KRS 136.515: Net capital determination -- Effect of changes in identity, form, or place of

organization -- Effect of combination of financial institutions.

(1) Net capital shall be determined by adding the value determined under subsection (2)

of this section for the current taxable and preceding four (4) calendar years and

dividing the resulting sum by five (5). If a financial institution has not been in

existence for a period of five (5) calendar years, net capital shall be determined by

adding together the value s determined under subsection (2) of this section for the

number of calendar years the financial institution has been in existence and dividing

the resulting sum by the number of years the financial institution has been in

existence. For purposes of this section, a partial year shall be treated as a full year.

(2) (a) The value of net capital for each year for purposes of subsection (1) of this

section shall be determined by:

1. Adding together the book value of:

a. Capital stock paid in;

b. Surplus;

c. Undivided profits and capital reserves;

d. Net unrealized holding gains or losses on available for sale

securities; and

e. Cumulative foreign currency translation adjustments; and

2. Deducting from the total determined under subparagraph 1. of this

subsection an amount equal to the same percentage of the total as the

book value of United States obligations and Kentucky obligations bears

to the book value of the total assets of the financial institution.

(b) For purposes of this subsection, net capital shall in clude equity related to

investment in subsidiaries.

(c) For purposes of this subsection, except as provided in paragraphs (d) and (e)

of this subsection, the foregoing book values and deductions for United States

obligations and Kentucky obligations for each year shall be determined by the

reports of condition for each quarter filed in accordance with the requirements

of the Board of Governors of the Federal Reserve System, the Comptroller of

the Currency, the Federal Deposit Insurance Corporation, or other applicable

regulatory authority. Book values shall be c alculated by averaging the

quarterly book values as determined by the reports of condition.

(d) For any year in which a financial institution does not file four (4) quarterly

reports of condition, book values and deductions for United States obligations

and Kentucky obligations shall be determined by adding together the

respective book values and deductions for United States obligations and

Kentucky obligations as determined by each quarterly report of condition filed

for the year and the respective book va lues and deductions for United States

obligations and Kentucky obligations determined in accordance with generally

accepted accounting principles as of the end of each of the remaining quarters

and dividing the resulting sums by four (4).

(e) For any calendar year in which a financial institution ceases to be in existence

for four (4) quarters, other than by combination with another financial

institution, the book value for that year shall be determined by adding together

the book values and deductions for United States obligations and Kentucky

obligations for each quarter in which the financial institution was in existence

and dividing the sums by four (4).

(f) In the case of a financial institution which does not file reports of condition,

book values shal l be determined in accordance with generally accepted

accounting principles.

(3) For purposes of this section:

(a) A change in identity, form, or place of organization of one (1) financial

institution shall be treated as if a single financial institution h ad been in

existence prior to as well as after the change;

(b) The combination of two (2) or more financial institutions into one (1) shall be

treated as if the constituent financial institutions had been a single financial

institution in existence prior t o as well as after the combination, and the book

values and deductions for United States obligations and Kentucky obligations

from the reports of condition of the constituent institutions shall be combined.

A combination shall include any acquisition requi red to be accounted for by

the surviving financial institution under the pooling of interest method in

accordance with generally -accepted accounting principles or a statutory

merger or consolidation; and

(c) 1. The combination of one (1) or more financial institutions and one (1) or

more savings and loan associations taxable under KRS 136.300 into a

single financial institution shall be treated for the taxable year in which

the combination occurred as if the single financial institution had been in

existence prior to as well as after the combination, and the book values

and deductions for United States obligations and Kentucky obligations

from the reports of condition of the financial institution and the reports

to the federal regulatory agency which are the equivalent of reports of

condition for a savings and loan association shall be combined.

2. The conversion of a savings and loan association taxable under KRS

136.300 into a financial institution shall be treated for the taxable year in

which the conversion occurred as if the savings and loan association had

been a financial institution prior to as well as after the conversion, and

the book values and deductions for United States obligations and

Kentucky obligations from the reports to the federal regulato ry agency

which are the equivalent of reports of condition for a savings and loan

association shall be used.

3. The savings and loan association shall not be relieved of the

responsibilities of filing and paying tax under KRS 136.300 for taxable

years prior to the year of any combination or conversion.

4. Notwithstanding any other provision of KRS 136.500 to 136.575, the

financial institution resulting from a combination with or conversion of

a saving and loan association shall receive a credit on the bank franchise

tax return equal to the amount of tax paid under KRS 136.300 for the

assessment date occurring within the taxable year during which the

combination or conversion takes place for bank franchise tax purposes.