Mo. Code Regs. tit. 20 § 1140-2.110

Current through Register Vol. 49, No. 24, December 16, 2024

Section 20 CSR 1140-2.110 - Management and Other Fees Paid by State-Chartered Banks

PURPOSE: This rule formalizes the policy of the Division of Finance toward bonuses, management fees, consultant's fees and other fees paid by state-chartered banks to officers, directors, shareholders or their related interests which do not provide commensurate services. This rule is not intended to establish salary policy for active salaried officers.

(1) Payments of bonuses, other than to fulltime salaried employees, management fees, consultant's fees and other fees which bear little or no relationship to the type, level, quality or value of services received, when paid to officers, directors, shareholders or their related interest are unsafe and unsound as they can result in dissipation of earnings and capital, have adverse effects on the financial interests of minority shareholders and, in some cases, may result in a finding by the Internal Revenue Service or preferential dividends with the bank being held liable for additional income taxes.

(2) The cash-flow requirements of the stock holder, whether to service the acquisition debt or otherwise, may not be considered in establishing management fees, consultant's fees or other fees. These cash-flows, instead, should be generated from outside sources or from a prudent dividend policy which must be consistent with the bank's need for an adequate capital structure.

(3) Management fees, consultant's fees and other fees paid by state-chartered banks must be based on and bear a direct relationship to the fair market value of the services received. The bank may purchase and pay for only the services that meet the legitimate needs of the bank. The provider must possess the necessary expertise to deliver the services. The provider may recover overhead costs to the extent that the costs represent a legitimate and integral part of the services provided.

(4) State-chartered banks which pay management and consultant fees to insiders or related interests will be required to maintain permanent records in sufficient detail to indicate to the directors and bank examiners the specific services which were performed and the basis upon which the costs were assessed. State bank examiners will review all these fees to identify instances where they are excessive. In those cases where the fees are not properly documented, where the amounts cannot be justified, or both, it will be the responsibility of the directors to obtain appropriate documentation or to seek reimbursement.

(5) Banks in chain banking organizations or owned by multibank holding companies frequently pay management fees, consulting fees or other fees to insiders and their interests on a pro rata basis. However, the pro rata method is not an appropriate method of allocation in all cases. To assist in allocating these fees, this rule includes a list of some of the more common types of services which may be rendered. Opposite each of these services is a classification indicating how the expense normally should be billed. These guidelines are not absolutes but deviations will be reviewed on a case-by-case basis for compliance with the intention of this rule.

Classification of Holding Company Expenses
Service Provided E	xpense Classification
Electronic data processing	Individual subsidiary billing
Corporate audit	Individual subsidiary billing
Loan review	Individual subsidiary billing
Mergers and establishment of branches (including site planning)	Individual subsidiary billing
Tax preparation other than consolidated returns	Individual subsidiary billing
Corporate tax plan and consolidated returns	Pro rata basis
Personnel operations- training, evaluation and compensation	Individual subsidiary billing
Holding company executive management and staff salaries and wages	Pro rata basis
Regulatory relations and planning	Pro rata basis
General legal services	Pro rata basis
Specific legal service (lawsuits, court proceedings, administrative hearings, briefs, opinions)	Individual subsidiary billing
Marketing operations- research	Pro rata basis
Marketing development and advertising programs-general	Pro rata basis
Marketing development and advertising programs-specific (for example, de novo bank)	Individual subsidiary billing
Security measures and procedures	Individual subsidiary billing
Investment advice	Individual subsidiary billing
Money desk operations	Individual subsidiary billing
Holding company occupancy costs	Pro rata basis

20 CSR 1140-2.110

AUTHORITY: section 361.105, RSMo 1986.* This rule originally filed as 4 CSR 140-2.110. Original rule filed Aug. 15, 1983, effective Nov. 11, 1983. Moved to 20 CSR 1140-2.110, effective Aug. 28, 2006.

*Original authority: 361.105, RSMo 1967.