(b) "Qualified Agricultural Loan"

means

(1) Loans qualifying as "loans to finance agricultural production and other loans to farmers" or as "loans secured by farm land" for purpose of Schedule RC-C of the FFIEC Consolidated Report of Condition and Income or such other comparable schedule as may be in effect;

(2) Other loans and leases that a bank proves to be sufficiently related to agriculture for classification as an agricultural loan by the Corporation;

and

(3) The remaining unpaid balance of any loans as described in paragraphs (b) (1) and (2) of this section that have been charged off since January 1, 1984, and that qualify for deferral under this regulation.

(c) "Accepting Official" means the Director, Division of Bank Supervision or his designees.

§ 324.3 Loss amortization and reappraisal.

(a) Provided that there is no evidence that the loss resulted from fraud or criminal abuse on the part of the bank, its officers, directors or principal shareholders, a bank that has been accepted under this part may, in the manner described below, amortize on its Reports of Condition and Income:

(1) Any loss on any qualified agricultural loan that the bank would be required to reflect in its annual financial statements for any year between and including 1984 to 1991; and

(2) Any loss that the bank would be required to reflect in its financial statements resulting from a reappraisal or sale of currently owned property, real or personal, that it acquired in connection with a qualified agricultural loan and any such additional property that it acquires prior to January 1, 1992.

(b) Amortization under this section shall be computed over a period not to exceed seven years on a quarterly straight-line basis commencing in the first quarter after the loss was or is

charged off so as to be fully amortized not later than December 31, 1998.

§ 324.4 Accounting for amortization.

Any bank which is permitted to amortize losses in accordance with § 324.3 may restate its capital and other relevant accounts and account for future authorized deferrals and amortizations in accordance with the instructions to the FFIEC Consolidated Reports of Condition and Income. Any resulting increase in the capital account shall be included in primary capital under 12 CFR Part 325.

§ 324.5 Eligibility.

A proposal submitted in accord with § 324.7 shall be accepted, subject to the conditions described in § 324.6, if the Accepting Official finds:

(a) The proposing bank is an agricultural bank;

(b) The proposing bank's current capital is in need of restoration, but the bank remains an economically viable, fundamentally sound institution;

(c) There is no evidence that fraud or criminal abuse by the bank or its officers, directors or principal shareholders led to significant losses on qualified agricultural loans and related assets; and

(d) The proposing bank has submitted a capital plan approved by the Corporation or the Accepting Official that will restore its capital to an acceptable level.

§ 324.6 Conditions on acceptance.

All acceptances of proposals shall be subject to the following conditions:

(a) The bank shall fully adhere to the approved capital plan and shall obtain the prior approval of the Accepting Official for any modifications to the plan;

(b) With respect to each asset subject to loss deferral under the program, the bank shall maintain accounting records adequate to document the amount and timing of the deferrals, repayments and amortizations;

(c) The financial condition of the bank shall not deteriorate to the point where it is no longer a viable, fundamentally sound institution;

(d) The bank shall agree to make a reasonable effort, consistent with safe and sound banking practices, to maintain in its loan portfolio a percentage of agricultural loans which is not lower than the percentage of such loans in its loan portfolio on January 1, 1986; and

(e) The bank shall agree to provide the Accepting Official, upon request, with such information as the Accepting Official deems necessary to monitor the bank's amortization, its compliance with conditions, and its continued eligibility.

§ 324.7 Submission of proposals.

(a) A bank wishing to amortize losses on qualified agricultural loans or other related assets shall submit a proposal to the Division of Bank Supervision Regional Director of the region in which the bank is located.

(b) The proposal shall contain the following information:

(1) Name and address of the bank; (2) Information establishing that the bank is located in an area, the economy of which is dependent on ag riculture such as a description of the bank's location, dominant lines of commerce in its service area, and any other information the bank believes will support the contention that the bank is located in an area dependent on agriculture;

(3) A copy of the bank's most recent Reports of Condition and Income;

(4) If the Report of Condition fails to show that at least 25 percent of the bank's total loans are qualified agricultural loans, the basis upon which the bank believes that it should be declared eligible to amortize losses;

(5) A capital plan demonstrating that the bank will achieve an acceptable capital level not later than the end of the bank's amortization period (the plan should provide for a realistic improvement in the bank's capital, over the course of the bank's amortization period, from earnings retention, capital injections, or other sources and include specific information regarding dividend levels, compensation to directors, executive officers and individuals who have a controlling interest, and payments for services or products fur

nished by affiliated companies or companies which are related interests of insiders);

(6) A list of the loans and reappraised property upon which the bank proposes to defer loss including, for each such loan or property, the following information:

(i) The name of the borrower, the amount of the loan that resulted in the loss, and the amount of the loss;

(ii) The date on which the loss was declared;

(iii) The basis upon which the loss resulted from a qualified agricultural loan;

(7) A certification by the bank's chief executive officer that there is no evidence that the losses resulted from fraud or criminal abuse by the bank, its officers, directors, or principal shareholders;

(8) A copy of a resolution by the bank's Board of Directors authorizing submission of the proposal; and

(9) Such other information as the Accepting Official may require.

(Approved by the Office of Management and Budget under control number 30640091)

[52 FR 41968, Nov. 2, 1987; 52 FR 43190, Nov. 10, 1987]

§ 324.8 Revocation of eligibility.

If the bank fails to continue to meet eligibility requirements or to comply with the capital plan or any condition of an acceptance, the Accepting Official may notify the bank of the intent to revoke authorization for deferral of losses. The bank will have 60 days from receipt of the notice in which it may submit written objections and reasons why authorization should continue. If no written objections are received within 60 days, the revocation shall be final. If the bank submits objections, they will be considered and a final decision, or a request for additional information, shall be made within the next 30 days.

§ 324.9 Other Administrative actions.

Acceptance of a bank for loss amortization does not foreclose any administrative action against the bank that the Corporation may deem appropriate.

(a) Assets classified loss. The term "assets classified loss" means:

(1) When measured as of the date of examination of an insured bank, those assets that have been determined by an evaluation made by a state or federal bank examiner as of that date to be a loss; and

(2) When measured as of any other date, those assets (i) that have been determined (A) by an evaluation made by a state or federal bank examiner at the most recent examination of an insured bank to be a loss, or (B) by evaluations made by the insured bank since its most recent examination to be a loss, and (ii) that have not been charged off from the insured bank's books or collected.

(b) Bank. The term "bank" means an FDIC insured, state-chartered commercial or savings bank that is not a member of the Federal Reserve System.

(c) Insured bank. The term "insured bank" means any bank (except for a foreign bank having an insured branch) the deposits of which are insured in accordance with the provisions of the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.).

(d) Intangible assets. The term "intangible assets" means those assets that are required to be reported in the item for intangible assets in a banking institution's "Reports of Condition and Income" (Call Report).

(e) Mandatory convertible debt. The term "mandatory convertible debt" means a subordinated debt instrument which requires the issuer to convert such instrument into common or perpetual preferred stock by a date at or before the maturity of the debt instrument. The maturity of these instruments must be 12 years or less.

(f) Mortgage servicing rights. The term "mortgage servicing rights" means the purchased rights to perform the servicing function for a specific group of mortgage loans that are owned by others. Mortgage servicing rights must be amortized over a period not to exceed 15 years or their estimated useful life, whichever is shorter.

(g) Perpetual preferred stock. The term "perpetual preferred stock" means a preferred stock that does not have a stated maturity date or that cannot be redeemed at the option of the holder. It includes those issues of preferred stock that automatically convert into common stock at a stated date. It excludes those issues, the rate on which increases, or can increase, in such a manner that would effectively require the issuer to redeem the issue. (h) Primary capital. The term "primary capital" means the sum common stock, perpetual preferred stock, capital surplus, undivided profits, capital reserves, mandatory convertible debt (to the extent of 20 percent of primary capital exclusive of such debt), minority interests in consolidated subsidiaries, net worth certificates issued pursuant to 12 U.S.C 1823(i) and the allowance for loan and

of

lease losses and minus intangible assets other than morgage servicing rights and assets classified loss.

(i) Secondary capital. The term "secondary capital" means the sum of mandatory convertible debt that is not included in primary capital, limited life preferred stock and subordinated notes and debentures, in an amount up to 50 percent of primary capital.

(j) Subordinated note or debenture.1 The term "subordinated note or debenture" means an obligation other than a deposit obligation that:

(1) Bears on its face, in boldface type, the following: This obligation is not a deposit and is not insured by the Federal Deposit Insurance Corporation;

(2) (i) Has a maturity of at least seven years, or (ii) in the case of an obligation or issue that provides for scheduled repayments of principal, has an average maturity of at least seven years; provided that the Director of the Division of Bank Supervision may permit the issuance of an obligation or issue with a shorter maturity or average maturity if he has determined that exigent circumstances require the issuance of such obligation or issue; provided further that the provisions of this paragraph (2) shall not apply to mandatory convertible debt obligations or issues;

(3) States expressly that the obligation (i) is subordinated and junior in right of payment to the issuing bank's obligations to its depositors and to the bank's other obligations to its general and secured creditors, and (ii) is ineligible as collateral for a loan by the issuing bank;

(4) Is unsecured;

(5) States expressly that the issuing bank may not retire any part of its obligation without the prior written consent of the FDIC; and

(6) Includes, if the obligation is issued to a depository institution, a

1 This definition applies only to an obligation issued on or after December 2, 1987. An obligation issued before that date that satisfied the definition of the term "subordinated note and debenture" that was in effect prior to December 2, 1987 will continue to be included in secondary capital, subject to the limit set forth in § 325.2(i).

specific waiver of the right of offset by the lending depository institution.

(k) Total assets. The term "total assets" means the average of total assets required to be included in a banking institution's "Reports of Condition and Income" (Call Reports), as these reports may from time to time be revised, as of the most recent report date, plus the allowance for loan and lease losses, minus assets classified loss, and minus intangible assets other than mortgage servicing rights. The average of total assets is found in the Call Report schedule of quarterly averages.

(1) Total capital. The term "total capital" means the sum of primary capital and secondary capital.

(m) Written agreement. The term "written agreement" means an agreement in writing executed by authorized representatives entered into with the FDIC by an insured bank which is enforceable by an action under section 8(a) (and/or section 8(b) for a state nonmember bank) of the Federal Deposit Insurance Act (12 U.S.C. 1818 (a), (b)).

[50 FR 11136, Mar. 19, 1985, as amended at 52 FR 41972, Nov. 2, 1987]

§ 325.3 Minimum capital requirement.

(a) General. Banks must maintain at least the minimum capital requirement set forth in this section. The capital standards in this part are the minimum acceptable for banks whose overall financial condition is fundamentally sound, which are well-managed and which have no material or significant financial weaknesses. Where the FDIC determines that the financial history or condition, including off-balance sheet risk, managerial resources and/or the future earnings prospects of a bank are not adequate and/or a bank has a significant volume of assets classified substandard, doubtful or loss or otherwise criticized, the FDIC may determine that the minimum adequate amount of total capital and/or primary capital for that bank is greater than the minimum standards stated in this section. These same criteria will apply to any insured bank making an application to the FDIC for purposes of the FDIC's consideration of that application.

(b) Calculation of minimum capital requirement. The minimum capital requirement for a bank (or an insured bank making an application to the FDIC) shall consist of a ratio of total capital to total assets of not less than 6 percent and a ratio of primary capital to total assets of not less than 5.5 percent.

(c) Insured banks with less than minimum capital requirement. (1) A bank (or an insured bank making an application to the FDIC) operating with less than the minimum capital requirement does not have adequate capital and therefore has inadequate financial resources.

(2) Any insured bank operating with an inadequate capital structure, and therefore inadequate financial resources, will not receive approval for an application requiring the FDIC to consider the adequacy of its capital structure or its financial resources.

(3) A bank having less than the minimum capital requirements shall, within 60 days of the effective date of this regulation, submit to its FDIC regional director for review and approval a reasonable plan describing the means and timing by which the bank shall achieve its minimum capital requirement.

(4) In any merger, acquisition or other type of business combination where the FDIC must give its approval, where it is required to consider the adequacy of the financial resources of the existing and proposed institutions, and where the resulting entity is either insured by the FDIC or not otherwise federally insured, approval will not be granted when the resulting entity does not meet the minimum capital requirement.

(d) Exceptions. Notwithstanding the provisions of paragraphs (a), (b) and (c) of this section:

(1) The FDIC, in its discretion, may approve an application pursuant to the Federal Deposit Insurance Act where it is required to consider the adequacy of capital if it finds that such approval must be taken to prevent the closing of a financial institution or to facilitate the acquisition of a closed financial institution, or, when severe financial conditions exist which threaten the stability of an insured fi