12 U.S.C. § 2132 — Earnings and reserves; application of sav-

Page 1319 TITLE 12—BANKS AND BANKING § 2132 Editorial Notes AMENDMENTS 2018—Subsec. (a). Pub. L. 115–334 struck out at end ‘‘In the case of a direct loan by the Central Bank, the borrower shall be required to own or invest in the nec- essary stock in a district bank or banks and such dis- trict bank shall be required to own a corresponding amount of stock in the Central Bank, but voting stock shall be in the one district bank, designated by the Farm Credit Administration.’’ 1988—Subsec. (a). Pub. L. 100–233 substituted ‘‘by the bank to invest’’ for ‘‘by the bank with the approval of the Farm Credit Administration to invest’’, ‘‘or upon such other basis as the bank determines’’ for ‘‘or upon such other basis as the bank, with the approval of the Farm Credit Administration, determines’’, and ‘‘in a district bank or banks and such district bank shall be required’’ for ‘‘in a district bank or banks as may be approved by the Farm Credit Administration and such district bank shall be required’’. 1980—Subsec. (a). Pub. L. 96–592 inserted provisions respecting entitlement to hold voting stock. § 2131. Loans (a) Interest rates and charges Loans made by a bank for cooperatives shall bear interest at a rate or rates determined by the board of directors of the bank from time to time. In setting rates and charges, it shall be the objective to provide the types of credit need- ed by eligible borrowers at the lowest reasonable cost on a sound business basis, taking into ac- count the net cost of money to the bank, nec- essary reserves and expenses of the bank, and services provided. The loan documents may pro- vide for the interest rate or rates to vary from time to time during the repayment period of the loan, in accordance with the rate or rates cur- rently being charged by the bank. (b) Security Loans shall be made upon such terms, condi- tions, and security, if any, as may be determined by the bank in accordance with regulations of the Farm Credit Administration. (c) Lien Each bank for cooperatives shall have a first lien on all stock or other equities in the bank as collateral for the payment of any indebtedness of the owner thereof to the bank. (d) Cancellation; application on indebtedness In any case where the debt of a borrower is in default, or in any case of liquidation or dissolu- tion of a present or former borrower from a bank for cooperatives, the bank may, but shall not be required to, retire and cancel all or a part of the stock, allocated surplus or contingency reserves, or any other equity in the bank owned by or allocated to such borrower, at the fair market value thereof not exceeding par, and, to the extent required in such cases, corresponding shares and allocations and other equity inter- ests held by a bank in another bank for coopera- tives (or any successor bank) on account of such indebtedness, shall be retired or equitably ad- justed. In no event shall the bank’s equities be retired or canceled if the retirement or cancella- tion would adversely affect the bank’s capital structure, as determined by the Farm Credit Ad- ministration. (Pub. L. 92–181, title III, § 3.10, Dec. 10, 1971, 85 Stat. 606; Pub. L. 96–592, title III, § 307, Dec. 24, 1980, 94 Stat. 3445; Pub. L. 99–509, title I, § 1033(c), Oct. 21, 1986, 100 Stat. 1877; Pub. L. 115–334, title V, § 5411(10), Dec. 20, 2018, 132 Stat. 4680.) Editorial Notes AMENDMENTS 2018—Subsec. (c). Pub. L. 115–334, § 5411(10)(A), struck out at end ‘‘In the case of a direct loan to an eligible cooperative by the Central Bank, the Central Bank shall have a first lien on the stock and equities of the borrower in the district bank and the district bank shall have a lien thereon junior only to the lien of the Central Bank.’’ Subsec. (d). Pub. L. 115–334, § 5411(10)(B), substituted ‘‘held by a bank in another bank for cooperatives (or any successor bank) on account of such indebtedness’’ for ‘‘held by a district bank in another district bank on account of such indebtedness’’. 1986—Subsec. (a). Pub. L. 99–509 struck out ‘‘, with the approval of the Farm Credit Administration as pro- vided in section 2205 of this title’’ after ‘‘from time to time’’. 1980—Subsec. (a). Pub. L. 96–592, § 307(1), inserted ref- erence to section 2205 of this title. Subsec. (d). Pub. L. 96–592, § 307(2), substituted ‘‘mar- ket’’ for ‘‘book’’ and inserted provisions respecting re- tirement or cancellation of equities as affected by the capital structure. § 2132. Earnings and reserves; application of sav- ings (a) Application of savings At the end of each fiscal year, the net savings shall, under regulations prescribed by the Farm Credit Administration, continue to be applied on a cooperative basis with provision for sound, adequate capitalization to meet the changing fi- nancing needs of eligible cooperative borrowers and prudent corporate fiscal management, to the end that current year’s patrons carry their fair share of the capitalization, ultimate ex- penses, and reserves related to the year’s oper- ations and the remaining net savings shall be distributed as patronage refunds as provided in subsection (b). Such regulations may provide for application of net savings to the restoration or maintenance of an allocated surplus account, reasonable additions to unallocated surplus, or to unallocated reserves after payment of oper- ating expenses, and provide for allocations to patrons not qualified under title 26, or payment of such per centum of patronage refunds in cash, as the board may determine. (b) Patronage refunds The net savings of each bank for cooperatives, after the earnings for the fiscal year have been applied in accordance with subsection (a) of this section shall be paid in stock, participation cer- tificates, or cash, or in any of them, as deter- mined by its board, as patronage refunds to bor- rowers to whom such refunds are payable who are borrowers of the fiscal year for which such patronage refunds are distributed. All patronage refunds shall be paid in proportion that the amount of interest and service fees on the loans to each borrower during the year bears to the in- terest and service fees on the loans of all bor- rowers during the year or on such other propor- tionate patronage basis as may be approved by the board of directors. (c) Loss carryover In the event of a net loss in any fiscal year after providing for all operating expenses (in- Page 1320 TITLE 12—BANKS AND BANKING § 2133 cluding reasonable valuation reserves and losses in excess of any applicable reserves), such loss may be carried forward or carried back, if appro- priate, or otherwise shall be absorbed by charges to unallocated reserve or surplus accounts es- tablished after December 10, 1971; charges to al- located contingency reserve account; charges to allocated surplus accounts; charges to other contingency reserve and surplus accounts; the impairment of voting stock; or the impairment of all other stock. (d) Charge of unrecognized costs or expenses to reserve, surplus, or patronage allocations Notwithstanding any other provisions of this section any costs or expenses attributable to a prior year or years but not recognized in deter- mining the net savings for such year or years may be charged to reserves or surplus of the bank or to patronage allocations for such years, as may be determined by the board of directors. (e) Payment of patronage refunds in cash A bank for cooperatives may pay in cash such portion of its patronage refunds as will permit its taxable income to be determined without taking into account savings applied as allocated surplus, allocated contingency reserves, and pa- tronage refunds under subsection (a) of this sec- tion. (Pub. L. 92–181, title III, § 3.11, Dec. 10, 1971, 85 Stat. 606; Pub. L. 96–592, title III, § 308, Dec. 24, 1980, 94 Stat. 3445; Pub. L. 99–205, title II, § 205(e)(7), (8), Dec. 23, 1985, 99 Stat. 1705; Pub. L. 100–233, title VIII, §§ 802(r), 805(n), Jan. 6, 1988, 101 Stat. 1712, 1716; Pub. L. 115–334, title V, § 5411(11), Dec. 20, 2018, 132 Stat. 4680.) Editorial Notes AMENDMENTS 2018—Subsec. (a). Pub. L. 115–334, § 5411(11)(A), sub- stituted ‘‘subsection (b)’’ for ‘‘subsections (b) and (c) of this section’’. Subsec. (b). Pub. L. 115–334, § 5411(11)(B), struck out ‘‘district’’ before ‘‘bank for cooperatives’’ and sub- stituted ‘‘All patronage’’ for ‘‘Except as provided in subsection (c) below, all patronage’’. Subsecs. (c) to (f). Pub. L. 115–334, § 5411(11)(C), (D), re- designated subsecs. (d) to (f) as (c) to (e), respectively, and struck out former subsec. (c). Prior to amendment, text of subsec. (c) read as follows: ‘‘The net savings of the Central Bank for Cooperatives after the earnings for the fiscal year have been applied in accordance with subsection (a) of this section shall be paid in stock or cash, or both, as determined by the board, as patronage refunds to the district banks on the basis of interests held by the Central Bank in loans made by the district banks and upon any direct loans made by the Central Bank to cooperative associations, or on such other pro- portionate patronage basis as may be approved by the board of directors. In cases of direct loans, such refund shall be paid to the district bank or banks which issued their stock to the borrower incident to such loans, and the district bank or banks shall issue a like amount of patronage refunds to the borrower.’’ 1988—Subsec. (a). Pub. L. 100–233, §§ 802(r)(1), 805(n)(1), (5), redesignated subsec. (b) as (a), substituted ‘‘(b) and (c)’’ for ‘‘(c) and (d)’’, struck out ‘‘as may be approved by the Farm Credit Administration’’ after ‘‘payment of operating expenses’’, and struck out at end ‘‘If during the fiscal year but not at the end thereof a bank shall have had outstanding capital stock held by the United States, provision will be made for payment of franchise taxes required in section 2151 of this title.’’ Subsec. (b). Pub. L. 100–233, §§ 802(r)(2), 805(n)(2), (5), redesignated subsec. (c) as (b) and substituted ‘‘(a) of this section’’ for ‘‘(b) of this section, whichever is appli- cable,’’, ‘‘(c) below’’ for ‘‘(d) below’’, and ‘‘may be ap- proved by the board of directors’’ for ‘‘the Farm Credit Administration may approve’’. Former subsec. (b) re- designated (a). Subsec. (c). Pub. L. 100–233, §§ 802(r)(3), 805(n)(3), (5), redesignated subsec. (d) as (c) and substituted ‘‘(a) of this section’’ for ‘‘(b) of this section whichever is appli- cable,’’ and ‘‘may be approved by the board of direc- tors’’ for ‘‘the Farm Credit Administration may ap- prove’’. Former subsec. (c) redesignated (b). Subsecs. (d), (e). Pub. L. 100–233, § 805(n)(5), redesig- nated subsecs. (e) and (f) as (d) and (e), respectively. Former subsec. (d) redesignated (c). Subsecs. (f), (g). Pub. L. 100–233, § 805(n)(4), (5), redes- ignated subsec. (g) as (f), substituted ‘‘A bank for co- operatives’’ for ‘‘For any year that a bank for coopera- tives is subject to Federal income tax, it’’, and struck out ‘‘or (b)’’ after ‘‘subsection (a)’’. Former subsec. (f) redesignated (e). 1985—Subsec. (a). Pub. L. 99–205, § 205(e)(7), struck out subsec. (a) which provided for application of savings when bank for cooperatives has outstanding stock held by the Governor. Subsec. (b). Pub. L. 99–205, § 205(e)(8)(A), substituted ‘‘At the end of each fiscal year, the net’’ for ‘‘Whenever at the end of any fiscal year a bank for cooperatives shall have no outstanding capital stock held by the Governor of the Farm Credit Administration, the net’’. Subsecs. (c), (d). Pub. L. 99–205, § 205(e)(8)(B), sub- stituted ‘‘subsection (b) of this section’’ for ‘‘subsection (a) or (b) of this section’’. 1980—Subsec. (b). Pub. L. 96–592, § 308(1), struck out provisions relating to 25 per centum requirement for net savings. Subsec. (c). Pub. L. 96–592, § 308(2), inserted applica- bility to participation certificates and to borrowers to whom refunds are payable. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1985 AMENDMENT Amendment by Pub. L. 99–205 effective thirty days after Dec. 23, 1985, see section 401 of Pub. L. 99–205, set out as a note under section 2001 of this title. § 2133. Distribution of assets on liquidation or dissolution In the case of liquidation or dissolution of any bank for cooperatives, after payment or retire- ment, first, of all liabilities; second, of all cap- ital stock issued before January 1, 1956, at par, and all nonvoting stock at par; and third, all voting stock at par; any surplus and reserves ex- isting on January 1, 1956, shall be paid to the holders of stock issued before that date, and vot- ing stock pro rata; and any remaining allocated surplus and reserves shall be distributed to those entities to which they are allocated on the books of the bank, and any other remaining sur- plus shall be paid to the holders of outstanding voting stock. If it should become necessary to use any surplus or reserves to pay any liabilities or to retire any capital stock, unallocated re- serves or surplus, allocated reserves and surplus shall be exhausted in accordance with rules pre- scribed by the Farm Credit Administration. (Pub. L. 92–181, title III, § 3.12, Dec. 10, 1971, 85 Stat. 608; Pub. L. 99–205, title II, § 205(e)(9), Dec. 23, 1985, 99 Stat. 1705; Pub. L. 100–233, title VIII, § 805(o), Jan. 6, 1988, 101 Stat. 1716.)