District Financial Reporting, 63428-63431 [2020-20264]

Download as PDF 63428 Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Rules and Regulations requirements. As such, the final rule will be effective on January 1, 2021. FR Y–9ES—42, FR Y–9CS—472. Recordkeeping FR Y–9C—1,452, FR Y–9LP—1,736, FR Y–9SP—3,960, FR Y–9ES—42, FR Y–9CS—472. E. Use of Plain Language C. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities. The RFA requires an agency to prepare a final regulatory flexibility analysis when it promulgates a final rule after being required to publish a general notice of proposed rulemaking. As discussed previously, the agencies have decided to adopt, without changes, revisions to the definition of eligible retain income made under the capital interim final rule and the TLAC interim final rule. There was no general notice of proposed rulemaking associated with this final rule. Accordingly, the agencies have concluded that the RFA’s requirements relating to initial and final regulatory flexibility analysis do not apply to the promulgation of this final rule. khammond on DSKJM1Z7X2PROD with RULES D. Riegle Community Development and Regulatory Improvement Act of 1994 Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),29 in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), each Federal banking agency must consider, consistent with the principle of safety and soundness and the public interest, any administrative burdens that such regulations would place on IDIs, including small IDIs, and customers of IDIs, as well as the benefits of such regulations. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.30 The agencies considered the administrative burdens and benefits of the final rule in determining its effective date and administrative compliance U.S.C. 4802(a). 30 12 U.S.C. 4802. F. OCC Unfunded Mandates Reform Act of 1995 As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 U.S.C. 1531 et seq., requires the preparation of a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. However, the UMRA does not apply to final rules for which a general notice of proposed rulemaking was not published. See 2 U.S.C. 1532(a). Therefore, because the OCC has not published a general notice of proposed rulemaking in connection with this revision, the OCC has not prepared an economic analysis of the rule under the UMRA. Authority and Issuance For the reasons set forth in the preamble, the interim final rules that were published at 85 FR 15909 on March 20, 2020, and 85 FR 17003 on March 26, 2020, are adopted as final rules by the OCC, Board, and FDIC without change. ■ Brian P. Brooks, Acting Comptroller of the Currency By order of the Board of Governors of the Federal Reserve System. Ann E. Misback, Secretary of the Board Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on or about August 21, 2020. James P. Sheesley, Acting Assistant Executive Secretary. [FR Doc. 2020–19829 Filed 10–7–20; 8:45 am] BILLING CODE 4810–33–P, 6210–01–P; 6714–01–P 16:24 Oct 07, 2020 Jkt 253001 PO 00000 U.S.C. 4809. Frm 00006 Fmt 4700 District Financial Reporting Farm Credit Administration. Final rule. AGENCY: ACTION: The Farm Credit Administration (FCA, we, or our) is amending our regulations governing how a Farm Credit bank presents information on its related associations when preparing annual bank financial statements on a stand-alone basis. The final rule provides two presentation options when disclosing related association financial information in an annual bank report: By footnote or attached in a supplement. DATES: This regulation will be effective 30 days after publication in the Federal Register during which either or both Houses of Congress are in session. We will publish notification of the effective date in the Federal Register. FOR FURTHER INFORMATION CONTACT: Technical information: Joi Neal, Senior Accountant, Office of Regulatory Policy, (703) 883–4223, TTY (703) 883– 4056. Legal information: Laura McFarland, Senior Counsel, Office of General Counsel, (703) 883–4020, TTY (703) 883–4056. SUPPLEMENTARY INFORMATION: SUMMARY: I. Objective The objective of the final rule is to improve shareholder access to district financial information by providing an additional method of presenting financial information on a bank’s related associations to those banks preparing annual financial statements on a standalone basis. II. Background The Farm Credit Act of 1971 (Act), as amended,1 authorizes the FCA to issue regulations implementing the Act’s provisions. Our regulations are intended to ensure the safe and sound operation of Farm Credit System (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 2 that disclosures of financial information, among other disclosures, provide System shareholders with information 1 Public Law 92–181, 85 Stat. 583 (1971), 12. U.S.C. 2001, et seq. 2 Public Law 102–552, 106 Stat. 4131 (1992). 29 12 VerDate Sep<11>2014 12 CFR Part 620 RIN 3052–AD37 Section 722 of the Gramm-LeachBliley Act 31 requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies have sought to present the final rule in a simple and straightforward manner and did not receive any comments on the use of plain language. 31 12 FARM CREDIT ADMINISTRATION Sfmt 4700 E:\FR\FM\08OCR1.SGM 08OCR1 Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Rules and Regulations necessary to better manage their institution and make informed decisions regarding its operations. We issued a proposed rule on December 12, 2019, asking for comments on proposed changes to 12 CFR 620.2.3 Specifically, we proposed allowing Farm Credit banks to use a supplement for disclosure of combined districtwide (bank and related association) financial information in lieu of a footnote when issuing standalone annual financial statements. As proposed, the supplement would be considered part of the bank’s annual report and therefore be distributed at the same time as the annual report, and covered by its accuracy, distribution, and internal control requirements. The comment period for the proposed rule closed on March 9, 2020. III. Comments and Our Responses We received two comment letters on our proposed changes to § 620.2(g)(2). One letter came from CoBank, ACB (CoBank), a System institution, and one letter came from the American Bankers Association (ABA). Both letters supported FCA’s objective for the rulemaking but asked for changes to what was proposed. We discuss these comments to our proposed rule and our responses below. However, after consideration of all the comments, we are making no changes and final all provisions as proposed. khammond on DSKJM1Z7X2PROD with RULES A. Treatment of Supplement as Part of the Annual Report We proposed requiring the inclusion of the combined districtwide financial information via a supplement to be considered part of the annual report. CoBank expressed support for the flexibility of using either a supplement or footnote for discussion of districtwide financial information within the bank’s annual report. However, CoBank requested removal of the proposed requirement that the supplement be considered part of the annual bank stand-alone report, asking that the supplement be a separate report. CoBank gave several reasons for the request and we address each of the reasons given by CoBank later in this preamble, but generally respond here by explaining that the supplement was proposed as an alternative presentation format to using a footnote as provided under our existing regulations. In keeping with this existing regulatory requirement, we proposed keeping the combined districtwide financial information as an essential part of the 3 85 1. Comingling Districtwide Data With Bank Only Information CoBank commented that it believes the inclusion of the supplement as part of the bank’s annual report renders the bank’s disclosures misleading to its investors because the bank has lending activities beyond the associations. CoBank has the unique status of being the only System institution possessing Title III authorities, resulting in Title III voting stockholders that are not System associations—these stockholders are called ‘‘cooperative association stockholders’’ (CA stockholders). CoBank explained that, because the districtwide disclosures exclude its Title III lending activities, an investor might interpret the different disclosure treatment as being required due to accounting or financial reasons. CoBank also claimed its CA shareholders could mistakenly conclude there are multitiered classes of common stockholders due both to the heightened prominence of the district financial information resulting from use of a supplement over a footnote and the equity interests of this group of stockholders not being reflected in the districtwide information. 4 Refer to the proposed rule at section II, ‘‘Background’’ (85 FR 647, January 7, 2020). FR 647. VerDate Sep<11>2014 annual report itself, whether presented as a footnote or supplement. We explained in the preamble to the proposed rule that use of a supplement instead of a footnote was not creating a new report, but merely giving the alternative presentation method requested by the four Farm Credit banks.4 Because by its nature a footnote is indelibly part of a report, we proposed concurrent distribution when presentation of districtwide information is done through a supplement to ensure it received the same treatment as if presented in a footnote. Meaning, whether a supplement or footnote, the contents would be part of the annual report, distributed with the annual report pursuant to 12 CFR 620.4, and therefore included in the annual report signature, certification, and internal controls requirements of 12 CFR 620.3. Additionally, we believe that shareholders need both the bank-only financial information and combined districtwide financial information at the same time to foster a better understanding of the bank and its district operations. All the financial information—bank-only and combined districtwide financial information— needs to be available at the same time to accomplish that goal. 16:24 Oct 07, 2020 Jkt 253001 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 63429 We disagree with CoBank’s stated concern. A clearly presented supplement or footnote would label the information in a manner to avoid an investor or shareholder misreading the data. Although CoBank has both System association shareholders and CA stockholders, the districtwide financial information presented in a supplement or footnote further supports the bank’s discussion of the components of its operations. Throughout its annual report, CoBank discusses the distinctions between its association shareholders and CA stockholders. The disclosure of districtwide financial information continues the bank’s efforts to clarify its operations to its association shareholders and CA stockholders by reducing confusion on its district operations. In addition, both the footnote and the supplement specify the scope of the financial information presented, which avoids confusion with CoBank’s lending activities with CA stockholder entities. 2. Delay in Receipt of Districtwide Information CoBank objected to distributing the supplement concurrently with the annual report because receipt of the districtwide information may be delayed, making the entire annual report late. CoBank stated that any delay in issuing the annual report could adversely affect CoBank’s credibility in the capital markets, which in turn could imperil access to third-party capital resources. CoBank added that it envisioned sending both items together except when there was a delay in obtaining the districtwide data. As the funding bank for its associations, we believe CoBank can minimize the potential for financial reporting delays and other issues at its related associations. By using its ongoing monitoring and other supervisory activities, each bank can identify and assess the impact of potential delays and other issues on the preparation of annual reports and take proactive steps to minimize the potential consequences should a delay or other issue occur. Further, effective internal controls over financial reporting at a bank and its related associations reduces the likelihood of delays. We encourage the banks to proactively utilize measures that improve its districtwide financial reporting processes, while decreasing any issuance risks. Separately, investors from the capital markets, just like System shareholders, must obtain timely, reliable financial information to make informed investment decisions when purchasing System securities. We E:\FR\FM\08OCR1.SGM 08OCR1 63430 Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES do not believe that separately issuing bank-only and combined districtwide financial information accomplishes that goal. By concurrently issuing combined districtwide information with the bank’s annual report, the investors receive a timely and complete view of the bank’s operations and obligations in order to price System securities accordingly. 3. Different Accounting Treatment We proposed clarifying that the current § 620.2(g)(2) option for banks to issue the related associations’ financial information on an unaudited basis extends to all the financial information provided for the related associations, whether in a footnote or supplement. We also proposed language to specify that all information provided through use of either a footnote or a supplement would be considered part of the bank’s annual report and therefore included in the distribution, signature, certification, and internal control assessments of the annual report. CoBank questioned treating the supplement as part of the annual report’s financial certification when separate auditing protocols are applied to the bank only financial information. CoBank explained that it appeared inappropriate to include unaudited districtwide financial information within the report when the bank-only financial information is audited. CoBank added that it had no disagreement with the districtwide information being unaudited, only with treating it as part of the annual report. We disagree with CoBank’s comment that the bank’s annual reports, which contain both audited and unaudited information, is contradictory or misleading. The rule does not change the current regulatory provision that the combined bank and association financial information may be unaudited, nor does it change the requirement for the bank to disclose the basis of presentation for the districtwide financial information. Additionally, the bank-only component of the annual report also contains both audited and unaudited financial information. For example, management’s discussion and analysis is a required unaudited element, whereas a bank’s financial statements are an audited element of the annual report. We also remark that Generally Acceptable Accounting Principles allow the inclusion of both audited and unaudited information in an annual report. As a result, we believe our rule provides consistent application of accounting and reporting standards across all elements of a bank’s annual report. Also, we believe inclusion of districtwide financial information within the annual report, as either a VerDate Sep<11>2014 16:24 Oct 07, 2020 Jkt 253001 footnote or supplement, bolsters the disclosure purpose of the annual report. B. Additional Disclosures In the preamble to the proposed rule we listed our expectations regarding the contents of the districtwide information provided as part of a bank’s annual report. The ABA expressed strong support for increasing districtwide disclosures and asked that the recommended information listed in the preamble to the proposed rule be required and issued in a tabular format to permit more extensive comparison of association financial results within the bank’s district. The preamble did not discuss or propose the recommended information as regulatory text and thus we do not feel that it would be appropriate to now add these recommendations as new requirements for the final rule. We do not believe that a prescriptive approach regarding the contents of the districtwide information provided as part of a bank’s annual report is appropriate. Rather, while some general uniformity is appropriate, FCA recognizes that districtwide financial disclosures may vary among the banks. We also reiterate our expectations that district financial information at a minimum, include: • The nature of business relationships between System entities within the bank’s district; • Summary of District financial information for the preceding three years; • Summary of district loan portfolio, discussing concentration risks and significant changes in credit quality, nonperforming assets, past due loans, loan loss allowance and reserves, and loan aging analysis within the district as compared to previous years. • A description of combined association investments; • Districtwide capital levels and regulatory ratios; • Summary of key districtwide income statement line items and profitability measures; and • A description of any qualified and nonqualified districtwide defined pension plan(s), including each plan’s current funding status, accrued benefit obligation and projected benefit obligation, and key actuarial assumptions. We believe an annual report, with the above list of items, will provide the most meaningful transparency on the financial condition of each Farm Credit District. The ABA also asked that the rule require increased discussion within the annual report of supervisory and enforcement actions. FCA existing PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 regulation § 620.5(c) currently requires the disclosure of enforcement actions as part of an annual report. We proposed no changes to this rule provision so are not making any changes in response to the comment. IV. Regulatory Flexibility Act and Major Rule Conclusion Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), FCA hereby certifies that this final rule would not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with its related associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not ‘‘small entities’’ as defined in the Regulatory Flexibility Act. Under the provisions of the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Management and Budget’s Office of Information and Regulatory Affairs has determined that this final rule is not a ‘‘major rule,’’ as the term is defined at 5 U.S.C. 804(2). List of Subjects in 12 CFR Part 620 Accounting, Agriculture, Banks, Banking, Reporting and recordkeeping requirements, Rural areas. For the reasons stated in the preamble, part 620 of chapter VI, title 12 of the Code of Federal Regulations are amended as follows: PART 620—DISCLOSURE TO SHAREHOLDERS 1. The authority citation for part 620 continues 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; sec. 514 of Pub. L. 102–552, 106 Stat. 4102. Subpart A—General 2. Amend § 620.2 by revising paragraph (g) to read as follows: ■ § 620.2 Preparing and filing reports. * * * * * (g) Each Farm Credit institution shall present its reports in accordance with generally accepted accounting principles and in a manner that provides the most meaningful disclosure to shareholders. (1) Any Farm Credit institution that presents its annual and quarterly financial statements on a combined or consolidated basis shall also include in the report the statement of condition and statement of income of the E:\FR\FM\08OCR1.SGM 08OCR1 Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Rules and Regulations institution on a stand-alone basis. The stand-alone statements may be in summary form and shall disclose the basis of presentation if different from accounting policies of the combined or consolidated statements. (2) Any Farm Credit bank that prepares its annual financial statements on a stand-alone basis must also provide financial information on its related associations as part of its annual report. The information on the related associations must be presented on a combined basis with the bank’s financial information and, at a minimum, include both a condensed statement of condition and a statement of income. The combined bank and association financial information may either be in the footnotes of the bank’s annual report or located in a supplement to the report. All combined information provided through either a footnote or a supplement will be considered part of the bank’s annual report, subject to the same annual report preparation, distribution, and accuracy requirements of part 620. (i) The combined bank and association financial information may be unaudited but must disclose the basis of presentation if different from accounting policies used for the bankonly financial statements. (ii) If the combined bank and association financial information is presented in the form of a supplement, the supplement must be referenced within the bank’s annual report and accompany the annual report when distributed. [FR Doc. 2020–20264 Filed 10–7–20; 8:45 am] This AD becomes effective October 23, 2020. The Director of the Federal Register approved the incorporation by reference of certain documents listed in this AD as of October 23, 2020. The FAA must receive comments on this AD by November 23, 2020. ADDRESSES: You may send comments by any of the following methods: • Federal eRulemaking Docket: Go to https://www.regulations.gov. Follow the online instructions for sending your comments electronically. • Fax: 202–493–2251. • Mail: Send comments to the U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590–0001. • Hand Delivery: Deliver to the ‘‘Mail’’ address between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. BILLING CODE 6705–01–P Examining the AD Docket Dated: September 9, 2020. Dale Aultman, Secretary, Farm Credit Administration Board. DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2020–0856; Product Identifier 2019–SW–071–AD; Amendment 39–21270; AD 2020–20–14] RIN 2120–AA64 khammond on DSKJM1Z7X2PROD with RULES The FAA is adopting a new airworthiness directive (AD) for certain Airbus Helicopters Model SA–365N, SA–365N1, AS–365N2, AS 365 N3, EC 155B, EC155B1, AS350B3, AS355F, AS355F1, AS355F2, AS355N, AS355NP, EC130B4, and EC130T2 helicopters. This AD requires inspecting the main rotor (M/R) servo actuators, and depending on the inspection results, replacing the affected part, applying a slippage mark, and reporting information. This AD was prompted by an incident of a sudden, strong nose-up attitude followed by intensive vibrations and increased loads on the flight controls during a cruise flight. The actions of this AD are intended to address an unsafe condition on these products. SUMMARY: Airworthiness Directives; Airbus Helicopters Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule; request for comments. AGENCY: VerDate Sep<11>2014 16:24 Oct 07, 2020 Jkt 253001 DATES: You may examine the AD docket on the internet at https:// www.regulations.gov by searching for and locating Docket No. FAA–2020– 0856; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the European Union Aviation Safety Agency (EASA) AD, any service information that is incorporated by reference, any comments received, and other information. The street address for Docket Operations is listed above. Comments will be available in the AD docket shortly after receipt. For service information identified in this final rule, contact Airbus Helicopters, 2701 N Forum Drive, Grand Prairie, TX 75052; telephone 972–641– 0000 or 800–232–0323; fax 972–641– PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 63431 3775; or at https://www.airbus.com/ helicopters/services/technicalsupport.html. You may view the referenced service information at the FAA, Office of the Regional Counsel, Southwest Region, 10101 Hillwood Pkwy., Room 6N–321, Fort Worth, TX 76177. It is also available on the internet at https://www.regulations.gov by searching for and locating Docket No. FAA–2020–0856. FOR FURTHER INFORMATION CONTACT: Matthew L. Thompson, Aerospace Engineer, DSCO Branch, Compliance & Airworthiness Division, FAA, 10101 Hillwood Pkwy., Fort Worth, TX 76177; telephone 817–222–5251; email matthew.l.thompson@faa.gov. SUPPLEMENTARY INFORMATION: Comments Invited This AD is a final rule that involves requirements affecting flight safety, and the FAA did not provide you with notice and an opportunity to provide your comments prior to it becoming effective. However, the FAA invites you to participate in this rulemaking by submitting written comments, data, or views. The most helpful comments reference a specific portion of the AD, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit them only one time. Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will file in the docket all comments received, as well as a report summarizing each substantive public contact with FAA personnel concerning this rulemaking during the comment period. The FAA will consider all the comments received and may conduct additional rulemaking based on those comments. Confidential Business Information Confidential Business Information (CBI) is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this final rule contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this final rule, it is important that you clearly designate the E:\FR\FM\08OCR1.SGM 08OCR1

Agencies

[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Rules and Regulations]
[Pages 63428-63431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20264]


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FARM CREDIT ADMINISTRATION

12 CFR Part 620

RIN 3052-AD37


District Financial Reporting

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we, or our) is amending 
our regulations governing how a Farm Credit bank presents information 
on its related associations when preparing annual bank financial 
statements on a stand-alone basis. The final rule provides two 
presentation options when disclosing related association financial 
information in an annual bank report: By footnote or attached in a 
supplement.

DATES: This regulation will be effective 30 days after publication in 
the Federal Register during which either or both Houses of Congress are 
in session. We will publish notification of the effective date in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: 
    Technical information: Joi Neal, Senior Accountant, Office of 
Regulatory Policy, (703) 883-4223, TTY (703) 883-4056.
    Legal information: Laura McFarland, Senior Counsel, Office of 
General Counsel, (703) 883-4020, TTY (703) 883-4056.

SUPPLEMENTARY INFORMATION:

I. Objective

    The objective of the final rule is to improve shareholder access to 
district financial information by providing an additional method of 
presenting financial information on a bank's related associations to 
those banks preparing annual financial statements on a stand-alone 
basis.

II. Background

    The Farm Credit Act of 1971 (Act), as amended,\1\ authorizes the 
FCA to issue regulations implementing the Act's provisions. Our 
regulations are intended to ensure the safe and sound operation of Farm 
Credit System (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 \2\ that disclosures of 
financial information, among other disclosures, provide System 
shareholders with information

[[Page 63429]]

necessary to better manage their institution and make informed 
decisions regarding its operations.
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    \1\ Public Law 92-181, 85 Stat. 583 (1971), 12. U.S.C. 2001, et 
seq.
    \2\ Public Law 102-552, 106 Stat. 4131 (1992).
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    We issued a proposed rule on December 12, 2019, asking for comments 
on proposed changes to 12 CFR 620.2.\3\ Specifically, we proposed 
allowing Farm Credit banks to use a supplement for disclosure of 
combined districtwide (bank and related association) financial 
information in lieu of a footnote when issuing stand-alone annual 
financial statements. As proposed, the supplement would be considered 
part of the bank's annual report and therefore be distributed at the 
same time as the annual report, and covered by its accuracy, 
distribution, and internal control requirements. The comment period for 
the proposed rule closed on March 9, 2020.
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    \3\ 85 FR 647.
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III. Comments and Our Responses

    We received two comment letters on our proposed changes to Sec.  
620.2(g)(2). One letter came from CoBank, ACB (CoBank), a System 
institution, and one letter came from the American Bankers Association 
(ABA). Both letters supported FCA's objective for the rulemaking but 
asked for changes to what was proposed. We discuss these comments to 
our proposed rule and our responses below. However, after consideration 
of all the comments, we are making no changes and final all provisions 
as proposed.

A. Treatment of Supplement as Part of the Annual Report

    We proposed requiring the inclusion of the combined districtwide 
financial information via a supplement to be considered part of the 
annual report. CoBank expressed support for the flexibility of using 
either a supplement or footnote for discussion of districtwide 
financial information within the bank's annual report. However, CoBank 
requested removal of the proposed requirement that the supplement be 
considered part of the annual bank stand-alone report, asking that the 
supplement be a separate report. CoBank gave several reasons for the 
request and we address each of the reasons given by CoBank later in 
this preamble, but generally respond here by explaining that the 
supplement was proposed as an alternative presentation format to using 
a footnote as provided under our existing regulations. In keeping with 
this existing regulatory requirement, we proposed keeping the combined 
districtwide financial information as an essential part of the annual 
report itself, whether presented as a footnote or supplement.
    We explained in the preamble to the proposed rule that use of a 
supplement instead of a footnote was not creating a new report, but 
merely giving the alternative presentation method requested by the four 
Farm Credit banks.\4\ Because by its nature a footnote is indelibly 
part of a report, we proposed concurrent distribution when presentation 
of districtwide information is done through a supplement to ensure it 
received the same treatment as if presented in a footnote. Meaning, 
whether a supplement or footnote, the contents would be part of the 
annual report, distributed with the annual report pursuant to 12 CFR 
620.4, and therefore included in the annual report signature, 
certification, and internal controls requirements of 12 CFR 620.3. 
Additionally, we believe that shareholders need both the bank-only 
financial information and combined districtwide financial information 
at the same time to foster a better understanding of the bank and its 
district operations. All the financial information--bank-only and 
combined districtwide financial information--needs to be available at 
the same time to accomplish that goal.
---------------------------------------------------------------------------

    \4\ Refer to the proposed rule at section II, ``Background'' (85 
FR 647, January 7, 2020).
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1. Comingling Districtwide Data With Bank Only Information
    CoBank commented that it believes the inclusion of the supplement 
as part of the bank's annual report renders the bank's disclosures 
misleading to its investors because the bank has lending activities 
beyond the associations. CoBank has the unique status of being the only 
System institution possessing Title III authorities, resulting in Title 
III voting stockholders that are not System associations--these 
stockholders are called ``cooperative association stockholders'' (CA 
stockholders). CoBank explained that, because the districtwide 
disclosures exclude its Title III lending activities, an investor might 
interpret the different disclosure treatment as being required due to 
accounting or financial reasons. CoBank also claimed its CA 
shareholders could mistakenly conclude there are multi-tiered classes 
of common stockholders due both to the heightened prominence of the 
district financial information resulting from use of a supplement over 
a footnote and the equity interests of this group of stockholders not 
being reflected in the districtwide information.
    We disagree with CoBank's stated concern. A clearly presented 
supplement or footnote would label the information in a manner to avoid 
an investor or shareholder misreading the data. Although CoBank has 
both System association shareholders and CA stockholders, the 
districtwide financial information presented in a supplement or 
footnote further supports the bank's discussion of the components of 
its operations. Throughout its annual report, CoBank discusses the 
distinctions between its association shareholders and CA stockholders. 
The disclosure of districtwide financial information continues the 
bank's efforts to clarify its operations to its association 
shareholders and CA stockholders by reducing confusion on its district 
operations. In addition, both the footnote and the supplement specify 
the scope of the financial information presented, which avoids 
confusion with CoBank's lending activities with CA stockholder 
entities.
2. Delay in Receipt of Districtwide Information
    CoBank objected to distributing the supplement concurrently with 
the annual report because receipt of the districtwide information may 
be delayed, making the entire annual report late. CoBank stated that 
any delay in issuing the annual report could adversely affect CoBank's 
credibility in the capital markets, which in turn could imperil access 
to third-party capital resources. CoBank added that it envisioned 
sending both items together except when there was a delay in obtaining 
the districtwide data.
    As the funding bank for its associations, we believe CoBank can 
minimize the potential for financial reporting delays and other issues 
at its related associations. By using its ongoing monitoring and other 
supervisory activities, each bank can identify and assess the impact of 
potential delays and other issues on the preparation of annual reports 
and take proactive steps to minimize the potential consequences should 
a delay or other issue occur. Further, effective internal controls over 
financial reporting at a bank and its related associations reduces the 
likelihood of delays. We encourage the banks to proactively utilize 
measures that improve its districtwide financial reporting processes, 
while decreasing any issuance risks. Separately, investors from the 
capital markets, just like System shareholders, must obtain timely, 
reliable financial information to make informed investment decisions 
when purchasing System securities. We

[[Page 63430]]

do not believe that separately issuing bank-only and combined 
districtwide financial information accomplishes that goal. By 
concurrently issuing combined districtwide information with the bank's 
annual report, the investors receive a timely and complete view of the 
bank's operations and obligations in order to price System securities 
accordingly.
3. Different Accounting Treatment
    We proposed clarifying that the current Sec.  620.2(g)(2) option 
for banks to issue the related associations' financial information on 
an unaudited basis extends to all the financial information provided 
for the related associations, whether in a footnote or supplement. We 
also proposed language to specify that all information provided through 
use of either a footnote or a supplement would be considered part of 
the bank's annual report and therefore included in the distribution, 
signature, certification, and internal control assessments of the 
annual report. CoBank questioned treating the supplement as part of the 
annual report's financial certification when separate auditing 
protocols are applied to the bank only financial information. CoBank 
explained that it appeared inappropriate to include unaudited 
districtwide financial information within the report when the bank-only 
financial information is audited. CoBank added that it had no 
disagreement with the districtwide information being unaudited, only 
with treating it as part of the annual report.
    We disagree with CoBank's comment that the bank's annual reports, 
which contain both audited and unaudited information, is contradictory 
or misleading. The rule does not change the current regulatory 
provision that the combined bank and association financial information 
may be unaudited, nor does it change the requirement for the bank to 
disclose the basis of presentation for the districtwide financial 
information. Additionally, the bank-only component of the annual report 
also contains both audited and unaudited financial information. For 
example, management's discussion and analysis is a required unaudited 
element, whereas a bank's financial statements are an audited element 
of the annual report. We also remark that Generally Acceptable 
Accounting Principles allow the inclusion of both audited and unaudited 
information in an annual report. As a result, we believe our rule 
provides consistent application of accounting and reporting standards 
across all elements of a bank's annual report. Also, we believe 
inclusion of districtwide financial information within the annual 
report, as either a footnote or supplement, bolsters the disclosure 
purpose of the annual report.

B. Additional Disclosures

    In the preamble to the proposed rule we listed our expectations 
regarding the contents of the districtwide information provided as part 
of a bank's annual report. The ABA expressed strong support for 
increasing districtwide disclosures and asked that the recommended 
information listed in the preamble to the proposed rule be required and 
issued in a tabular format to permit more extensive comparison of 
association financial results within the bank's district. The preamble 
did not discuss or propose the recommended information as regulatory 
text and thus we do not feel that it would be appropriate to now add 
these recommendations as new requirements for the final rule. We do not 
believe that a prescriptive approach regarding the contents of the 
districtwide information provided as part of a bank's annual report is 
appropriate. Rather, while some general uniformity is appropriate, FCA 
recognizes that districtwide financial disclosures may vary among the 
banks. We also reiterate our expectations that district financial 
information at a minimum, include:
     The nature of business relationships between System 
entities within the bank's district;
     Summary of District financial information for the 
preceding three years;
     Summary of district loan portfolio, discussing 
concentration risks and significant changes in credit quality, 
nonperforming assets, past due loans, loan loss allowance and reserves, 
and loan aging analysis within the district as compared to previous 
years.
     A description of combined association investments;
     Districtwide capital levels and regulatory ratios;
     Summary of key districtwide income statement line items 
and profitability measures; and
     A description of any qualified and nonqualified 
districtwide defined pension plan(s), including each plan's current 
funding status, accrued benefit obligation and projected benefit 
obligation, and key actuarial assumptions.
    We believe an annual report, with the above list of items, will 
provide the most meaningful transparency on the financial condition of 
each Farm Credit District.
    The ABA also asked that the rule require increased discussion 
within the annual report of supervisory and enforcement actions. FCA 
existing regulation Sec.  620.5(c) currently requires the disclosure of 
enforcement actions as part of an annual report. We proposed no changes 
to this rule provision so are not making any changes in response to the 
comment.

IV. Regulatory Flexibility Act and Major Rule Conclusion

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that this final rule would 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the System, considered together with its 
related associations, has assets and annual income in excess of the 
amounts that would qualify them as small entities. Therefore, System 
institutions are not ``small entities'' as defined in the Regulatory 
Flexibility Act.
    Under the provisions of the Congressional Review Act (5 U.S.C. 801 
et seq.), the Office of Management and Budget's Office of Information 
and Regulatory Affairs has determined that this final rule is not a 
``major rule,'' as the term is defined at 5 U.S.C. 804(2).

List of Subjects in 12 CFR Part 620

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

    For the reasons stated in the preamble, part 620 of chapter VI, 
title 12 of the Code of Federal Regulations are amended as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

0
1. The authority citation for part 620 continues 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; sec. 514 of Pub. L. 102-552, 106 
Stat. 4102.

Subpart A--General

0
2. Amend Sec.  620.2 by revising paragraph (g) to read as follows:


Sec.  620.2  Preparing and filing reports.

* * * * *
    (g) Each Farm Credit institution shall present its reports in 
accordance with generally accepted accounting principles and in a 
manner that provides the most meaningful disclosure to shareholders.
    (1) Any Farm Credit institution that presents its annual and 
quarterly financial statements on a combined or consolidated basis 
shall also include in the report the statement of condition and 
statement of income of the

[[Page 63431]]

institution on a stand-alone basis. The stand-alone statements may be 
in summary form and shall disclose the basis of presentation if 
different from accounting policies of the combined or consolidated 
statements.
    (2) Any Farm Credit bank that prepares its annual financial 
statements on a stand-alone basis must also provide financial 
information on its related associations as part of its annual report. 
The information on the related associations must be presented on a 
combined basis with the bank's financial information and, at a minimum, 
include both a condensed statement of condition and a statement of 
income. The combined bank and association financial information may 
either be in the footnotes of the bank's annual report or located in a 
supplement to the report. All combined information provided through 
either a footnote or a supplement will be considered part of the bank's 
annual report, subject to the same annual report preparation, 
distribution, and accuracy requirements of part 620.
    (i) The combined bank and association financial information may be 
unaudited but must disclose the basis of presentation if different from 
accounting policies used for the bank-only financial statements.
    (ii) If the combined bank and association financial information is 
presented in the form of a supplement, the supplement must be 
referenced within the bank's annual report and accompany the annual 
report when distributed.

    Dated: September 9, 2020.
Dale Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2020-20264 Filed 10-7-20; 8:45 am]
BILLING CODE 6705-01-P
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