22734

of the conversion, implement a stock opuon pian or management or employee stock benefit plan, other than a taxqualified plan complying with (c)(6) of this section, unless each of the following requirements are met:

(i) Each of the plans was fully disclosed in the proxy soliciting and conversion stock offering materials:

(ii) For stock option plans, the total number of shares of common stock for which options may be granted does not exceed ten percent of the amount of shares issued in the conversion:

(iii) For management or employee stock benefit plans, the aggregate amount of such plans shall not exceed three percent of the amount of shares issued in the conversion:

(iv) The aggregate amount of all shares obtained by a tax-qualified employee stock benent plan(s) in the conversion. pursuant to (c)(6) of this section, or within one year following the conversion, and all the shares in a management or employee stock benefit plan, pursuant to paragraph (g)(4)(iii) of this section, shall not exceed ten percent of the total amount of shares issued in the conversion:

(v) Associations that have in excess of ten percent tangible capital following the conversion, may be granted, on a case by case basis, approval to establish a management or employee stock benefit plan pursuant to paragraph (g)(4)(iii) of this section in an amount up to four percent of the amount of the shares issued in the conversion, and an aggregate total of up to twelve percent for all plans established pursuant to paragraph (g)(4)(iv) of this section:

(vi) No individual shall receive more than twenty-five percent of the shares of any plan and directors who are not employees of the association shall not receive more than five percent of the stock individually, or thirty percent in the aggregate, of any plan:

(vii) All such pians are approved by a majority of the association's stockholders, or in the case of a recently formed boiding company, its stockholders, prior to implementation and no earlier than the first annual meeung following the conversion:

(viii) In the case of a savings association subsidiary of a mutual holding company, all such plans are approved by a maiority of stockholders other than its parent mutual holding company prior to implementation and no earlier than the first annual meeung following the stock issuance:

(ix) For stock opuon plans, stock options are granted at the market price at which the stock is trading at the ume of grant:

(x) For management or employee stock benent plans, no conversion stock is used to fund the pians; and

(xi) Prior to implementation, all such plans are submitted to the appropriate Regional Director for review and approval in accordance with the foregoing standards. In connection with such review, the Regional Director shall consider all relevant supervisory informaton, including, among other things, the association's capital level. operaung history and size of the association. The Regional Director may permit amounts greater than those specified in paragraph (g)(4)(vi) of this section, provided that the aggregate limitations of paragraphs (g)(4)(ii)—v) of this section are not exceeded.

Written comments, including objections to the plan of conversion and materials supporting the objections, from any member of the applicant or aggrieved person will be considered by the Office if filed within twenty calendar days after the date of this nouce. The OTS may, in its discretion, and upon written request. extend the twenty day comment period for an additional twenty calendar days. Failure to provide the written comments in twenty calendar days may preclude the pursuit of any

administrative or judicial remedies. Two copies of the comments should be sent to the Chief Counsel. Corporate and Securities Division, one copy to the Corporate Activities Division and one copy to the Regional Director. The proposed plan of conversion and any comments wil be available for inspection by any member of the applicant at the Chief Counsel's Office and at the Regional Director's Office. A copy of the pian of conversion may also be inspected at the home office and each branch office of the applicant.

exhibit included in any application under this part, such informauon pertaining to such item or exhibit shall be separately bound and labeled "confidential." and a statement shall be submitted therewith briefly setung forth the grounds on which such information should be treated as confidential. Only general reference thereto need be made in that portion of the application which the applicant deems not to be confidential. Applications under this part shall be made available for inspection by the public. except for portions which are bound and labeled confidential" and which the Office determines to withhold from public availability under 3 U.S.C. 552 and part 505 of this chapter. Preliminary soliciting materials will be made available upon aling, unless such materials are not otherwise available to the public and are bound and labeled "confidential." The applicant will be advised of any decision by the Office to make public information designated "confidenual" by the applicant. Even though sections of the application are considered "confidential." as far as public inspection thereof is concerned, to the extent it deems necessary, the Office may comment on such confidential submissions in any public

statement in connection with its decision on the application without prior notice to the applicant.

5. Section 563b.5 is amended by revising paragraphs (d)(4) and (e)(5) to read as follows:

$663b.5 Solicitation of proxies; proxy statement

(d) • •

(4) Each voting member must be furnished a form of proxy conforming with paragraph (d) of this secuon. No applicant shall use previously-executed proxies. (e) • • .

(5) All preliminary copies of material filed pursuant to paragraphs (e)(1), (e)(2) and (e)(4) of this section shall be clearly marked on the cover page "Preliminary Copy". Such preliminary copies shall be public unless otherwise deemed confdenual pursuant to § 563b.+(c) of this part.

§ 5636.10 Conversion of a savings association through merger with an existing holding company or stock savings association.

A savings association that qualifies for a voluntary supervisory conversion under subpart C of this part may convert to stock form by merging with an existing holding company or interim Federal or state chartered stock association in a transaction in which stock of the existing holding company or resulting association is issued.

9. Section 563b.100 is amended by removing the phrase "90 days in Form AC. the ùrst paragraph of Item 6 and by adding in lieu thereof the phrase "one year": and by adding Exhibit 8 to Form AC to read as follows:

§ 5636.100 Form AC Application for Conversion.

Item 1. Notice of Meeting

The cover page of the proxy statement shall give notice of the meeung of the association members called by the board of directors to act upon the conversion. The cover page shall include the date, time and place of the meeting, a brief description of each matter to be acted upon at the meeting, the date of record for association members entitled to vote at the meeting, the date of the statement and the full address. ZIP code and telephone number of the applicant

In accordance with § 563b.5(d)(4) of this part. the applicant shall not use previousiv-. executed proxies to vote on the pian of

(e) Procedural and substantive requirements. The procedurai and substantive requirements of §§ 5636.3 through 5636.8 of this subchapter shall apply to all mutual holding company stock issuances under this section. unless clearly inapplicable.

13. Section 575.13 is amended by adding a new sentence at the end of paragraph (a)(4) to read as follows:

§ 575.13 Procedural requirements.

Notwithstanding the provisions in this paragraph (a)(+). "running" proxies or similar proxies may not be used to vote for a mutual to stock conversion undertaken either by a

22735

mutual savings association or a mutual holding company.

Dated: April 7, 1994.

By the Office of Thrift Supervision.
Jonathan L. Fiechter.
Acung Director.

!FR Doc 94-9981 Filed 5-2-94; 8:45 am BILLING CODE 8723-01

FARM CREDIT ADMINISTRATION 12 CFR Part 615

RIN 3052-AB25

Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations: Management of Investments, Liquidity, Interest Rate Risk, and Eligible Investments; Correction

AGENCY: Farm Credit Administration. ACTION: Correcting amendments. SUMMARY: The Farm Credit Administration (FCA) published a final rule (58 FR 63034, November 30, 1993) that amended the regulations which govern the investment activities of Farm Credit System banks. This document corrects two typographical errors in the final rule.

EFFECTIVE DATE: March 15, 1994. FOR FURTHER INFORMATION CONTACT: Cindy R. Nicholson. Paralegal Specialist, Office of Examination. Farm · Credit Administration, McLean, VA 22102-5090. (703) 883-4498, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: In preparing the final rule for publication in the Federal Register, a typographical error was inadvertently made in the §615.5140(a)(8)(i)(B) and (a)(11)(ii). List of Subjects in 12 CFR Part 615 Accounting, Agriculture, Banks. banking. Government securities. Investments. Rural areas.

Accordingly. 12 CFR part 615 is corrected by making the following correcting amendments:

PART 615 FUNDING AND FISCAL
AFFAIRS, LOAN POLICIES AND
OPERATIONS; AND FUNDING
OPERATIONS

1. The authonty citation for part 6:5 continues to read as follows:

Authority: Secs. 1.5. 1.7. 1.10. 1.11. 1.12. 2.2.2.3. 2.4. 2.5. 2.12. 3.1. 3.7. 3.11. 3.25. 4.3. 4.9. 4.148. 4.25. 5.9. 5.17. 6.20. 6.26. 8.0.8.4. 8.6. 8.7. 8.8.8.10. 8.12 of the Farm Credit Act: 12 U.S.C 2013. 2015. 2018, 2019, 2020. 2073, 2074. 2075. 2076. 2093. 2122. 2128.

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Proposed Rules

This section of the FEDERAL REGISTER contains notces to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule majang prior to the adopton of the final rules.

DEPARTMENT OF THE TREASURY Office of Thrift Supervision

12 CFR Parts 583b and 575 [No. 94-49]

RIN 1550-AA74

Conversions From Mutual to Stock
Form: Mutual Savings and Loan
Holding Companies

AGENCY: Office of Thrift Supervision.
ACTION: Proposed rule.

SUMMARY: The Office of Thrift
Supervision (OTS) proposes to amend
its regulations governing mutual to
stock conversions and stock issuances
by savings association subsidiaries of
mutual holding companies (MHC stock
offerings). The proposed amendment
requires the OTS. in connection with its
review of conversion applications and
MHC stock offering applications, to
consider the extent to which the
transaction will affect the convenience
and needs of the communities to be
served by the applicant. Under une
proposal, in determining whether to
approve these types of appucauons. the
OTS will consider the applicant's record
of compliance with the Community
Reinvestment Act (CRA) and other
factors relating to the convenience and
needs of the communities served by the
applicant

DATES: Comments must be received on or before july 17, 1994. ADORESSES: Interested parties are invited to submit written comments on this proposal to: Director, Informauon Services Division. Public Affairs. Office of Thrift Supervision. 1700 G Street. NW.. Washington, DC 20552. Attention: Docket No. 9449. These submissions may be hand-delivered to 1700 G Street. NW.. from 9 a.m. to 5 p.m. on business days, or may be sent by facsimile transmission to FAX number (202) 9067755. Comments will be available for inspection at 1700 G Street, NW.. tom 1 p.m. unul 4 p.m. on business days. Visitors will be escorted to and from the

Public Reference Room at established intervals.

FOR FURTHER INFORMATION CONTACT: Michael P. Vallely, Senior Attorney (202) 906-6241. Kavin A. Corcoran, Assistant Chief Counsel, (202) 9066962. Corporate and Securities Division, Chief Counsel's Office; Diana L.. Garmus, Deputy Assistant Director, (202) 906-5683. Corporate Activities Division, Office of Thrift Supervision. 1700 G Street. NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

The OTS recently has undertaken a comprehensive review of its conversion regulations. By Order No. 9448, dated April 7, 1994. the OTS adopted significant amendments to its mutual to stock conversion regulations. 12 CFR part 563b, and mutual holding company regulations. 12 CFR part 575. to revise, update and clarify the regulations in a number of areas. In connection with its review of the conversion regulations. one of the issues the OTS considered was whether the convenience and needs of the local communities should be a factor in determining whether to approve these conversions.

The reasons for mutual associations' conversion to stock form have changed over the years. During the 1980s, most mutual savings associations were marginally capitalized and many were insolvent. During this penod. conversion transactions were a primary method for undercapitalized savings associations to raise capital and avoid being closed by the regulators. The conversion enabled an association to stay in business and continue to serve the community's credit needs.

Now, however, most mutual associations are healthy. While a relatively small number of capital deficient mutual associauons undertake conversions prmaniy to recapitalize. most healthy mutual thrifts now convert for other reasons. These reasons include financing the expansion of their operations and taking advantage of the benents available to a public company. such as the ability to establish stock benent plans for management and

empiovees.

The OTS is aware that account holders and consumer groups recently have voiced significant concerns regarding the conversion of well

Federal Register
Vol. 59. No. 84
Tuesday, May 3, 1994

capitalized associations, particularly in light of the compensation and stock benents that management typically receives in such transactions. Such groups also have expressed concerns regarding the proper deployment of conversion proceeds, i.e., the extent to which the capital raised in such transactions should be used to support credit and loan programs and related services tailored to the community's credit needs. In addition, management of many well-capitalized converting associations recently have expressed concern to the OTS that their institutions do not need or are unable efficiently to deploy-substantial amounts of the capital required to be raised under current regulations.1 Managers of such associations also have voiced concern about the negauve impact of what they view as "excess capital" on the price/earnings ratio of the converted association's stock.

The OTS is responding to these concerns by issuing an interim final regulation that, among other things. restricts management benent plans and requires converting institutions to file with the OTS a business plan that adequately addresses the deployment of conversion proceeds. The interim rule. which appears elsewhere in this issue of the Federal Register, solicits public comment on the conversion regulations. both as to the amendments adopted there and the issues on which comment is specifically sought, and as to any other current provisions of the conversion regulations as they relate to the interim ruie.

As noted in the interim final rule, a convenience and needs standard has not, to date, been applied to mutual stock conversions of savings associations. Similariy, a convenience and needs standard generally has not been applied to MHC stock offerings.

The conversion regulations require that stock De soid in the amount of the converting association s pro forma markat value. See 12 CFR 5836.71. • See OTS Order No. 94-48.

A convenience and needs standard is aiready being applied to mutuas holding company reorganizations because these transactions require the OTS's approval under the Bank Merter Act (BMAL See 58 FR 44105 (August 19. 19931 (adopting part 575 governing murai bolding company reorganizations and related stoCK Issuancas. The BMA requires that the responsible agency consider the convenience and needs of the community to be served in acting on anv BMA application. See 12 U.S.C. 182 CHSL Because mutual boiding company reorganizations and stock

Upon review of this area, however, the OTS is proposing to apply a convenience and needs standard to these transactions for the reasons discussed below.

First, the OTS has broad authonty under sectors 5(i)(1) and 5()(2) of the Home Owners' Loan Act (HOLA) to regulate mutual to stock conversions by savings associations, and under secuon 10(0)(7) of the HOLA to regulate mutual holding companies. These authorities give the agency considerable discretion in reviewing a conversion application or MHC stock offering application. For example, the OTS has exercised this authority to determine whether a transaction is in the best interests of depositors, the association and the Savings Association Insurance Fund.s The OTS believes that inherent in this broad grant of authority is the ability to assess the impact of a proposed transaction on the convenience and needs of the communities to be served by a savings association.

Second, section 4(a)(3) of the HOLA supports the adoption of the proposed regulations addressing housing credit needs. Section 4(a)(3) of the HOLA provides that the Director "shall exercise ail powers granted to the Director under this chapter so as to encourage savings associations to provide credit for housing safely and soundly." T ." The powers granted to the Director include the general regulatory authority under secuans 5(i)(1), 5(i)(2), and 10(0)(7) of the HOLA mentioned above. Because savings associations are predominantly housing lenders, the admonition in section 4(a)(3) of the HOLA that the Director use his or ner statutory powers to encourage savings associations to provide credit for housing provides a substanual additional basis for the Director to assess community needs when reviewing applications.

Third, the CTS believes it is appropriate to apply a convenience and needs standard to conversion transactions and MHC stock offerings as a part of the OTS's responsibility to consider the ongoing CRA performance of savings associauons. The CRA expresses Congress's judgment that

regulated financial institutions must demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business and that regulated financial institutions have continuing and affirmative obligations to help meet the credit needs of those iocal communities."

In this regard, the federal banking agencies recently conducted a comprenensive review of their CRA regulations in order to provide clearer guidance to financial institutions on the nature and extent of their CRA obligations. the methods by which their performance will be assessed, and the manner in which the CRA will be enforced. This review was undertaken in response to the President's July 1993 request that the federal financial institution supervisory agencies reform the CRA examination and enforcement system. The President asked, among other things, that in undertaking inis effort, the regulators seek to promote consistency and even-handedness, to improve CRA performance evaluations and to institute more effective sancuons against insututions with consistently poor CRA performance. The addition of a convenience and needs factor to the mutual to stock conversion standards and the standards for MHC stock offerings is wholly consistent with the larger Presidenual and regulatory initiatives on the CRA. The OTS's assessment of the CRA performance record of each association that is subject to the regulations promuigated under sections 5(i) and 10(o) of the HOLA furthers its responsibility under secuon +(a)(3) of the HOLA to encourage thrits to provide housing credit safely and soundly.10

The proposed convenience and needs standard, like the convenience and needs standards governing transactions subject to the Bank Merger Act.11 certain

12 U.S.C. 2901.

• To implement the President's initiative, the four agencies beid a series of seven public bearings across the country, and amendments to the agencies CRA regulations were proposed on December 21, 1993. See 58 FR 67466 (December 21. 19931

In connection with its review of the CRA and its implementing regulations, the OTS aiso concluded that the CRA. by its terms, requires the OTS to consider the CRA record of an association proposing to convert from mutual to federal stock

form because the association must recarve a new federal stock charter to replace its previous muruaj charter. See 12 USC 2902(3)(A) and 2903 and 12 CFR 5634.dia) (1993).

10 See also section 5(a) of the HOLA 12 U.S.C 1464(a). Section 5(a) of the HOLA provides that the lending and other powers conferred on federai savines associations under section 5 are intended to encourage provision of creait for housing safety and

soundiv.

See 12 U.S.C. 1828(c).

22765

holding company appucations. 12 and

certain non-routine corporate transactions under current OTS regulations.13 is intended to encourage savings associations to devote their resources to lending programs and related customer services that are designed to address the credit needs of their local communities, including lowand moderate-income communities. consistent with safety and soundness. Such programs and services are an integral part of a mutual association's traditional role of providing "credit for housing." as envisioned by section 4(a)(3) of the HOLA. Thus, the OTS believes the proposed regulations will enhance une OTS's ability to ensure that savings associations undertaking these transactions recognize their responsibility to consider their community's credit needs. Proposed Amendments

The proposal would add a new § 563b.11 to the OTS conversion regulations that would require the OTS. in reviewing a conversion application, to examine the extent to which the proposed conversion will affect the convenience and needs of the communities to be served by the converted savings association.

As part of this examination, the OTS will review the applicant's record under the CRA regulations at 12 CFR part 563e and related CRA policies. Under the proposal. the OTS would give substantial weight to an applicant's previous CRA record. consistent with the long-standing policy of the OTS.14 For example, if an applicant in its most recent CRA examunation received a raung of "substantial noncompliance." 15 the OTS likely would not approve the application.

Under the proposal, the OTS also would scrutinize the business plans of the applicant. Applicants must demonstrate that their plans for deployment of proceeds will help meet the credit and lending needs of the communities served by the appucant. Under the proposed convenience and needs standard, where an applicant's business plan does not adequately address is issue, the OTS may deny the application or impose additional conditions of approval. While commitments in an applicant's business plan to allocate resources to community

12 See 12 USC :467ale(21

13 See 12 CFR 563.22(c) and 571.5(bX4) (1993) ** See 54 FR 13742 (Aɔn: 5. 1989) joint CRA policy statement of the lecerai ünanciai supervisory agencies

1 See 55 FR 18163 (Mav 1. 1990) (adopting revised CRA guidelines and assessment rating System.