paragraph (e) whenever an insured institution makes a loan or loans secured (or to be secured) by 25 percent or more of the voting stock of an insured institution, except in cases where the borrower has been the owner of record of the stock for a period of 1 year or more, or the stock is of a newly organized insured institution prior to its opening. Reports shall be made to the Corporation by the president or other chief executive officer of the lending institution within 15 days after he obtains knowledge of such loan or loans.

(2) Contents of reports. The reports required under this paragraph (e) shall contain the following information:

(1) The name of the borrower;

(ii) The date and amount of the loan; (iii) The name of the insured institution which has issued or is to issue the stock securing the loan; and

(iv) The number of shares securing the loan.

(f) Other reports. The Corporation may also require insured institutions and individuals or other persons who have or have had any connection with the management of any insured institution, including any present or former director, officer, controlling person, or agent of an insured institution, to provide, or cause to be provided, such periodic or other reports or disclosures as the Corporation may determine to be necessary or appropriate for the protection of investors or the Corporation.

(g) Form and filing of reports. Unless otherwise specified by the Corporation, the reports provided for in this section shall be in letter form, shall be personally signed by the officer making the report, and shall be filed with the Corporation by transmitting the signed original and one copy to the Director, Office of Examinations and Supervision, Federal Home Loan Bank Board, Washington, D.C. 20552, and one copy to the Supervisory Agent. As used in this section, the term "Supervisory Agent" means the President of the Federal home loan bank of the district in which the reporting institution is located or any other officer or employee of such bank designated by the Board as agent of the Corporation as provided by § 501.11 of the general regulations of the Federal Home Loan Bank Board (§ 501.11 of this chapter).

(h) Penalty for failure to report. For the willful failure of any institution, in

dividual, or other person who has or has had any connection with the management of any insured institution to submit, within the time prescribed by the Corporation, any report or disclosure required by the Corporation, such insured institution, individual, or other person shall be subject to a civil penalty of not more than $500 (which penalty shall be cumulative to any other remedies) for each day that such failure continues, which penalty the Corporation may recover by suit or otherwise for its own use. The Corporation in its discretion may, at any time before collection of such penalty (whether before or after the bringing of any action or other legal proceedings, the obtaining of any judgment or other recovery, or the issuance or levy of any execution or other legal process therefor), compromise or remit in whole or in part any such penalty.

(i) Definitions. As used in this section

(1) The term "stock" means any permanent or guaranty stock or other nonwithdrawable account, share, or equity security in an insured institution.

(2) The term "voting stock" means any stock which carries voting rights.

(3) The term "voting rights" means any proxies, consents, or authorizations which give the holder or holders the right to vote with respect to shares of voting stock, or with respect to withdrawable accounts, in an insured institution.

(Sec. 407, 48 Stat. 1260, as amended; 12 U.S.C. 1730) [33 FR 15277, Oct. 15, 1968, as amended at 38 FR 26111, Sept. 18, 1973]

§ 563.19 Bonds for directors, officers, employees, and agents; form of and amount of bonds.

(a) Each insured institution shall maintain bond coverage with a bonding company acceptable to the Corporation, and such bond shall be in form known as Standard Form No. 22 or its equivalent or in other form acceptable to the Corporation. The bond shall cover each director, officer, employee, and agent who has control over or access to cash or securities of such institution. Such coverage shall be maintained in the minimum amount set forth below, computed on a base consisting of the total assets of the insured institution plus the unpaid balance of loans which it has contracted to service for others, as follows:

Base

Not over $300,000-

$300,001 to $1,000,000-----

31,000,001 to $10,000,000----

$10,000,001 to $30,000,000‒‒‒‒‒.

Minimum Bond

360,000,001 to $100,000,000‒‒‒‒

$100,000,001 and over..

The permissible deductible amount specified in this paragraph may be increased by an insured institution to a maximum of 3 times the above-specified permissible amount whenever losses under the bond exceed 50 percent of the premium payable for the current premium term. A deductible amount may be applied separately to one or more insuring agreements. The bond shall not provide that there may be more than one deductible amount from all losses caused by the same person or caused by the same persons acting in collusion or combination in cases in which such losses result from dishonesty of employees (as defined in the bond).

(c) If the accounting records of an insured institution are maintained and serviced by a data processing organization, that organization, while performing such data processing services, must be covered as an employee under the institution's bond.

(d) A service corporation of an insured institution shall maintain such bond coverages as may be appropriate

39-057-75- -29

considering the nature of its activities and the practice of other corporations engaged in similar activities.

[34 FR 6279, Apr. 9, 1969, as amended at 38 FR 26111, Sept. 18, 1973]

§ 563.20 Bonds for agents.

In lieu of the bond provided in § 563.19 in the case of agents appointed by an insured institution, a fidelity bond may be provided in an amount at least twice the average monthly collections of such agents, provided such agents shall be required to make settlement with the insured institution at least monthly, and provided such bond is approved by the board of directors of the insured institution. No bond need be obtained for any agent which is an insured institution or a bank insured by the Federal Deposit Insurance Corporation.

[23 F.R. 9916, Dec. 23, 1958]

§ 563.21 Safe deposit business.

The bond or bonds required by this section shall protect the insured institution with respect to the operation of any safe deposit business transacted by such insured institution. Each such institution shall either (a) validy limit the replacement or loss value of the contents of each box to an amount not more than $1,000 or (b) carry additional insurance of a type protecting the association against any and all legal liabilities arising out of the rental of safe deposit boxes in minimum amounts as follows: $25,000 for any number of boxes up to 100, plus $1,000 for each additional 20 boxes, or fraction thereof, available for rent, up to a maximum coverage of $100,000; and shall not contractually incur liabilities beyond the general liabilities incident to the conduct of such business.

[23 F.R. 9916, Dec. 23, 1958]

All loans and participation interests in loans sold by an insured institution shall be sold without recourse. [36 F.R. 5465, Mar. 24, 1971]

§ 563.23-1 Premiums, charges, and credits with respect to mortgage loans; sale of real estate owned; and related items.

(a) Purchase at a premium. A premium paid by an insured institution in connection with the acquisition of a mortgage loan may be charged off when paid or may be capitalized. If the premium is capitalized, it shall be amortized by charges to expense, at least semiannually, using any approved method of amortization, over a period not in excess of the remaining term of the loan, or 10 years, whichever is less, in the case of a single loan, or over a period not in excess of the average remaining term of the loans, or 10 years, whichever is less, in the case of a group of loans.

(b) Purchase at a discount. If an insured institution purchases a mortgage loan at a discount, such discount shall be deferred by a credit to an account descriptive of deferred income and shall thereafter be credited to income, at least semiannually, using any approved method, over a period of not less than 7 years if the loan was purchased prior to January 1, 1972, or over a period of not less than 10 years if the loan was purchased on or after January 1, 1972. For the purposes of this section, a loan shall be deemed to have been purchased by an insured institution at a discount if the price paid by such institution for such loan is less than the amount of the loan balance. Any charges made by the purchaser in connection with the purchase of a loan shall be deducted from the pur

chase price to determine the amount of the discount.

(c) Charges. All acquisition charges, as hereinafter defined, in connection with the making or acquisition of a mortgage loan by an insured institution shall be charged to such institution's expense for the accounting period in which such charges are incurred and shall not be deferred beyond the end of such accounting period.

(d) Credits deferred. Each acquisition credit subject to deferral, as hereinafter defined, shall be deferred by a credit to an account descriptive of deferred income and shall hereafter be credited to income, at least semiannually, using any approved method, over a period of not less than 7 years if such acquisition credit was received prior to January 1, 1972, or over a period of not less than 10 years if such acquisition credit was received on or after January 1, 1972.

(e) Sale or payoff of loans. (1) If a loan has been sold or paid in full on or before December 31, 1971, any capitalized premium and/or any deferred acquisition credits or discount applicable to such loan as of December 31, 1971, may be added to or deducted from (as appropriate) the book value of such loan and, if so added or deducted, the profit or loss thereon shall be recognized as of December 31, 1971, or during calendar 1972 as the association may elect.

(2) If a loan is sold on or after January 1, 1972, any capitalized premium and/or any deferred acquisition credits or discount applicable to such loan as of the date of such sale shall be added to or deducted from (as appropriate) the book value of such loan and the profit or loss thereon shall be recognized as of such date. If a loan is paid in full on or after January 1, 1972, any capitalized premium and/or any deferred acquisition credits or discount applicable to such loan as of the date of such payment may be added to or deducted from (as appropriate) the book value of such loan and the profit or loss thereon may be recognized as of such date.

(f) Sale of real estate owned. When an insured institution sells real estate owned by it, such institution's records shall disclose the book value of such real estate at the time of such sale and the price at which it was sold. If such sale results in a loss, such loss shall be charged to expense, reserves, undivided profits, or surplus during the accounting period

in which such loss was sustained. If such sale results in a profit, such part of the profit as is not received by the institution in cash at the time of sale shall be deferred and credited to an account descriptive of unearned profit on real estate sold; thereafter such unearned profit shall be deemed to have been realized to no greater extent than is equivalent to the reduction of the unpaid balance of the sale contract or purchase money mortgage, unless it is an insured loan or a guaranteed loan, in which case profit may be realized at the time of such sale. In the event that real estate sold is reacquired by the institution as a result of cancellation of the contract, foreclosure, or conveyance of title to the institution, the book value of the reacquired real estate at such time shall not exceed an amount equal to the unpaid balance of the contract or loan after deduction of unearned profit, if any, remaining deferred at the time of reacquisition by an insured institution of any real estate.

(g) Definitions. For the purpose of this section:

(1) The term "mortgage loan" means any loan or contract (including any participation interest therein) on the security of real estate;

(2) The term "amount of the loan" means the face amount of the obligation executed by the primary obligor on a mortgage loan, except that with respect to a mortgage loan acquired by an insured institution such term means the principal balance of such loan at the time of its acquisition by such institution;

(3) The term "acquisition credits" means any consideration, other than the average interest provided by the loan contract, received by an insured institution for or in connection with the acquisition, making, refinancing, or modification of a mortgage loan plus any consideration received for making a loan commitment, whether or not an actual loan follows such commitment; the term does not include

(1) Any amounts received and paid out by an insured institution to a third party (not an affiliate) for itemized initial charges in connection with the mortgage loan transaction, or

(1) Any escrow fee received by an insured institution in connection with a sale which involves a related mortgage loan made by it, if the following requirements are met:

(a) The fee is based on the escrow services actually performed and is com

parable in amount to the fee (for performing similar escrow services) charged by other escrow agents located in the institution's normal lending territory;

(b) The borrower is informed of his freedom of choice in selecting a competent escrow agent to perform the escrow services; and

(c) The related mortgage loan is not a refinancing or modification of an existing loan held by the institution and made to the same borrower or to an affiliate of such borrower.

(4) The term "acquisition credit subject to deferral" means the amount of an acquisition credit in excess of (i) The greater of: (a) Fifty dollars, or

(b) Two percent of the amount of the loan, if the loan or commitment is for the purpose of construction, or

(c) One percent of the amount of the loan, if the loan or commitment is for any other purpose; plus

(ii) Two hundred dollars, if, with respect to the loan, the insured institution uses its own employees to perform appraisal services or to perform attorney or closing functions for which no escrow fee is received.

In addition to the amounts which may be taken into current income under the foregoing provisions of this paragraph (g) (4), a nonrefundable fee received in cash as consideration for and at the time of execution of a bona fide forward loan commitment contract may be taken into current income, at the time of its receipt, in the following amount: one percent of such a loan commitment which will be outstanding for a 6 to 12 month term prior to the closing of the loan; one and one-half percent of a loan commitment which will be outstanding for a 12 to 18 month term prior to the closing of the loan; or two percent of a loan commitment which will be outstanding for a term exceeding 18 months prior to the closing of the loan. If a loan upon which there is such a loan commitment contract is closed prior to the expiration of its contract term, the institution by appropriate accounting entries shall remove from current income and credit to an account descriptive of deferred income an appropriate amount (based on the foregoing formula) of the fee previously received and recorded as provided in the preceding sentence. Insured institutions shall keep records of

forward loan commitment contracts and fees for such commitments which are received by it and are (1) taken into current income or (2) credited to deferred income.

(5) The term “acquisition charges" includes finder's fee, buying commission, attorney's fee, and brokerage fee paid by an insured institution in connection with the making or acquisition of a mortgage loan or commitment, but does not include a premium paid by such institution in connection with the purchase of a mortgage loan;

(6) The term "affiliate" means any person or company which controls, is controlled by, or is under common control with an insured institution within the meaning of paragraph (a)(3) of section 408 of the National Housing Act, as amended;

(7) The term "book value" means the total amount invested in real estate less any related depreciation allowances or valuation reserves;

(8) The term "loss" means the amount by which the unpaid principal balance of a loan (net of unamortized discount) or the book value of real estate owned at the time such loan or real estate is sold, exceeds the sale price of such loan or real estate.

(9) The term "profit" means the amount by which the sale price of a loan or real estate owned, at the time such loan or real estate is sold, exceeds the unpaid principal balance of such loan (net of unamortized discount) or the book value of such real estate.

(10) The term "approved method" means any one of the following methods for computing amortization of capitalized premium or recognition of deferred income:

(1) "Straight-line" method, as described in § 1.167(b)-1 of the Federal Income Tax Regulations (26 CFR 1.167 (b)-1);

(ii) "Sum of the years-digits" method, as described in § 1.167(b)-3 of the Federal Income Tax Regulations (26 CFR 1.167(b)-3); and

(iii) "Level-yield" or "interest" method, by which income is debited or credited so as to yield, throughout the amortization period, a uniform rate of return on the investment after discount or premium.

[33 F.R. 11744, Aug. 20, 1968, as amended at 87 F.R. 524, Jan. 13, 1972; 37 F.R. 3508, Feb. 17, 1972; 37 FR 28608, Dec 28, 1972; 39 FR 1746, Jan. 14, 1974]

§ 563.23-2 Accounting for gains and losses with respect to transactions in securities.

(a) Recognition of gains and losses. Except as hereinafter provided, gains and losses (net of related taxes) resulting from the disposition of securities shall be recognized on an insured institution's books at the time realized. However, an insured institution may elect to defer and amortize all gains and losses (net of related taxes) resulting from the disposition, on or prior to December 31, 1971, of any securities, if such disposition is part of a plan adopted for the purpose of meeting the liquidity requirements contained in Part 523 of this chapter. Such election, once made, shall be consistently followed with respect to all transactions in securities entered into for liquidity purposes during the period beginning on December 22, 1969, and ending December 31, 1971, and with respect to all related reinvestment transactions entered into thereafter.

(b) Making of election to defer gains and losses. The election referred to in paragraph (a) of this section shall be made by the insured institution's board of directors in a resolution specifically referring to the provisions of this section.

(c) Deferral and amortization of gains and losses. An insured institution which elects to defer and amortize gains and losses on the disposition of securities as provided in paragraph (a) of this section shall account for such gains and losses as follows:

(1) Gains shall be deferred by a credit to an account descriptive of deferred profit; losses shall be deferred by a debit to an account descriptive of deferred losses. Gains and losses so deferred shall thereafter be credited or debited, as appropriate, to an account descriptive of income from the related securities, at least quarterly, in equal amounts over a period not in excess of the lesser of (1) the period ending on the maturity date of the security disposed of or (ii) 10 years. For convenience, deferred balances may be grouped by average remaining period of amortization.

(2) Where an amount has been deferred and the security acquired in the transaction is subsequently disposed of in a transaction which results in a reduction, for a period in excess of 45 days, of the total amount of securities held for liquidity purposes, any gain or loss resulting from such transaction shall be recognized, and the related unamortized