best of their knowledge and belief and present fairly the financial position and the results of operations for the period covered.

(e) Upon written application by the board of directors of a Federal credit union, the Administrator may waive, in whole or in part, the requirement for the maintenance of the valuation allowance for loan losses in amounts which are in excess of the statutory requirements of section 116 of the Federal Credit Union Act but are required under paragraph (c) (3) (ii) of this section. Such application shall set forth the justification for the requested waiver and shall be addressed to the appropriate Regional Director.

[40 FR 8069, Feb. 25, 1975]

PART 703-INVESTMENTS AND DEPOSITS

§ 703.1

Certificates of Deposit.

(a) A Federal credit union may invest in or make a deposit evidenced by a time certificate of deposit issued by any of those institutions enumerated in sections 107(8) (D) and 107(9) of the Federal Credit Union Act: Provided,

(1) That such Federal credit union itself makes the investment or deposit for which the certificate is issued; and

(2) That no consideration is received from a third party in connection with the making of the investment or deposit.

(b) A Federal credit union may contract with the issuing institution for payment of the whole or a portion of a certificate of deposit before maturity.

(c) Certificates of deposit issued by those state chartered financial institutions enumerated in sec. 107(9) of the Federal Credit Union Act may be obtained by a Federal credit union provided such institutions are operating in accordance with the laws of a state in which the Federal credit union maintains a facility. For purposes of the paragraph, the word "facility" means the home office of a Federal credit union or any suboffice thereof, including but not necessarily limited to a wire service, telephonic station or mechanical teller station.

(d) Negotiable certificates of deposit purchased under this authority may be sold by a Federal credit union to a third party before maturity subject to the appropriate regulations governing the issuing institution involved.

(e) The purchase of a certificate of deposit that does not meet the above pro

§ 706.2

Special provisions for National Credit Union Share Insurance.

(a) Should the converting Federal credit union desire to continue Federal Share Insurance subsequent to conversion, an application shall be submitted to the Administrator at the time the Federal credit union requests his approval of the conversion proposal.

(b) Should the converting Federal credit union not desire to continue Federal Share Insurance subsequent to conversion, or should the share insurance application for continued insurance as a state credit union not be approved by the Administrator, such insurance ceases as of the effective date of the conversion. As used herein, the effective date of conversion is the day immediately preceding the date on which the Federal credit union became a state credit union.

(c) When the converting Federal credit union's insurance is terminated in

accordance with subsection (b) of this section, it is not entitled to a rebate of premiums, but a refund of the unused portion of the premiums shall be authorized.

§ 706.3

Submittal of conversion proposal to Administration.

(a) Upon approval of a proposition for conversion by the board of directors, the conversion proposal shall be submitted to the Regional Director. This proposal shall include:

(1) a current financial report;

(2) current delinquent loan schedule annotated to reflect collection problems;

(3) explanation and appropriate documents relative to any changes in insurance of member accounts;

(4) resolution of the Board of Directors;

(5) notice of Special Meeting of the members;

(6) copy of Ballot to be sent to members; and

(7) evidence that the state supervisory authority is in agreement with the conversion proposal.

(b) The Regional Director will review the proposal and forward it, with his recommendations, to the Administrator. § 706.4 Approval of proposal by Administrator.

If the Administrator finds that the conversion proposal complies with this and other parts of these regulations, he will approve the proposal.

§ 706.5 Approval of proposal by members.

(a) The converting Federal credit union must:

(1) obtain approval of the conversion proposal by a majority of the members of record;

(2) submit the conversion proposal to the members either at the annual meeting, if within 120 days after the Administrator's approval, or at a special meeting to be called within 120 days of such approval; and

(3) give advance notice of the meeting at which the proposal is to be submitted in accordance with the provisions of Article V of the Federal Credit Union Bylaws. The notice shall:

(i) specify the time, place and purpose of the meeting;

(ii) include a brief and accurate statement of the reasons for and against the proposed conversion, including any effects it could have upon shareholdings,

insurance of member accounts, and the policies and practices of the credit union;

(iii) inform the members that they have the right to vote on the proposal at the meeting, or by mail ballot postmarked no later than the date and time announced for the annual meeting or the special meeting called for that purpose; and

(iv) be accompanied by a Ballot for Conversion Proposal.

(b) The board of directors shall, within 10 days, certify the results of the membership vote to the Regional Director. § 706.6 Compliance with State laws.

If the proposal for conversion is approved by the members, the board of directors shall promptly take necessary action, under applicable state law, to convert to a state credit union. Further, the board of directors will keep the Regional Director advised as to the status of this action.

§ 706.7 Completion of conversion.

(a) The board of directors shall, within 10 days after receipt, submit to the Regional Director a copy of the state charter, license, or other documentary evidence that the credit union has been authorized to operate as a state financial institution. This shall be accompanied by the Federal charter and the Federal insurance certificate.

(b) The credit union shall cease to be a Federal credit union as of the effective date of the conversion.

(c) If the Administrator is satisfied that the conversion has been accomplished in accordance with the approved proposal, he will cancel the Federal charter.

(d) If the state credit union is to be federally-insured, the Administrator will issue a new insurance certificate.

Any state credit union may convert to a Federal credit union by:

(a) complying with the requirements of the Federal Credit Union Act and the requirements enumerated in this and in other parts of these regulations; and

(b) complying with applicable state laws and the requirements of the state supervisory authority.

§ 707.2 Submittal of conversion proposal to Administration.

(a) Upon approval of a proposition for conversion by the board of directors, the conversion proposal shall be submitted to the Regional Director. This proposal shall include:

(1) evidence that the state supervisory authority is either in agreement with the conversion proposal, or, if in disagreement, the reasons therefor;

(2) application to convert from a state to a Federal credit union;

(3) in the case of a state credit union which is not federally insured, an application for Federal insurance; and

(4) authorization for the Administrator to make an examination of the credit union and an agreement to pay an examination fee in accordance with § 701.7.

(b) The Regional Director will review the proposal and forward it, with his recommendations, to the Administrator. § 707.3 Approval of proposal by Administrator.

If the Administrator finds that the conversion proposal complies with this and other parts of these regulations, he will approve the proposal.

§ 707.4 Compliance with State require

ments.

(a) Upon the Administrator's approval of the conversion proposal, the credit union shall proceed to comply with the requirements of the state, requisite to enabling it to convert to a Federal credit union.

(b) The board of directors shall immediately notify the Regional Director, in writing, when all state requirements have been met. This notification shall be accompanied by documentary evidence from the state supervisory authority that the requirements have been satisfied.

§ 707.5 Application for Federal charter.

Upon receipt of the notification described in § 707.4 (b), the Regional Director will authorize the credit union to proceed for a Federal charter in accordance with Part 701 of these regulations. Upon receipt by the Regional Director, the proposed Organization Certificate will constitute the credit union's formal application to become a Federal credit union.

§ 707.6 Compliance of conversion.

(a) If the Administrator is satisfied that the conversion has been accomplished in accordance with the approved proposal, he will approve the Organization Certificate and Application and Agreements for Insurance. The credit union's Federal Charter and Certificate of Insurance will be forwarded by the Administrator.

(b) The effective date of the conversion will be the date on which the Administrator approves the Organization Certificate. It shall be vested with all of the assets and shall continue to be responsible for all of the obligations of the state credit union to the same extent as though the conversion had not taken place.

(c) Upon receipt of its Federal Charter, the board of directors shall hold its first meeting as a Federal credit union. At such meeting the board of directors shall transact such other business as is necessary to carry into effect the conversion as approved by the Administrator and to operate the Federal credit union in accordance with the requirements of the Act.

(1) The continuing credit union is that credit union which will continue in operation after the merger.

(2) The merging credit union is that credit union which will cease to exist as an operating credit union at the time of the merger.

(3) State credit union means any credit union organized and operated according to the laws of any state, the several territories and possessions of the United States, the Panama Canal Zone, or the Commonwealth of Puerto Rico, or any credit union organized and operating under the jurisdiction of the Department of Defense and in compliance with the requirements of Title I of the Federal Credit Union Act and regulations issued thereunder. Accordingly, state means the appropriate regulatory or supervisory authority for any such credit union. § 708.2 When permissible.

(a) When the requirements enumerated herein have been met, merger may be effected if:

(1) There has been compliance with National Credit Union Administration chartering policies (where the continuing credit union is a Federal credit union); or

(2) Permitted by state law or authorized by the state supervisory authority (where the continuing or merging credit union is a state credit union).

(b) In any case where the continuing credit union is federally-insured, and the merging credit union is not insured, a determination shall be made by the Administrator as to the potential risk to the National Credit Union Share Insurance Fund (NCUSIF).

fied accordingly prior to any required voting activity to approve the marger.

(b) When a credit union's insurance is terminated in accordance with paragraph (a) of this section, it is not entitled to a rebate of premiums, but the continuing credit union shall be entitled to a refund of the unused portion of the premiums.

(c) Where the merging credit union is federally-insured and the continuing credit union is not so insured, but desires to be insured as of the date of the merger, an application shall be submitted to the Administrator when the merging credit union requests his approval of the merger proposal.

(d) An insurance premium will be assessed on the additional share accounts insured as a result of the merger. The amount of the premiums will be prorated as of the effective date of the merger on these additional share accounts.

§ 708.4 Preparation of merger plan.

(a) Upon the approval of a proposition for merger by the boards of directors of credit unions, a plan for the proposed merger shall be prepared. The plan shall include:

(1) Current financial reports;

(2) Current delinquent loan schedules annotated to reflect collection problems; (3) Combined financial report;

(4) Analyses of share values;

(5) Explanation of any proposed share adjustments;

(6) Explanation of any provisions for reserves, undivided earnings or dividends;

(7) Provisions with respect to notification and payment of creditors;

(8) Explanation of any changes relative to insurance of member accounts;

(9) Provisions for insuring that all assets and liabilities of the continuing credit union will conform with the requirements of the Act (where the continuing credit union is a Federal credit union); and

(10) Proposed charter amendments (where the continuing credit union is a Federal credit union).

§ 708.5 Submittal of merger proposal to Administration.

(a) Upon approval of the merger plan by the boards of directors of the credit unions, the following information will be submitted to the Regional Director:

(1) The merger plan, as described in this part;

(2) Resolution of the boards of directors;

(3) Proposed Merger Agreement;

(4) Proposed Notice of Special Meeting of the Members (for merging Federal credit unions);

(5) Copy of the form of Ballot to be sent to the Members (for the merging Federal credit unions);

(6) Evidence that the state's supervisory authority is in agreement with the merger proposal (for state credit unions); and

(7) Application and Agreements for Insurance of Member Accounts (for continuing state credit unions desiring to become federally-insured).

(b) The Regional Director will review the proposal and forward it, with his recommendations, to the Administrator. § 708.6 Approval of merger proposal by Administrator.

(a) If the Administrator finds that the merger proposal complies with this and other parts of these regulations, he may approve the proposal subject to such other specific requirements as may be prescribed to fulfill the intended purposes of the proposed merger.

(b) Any proposed charter amendments for a continuing Federal credit union will be approved contingent upon the completion of the merger.

§ 708.7 Approval of the merger proposal by members.

(a) When the merging credit union is a Federal credit union, the members shall:

(1) Have the right to vote on the merger proposal in person at the annual meeting, if within 120 days after the Administrator's approval, or at a special meeting to be called within 120 days of such approval, or by mail ballot postmarked no later than the date and time announced for the annual meeting or the special meeting called for that purpose.

(2) Be given advance notice of the meeting at which the merger proposal is to be submitted, in accordance with the provisions of Article V, Meetings of Members, Federal Credit Union Bylaws. The notice shall:

(i) Specify the purpose of the meeting and time and place;

(ii) Include a summary of the merger plan, which shall contain, but not necessarily be limited to, current financial reports for each credit union, a combined

financial report for the continuing credit union, analyses of share values, explanation of any proposed share adjustments, explanation of any changes relative to insurance of member accounts; (iii) State reasons for the proposed merger;

(iv) Provide name and location (to include branches) of the continuing credit union;

(v) Inform the members that they have the right to vote on the merger proposal in person at the meeting or by written ballot to be postmarked no later than the date and time announced for the annual meeting or the special meeting called for that purpose; and

(vi) Be accompanied by a Ballot for Merger Proposal.

(b) The merger proposal of a merging Federal credit union must be approved by affirmative vote of a majority of the members of the credit union who vote on the proposal in a vote in which at least 20 per centum of the total membership of the credit union participates. § 708.8 Certification of vote on merger proposal.

The board of directors of the merging Federal credit union shall promptly certify the results of the membership vote to the Regional Director.

§ 708.9 Completion of merger.

(a) Upon approval of the merger proposal by the Administrator, and by the members of each credit union where required, action may be taken to complete the merger. The boards of directors shall:

(1) Promptly certify the completion of the merger to the Regional Director; and

(2) Forward, along with the certification, the following documents:

(i) Financial reports for each credit union before the completion of merger; (ii) A financial report for the continuing credit union after the completion of merger;

(iii) The charters of merging Federal credit unions; and

(iv) Insurance certificates for merging federally-insured credit unions.

(b) If the Administrator is satisfied that the merger has been accomplished in accordance with the approved plan, he shall cancel the charters of the Federal credit unions which have lost their identity in the merger.