Mergers, Transfers of Assets and Liabilities, and Other Combinations Involving Savings Associations and Other Depository Institutions
Federal RegisterAug 30, 1994
Ask Donna
What actually matters in this document.
Text
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 506, 546, 552, 563, 571, 574 and 575
[No. 94-76]
RIN 1550-AA47
Mergers, Transfers of Assets and Liabilities, and Other
Combinations Involving Savings Associations and Other Depository
Institutions
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of Thrift Supervision (OTS) is amending its
regulations governing mergers and combinations involving Federal
savings associations to implement sections 501 and 502 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). In
general, the FDICIA amendments to the Federal Deposit Insurance Act
(FDIA) and to the Home Owners' Loan Act (HOLA) ease previous
restrictions on conversion transactions, and authorize Federally-
chartered savings associations to acquire and be acquired by other
depository institutions insured by the Federal Deposit Insurance
Corporation (FDIC), subject to specified conditions.
The OTS is amending and further broadening its regulations to
authorize combinations involving Federal stock savings associations and
depository institutions that are not insured by the FDIC. The OTS also
is amending its regulations to authorize Federal mutual savings
associations to combine with other types of depository institutions
provided that the transaction results in a mutual savings association.
In addition, the OTS is amending its regulations governing mergers
and application procedures to: specify the types of transactions that
require only an information filing with the OTS; specify the types of
transactions that require OTS approval of a notice or application, and
the related time frames, and further clarify and consolidate OTS
regulations by incorporating the OTS's merger and transfer of assets
policy statement into a single regulation.
EFFECTIVE DATE: September 29, 1994.
FOR FURTHER INFORMATION CONTACT: Kevin A. Corcoran, Assistant Chief
Counsel, (202) 906-6962, Corporate and Securities Division; Therese L.
Monahan, Project Manager, Supervisory Programs, (202) 906-5740; or Gary
Masters, Financial Analyst, Corporate Activities Division, (202) 906-
6729; Office of Thrift Supervision, 1700 G Street, NW., Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
I. Background and Summary of Proposal
On August 18, 1992, the OTS issued notice of a proposal to amend
the agency's regulations governing mergers and other combinations to
permit mergers, consolidations and transfer of asset and assumption of
liability transactions among savings associations and other FDIC-
insured depository institutions in accordance with sections 501 and 502
of the FDICIA.\1\ In addition, the OTS proposed changes to its
regulations to allow Federal savings associations to convert directly
to state and national banks (while retaining Savings Association
Insurance Fund (SAIF) deposit insurance) in a so-called ``Sasser
conversion,''\2\ and to permit any FDIC-insured depository institution
that qualifies for Federal Home Loan Bank membership to convert to a
Federal savings association charter. The proposal also specified the
types of transactions that would require either prior notice or
application to the OTS, and the time frames governing review of these
filings. The proposal did not include amendments to the merger
regulations involving mutual savings associations. However, specific
comments were requested as to whether mutual savings associations
should be permitted to merge directly with banks without first
undergoing a mutual-to stock conversion and what safeguards would be
necessary for such transactions.
---------------------------------------------------------------------------
\1\57 FR 37112-37118 (August 18, 1992).
\2\Section 5(d)(2)(G) of the FDIA, 12 U.S.C. 1815(d)(2)(G).
---------------------------------------------------------------------------
Finally, the OTS proposed to streamline and consolidate its
regulations by, among other things, eliminating unnecessary portions of
the OTS's merger and transfer of assets policy statement and
incorporating the remainder in a better organized fashion into the
revised section 563.22.
The OTS solicited public comments on all aspects of the proposal
for a 30-day period. Upon consideration of all the comments received
during the comment period, the OTS is adopting the proposal with some
modifications, discussed below.
II. Summary of Comments
The OTS received 10 comment letters in response to the proposal,
including four from savings banks, two from savings and loan holding
companies, two from trade associations representing financial
institutions, one from a law firm representing financial institutions
and one from the Federal Housing Finance Board (FHFB). The OTS has
carefully considered all of the comments received during the comment
period. In addition, the OTS has reviewed the rulemakings of other
Federal banking agencies on related subjects, and has sought, to the
maximum extent possible, to adopt consistent provisions. The following
is a discussion of the issues raised by the commenters.
A. Mandatory Federal Home Loan Bank Membership for Converting Savings
Associations
As noted in the proposal, section 5(f) of the HOLA requires Federal
Home Loan Bank (FHLBank) membership for all Federal savings
associations, and FHLBank membership was consistently required of
state-chartered savings associations by the Federal Savings and Loan
Insurance Corporation as a condition of deposit insurance. In addition,
after enactment of the FIRREA, the OTS required resulting banks in
thrift-to-bank charter conversions and Oakar transactions\3\ in which
no savings association survived the transaction to continue to hold the
former savings association's FHLBank stock in accordance with the
requirements of the FHFB. Each commenter that addressed this issue
objected to any regulation that would continue this requirement.
---------------------------------------------------------------------------
\3\As used herein, an ``Oakar'' transaction refers to a
combination between a savings association and a bank that is
excepted from the moratorium on deposit insurance fund conversion
set forth at section 5(d)(2)(A)(ii) of the FDIA by virtue of section
5(d)(3) of the FDIA. See 12 U.S.C. 1815(d)(2)(A)(ii) and 1815(d)(3).
---------------------------------------------------------------------------
Since publication of the proposal, the FHFB advised the OTS that it
will not require a savings association that has converted to a bank
charter to retain membership in the FHLBank system, nor will the FHFB
require a non-FHLBank system member that has acquired some or all of
the assets of a savings association to become a member of the FHLBank
system. In light of the FHFB's views on this issue, the OTS advised the
FHFB on November 20, 1992 that the OTS was discontinuing its practice
of imposing the condition that such institutions retain FHLBank stock.
In addition, the OTS advised the FHFB that in prior cases where the
FHLBank stock condition was imposed, the OTS would not object if a bank
seeks to redeem its FHLBank stock and terminate its FHLBank membership.
In March 1993, the OTS reiterated these positions in promulgating a
final regulation that will remove, in 1995, the regulatory requirement
that state-chartered savings associations have and maintain FHLBank
membership.\4\ Accordingly, the final rule does not require FHLBank
membership of resulting institutions in the context of thrift-to-bank
mergers and charter conversions.
---------------------------------------------------------------------------
\4\58 FR 14510, 14513 (March 18, 1993). See 12 CFR 563.49.
---------------------------------------------------------------------------
B. Issues Regarding Mutual Savings Associations
Current OTS regulations generally provide that merger transactions
involving Federal mutual savings associations must result in a mutual
form of savings association, unless the mutual institution converts to
a stock savings association as part of the transaction.\5\ The proposal
did not set forth any amendments to these regulations, but did solicit
comment as to whether mutual savings associations should be permitted
to merge with banks or other institutions other than in conjunction
with a mutual-to-stock conversion, and if permitted, what safeguards
should be established with respect to these transactions.
---------------------------------------------------------------------------
\5\12 CFR 552.13(c)(1)(ii).
---------------------------------------------------------------------------
The comments addressing this issue unanimously opposed any
regulation that would permit Federal mutual savings associations to be
acquired by commercial banks or other stock-form institutions without a
prior or simultaneous mutual-to-stock conversion by the mutual savings
association. These commenters expressed the view that OTS regulations
adequately protect the interests of mutual accountholders\6\ and direct
acquisition resulting in a stock institution may jeopardize those
protections. They also noted that the FDICIA does not evidence any
intent to change the current treatment of combinations involving mutual
associations.
---------------------------------------------------------------------------
\6\The OTS has recently issued an interim final regulation, with
a request for comment, revising certain key provisions in its mutual
to stock conversion regulations. The amendments generally prohibit
merger conversions (i.e., where a mutual savings association
converts to stock form and simultaneously merges into another stock
form depository institution) except in certain supervisory
situations. In addition, OTS has proposed to add a ``convenience and
needs'' test to its standards for approving mutual to stock
conversions. See 59 FR 22725 (May 3, 1994) and 59 FR 22764 (May 3,
1994).
---------------------------------------------------------------------------
The OTS agrees with these comments and, accordingly, the final
regulations continue to prohibit Federal mutual associations from
combining with stock form institutions where the resulting institution
is not a mutual savings association, except in the context of a mutual
to stock conversion, and subject to other limited exceptions.
Nevertheless, as more fully described below, the OTS has determined
that Federal mutual savings associations may, in general, combine with
stock form institutions where the Federal mutual association is the
resulting association. The final rule includes revisions to 12 CFR
546.2 and 546.3 to effect these changes.
C. Review Period Under Section 10(s)(2) of the HOLA
The proposal solicited comment on processing procedures and time
frames, including whether applications subject to section 10(s)(2) of
the HOLA should be deemed ``filed'' when deemed complete under the
OTS's general application processing procedures in 12 CFR Part 516.
Under the proposal, the 60-day review time for these applications would
not commence until an application is reviewed by the OTS and deemed
complete under part 516.
Some commenters objected to the OTS's interpretation of the term
``filed'' in section 10(s) of the HOLA. These commenters suggested that
the review time frames for applications under section 10(s)(2) should
commence when an application is first submitted to the OTS, not when it
is deemed complete. One commenter supported the proposal, noting that
any regulation providing different ``filed'' dates for applications
under part 516 and section 10(s) of the HOLA would serve no purpose and
would create confusion.
As explained in more detail in Section III.D. below, the final rule
adopts the proposed application review time frames. To ensure uniform
treatment of all transactional applications, the OTS believes
applications subject to section 10(s)(2) of the HOLA should be
processed, to the extent possible, consistently with all applications
under part 516. Also, the processing time frames in the rule are
consistent with the procedures established by the Office of the
Comptroller of the Currency for conversion applications by national
banks under section 502(b) of the FDICIA.7
---------------------------------------------------------------------------
\7\ 12 U.S.C. 215c; see Comptroller of the Currency's Manual for
Corporate Activities, Vol. 1, Policies and Procedures (January
1992).
---------------------------------------------------------------------------
D. Community Reinvestment Act Issues
Comments were solicited on whether the OTS should have the ability
to suspend the processing time frames under section 10(s)(2) of the
HOLA for applications challenged on Community Reinvestment Act
(CRA)8 grounds.
---------------------------------------------------------------------------
\8\ Housing and Community Development Act of 1977, 12 U.S.C.
2901-2907.
---------------------------------------------------------------------------
Two commenters opposed any regulation that would permit suspension
of the review time frames for applications subject to section 10(s)(2)
of the HOLA.9 One of these commenters asserted that the OTS lacks
the authority to review an applicant's CRA compliance record where a
savings association acquires another insured depository institution in
an Oakar transaction under section 5(d)(3) of the FDIA.
---------------------------------------------------------------------------
\9\Two other commenters stated that any processing suspension
should be limited to one or two 30-day periods.
---------------------------------------------------------------------------
This commenter asserted that although section 5(d)(3) of the FDIA
requires the OTS to consider the factors set forth in section 18(c) of
the FDIA (the Bank Merger Act (BMA)) in acting upon an Oakar
transaction, the BMA is not itself applicable to such transactions.
Therefore, according to the commenter, an application to engage in an
Oakar transaction is not an ``application for a deposit facility''
within the meaning of the CRA, and the CRA requirement that the OTS
take an institution's CRA record into account in its evaluation of an
application for a deposit facility10 is not applicable.
---------------------------------------------------------------------------
\1\012 U.S.C. 2903.
---------------------------------------------------------------------------
We find the commenter's assertions to be unpersuasive. Section
5(d)(3) of the FDIA merely establishes an exception to the general
moratorium on insurance fund ``conversion transactions'' set forth at
section 5(d)(2)(A)(ii) of the FDIA. Section 5(d)(3) does not state that
Oakar transactions are excepted from all otherwise applicable approval
requirements, and the BMA itself includes no exception from its plain
language with respect to Oakar transactions. Moreover, the
authorization provided by section 10(s) of the HOLA is subject to
section 5(d)(3) of the FDIA and the BMA, and all other applicable laws.
The OTS, after further consideration of its applications processing
procedures, observes that the procedures in part 516 of the OTS's
regulations are intended to ensure that an application will not be
deemed complete until expiration of the public comment period and
resolution of any protests or other significant issues raised during
that period. Accordingly, any challenges to a transaction on CRA
grounds would be resolved prior to the commencement of the processing
time frames under section 10(s)(2) of the HOLA. The OTS has amended the
publication procedures for applications under Sec. 563.22(a) to ensure
that the public comment period has concluded before the OTS is required
to make a completeness determination regarding such applications.
E. Application Review Standards and Regulatory Streamlining
The OTS proposed to incorporate into revised Sec. 563.22 the
approval standards, definitional provisions and other provisions of the
OTS's merger and transfer of assets policy statement found at 12 CFR
571.5. The proposal requested comment on whether any of the standards
in Sec. 571.5 should be streamlined, clarified or otherwise modified or
deleted in connection with their incorporation into Sec. 563.22.
One commenter stated that some of the review criteria in Sec. 571.5
went beyond the standards applicable to transactions under sections
5(d)(3) of the FDIA and 10(s) of the HOLA, and therefore should not be
considered by the OTS in reviewing applications under these statutes.
Section 571.5 set forth not only the review standards for
transactions under sections 5(d)(3) and 18(c) of the FDIA and 10(s) of
the HOLA, but also general safety and soundness considerations
applicable to all transfer transactions and combinations involving
savings associations. Thus, the OTS believes it is appropriate to
retain these review criteria. However, certain of the detailed criteria
addressed in Sec. 571.5, for example those pertaining to retention of
attorneys and other professionals, tie-in transactions, and fees paid
in connection with transactions, are considered by OTS as part of the
overall evaluation of the managerial and financial resources and future
prospects of the savings associations involved in a combination or
transfer transaction. The OTS believes that the detail of certain
criteria is not necessary and that general standards are more
appropriate for an evaluation of the safety and soundness of a given
transaction. Accordingly, Sec. 563.22(d) of the final rule has been
revised to incorporate streamlined and consolidated review standards
derived from Sec. 571.5, and Sec. 571.5 has been deleted.
F. Other Issues
One commenter requested that the OTS clarify whether section
10(s)(3) of the HOLA (and Sec. 552.13(b)(1) as set forth in the
proposal) precludes transfer or consolidation transactions where a
resulting institution would own the shares of one or more constituent
institutions.
In OTS's view, section 10(s)(3) of the HOLA does not prohibit a
Federal savings association from acquiring the stock of another insured
depository institution and holding the other depository institution as
a subsidiary. Section 10(s) was designed to cure what had been viewed
as a statutory impediment to mergers or other combinations between a
savings association and other types of insured depository
institutions.11 Section 10(s) was not established to bar
transactions that are permissible under other, existing authority.
Moreover, neither the text of section 502 of FDICIA nor its legislative
history indicate that Congress intended section 10(s)(3) to override
any separate legal authority for such an acquisition.
---------------------------------------------------------------------------
\1\1The primary impediment was section 5(d)(3) of the HOLA,
which, in pertinent part, authorizes the OTS to provide for the
merger of savings associations with other savings associations, but
is silent as to whether savings associations could merge with other
types of depository institutions. For many years, the OTS, and its
predecessor, the Federal Home Loan Bank Board, viewed the lack of
express authorization for cross-industry mergers as, in effect, a
prohibition on such transactions.
---------------------------------------------------------------------------
Federal savings associations, therefore, may acquire the shares of
another insured depository institution and hold the acquired entity as
a subsidiary if the legal authority for the transaction derives from a
source other than section 10(s) of the HOLA. Such legal authority may
be found, for example, under the service corporation provisions of the
HOLA, and the OTS service corporation and operating subsidiary
regulations.12
---------------------------------------------------------------------------
\1\2 12 U.S.C. 1464(c)(4)(B); 12 CFR 545.74 and 545.81.
---------------------------------------------------------------------------
Accordingly, the final regulations provide that a Federal savings
association may ``combine'' with any depository institution (subject to
compliance with applicable statutes and regulations and certain other
provisions), and define the term ``combination'' as a ``merger or
consolidation with another depository institution, or an acquisition of
all or substantially all of the assets or assumption of all or
substantially all of the liabilities of a depository institution by
another depository institution.''
One commenter questioned the OTS's authority to require any filing
from a savings association proposing to convert to a bank charter or
merge or transfer all of its assets to a bank. This commenter also
questioned the necessity of any filing with the OTS in view of the
requirement under the BMA that the OTS be provided with a copy of the
application filed with the regulatory agency of the resulting
depository institution. The filing requirements in the regulations as
adopted enable the OTS, consistent with its broad responsibilities
under the HOLA and other statutes, to ensure safe and sound operation
of savings associations, identify any pending or potential supervisory
concerns or enforcement actions involving the savings associations that
are parties to the transaction, and, at a minimum, advise the
appropriate regulatory agency regarding these concerns. The procedures
are not contrary to any of the provisions of section 5(d) of the FDIA,
and, in fact, represent a significant simplification of long-standing
OTS application and approval requirements, which have been upheld by
the courts. See Home Mortgage Bank v. Ryan, 986 F.2d 372 (10th Cir.
1993).
One commenter suggested that the OTS shorten the review period for
applications submitted by savings associations, where the association
previously had sought expedited treatment, but the OTS had advised the
association that it was not eligible for expedited treatment. Under the
final rule, such applications will be processed under standard time
frames regardless of prior filings. However, to the extent a previously
filed notice provides the OTS with useful information regarding a
proposed transaction, it is likely that the OTS will be able to act on
a subsequent, properly filed application prior to expiration of the
full 60-day review period.
This same commenter inquired how the OTS would treat applications
filed under Sec. 563.22 that are awaiting OTS action at the effective
date of the amended regulation, and whether such applications would
need to be re-filed in accordance with the procedures adopted in the
final rule. The commenter also inquired about the treatment that would
be accorded applications that were approved but not consummated prior
to adoption of this rule.
Both pending applications and proposed transactions that are now
solely within the scope of new Sec. 563.22(b)(1) will be subject to the
new procedures upon the effective date of the amendments. Other
applications currently awaiting OTS action will continue to be subject
to the standards and procedures in effect at the time the applications
were filed. Previously approved transactions must be consummated in
accordance with the terms and conditions set forth in the OTS's
approval order.
Some commenters expressed confusion about the proposed application
and notice procedures. Many of these concerns are addressed in
technical and clarifying changes made throughout the final rule.
III. Summary of Revisions
As more fully discussed below, the final regulations implement
section 502 of the FDICIA by authorizing Federal stock associations to
combine with any FDIC-insured depository institution, and by
authorizing Federal mutual associations to combine with any FDIC-
insured depository institution, provided that a mutual association is
the resulting institution. In addition, the final regulations authorize
certain combinations involving Federal associations and depository
institutions not insured by the FDIC. The final regulations
specifically authorize Federal stock savings associations to convert to
state or national banks, and permit any stock-form depository
institution that is, or is eligible to become, a member of a Federal
Home Loan Bank, to convert to a Federal stock savings association
charter. Finally, the OTS is amending its regulations governing the
procedures regarding applications to engage in the above-described
actions, and has made various technical and conforming amendments.
A. Expansion of Permissible Combinations for Federal Stock Savings
Associations
The final rule revises 12 CFR 552.13(c) to permit Federal stock
savings associations to combine with any depository institution, upon
compliance with appropriate application or notice requirements,
described in Section III.D. below. The rule also establishes standards
for combinations, including standards that address compliance with the
asset composition requirements of section 5(c) of the HOLA and the
qualified thrift lender requirements of section 10(m) of the HOLA, when
a thrift acquires a bank. In addition, the regulation modifies and adds
definitions for terms used throughout amended sections 552.13 and
563.22 to implement the new provisions of the HOLA and the FDIA.
The final regulation differs from the proposal in certain respects.
The term ``acquire'' has been changed to ``combination,'' and expanded
to include combinations involving depository institutions not insured
by the FDIC. Also, the term ``combination'' has been clarified to
include purchase and assumption transactions that involve all or
substantially all of a depository institution's assets or liabilities,
rather than transactions of a lesser scope, such as branch sale
transactions. The definition of the term ``combination'' reflects the
OTS's position that the definition of the term ``acquire'' at section
10(s)(3) does not preclude a Federal savings association from holding
another insured depository institution as a subsidiary, pursuant to a
separate source of authority to do so.
Section 10(s)(1) of the HOLA states that Federal savings
associations may acquire or be acquired by any insured depository
institution, subject to sections 5(d)(3) and 18(c) of the FDIA, and all
other applicable laws. The OTS has concluded that the reference to
section 5(d)(3) of the FDIA does not mean that section 5(d)(3) must be
applicable in order for a combination transaction to be permissible.
The grant of authority in section 10(s)(1) of the HOLA to Federal
savings associations to acquire or be acquired by another insured
depository institution simply requires that any Federal savings
association that proposes such a transaction comply with all applicable
laws. Section 10(s)(1) was not intended to withhold from Federal
associations the authority to engage in transactions exempted from the
FIRREA moratorium on conversion transactions under other provisions of
the FDIA,\3\ or in transactions that are not subject to the moratorium
in the first place (for example, because the transaction involves two
SAIF-insured savings associations, or occurs after expiration of the
moratorium). The OTS has clarified the final regulation accordingly.
---------------------------------------------------------------------------
\13\See, e.g., Section 5(d)(2)(C) (ii) and (iii) of the FDIA, 12
U.S.C. 1815(d)(2)(C) (ii) and (iii).
---------------------------------------------------------------------------
The final regulation expands the categories of depository
institutions with which Federal stock associations have the power to
merge from only FDIC-insured depository institutions to any depository
institution. Federal stock associations have been authorized to acquire
or be acquired by non-FDIC insured depository institutions in purchase
and assumption transactions since 1985.\14\ The OTS has concluded that
continuing to require such transactions to be accomplished through
purchase and assumption transactions, rather than through merger
transactions elevates form over substance, and may impose unnecessary
expenses and complications on Federal stock associations that propose
to engage in transactions with uninsured depository institutions.
---------------------------------------------------------------------------
\14\See 50 FR 16071 (April 24, 1985).
---------------------------------------------------------------------------
Where a Federal stock association proposes to merge with an
uninsured depository institution, and the Federal stock association
would survive the transaction, the Federal stock association would be
required to seek approval from the FDIC under section 18(c)(1) of the
FDIA, as well as from the OTS under the transfer of assets regulations
at 12 CFR 563.22(c). If the Federal stock association is not the
resulting institution, the association must obtain OTS approval under
12 CFR 563.22(c), and provide any required notices to depositors, and
to the FDIC.
B. Combinations Involving Federal Mutual Associations
The OTS has retained the prohibition against Federal mutual
associations combining with stock form institutions where the resulting
institution is not a mutual savings association, except where the
mutual savings association converts to the stock form of organization
pursuant to 12 CFR Part 563b, and subject to other, limited,
exceptions.\15\
---------------------------------------------------------------------------
\15\The OTS's recent amendments to the conversion regulations
generally prohibit merger conversion transactions except in certain
supervisory situations. See 59 FR 22725, 22729-22730 (May 3, 1994).
---------------------------------------------------------------------------
The OTS notes, however, that the concerns regarding the protection
of mutual accountholders' interests in the acquisitions of Federal
mutual associations do not arise when the Federal mutual association is
the acquiring/surviving entity. Accordingly, the OTS is amending 12 CFR
546.2, governing mergers involving Federal mutual associations, to
permit Federal mutual associations to merge with FDIC-insured
depository institutions, as well as non-FDIC insured depository
institutions, where a mutual savings association is the resulting
entity. This treatment parallels the treatment of Federal stock
associations. These combinations also would be subject to the same
statutory and regulatory approval standards as apply to stock form
associations engaging in a comparable transaction, described above.
Section 546.2 has not previously addressed the ability of Federal
mutual associations to combine with other institutions in purchase and
assumption transactions. The OTS has amended Sec. 546.2 to provide
specific authority for Federal mutual associations to combine with
other entities in purchase and assumption transactions, subject to the
same limitations that apply in the case of merger transactions
involving Federal mutual associations.
The OTS has made technical and conforming amendments to 12 CFR part
546 in order to implement these revisions to Sec. 546.2.
C. Charter Conversions by and to Federal Savings Associations
The OTS is adding 12 CFR 552.2-7 to the Federal stock savings
association regulations, which specifically permits Federal stock
savings associations to convert to state or national banks in so-called
``Sasser'' conversions.\16\ New Sec. 552.2-7 provides that converting
savings associations must comply with the procedures set forth in new
Sec. 563.22(h)(1) or (h)(2)(ii) of the amended merger regulation, which
requires prior notification to or approval of the OTS in the manner
described in Section III.D. below.
---------------------------------------------------------------------------
\1\6The OTS regulations for Federal mutual savings associations
have not been amended to authorize specifically the conversion of
Federal mutual savings associations to state mutual savings banks,
because such conversions are specifically authorized under section
5(i)(3) of the HOLA. Federal mutual savings associations proposing
to convert to state mutual savings banks are required to notify the
OTS or obtain OTS approval as described in section III.D., below.
---------------------------------------------------------------------------
The OTS is amending 12 CFR 552.2-6 to permit, with prior OTS
approval, any stock-form depository institution that is, or is eligible
to become, a member of a Federal Home Loan Bank, to convert to a
Federal stock savings association charter. The depository institution,
at the time of the conversion, must have deposits insured by the FDIC.
In addition, the depository institution, in accomplishing the
conversion, must comply with all applicable statutes and regulations,
including, without limitation, the insurance fund conversion moratorium
provisions set forth at section 5(d) of the FDIA.
The OTS has broad legal authority with respect to Federal savings
associations under section 5(a) of the HOLA, which authorizes the
Director of the OTS, under such regulations as the Director may
prescribe, to, inter alia, provide for the organization, incorporation,
examination, operation, and regulation of Federal savings associations.
Section 5(a) of the HOLA provides the OTS with plenary authority over
Federal savings associations, and, as the Supreme Court has noted, it
would be difficult for Congress to give a broader mandate.17
---------------------------------------------------------------------------
\1\7See Fidelity Federal Savings and Loan Association v. de la
Cuesta, 458 U.S. 141, 161 (1982) (scope of authority of the Federal
Home Loan Bank Board, the predecessor agency to the OTS).
---------------------------------------------------------------------------
The OTS notes that section 5(i)(1) of the HOLA provides specific
authorization for ``[a]ny savings association which is, or is eligible
to become, a member of a Federal home loan bank'' to ``convert into a
Federal savings association,'' subject to such regulations as the
Director may prescribe. Immediately prior to the enactment of FIRREA,
section 5(i)(1) of the HOLA permitted any ``institution'' which is, or
is eligible to become, a member of a Federal home loan bank to convert
to a Federal savings and loan association or Federal savings bank,
subject to the regulations of the FHLBB.
FIRREA revised the language of section 5(i)(1) of the HOLA from any
``institution'' which is, or is eligible to become, a member of a
Federal home loan bank, to any ``savings association'' that met such
criteria. However, the OTS's review of the legislative history of
FIRREA has revealed no intent on the part of Congress in the FIRREA to
limit the types of depository institutions that may convert to a
Federal savings association charter. Instead, it appears that the
change in the ``institution'' terminology in section 5(i)(1) of the
HOLA was inadvertent, and occurred when the term ``insured
institution,'' occurring throughout the HOLA, was changed in FIRREA to
``savings association.'' Accordingly, the use of the OTS's authority
under section 5(a) of the HOLA to broaden the class of depository
institutions that are eligible for a Federal charter is not
inconsistent with the FIRREA amendments to section 5(i)(1) of the HOLA.
New section 552.2-6 enables commercial banks and other depository
institutions to accomplish directly what they have previously been able
to accomplish indirectly. For example, in many cases, a state bank or
other depository institution may, under state law, convert to a state-
chartered savings bank, or a state-chartered savings association, which
may, consistent with state law and section 5(i) of the HOLA (or, in
some cases, section 5(o) of the HOLA), convert to a Federal savings
association or a Federal savings bank. Similarly, a commercial bank or
other depository institution may cause the chartering of a Federal
association, and then transfer its assets and liabilities to the
savings association.
The OTS believes that federal statutes should be interpreted and
applied in a manner consistent with their purpose. In so doing, the
substance, not merely the form of a transaction, is key. It is clear
that no federal statutory barrier exists to the ultimate accomplishment
of conversions of depository institutions to Federal thrift charters,
provided that all applicable chartering and insurance requirements are
met. Thus, absent compelling reasons to the contrary, to read the HOLA
as implicitly requiring a multi-step process to accomplish these types
of charter conversions would impose unnecessary expenses and
complications upon depository institutions that wish to operate as
Federal savings associations.
The classes of depository institutions that are permitted to
convert to a Federal stock association charter under Sec. 552.2-6 is
broader than set forth in the proposed version of the regulation, which
addressed only conversions by FDIC-insured depository institutions. The
OTS believes that there are no compelling legal or policy reasons why
stock-form depository institutions not insured by the FDIC should not
be permitted to convert directly to a Federal savings association.\18\
However, these institutions must meet the requirements for Federal Home
Loan Bank membership, receive FDIC insurance of accounts prior to
consummation of the conversion, and otherwise comply with all
applicable statutes and regulations.
---------------------------------------------------------------------------
\18\The OTS is not, at this time, adopting a corresponding
regulation that would authorize mutual-form depository institutions
to convert to Federal mutual savings associations. The OTS may, in
the future, consider promulgating a regulation authorizing such
conversions. The OTS notes, however, that mutual-form state
chartered savings banks that are insured by the Bank Insurance Fund
are authorized to convert to Federal mutual savings banks, pursuant
to section 5(o) of the HOLA.
---------------------------------------------------------------------------
Applications filed under revised Sec. 552.2-6 must comply with
Sec. 552.2-1 and other sections in part 552 regarding establishment of
a Federal thrift charter.
D. Application Processing
As noted, the FDIA requires prior OTS approval of combinations
between savings associations and other types of FDIC-insured depository
institutions where the acquiring, assuming, or resulting institution is
a savings association. In such transactions, the OTS will continue to
require an application under amended Sec. 563.22(a).
Under previous regulations, any savings association that proposed
to convert to a bank in a Sasser transaction or be acquired by a bank
in an Oakar transaction was required to file a transfer of assets
application with the OTS.\19\ The OTS continues to believe that an
application process requiring prior written approval is necessary in
certain situations, discussed below. However, with respect to Oakar
transactions and other combinations between a thrift and a bank in
which no savings association survives, the OTS's experience has
indicated that a notification requirement would be sufficient. The OTS
will advise the appropriate Federal banking agency of any supervisory
concerns, enforcement actions and other relevant information regarding
the institution.
---------------------------------------------------------------------------
\19\12 CFR 563.22(b) (1993).
---------------------------------------------------------------------------
Any savings association that proposes to convert to a bank charter
in a Sasser conversion must file a notification or application with the
OTS, depending on whether the savings association meets the
requirements for expedited treatment under Sec. 516.3(a). Specifically,
savings associations that qualify for expedited treatment under
Sec. 516.3(a)(1) will be eligible to use the notification procedure set
forth at Sec. 563.22(h)(1) in order to engage in a Sasser conversion.
Savings associations that do not qualify for such treatment will be
required to file an application in order to engage in a Sasser
conversion. Such applications will be subject to the general
application processing timeframes.\20\ The OTS notes that this
procedure represents a significant reduction in burden from the prior
procedures, under which every savings association that proposed to
undertake a Sasser conversion was required to file a detailed
application.
---------------------------------------------------------------------------
\20\The proposal included a notification requirement for all
savings associations undertaking a Sasser transaction. Based on
additional experience, the OTS is requiring an application from
savings associations that fail to qualify for expedited processing
and propose to undertake a Sasser transaction, because such
associations may, in certain cases, present compliance or safety and
soundness concerns that may warrant denial or conditioning of the
application.
---------------------------------------------------------------------------
In evaluating applications proposing Sasser conversions, the OTS
will assess the applicable factors set forth in Sec. 563.22(d)(1), and
whether the conversion may have a negative effect on the safety and
soundness of the association or present a risk to the appropriate
deposit insurance fund.
Sections 563.22(b) and (c) have been amended and a new
Sec. 563.22(h) has been added to the regulations setting forth special
requirements and procedures for transactions subject to Secs. 563.22
(b) and (c).
Specifically, amended Sec. 563.22(b)(1) of the final rule requires
prior notification to the OTS in accordance with new Sec. 563.22(h)(1)
of Sasser conversions of savings associations that meet the criteria
for expedited treatment under Sec. 516.3(a), and combinations between
savings associations and FDIC-insured depository institutions (such as
Oakar transactions) where no savings association will survive
consummation of the transaction. The notification must be submitted at
least 30 days prior to the effective date of the conversion or
combination, but not later than the date on which an application
relating to the proposed transaction is filed with the primary
regulator of the resulting association. The rule also provides that,
upon request or on its own initiative, the OTS may shorten the 30-day
prior notification period.
New Sec. 563.22(h)(1) requires the submission of either a letter
describing material information regarding the transaction or a copy of
a filing submitted to the regulatory agency of the resulting
institution that must approve the transaction. The rule does not
require OTS approval or clearance of such transactions prior to their
consummation.
Given the amendments to Sec. 563.22(b), the OTS has determined that
it is appropriate to revise its application requirements for voluntary
dissolutions of Federal associations set forth at 12 CFR 546.4. Amended
Sec. 546.4 provides that Federal associations that combine with a bank
in a purchase and assumption transaction will not be required to file a
voluntary dissolution application where the transaction involves the
transfer of all of the Federal association's assets and liabilities.
The OTS has determined that requiring a voluntary dissolution
application would have eliminated any streamlining arising from the
notification process in those circumstances. The Federal stock
association will still be required under Sec. 552.13 to surrender its
charter upon completion of the transaction.
Amended Sec. 563.22(c) requires prior notice or application to the
OTS in accordance with new Sec. 563.22(h)(2) for the following
categories of transactions:
(1) Purchases of assets by a savings association that do not
require OTS approval under the BMA and Sec. 563.22(a);
(2) Bulk sales of less than all or substantially all of the assets
of a savings association;
(3) Transactions in which a savings association transfers less than
all or substantially all of its deposit liabilities to a bank or other
depository institution;
(4) Bulk assumptions or transfers of non-deposit liabilities by a
savings association; and
(5) Combinations involving savings associations and depository
institutions other than insured depository institutions.
The OTS believes that an abbreviated procedure is appropriate for
these types of transactions, provided that the savings association is
well capitalized, and otherwise qualifies for ``expedited treatment''
under part 516. Accordingly, under new Sec. 563.22(h)(2)(i), an
expedited notice procedure is available for all five of the foregoing
categories of transactions where all constituent savings associations
meet the conditions for ``expedited treatment'' under 12 CFR 516.3(a).
Notices under this provision of the rule would be deemed approved
automatically 30 days after receipt, unless the OTS determines that an
application is required.\21\
---------------------------------------------------------------------------
\21\As is the case with respect to any notice receiving
expedited treatment under Sec. 516.3(a), the OTS may impose
appropriate conditions in connection with acceptance of a notice
under new Sec. 563.22(h)(2)(i).
---------------------------------------------------------------------------
Under new Secs. 563.22(h)(2)(ii) and 563.22(h)(2)(iii), a standard
application procedure must be followed where any constituent savings
association does not meet the criteria for ``expedited treatment''
under Sec. 516.3(a), or where a notice filed under Sec. 563.22(h)(2)(i)
is incomplete or otherwise does not satisfy the notice requirements.
These applications will be subject to the ``standard'' review periods
set forth in part 516, with certain exceptions. As with other
applications, the OTS is required to notify an applicant within 30
calendar days after proper submission of an application whether it is
``sufficient'' or ``complete,'' and what additional information is
required, if any, in order to render the submission sufficient, or that
the submission is materially deficient and will not be processed.\22\
In addition, the 60-day period for review for an application under
these provisions commences on the date the OTS determines the
application to be sufficient.\23\
---------------------------------------------------------------------------
\22\12 CFR 516.2(c).
\23\12 CFR 516.2(d).
---------------------------------------------------------------------------
Under part 516, the OTS may extend the application review period
for an additional 30-day period upon notice to the applicant.24
Part 516 also permits the OTS to extend the review period in cases
involving a significant issue of law or policy or where a protest has
been filed under the CRA.25 However, consistent with new section
10(s)(2) of the HOLA, new Sec. 563.22(d)(4) and (h)(2)(iii) of the rule
specifically provide that the 60-day review period for an Oakar
application may be extended for up to 30 days only if the OTS
determines that the applicant has failed to furnish information
requested by the OTS, or if the information furnished is substantially
inaccurate.
---------------------------------------------------------------------------
\2\412 CFR 516.2(e).
\2\512 CFR 516.2(f).
---------------------------------------------------------------------------
E. Technical Amendments
The final rule amends the definitional provisions of Secs. 552.13
and 563.22 of the regulations to reflect the expanded authority
conferred by new section 10(s) of the HOLA. In addition, as noted
above, the final rule makes additional technical and conforming changes
throughout these sections to simplify and clarify the application and
notice procedures applicable to all mergers and other combinations
involving savings associations.
Regulatory Flexibility Act
Pursuant to Section 605(b) of the Regulatory Flexibility Act, it is
certified that this rule will not have a significant economic impact on
a substantial number of small entities. Accordingly, a final Regulatory
Flexibility Analysis is not required.
Executive Order 12866
The OTS has determined that this rule does not constitute a
``significant regulatory action'' for purposes of Executive Order
12866.
Paperwork Reduction Act
The collection of information contained in Sec. 563.22(a) has been
submitted to and approved by the Office of Management and Budget (OMB)
under OMB Control No. 1550-0016 in accordance with the requirements of
the Paperwork Reduction Act (PRA) (44 U.S.C. 3504(h)).
Estimated burden for OMB Control No. 1550-0016:
Estimated number of respondents: 90
Estimated number of annual responses per respondent: 1
Estimated number of hours per response: 36
Estimated total annual reporting burden: 3240
The collections of information contained in Sec. 563.22 (b) and (c)
have changed since being submitted to and approved by OMB, in
connection with the proposal, under OMB Control No. 1550-0025 in
accordance with the requirements of the PRA. Accordingly, the
collections of information at Sec. 563.22 (b) and (c) have been
resubmitted and approved by OMB under 44 U.S.C. 3507.
Estimated burden for OMB Control No. 1550-0025:
Estimated number of respondents: 135
Estimated number of annual responses per respondent: 1
Estimated number of hours per response: 4.04
Estimated total annual reporting burden: 545
The collections of information are needed by OTS to determine
whether proposed transactions regarding mergers and transfer of asset
and liability transactions involving banks and thrifts comply with
applicable state and Federal laws and OTS regulations and policies, and
whether these transactions will have an adverse affect on the risk
exposure of the Savings Association Insurance Fund.
Comments concerning the accuracy of these estimates and suggestions
for reducing this burden should be directed to Office Management and
Budget, Paperwork Reduction Project (1550), Washington, DC 20503.
List of Subjects
12 CFR Part 506
Reporting and recordkeeping requirements.
12 CFR Part 546
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 552
Reporting and recordkeeping requirements, Savings associations,
Securities.
12 CFR Part 563
Accounting, Crime, Currency, Investments, Mortgages, Reporting and
recordkeeping requirements, Savings associations, Securities, Surety
bonds.
12 CFR Part 571
Accounting, Conflicts of interest, Investments, Reporting and
recordkeeping requirements, Savings associations.
12 CFR Part 574
Administrative practice and procedure, Holding companies, Reporting
and recordkeeping requirements, Savings associations, Securities.
12 CFR Part 575
Capital, Holding companies, Reporting and recordkeeping
requirements, Savings associations, Securities.
Accordingly, the Director of the OTS hereby amends parts 506, 546,
552, 563, 571, 574, and 575, chapter V, title 12, Code of Federal
Regulations, as set forth below:
Subchapter A--Organization and Procedures
PART 506--INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK
REDUCTION ACT
1. The authority citation for part 506 continues to read as
follows:
Authority: 44 U.S.C. 3501 et seq.
2. Section 506.1 is amended by removing three entries from the
table in paragraph (b) to read as follows:
Sec. 506.1 OMB control numbers assigned pursuant to the Paperwork
Reduction Act.
* * * * *
(b) Display.
------------------------------------------------------------------------
Current OMB
12 CFR part or section where identified and described control No.
------------------------------------------------------------------------
*****
Delete
516.1(b)................................................... 1550-0056
*****
563.100.................................................... 1550-0078
563.101.................................................... 1550-0078
*****
------------------------------------------------------------------------
Subchapter C--Regulations for Federal Savings Associations
PART 546--MERGER, DISSOLUTION, REORGANIZATION AND CONVERSION
3. The authority citation for part 546 is revised to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et
seq.
4. Section 546.1 is revised to read as follows:
Sec. 546.1 Definitions.
The terms used in Secs. 546.2 and 546.3 shall have the same meaning
as set forth in Secs. 552.13(b) and 563.22(g) of this chapter.
5. Section 546.2 is revised to read as follows:
Sec. 546.2 Procedure; effective date.
(a) A Federal mutual savings association may combine with any
depository institution, provided that:
(1) The combination is in compliance with, and receives all
approvals required under, any applicable statutes and regulations;
(2) Any resulting Federal savings association meets the
requirements for Federal Home Loan Bank membership and insurance of
accounts;
(3) In the case of a combination with a bank that is a member of
the Bank Insurance Fund, any resulting Federal savings association
conforms to the requirements of sections 5(c) and 10(m) of the Home
Owners' Loan Act under the standards set forth in section 5(c)(5) of
the Home Owners' Loan Act, and in the case of a combination with any
other depository institution, any resulting Federal savings association
conforms within the time prescribed by the OTS, to the requirements of
section 5(c) of the Home Owners' Loan Act; and
(4) The resulting institution shall be a mutually held savings
association, unless:
(i) The transaction involves a supervisory merger;
(ii) The transaction is approved under part 563b of this chapter;
or
(iii) The transaction involves a transfer in the context of a
mutual holding company reorganization under section 10(o) of the Home
Owners' Loan Act.
(b) Each Federal mutual savings association, by a two-thirds vote
of its board of directors, shall approve a plan of combination
evidenced by a combination agreement. The agreement shall state:
(1) That the combination shall not be effective unless and until
the combination receives any necessary approval from the Office
pursuant to Sec. 563.22 (a) or (c), or in the case of a transaction
requiring a notice pursuant to Sec. 563.22(c), the notice has been
filed, and the appropriate period of time has passed or the OTS has
advised the parties that it will not disapprove the transaction;
(2) Which constituent institution is to be the resulting
institution;
(3) The name of the resulting institution;
(4) The location of the home office and any other offices of the
resulting institution;
(5) The terms and conditions of the combination and the method of
effectuation;
(6) Any charter amendments, or the new charter in the combination;
(7) The basis upon which the resulting institution's savings
accounts will be issued;
(8) If the Federal mutual savings association is the resulting
institution, the number, names, residence addresses, and terms of
directors;
(9) The effect upon and assumption of any liquidation account of a
disappearing institution by the resulting institution; and
(10) Such other provisions, agreements, or understandings as relate
to the combination.
(c) Prior written notification to, notice to, or prior written
approval of, the Office pursuant to Sec. 563.22 of this chapter is
required for every combination. In the case of applications and notices
pursuant to 563.22 (a) or (c), the Office shall apply the criteria set
out in Sec. 563.22 of this chapter and shall impose any conditions it
deems necessary or appropriate to ensure compliance with those criteria
and the requirements of this chapter.
(d) Where the resulting institution is a Federal mutual savings
association, the Office may approve a temporary increase in the number
of directors of the resulting institution provided that the association
submits a plan for bringing the board of directors into compliance with
the requirements of Sec. 544.1 of this chapter within a reasonable
period of time.
(e) Notwithstanding any other provision of this part, the Office
may require that a plan of combination be submitted to the voting
members of any of the mutual savings associations that are constituent
institutions at a duly called meeting(s), and that the plan, to be
effective, be approved by such voting members.
(f) A conservator or receiver for a Federal mutual savings
association may combine the association with another insured depository
institution without submitting the plan to the association's board of
directors or members for their approval.
(g) If a plan of combination provides for a resulting Federal
mutual savings association's name or location to be changed, its
charter shall be amended accordingly. If the resulting institution is a
Federal mutual savings association, the effective date of the
combination shall be the date specified in the approval; if the
resulting institution is not a Federal savings association, the
effective date shall be that prescribed under applicable law. Approval
of a merger automatically cancels the Federal charter of a Federal
association that is a disappearing institution as of the effective date
of merger, and the association shall, on that date, surrender its
charter to the Office.
6. Section 546.3 is revised to read as follows:
Sec. 546.3 Transfer of assets upon merger or consolidation.
On the effective date of a merger or consolidation in which the
resulting institution is a Federal association, all assets and property
of the disappearing institutions shall immediately, without any further
act, become the property of the resulting institution to the same
extent as they were the property of the disappearing institutions, and
the resulting institution shall be a continuation of the entity which
absorbed the disappearing institutions. All rights and obligations of
the disappearing institutions shall remain unimpaired, and the
resulting institution shall, on the effective date of the merger or
consolidation, succeed to all those rights and obligations, subject to
the Home Owners' Loan Act and other applicable statutes.
7. Section 546.4 is amended by adding a sentence to the end of the
concluding text of the section to read as follows:
Sec. 546.4 Voluntary dissolution.
* * * * *
* * * A Federal savings association is not required to obtain
approval under this section where the Federal savings association
transfers all of its assets and liabilities to a bank in a transaction
that is subject to Sec. 563.22(b) of this chapter.
PART 552--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL
STOCK SAVINGS ASSOCIATIONS
8. The authority citation for part 552 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.
9. Section 552.2-6 is revised to read as follows:
Sec. 552.2-6 Conversion from stock form depository institution to
Federal stock association.
With the approval of the Office, any stock depository institution
that is, or is eligible to become, a member of a Federal Home Loan
Bank, may convert to a Federal stock association, provided that the
depository institution, at the time of the conversion, has deposits
insured by the Federal Deposit Insurance Corporation, and provided
further, that the depository institution, in accomplishing the
conversion, complies with all applicable statutes and regulations,
including, without limitation, section 5(d) of the Federal Deposit
Insurance Act. The resulting Federal stock association must conform
within the time prescribed by the OTS to the requirements of section
5(c) of the Home Owners' Loan Act. For purposes of this section, the
term ``depository institution'' shall have the meaning set forth at 12
CFR 552.13(b).
10. Section 552.2-7 is added to read as follows:
Sec. 552.2-7 Conversion to National banking association or State bank.
A Federal stock association may convert to a National banking
association or a State bank after filing a notification or application,
as appropriate, with the Office in accordance with the applicable
provisions of Sec. 563.22(b) of this chapter.
11. Section 552.13 is amended by revising paragraphs (a) through
(f), (h)(1), (h)(2) introductory text, (h)(2)(iii), (h)(2)(iv), and (j)
through (l); and by removing and reserving paragraph (g), to read as
follows:
Sec. 552.13 Combinations involving Federal stock associations.
(a) Scope and authority. Federal stock associations may enter into
combinations only in accordance with the provisions of this section,
sections 5(d) and 18(c) of the Federal Deposit Insurance Act, sections
5(d)(3)(A) and 10(s) of the Home Owners' Loan Act, and Sec. 563.22 of
this chapter.
(b) Definitions. The following definitions apply to Secs. 552.13
and 552.14 of this part:
(1) Combination. A merger or consolidation with another depository
institution, or an acquisition of all or substantially all of the
assets or assumption of all or substantially all of the liabilities of
a depository institution by another depository institution. Combine
means to be a constituent institution in a combination.
(2) Consolidation. Fusion of two or more depository institutions
into a newly-created depository institution.
(3) Constituent institution. Resulting, disappearing, acquiring, or
transferring depository institution in a combination.
(4) Depository institution means any commercial bank (including a
private bank), a savings bank, a trust company, a savings and loan
association, a building and loan association, a homestead association,
a cooperative bank, an industrial bank or a credit union, chartered in
the United States and having its principal office located in the United
States.
(5) Disappearing institution. A depository institution whose
corporate existence does not continue after a combination.
(6) Merger. Uniting two or more depository institutions by the
transfer of all property rights and franchises to the resulting
depository institution, which retains its corporate identity.
(7) Mutual savings association. Any savings association organized
in a form not requiring non-withdrawable stock under Federal or State
law.
(8) Resulting institution. The depository institution whose
corporate existence continues after a combination.
(9) Savings association has the same meaning as defined in
Sec. 561.43 of this chapter.
(10) State. Includes the District of Columbia, Commonwealth of
Puerto Rico, and States, territories, and possessions of the United
States.
(11) Stock association. Any savings association organized in a form
requiring non-withdrawable stock.
(c) Forms of combination. A Federal stock association may combine
with any depository institution, provided that:
(1) The combination is in compliance with, and receives all
approvals required under, any applicable statutes and regulations;
(2) Any resulting Federal savings association meets the
requirements for Federal Home Loan Bank membership and insurance of
accounts;
(3) In the case of a combination with a bank that is a member of
the Bank Insurance Fund, any resulting Federal savings association
conforms to the requirements of sections 5(c) and 10(m) of the Home
Owners' Loan Act under the standards set forth in section 5(c)(5) of
the Home Owners' Loan Act, and in the case of a combination with any
other depository institution, any resulting Federal savings association
conforms within the time prescribed by the OTS to the requirements of
section 5(c) of the Home Owners' Loan Act; and
(4) If any constituent savings association is a mutual savings
association, the resulting institution shall be mutually held, unless:
(i) The transaction involves a supervisory merger;
(ii) The transaction is approved under part 563b of this chapter;
(iii) The transaction involves an interim Federal stock association
or an interim State stock savings association; or
(iv) The transaction involves a transfer in the context of a mutual
holding company reorganization under section 10(o) of the Home Owners'
Loan Act.
(d) Combinations. Prior written notification to, notice to, or
prior written approval of, the Office pursuant to Sec. 563.22 of this
chapter is required for every combination. In the case of applications
and notices pursuant to Sec. 563.22 (a) or (c), the Office shall apply
the criteria set out in Sec. 563.22 of this chapter and shall impose
any conditions it deems necessary or appropriate to ensure compliance
with those criteria and the requirements of this chapter.
(e) Approval of the board of directors. Before filing a notice or
application for any combination involving a Federal stock association,
the combination shall be approved:
(1) By a two-thirds vote of the entire board of each constituent
Federal savings association; and
(2) As required by other applicable Federal or state law, for other
constituent institutions.
(f) Combination agreement. All terms, conditions, agreements or
understandings, or other provisions with respect to a combination
involving a Federal savings association shall be set forth fully in a
written combination agreement. The combination agreement shall state:
(1) That the combination shall not be effective unless and until:
(i) The combination receives any necessary approval from the Office
pursuant to Sec. 563.22 (a) or (c);
(ii) In the case of a transaction requiring a notification pursuant
to Sec. 563.22(b), notification has been provided to the OTS; or
(iii) In the case of a transaction requiring a notice pursuant to
Sec. 563.22(c), the notice has been filed, and the appropriate period
of time has passed or the OTS has advised the parties that it will not
disapprove the transaction;
(2) Which constituent institution is to be the resulting
institution;
(3) The name of the resulting institution;
(4) The location of the home office and any other offices of the
resulting institution;
(5) The terms and conditions of the combination and the method of
effectuation;
(6) Any charter amendments, or the new charter in the combination;
(7) The basis upon which the savings accounts of the resulting
institution shall be issued;
(8) If a Federal association is the resulting institution, the
number, names, residence addresses, and terms of directors;
(9) The effect upon and assumption of any liquidation account of a
disappearing institution by the resulting institution; and
(10) Such other provisions, agreements, or understandings as relate
to the combination.
(g) [Reserved]
(h) Approval by stockholders--(1) General rule. Except as otherwise
provided in this section, an affirmative vote of two-thirds of the
outstanding voting stock of any constituent Federal savings association
shall be required for approval of the combination agreement. If any
class of shares is entitled to vote as a class pursuant to Sec. 552.4
of this part, an affirmative vote of a majority of the shares of each
voting class and two-thirds of the total voting shares shall be
required. The required vote shall be taken at a meeting of the savings
association.
(2) General exception. Stockholders of the resulting Federal stock
association need not authorize a combination agreement if:
* * * * *
(iii) Each share of stock outstanding immediately prior to the
effective date of the combination is to be an identical outstanding
share or a treasury share of the resulting Federal stock association
after such effective date; and
(iv) Either:
(A) No shares of voting stock of the resulting Federal stock
association and no securities convertible into such stock are to be
issued or delivered under the plan of combination, or
(B) The authorized unissued shares or the treasury shares of voting
stock of the resulting Federal stock association to be issued or
delivered under the plan of combination, plus those initially issuable
upon conversion of any securities to be issued or delivered under such
plan, do not exceed 15% of the total shares of voting stock of such
association outstanding immediately prior to the effective date of the
combination.
* * * * *
(j) Articles of combination. (1) Following stockholder approval of
any combination in which a Federal savings association is the resulting
institution, articles of combination shall be executed in duplicate by
each constituent institution, by its chief executive officer or
executive vice president and by its secretary or an assistant
secretary, and verified by one of the officers of each institution
signing such articles, and shall set forth:
(i) The plan of combination;
(ii) The number of shares outstanding in each depository
institution; and
(iii) The number of shares in each depository institution voted for
and against such plan.
(2) Both sets of articles of combination shall be filed with the
Office. If the Office determines that such articles conform to the
requirements of this section, the Office shall endorse the articles and
return one set to the resulting institution.
(k) Effective date. No combination under this section shall be
effective until receipt of any approvals required by the Office. The
effective date of a combination in which the resulting institution is a
Federal stock association shall be the date of consummation of the
transaction or such other later date specified on the endorsement of
the articles of combination by the Office. If a disappearing
institution combining under this section is a Federal stock
association, its charter shall be deemed to be cancelled as of the
effective date of the combination and such charter must be surrendered
to the Office as soon as practicable after the effective date.
(l) Mergers and consolidations: transfer of assets and liabilities
to the resulting institution. Upon the effective date of a merger or
consolidation under this section, if the resulting institution is a
Federal savings association, all assets and property (real, personal
and mixed, tangible and intangible, choses in action, rights, and
credits) then owned by each constituent institution or which would
inure to any of them, shall, immediately by operation of law and
without any conveyance, transfer, or further action, become the
property of the resulting Federal savings association. The resulting
Federal savings association shall be deemed to be a continuation of the
entity of each constituent institution, the rights and obligations of
which shall succeed to such rights and obligations and the duties and
liabilities connected therewith, subject to the Home Owners' Loan Act
and other applicable statutes.
Subchapter D--Regulations Applicable to All Savings Associations
PART 563--OPERATIONS
12. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468, 1817,
1828, 3806; Pub. L. 102-242, sec. 306, 105 Stat. 2236, 2355 (1991).
13. Section 563.22 is amended by:
a. revising paragraphs (a) and (b);
b. redesignating paragraphs (c) through (e) as paragraphs (d)
through (f), respectively;
c. adding a new paragraph (c);
d. revising newly designated paragraph (d);
e. removing the introductory text of newly designated paragraph (e)
and paragraph (e)(1);
f. redesignating newly designated paragraph (e)(2) as paragraph
(e)(1) and revising it;
g. and h. redesignating newly designated paragraphs (e)(3) and
(e)(4) as paragraphs (e)(2) and (e)(3), respectively, and revising new
paragraph (e)(2);
i. adding new paragraphs (e)(4) and (e)(5);
j. redesignating the introductory text of newly designated
paragraph (f)(1) as the introductory text to paragraph (f) and revising
it;
k. redesignating newly designated paragraphs (f)(1)(i) through
(f)(1)(xi) as paragraphs (f)(1) through (f)(11), (f)(1)(xiv) and
(f)(1)(xv) as (f)(12) and (f)(13), (f)(1)(xvii) and (f)(1)(xviii) as
(f)(14) and (f)(15), respectively, removing paragraphs (f)(1)(xii),
(f)(1)(xiii) and (f)(1)(xvi), and revising newly designated paragraphs
(f)(1), (f)(9) and (f)(14);
l. revising paragraph (g); and
m. adding a new paragraph (h).
Sec. 563.22 Merger, consolidation, purchase or sale of assets, or
assumption of liabilities.
(a) No savings association may, without application to and approval
by the Office:
(1) Combine with any insured depository institution, if the
acquiring or resulting institution is to be a savings association; or
(2) Assume liability to pay any deposit made in, any insured
depository institution.
(b)(1) No savings association may, without notifying the Office, as
provided in paragraph (h)(1) of this section:
(i) Combine with another insured depository institution where a
savings association is not the resulting institution; or
(ii) In the case of a savings association that meets the conditions
for expedited treatment under Sec. 516.3(a) of this chapter, convert,
directly or indirectly, to a national or state bank.
(2) No savings association that does not meet the conditions for
expedited treatment under Sec. 516.3(a) of this chapter may, directly
or indirectly, convert to a national or state bank without prior
application to and approval of the Office, as provided in paragraph
(h)(2)(ii) of this section.
(c) No savings association may make any transfer (excluding
transfers subject to paragraphs (a) or (b) of this section) without
notice or application to the Office, as provided in paragraph (h)(2) of
this section. For purposes of this paragraph, the term ``transfer''
means purchases or sales of assets or liabilities in bulk not made in
the ordinary course of business including, but not limited to,
transfers of assets or savings account liabilities, purchases of
assets, and assumptions of deposit accounts or other liabilities, and
combinations with a depository institution other than an insured
depository institution.
(d)(1) In determining whether to confer approval for a transaction
under paragraphs (a), (b)(2), or (c) of this section, the Office shall
take into account the following:
(i) The capital level of any resulting savings association;
(ii) The financial and managerial resources of the constituent
institutions;
(iii) The future prospects of the constituent institutions;
(iv) The convenience and needs of the communities to be served;
(v) The conformity of the transaction to applicable law,
regulation, and supervisory policies;
(vi) Factors relating to the fairness of and disclosure concerning
the transaction, including, but not limited to:
(A) Equitable treatment. The transaction should be equitable to all
concerned--savings account holders, borrowers, creditors and
stockholders (if any) of each savings association--giving proper
recognition of and protection to their respective legal rights and
interests. The transaction will be closely reviewed for fairness where
the transaction does not appear to be the result of arms' length
bargaining or, in the case of a stock savings association, where
controlling stockholders are receiving different consideration from
other stockholders. No finder's or similar fee should be paid to any
officer, director, or controlling person of a savings association which
is a party to the transaction.
(B) Full disclosure. The filing should make full disclosure of all
written or oral agreements or understandings by which any person or
company will receive, directly or indirectly, any money, property,
service, release of pledges made, or other thing of value, whether
tangible or intangible, in connection with the transaction.
(C) Compensation to officers. Compensation, including deferred
compensation, to officers, directors and controlling persons of the
disappearing savings association by the resulting institution or an
affiliate thereof should not be in excess of a reasonable amount, and
should be commensurate with their duties and responsibilities. The
filing should fully justify the compensation to be paid to such
persons. The transaction will be particularly scrutinized where any of
such persons is to receive a material increase in compensation above
that paid by the disappearing savings association prior to the
commencement of negotiations regarding the proposed transaction. An
increase in compensation in excess of the greater of 15% or $10,000
gives rise to presumptions of unreasonableness and sale of control. In
the case of such an increase, evidence sufficient to rebut such
presumptions should be submitted.
(D) Advisory boards. Advisory board members should be elected for a
term not exceeding one year. No advisory board fees should be paid to
salaried officers or employees of the resulting savings association.
The filing should describe and justify the duties and responsibilities
and any compensation paid to any advisory board of the resulting
savings association that consists of officers, directors or controlling
persons of the disappearing institution, particularly if the
disappearing institution experienced significant supervisory problems
prior to the transaction. No advisory board fees should exceed the
director fees paid by the resulting savings association. Advisory board
fees that are in excess of 115 percent of the director fees paid by the
disappearing savings association prior to commencement of negotiations
regarding the transaction give rise to presumptions of unreasonableness
and sale of control unless sufficient evidence to rebut such
presumptions is submitted. Rebuttal evidence is not required if:
(1) The advisory board fees do not exceed the fee that advisory
board members of the resulting institution receive for each monthly
meeting attended or $150, whichever is greater; or
(2) the advisory board fees do not exceed $100 per meeting attended
for disappearing savings associations with assets greater than
$10,000,000 or $50 per meeting attended for disappearing savings
associations with assets of $10,000,000 or less, based on a schedule of
12 meetings per year.
(E) The accounting and tax treatment of the transaction; and
(F) Fees paid and professional services rendered in connection with
the transaction.
(2) In conferring approval of a transaction under paragraph (a) of
this section, the Office also will consider the competitive impact of
the transaction, including whether:
(i) The transaction would result in a monopoly, or would be in
furtherance of any monopoly or conspiracy to monopolize or to attempt
to monopolize the savings association business in any part of the
United States; or
(ii) The effect of the transaction on any section of the country
may be substantially to lessen competition, or tend to create a
monopoly, or in any other manner would be in restraint of trade, unless
the Office finds that the anticompetitive effects of the proposed
transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs
of the communities to be served.
(3) Applications and notices filed under this section shall be upon
forms prescribed by the Office.
(4) Applications filed under section 5(d)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1815(d)(3)) and paragraph (a) of this section
shall be processed in accordance with the time frames set forth in
Sec. 516.2 of this chapter, provided that the period for review may be
extended only if the Office determines that the applicant has failed to
furnish all requested information or that the information submitted is
substantially inaccurate, in which case the review period may be
extended for up to 30 days.
(e)(1) Notice of any proposed transaction under paragraph (a) of
this section shall, unless the Office finds that it must act
immediately in order to prevent the probable default of one of the
savings associations involved, be published--
(i) No earlier than three calendar days before and no later than
the date of filing an application under paragraph (a) of this section,
and thereafter on a weekly basis during the period allowed for
furnishing reports under paragraph (e)(2) of this section;
(ii) In the business section of a newspaper printed in the English
language in the community in which the home offices of the constituent
institutions are located. If it is determined that the primary language
of a significant number of adult residents of any community is a
language other than English, the applicant shall publish the
notification simultaneously in the appropriate language(s).
(2) Unless the Office determines that action must be taken
immediately in order to prevent the probable default of one of the
savings associations involved, the Office shall request reports from
the Attorney General, the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System and the Federal Deposit
Insurance Corporation on the competitive factors involved in the
transaction. The reports shall be furnished within thirty calendar days
of the date on which they are requested, or within ten calendar days of
such date if the Office advised the Attorney General and the other
three banking agencies that an emergency exists requiring expeditious
action. The Office shall immediately notify the Attorney General of any
approval of a transaction pursuant to this section.
* * * * *
(4) Applications filed pursuant to paragraph (a) of this section
shall be subject to the protest and oral argument procedures set forth
in Secs. 543.2 (e) and (f), except that protests may be submitted at
any time during the period provided for in paragraph (e)(2) of this
section.
(5) Notice of a proposed account transfer and the option of
retaining the account in the transferring savings association shall be
furnished to an affected accountholder:
(i) By a savings association transferring account liabilities to an
institution the accounts of which are not insured by the Savings
Association Insurance Fund, the Bank Insurance Fund, or the National
Credit Union Share Insurance Fund; and
(ii) By any mutual savings association transferring account
liabilities to a stock form depository institution. The required notice
shall allow affected accountholders at least 30 days to consider
whether to retain their accounts in the transferring savings
association.
(f) Automatic approvals by the Office. Applications filed pursuant
to paragraph (a) of this section shall be deemed to be approved
automatically by the Office 30 calendar days after the Office sends
written notice to the applicant that the application is complete,
unless:
(1) The acquiring savings association does not meet the criteria
for expedited treatment under Sec. 516.3(a)(1) of this chapter;
* * * * *
(9) The acquiring savings association has assets of $1 billion or
more and proposes to acquire assets of $1 billion or more;
* * * * *
(14) The transaction is opposed by any constituent institution or
contested by a competing acquiror.
(g) Definitions. (1) The terms used in this section shall have the
same meaning as set forth in Sec. 552.13(b) of this chapter.
(2) Insured depository institution. Insured depository institution
has the same meaning as defined in section 3(c)(2) of the Federal
Deposit Insurance Act.
(3) With regard to paragraph (f) of this section, the term relevant
geographic area is used as a substitute for relevant geographic market,
which means the area within which the competitive effects of a merger
or other combination may be evaluated. The relevant geographic area
shall be delineated as a county or similar political subdivision, an
area smaller than a county, or an aggregation of counties within which
the merging or combining insured depository institutions compete. In
addition, the Office may consider commuting patterns, newspaper and
other advertising activities, or other factors as the Office deems
relevant.
(h) Special requirements and procedures for transactions under
paragraphs (b) and (c) of this section--(1) Certain transactions with
no surviving savings association. The Office must be notified of any
transaction under paragraph (b)(1) of this section. Such notification
must be submitted to the OTS at least 30 days prior to the effective
date of the transaction, but not later than the date on which an
application relating to the proposed transaction is filed with the
primary regulator of the resulting institution; the Office may, upon
request or on its own initiative, shorten the 30-day prior notification
requirement. Notifications under this paragraph must demonstrate
compliance with applicable stockholder or accountholder approval
requirements. Where the savings association submitting the notification
maintains a liquidation account established pursuant to part 563b of
this chapter, the notification must state that the resulting
institution will assume such liquidation account.
The notification may be in the form of either a letter describing
the material features of the transaction or a copy of a filing made
with another Federal or state regulatory agency seeking approval from
that agency for the transaction under the Bank Merger Act or other
applicable statute. If the action contemplated by the notification is
not completed within one year after the Office's receipt of the
notification, a new notification must be submitted to the Office.
(2) Other transfer transactions--(i) Expedited treatment. A notice
in conformity with Sec. 516.3(a)(2) of this chapter may be submitted to
the Office for any transaction under paragraph (c) of this section,
provided all constituent savings associations meet the conditions for
expedited treatment under Sec. 516.3(a) of this chapter. Notices
submitted under this paragraph shall be deemed approved automatically
by the Office 30 calendar days after receipt, unless the Office advises
the applicant in writing prior to the expiration of such period that
the proposed transaction may not be consummated without the Office's
approval of an application under paragraphs (h)(2)(ii) or (h)(2)(iii)
of this section.
(ii) Standard treatment. An application in conformity with
Sec. 516.3(b)(2) of this chapter and paragraph (d) of this section must
be submitted to and approved by the Office by each savings association
participating in a transaction under paragraph (b)(2) or (c) of this
section, where any constituent savings association does not meet the
conditions for expedited treatment under Sec. 516.3(a) of this chapter,
except as provided in paragraph (h)(2)(iii) of this section.
Applications under this paragraph shall be processed in accordance with
the time frames set forth in Sec. 516.2 of this chapter.
(iii) Standard treatment for transactions under section 5(d)(3) of
the Federal Deposit Insurance Act. An application in conformity with
Sec. 516.3(b)(2) of this chapter and paragraph (d) of this section must
be submitted to and approved by the Office by each savings association
which will survive any transaction under both Sec. 5(d)(3) of the
Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)) and paragraph (c)
of this section, where any constituent savings association does not
meet the conditions for expedited treatment under Sec. 516.3(a) of this
chapter. Applications under this paragraph shall be processed in
accordance with the time frames set forth in Sec. 516.2 of this
chapter, provided that the period for review may be extended only if
the Office determines that the applicant has failed to furnish all
requested information or that the information submitted is
substantially inaccurate, in which case the review period may be
extended for up to 30 days.
PART 571--STATEMENTS OF POLICY
14. The authority citation for part 571 continues to read as
follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.
Sec. 571.5 [Removed and Reserved]
15. Section 571.5 is removed and reserved.
PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS
16. The authority citation for part 574 continues to read as
follows:
Authority: 12 U.S.C. 1467a, 1817, 1831i.
17. Section 574.7 is amended by revising the last sentence of
paragraph (a)(1) and the last sentence of paragraph (b) to read as
follows:
Sec. 574.7 Determination by the OTS.
(a) * * *
(1) * * * Acquisitions involving mergers with an interim
association shall also be subject to Secs. 546.2, 552.13, and 563.22 of
this chapter.
* * * * *
(b) * * * Acquisitions involving mergers (including mergers with an
interim association) shall also be subject to Secs. 546.2, 552.13, and
563.22 of this chapter.
* * * * *
PART 575--MUTUAL SAVINGS AND LOAN HOLDING COMPANIES
18. The authority citation for part 575 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828.
19. Section 575.13 is amended by revising paragraph (c)(3)(i) to
read as follows:
Sec. 575.13 Procedural requirements.
(c) * * *
(3) * * *
(i) Sections 563.22(e)(1), (e)(2), (e)(3), and (e)(4) of this
subchapter shall apply to all mutual holding company reorganizations.
* * * * *
Dated: April 29, 1994.
By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 94-21294 Filed 8-29-94; 8:45 am]
BILLING CODE 6720-01-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.