentors supported FCA's efforts to update and revise the accounting and reporting requirements relating to reporting and disclosure of problem loan assets. The commentors stated their belief that appropriate revisions would lower costs, increase comparability with other financial institutions, and eliminate confusing disclosures. The commentors unanimously supported eliminating the problem loan classifications of "other high risk loans" and "other restructured and reduced rate loans." Most commentors believed little would be gained by disclosing credit classifications in the Management Discussion and Analysis (MD&A) section of the annual report. Finally, most commentors expressed the opinion that the rule of aggregation should not be automatically applied to every situation, but that each situation should be evaluated on the basis of whether loans constitute independent credit risks.

The AICPA commented on existing diversity among financial institutions with regard to income recognition on impaired loans. They stated that the Financial Accounting Standards Board (FASB) has issued an exposure draft on this subject, and expects to issue a final pronouncement in 1993. If available and applicable, the FCA will consider any final FASB pronouncements prior to promulgation of a final regulation.

IV. Section-by-Section Analysis

A. Subpart A-Purpose and Definitions

Proposed 621.1 articulates the FCA's purpose for the regulation. Specifically, these regulations promote the preparation of accurate and reliable financial information in accordance with appropriate accounting and FCA requirements, thus enhancing accountability of management and directors to stockholders. The accounting requirements also provide a uniform foundation for generating and disclosing material financial information to all persons having or contemplating business transactions with System institutions, including investors in consolidated Systemwide bonds.

The proposed 621.2 on definitions removes certain outdated terms from the current regulation. To improve clarity, other current definitions are incorporated into the relevant provisions of the proposed regulation. Sections of the current subpart A that relate to the identification, accounting and reporting of loan performance would now be included in proposed subpart C, which addresses loan performance and valuation assessment. The terms "adequately secured," "in process of collection," "nonaccrual," and "other property owned" are discussed in 621.6. The terms "bankruptcy" and "foreclosure" are discussed in 621.7. A definition of net realizable value, which would quantify the expected net amount to be realized by an institution from the liquidation of collateral, is proposed to be added to subpart A.

B. Subpart B-General Rules

Proposed subpart B sets forth general requirements for accounting and audits of System institutions. Proposed 621.3, Application of generally accepted accounting principles, combines the general requirements of current 621.3 (Application of generally accepted accounting principles) and the requirement for using the accrual basis of accounting of current 621.4. Current 621.9, Audits by qualified public accountant, is renumbered as 621.4.

C. Subpart C-Loan Performance and Valuation Assessment

The proposed subpart C focuses on the specific identification, accounting and reporting requirements for loan performance and criteria for assessment of asset values. This subpart revises or eliminates definitions and terms previously found in subpart A, which were used to define high risk assets or problem loans.

1. Section 621.5-Accounting for the Allowance for Loan Losses and Chargeoffs

This section establishes accounting requirements for the allowance for loan losses and the recognition of chargeoffs. Essentially, proposed 621.5 combines current 621.6, Uncollectible interest on loans and similar assets-general rules; 621.7, Chargeoff of losses on loans; and 621.8, Adjustments to book value of assets. The proposed regulation in 621.5 clarifies the format and content of the existing regulations.

2. Section 621.6-Performance Categories and Other Property Owned

Proposed 621.6 establishes performance categories for nonaccrual loans, formally restructured loans, and loans 90 days past due still accruing interest. In conjunction with establishing these performance categories, the FCA proposes to eliminate the "other restructured and reduced rate" and "other high risk" categories contained in the current regulations. The proposed regulation includes other property owned (formerly referred to as "acquired property") in this section because of the need for institutions to monitor and report on such non-interest earning [*32073] assets. Other property owned includes real or personal property acquired through foreclosure or deed in lieu of foreclosure and loans which are in-substance foreclosed. Monitoring and reporting on other property owned in this fashion is consistent with the approach used by most financial institutions in disclosing problem assets.

In proposing 621.6, the FCA eliminates the terms "nonperforming loans" and "nonperforming assets" from the current regulations. Instead, the proposed regulation redirects the focus of this part to individual performance characteristics of certain segments of the loan portfolio without attempting to further categorize such loans and assets. The FCA believes that this will allow the System to achieve consistency with accounting classification practices of the financial services industry, while at the same time not compromising the FCA's ability to effectively monitor the risk that exists in the loan portfolio. Institutions that continue to use the terminology "nonperforming loans" and "nonperforming assets" in their published financial statements or other reports must clearly disclose the components contained within these broad categories of loans and loan-related assets. Technical changes will be made concurrently to other parts of the FCA regulations as appropriate to implement this change in performance categories.

a. Nonaccrual loans.-The first performance category established in 621.6 is nonaccrual loans. The concepts and conditions for placing loans in nonaccrual status remain largely unchanged from the current regulation. However, 621.6 incorporates language previously located in the definition provisions. Under the proposed regulation, a loan shall be considered nonaccrual if it meets any of the following conditions: (1) Payment of any amount of outstanding principal and interest accruals, considered over the full term of the asset, is not expected; (2) any portion of the loan has been charged off as a result of periodic credit evaluations; or (3) the loan is 90 days past due and is not both adequately secured and in process of collection. This language is consistent with the definition of nonaccrual loans used by the financial services industry.

The third condition for placing a loan in nonaccrual status requires a determination as to whether the loan is adequately secured and in process of collection. While this requirement is contained in the current regulations, the proposed regulation clarifies what FCA means by "in process of collection." In order for a loan to be considered in process of collection, there must be documented evidence that collection in full of amounts due and unpaid will occur within a reasonable time period, not to exceed 90 days. This means that the maximum collection period cannot exceed a total of 180 days from the date the note was due.

The proposed regulation emphasizes that the commencement of collection efforts, plans to liquidate collateral, ongoing workouts, restructurings, reamortizations, foreclosures, bankruptcy plans, or settlements do not automatically satisfy the criteria for in process of collection. The institution should also demonstrate and document that (1) Such activities are expected to result in prompt repayment of any past due principal and interest as described above; and (2) future collectibility of either interest or principal is no longer in doubt.

Some commentors expressed concern that the regulatory criteria are not being consistently applied to restructures or reamortizations, loans which are in-substance delinquencies, and loans in bankruptcy or foreclosure. It was claimed that loans were being placed in nonaccrual because of the lack of an effective collection effort, even when such loans were current as to principal and interest.

The proposed regulations address this issue by linking performance classifications to evidence of repayment capacity. Poor credit administration may result in restructured or reamortized loans being placed in nonaccrual when the criteria for in process of collection are not met. For example, loans which have capitalized interest through renewal without documented evidence of repayment capacity should not be categorized as an earning asset, and should be transferred to nonaccrual. Conversely, loans may remain in accrual status, even if such loans have been renewed including the capitalization of interest into the new loan amount, if, based on documented evidence supporting repayment of all past due amounts in a timely fashion, there is no doubt concerning future collectibility of either interest or principal.

Bankruptcy does not fulfill the criteria for in process of collection, unless the court terminates jurisdiction or grants relief from the automatic stay that permits collection to proceed fully. A detailed analysis of the loan must support a reclassification to another performance category. If monetary concessions are granted as part of a debt adjustment plan confirmed by the court, the loan may be reclassified as "formally restructured."

Foreclosure actions will rarely satisfy the criteria for in process of collection, unless the institution has documented evidence that the proceedings will result in prompt repayment of all principal and interest within 90 days. If the institution has received notice that a third party has initiated foreclosure proceedings under State law or deed of trust to terminate the borrower's right in any property in which the institution has a security interest, the institution must promptly review the potential impact of the third party actions on current performance classifications.

The FCA believes that these additional criteria will assist institutions and FCA examiners in achieving more consistent application of the definition of "in process of collection," and therefore result in a more accurate identification and disclosure of the System's nonaccrual assets and more meaningful financial statements.

b. Formally Restructured Loans. The second performance category established in 621.6 is "formally restructured loans." As with nonaccrual loans, the criteria established for placing a loan in the formally restructured category remain largely unchanged from the current regulation. The criteria continue to reflect the accounting and disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructuring. The current regulation, however, divides renegotiated troubled debt into two categories: formally restructured and other restructured and reduced rate loans. The other restructured and reduced rate loan category was intended to have the same meaning as formally restructured loans except that the concessions granted to the borrower are not incorporated into the contractual terms and conditions of the loan. In addition, interest income on some of these loans was recognized on a cash basis. A review of call report data has shown that, since the regulation became effective in 1986, very few loans have been categorized as other restructured and reduced rate. Because this category is not frequently used, and it is a standard industry practice to reflect cash basis loans as nonaccrual, the FCA believes that a separate performance category is not warranted for such loans. Accordingly, the proposed regulation eliminates the "other restructured and reduced rate" loan category.

c. Loans 90 Days Past Due Still Accruing Interest. The third [*32074] performance category established in 621.6 is "loans 90 days past due still accruing interest." This category of loans is equivalent to a similar risk element in the SEC's Guide 3. Establishing a category of loans 90 days past due still accruing interest is intended to make the disclosure of performance categories used by the FCA consistent with the financial statement disclosures of such loans by the financial services industry.

The category of loans 90 days past due still accruing interest is a subset, albeit small, of those loans previously placed in the other high risk category. The remainder of loans currently classified "other high risk" includes loans in bankruptcy, foreclosure, severe default, or loans where management has information that causes serious doubt as to the borrower's willingness or ability to perform in accordance with the terms and conditions of the loan agreement. While loan assets meeting these other criteria are considered significant, the FCA believes the risk in these assets can be appropriately identified and monitored through the use of the nonaccrual performance classification or adverse credit classifications, depending on the circumstances. Instead of individually identifying and reporting on these loans, the proposed regulation requires System institutions to disclose, on a portfolio basis, the nature and extent of potential problem loans, similar to what is required by the SEC's Guide 3. The FCA believes this will ensure that all System institutions properly identify their level of problem loan assets, while decreasing costs to institutions by eliminating the need for duplicate reporting requirements.

d. Other property owned. Finally, 621.6 of the proposed regulation separately identifies as a fourth category "other property owned," which is referred to in the current regulation as "acquired property." Other property owned represents real or personal property that was acquired by the institution through foreclosure or deed in lieu of foreclosure, or that meets the criteria for in-substance foreclosure, and represents non-earning assets related to the institution's lending practices. The proposed regulation uses the terminology "other property owned" in place of "acquired property" to promote greater consistency with industry practices. The definition used for this category has also been updated to reflect current generally accepted accounting principles as they pertain to in-substance foreclosures.

3. Section 621.7-Rule of Aggregation

The FCA proposes to modify the rule of aggregation, previously located in 621.5(b)(2) to clarify the criteria to be used in applying the rule, and to provide guidance on the issue of independent credit risk. The primary purpose of the rule of aggregation is to ensure that when a borrower's loan is placed in nonaccrual status, an institution immediately evaluates whether or not other loans to the same borrower, or loans for which the same borrower is responsible for repayment, should also be placed in nonaccrual. All loans to a single borrower, or loans for which that borrower is primarily obligated, should be classified as nonaccrual unless the institution can support a determination that the borrower's other loans represent an independent credit risk. If full collection of all principal and interest on the other loans can be reasonably projected and supported, and if the circumstances which caused the first loan to be classified nonaccrual do not impact the other loans, then those other loans may remain in their current performance category.

The proposed regulation clarifies the FCA's position that only the nonaccrual performance category must be considered in applying the rule of aggregation. The FCA believes that it is inappropriate to automatically aggregate loans that are in the past due or formally restructured categories. The purpose of identifying loans in various performance categories is to provide a mechanism for monitoring, reporting, and disclosing to shareholders those loans for which repayment and/or income is either not expected or unlikely to be realized in the next reporting cycle. Past due and formally restructured loans exhibit unique legal or structural characteristics that are not easily transferable to other loans, and which could mislead the reader of an institution's financial statements as to the nature and extent of such loans.

The rule of aggregation, as currently proposed, states that when an institution becomes aware that a borrower has a loan that has been classified "nonaccrual" by any other lender, the institution must re-evaluate the credit risk in its loan to the borrower and then determine if an independent credit risk exists. While the primary thrust of this regulation focuses on an individual borrower's risk to the reporting institution, an assessment of a loan's credit quality and the borrower's ability to repay should consider all outstanding obligations of the borrower, regardless of whether the debts are with one or multiple lenders. Credit risk exists whether the borrower's loans are held at a single institution or separate institutions. The proposed regulation requires the institution to determine the extent to which its loans may be adversely impacted, and whether such loans constitute a separate credit risk.

4. Section 621.8-Application of Payments and Income Recognition on Nonaccrual Loans

This proposed section is intended to provide for uniform accounting and reporting of cash payments received on nonaccrual loans. It describes how a loan should progress from nonaccrual to accrual status, and the steps which must be taken to make this transition.

When there is doubt that the principal can be collected in full, the payments should be applied to the principal only. Payments may be applied to both the principal and interest on a cash basis only after this doubt has been removed. In addition to the removal of such doubt as to collectibility in full, the institution must demonstrate that: (1) The loan is not past due more than 90 days; (2) the loan (except for an SFAS-15 restructured loan) does not have an unrecovered prior chargeoff; (3) evidence indicates full repayment will occur; and, (4) a repayment pattern is established that demonstrates repayment capacity and continued performance.

5. Section 621.9-Reinstatement to Accrual Status

This proposed section is intended to provide minimum criteria for determining when loans in nonaccrual status may be reinstated to accrual status. The criteria are intended to clarify current practices, and to ensure that there is consistency in practice regarding the reinstatement to accrual status, so that the financial condition of the institution is properly stated. The concept guiding the reinstatement of nonaccrual loans to accrual status should be the elimination of the factors causing the loan to have been transferred to nonaccrual status. Once these factors have been eliminated, it is no longer necessary or prudent to keep the loan in either nonaccrual or cash basis nonaccrual. In developing the minimum regulatory criteria, the FCA considered current criteria used by other financial regulators and industry practices. Reinstatement should be supported by a period of sustained performance in accordance with the contractual terms of the note and/or loan agreement. Sustained performance will generally be demonstrated by 6 consecutive monthly payments, 4 [*32075] consecutive quarterly payments, 3 consecutive semiannual payments, or 2 consecutive annual payments.

6. Section 621.10-Monitoring of Performance Categories and Other Property Owned
The FCA believes monitoring and reporting requirements are needed to provide a uniform foundation for generating and disclosing accurate and reliable information on an institution's portfolio performance and level of risk. The FCA believes that the development, adoption, and application of policies governing these accounting and reporting requirements are also needed. In their comment letters responding to the ANPRM, respondents felt little would be gained by disclosing credit classifications in the Management Discussion and Analysis section of the annual report, and unanimously requested that the disclosure requirements to be followed by System institutions be comparable to the disclosure requirements for other financial institutions. The FCA is responding to this request by proposing disclosure requirements consistent with the SEC's Guideline for disclosure of risk elements and potential problem loans.

The proposed regulation requires System institutions to: (1) Report those loans identified under the performance categories and other property owned; and (2) to disclose the nature and extent of significant potential credit risks within the loan portfolio through a discussion in the Management Discussion and Analysis section of institution's annual report. This discussion can be accomplished through an overview of the credit quality of the loan portfolio, the use of applicable credit quality statistics, or a discussion of other such characteristics that cause management concern. This requirement is intended to provide a link to the prior reporting of other high risk loans, to provide continuity of prior reporting, and to make System disclosures more meaningful to shareholders and investors and, where appropriate, more comparable to the disclosures of other financial institutions.

D. Subpart D-Report of Condition and Performance

No changes were made to this subpart of the regulation, other than to renumber the sections.

E. Subpart E-Reports on Securities Activities of the Federal Agricultural Mortgage Corporation (Farmer Mac)

Subpart C of part 621 currently prescribes the content of Farmer Mac's annual report of condition. The FCA now proposes to describe the contents of Farmer Mac's annual report of condition in 620.40. The FCA, therefore, proposes to eliminate the definition of the Farmer Mac annual report of condition from part 621 and redefine part 621 to cover FCA filings that Farmer Mac must make on its securities activities. Proposed part 621 would:

(1) Require Farmer Mac to file concurrently with the FCA the same information that it is required to file with the SEC under the Securities Act of 1933 and the Securities Exchange Act of 1934;

(2) Require Farmer Mac to file with the FCA information on its securities activities that are exempt from registration requirements; and

(3) Delete existing requirements that Farmer Mac and certified facilities complete registration and reporting requirements even when the SEC requires no filings.

Farmer Mac is the only government-sponsored enterprise whose guaranteed securities have been explicitly denied exemption from the Federal securities laws. The FCA, therefore, believes that the Congress expected that general purposes of investor and shareholder disclosure would be served by Farmer Mac's compliance with the Securities Act of 1933 and the Securities Exchange Act of 1934. In order to avoid undue regulatory burden, the FCA proposes that the SEC filings related to Farmer Mac or Farmer Mac securities be made concurrently with the FCA. The FCA believes that when the Federal securities regulations permit an exemption to Farmer Mac, the FCA can still collect information through its examinations and through quarterly reports. As a result, the FCA proposes to delete its existing requirements that Farmer Mac and certified facilities complete registration and reporting requirements when not required to do so by the SEC. Reports filed with the SEC are generally available to the public, so the FCA proposes no additional requirement for public dissemination of reports filed with the SEC.

V. Changes to Other FCA Regulations

The proposed changes to part 621 of the regulations also affect other parts of the FCA regulations. Conforming changes are proposed for part 620, Disclosure to Shareholders, and various other parts where technical corrections may be necessary. Three of the changes to part 620 are material in their impact on an institution's disclosure requirements.

First, current 620.5(g)(1)(iv)(A) requires disclosure in the annual report of an analysis of nonperforming assets in accordance with current 621.2. This section has been modified to require: (1) An analysis of nonaccrual loans, formally restructured loans, and loans 90 days past due still accruing interest; and (2) an evaluation and disclosure of the nature and extent of potential credit risks within the loan portfolio as required by proposed 621.10(a)(2).

Secondly, current 620.5(j)(3)(ii) and 620.31(d)(2) require the institution to state that "no loan to a senior officer or director (or director candidate), or to any organization affiliated with such person * * * involved more than normal risk of collectibility * * *," and normal risk of collectibility is defined in current 620.1(i) as "the ordinary risk inherent in the lending operation. Loans that are deemed to have more than a normal risk of collectibility include * * * any loans properly identified as "nonperforming" as defined in 621.2(a)(17) of this chapter." Current 621.5(j)(3)(iii)(G) and 621.31(d)(3)(vii) further require the institution to state "the reason the loan is deemed to have more than a normal risk of collectibility." The proposed regulation modifies the definition of normal risk of collectibility in 620.1(i) by replacing the phrase "loans properly identified as nonperforming, as defined in 621.2(a)(17) of this chapter" with the phrase "adversely classified loans." The proposed regulation, as amended, defines loans that are deemed to have more than a normal risk of collectibility to include, but not be limited to, any adversely classified loans. FCA believes that linking director disclosure of their loan quality to credit quality instead of performance categories provides accurate and more easily understood criteria that will result in substantially the same disclosures as are currently required.

Finally, the FCA proposes minor changes to existing 620.40, which requires that Farmer Mac's disclosure to shareholders be based on standards set by the SEC for the financial industry. The proposed regulation also extends the deadline for filing the annual report of condition from 90 days to 120 days.

FCA proposes that Farmer Mac's annual report of condition be the same as the annual report required by section 14 of the Securities Exchange Act of 1934. The proposed regulation would be amended to clarify that the FCA's statutory requirement for Farmer Mac to prepare and publish an annual report of condition can be met by the annual report sent to shareholders by Farmer Mac under SEC regulations. The FCA [*32076] believes that reports of condition prepared under SEC regulations provide sufficient information to satisfy statutory requirements imposed by Congress, and that it is prudent to coordinate our efforts and rely on information that has already been prepared, reported, and disclosed in accordance with SEC regulations.

In August 1992, senior management of Farmer Mac requested that the FCA amend existing part 620 of the regulation to permit the distribution of Farmer Mac's annual report within 120 days after the close of its fiscal year, instead of the 90 days required by the existing regulation. The additional 30 days for distribution of Farmer Mac's annual report to shareholders would allow Farmer Mac the maximum time the SEC permits firms to file proxy materials and then incorporate those proxy filings by reference in their annual reports. Firms filing proxy materials after this 120-day deadline may not incorporate proxy material by reference. Farmer Mac incorporates proxy materials by reference in its annual 10-K filings, and would prefer to be afforded the full 120-day time period to distribute the annual report to shareholders. The FCA believes this request to be reasonable, and proposes to amend the regulation to change the deadline from 90 to 120 days after Farmer Mac's fiscal year end.

VI. Regulatory Impact

The FCA intends that the proposed changes will update its accounting and reporting requirements, promote consistency with industry practices pertaining to problem loan accounting and reporting issues, and ensure that the regulatory requirements and standards of 12 CFR part 621 are consistent with those of generally accepted accounting practices. The proposed changes will benefit System institutions, their shareholders, the public, and the FCA by improving the clarity and comparability of problem loan disclosure and reducing duplicative reporting requirements. In particular, System institutions will benefit from the cost savings generated by elimination of the current overlap between the credit, accounting, and reporting systems. In response to the ANPRM, one System institution estimated its general cost savings in this area could be $ 150,000.

List of Subjects

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 613

Aged, Agriculture, Banks, banking, Civil rights, Credit, Fair housing, Marital status discrimination, Religious discrimination, Rural areas, Sex discrimination, Signs and symbols.

12 CFR Part 614

Agriculture, Banks, banking, Foreign trade, Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 620

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

12 CFR Part 621

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

12 CFR Part 627

Agriculture, Banks, banking, Claims, Rural areas.

For the reasons stated in the preamble, parts 611, 613, 614, 620, 621, and 627 of chapter VI, title 12 of the Code of Federal Regulations is proposed to be amended to read as follows:

1. Part 621 is revised to read as follows:

PART 621-ACCOUNTING AND REPORTING REQUIREMENTS

Subpart A-Purpose and Definitions

Sec.

621.1 Purpose and applicability.

621.2 Definitions.

Subpart B-General Rules

621.3 Application of generally accepted accounting principles.

621.4 Audit by qualified public accountant.

Subpart C-Loan Performance and Valuation Assessment

621.5 Accounting for the allowance for loan losses and chargeoffs.

621.6 Performance categories and other property owned.

621.7 Rule of aggregation.

621.8 Application of payments and income recognition on nonaccrual loans.

621.9 Reinstatement to accrual status.

621.10 Monitoring of performance categories and other property owned.

Subpart D-Report of Condition and Performance

621.11 Applicability and general instructions.

621.12 Content and standards-general rules.

621.13 Certification of correctness.

Subpart E-Reports Relating to Securities Activities of the Federal Agricultural Mortgage Corporation

621.20 Form and content.

Authority: Secs. 5.17, 8.11 of the Farm Credit Act; 12 U.S.C. 2252, 2279aa-11.

Subpart A-Purpose and Definitions

621.1 -- Purpose and applicability.

This part sets forth accounting and reporting requirements to be followed by all banks, associations, and service organizations chartered under the Act, the Farm Credit System Funding Corporation, and where specifically indicated, the Federal Agricultural Mortgage Corporation (Farmer Mac). The requirements set forth in this part are of both general and specific applicability. Certain requirements focus on areas of financial condition and operating performance that are of special importance for generating, presenting, and disclosing accurate and reliable information.

621.2 -- Definitions.

For the purposes of this part, the following definitions shall apply:

(a) Accrual basis of accounting means the accounting method in which expenses are recorded when incurred, whether paid or unpaid, and income is reported when earned, whether received or not received.

(b) Borrowing entity means the individual(s), partnership, joint venture, trust, corporation, or other business entity, or any combination thereof, which is primarily obligated on the loan instrument.

(c) Generally accepted accounting principles means that body of conventions, rules, and procedures necessary to define accepted accounting practice at a particular time, as promulgated by the Financial Accounting Standards Board (FASB) and other authoritative sources recognized as setting standards for the accounting profession in the United States. Generally accepted accounting principles include not only broad guidelines of general application but also detailed practices and procedures that constitute standards by which financial presentations are evaluated.

(d) Generally accepted auditing standards means the standards and guidelines adopted by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) to govern the overall quality of audit performance.

(e) Institution means any bank, association, or service organization chartered under the Act, the Farm Credit System Funding Corporation, and where specifically noted, Farmer Mac.

(f) Loan means any extension of credit or lease that is recorded as an asset of a reporting institution, whether made [*32077] directly or purchased from another lender. The term "loan" includes, but is not limited to:

(1) Loans originated through direct negotiations between the reporting institution and a borrower;

(2) Purchased loans or interests in loans, including participation interests, retained subordinated participation interests in loans sold, and interests in pools of subordinated participation interests that are held in lieu of retaining a subordinated participation interest in loans sold;

(3) Contracts of sale; notes receivable; and

(4) Other similar obligations and lease financing.

(g) Material means that the information required to be provided regarding any subject is limited to those matters as to which there is a substantial likelihood that a reasonable person would attach importance in making shareholder decisions or determining the financial condition of the institution.

(h) Net realizable value means the net amount the lender would expect to be realized from the acquisition and subsequent sale or disposition of a loan's underlying collateral. Generally, net realizable value would be equal to the estimated selling price, in the ordinary course of business, less estimated costs of acquisition, completion, holding and disposal.

(i) Qualified public accountant means a person who:

(1) Holds a valid and unrevoked certificate, issued to such person by a legally constituted State authority, identifying such person as a certified public accountant;

(2) Is licensed to practice as a public accountant by an appropriate regulatory authority of a State or other political subdivision of the United States;

(3) Is in good standing as a certified and licensed public accountant under the laws of the State or other political subdivision of the United States in which is located the home office or corporate office of the institution that is to be audited;

(4) Is not suspended or otherwise barred from practice as an accountant or public accountant before the Securities and Exchange Commission (SEC) or any other appropriate Federal or State regulatory authority; and

(5) Is independent of the institution that is to be audited. For the purposes of this definition the term "independent" shall have the same meaning as under the rules and interpretations of the American Institute of Certified Public Accountants (AICPA).

Subpart B-General Rules

621.3 -- Application of generally accepted accounting principles.

Each institution shall:

(a) Prepare and maintain on an accrual basis, accurate and complete records of its business transactions as necessary to prepare financial statements and reports, including reports to the Farm Credit Administration, in accordance with generally accepted accounting principles, except as otherwise directed by statutory and regulatory requirements;

(b) Prepare its financial statements and reports, including reports to the shareholders, investors, boards of directors, institution management and the Farm Credit Administration, in accordance with generally accepted accounting principles, except as otherwise directed by statutory and regulatory requirements; and

(c) Prepare and maintain its books and records in such a manner as to facilitate reconciliation with financial statements and reports prepared from them.

621.4 -- Audit by qualified public accountant.

(a) Each institution shall, at least annually, have its financial statements audited by a qualified public accountant in accordance with generally accepted auditing standards.

(b) The qualified public accountant's opinion of each institution's financial statements shall be included as a part of each annual report to shareholders.

(c) If an institution disagrees with the opinion of a qualified public accountant required by paragraph (b) of this section, the following actions shall be taken immediately:

(1) The institution shall prepare a brief but thorough written description of the scope and content of the disagreement, noting each point of disagreement and citing, in all cases, the specific provisions of generally accepted accounting principles and generally accepted auditing standards upon which the institution's position in the disagreement is based;

(2) A copy of the institution's final description of the disagreement shall be given to the accountant who provided the opinion with which the institution disagrees;

(3) The accountant shall have 10 business days to develop and provide a brief but thorough final response to the institution's description of the disagreement, including all items believed to be incorrect or incomplete, and citing, in all cases, the specific provisions of generally accepted accounting principles and generally accepted auditing standards upon which the accountant's position in the disagreement is based;

(4) Both the institution's final description of the disagreement and the accountant's final response to it shall be included in the institution's annual report to shareholders directly following the accountant's opinion of the institution's financial statements; and

(5) The institution shall immediately notify the Chief Examiner, Farm Credit Administration, of any disagreement with its accountant and shall furnish the Farm Credit Administration the written documentation required by paragraphs (c) (1) through (4) of this section.

(d) If an institution selects a qualified public accountant to audit its financial statements and provide an opinion thereon for its annual report who is different from the accountant whose opinion appeared in the institution's most recent annual report, the following items shall be sent to the Farm Credit Administration no later than 15 days after the end of the month in which the change took place and shall be included in the institution's annual meeting information statement and annual report to shareholders for the year in which the change of accountants took place:

(1) The name and address of the accountant whose opinion appeared in the institution's most recent annual report to shareholders;

(2) A brief but thorough statement of the reasons the accountant selected for the most recent annual report was not selected for the current annual report. If the change resulted from a disagreement with the accountant, the statement shall describe the institution's disagreement with the accountant's opinion and the accountant's final response to the institution's disagreement prepared pursuant to paragraph (c) of this section; and

(3) The identification of the highest ranking officer, committee of officers, or board of directors, as appropriate, that recommended, approved, or otherwise made the decision to change qualified public accountants.

Subpart C-Loan Performance and Valuation Assessment

621.5 -- Accounting for the allowance for loan losses and chargeoffs.

Each institution shall:

(a) Maintain at all times an allowance for loan losses that is adequate to absorb all probable and estimable losses that may reasonably be expected to exist in the loan portfolio.

(b) Develop, adopt, and consistently apply policies and procedures [*32078] governing the establishment and maintenance of the allowance for loan losses which, at a minimum, conform to the rules, definitions, and standards set forth in this part and any other applicable requirements.

(c) Charge off loans, wholly or partially as appropriate, at the time they are determined to be uncollectible.

(d) Employ the following practices with respect to earned but uncollected interest income on loans, leases, contracts, and similar assets that are determined not to be fully collectible:

(1) Earned but uncollected interest income that was accrued in the current fiscal year and is determined to be uncollectible shall be reversed from interest income.

(2) Earned but uncollected interest income that was accrued in prior fiscal years and is determined to be uncollectible shall be charged off against the allowance for loan losses.

(e) Ensure that when an institution or the Farm Credit Administration determines that the value of a loan or other asset recorded on its books and records exceeds the amount that can be reasonably expected to be collectible, or when the documentation supporting the recorded asset value is inadequate, the institution shall immediately charge off the asset in the amount determined to be uncollectible. If the amount determined to be uncollectible by the institution is different from the amount determined to be uncollectible by the Farm Credit Administration, the institution shall charge off such amount as the Farm Credit Administration shall direct.

621.6 -- Performance categories and other property owned.

Each institution shall employ the following practices with respect to categorizing loans and loan-related assets. No loan shall be put into more than one performance category. At a minimum, loans meeting the criteria for both nonaccrual and another performance category shall be classified as nonaccrual.

(a) Nonaccrual loans. A loan is considered nonaccrual if it meets any of the following conditions:

(1) Payment of any amount of outstanding principal and interest accruals, considered over the full term of the asset, is not expected; or

(2) Any portion of the loan has been charged off as a result of periodic credit evaluations; or

(3) The loan is 90 days past due and is not both adequately secured and in process of collection.

(i) A loan shall be considered adequately secured only if:

(A) It is secured by real or personal property having a net realizable value sufficient to discharge the debt in full; or

(B) It is guaranteed by a financially responsible party in an amount sufficient to discharge the debt in full.

(ii) A loan shall be considered in process of collection only if collection efforts are proceeding in due course, and based on a probable and specific event, are expected to result in the prompt repayment of the debt or its restoration to current status. There must be documented evidence that collection in full of amounts due and unpaid is expected to occur within a reasonable time period, not to exceed 90 days, or a maximum of 180 days from the date that payment was due. The commencement of collection efforts through legal action, including bankruptcy or foreclosure, or through collection efforts not involving legal action, including ongoing workouts and reamortizations, do not, in and of themselves, provide sufficient cause to keep a loan out of nonaccrual status. If full collection of the debt or its restoration to current status is dependent upon completion of any action by the borrower, the institution must obtain the borrower's written agreement to complete all such actions by the specific dates set forth in agreement.

(b) Formally restructured loans. A loan shall be considered formally restructured if it meets the "troubled debt restructuring" definition set forth in Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings, as promulgated by the FASB.

(c) Loans 90 days past due still accruing interest.

(1) Loans 90 days past due still accruing interest shall include loans that are 90 days or more contractually past due, and that are both adequately secured and in process of collection, as defined in this section.

(2) A loan shall be considered contractually past due if any principal repayment or interest payment required by the loan instrument is not received on or before the due date. A loan shall remain contractually past due until it is formally restructured or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full.

(d) Other property owned shall include:

(1) Any real or personal property, other than an interest earning asset, that has been acquired through foreclosure or deed in lieu of foreclosure, as a result of full or partial liquidation of a loan, and

(2) Loans transferred to other property owned as a result of a determination that the collateral securing the loan has been in-substance foreclosed, as defined by generally accepted accounting principles.

621.7 -- Rule of aggregation.

(a) When one loan to a borrower is placed in nonaccrual, an institution must immediately evaluate whether its other loans to the same borrower should also be placed in nonaccrual. All loans on which a borrowing entity, or a component of a borrowing entity, is primarily obligated to the reporting institution shall be considered as one loan unless a review of all pertinent facts supports a reasonable determination that a particular loan constitutes an independent credit risk and such determination is adequately documented in the loan file.

(1) A loan shall be considered an independent credit risk if the loan is fully guaranteed as to principal and interest by a government agency.

(2) Other loans shall be considered independent credit risks if and so long as:

(i) The primary sources of repayment are independent for each loan;

(ii) The loans are not cross-collateralized; and

(iii) The principal obligors are different person(s) and/or entity(ies), unless the operations of a related borrower are so financially interdependent with the borrower's operations that the economic survival of the borrower's operations will materially affect the economic survival of the related borrower's operations, as is defined in 614.4358(a)(2) of this chapter.

(b) If the evaluation required by paragraph (a) of this section results in a determination that the borrower's other loans with the institution do not represent an independent credit risk, and full collection of such loans is not expected, then all of the borrower's loans must be aggregated and classified as nonaccrual. If such other loans represent an independent credit risk and are fully collectible, then they may remain in their current performance category.

(c) When an institution becomes aware that a borrower has a loan that has been classified nonaccrual by any other lender, the institution must re-evaluate the credit risk in its loan to the borrower and then determine if an independent credit risk exists. [*32079]

621.8 -- Application of payments and income recognition on nonaccrual loans.

Each institution shall employ the following practices with respect to application of cash payments on nonaccrual loans:

(a) If the ultimate collectibility of principal, in whole or in part, is in doubt, any payment received on such loan shall be applied to reduce principal to the extent necessary to eliminate such doubt.

(b) Once the ultimate collectibility of the principal is no longer in doubt, payments received in cash on such loan may qualify for recognition as interest income if all of the following characteristics are met at the time the payment is received:

(1) The loan does not have a remaining unrecovered prior chargeoff associated with it, except in cases where the prior chargeoff was taken as part of a formal restructure of the loan;

(2) The payment received has come from a source of repayment detailed in the plan of collection;

(3) The loan, after considering the payment, is not contractually past due more than 90 days, and is not expected to become 90 days past due; and

(4) A repayment pattern has been established that reasonably demonstrates future repayment capacity.

621.9 -- Reinstatement to accrual status.

When the factors that caused a loan to be transferred to nonaccrual status no longer exist, the loan may be reinstated to accrual status, provided that each of the following criteria is met:

(a) All contractual principal and interest due on the loan is paid and the loan is current;

(b) No reasonable doubt remains regarding the ability of the borrower to perform in accordance with the contractual terms of the loan agreement; and

(c) Reinstatement is supported by a period of sustained performance in accordance with the contractual terms of the note and/or loan agreement. Sustained performance will generally be demonstrated by 6 consecutive monthly payments, 4 consecutive quarterly payments, 3 consecutive semi-annual payments, or 2 consecutive annual payments.

621.10 -- Monitoring of performance categories and other property owned.

(a) Each institution shall:

(1) Account for, report, and disclose to shareholders, investors, boards of directors, and the Farm Credit Administration all material items with respect to performance categories and other property owned in accordance with the rules and definitions set forth in this part and any other applicable requirements;

(2) In accordance with 620.5(g)(1)(iv)(A) of this chapter, disclose to shareholders, investors, boards of directors and the Farm Credit Administration, the nature and extent of significant potential credit risks within the loan portfolio, or other information that could adversely impact performance of the loan portfolio in the near future;

(3) Develop, adopt, and consistently apply policies and procedures governing performance categories and other property owned, which, at a minimum, conform to the definitions, rules, and standards set forth in this part and such other requirements and procedures as may be required by the Farm Credit Administration;

(4) Review at least quarterly all loans to determine whether they have been assigned the appropriate performance category; and

(5) Review at least quarterly all loans to determine the collectibility of accrued but uncollected income, if any.

(b) Measures taken to enhance the collectibility of a loan shall not be deemed to relieve an institution of the requirement to monitor and evaluate the loan for the purpose of determining its performance status.

Subpart D-Report of Condition and Performance

621.11 Applicability and general instructions.

(a) Each institution, and Farmer Mac, shall prepare and file such reports of condition and performance as may be required by the Farm Credit Administration.

(b) Reports of condition and performance shall be filed four times each year, and at such other times as the Farm Credit Administration may require. The reports shall be prepared on the accrual basis of accounting and shall fairly represent the financial condition and performance of each institution at the end of, and over the period of, each calendar quarter, provided that such additional reports as may be necessary to ensure timely, complete, and accurate monitoring and evaluation of the affairs, condition, and performance of Farm Credit institutions may be required, as determined by the Chief Examiner, Farm Credit Administration.

(c) All reports of condition and performance shall be filed with the Farm Credit Administration, Office of Examination, 1501 Farm Credit Drive, McLean, Virginia, 22102-5090.

621.12 -- Content and standards-general rules.

Each institution, and Farmer Mac, shall prepare reports of condition and performance:

(a) In accordance with all applicable laws, regulations, standards, and such instructions and specifications and on such media as may be prescribed by the Farm Credit Administration;

(b) In accordance with generally accepted accounting principles and such other accounting requirements, standards, and procedures as may be prescribed by the Farm Credit Administration; and

(c) In such manner as to facilitate their reconciliation with the books and records of reporting institutions.

621.13 -- Certification of correctness.

Each report of financial condition and performance filed with the Farm Credit Administration shall be certified as having been prepared in accordance with all applicable regulations and instructions and to be a true and accurate representation of the financial condition and performance of the institution to which it applies. The reports shall be certified by the officer of the reporting institution named for that purpose by action of the reporting institution's board of directors. If the board of directors of the institution has not acted to name an officer to certify the correctness of its reports of condition and performance, then the reports shall be certified by the president or chief executive officer of the reporting institution.

Subpart E-Reports Relating to Securities Activities of the Federal Agricultural Mortgage Corporation

621.20 -- Form and content.

(a) Farmer Mac shall provide the Office of Secondary Market Oversight with three copies of any filings made with the SEC pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934. Such copies shall be filed with the FCA contemporaneously with any SEC filing.

(b) For any security not required to be registered under the Securities Act of 1933, Farmer Mac shall provide the Office of Secondary Market Oversight with three copies of any offering circular or other information statement prepared by Farmer Mac in connection with the securities being offered at or before the time of the offering.

(c) Farmer Mac shall file with the Office of Secondary Market Oversight copies of all correspondence to and [*32080] from the Securities and Exchange Commission and the Department of Treasury. Such correspondence should be filed no later than the call report filing date for the calendar quarter in which the correspondence was received or sent.

(d) Farmer Mac shall promptly notify the Office of Secondary Market Oversight if it becomes exempt or claim exemption from the filing requirements of the Securities and Exchange Act of 1934.

PART 611-ORGANIZATION

2. The authority citation for part 611 continues to read as follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act; 12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003 and 1004.

Subpart E-Transfer of Authorities

611.515 -- [Amended]

3. Section 611.515 is amended by removing the words "nonperforming loans and related assets," and adding, in their place, the words "nonaccrual loans, formally restructured loans, loans 90 days past due still accruing interest, other property owned," in paragraph (b)(6)(ii)(E).

Subpart G-Mergers, Consolidations, and Charter Amendments of Associations

4. Section 611.1122 is amended by removing the words "nonperforming loans and related assets" and adding, in their place, the words "nonaccrual loans, formally restructured loans, loans 90 days past due still accruing interest, other property owned," in the second sentence of paragraph (e)(6)(iii); and by revising paragraph (e)(9) to read as follows:

611.1122 -- Requirements for mergers or consolidations.

* * * * *

(e) * * *

(9) A presentation for each constituent association regarding its policy on accounting for loan performance, together with the number and dollar amount of loans in all performance categories, including all loans classified as nonaccrual, formally restructured, and 90 days past due still accruing interest.

* * * * *

Subpart H-Rules for Inter-System Fund Transfers

611.1130 -- [Amended]

5. Section 611.1130 is amended by removing the words "acquired property," and adding, in their place, the words "other property owned," in paragraph (b)(4)(iii).

Subpart N-Conservators and Conservatorships of Banks and Associations

611.1182 -- [Amended]

6. Section 611.1182 is amended by removing the reference " 621.12" and adding in its place " 621.13" in the second sentence of paragraph (c).

Subpart O-Special Reconsideration of Mergers

611.1197 -- [Amended]

7. Section 611.1197 is amended by removing the words "nonperforming loans and related assets," and adding, in their place, the words "nonaccrual loans, formally restructured loans, loans 90 days past due still accruing interest, other property owned," in paragraph (b)(6)(ii)(E).

Subpart P-Termination of Farm Credit Status-Associations

611.1225 -- [Amended]

8. Section 611.1225 is amended by removing the words "nonperforming loans and related assets" and adding, in their place, the words "nonaccrual loans, formally restructured loans, loans 90 days past due still accruing interest, other property owned," in paragraph (t)(2).

611.1240 -- [Amended]

9. Section 611.1240 is amended by removing the reference " 621.2(a)(21)," and adding in its place " 621.2(i)," in the second sentence of paragraph (c).

PART 613-ELIGIBILITY AND SCOPE OF FINANCING

10. The authority citation for part 613 continues to read as follows:

Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 3.7, 3.8, 3.22, 5.9, 5.17 of the Farm Credit Act; 12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 2093, 2122, 2128, 2129, 2143, 2243, 2252; 42 U.S.C. 3601 et seq.; 15 U.S.C. 1691 et seq.; 12 CFR 202, 24 CFR 100, 109, and 110.

Subpart B-Eligibility To Borrow From Farm Credit Banks, Agricultural Credit Banks, Production Credit Association, Agricultural Credit Associations and Federal Land Credit Associations

613.3045 -- [Amended]

11. Section 613.3045 is amended by removing the words "performing loans" and adding, in their place, the words "loans which are current as to both principal and interest which are" in paragraph (c)(3)(i). PART 614-LOAN POLICIES AND OPERATIONS

12. The authority citation for part 614 continues to read as follows:

Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act; 12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa, 2279aa-5; sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

Subpart C-Bank/Association Lending Relationship

614.4130 -- [Amended]

13. Section 614.4130(a) is amended by removing the words "(as defined in 12 CFR 621.2(a)(20))".
Subpart N-Loan Servicing Requirements; State Agricultural Loan Mediation Programs; Right of First Refusal

614.4512 -- [Amended]

14. Section 614.4512 is amended by removing the words "a loan as a nonperforming asset;" and adding, in their place, the words "loans classified as nonaccrual, formally restructured, 90 days past due still accruing interest, and other property owned;" in paragraph (c)(2).

614.4522 -- [Amended]

15. Section 614.4522 is amended by removing the words "Acquired property" and adding, in their place, the words "Acquired real estate" in paragraph (a)(1); by removing the words "acquired property" and adding, in their place, the words "acquired real estate" in paragraph (b), the first sentence of paragraphs (c)(3) introductory text and (c)(4) and paragraph (e) introductory text; and by removing the words "acquired property, [*32081] or any portion of such real estate," and adding, in their place, the words "acquired real estate, or any portion of such property" in the introductory text of paragraphs (c) and (d).

PART 620-DISCLOSURE TO SHAREHOLDERS

16. The authority citation for part 620 is revised 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

620.1 -- [Amended]

17. Section 620.1 is amended by removing the words "loans properly identifiable as "nonperforming" as defined in 621.2(a)(17) of this chapter." and adding, in their place, the words "adversely classified loans." in the second sentence of paragraph (i).

620.2 -- [Amended]

18. Section 620.2 is amended by removing the reference " 621.12" and adding in its place " 621.13" in paragraph (b)(1).

Subpart B-Annual Report to Shareholders

19. Section 620.5 is amended by removing the reference " 621.9 (c) and (d)" and adding in its place " 621.4 (c) and (d)" in paragraph (l); by removing the reference " 621.2(a)(21)" and adding in its place " 621.2(i)" in paragraph (m)(1); and by revising paragraphs (f)(1)(i)(F) and (g)(1)(iv)(A) to read as follows:

620.5 -- Contents of the annual report to shareholders.

* * * * *

(f) * * *

(1) * * *

(i) * * *

(F) Other property owned.

** * * *

(g) * * *

(1) * * *

(iv) * * *

(A) An analysis of performance categories in accordance with 621.6 of this chapter.

* * * * *

Subpart C-Quarterly Report to Shareholders

620.10 -- [Amended]

20. Section 620.10 is amended by removing the reference " 621.12" and adding in its place " 621.13" in paragraph (e)(1).

Subpart D-Association Annual Meeting Information Statement

620.21 -- [Amended]

21. Section 620.21 is amended by removing the reference " 621.9 (c) and (d)" and adding in its place " 621.4 (c) and (d)" in paragraph (f).

22. Subpart F is revised to read as follows:

Subpart F-Annual Report of Condition of the Federal Agricultural Mortgage Corporation

620.40 -- Content, timing, and distribution of Federal Agricultural Mortgage Corporation's annual report of condition.

(a) Farmer Mac shall prepare and publish an annual report of its condition that is equivalent in content to the annual report to shareholders required by section 14 of the Securities Exchange Act of 1934.

(b) Farmer Mac shall distribute the annual report of condition to its shareholders within 120 days of its fiscal year end.

(c) Upon receiving a request for an annual report of condition, Farmer Mac shall promptly mail or otherwise furnish to the requestor a copy of the most recent annual report described in this section.

(d) Farmer Mac shall file three copies of the annual report of condition with the Farm Credit Administration's Office of Secondary Market Oversight within 120 days of its fiscal year end.

PART 627-TITLE V CONSERVATORS AND RECEIVERS

23. The authority citation for part 627 continues to read as follows:

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58 of the Farm Credit Act; 12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7.

Subpart C-Conservators and Conservatorships

627.2785 -- [Amended]

24. Section 627.2785 is amended by removing the reference " 621.12" and adding in its place " 621.13" in the second sentence of paragraph (c).

Dated: June 2, 1993

Curtis Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 93-13357 Filed 6-7-93; 8:45 am]

BILLING CODE 6705-01-P