Federal Register, Volume 77 Issue 14 (Monday, January 23, 2012)

[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Proposed Rules]
[Pages 3172-3184]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-901]

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FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 612, 619, 620 and 630

RIN 3052-AC41

Compensation, Retirement Programs, and Related Benefits

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA, us, we, or our) proposes
to amend our regulations related to Farm Credit System (System) bank
and association disclosures to shareholders and investors. The proposed
rule would require reporting of supplemental retirement plans, a
discussion of the link between senior officer compensation and
performance, and timely and transparent reporting to shareholders of
significant events that occur between annual reporting periods. We
believe the proposed changes will provide full, transparent and
consistent disclosures to shareholders. The proposed rule would
identify the minimum responsibilities a compensation committee must
perform to ensure it continues to exercise good stewardship, and
require that System banks and associations provide for a nonbinding,
advisory vote on senior officer compensation in order to engage
shareholders in the management and control of their institution. Also,
the proposed rule would bifurcate existing annual reporting
requirements at Sec. 620.5 and make other conforming technical
changes.

DATES: Submit comments on or before March 23, 2012.

ADDRESSES: We offer a variety of methods for you to submit your
comments. For accuracy and efficiency reasons, commenters are
encouraged to submit comments by email or through the FCA's Web site.
As facsimiles (faxes) are difficult for us to process and achieve
compliance with section 508 of the Rehabilitation Act, we no longer
accept comments submitted by fax. Regardless of the method you use,
please do not submit your comments multiple times via different
methods. You may submit comments by any of the following methods:
Email: Send an email to reg-comm@fca.gov.
FCA Web site: http://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
``Submitting a Comment.''
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Gary K. Van Meter, Director, Office of Regulatory
Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA
22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia or on our Web site at http://www.fca.gov. Once you are
in the Web site, select ``Public Commenters,'' then ``Public
Comments,'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, including any
supporting data provided, but for technical reasons we may omit items
such as logos and special characters. Identifying information that you
provide, such as phone numbers and addresses, will be publicly
available. However, we will attempt to remove email addresses to help
reduce Internet spam.

FOR FURTHER INFORMATION CONTACT:
Deborah Wilson, Senior Accountant, Office of Regulatory Policy, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4414, TTY (703)
883-4434, or
Laura McFarland, Senior Counsel, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.

SUPPLEMENTARY INFORMATION:

I. Objective

The objectives of this proposed rule are to:
Improve the transparency and completeness of disclosures
in System

[[Page 3173]]

institution annual reports or annual meeting information statements
(collectively, Report) by requiring disclosure of all components of
senior officer \1\ compensation and retirement benefits;
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\1\ All references to senior officer(s) in this proposed rule
refer to a senior officer as defined in 12 CFR 619.9310.
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Promote the continued safety and soundness of System
institutions by requiring certain oversight responsibilities of
compensation committees;
Strengthen timely communication with System shareholders
on significant events that occur between annual reporting periods;
Provide shareholders with a clear and complete
understanding of their institution's obligations and commitments
related to supplemental retirement benefit plans (SRP) for employees
other than the senior officer group; and
Encourage member participation in the control and
management of their institution by providing voting shareholders an
opportunity to cast a nonbinding, advisory vote on senior officer
compensation.

II. Background

The Farm Credit Act of 1971, as amended (Act),\2\ authorizes the
FCA to issue regulations implementing the Act's provisions.\3\ Our
regulations are intended to ensure the safe and sound operations of
System institutions and to govern the disclosure of financial
information to shareholders of, and investors in, the System. Congress
explained in section 514 of the Farm Credit Banks and Associations
Safety and Soundness Act of 1992 (1992 Act) \4\ that disclosures of
financial information and compensation paid to senior officers, among
other disclosures, provide System shareholders with information
necessary to better manage their institution and make informed
decisions regarding the operation of their institution.
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\2\ Public Law 92-181, 85 Stat. 583 (1971), 12 U.S.C. 2001, et
seq.
\3\ 12 U.S.C. 2252(a)(8), (9) and (10).
\4\ Public Law 102-552, 106 Stat. 4131 (1992).
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Section 1.1(b) of the Act sets forth the objective to continue to
encourage owners-borrowers to participate in the management, control,
and ownership of their cooperative. In an October 14, 2010, Resolution
of the Farm Credit Administration Board, we declared our commitment to
support the cooperative business model and structure of System banks
and associations.\5\ The FCA emphasizes the cooperative structure and
principles by advancing regulatory proposals that encourage borrowers
to participate in the management, control and ownership of their
institution.
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\5\ Copies of the resolution may be obtained by contacting the
FCA.
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A. Comments Received

On November 18, 2010, we issued an advance notice of proposed
rulemaking (ANPRM) on disclosure of senior officer compensation and
related topics in order to gather information for the development of a
proposed rulemaking.\6\ We received 99 comment letters in response to
the ANPRM from individuals and entities associated with the System,
including the Farm Credit Council (FCC), acting for its membership, and
the Federal Farm Credit Banks Funding Corporation (Funding
Corporation). We reviewed all comment letters and evaluated their
recommendations in recognition of existing law and policy
considerations and the cooperative nature of the System. We are
proposing rules and amendments related to senior officer compensation
disclosures and related topics that were discussed in the ANPRM. Other
topics in the ANPRM not included in this rulemaking may be considered
in future rulemakings.\7\
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\6\ 75 FR 70619 (Nov. 18, 2010).
\7\ These topics include the use of a compensation consultant by
an institution's compensation committee and director of severance
benefits and related payments.
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We are actively reviewing the authority of the Funding
Corporation's System Audit Committee (SAC) to have ``unfettered ability
to engage outside advisors.'' Section 630.6 authorizes the Funding
Corporation board to deny, by a two-thirds majority vote of the full
board, any SAC request for resources. The SAC requested we consider
amending our regulations to remove this authority. We addressed this
issue in the ANPRM and most commenters responded that it would be
imprudent to provide absolute discretion on the use of resources to any
bank or association board committee. The FCC expressed the view of its
membership that existing FCA regulations appropriately balance audit
committee need with the board's ultimate responsibility to the
customer-shareholder for the safety and financial stability of the
institution. However, the FCC also noted that its membership supported
the Funding Corporation's request. The SAC's response to the ANPRM was
that the SAC believed it must have every resource it requires at its
disposal to effectively perform its function. We are not proposing
changes to this authority in this rulemaking, but may revisit the
matter in future rulemakings.

B. Proposed Rule

We periodically review and update our disclosure regulations to
ensure they are appropriate for current business practices, provide
shareholders with necessary information, and provide investors with
information necessary to assist them in making investment decisions. In
keeping with today's changing economic and business environments, and
in accordance with the findings of Congress under the 1992 Act and the
FCA Board Resolution of October 14, 2010, we believe it is appropriate
to review and update our rules on senior officer compensation
disclosures and other related topics. We believe that banks and
associations can continue to support the cooperative business model,
fulfill the System's public policy mission in a safe and sound manner,
and best serve their members by providing shareholders:
Complete disclosure that allows them to understand senior
officer compensation and retirement policies and practices and all
compensation and retirement benefit obligations;
Timely and transparent communication on significant or
material events affecting their institution; and
A nonbinding, advisory vote on senior officer
compensation.

We believe the proposed rule continues to balance meaningful
disclosures, committee oversight, and shareholder rights with
institution safety and soundness.

III. Section-by-Section Analysis

A. Bifurcation of Annual Reporting Requirements Sections [Existing
Sec. 620.5(h) Through (k); New Sec. 620.6]

To enhance the clarity and organization of our rules, we propose
moving the disclosure requirements for directors and senior officers in
Sec. 620.5(h) through (k) to new Sec. 620.6. Also, we propose that
Sec. 620.5(h) contain a reference to Sec. 620.6, stating that the
presentation of the Sec. 620.6 disclosures would continue to be
required in the annual report. We propose no changes to the current
requirements of existing Sec. 620.5(h), (j), and (k), except for minor
rewording of the language and cross citations to recognize the proposed
new locations at Sec. 620.6(a), (b), (d), (e), and (f). However, in
the process of moving Sec. 620.5(h) through (k) to new Sec. 620.6,
some regulatory language is proposed to be changed in existing Sec.
620.5(i) to remove redundancy and enhance clarity. Specifically, we
propose

[[Page 3174]]

clarifying how highly compensated employees, who are not senior
officers, are treated in the Summary Compensation Table (Compensation
Table) at new Sec. 620.6(c)(2)(i).
Also, we propose clarifying where to disclose the required
statement that the information on compensation for any individual
senior officer, as disclosed in the Compensation Table, is available to
shareholders upon request. In new Sec. 620.6(c)(2)(ii), we propose
that the statement must be presented directly beneath the Compensation
Table because we believe the notice of this right should be in close
proximity to the related disclosure. We propose new disclosure
requirements that would be contained in new Sec. 620.6(c) and are
discussed in Part III.B. of the preamble to this proposed rule.
As conforming technical changes, we propose changing references to
the annual report's director and senior officer compensation and
conflicts of interest disclosures, made in other areas of our rules, to
their location in new Sec. 620.6. Specifically changing references
contained in Sec. 611.330(b) of our rules from Sec. 620.5(j) and (k)
to Sec. 620.6(e) and (f); changing references contained in Sec.
612.2145(a)(2) of our rules from Sec. 620.5(k) to Sec. 620.6(f);
changing references contained in Sec. 612.2155(a)(2) of our rules from
Sec. 620.5(k) to Sec. 620.6(f); adding Sec. 620.6 to the references
contained in Sec. Sec. 612.2165(b)(12) and 620.4(c); renumbering
existing Sec. 620.5(l) through (n) as (i) through (k); and changing
references in Sec. 620.21(a)(3)(i) of our rules from Sec. 620.5(j)
(``Transactions with senior officers and directors'') to Sec. 620.6(e)
and Sec. 620.5(k) (``Involvement in certain legal proceedings'') to
Sec. 620.6(f).

B. Enhanced Disclosures of Senior Officer Compensation [Sec. 620.5(i)
and New Sec. 620.6(c)]

Existing Sec. 620.5(i) requires that compensation paid to or
earned by senior officers be disclosed in the Compensation Table, and
include discussion of benefits paid in connection with resignation,
retirement, or termination.
In developing this proposed rule, we recognized that:
Compensation and retirement benefit practices at many
System institutions are increasingly more complex and diverse;
Our current disclosure requirements may not capture all
current practices; and
Disclosures should include a clear discussion of the
relationship between the risks and rewards of compensation practices.

Consequently, we believe our disclosure rules should be amended to
ensure that all such practices are addressed in an institution's
disclosure of senior officer compensation.
In new Sec. 620.6(c)(4), we propose requiring that institutions
disclose information related to supplemental executive retirement plans
(SERP), if provided to chief executive officers (CEOs), senior officers
or other highly compensated employees (collectively, senior officers).
If the CEO and senior officers participate solely in pension and
retirement plans offered to all employees, the disclosures would not be
required. The information to be disclosed would include, at a minimum:
Funded and unfunded present value of accumulated benefits
for all CEO and senior officers' pension and retirement benefit plans,
including the SERP.
Years of credited service for the CEO and for the senior
officers.
Vested and unvested dollar amounts.

We propose that the disclosures be included in a separate pension and
retirement benefits table, and that it be presented in the report with
the Compensation Table.
In addition to requiring disclosure of SERPs, we propose
institutions:
Include all compensation, benefit and retirement plans
when discussing compensation programs;
Describe the overall risk and reward structure of
compensation, benefit and retirements plans; and
Discuss the link between the CEO's and senior officers'
total compensation, as reported, and both the institution's overall
performance and the CEO's and senior officers' performance.

In making these disclosures, we would expect an institution to discuss
the criteria used in determining its overall performance (e.g., capital
and risk management, credit risk and risk exposure to earnings,
liquidity management, and compliance with the general financing
agreement). Also, we would expect institutions to discuss the
benchmarks or other factors used to determine compensation, including
incentive-based compensation. Disclosures would be specific to the
institution, rather than being general or boilerplate.
We further propose at new Sec. 620.6(c)(3)(ii)(B) that
institutions disclose in the Compensation Table the dollar amount of
tax reimbursements or tax payments provided by the institution to
senior officers. The disclosure would be classified as a perquisite and
other personal benefit and would be reported in the period in which
payment is made. We are not proposing to change the threshold for
perquisite disclosures.
We believe improved transparency and consistency in disclosures of
senior officer compensation provides meaningful and complete disclosure
to members-owners and investors. Enhanced disclosures assist members-
owners and investors in making informed decisions regarding the
financial condition and operations of the institution.
We also propose adding a new Sec. 619.9335 to our general
definition rules to define SRP and SERP. A SRP or SERP would be defined
to mean a nonqualified retirement plan that provides benefits above and
beyond those covered by other retirement plans for all employees, and
that is funded in whole or in part by the institution.

C. Compensation Committee Responsibilities [Sec. Sec. 620.31 and
630.6(b)]

Our existing rules at Sec. Sec. 620.31 and 630.6(b) require a
compensation committee to review and approve the overall compensation
programs for senior officers and to review the compensation policies
and plans for all employees. Our July 9, 2009, FCA Bookletter,
``Compensation Committees'' (BL-060), provides guidance on how
compensation committees should fulfill their duties. However, we
believe it is appropriate to enhance our regulations to include the
minimum responsibilities a compensation committee must perform in order
to carry out its duties.
Therefore, in order that a compensation committee continues to
effectively fulfill its stewardship role, maintain effective and active
oversight, and ensure compensation and retirement benefit practices do
not jeopardize the institution's safety and soundness, we propose
clarifying that the compensation committee is accountable for:
Monitoring the terms and provisions of the incentive-based
compensation programs for senior officers,
Analyzing the institution's projected long-term
obligations for compensation and retirement benefits, and
Balancing financial rewards to senior officers against the
risks to the institution.
The proposed rule would amend our regulations at Sec. Sec.
620.31(b) and 630.6(b)(2) to enhance compensation committee
responsibilities to emphasize that the committee must ensure that:

[[Page 3175]]

CEO and senior officers' compensation promotes the
continued safety and soundness of the institution and supports the
institution's long-term business strategy and goals,
Risks to the institution and the financial rewards to the
CEO and senior officers are balanced (e.g., compensation and benefits
are not excessive relative to the results of operations and financial
condition of the institution),
The institution's projected total long-term compensation
and retirement obligations for the CEO and senior officers are
analyzed, and
The compensation of employee groups, other than the CEO
and senior officers, do not pose an imprudent risk to the institution
(e.g., loan officers).
In addition, we emphasize that compensation committees should
ensure that incentive-based compensation programs:
Are not unreasonable or disproportionate to the services
performed, and
Are structured so that the payout schedule considers the
potential for future losses or risks to the institution from services
performed in the current period.
Under the proposed rule, the compensation committee would be
required to document in meeting minutes its actions related to the
proposed enhanced responsibilities. Documenting its actions would
facilitate board review of how the committee carried out its
responsibilities and provide the current committee with an
understanding of prior committee actions.
For organizational reasons, we propose moving the requirements that
all compensation committee members must be members of the board of
directors and that the compensation committee report only to the board.
The requirements would be moved to the section that discusses the
formation of a compensation committee. Also, we propose replacing
``function'' with ``perform its duties'' in Sec. Sec. 620.31(c) and
630.6(b)(3) for clarification.

D. Notice to Shareholders [Sec. Sec. 620.10, 620.11, and 620.15]

In FCA Board Policy Statement, ``Cooperative Operating Philosophy--
Serving the Members of Farm Credit System Institutions,'' \8\ (FCA-PS-
80) the FCA reaffirmed its commitment to the cooperative structure and
its values and practices, including regular and relevant communication
with members. As such, we believe that certain events may be of such
significance or materiality to warrant communication to members-owners
throughout the institution's operating cycle. We believe that timely
and transparent communication to members encourages their continued
participation in the ownership, control and management of their
institution.
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\8\ See 75 FR 64728, Oct. 20, 2010.
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Existing Sec. Sec. 620.15 and 620.17 require that System
institutions provide notice to shareholders when the institution is not
in compliance with minimum permanent capital standards. This notice is
a supplement to annual and quarterly reporting requirements.
In a similar manner, we propose adding a requirement in Sec.
620.15 that significant events or circumstances occurring in interim or
intervening periods be communicated to shareholders through separate
notice. As proposed, notices would be made as soon as possible, but not
later than 90 calendar days after occurrence. As an alternative, we
propose allowing the institution to issue the notice within its
quarterly report, with prominent disclosure at the front of the report.
The proposed rule would allow institutions to distribute the notice
via electronic distribution (Web site) or by publication with
circulation wide enough to be reasonably assured that all shareholders
have timely access to the information. Also, we propose that the notice
be provided to the FCA at the same time it is distributed to
shareholders and that the notice be dated and signed.
The proposed rule would include a list of events that must, at a
minimum, be reported. If the event would be a ``significant'' change to
a compensation, retirement, benefit or capitalization plan,
significance would be based on the change to the individual plan and
not the impact of the change to the institution as a whole.
As a related change to our rules, we propose consolidating the
current contents of Sec. Sec. 620.15 and 620.17 on notices regarding
permanent capital into Sec. 620.17. This change would allow the
placement of the above proposed notice of significant or material
events to be located in Sec. 620.15 while preserving existing
requirements on notices for permanent capital. We believe the proposed
consolidation would add clarity to our rules by keeping like subject
matters together and removing redundant language. It is not intended
that the meaning and requirements for permanent capital notices be
changed.
To conform our regulations in Sec. 620.10, ``Preparing the
quarterly report,'' with the proposed notice of significant or material
events, we propose adding a new paragraph (c) to existing Sec. 620.10.
The proposed addition would clarify that the quarterly report may be
used for notices to shareholders, except minimum permanent capital
notices. We also propose adding a similar provision to Sec. 620.11 on
contents of quarterly reports, but including a proposed requirement
that notices included in the quarterly report be located at the front
of the report. We believe this proposed requirement preserves the
objective of the notices, which is that members-owners receive timely
and transparent communication of significant and material events.

E. Disclosure of Supplemental Retirement Plans to Employees, Exclusive
of the CEO and Senior Officers [Sec. 620.5(e)]

We propose adding a new paragraph (4) to existing Sec. 620.5(e)
that would require disclosure of the institution's obligations related
to a SRP to employees, exclusive of any plan provided to the CEO and
senior officers. The disclosure would include, at a minimum:
A description of the plan;
Funded and unfunded obligations of the plan; and
Vested and unvested dollar amounts.
We believe that by disclosing an institution's current and future
supplemental benefit obligations, shareholders and investors will have
a more complete understanding of the related liabilities and
commitments, both on- and off-balance sheet.

F. Nonbinding, Advisory Vote by Shareholders on Senior Officer
Compensation [Sec. Sec. 611.100, 620.5(a), and 630.20(i); New
Sec. Sec. 611.360, 611.410, and 620.6(c)(6)]

Our existing regulations do not require a nonbinding, advisory vote
by an institution's shareholders on senior officer compensation.
However, in FCA Informational Memorandum, ``Serving the Members of Farm
Credit System Institutions'' (IM), dated November 4, 2010, we noted
that boards of directors can encourage member participation in the
management and control of the institution by engaging members as owners
and communicating with members. The IM highlighted our belief that
effective boards use information obtained from members to establish
strategic direction for their institutions and to ensure business
activities remain member-focused.
We continue to believe that a Government-sponsored enterprise
comprised of cooperative institutions should continually strive to
operate under high standards in order to achieve

[[Page 3176]]

the System's public policy mission and encourage member-owner
participation in their institution. Therefore, we propose adding a new
Sec. 611.410 requiring that Farm Credit banks and associations provide
shareholders the opportunity to cast a nonbinding, advisory vote on
senior officer compensation.
The proposed Sec. 611.410 advisory vote would be required at banks
and associations if either the CEO's or the aggregate of all senior
officers' compensation, as disclosed in the Compensation Table,
increased or decreased by 15 percent or more from the previous
reporting period. The vote would not be required if the 15-percent
change resulted solely from a change in the CEO or a change in the
composition of personnel included in the senior officer group. Also, we
propose that associations be required to hold a nonbinding, advisory
vote on compensation if 5 percent of their voting shareholders petition
for it. We did not propose this additional petition requirement for
banks because there are fewer shareholders at the bank level, thereby
allowing a few shareholders to control the petition process.
We do not believe the vote would be burdensome to institutions
since it would be required only when a 15-percent change in practice
has occurred or, for associations, when 5 percent of their voting
shareholders petition for the vote. We believe the proposed nonbinding,
advisory vote would provide a means for shareholders to clearly express
and communicate either their approval or disapproval of compensation
practices for senior officers to their institution's board. The board
could then use the information, as appropriate, when establishing the
institution's strategic direction and ensure that it remains member-
focused.
We selected 15 percent as a threshold change in compensation based
on the recent range of percentage changes to bank and association CEO's
and senior officers' compensation. We consider the 15-percent threshold
to be reasonable. We selected 5 percent as the maximum percentage of
voting shareholders required to petition their association for the vote
because 5 percent is generally accepted as a criteria for assessing
significance or materiality.
We are also proposing general procedures for advisory votes in new
Sec. 611.360. The proposed procedures would apply to all advisory
votes held by an institution including, but not limited to, the
proposed advisory vote on compensation. As proposed, advisory votes
would be subject to the same confidentiality and security in voting
requirements of Sec. 611.340 and would be cast on a one-member, one-
vote basis, including votes cast by shareholders of Farm Credit banks.
We propose that weighted and cumulative voting not be allowed in
advisory votes in order to further the objective of giving equal voice
to each shareholder. Also, new Sec. 611.360 would require that
institutions develop voting procedures and provide notice to
shareholders of any advisory vote and the procedures used in casting
the vote. In addition, proposed Sec. 611.360 would permit the advisory
votes to be made in-person, by proxy, and by mail.
We propose disclosure in the annual report when an advisory vote is
held, including disclosure of the results of the vote. We propose
adding a new Sec. 620.5(a)(11) to the ``Description of business''
section of the annual report, requiring a discussion of the types of
advisory votes held during the reporting period. We further propose
that disclosure of nonbinding, advisory votes on senior officer
compensation be included with senior officer compensation disclosures
in new Sec. 620.6(c)(6). This disclosure requirement is proposed to be
carried forward into the System-wide report to investors at Sec.
630.20(i).
We propose in new Sec. 611.410(c)(6) that associations disclose
that shareholders may petition for an advisory vote, disclose when a
petition is received and disclose the results of the petition. The
proposal would require that the disclosures be presented with the
Compensation Table. We believe that providing the disclosures with the
Compensation Table ensures that shareholders are aware of their right
to express their opinion on senior officer compensation practices of
their associations.
In addition, we propose adding a definition of ``advisory vote'' at
Sec. 611.100(a) to ensure a consistent meaning of the term.

G. Miscellaneous

1. Technical Changes [Sec. Sec. 611.330(c), 611.400, 620.2(c),
620.4(c), and 620.11]
Our proposed amendments require additional conforming and
clarifying changes to other regulatory provisions. Likewise, in the
proposed process of consolidating provisions, some regulatory language
is proposed to be changed to remove redundancy and enhance clarity. We
propose making the following technical and conforming changes:
a. We propose adding a definition for ``business day'' to Sec.
611.100 to clarify our longstanding position that when our rules
reference business day it means a day the institution is open for
business, but excludes Federal holidays. As a technical change, we
propose renumbering existing Sec. 611.100 paragraphs (a) through (f)
as (c) through (h).
b. In subpart D of part 611, we propose revising the name of the
subpart from ``Rules for Compensation of Board Members'' to
``Compensation Practices of Farm Credit Banks and Associations.'' The
change will clarify that the provisions of subpart D relate to various
compensation issues at the bank and association level and not just to
bank board members. As a conforming change, in Sec. 611.400, we
propose revising the name of the section from ``Compensation of bank
board members'' to ``Compensation of Farm Credit bank board members''
to align terminology to that used in our general definitions of part
619. We also propose replacing the phrase ``Farm Credit System bank''
with ``Farm Credit bank'' everywhere it appears to update the section
for the same reason.
c. We propose updating the language in Sec. 611.400(b) regarding
annual inflationary changes in the statutory salary limit for Farm
Credit bank directors. The proposed change would continue to require
that we communicate the annual changes to the System, but remove the
requirement that we use a bookletter to do so. This will expedite
communication of the information.
d. We propose clarifying that the director-nominee disclosures
discussed in Sec. 611.330(c)(1) relate to the annual meeting
information statement by providing a corresponding rule citation to
Sec. 620.21(b).
e. We propose changing the language in Sec. 620.2(c) regarding the
electronic delivery of reports to shareholders to clarify that the
provision applies only to those reports individually sent to
shareholders, not all reports.
f. We propose a minor grammatical change to Sec. 620.4(c) on
contents of the annual report by breaking out the sentence into two
sentences. No change to the meaning of the paragraph is intended.
g. We propose to reorganize and renumber the existing provisions of
Sec. 620.11 to enhance clarity. No changes to the meaning of existing
language is proposed, although we propose adding an additional
provision to this section on incorporating shareholder notices into a
quarterly report, as discussed earlier.

[[Page 3177]]

2. Incorporating by Reference [Sec. 620.2(d)]
We propose changing the language in Sec. 620.2(d), which allows
System institutions to incorporate by reference in their reports. The
proposed change is to specify that information disclosed in any part of
the report may be incorporated by reference in that report unless
instructions state otherwise. In a prior rulemaking, we explained that
Sec. 620.2(d) allowed institutions to provide information required to
be in a specific section of the annual report through a reference to
another section of the report.\9\ The proposed limit on incorporating
by reference would only exist when a rule limits the location of a
specific disclosure.
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\9\ See 74 FR 28597, June 17, 2009.
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3. Signatures on Reports [Sec. 620.10(c)]
In developing this proposed rule on disclosures in annual and
quarterly reports, we noticed an inadvertent omission in the
preparation requirements of quarterly reports. While quarterly reports
are not required to be mailed to shareholders, we have always expected
them to contain signatures and certifications used for other reports.
However, existing Sec. 620.10(a) does not clearly state this
requirement. Therefore, we propose adding a new paragraph (a)(3)
requiring quarterly reports to be signed and financial statements
contained in the report to be certified as complete and accurate.

IV. Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the FCA hereby certifies that the proposed rule
would not have a significant economic impact on a substantial number of
small entities. Each of the banks in the Farm Credit System, considered
together with its affiliated associations, has assets and annual income
in excess of the amounts that would qualify them as small entities.
Therefore, Farm Credit System institutions are not ``small entities''
as defined in the Regulatory Flexibility Act.

List of Subjects

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 612

Agriculture, Banks, Banking, Conflict of interests, Crime,
Investigations, Rural areas.

12 CFR Part 619

Agriculture, Banks, banking, Rural areas.

12 CFR Part 620

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

12 CFR Part 630

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

For the reasons stated in the preamble, parts 611, 612, 619, 620,
and 630 of chapter VI, title 12 of the Code of Federal Regulations are
proposed to be amended as follows:

PART 611--ORGANIZATION

1. The authority citation for part 611 is revised to read as
follows:

Authority: Secs. 1.2, 1.3, 1.4, 1.5, 1.13, 2.0, 2.1, 2.2, 2.10,
2.11, 2.12, 3.0, 3.1, 3.2, 3.21, 4.12, 4.12A, 4.15, 4.20, 4.21, 5.9,
5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C.
2002, 2011, 2012, 2013, 2021, 2071, 2072, 2073, 2091, 2092, 2093,
2121, 2122, 2123, 2142, 2183, 2184, 2203, 2208, 2209, 2243, 2252,
2278a-9, 2278b-6, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and 412 of
Pub. L. 100-233, 101 Stat. 1568, 1638; sec. 414 of Pub. L. 100-399,
102 Stat. 989, 1004.

Subpart A--General

2. Section 611.100 is amended by:
a. Redesignating existing paragraphs (a) through (f) as paragraphs
(c) through (h), respectively; and
b. Adding new paragraphs (a) and (b) to read as follows:

Sec. 611.100 Definitions.

* * * * *
(a) Advisory vote means a nonbinding vote by the voting
stockholders on certain events of the institution, including
compensation practices.
(b) Business day means a day the institution is open for business,
excluding the legal public holidays identified in 5 U.S.C. 6103(a).
* * * * *

Subpart C--Election of Directors and Other Voting Procedures

Sec. 611.330 [Amended]

3. Section 611.330 is amended by:
a. Removing the reference ``Sec. 620.5(j) and (k)'' and adding in
its place, the reference, ``Sec. 620.6(e) and (f)'' in the first
sentence of paragraphs (b)(1) and (b)(2); and
b. Adding the words ``in accordance with Sec. 620.21(b)'' to the
end of paragraph (c)(1).
4. Subpart C is amended by adding a new Sec. 611.360 to read as
follows:

Sec. 611.360 Stockholder advisory votes.

(a) Each Farm Credit bank and association must establish and
maintain written procedures to implement advisory votes. The
procedures, at a minimum, must:
(1) Identify the subject of the advisory vote.
(2) Establish the timing, manner, and notice of the vote.
(i) If the vote will be held in connection with a stockholder
meeting or director election, notice of the advisory vote must be part
of the Annual Meeting Information Statement, pursuant to Sec.
620.21(d).
(ii) The vote may be in-person, by proxy, or by mail, or any
combination thereof.
(3) For associations, explain the process for petitioning for an
advisory vote.
(b) Advisory votes are subject to the requirements of Sec. 611.340
and the confidential voting provisions of section 4.20 of the Act (12
U.S.C. 2208).
(c) Advisory votes must be cast using a ``one-member, one-vote''
voting scheme and are not subject to the provisions in Sec. 615.5230
allowing weighted, cumulative, and other voting schemes.

Subpart D--Compensation Practices of Farm Credit Banks and
Associations

5. Revise the heading of subpart D to read as set forth above.

Sec. 611.400 [Amended]

6. Section 611.400 is amended by:
a. Removing the words ``Farm Credit System bank'' and adding in
their place ``Farm Credit bank'' in paragraphs (a) and (d)(1); and
b. Removing the words ``distribute a bookletter to all FCS banks
that communicates'' and adding in their place the word ``communicate''
in the last sentence of paragraph (b).
7. Subpart D is amended by adding a new Sec. 611.410 to read as
follows:

Sec. 611.410 Compensation of senior officers.

(a) If compensation for the chief executive officer either
increases or decreases 15 percent or more from the previous reporting
period, then the bank or association must present the compensation to
voting stockholders for an advisory vote. Such advisory vote must be
held in accordance with the provisions of Sec. 611.360. Advisory votes
on compensation resulting solely from a change in the chief executive
officer during the reporting period are not required.

[[Page 3178]]

(b) If senior officer compensation, as reported in the aggregate,
either increases or decreases 15 percent or more from the previous
reporting period, then the bank or association must present the
compensation to voting stockholders for an advisory vote. Such advisory
vote must be held in accordance with the provisions of Sec. 611.360.
Advisory votes on compensation resulting solely from a change in senior
officers included in the aggregate during the reporting period are not
required.
(c) Each association must hold an advisory vote on compensation
paid to chief executive officers, or senior officers in the aggregate,
in accordance with the provisions of Sec. 611.360 when 5 percent of
the association's voting stockholders petition for an advisory vote.
(d) Each association must disclose in its annual report to
shareholders the authority to petition for an advisory vote on senior
officer compensation. The disclosure must also state if a petition was
submitted during the reporting period, disclosing if it was certified
and a vote held and, if applicable, the results of the vote.

PART 612--STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED
CRIMINAL VIOLATIONS

8. The authority citation for part 612 continues to read as
follows:

Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12
U.S.C. 2243, 2252, 2254).

Subpart A--Standards of Conduct

Sec. 612.2145 [Amended]

9. Section 612.2145 is amended by removing the reference ``Sec.
620.5(k)'' and adding in its place, the reference ``Sec. 620.6 (f)''
in paragraph (a)(2).

Sec. 612.2155 [Amended]

10. Section 612.2155 is amended by removing the reference ``Sec.
620.5 (k)'' and adding in its place, the reference ``Sec. 620.6 (f)''
in paragraph (a)(2).

Sec. 612.2165 [Amended]

11. Section 612.2165 is amended by removing the reference ``Sec.
620.5'' and adding in its place ``Sec. Sec. 620.5 and 620.6'' in
paragraph (b)(12).

PART 619--DEFINITIONS

12. The authority citation for part 619 is revised to read as
follows:

Authority: Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4, 2.11, 2.12, 3.1,
3.2, 3.21, 4.9, 5.9, 5.17, 5.19, 7.0, 7.1, 7.6, 7.8 and 7.12 of the
Farm Credit Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073, 2075, 2092,
2093, 2122, 2123, 2142, 2160, 2243, 2252, 2254, 2279a, 2279a-1,
2279b, 2279c-1, 2279f); sec. 514 of Pub. L. 102-552, 106 Stat. 4102.

13. Part 619 is amended by adding a new Sec. 619.9335 to read as
follows:

Sec. 619.9335 Supplemental retirement plan or supplemental executive
retirement plan.

A nonqualified retirement plan that provides benefits in addition
to those covered by other retirement plans for all employees and funded
in whole or part by a Farm Credit bank or association.

PART 620--DISCLOSURE TO SHAREHOLDERS

14. The authority citation for part 620 is revised to read as
follows:

Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 424
of Pub. L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-
552, 106 Stat. 4102.

Subpart A--General

15. Section 620.2 is amended by revising paragraphs (c) and (d) to
read as follows:

Sec. 620.2 Preparing and filing reports.

* * * * *
(c) The reports sent to shareholders must comply with the
requirements of Sec. 620.3 of this part and shareholders must agree to
electronic delivery of those reports.
(d) Information in any part of a report may be incorporated by
reference in answer or partial answer to any other item of the report,
unless instructions for the report state otherwise.
* * * * *

Subpart B--Annual Report to Shareholders

16. Section 620.4 is amended by revising paragraph (c) to read as
follows:

Sec. 620.4 Preparing and providing the annual report.

* * * * *
(c) The report must contain, at a minimum, the information required
by Sec. Sec. 620.5 and 620.6. In addition, the report must contain
such other information as is necessary to make the required statements,
in light of the circumstances under which they are made, not
misleading.
17. Section 620.5 is amended by:
a. Adding new paragraphs (a)(11) and (e)(4);
b. Revising paragraph (h);
c. Removing paragraphs (i), (j), and (k); and
d. Redesignating existing paragraphs (l), (m), and (n) as
paragraphs (i), (j), and (k), respectively, to read as follows:

Sec. 620.5 Contents of the annual report to shareholders.

* * * * *
(a) Description of business.
* * * * *
(11) The types of advisory votes held during the reporting period
and the results of the vote(s).
* * * * *
(e) Description of liabilities.
* * * * *
(4) Describe any supplemental retirement plans funded by the
institution on behalf of employees whose benefits are not included in
the Pension Benefits Table in Sec. 620.6(c) of this part. Disclose the
present value of the aggregate accumulated benefits of funded,
unfunded, and unvested obligations related to the plan(s).
* * * * *
(h) Directors and senior officers. In a separate section of the
annual report, make the disclosures required in Sec. 620.6 of this
part.
* * * * *
18. Subpart B is amended by adding a new Sec. 620.6 to read as
follows:

Sec. 620.6 Disclosures in the annual report to shareholders relating
to directors and senior officers.

(a) General.
(1) List the names of all directors and senior officers of the
institution, indicating the position title and term of office of each
director, and the position, title, and date each senior officer
commenced employment in his or her current position.
(2) Briefly describe the business experience during the past 5
years of each director and senior officer, including each person's
principal occupation and employment during the past 5 years.
(3) For each director and senior officer, list any other business
interest where the director or senior officer serves on the board of
directors or as a senior officer. Name the position held and state the
principal business in which the business is engaged.
(b) Compensation of directors. Describe the arrangements under
which directors of the institution are compensated for all services as
a director (including total cash compensation and noncash
compensation). Noncash compensation with an annual aggregate value of
less than $5,000 does not have to be reported. State the total cash and
reportable noncash compensation paid to all directors as a group during
the last fiscal year. For the purposes of this paragraph, disclosure of
compensation paid to and days served by directors

[[Page 3179]]

applies to any director who served in that capacity at any time during
the reporting period. If applicable, describe any exceptional
circumstances justifying the additional director compensation as
authorized by Sec. 611.400(c) of this chapter. For each director,
state:
(1) The number of days served at board meetings;
(2) The total number of days served in other official activities,
including any board committee(s);
(3) Any additional compensation paid for service on a board
committee, naming the committee; and
(4) The total cash and noncash compensation paid to each director
during the last fiscal year. Reportable compensation includes cash and
the value of noncash items provided by a third party to a director for
services rendered by the director on behalf of the reporting Farm
Credit institution. Noncash compensation with an annual aggregate value
of less than $5,000 does not have to be reported.
(c) Compensation of senior officers. Disclose the information on
senior officer compensation and compensation plans as required by this
paragraph. The institution must disclose the total amount of
compensation paid to senior officers in substantially the same manner
as the tabular form specified in the Summary Compensation Table
(Compensation Table), located in paragraph (c)(3) of this section.
(1) For each of the last 3 completed fiscal years, report the total
amount of compensation paid and the amount of each component of
compensation paid to the institution's chief executive officer (CEO),
naming the individual. If more than one person served in the capacity
of CEO during any given fiscal year, individual compensation
disclosures must be provided for each CEO.
(2) For each of the last 3 completed fiscal years, report the
aggregate amount of compensation paid, and the components of
compensation paid, to all senior officers as a group, stating the
number of officers in the group without naming them.
(i) If applicable, when any employee who is not a senior officer
has annual compensation at a level that is among the five highest paid
by the institution during the reporting period, include the highly
compensated employee(s) in the aggregate number and amount of
compensation reported in the Compensation Table.
(ii) The report containing the aggregate compensation disclosure
must include a statement that disclosure of information on the total
compensation paid during the last fiscal year to any senior officer, or
to any other employee included in the aggregate, is available and will
be disclosed to shareholders of the institution and shareholders of
related associations (if applicable) upon request. This statement must
be located directly beneath the Compensation Table.
(3) The institution must complete the Compensation Table, or
something substantially similar, according to the following
instructions:

Summary Compensation Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual
---------------------------------------------------------------------------------------------------------------------------------------------------------
Deferred/
Name of individual or number in group Year Salary Bonus perquisite Other Total
(a) (b) (c) (d) (e) (f) (g)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CEO............................................... 20XX $ $ $ $ $
20XX
20XX
Aggregate number of Senior Officers (& other
highly compensated employees, if applicable):
(X)........................................... 20XX
(X)........................................... 20XX
(X)........................................... 20XX
--------------------------------------------------------------------------------------------------------------------------------------------------------

(i) Amounts shown as ``Salary'' (column (c)) and ``Bonus'' (column
(d)) must reflect the dollar value of salary and bonus earned by the
senior officer during the fiscal year. Amounts contributed during the
fiscal year by the senior officer pursuant to a plan established under
section 401(k) of the Internal Revenue Code, or similar plan, must be
included in the salary column or bonus column, as appropriate. If the
amount of salary or bonus earned during the fiscal year is not
calculable by the time the report is prepared, the reporting
institution must provide its best estimate of the compensation
amount(s) and disclose that fact in a footnote to the table.
(ii) Amounts shown as ``deferred/perquisites'' (column (e)) must
reflect the dollar value of other annual compensation not properly
categorized as salary or bonus, including but not limited to:
(A) Deferred compensation earned during the fiscal year, whether or
not paid in cash; or
(B) Perquisites and other personal benefits, including the value of
noncash items, unless the annual aggregate value of such perquisites is
less than $5,000. Reportable perquisites include cash and the value of
noncash items provided by a third party to a senior officer for
services rendered by the officer on behalf of the reporting
institution. Reportable other personal benefits include the dollar
value of any tax reimbursement provided by the institution.
(iii) Compensation amounts reported under the category ``Other''
(column (f)) must reflect the dollar value of all other compensation
not properly reportable in any other column. Items reported in this
column must be specifically identified and described in a footnote to
the table, including compensation relating to pensions and defined
benefit plans that may also be reported in the ``Pension Benefits
Table'' at paragraph (c)(4) of this section. ``Other'' compensation
includes, but is not limited to:
(A) The amount paid to the senior officer pursuant to a plan or
arrangement in connection with the resignation, retirement, or
termination of such officer's employment with the institution;
(B) The amount of contributions by the institution on behalf of the
senior officer to a vested or unvested defined contribution plan unless
the plan is

[[Page 3180]]

made available to all employees on the same basis.
(iv) Amounts displayed under ``Total'' (column (g)) shall reflect
the sum total of amounts reported in columns (c), (d), (e), and (f).
(4) If the institution provides a defined benefit plan or a
supplemental executive retirement plan (SERP) to its senior officers,
the institution must complete the following Pension Benefits Table, or
something substantially similar, for each plan according to the
following instructions:

Pension Benefits Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual
---------------------------------------------------------------------------------------------------------------------------------------------------------
Years of
Name of individual credited Funded Unfunded Unvested Total
service
--------------------------------------------------------------------------------------------------------------------------------------------------------
CEO................................................................ ............... $ $ $ $
Senior Officers as a Group (& other highly compensated employees,
if applicable).
--------------------------------------------------------------------------------------------------------------------------------------------------------

(i) Report separately the present value of accumulated benefits for
the CEO and the senior officer group.
(ii) Report the number of credited years of service in ``Years of
credited service'' column.
(iii) Report the amount of the plan(s) that is unfunded in
``Unfunded'' column.
(iv) Report any off-balance sheet commitments, such as benefits
earned but not yet vested, in the ``unvested'' column.
(v) Report the sum of the funded, unfunded, and unvested columns in
the ``Total'' column.
(5) Provide a description of all compensation, retirement,
incentive, performance, and other benefit plans (plans) pursuant to
which cash or noncash compensation was paid or distributed during the
last fiscal year, or is proposed to be paid or distributed in the
future for performance during the last fiscal year, to those
individuals included in the Compensation Table. The description of each
plan must include, but not be limited to:
(i) A summary of how each plan operates and who is covered by the
plan. The summary must include the criteria used to determine amounts
payable, including any performance formula or measure, as well as the
time period over which the measurement of compensation will be
determined, payment schedules, and any material amendments to the plan
during the last fiscal year.
(ii) The overall risk and reward structure of the plan as it
relates to senior officers' compensation. The description must include,
at a minimum, how each plan is compatible with and promotes the
institution's goals and business strategy and the mission as a
Government-sponsored enterprise.
(iii) A discussion of the relationship between the CEO and senior
officers' compensation to the reporting institution's overall
performance. The disclosure must also discuss the relationship between
the CEO's and senior officers' compensation to their performance.
(6) In the same vicinity as the Compensation Table, discuss any
advisory votes that were held under the provisions of Sec. 611.410 of
this chapter during the reporting period and the results of the
vote(s). For associations, include a discussion of whether or not the
vote resulted from a shareholder petition. Each association must
disclose in this same location the authority of shareholders to
petition for an advisory vote on CEO and senior officer compensation.
(7) Associations may disclose the information required by paragraph
(c) of this section in the Annual Meeting Information Statement (AMIS)
pursuant to subpart E of this part. Associations exercising this option
must include a reference in the annual report stating that the senior
officer compensation information is included in the AMIS and that the
AMIS is available for public inspection at the reporting association
offices pursuant to Sec. 620.2(b).
(d) Travel, subsistence, and other related expenses.
(1) Briefly describe your policy addressing reimbursements for
travel, subsistence, and other related expenses as it applies to
directors and senior officers. The report shall include a statement
that a copy of the policy is available to shareholders of the
institution and shareholders of related associations (if applicable)
upon request.
(2) For each of the last 3 fiscal years, state the aggregate amount
of reimbursement for travel, subsistence, and other related expenses
for all directors as a group.
(e) Transactions with senior officers and directors.
(1) State the institution's policies, if any, on loans to and
transactions with officers and directors of the institution.
(2) Transactions other than loans. For each person who served as a
senior officer or director on January 1 of the year following the
fiscal year of which the report is filed, or at any time during the
fiscal year just ended, describe briefly any transaction or series of
transactions other than loans that occurred at any time since the last
annual meeting between the institution and such person, any member of
the immediate family of such person, or any organization with which
such person is affiliated.
(i) For transactions relating to the purchase or retirement of
preferred stock issued by the institution, state the name of each
senior officer or director that held preferred stock issued by the
institution during the reporting period, the current amount of
preferred stock held by the senior officer or director, the average
dividend rate on the preferred stock currently held, and the amount of
purchases and retirements by the individual during the reporting
period.
(ii) For all other transactions, state the name of the senior
officer or director who entered into the transaction or whose immediate
family member or affiliated organization entered into the transaction,
the nature of the person's interest in the transaction, and the terms
of the transaction. No information need be given where the purchase
price, fees, or charges involved were determined by competitive bidding
or where the amount involved in the transaction (including the total of
all periodic payments) does not exceed $5,000, or the interest of the
person arises solely as a result of his or her status as a stockholder
of the institution and the benefit received is not a special or extra
benefit not available to all stockholders.
(3) Loans to senior officers and directors.

[[Page 3181]]

(i) To the extent applicable, state that the institution (or in the
case of an association that does not carry loans to its senior officers
and directors on its books, its related bank) has had loans outstanding
during the last full fiscal year to date to its senior officers and
directors, their immediate family members, and any organizations with
which such senior officers or directors are affiliated that:
(A) Were made in the ordinary course of business; and
(B) Were made on the same terms, including interest rate,
amortization schedule, and collateral, as those prevailing at the time
for comparable transactions with other persons.
(ii) To the extent applicable, state that no loan to a senior
officer or director, or to any organization affiliated with such
person, or to any immediate family member who resides in the same
household as such person or in whose loan or business operation such
person has a material financial or legal interest, involved more than
the normal risk of collectability; provided that no such statement need
be made with respect to any director or senior officer who has resigned
before the time for filing the applicable report with the Farm Credit
Administration (but in no case later than the actual filing), or whose
term of office will expire or terminate no later than the date of the
meeting of stockholders to which the report relates.
(iii) If the conditions stated in paragraphs (e)(3)(i) and (ii) of
this section do not apply to the loans of the persons or organizations
specified therein, with respect to such loans state:
(A) The name of the officer or director to whom the loan was made
or to whose relative or affiliated organization the loan was made.
(B) The largest aggregate amount of each indebtedness outstanding
at any time during the last fiscal year.
(C) The nature of the loan(s).
(D) The amount outstanding as of the latest practicable date.
(E) The reasons the loan does not comply with the criteria
contained in paragraphs (e)(3)(i) and (e)(3)(ii) of this section.
(F) If the loan does not comply with paragraph (e)(3)(i)(B) of this
section, the rate of interest payable on the loan and the repayment
terms.
(G) If the loan does not comply with paragraph (e)(3)(ii) of this
section, the amount past due, if any, and the reason the loan is deemed
to involve more than a normal risk of collectability.
(f) Involvement in certain legal proceedings. Describe any of the
following events that occurred during the past 5 years and that are
material to an evaluation of the ability or integrity of any person who
served as director or senior officer on January 1 of the year following
the fiscal year for which the report is filed or at any time during the
fiscal year just ended:
(1) A petition under the Federal bankruptcy laws or any State
insolvency law was filed by or against, or a receiver, fiscal agent, or
similar officer was appointed by a court for the business or property
of such person, or any partnership in which such person was a general
partner at or within 2 years before the time of such filing, or any
corporation or business association of which such person was a senior
officer at or within 2 years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a
named party in a pending criminal proceeding (excluding traffic
violations and other misdemeanors);
(3) Such person was the subject of any order, judgment, or decree,
not subsequently reversed, suspended, or vacated, by any court of
competent jurisdiction, permanently or temporarily enjoining or
otherwise limiting such person from engaging in any type of business
practice.

Subpart C--Quarterly Report

19. Section 620.10 is amended by:
a. Revising paragraph (a); and
b. Adding a new paragraph (c) to read as follows:

Sec. 620.10 Preparing the quarterly report.

(a) Each institution of the Farm Credit System must:
(1) Prepare and send to the Farm Credit Administration an
electronic copy of its quarterly report within 40 calendar days after
the end of each fiscal quarter, except that no report need be prepared
for the fiscal quarter that coincides with the end of the fiscal year
of the institution;
(2) Publish a copy of its quarterly report on its Web site when it
electronically sends the report to the Farm Credit Administration; and
(3) Ensure the report complies with the applicable provisions of
Sec. Sec. 620.2 and 620.3 of this part.
* * * * *
(c) Institutions may use the quarterly report to deliver any notice
required under Sec. 620.15 of this part. Notices required under Sec.
620.17 must be issued separately from the quarterly report, unless
otherwise authorized by the Farm Credit Administration.
20. Section 620.11 is amended by:
a. Revising the introductory text of paragraph (b), paragraphs (c)
and (d); and
b. Removing paragraphs (e) and (f) to read as follows:

Sec. 620.11 Content of quarterly report to shareholders.

* * * * *
(b) Rules for condensation. For purposes of this section, major
captions to be provided in the financial statements are the same as
those provided in the financial statements contained in the
institution's annual report to shareholders, except that the financial
statements included in the quarterly report may be condensed into major
captions in accordance with the rules prescribed under this paragraph.
If any amount that would otherwise be required to be shown by this
subpart with respect to any item is not material, it need not be
separately shown. The combination of insignificant items is permitted.
* * * * *
(c) Required content. A quarterly report must, at a minimum,
contain the following items:
(1) Management's discussion and analysis of financial condition and
results of operations. Discuss material changes, if any, to the
information provided to shareholders pursuant to Sec. 620.5(g) that
have occurred during the periods specified in paragraphs (c)(2)(i) and
(ii) of this section. Such additional information as is needed to
enable the reader to assess material changes in financial condition and
results of operations between the periods specified in paragraphs
(c)(2)(i) and (ii) of this section shall be provided.
(i) Material changes in financial condition. Discuss any material
changes in financial condition from the end of the preceding fiscal
year to the date of the most recent interim balance sheet provided. If
the interim financial statements include an interim balance sheet as of
the corresponding interim date of the preceding fiscal year, any
material changes in financial conditions from that date to the date of
the most recent interim balance sheet provided also shall be discussed.
If discussions of changes from both the end and the corresponding
interim date of the preceding fiscal year are required, the discussions
may be combined at the discretion of the institution.
(ii) Material changes in results of operations. Discuss any
material changes in the institution's results of operations with
respect to the most recent fiscal year-to-date period for which an
income statement is provided and the corresponding year-to-date period
of the preceding fiscal year. Such discussion also shall cover material
changes with respect to that fiscal

[[Page 3182]]

quarter and the corresponding fiscal quarter in the preceding fiscal
year. In addition, if the institution has elected to provide an income
statement for the 12-month period ended as of the date of the most
recent interim balance sheet provided, the discussion also shall cover
material changes with respect to that 12-month period and the 12-month
period ended as of the corresponding interim balance sheet date of the
preceding fiscal year.
(2) Interim financial statements. The following financial
statements must be provided:
(i) An interim balance sheet as of the end of the most recent
fiscal quarter and as of the end of the preceding fiscal year. A
balance sheet for the comparable quarter of the preceding fiscal year
is optional.
(ii) Interim statements of income for the most recent fiscal
quarter, for the period between the end of the preceding fiscal year
and the end of the most recent fiscal quarter, and for the comparable
periods for the previous fiscal year.
(iii) Interim statements of changes in protected borrower capital
and at-risk capital for the period between the end of the preceding
fiscal year and the end of the most recent fiscal quarter, and for the
comparable period for the preceding fiscal year.
(iv) For banks, interim statements of cash flows for the period
between the end of the preceding fiscal year and the end of the most
recent fiscal quarter, and for the comparable period for the preceding
fiscal year. For associations, interim statements of cash flows are
optional.
(3) Other related financial items. State that the financial
statements were prepared under the oversight of the audit committee.
The interim financial information need not be audited or reviewed by a
qualified public accountant or external auditor prior to filing. If,
however, a review of the data is made in accordance with the
established professional standards and procedures for such a review,
the institution may state that a qualified public accountant or
external auditor has performed such a review under the supervision of
the institution's audit committee. If such a statement is made, the
report of a qualified public accountant or external auditor on such
review must accompany the interim financial information.
(d) Notices. Institutions using the quarterly report to deliver any
notice required under Sec. 620.15 of this part must put the notice
information at the beginning of the quarterly report. The notice must
be conspicuous and may not be part of any footnotes to the quarterly
report. Notices that are made part of the quarterly report must comply
with the provisions of both this section and Sec. 620.15.

Subpart D--Notice to Shareholders

21. Subpart D is amended by revising Sec. Sec. 620.15 and 620.17
to read as follows:

Sec. 620.15 Notice of significant or material events.

(a) When a Farm Credit bank or association determines that it has a
significant or material event, the institution must prepare and provide
to its shareholders and the Farm Credit Administration a notice
disclosing the event(s).
(1) Events covered under this provision include significant events
defined in Sec. 620.1(q) and material events defined in Sec.
620.1(h).
(2) At a minimum, a notice must be issued for significant or
material events involving compensation, retirement and benefit plans,
capitalization plans or bylaws, results of shareholder votes, early
director departures, unplanned departure of a senior officer, letters
of intent to merge, changes in external auditors, and reportable Farm
Credit Administration supervisory and enforcement actions.
(b) A notice issued under this section must be made as soon as
possible, but not later than 90 days after occurrence of the event.
(1) Each institution must electronically provide the notice to the
Farm Credit Administration at the same time as distribution of the
notice to shareholders.
(2) Delivery of the notice to shareholders may be accomplished by
direct communications with the shareholders, posting the notice on the
institution's Web site, as part of the quarterly report to
shareholders, or by publishing the notice in any publication with
circulation wide enough to reasonably assure that all of the
institution's shareholders have access to the information in a timely
manner.
(c) Every notice must be dated and signed in a manner similar to
the requirements of Sec. 620.3(b).
(d) The information required to be included in a notice issued
under this section must be conspicuous, easily understandable,
complete, accurate, and not misleading.

Sec. 620.17 Special notice provisions for events related to minimum
permanent capital.

(a) When a Farm Credit bank or association determines that it is
not in compliance with the minimum permanent capital standard
prescribed under Sec. 615.5205 of this chapter, that institution must
prepare and provide to its shareholders and the Farm Credit
Administration a notice stating that the institution has initially
determined it is not in compliance with minimum permanent capital
standards. Such notice must be given within 30 days following the month
end.
(b) When notice is given under paragraph (a) of this section, the
institution must also notify its shareholders and the Farm Credit
Administration when the institution's permanent capital ratio decreases
by one half of 1 percent or more from the level reported in the
original notice, or from that reported in a subsequent notice provided
under this paragraph. This notice must be given within 45 days
following the end of every quarter at which the institution's permanent
capital ratio decreases as specified.
(c) Each institution required to prepare a notice under paragraphs
(a) or (b) of this section shall provide the notice to shareholders or
publish it in any publication with circulation wide enough to be
reasonably assured that all of the institution's shareholders have
access to the information in a timely manner. The information required
to be included in this notice must be conspicuous, easily
understandable, and not misleading.
(d) A notice, at a minimum, shall include:
(1) A statement that:
(i) Briefly describes the regulatory minimum permanent capital
standard established by the Farm Credit Administration and the notice
requirement of paragraph (a) of this section;
(ii) Indicates the institution's current level of permanent
capital; and
(iii) Notifies shareholders that the institution's permanent
capital is below the Farm Credit Administration regulatory minimum
standard.
(2) A statement of the effect that noncompliance has had on the
institution and its shareholders, including whether the institution is
currently prohibited by statute or regulation from retiring stock or
distributing earnings or whether the Farm Credit Administration has
issued a capital directive or other enforcement action to the
institution.
(3) A complete description of any event(s) that may have
significantly contributed to the institution's noncompliance with the
minimum permanent capital standard.
(4) A statement that the institution is required by regulation to
provide another notice to shareholders within 45

[[Page 3183]]

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

Subpart E--Annual Meeting Information Statements and Other
Information To Be Furnished in Connection With Annual Meetings and
Director Elections

22. Section 620.21 is amended by revising paragraph (a)(3)(i) to
read as follows:

Sec. 620.21 Contents of the information statement.

(a) * * *
(3) * * *
(i) If any transactions between the institution and its senior
officers and directors of the type required to be disclosed in the
annual report to shareholders under Sec. 620.6(e), or any of the
events required to be disclosed in the annual report to shareholders
under Sec. 620.6(f) have occurred since the end of the last fiscal
year and were not disclosed in the annual report to shareholders, the
disclosures required by Sec. 620.6(e) and (f) shall be made with
respect to such transactions or events in the information statement. If
any material change in the matters disclosed in the annual report to
shareholders pursuant to Sec. 620.6(e) and (f) has occurred since the
annual report to shareholders was prepared, disclosure shall be made of
such change in the information statement.
* * * * *

Subpart F--Bank and Association Audit and Compensation Committees

23. Section 620.31 is revised to read as follows:

Sec. 620.31 Compensation committees.

Each Farm Credit bank and association must establish and maintain a
compensation committee by adopting a written charter describing the
committee's composition, authorities, and responsibilities in
accordance with this section. The compensation committee must report
only to the board of directors. All compensation committees will be
required to maintain records of meetings, including attendance, for at
least 3 fiscal years.
(a) Composition. Each compensation committee must consist of at
least three members and all committee members must be members of the
institution's board of directors. Every member must be free from any
relationship that, in the opinion of the board, would interfere with
the exercise of independent judgment as a committee member.
(b) Responsibilities. It is the responsibility of each compensation
committee to review the compensation policies and plans for senior
officers and employees and to approve the overall compensation program
for senior officers. In fulfilling its responsibilities, the
compensation committee must document that it:
(1) Analyzed the institution's projected long-term compensation and
retirement benefit obligations and determined such obligations are
appropriate to the services performed and not excessive.
(2) Reviewed incentive-based compensation programs and payments and
determined that they were not unreasonable or disproportionate to the
services performed and were structured so the payout schedule
considered the potential for future losses or risks to the institution.
(3) Reviewed senior officer compensation, incentive and benefit
programs and determined that they support the institution's long-term
business strategy, as well as promote safe and sound business
practices.
(4) Reviewed compensation programs designed for specific groups of
employees, other than senior officers, to ensure the plan(s) pose no
imprudent risk to the institution.
(c) Resources. Each institution must provide monetary and
nonmonetary resources to enable its compensation committee to perform
its duties.

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

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

Authority: Secs. 4.2, 4.9, 5.9, 5.17, 5.19 of the Farm Credit
Act (12 U.S.C. 2153, 2160, 2243, 2252, 2254); sec. 424 of Pub. L.
100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-552, 106
Stat. 4102.

Subpart A--General

25. Section 630.6 is amended by revising paragraph (b) to read as
follows:

Sec. 630.6 Funding Corporation committees.

* * * * *
(b) Compensation committee. The Funding Corporation must establish
and maintain a compensation committee by adopting a written charter
describing the committee's composition, authorities, and
responsibilities in accordance with this section. The compensation
committee must report only to the board of directors. The compensation
committee will be required to maintain records of meetings, including
attendance, for at least 3 fiscal years.
(1) Composition. The committee must consist of at least three
members and all members must be members of the Funding Corporation's
board of directors. Every compensation committee member must be free
from any relationship that, in the opinion of the board, would
interfere with the exercise of independent judgment as a committee
member.
(2) Responsibilities. It is the responsibility of the compensation
committee to review the compensation policies and plans for senior
officers and employees and to approve the overall compensation program
for senior officers. In fulfilling its responsibilities, the
compensation committee must document that it:
(i) Analyzed the Funding Corporation's projected long-term
compensation and retirement benefit obligations and determined such
obligations are appropriate to the services performed and not
excessive.
(ii) Reviewed incentive-based compensation programs and payments
and determined that they were not unreasonable or disproportionate to
the services performed and were structured so the payout schedule
considered the potential for future losses or risks to the Funding
Corporation.
(iii) Reviewed senior officer compensation, incentive and benefit
programs and determined that they support the Funding Corporation's
long-term business strategy and mission, as well as continue to promote
safe and sound business practices.
(3) Resources. The Funding Corporation must provide monetary and
nonmonetary resources to enable its compensation committee to perform
its duties.

Subpart B--Annual Report to Investors

26. Section 630.20 is amended by revising paragraph (i) to read as
follows:

Sec. 630.20 Contents of the annual report to investors.

* * * * *
(i) Compensation of directors and senior officers. State that
information on the compensation of directors and senior officers of
Farm Credit banks is contained in each bank's annual report to
shareholders and that the annual report of each bank is available to
investors upon request pursuant to Sec. 630.3(g). State whether
advisory votes were held in any of the disclosure

[[Page 3184]]

entities during the reporting period and the results of such vote.
* * * * *

Dated: January 12, 2012.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2012-901 Filed 1-20-12; 8:45 am]
BILLING CODE 6705-01-P