Capital Distributions

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563, 563b

[No. 97-128]

RIN 1550-AA72

Capital Distributions

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing amendments

to its capital distributions regulation. Today's rule updates,

simplifies, and streamlines this regulation to reflect OTS's

implementation of the system of prompt corrective action (PCA)

established under the Federal Deposit Insurance Corporation Improvement

Act of 1991 (FDICIA). The proposal is also designed to conform OTS's

capital distribution requirements to those of the other banking

agencies.

DATES: Comments must be received on or before March 9, 1998.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records

Management and Information Policy, Office of Thrift Supervision, 1700 G

Street, N.W., Washington, DC 20552, Attention Docket No. 97-128. These

submissions may be hand-delivered to 1700 G Street, N.W., from 9:00

a.m. to 5:00 p.m. on business days; they may be sent by facsimile

transmission to FAX Number (202) 906-7755; or they may be sent by e-

mail: [email protected]. Those commenting by e-mail should

include their name and telephone number. Comments will be available for

inspection at 1700 G Street, N.W., from 9:00 a.m. until 4:00 p.m. on

business days.

FOR FURTHER INFORMATION CONTACT: Edward J. O'Connell, III, Project

Manager, (202) 906-5694; Robyn Dennis, Manager, (202) 906-5751,

Supervision Policy; Evelyne Bonhomme, Counsel (Banking and Finance),

(202) 906-7052; Karen Osterloh, Assistant Chief Counsel, (202) 906-

6639, Regulations and Legislation Division, Chief Counsel's Office,

Office of Thrift Supervision, 1700 G Street NW., Washington, D.C.

20552.

SUPPLEMENTARY INFORMATION:

I. Introduction

The OTS is proposing to update, simplify, and streamline its

capital distributions regulation. This proposal follows a detailed

review of the regulation to determine whether it should be revised,

reduces burden consistent with statutory requirements, and is written

in a clear, straightforward style. Today's proposal is made pursuant to

the Regulatory Reinvention Initiative of the Vice President's National

Performance Review and section 303 of the Community Development and

Regulatory Improvement Act of 1994 (CDRIA). Consistent with section

303, the proposed amendments would bring the OTS's capital

distributions regulation into greater conformity with the requirements

of the Office of the Comptroller of the Currency (OCC), the Federal

Reserve Board (FRB), and the Federal Deposit Insurance Corporation

(FDIC).

The proposal reduces regulatory burden and compliance costs

associated with some capital distributions. Under the existing rules,

all savings associations must file a notice or an application for

approval before making any capital distribution. Under the proposed

rule, however, certain savings associations would not be required to

file with the OTS. Specifically, for savings associations that would

remain at least adequately capitalized following the capital

distribution and meet other specified requirements, the OTS is

proposing to eliminate any requirement

[[Page 1045]]

for notice or application for cash dividends below a specified amount.

An application, however, would always be required for any capital

distribution in excess of the specified amount. In addition, a notice

or application would be required under other circumstances, such as

where a distribution would reduce the amount of or retire common or

preferred stock (including stock repurchases) or debt instruments

included in capital.

II. Background

In 1990, the OTS adopted a capital distributions regulation, 12 CFR

563.134.1 This regulation was designed to apply a uniform

regulatory approach to all capital distributions made by savings

associations, including dividends, stock repurchases, and cash-out

mergers. The rule established a ``tiered'' approach, which permitted a

savings association to make distributions based on its level of

capitalization. Savings associations that met fully phased-in capital

requirements had greater flexibility to make capital distributions than

other savings associations. All savings associations were required to

provide notice to the OTS, or to apply for approval, before making any

capital distribution. When the OTS adopted this rule, the thrift

industry was generally undercapitalized and thrifts were under pressure

to increase capital to meet rapidly rising standards. The regulation

was intended to restrict capital distributions by savings associations

that did not meet the capital requirements imposed in the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989.

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\1\ 55 FR 17185 (July 2, 1990).

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In September 1992, the OTS promulgated its Prompt Corrective Action

Final Rule (PCA Rule).2 The PCA Rule implemented section 131

of FDICIA, which created a system of supervisory actions indexed to

capital levels.3 Well-capitalized and adequately capitalized

insured depository institutions are generally not subject to PCA

restrictions.4 However, undercapitalized, significantly

undercapitalized, and critically undercapitalized categories are

subject to increasing levels of supervisory restrictions. Under the PCA

Rule, OTS uses the ratio of total capital to risk-weighted assets, the

ratio of core capital to risk-weighted assets, and the ratio of core

capital to total average assets (the leverage ratio) to determine a

thrift's PCA category.5

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\2\ 57 FR 44866 (September 29, 1992).

\3\ Section 131 of FDICIA added a new section 38 to the Federal

Deposit Insurance Act. The provision is codified at 12 U.S.C. 1831o.

The OTS's implementing regulations appear at 12 CFR Part 565 (1997).

\4\ Under certain circumstances, an institution may be

reclassified to a lower capital category or treated as if it were in

a lower capital category. See 12 CFR 565.4(c) (1997).

\5\ Core capital, which is defined in Part 567 of the OTS's

regulations, is the thrift capital measure comparable to Tier 1

capital for banks. 12 CFR Part 567 (1997).

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The PCA statute prohibits an insured depository institution from

making a capital distribution if, after making the distribution, the

institution would be undercapitalized. 12 U.S.C. 1831o(d)(1). In the

preamble to the 1992 PCA rule, the OTS stated ``that the permissibility

of capital distributions will be determined by the [PCA] regulations. A

savings association permitted to make a capital distribution under the

[PCA] regulations may do so if the amount and type of distribution

would be permitted under [the capital distribution regulation,

Sec. 563.134].'' 6 The OTS also indicated that it would

review its capital distributions regulation and consider making

amendments that may be necessary based on the PCA statute.7

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\6\ See 57 FR at 44868, fn.4.

\7\ Id.

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In December 1994, the OTS proposed to revise its capital

distributions regulation to reflect the PCA rule and make other

changes.8 After reconsidering the issues underlying the 1994

proposal, the OTS has decided to make further revisions to the capital

distributions rules. Accordingly, in a separate document, published in

today's Federal Register, the OTS has withdrawn its 1994 proposal in

favor of today's proposed revisions.

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\8\ See 59 FR 62356 (December 5, 1994).

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III. Summary of Proposed Rule

Today's proposal updates, simplifies, and streamlines the OTS

capital distributions rule in light of the OTS implementation of the

PCA requirements. Today's proposal makes changes designed to conform

the OTS capital distributions regulation to the rules of the other

banking agencies.

The proposed rule would add a new subpart E to part 563 to govern

capital distributions by savings associations. The new subpart utilizes

plain language drafting techniques consistent with National Performance

Review instructions and new guidance in the Federal Register Document

Drafting Handbook (January 1997 edition). The primary goal of plain

language drafting is to make regulations easier for users to

understand. The OTS intends to use plain language drafting in other

regulatory projects to the extent possible. The provisions of the

proposed new subpart are discussed below.

Proposed Sec. 563.140--What Does This Subpart Cover?

Section 563.140 of the proposed rule describes the scope of the

regulation. New subpart E would apply to all capital distributions made

by savings associations. Because the application of the capital

distributions rule to operating subsidiaries raises a variety of

questions, the OTS specifically requests comment on this issue.

Proposed Sec. 563.141--What Is a Capital Distribution?

Section 563.141 would define the term ``capital distribution'' to

reflect the PCA statutory definition at 12 U.S.C. 1831o(b)(2)(B). The

proposed rule defines a capital distribution, in part, as a

distribution of cash or other property to a savings association's

owners, made on account of their ownership.9 As provided in

the statute, the proposed definition excludes dividends consisting only

of a savings association's shares or rights to purchase

shares.10

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\9\ A distribution made by a Subchapter S corporation, as

defined in 26 U.S.C. 1361, to its owners, including a distribution

intended to cover a shareholder's personal tax liability for the

shareholder's proportionate share of the taxable income of the

institution, is considered to be a capital distribution under this

rule.

\10\ 12 U.S.C. 1831o(b)(2)(B)(i)(I).

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The statute also excludes from the definition of capital

distribution any amount paid on deposits of a mutual or cooperative

institution that the OTS determines is not a distribution for the

purposes of 12 U.S.C. 1831o.11 In accordance with section

1831o(b)(2)(B)(i)(II), the OTS has determined that payments that a

mutual savings association is required to make under the terms of a

deposit instrument generally are not considered to be capital

distributions.12 Accordingly, these payments are not subject

to the capital distributions rule unless either the OTS or FDIC finds

that the payment is, in substance, a distribution of capital. See

proposed Sec. 563.141(d), discussed below.

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\11\ 12 U.S.C. 1831o(b)(2)(B)(i)(II). The OTS recently revised

its regulations governing the payment of interest or earnings on

deposits. See 62 FR 54759 (October 22, 1997) (final rule) and 62 FR

15626 (April 2, 1997) (proposed rule).

\12\ Although payments to accountholders may, under certain

circumstances, be capital distributions under the regulation, any

treatment of mutual accountholders as ``owners'' under the capital

distributions regulation should not be construed as having any

effect on the concept of ``ownership'' of a mutual association under

any other statute or regulation.

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Consistent with the statutory definition, the proposed regulatory

[[Page 1046]]

definition includes a savings association's payment to repurchase,

redeem, retire, or otherwise acquire any of its shares or other

ownership interests. In addition, payments to repurchase, redeem, or

otherwise acquire debt instruments included in total capital, and any

extension of credit to finance an affiliate's acquisition of those

shares or interests would be capital distributions under the proposed

rule.13

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\13\ Under this provision, payments from a savings association

to an employee stock option plan (ESOP) trust to make payments on a

loan previously contracted by the ESOP to purchase shares of the

savings association's stock are not considered to be capital

distributions. Rather, such payments would be treated as

compensation by the savings association to its employees.

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Consistent with section 1831o(b)(2)(B)(iii), proposed

Sec. 563.141(d) states that a capital distribution includes any

transaction the OTS or the FDIC determines to be in substance a

distribution of capital. The OTS may make such determinations by order

or by regulation. Pursuant to the authority granted under section

1831o(b)(2)(B)(iii), the proposal would add one provision to the

definition of capital distribution not specifically addressed in the

statutory definition. Any direct or indirect payment of cash or other

property to owners or affiliates made in connection with a corporate

restructuring would be a capital distribution under this provision. The

proposed rule would apply to any corporate restructuring, including,

for example, cash-out mergers and internal reorganizations. Capital

distributions would also include payment to shareholders of an

association or shareholders of a holding company by an acquiring

association to acquire ownership of the association, other than a

distribution of shares. The OTS believes that such payments are in

substance a distribution of capital. This provision is based on the

existing OTS definition of capital distribution at

Sec. 563.134(a)(1)(iv).

In contrast, the OTS does not propose to retain existing

Sec. 563.134(a)(1)(iii), which states that a capital distribution

includes other distributions charged against the capital accounts of an

association. The OTS believes that this provision would be redundant

since the distributions it captures would generally be covered under

the proposed definition of capital distribution.14 The OTS

specifically solicits comments on whether existing

Sec. 563.134(a)(1)(iii) should be added to the final rule.

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\14\ See proposed Sec. 563.141(a)-(c).

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Proposed Sec. 563.142--What Other Definitions Apply to This Subpart?

Proposed Sec. 563.142 sets forth other definitions that apply to

capital distributions. Significant definitions are highlighted below.

To implement the proposed definition of capital distribution at

Sec. 563.141(b) and (c), which includes certain payments to affiliates,

the proposed rule would add a definition of affiliate. Under the

proposed rule, an affiliate would be any company that controls, is

controlled by, or is under common control with, another company. The

terms ``control'' and ``company'' would have the meaning given to those

terms in 12 U.S.C. 1841(a)(2) and (b) respectively.

The proposed rule would also add a definition of retained net

income. This definition would be introduced in connection with a new

provision requiring an application whenever a proposed capital

distribution exceeds a specified amount. As discussed below, an

application is required whenever the total amount of a capital

distribution exceeds a prescribed limit based on net income for the

year to date plus retained net income for the preceding two

years.15

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\15\ See proposed Sec. 563.143(a)(2).

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Proposed Sec. 563.142 would retain the current regulation's

definitions of capital, net income, and shares with minor

modifications.16 Moreover, the proposed rule would eliminate

definitions related to capital tier thresholds.17 These

thresholds have become obsolete as the thrift industry raised its

capital to required levels and the phase-in of capital requirements was

completed on December 30, 1992.

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\16\ See existing 12 CFR 563.134(a)(2), (5) and (6) (1997).

\17\ See existing 12 CFR 563.134(a)(3), (4), (7), (8), (9) and

(10) (1997).

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Proposed Sec. 563.143--Must I File With the OTS?

The current rule requires all savings associations to file either a

notice or an application with the OTS before making a capital

distribution. Today's proposal would allow savings associations to make

certain capital distributions without filing a notice or application

under certain circumstances. For savings associations that would remain

at least adequately capitalized following the capital distribution and

that meet other specified requirements, the OTS is proposing to

eliminate any requirement for notice or application for cash dividends

below specified amounts.

Section 563.143(a) would describe when a savings association must

file an application. Under this proposed provision, a savings

association must file an application if the association is not eligible

for expedited treatment under OTS's Application Processing Regulation

at 12 CFR 516.3(a), or if the capital distribution exceeds specified

amounts.

Under Sec. 516.3(a), a savings association is eligible for

expedited treatment if it: (1) has a composite rating of 1 or 2 under

the Uniform Financial Institutions Rating System (UFIRS), as revised by

the Federal Financial Institutions Examination Council;18

(2) has a CRA rating of satisfactory or better; (3) has a Compliance

rating of 1 or 2; (4) is meeting all of its capital requirements under

part 567; and (5) has not been notified by supervisory personnel that

it is a problem association or a savings association in troubled

condition. Under existing Sec. 563.134(b)(5), the OTS may notify an

association that it is ``in need of more than normal supervision,'' and

subject it to more rigorous capital distribution requirements. For

example, such an association may be required to file an application for

prior approval of a distribution, rather than a notice of the

distribution. The phrase ``in need of more than normal supervision,''

however, is not defined in existing Sec. 563.134 nor used elsewhere in

OTS regulations. The proposed rule would retain similar OTS discretion

on this point by requiring an application from any institution that

does not meet the requirements for expedited treatment (including the

problem association or troubled condition restrictions).19

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\18\ 61 FR 67021, 67024-67029 (December 19, 1996). The OTS

issued a final rule making conforming changes to its regulations

that cross-reference the UFIRS. 62 FR 3779, 3780 (January 27, 1997).

\19\ See proposed Secs. 563.143(a)(1).

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A savings association must also file an application with the OTS if

the amount of the capital distribution exceeds a specified amount.

Under proposed Sec. 563.143(a)(2), an application would be required if

the total amount of all capital distributions, including the proposed

capital distribution, for the applicable calendar year would exceed an

amount equal to the savings association's net income for that year to

date plus the savings association's retained net income for the

preceding two years. Thus, without prior application to the OTS, only

undistributed net income for the prior two years may be distributed in

addition to the current year's undistributed net income. This proposed

restriction is similar to

[[Page 1047]]

limitations imposed upon banks and should promote interagency

regulatory conformity consistent with section 303 of CDRIA. It is based

on the requirement currently imposed upon national banks under 12

U.S.C. 60 and OCC regulations at 12 CFR 5.64.20 FRB

regulations at 12 CFR 208.19(b) impose a similar requirement on state

member banks.

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\20\ Under 12 U.S.C. 60 and 12 CFR 5.64(1997), a national bank

may not declare a dividend if the total amount of all dividends

(common and preferred), including the proposed dividend, declared by

the national bank in any calendar year exceeds the total of the

national bank's retained net income of that year to date, combined

with its retained net income of the preceding two years, unless the

dividend is approved by the OCC.

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Proposed Sec. 563.143(b) describes when a savings association must

file a notice of a capital distribution. This proposed section would

apply whenever an application is not otherwise required under

Sec. 563.143(a). A savings association would be required to file a

notice if it meets any one of four criteria.

First, a notice would be required if the savings association would

not be at least adequately capitalized following the distribution. This

requirement ensures that a savings association will not violate the PCA

provision prohibiting a savings association from declaring any dividend

or making any other capital distribution if, following the

distribution, the institution would be undercapitalized.21

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\21\ 12 U.S.C. 1831o(d)(1)(A).

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The second criterion is similar to restrictions imposed on upon

banks and should promote interagency regulatory conformity consistent

with section 303 of CDRIA. Section 563.143(b)(2) is based on section

18(i) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1828(i)).

Under this statute, no insured state nonmember bank may, without the

FDIC's prior consent, reduce the amount, or retire any part of its

common or preferred capital stock, or retire any part of its capital

notes and debentures.22 Section 563.143(b)(2) would place a

comparable restraint on savings associations by requiring a notice

where a capital distribution would reduce the amount of, or retire any

part of the savings association's common or preferred stock, or retire

any part of debt instruments such as notes or debentures included in

capital under part 567. Under the proposed rule, the reduction of the

amount of stock would include the repurchase of outstanding stock as

treasury stock. The OTS specifically requests comment on whether a

savings association should be required to file a notice for such stock

repurchases.

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\22\ A similar, but not identical, provision applies to national

banks. See 12 U.S.C. 56 and 59.

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Proposed Sec. 563.143 would include a limited exception to the

FDIA-based requirement. If a notice or application is not otherwise

required under Sec. 563.143(a) and (b), a savings association would not

be required to file if the savings association is making a regular

payment under a debt instrument approved by the OTS under 12 CFR

563.81.

Under the third criterion, a savings association would be required

to file a notice if the proposed distribution violates a prohibition

contained in any applicable statute, regulation, or agreement between

the savings association and the OTS (or the FDIC), or a condition

imposed on the savings association in an OTS-approved application or

notice.

Finally, under Sec. 563.143(b)(4), a savings association that is a

subsidiary of a savings and loan holding company would be required to

file a notice, unless an application is otherwise required. This

provision implements 12 U.S.C. 1467a(f), which requires such savings

associations to notify OTS at least 30 days before the proposed

declaration of any dividend.

If neither the savings association nor the proposed capital

distribution meet any of the criteria listed in Sec. 563.143(a) or (b),

the savings association is not required to file a notice or an

application before making a distribution. See proposed Sec. 563.143(c).

Proposed Sec. 563.144--How Do I File With the OTS?

Proposed Sec. 563.144 contains the requirements governing the

filing of capital distribution notices or applications with the OTS.

Under this proposed section, an application or notice must be in

narrative form, include all relevant information concerning the

proposed capital distribution, including the amount, timing, and type

of distribution, and demonstrate compliance with Sec. 563.146, which

addresses the criteria for OTS disapproval of notices and denial of

applications. In addition, an application must demonstrate compliance

with OTS approval standards at Sec. 516.3(b)(2). See proposed

Sec. 563.144(a).

Current Sec. 563.134(c) permits savings associations to seek

approval or provide notice by submitting schedules of proposed capital

distributions. Proposed Sec. 563.144(b) would permit a savings

association to file schedules of capital distributions it proposes to

make over a period not to exceed 12 months.

All notices and applications must be filed at least 30 days before

the proposed declaration of dividend or approval of the proposed

capital distribution by the savings association's board of directors.

See proposed Sec. 563.144(c). All notices and applications would be

processed under 12 CFR Secs. 516.1 through 516.3.

Proposed Sec. 563.145--May I Combine My Notice or Application With

Other Notices or Applications?

Consistent with the current regulation, the proposed rule would

allow a savings association to combine a capital distribution notice or

application with any related notice or application filed with the OTS

under any regulation. To combine notices, the association must state

that the related notice or application is intended to serve as a notice

or application under the capital distributions regulation.

Additionally, the savings association must submit the combined notice

or application in a timely manner.

Proposed Sec. 563.146--Will the OTS Permit My Capital Distribution?

Section 563.146 would state that the OTS may disapprove a notice or

deny an application submitted under Sec. 563.143 under three

circumstances. First, Sec. 563.146(a) would state that the OTS may

disapprove a notice or deny an application if, following the

distribution, the savings association would be undercapitalized. This

provision reflects the PCA prohibition at 12 U.S.C. 1831o(d)(1)(B). If

the savings association would be undercapitalized, the OTS would

determine whether the capital distribution falls within the limited

statutory exception permitting the OTS, in consultation with the FDIC,

to approve an undercapitalized institution's repurchase, redemption,

retirement or acquisition of shares or ownership interests. To be

exempted, the distribution must be made in connection with the issuance

of additional shares in at least an equivalent amount, and must reduce

the institution's financial obligations or otherwise improve its

financial condition. 12 U.S.C. 1831o(d)(1)(B).

Second, under proposed Sec. 563.146(b) the OTS may disapprove a

notice or deny an application where the OTS determines that the

proposed capital distribution raises safety or soundness concerns. The

OTS will consider the amount of the capital distribution in determining

whether the distribution raises safety and soundness concerns. Under

today's proposal, a savings association would not be required to file a

notice or application for a cash distribution if, in addition to

satisfying other regulatory requirements, the total

[[Page 1048]]

amount of all distributions (including the proposed distributions) for

the applicable calendar year does not exceed net income for that year

to date plus the retained net income for the preceding two years. The

OTS may permit a capital distribution in excess of this standard upon

application, but may deny an application for such a distribution if it

raises safety and soundness concerns.

Finally, Sec. 563.146(c) would retain the existing provision that a

savings association may not make a distribution that violates a

prohibition contained in any statute, regulation, or agreement between

the savings association and the OTS or the FDIC or condition imposed on

the savings association in an OTS-approved application or

notice.23 If there is such a violation, the OTS would

determine whether it may and should permit the capital distribution

notwithstanding the prohibition.

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\23\ See current 12 CFR 563.134(b)(6) (1997).

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Miscellaneous

The current regulation at 12 CFR 563.134(e)(2) and (3) addresses

the effect of the capital distributions rule on more stringent and less

stringent provisions or conditions imposed in written agreements

between a savings association and the OTS, or imposed on a savings

association in an OTS-approved application or notice. The OTS believes

that these provisions would have a limited application, and has not

included them in the proposed rule. The OTS specifically requests

comments on whether these provisions should be retained in the final

rule.

The proposed rule includes appropriate revisions modifying cross

citations to existing Sec. 563.134.

IV. Executive Order 12866

The Director of the OTS has determined that this proposed

regulation does not constitute a ``significant regulatory action'' for

purposes of Executive Order 12866.

V. Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS

certifies that this proposed regulation will not have a significant

economic impact on a substantial number of small entities. The proposal

merely conforms the capital distributions regulation to standards

already in place for all institutions as a result of PCA and makes

other revisions designed to lower paperwork and other burdens on

savings associations.

VI. Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

federal mandate that may result in expenditure by state, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. OTS has determined that the

proposed rule will not result in expenditures by state, local, or

tribal governments or by the private sector of $100 million or more. As

discussed in the preamble, the proposal merely conforms the capital

distributions regulation to standards already in place for all

institutions as a result of PCA and makes other revisions designed to

lower paperwork and other burdens on savings associations. Accordingly,

this rulemaking is not subject to section 202 of the Unfunded Mandates

Act.

VII. Paperwork Reduction Act

OTS invites comment on:

(1) Whether the proposed information collection contained in this

proposal is necessary for the proper performance of OTS's functions,

including whether the information has practical utility;

(2) The accuracy of OTS's estimate of the burden of the proposed

information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(4) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology; and

(5) Estimates of capital and start-up costs of operation,

maintenance and purchases of services to provide information.

Respondents/recordkeepers are not required to respond to this

collection of information unless it displays a currently valid OMB

control number.

The collection of information requirements contained in this

proposal have been submitted to the Office of Management and Budget for

review in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)). Comments on the collections of information should be

sent to the Office of Management and Budget, Paperwork Reduction

Project (1550-0059), Washington, D.C. 20503, with copies to the

Regulations and Legislation Division (1550-0059), Chief Counsel's

Office, Office of Thrift Supervision, 1700 G Street, N.W., Washington,

D.C. 20552.

The collection of information requirements in this proposed rule

are found in 12 CFR 563.143-563.146. OTS requires this information for

the proper supervision of capital distributions by Federal savings

associations. The likely respondents/recordkeepers are Federal savings

associations.

Estimated average annual burden hours per respondent/recordkeeper:

4.

Estimated number of respondents: 688.

Estimated total annual reporting and recordkeeping burden: 2752.

Start up costs to respondents: none.

List of Subjects

12 CFR Part 563

Accounting, Advertising, Crime, Currency, Investments, Reporting

and recordkeeping requirements, Savings associations, Securities,

Security bonds.

12 CFR Part 563b

Reporting and recordkeeping requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift Supervision hereby proposes to

amend chapter V, title 12 of the Code of Federal Regulations as set

forth below.

PART 563--OPERATIONS

1. The authority citation for part 563 continues to read as

follows:

Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,

1817, 1820, 1828, 3806; 42 U.S.C. 4106.

Sec. 563.134 [Removed]

2. Section 563.134 is removed.

3. Subpart E is revised to read as follows:

Subpart E--Capital Distributions

Sec.

563.140 What does this subpart cover?

563.141 What is a capital distribution?

563.142 What other definitions apply to this subpart?

563.143 Must I file with the OTS?

563.144 How do I file with the OTS?

563.145 May I combine my notice or application with other notices

or applications?

563.146 Will the OTS permit my capital distribution?

[[Page 1049]]

Subpart E--Capital Distributions

Sec. 563.140 What does this subpart cover?

This subpart applies to all capital distributions made by a savings

association (``you'').

Sec. 563.141 What is a capital distribution?

A capital distribution is:

(a) A distribution of cash or other property to your owners made on

account of their ownership, but excludes:

(1) Any dividend consisting only of your shares or rights to

purchase your shares; or

(2) If you are a mutual savings association, any payment that you

are required to make under the terms of a deposit instrument and any

other amount paid on deposits that the OTS determines is not a

distribution for the purposes of this section.

(b) Your payment to repurchase, redeem, retire or otherwise acquire

any of your shares or other ownership interests, any payment to

repurchase, redeem, retire, or otherwise acquire debt instruments

included in your total capital under Sec. 567.5 of this chapter, and

any extension of credit to finance an affiliate's acquisition of your

shares or interests.

(c) Any direct or indirect payment of cash or other property to

owners or affiliates made in connection with a corporate restructuring.

This includes a payment to shareholders of an association or

shareholders of a holding company by an acquiring association to

acquire ownership of the association, other than a distribution of

shares.

(d) Any transaction that the OTS or the Corporation determines, by

order or regulation, to be in substance a distribution of capital.

Sec. 563.142 What other definitions apply to this subpart?

The following definitions apply to this subpart:

Affiliate means any company that controls, is controlled by, or is

under common control with another company. The terms ``control'' and

``company'' have the meaning given to those terms in 12 U.S.C.

1841(a)(2) and (b) respectively.

Capital means total capital as defined under Sec. 567.5(c) of this

chapter.

Net income means your net income computed in accordance with

generally accepted accounting principles.

Retained net income means your net income for a specified period

less total capital distributions declared in that period.

Shares means common and preferred stock, and any options, warrants,

or other rights for the acquisition of such stock. The term ``share''

also includes convertible securities upon their conversion into common

or preferred stock. The term does not include convertible debt

securities prior to their conversion into common or preferred stock or

other securities that are not equity securities at the time of a

capital distribution.

Sec. 563.143 Must I file with the OTS?

Whether and what you must file with the OTS depends on whether you

and your proposed capital distribution fall within certain criteria.

(a) Application required.

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If: Then you:

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(1) You are not eligible for expedited treatment under Sec. Must file an application with the OTS.

516.3(a) of this chapter.

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(2) The total amount of all of your capital distributions Must file an application with the OTS.

(including the proposed capital distribution) for the applicable

calendar year exceeds your net income for that year to date plus

your retained net income for the preceding two years.

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(b) Notice required.

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If you are not required to file an application under paragraph (a)

of this section, but: Then you:

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(1) You will not be at least adequately capitalized, as set forth Must file a notice with the OTS.

in Sec. 565.4(b)(2) of this chapter.

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(2) Your proposed capital distribution would reduce the amount of Must file a notice with the OTS.

or retire any part of your common or preferred stock or retire any

part of debt instruments such as notes or debentures included in

capital under part 567 of this chapter (other than regular

payments required under a debt instrument approved under Sec.

563.181).

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(3) Your proposed capital distribution would violate a prohibition Must file a notice with the OTS.

contained in any applicable statute, regulation, or agreement

between you and the OTS (or the Corporation, or violate a

condition imposed on you in an OTS-approved application or notice.

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(4) You are a subsidiary of a savings and loan holding company. Must file a notice with the OTS.

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(c) No prior notice required.

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If neither you nor your proposed capital distribution meet any of Then you do not need to file a notice or an

the criteria listed in paragraphs (a) and (b) of this section. application with the OTS before making a

capital distribution.

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[[Page 1050]]

Sec. 563.144 How do I file with the OTS?

(a) Contents. Your notice or application must:

(1) Be in narrative form.

(2) Include all relevant information concerning the proposed

capital distribution, including the amount, timing, and type of

distribution.

(3) Demonstrate compliance with Sec. 563.146. If you have filed an

application, your application must also demonstrate compliance with the

standards of Sec. 516.3(b)(2) of this chapter.

(b) Schedules. Your notice or application may include a schedule

proposing capital distributions over a specified period, not to exceed

12 months.

(c) Timing. You must file your notice or application at least 30

days before the proposed declaration of dividend or approval of the

proposed capital distribution by your board of directors.

Sec. 563.145 May I combine my notice or application with other notices

or applications?

Yes. You may combine the notice or application required under

Sec. 563.143 with any related notice or application filed with the OTS

under any provision of this chapter, if:

(a) You state that the related notice or application is intended to

serve as a notice or application under this subpart; and

(b) You submit the notice or application in a timely manner.

Sec. 563.146 Will the OTS permit my capital distribution?

The OTS may disapprove your notice or deny your application filed

under Sec. 563.143, if the OTS makes any of the following

determinations.

(a) You will be undercapitalized, significantly undercapitalized,

or critically undercapitalized as set forth in Sec. 565.4(b) of this

chapter, following the capital distribution. If so, the OTS will

determine if your capital distribution is permitted under 12 U.S.C.

1831o(d)(1)(B).

(b) Your proposed capital distribution raises safety or soundness

concerns.

(c) Your proposed capital distribution violates a prohibition

contained in any statute, regulation, agreement between you and the OTS

(or the Corporation), or a condition imposed on you in an OTS-approved

application or notice. If so, the OTS will determine whether it may

permit your capital distribution notwithstanding the prohibition or

condition.

PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM

4. The authority citation for part 563b continues to read as

follows:

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15

U.S.C. 78c, 78l, 78m, 78n, 78w.

Sec. 563b.3 [Amended]

5. Section 563b.3(g)(2) is amended by removing the phrase

``Sec. 563.134'', and by adding in lieu thereof the phrase

``Secs. 563.140-563.146''.

Dated: December 12, 1997.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98-205 Filed 1-6-98; 8:45 am]

BILLING CODE 6720-01-P