[Code of Federal Regulations]

[Title 12, Volume 6]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 12CFR611.1250]



[Page 77-80]

 

                       TITLE 12--BANKS AND BANKING

 

                 CHAPTER VI--FARM CREDIT ADMINISTRATION

 

PART 611_ORGANIZATION--Table of Contents

 

           Subpart P_Termination of System Institution Status

 

Sec. 611.1250  Preliminary exit fee estimate.



    (a) Preliminary exit fee estimate--terminating association. You must 

provide a preliminary exit fee estimate to us when you submit the 

termination application. Calculate the preliminary exit fee estimate in 

the following order:

    (1) Base your exit fee calculation on the average daily balances of 

assets and liabilities for the 12-month period



[[Page 78]]



as of the quarter end immediately before the date you send us your 

termination application.

    (2) Any amounts we refer to in this section are average daily 

balances unless we specify that they are not. Amounts that are not 

average daily balances will be referred to as ``dollar amount.''

    (3) Compute the average daily balances based on financial statements 

that comply with GAAP. The financial statements, as of the quarter end 

immediately before the date you send us your termination application, 

must be independently audited by a qualified public accountant, as 

defined in Sec. 621.2(i) of this chapter. We may, in our discretion, 

waive the audit requirement if an independent audit was performed as of 

a date less than 6 months before you submit the termination application.

    (4) Make adjustments to assets as follows:

    (i) Add back expenses you have incurred related to termination. 

Related expenses include, but are not limited to, legal services, 

accounting services, auditing, business planning, and application fees 

for the termination and reorganization.

    (ii) Subtract the following:

    (A) The dollar amount of your estimated payment (to your affiliated 

bank) related to FAC obligations as described in Sec. 611.1260(d); and

    (B) The dollar amount of your estimated taxes due to the 

termination.

    (iii) Adjust for the dollar amount of significant transactions you 

reasonably expect to occur between the quarter end before you file your 

termination application and termination. Examples of these transactions 

include, but are not limited to, gains or losses on the sale of assets, 

retirements of equity, loan repayments, and patronage distributions. Do 

not make adjustments for future expenses related to termination, such as 

severance or special retirement payments, or stock retirements to 

dissenting stockholders and Farm Credit institutions.

    (5) Subtract from liabilities any liability that we treat as 

regulatory capital under the capital or collateral requirements in 

subparts H and K of part 615 of this chapter.

    (6) Make any adjustments we require under paragraph (c) of this 

section.

    (7) After making these adjustments to assets and liabilities, 

subtract liabilities from assets. This is your preliminary total capital 

for purposes of termination.

    (8) Multiply assets as adjusted above by 6 percent, and subtract 

this amount from preliminary total capital. This is your preliminary 

exit fee estimate.

    (b) Preliminary exit fee estimate--terminating bank. (1) Affiliated 

associations that are terminating with you must calculate their 

individual preliminary exit fee estimates as described in paragraph (a) 

of this section.

    (2) Base your exit fee calculation on the average daily balances of 

assets and liabilities for the 12-month period as of the quarter end 

immediately before the date you send us your termination application.

    (3) Any amounts we refer to in this section are average daily 

balances unless we specify that they are not. Amounts that are not 

average daily balances will be referred to as ``dollar amount.''

    (4) Compute the average daily balances based on bank-only financial 

statements that comply with GAAP. The financial statements, as of the 

quarter end immediately before the date you send us your termination 

application, must be independently audited by a qualified public 

accountant, as defined in Sec. 621.2(i) of this chapter. We may, in our 

discretion, waive this requirement if an independent audit was performed 

as of a date less than 6 months before you submit the termination 

application.

    (5) Make adjustments to assets and liabilities as follows:

    (i) Add back to assets the following:

    (A) Expenses you have incurred related to termination. Related 

expenses include, but are not limited to, legal services, accounting 

services, auditing, business planning, and application fees for the 

termination and reorganization; and

    (B) Any specific allowance for losses, and a pro rata portion of any 

general allowance for loan losses, on direct loans to associations that 

you do not expect to incur before or at termination.



[[Page 79]]



    (ii) Subtract from your assets and liabilities an amount equal to 

your direct loans to your affiliated associations that are not 

terminating.

    (iii) Subtract the following from assets:

    (A) Equity investments in your institution that are held by 

nonterminating associations and that you expect to transfer to another 

System bank before or at termination. A nonterminating association's 

investment consists of purchased equities, allocated equities, and a 

share of the bank's unallocated surplus calculated in accordance with 

the bank's bylaw provisions on liquidation. We may require a different 

calculation method for the unallocated surplus if we determine that 

using the liquidation provision would be inequitable to stockholders;

    (B) The dollar amount of your estimated termination payment to the 

FAC, as described in Sec. 611.1270(d); and

    (C) The dollar amount of estimated taxes due to the termination.

    (iv) Subtract from liabilities any liability that we treat as 

regulatory capital under the capital or collateral requirements in 

subparts H and K of part 615 of this chapter.

    (v) Adjust for the dollar amount of significant transactions you 

reasonably expect to occur between the quarter end before you file your 

termination application and termination. Examples of these transactions 

include, but are not limited to, retirements of equity, loan repayments, 

and patronage distributions. Do not make adjustments for future expenses 

related to termination, such as severance or special retirement 

payments, or stock retirements to dissenting stockholders and Farm 

Credit institutions.

    (6) Add to assets the dollar amount of estimated termination 

payments of the terminating associations related to FAC obligations.

    (7) Make any adjustments we require under paragraph (c) of this 

section.

    (8) After the above adjustments, combine your balance sheet with the 

balance sheets of your terminating associations after they have made the 

adjustments required in paragraph (a) of this section. Subtract 

liabilities from assets. This is your preliminary total capital estimate 

for purposes of termination.

    (9) Multiply the assets of the combined balance sheet after the 

above adjustments by 6 percent. Subtract this amount from the 

preliminary total capital estimate of the combined balance sheet. The 

remainder is the preliminary exit fee estimate of the bank and 

terminating affiliated associations.

    (10) Your preliminary exit fee estimate is the amount by which the 

preliminary exit fee estimate for the combined entity exceeds the total 

of the individual preliminary exit fee estimates of your affiliated 

terminating associations.

    (c) Three-year look-back. (1) We will review your transactions over 

the 3 years before the date of the termination resolution under Sec. 

611.1220. Our review will include, but not be limited to, the following:

    (i) Additions to or subtractions from any allowance for losses;

    (ii) Additions to assets or liabilities, or subtractions from assets 

or liabilities, due to transactions that are outside your ordinary 

course of business;

    (iii) Dividends or patronage refunds exceeding your usual practices;

    (iv) Changes in the institution's capital plan, or in implementing 

the plan, that increased or decreased the level of borrower investment;

    (v) Contingent liabilities, such as loss-sharing obligations, that 

can be reasonably quantified; and

    (vi) Assets that may be overvalued, undervalued, or not recorded on 

your books.

    (2) If we determine the account balances do not accurately show the 

value of your assets and liabilities (whether the assets and liabilities 

were booked before or during the 3-year look-back period), we will make 

any adjustments we deem necessary.

    (3) We may require you to reverse the effect of a transaction if we 

determine that:

    (i) You have retired capital outside the ordinary course of 

business;

    (ii) You have taken any other actions unrelated to your core 

business that have the effect of changing the exit fee; or



[[Page 80]]



    (iii) You incurred expenses related to termination prior to the 12-

month average daily balance period on which the exit fee calculation is 

based.

    (4) We may require you to make these adjustments to the preliminary 

exit fee estimate that is disclosed in the information statement, the 

final exit fee calculation, and the calculations of the value of 

equities held by dissenting stockholders, Farm Credit institutions that 

choose to have their equities retired at termination, and reaffiliating 

associations.