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association shall subscribe to class B stock in the bank of the district in the amount so allotted to it. One-third of the purchase price of such stock subscription shall be paid at the time of such subscription, onethird shall be paid within one year after January 1, 1957, and the balance shall be paid within two years after January 1, 1957. Such class B stock shall be issued as payments therefor are made. Any production credit association chartered after January 1, 1957 shall thereupon purchase class B stock in the bank in the amount of $5,000, and such amount shall be adjusted at the end of five years thereafter to an amount determined by applying to its average indebtedness to the bank during such five-year period the same percentage as the percentage which the initial subscriptions of other production credit associations was of their indebtedness, as provided in this subsection: Provided, That this provision shall not apply to any association owning stock in the bank in such required amount as a result of merger, consolidation, or reorganization of one or more associations. After all class A stock has been retired, the bank may retire class B stock at par and participation certificates at a face amount under policies established by the Farm Credit Administration. Class B stock and participation certificates shall be retired without preference and in such manner that the oldest outstanding stock or certificates at any given time will be retired first. In case of liquidation or dissolution of any production credit association or other financing institution, the stock or participation certificates of the bank owned by such association or institution may be retired by the bank at the fair book value thereof, not exceeding par or face amount, as the case may be.

(b) Each Federal intermediate credit bank shall have a first lien on all stock in the bank owned by each production credit association and on all participation certificates owned by other financing institutions as additional collateral for any indebtedness of the holders thereof to the bank: Provided, That the bank shall make no loan or advance on the security of its own stock or participation certificates. In any case where the debt of a production credit association or other financing institution is in default, the bank may retire and cancel all or a part of the stock of the bank held by the association or of the participation certificates held by the other financing institution at the fair book value thereof, not exceeding par or face amount, as the case may be, in total or partial liquidation of the debt. (July 17, 1916, ch. 245, title II, § 205, as added Mar. 4, 1923, ch. 252, title I, § 2, 42 Stat. 1457, and amended May 19, 1932, ch. 191, § 2,47 Stat. 159; Ex. Ord. No. 6084, Mar. 27, 1933; Jan. 31, 1934, ch. 7, § 15 (b), (c), 48 Stat. 348; July 26, 1956, ch.741, title I, § 102,70 Stat. 660.)

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Application of Earnings

12 U. S. C. $ 1072

F. F. L. Act $ 206

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Net earnings-al Determination; annual
application; surplus account; absorption of net loss

At the end of its fiscal year, each Federal intermediate credit bank shall determine the amount of its net earnings after paying or providing for all operating expenses (including reasonable valuation reserves and losses in excess of any such applicable reserves) and shall apply such net earnings as follows: (1) To the restoration of the amount of the impairment, if any, of capital stock and participation certificates as determined by its board of directors; (2) to the restoration of the amount of the impairment, if any, of the surplus account established by this subsection, as determined by its board of directors; (3) 25 per centum of any remaining earnings shall be used to create and maintain a reserve account equal to 25 per centum of the outstanding capital stock and participation certificates of the bank; (4) if said bank shall have outstanding capital stock held by the United States during the whole or any part of its fiscal year, it shall next pay to the United States as a franchise tax, a sum equal to 25

per centum of its earnings then remaining, not exceeding, however, a rate of return on such Government capital calculated at a rate equal to the computed average annual rate of interest on all public issues of public debt obligations of the United States issued during the fiscal year of the United States Treasury ending next before such tax is due, as certified to the Farm Credit Administration by the Secretary of the Treasury; (5) dividends on class B stock and participation certificates may be declared as provided in section 1061 (a) of this title; and (6) any remaining net earnings shall be distributed as patronage refunds as provided in subsection (b) of this section. Notwithstanding the provisions of item (3) of this subsection, if at the end of any fiscal year the sum of the surplus and the reserve account of any bank is less than its outstanding capital stock and participation certificates, the bank shall continue to apply such 25 per centum of its net earnings to the reserve account until the sum of the surplus and the reserve account is equal to its outstanding capital stock and participation certificates. Each bank shall, on January 1, 1957, establish a surplus account consisting of its earned surplus account, its reserve for contingencies, and the surplus of the production credit corporation transferred to the bank. No part of such surplus of any bank shall be distributed as patronage refunds or as dividends. In the event of a net loss in any fiscal year after providing for all operating expenses (including reasonable valuation reserves and losses in excess of any such applicable reserves), such loss shall be absorbed by: first, charges to the reserve account; second, charges to surplus

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other than that transferred from the production credit corporation of the district; third, charges to surplus transferred from the production credit corporation of the district; fourth, the impairment of class B stock and participation certificates; and fifth, the impairment of class A stock.

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(b) Patronage refunds; exemption from Federal income taxes; restrictions on payment

Whenever at the end of its fiscal year a Federal intermediate credit bank has class A stock outstanding, patronage refunds declared for that year shall be paid in class B stock to production credit associations and in participation certificates to other financing institutions borrowing from or rediscounting with the bank during the fiscal year for which such refunds are declared. The recipients of such patronage refunds shall not be subject to Federal income taxes thereon. Whenever at the end of its fiscal year a Federal intermediate credit bank has no class A stock outstanding, patronage refunds declared for that year may be paid in such class B stock and participation certificates or in cash as determined by the bank. All patronage refunds shall be paid in the proportion that the amount of interest earned by the bank on its loans to and discounts for each production credit association or other financing institution bears to the total interest earned by the bank on all such loans and discounts outstanding during the fiscal year. Each participation certificate issued in payment of patronage refunds shall be in multiples of $5 and shall state on its face the rights, privileges, and conditions applicable thereto. Patronage refunds shall not be paid to any other Federal intermediate credit bank, or to any Federal land bank or bank for cooperatives. (c) Distribution of assets on liquidation or dissolution

In the case of liquidation or dissolution of any Federal intermediate credit bank, after payment or retirement, as the case may be, first, of all liabilities; second, of all class A stock at par; third, of all class B stock at par and all participation certificates at face amount; any remaining assets of the bank shall be distributed as provided in this subsection. Any of the surplus established pursuant to subsection (a) of this section (excluding that transferred from the production credit corporation of the district) which the Farm Credit Administration determines was contributed by financing institutions, other than the production credit associations, rediscounting with or borrowing from the bank on January 1, 1957 shall be paid to such institutions, or their successors in interest as determined by the Farm Credit Administration, and the remaining portion of such surplus (including that transferred from the

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production credit corporation of the district) shall be paid to the holders
of class A and class B stock pro rata. The contribution of each such
financing institution under the preceding sentence shall be computed
on the basis of the ratio of its patronage to the total patronage of the
bank from the date of organization of the bank to January 1, 1957.
Any assets of the bank then remaining shall be distributed to the holders
of class B stock and the holders of participation certificates pro rata.
(July 17, 1916, ch. 245, $ 206, as added Mar. 4, 1923, ch. 252, § 2,
42 Stat. 1457, and amended Mar. 4, 1925, ch. 524, § 1, 43 Stat. 1262;
May 19, 1932, ch. 191, § 3, 47 Stat. 1459; Aug. 19, 1937, ch.
704, § 30, 50 Stat. 715; July 26, 1956, ch. 741, title I, § 103, 70
Stat. 662.)

Section 202 (b) of act July 26, 1956, provided that: "For purposes of applying
the amendment in section 103 of this Act (amending this section), that part of the
fiscal year 1957 preceding the effective date of this Act (January 1, 1957] shall be
deemed to be a separate fiscal year.”

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Liability on Debentures or Other Such Obligations

12 U. S. C. $ 1081

F. F. L. Act § 207

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Liability of one bank for debentures issued
by other banks; agreements by banks for
transfer of funds for debenture payments

Any Federal intermediate credit bank issuing debentures or other
such obligations under this subchapter shall be primarily liable therefor,
and shall also be liable, upon presentation of the coupons for interest
payments due upon any such debentures or obligations issued by any
other Federal intermediate credit bank and remaining unpaid in con-
sequence of the default of the other Federal intermediate credit bank.
Any Federal intermediate credit bank shall likewise be liable for such
portion of the principal of debentures or obligations so issued as are
not paid after the assets of such other Federal intermediate credit bank
have been liquidated and distributed. Such losses, if any, either of
interest or of principal, shall be assessed by the Farm Credit Admin-
istration against solvent Federal intermediate credit banks liable therefor
in proportion to the amount of capital stock, surplus, and debentures
or other such obligations which each may have outstanding at the time
of such assessment. Every Federal intermediate credit bank shall, by
appropriate action of its board of directors duly recorded in its minutes,
obligate itself to become liable on debentures and other such obligations
as provided in this section: Provided, That in view of the liability of all
Federal intermediate credit banks for the debentures and other such
obligations of each bank under this chapter, the banks shall, in accord-

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ance with rules, regulations, and orders of the Farm Credit Administration, enter into adequate agreements and arrangements among themselves by which funds shall be transferred and/or made available from time to time for the payment of all such debentures and other such obligations and the interest thereon when due in accordance with the terms thereof. (July 17, 1916, ch. 245, title II, § 207, as added Mar. 4, 1923, ch. 252, title I, § 2,42 Stat. 1458, and amended May 19, 1932, ch. 191, $ 4, 47 Stat. 159; Ex. Ord. No. 6084, Mar. 27, 1933.)

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Examinations and Reports

12 U. S. C. $ 1091

F. F. L. Act $ 208 (a)

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Reports of condition of banks and other lending institutions rediscounting with credit banks; examinations and audits of credit banks

In order to enable each Federal intermediate credit bank to carry out the purpose of this subchapter, the Comptroller of the Currency is authorized and directed, upon the request of any Federal intermediate credit bank, (1) to furnish for the confidential use of such bank such reports, records, and other information as he may have available relating to the financial condition of national banks through or for which the Federal intermediate credit bank has made or contemplates making discounts, and (2) to make through his examiners, for the confidential use of the Federal intermediate credit bank, examinations of organizations through or for which the Federal intermediate credit bank has made or contemplates making discounts or loans: Provided, That no such examination shall be made without the consent of such organization except where such examination is required by law: Provided, That any organization, except State banks, trust companies, and savings associations, shall, as a condition precedent to securing rediscount privileges with the Federal intermediate credit bank of its district, file with such bank its written consent to its examination as may be directed by the Farm Credit Administration by farm credit examiners; and State banks, trust companies, and savings associations may be in like manner required to file their written consent that reports of their examination by constituted authorities may be furnished by such authorities upon request to the Federal intermediate credit bank of their district. Each Federal intermediate credit bank shall be examined and audited at least once each year by the Farm Credit Administration, and the results of such examination and audit shall be made public by the administration. (July 17, 1916, ch. 245, title II, § 208 (a), as added Mar. 4, 1923, ch. 252, title I, § 2, 42 Stat. 1458, and amended Ex. Ord. No. 6084, Mar. 27, 1933; Aug. 19, 1937, ch. 704, § 20, 50 Stat. 710.)

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