[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Proposed Rules]
[Pages 3172-3184]
From the Federal Register Online via the Government Publishing 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 [email protected].
     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

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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