Dec. 18, 2000 CODE OF FEDERAL REGULATIONS 12Parts 500 to 599 Revised as of January 1, 2001 Banks and Banking Containing a codification of documents of general applicability and future effect As of January 1, 2001 With Ancillaries

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 Table of Contents Page Explanation v Title 12: Chapter V—Office of Thrift Supervision, Department of the Treasury 3 Finding Aids: Table of CFR Titles and Chapters 447 Alphabetical List of Agencies Appearing in the CFR 465 Redesignation Table 475 List of CFR Sections Affected 499

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Title 12—Banks and Banking is composed of six volumes. The parts in these volumes are arranged in the following order: parts 1-199, 200-219, 220-299, 300-499, 500-599, and part 600-end. The first volume containing parts 1-199 is comprised of chapter I—Comptroller of the Currency, Department of the Treasury. The second and third volumes containing parts 200-299 are comprised of chapter II—Federal Reserve System. The fourth volume containing parts 300-499 is comprised of chapter III—Federal Deposit Insurance Corporation and chapter IV—Export-Import Bank of the United States. The fifth volume containing parts 500-599 is comprised of chapter V—Office of Thrift Supervision, Department of the Treasury. The sixth volume containing part 600-end is comprised of chapter VI—Farm Credit Administration, chapter VII—National Credit Union Administration, chapter VIII—Federal Financing Bank, chapter IX—Federal Housing Finance Board, chapter XI—Federal Financial Institutions Examination Council, chapter XIV—Farm Credit System Insurance Corporation, chapter XV—Department of the Treasury, chapter XVII—Office of Federal Housing Enterprise Oversight, Department of Housing and Urban Development and chapter XVIII—Community Development Financial Institutions Fund, Department of the Treasury. The contents of these volumes represent all of the current regulations codified under this title of the CFR as of January 1, 2001.

Redesignation tables appear in the volumes containing parts 1-199, parts 300-499, parts 500-599, and part 600-end.

CFRORDR.FRM <LRH>12 CFR Ch. V (1-1-01 Edition)</LRH> <RRH>Office of Thrift Supervision, Treasury</RRH> <CFRTITLE> <TITLEHD> <PRTPAGE P="1"/> <HD SOURCE="HED">Title 12—Banks and Banking</HD> <P>(This book contains parts 500 to 599) </P> </TITLEHD> <CFRTOC> <PTHD>Part</PTHD> <CHAPTI> <SUBJECT> <E T="04">chapter v</E>—Office of Thrift Supervision, Department of the Treasury</SUBJECT> <PG>500</PG> </CHAPTI> </CFRTOC> </CFRTITLE> <CHAPTER> <TOC> <TOCHD> <PRTPAGE P="3"/> <HD SOURCE="HED">CHAPTER V—OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE TREASURY</HD> </TOCHD> <PTHD>Part</PTHD> <PGHD>Page</PGHD> <CHAPTI> <PT>500</PT> <SUBJECT>Organization and channelling of functions</SUBJECT> <PG>5</PG> <PT>502</PT> <SUBJECT>Assessments and fees</SUBJECT> <PG>6</PG> <PT>503</PT> <SUBJECT>Privacy Act</SUBJECT> <PG>10</PG> <PT>505</PT> <SUBJECT>Freedom of Information Act</SUBJECT> <PG>12</PG> <PT>506</PT> <SUBJECT>Information collection requirements under the Paperwork Reduction Act</SUBJECT> <PG>13</PG> <PT>508</PT> <SUBJECT>Removals, suspensions, and prohibitions where a crime is charged or proven</SUBJECT> <PG>14</PG> <PT>509</PT> <SUBJECT>Rules of practice and procedure in adjudicatory proceedings</SUBJECT> <PG>17</PG> <PT>510</PT> <SUBJECT>Miscellaneous organizational regulations</SUBJECT> <PG>39</PG> <PT>512</PT> <SUBJECT>Rules for investigative proceedings and formal examination proceedings</SUBJECT> <PG>45</PG> <PT>513</PT> <SUBJECT>Practice before the Office</SUBJECT> <PG>47</PG> <PT>516</PT> <SUBJECT>Application Processing Guidelines and Procedures</SUBJECT> <PG>51</PG> <PT>517</PT> <SUBJECT>The Minority, Women, and Individuals with Disabilities Outreach Program: Contracting for Goods and Services</SUBJECT> <PG>58</PG> <PT>528</PT> <SUBJECT>Nondiscrimination requirements</SUBJECT> <PG>60</PG> <PT>535</PT> <SUBJECT>Prohibited consumer credit practices</SUBJECT> <PG>65</PG> <PT>536</PT> <SUBJECT>Consumer protection in sales of insurance</SUBJECT> <PG>67</PG> <PT>541</PT> <SUBJECT>Definitions</SUBJECT> <PG>71</PG> <PT>543</PT> <SUBJECT>Incorporation, organization, and conversion of Federal mutual associations</SUBJECT> <PG>73</PG> <PT>544</PT> <SUBJECT>Charter and bylaws</SUBJECT> <PG>80</PG> <PT>545</PT> <SUBJECT>Operations</SUBJECT> <PG>87</PG> <PT>546</PT> <SUBJECT>Merger, dissolution, reorganization, and conversion</SUBJECT> <PG>93</PG> <PT>550</PT> <SUBJECT>Fiduciary powers of savings associations</SUBJECT> <PG>95</PG> <PT>552</PT> <SUBJECT>Incorporation, organization, and conversion of Federal stock associations</SUBJECT> <PG>104</PG> <PT>555</PT> <SUBJECT>Electronic operations</SUBJECT> <PG>122</PG> <PT>556</PT> <SUBJECT>Statements of policy</SUBJECT> <PG>124</PG> <PT>557</PT> <SUBJECT>Deposits</SUBJECT> <PG>125<PRTPAGE P="4"/> </PG> <PT>558</PT> <SUBJECT>Possession by conservators and receivers for Federal and State savings associations</SUBJECT> <PG>127</PG> <PT>559</PT> <SUBJECT>Subordinate organizations</SUBJECT> <PG>127</PG> <PT>560</PT> <SUBJECT>Lending and investment</SUBJECT> <PG>138</PG> <PT>561</PT> <SUBJECT>Definitions</SUBJECT> <PG>160</PG> <PT>562</PT> <SUBJECT>Regulatory reporting standards</SUBJECT> <PG>166</PG> <PT>563</PT> <SUBJECT>Operations</SUBJECT> <PG>168</PG> <PT>563b</PT> <SUBJECT>Conversions from mutual to stock form</SUBJECT> <PG>206</PG> <PT>563c</PT> <SUBJECT>Accounting requirements</SUBJECT> <PG>258</PG> <PT>563d</PT> <SUBJECT>Securities of savings associations</SUBJECT> <PG>267</PG> <PT>563e</PT> <SUBJECT>Community reinvestment</SUBJECT> <PG>260</PG> <PT>563f</PT> <SUBJECT>Management official interlocks</SUBJECT> <PG>289</PG> <PT>563g</PT> <SUBJECT>Securities offerings</SUBJECT> <PG>293</PG> <PT>564</PT> <SUBJECT>Appraisals</SUBJECT> <PG>303</PG> <PT>565</PT> <SUBJECT>Prompt corrective action</SUBJECT> <PG>308</PG> <PT>566</PT> <SUBJECT>Liquidity</SUBJECT> <PG>318</PG> <PT>567</PT> <SUBJECT>Capital</SUBJECT> <PG>321</PG> <PT>568</PT> <SUBJECT>Security procedures</SUBJECT> <PG>349</PG> <PT>569</PT> <SUBJECT>Proxies</SUBJECT> <PG>350</PG> <PT>570</PT> <SUBJECT>Submission and review of safety and soundness compliance plans and issuance of orders to correct safety and soundness deficiencies</SUBJECT> <PG>351</PG> <PT>572</PT> <SUBJECT>Loans in areas having special flood hazards</SUBJECT> <PG>359</PG> <PT>573</PT> <SUBJECT>Privacy of consumer financial information</SUBJECT> <PG>364</PG> <PT>574</PT> <SUBJECT>Acquisition of control of savings associations</SUBJECT> <PG>381</PG> <PT>575</PT> <SUBJECT>Mutual holding companies</SUBJECT> <PG>403</PG> <PT>583</PT> <SUBJECT>Definitions</SUBJECT> <PG>425</PG> <PT>584</PT> <SUBJECT>Regulated activities</SUBJECT> <PG>427</PG> <PT>590</PT> <SUBJECT>Preemption of State usury laws</SUBJECT> <PG>434</PG> <PT>591</PT> <SUBJECT>Preemption of State due-on-sale laws</SUBJECT> <PG>439</PG> <PT>592—599</PT> <RESERVED>[Reserved]</RESERVED> </CHAPTI> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Nomenclature changes to Chapter V appear at 59 FR 18475, Apr. 19, 1994, and at 60 FR 66715, Dec. 26, 1995.</P> </EDNOTE> </TOC> <PART> <PRTPAGE P="5"/> <EAR>Pt. 500</EAR> <HD SOURCE="HED">PART 500—ORGANIZATION AND CHANNELLING OF FUNCTIONS</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Functions and Responsibilities of the Director of the Office of Thrift Supervision</HD> <SECHD>Sec.</SECHD> <SECTNO>500.1</SECTNO> <SUBJECT>General statement and statutory authority.</SUBJECT> <SECTNO>500.2-500.5</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>500.6</SECTNO> <SUBJECT>General statement concerning gender-related terminology.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—General Organization</HD> <SECTNO>500.10</SECTNO> <SUBJECT>The OTS or The Office.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Procedures</HD> <SECTNO>500.30</SECTNO> <SUBJECT>General statement concerning procedures and forms.</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>54 FR 49440, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SUBPART> <HD SOURCE="HED">Subpart A—Functions and Responsibilities of the Director of the Office of Thrift Supervision</HD> <SECTION> <SECTNO>§ 500.1</SECTNO> <SUBJECT>General statement and statutory authority.</SUBJECT> <P>(a) The Director of the Office of Thrift Supervision (referred to in this chapter as “Director” or “Office”) is responsible for the administration and enforcement of the Home Owners' Loan Act of 1933, (“HOLA”), and applicable portions of the Federal Deposit Insurance Act and with respect to savings associations subject to provisions of the foregoing acts and title, the Bank Protection Act of 1968, the Truth in Lending Act, and the Fair Credit Reporting Act.</P> <P>(b) The Office is authorized under such rules and regulations as it may prescribe to provide for the organization, incorporation, examination, operation, and regulation of Federal savings associations. Under this authority, the Office's functions include, but are not limited to, regulation of the corporate structure of such associations, regulation of the distribution of their earnings, regulation of their lending and other investment powers, acting upon their applications for facility offices (including branch offices, limited facilities, mobile facilities and satellite offices), the regulation of mergers, conversions, and dissolutions involving such associations, the appointment of conservators and receivers for such associations, and the enforcement of laws, regulations, or conditions against such associations or the officers or directors thereof by proceedings under section 5 of the Home Owners' Loan Act of 1933, as amended.</P> <P>(c) The Office regulates and examines savings associations within the authority conferred by the HOLA and the FDIA and is authorized to enforce applicable laws, regulations, or conditions against savings associations or the officers or directors thereof by proceedings under section 5 of the HOLA and section 8 of the FDIA as amended. The Office also regulates and supervises savings and loan holding companies pursuant to the provisions of section 10 of the HOLA, as amended, and section 8 of the FDIA.</P> <P>(d) The Office exercises supervisory and regulatory authority over all building and loan or savings and loan associations and similar institutions of or doing business in or maintaining offices in the District of Columbia.</P> <CITA>[54 FR 49440, Nov. 30, 1989, as amended at 60 FR 66868, Dec. 27, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 500.2-500.5</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 500.6</SECTNO> <SUBJECT>General statement concerning gender-related terminology.</SUBJECT> <P>The statutes administered by the Office and the rules, regulations, policies, practices, publications, directives, and guidelines promulgated pursuant to such statutes that prescribe the course and methods to be followed by the Office that inadvertently use or contain gender-related terminology are to be interpreted as equally applicable to either sex.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—General Organization</HD> <SECTION> <SECTNO>§ 500.10</SECTNO> <SUBJECT>The OTS or The Office.</SUBJECT> <P>The Office of Thrift Supervision (referred to as “OTS” or “Office”) is an office of the Department of the Treasury. Its functions are to charter, supervise, regulate and examine Federal savings associations and to supervise, regulate and examine all savings associations. It is directed by a Director, who <PRTPAGE P="6"/>is appointed by the President and confirmed by the Senate to a five-year term. The Director directs and carries out the mission of the OTS with the assistance of offices reporting directly to him. One of these offices oversees the direct examination and supervision of savings associations by regulatory staff to ensure the safety and soundness of the industry.</P> <CITA>[57 FR 14335, Apr. 20, 1992, as amended at 60 FR 66869, Dec. 27, 1995]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Procedures</HD> <SECTION> <SECTNO>§ 500.30</SECTNO> <SUBJECT>General statement concerning procedures and forms.</SUBJECT> <P>(a) Rules and procedures of the Office are published in chapter V of title 12 of the Code of Federal Regulations and in supplementary material published in the <E T="04">Federal Register</E>. The statutes administered by the Office and the rules and regulations promulgated pursuant to such statutes prescribe the course and method of the formal procedures to be followed in proceedings of the Office. These are supplemented where practicable by informal procedures designed to aid the public and facilitate the execution of the Office's functions. The informal procedures of the Office consist principally in the rendering of advice and assistance to members of the public dealing with the Office. Opinions expressed by members of the staff do not constitute an official expression of the views of the Office, but do represent views of persons working with the provisions of the statute or regulation involved. The Director may, for good cause and to the extent permitted by statute, waive the applicability of any provision of this chapter.</P> <P>(b) Information with respect to procedures, forms, and instructions of the Office is available to the public at the headquarters of the Office. Forms of concern to the public consist principally of periodic financial reports and of applications to the Office. The Office may from time to time require the completion by individuals or savings associations of miscellaneous forms, questionnaires, reports, or other papers. In each instance, the individual or savings association is given actual and timely notice of the scope and contents of the papers in question.</P> <CITA>[54 FR 49440, Nov. 30, 1989, as amended at 59 FR 53570, Oct. 25, 1994]</CITA> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 502</EAR> <HD SOURCE="HED">PART 502—ASSESSMENTS AND FEES</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>502.5</SECTNO> <SUBJECT>Who must pay assessments and fees?</SUBJECT> <SUBPART> <HD SOURCE="HED">Subpart A—Assessments</HD> <SECTNO>502.10</SECTNO> <SUBJECT>How does OTS calculate my assessment?</SUBJECT> <SECTNO>502.15</SECTNO> <SUBJECT>How does OTS determine my size component?</SUBJECT> <SECTNO>502.20</SECTNO> <SUBJECT>How does OTS determine my condition component?</SUBJECT> <SECTNO>502.25</SECTNO> <SUBJECT>How does OTS determine my complexity component?</SUBJECT> <SECTNO>502.30</SECTNO> <SUBJECT>When must I pay my assessment?</SUBJECT> <SECTNO>502.35</SECTNO> <SUBJECT>How must I pay my assessment?</SUBJECT> <SECTNO>502.40</SECTNO> <SUBJECT>Can I get a refund or proration of my assessment?</SUBJECT> <SECTNO>502.45</SECTNO> <SUBJECT>What if I do not pay my assessment on time?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Fees</HD> <SECTNO>502.50</SECTNO> <SUBJECT>What fees does OTS charge?</SUBJECT> <SECTNO>502.55</SECTNO> <SUBJECT>Where can I find OTS's fee schedule?</SUBJECT> <SECTNO>502.60</SECTNO> <SUBJECT>When will OTS adjust, add, waive, or eliminate a fee?</SUBJECT> <SECTNO>502.65</SECTNO> <SUBJECT>When is an application fee due?</SUBJECT> <SECTNO>502.70</SECTNO> <SUBJECT>How must I pay an application fee?</SUBJECT> <SECTNO>502.75</SECTNO> <SUBJECT>What if I do not pay my fees on time?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>12 U.S.C. 1462a, 1463, 1467, 1467a.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>63 FR 65670, Nov. 30, 1998, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 502.5</SECTNO> <SUBJECT>Who must pay assessments and fees?</SUBJECT> <P>(a) <E T="03">Authority.</E> Section 9 of the HOLA, 12 U.S.C. 1467, authorizes the Director to charge assessments to recover the costs of examining savings associations and their affiliates, to charge fees to recover the costs of processing applications and other filings, and to charge fees to cover OTS “s direct and indirect expenses in regulating savings associations and their affiliates.</P> <P>(b) <E T="03">Assessments.</E> If you are a savings association that OTS regulates on the last day of January or on the last day of July of each year, you must pay a semi-annual assessment due on that day. Subpart A of this part describes OTS's assessment procedures and requirements.</P> <P>(c) <E T="03">Fees.</E> Whether or not you are a savings association, if you make any <PRTPAGE P="7"/>filings with OTS or use OTS services, the Director may require you to pay a fee to cover the costs of processing your submission or providing those services. The filings for which the Director may charge a fee include notices, applications, and securities filings. Among the services for which the Director may charge a fee are publications, seminars, certifications for official copies of agency documents, and records or services requested by other agencies. The Director also assesses fees for examining and investigating savings associations that administer trust assets of $1 billion or less, and affiliates of savings associations. If you are a savings association and you or any of your affiliates cause OTS to incur extraordinary expenses related to your examination, investigation, regulation, or supervision, the Director may charge you a fee to fund those expenses. Subpart B of this part describes OTS's fee procedures and requirements.</P> </SECTION> <SUBPART> <HD SOURCE="HED">Subpart A—Assessments</HD> <SECTION> <SECTNO>§ 502.10</SECTNO> <SUBJECT>How does OTS calculate my assessment?</SUBJECT> <P>OTS determines your semi-annual assessment by totaling three components: your size, your condition, and the complexity of your business. For the size and complexity components, OTS uses the September 30 Thrift Financial Report to determine amounts due at the January 31 assessment; and the March 31 Thrift Financial Report to determine amounts due at the July 31 assessment. For purposes of this subpart, total assets are your total assets as reported on Thrift Financial Reports filed with OTS. For the condition component, OTS uses the most recent composite rating, as defined in 12 CFR part 516, of which you have been notified in writing before an assessment's due date.</P> </SECTION> <SECTION> <SECTNO>§ 502.15</SECTNO> <SUBJECT>How does OTS determine my size component?</SUBJECT> <P>(a) <E T="03">General.</E> (1) Unless you are a qualifying savings association under paragraph (b) of this section, OTS uses the following chart to calculate your size component:</P> <GPOTABLE CDEF="s10,r10,15C,15C,xs60" COLS="5" OPTS="L2(4,0,4),i1"> <BOXHD> <CHED H="1" O="L">If your total assets are:<LI/> </CHED> <CHED H="2">Over—<LI/> </CHED> <CHED H="2">But not over—</CHED> <CHED H="1" O="L">Your size component is:</CHED> <CHED H="2">This amount—<LI>Base assessment amount</LI> </CHED> <CHED H="2">Plus—<LI>Marginal rate</LI> </CHED> <CHED H="2">Of assets over—<LI>Class floor</LI> </CHED> </BOXHD> <ROW> <ENT I="25">Column A</ENT> <ENT>Column B</ENT> <ENT>Column C</ENT> <ENT>Column D</ENT> <ENT>Column E</ENT> </ROW> <ROW> <ENT I="01">0</ENT> <ENT>$67 million</ENT> <ENT>C1</ENT> <ENT>D1</ENT> <ENT>0.</ENT> </ROW> <ROW> <ENT I="01">$67 million</ENT> <ENT>215 million</ENT> <ENT>C2</ENT> <ENT>D2</ENT> <ENT>$67 million.</ENT> </ROW> <ROW> <ENT I="01">215 million</ENT> <ENT>1 billion</ENT> <ENT>C3</ENT> <ENT>D3</ENT> <ENT>215 million.</ENT> </ROW> <ROW> <ENT I="01">1 billion</ENT> <ENT>6.03 billion</ENT> <ENT>C4</ENT> <ENT>D4</ENT> <ENT>1 billion.</ENT> </ROW> <ROW> <ENT I="01">6.03 billion</ENT> <ENT>18 billion</ENT> <ENT>C5</ENT> <ENT>D5</ENT> <ENT>6.03 billion.</ENT> </ROW> <ROW> <ENT I="01">18 billion</ENT> <ENT>35 billion</ENT> <ENT>C6</ENT> <ENT>D6</ENT> <ENT>18 billion.</ENT> </ROW> <ROW> <ENT I="01">35 billion</ENT> <ENT/> <ENT>C7</ENT> <ENT>D7</ENT> <ENT>35 billion.</ENT> </ROW> </GPOTABLE> <P>(2) To calculate your size component, find the row in Columns A and B that describes your total assets. Reading across in that same row, find your base assessment amount in Column C, your marginal rate in Column D, and your class floor in Column E. Calculate how much your total assets exceed your Column E class floor. Multiply this number by your Column D marginal rate. Add this number to your Column C base assessment amount. The total is your size component. OTS will establish the base assessment amounts and the marginal rates in columns C and D in a Thrift Bulletin.</P> <P>(b) <E T="03">Special size component calculation for qualifying savings associations.</E> If you meet all of the criteria set forth in paragraph (b)(1) of this section, you are a qualifying savings association and OTS will calculate your size component in accordance with paragraph (b)(2) of this section.</P> <P>(1) <E T="03">Criteria for qualifying savings association status.</E> (i) You were a savings association as of January 1, 1999.<PRTPAGE P="8"/> </P> <P>(ii) Your total assets have never exceeded $100 million at the end of any quarter.</P> <P>(2) <E T="03">Size component for qualifying savings associations.</E> If you are a qualifying savings association, your size component is the lesser of:</P> <P>(i) Your size component calculated under paragraph (a) of this section; or</P> <P>(ii) Your assessment calculated using the general assessment table at 12 CFR 502.1(c) as contained in the 12 CFR, parts 500 to 599, edition revised as of January 1, 1998, as implemented in Thrift Bulletin 48-9, dated December 21, 1992.</P> </SECTION> <SECTION> <SECTNO>§ 502.20</SECTNO> <SUBJECT>How does OTS determine my condition component?</SUBJECT> <P>OTS uses the following chart to determine your condition component:</P> <GPOTABLE CDEF="xs48,r50" COLS="2" OPTS="L0,i1"> <BOXHD> <CHED H="1" O="L">If your composite rating is:</CHED> <CHED H="1" O="L">Then your condition component is:</CHED> </BOXHD> <ROW> <ENT I="01">1 or 2</ENT> <ENT>zero.</ENT> </ROW> <ROW> <ENT I="01">3</ENT> <ENT>25 percent of your size component.</ENT> </ROW> <ROW> <ENT I="01">4 or 5</ENT> <ENT>50 percent of your size component.</ENT> </ROW> </GPOTABLE> </SECTION> <SECTION> <SECTNO>§ 502.25</SECTNO> <SUBJECT>How does OTS determine my complexity component?</SUBJECT> <P>If your portfolio exceeds any of the thresholds in paragraph (a) of this section, OTS will calculate your complexity component according to paragraph (c) of this section. If your portfolio does not exceed any of the thresholds in paragraph (a) of this section, your complexity component is zero.</P> <P>(a) <E T="03">Thresholds for complexity component.</E> OTS uses three separate thresholds in calculating your complexity component. You exceed a threshold if you have more than $1 billion in any of the following:</P> <P>(1) Trust assets you administer.</P> <P>(2) The outstanding principal balance of assets covered, fully or partially, by your recourse obligations or direct credit substitutes.</P> <P>(3) The principal amount of loans that you service for others.</P> <P>(b) <E T="03">Assessment rates.</E> OTS will establish one or more assessment rates for each of the types of activities listed in paragraph (a) of this section. OTS will publish those assessment rates in a Thrift Bulletin.</P> <P>(c) <E T="03">Calculation of complexity component.</E> OTS separately considers each of the thresholds in paragraph (a) of this section in calculating your complexity component. OTS first calculates the amount by which you exceed any of those thresholds. OTS multiplies the amount by which you exceed any threshold in paragraph (a) of this section by the applicable assessment rate(s) under paragraph (b) of this section. OTS then totals the results. This total is your complexity component.</P> </SECTION> <SECTION> <SECTNO>§ 502.30</SECTNO> <SUBJECT>When must I pay my assessment?</SUBJECT> <P>OTS will bill you semiannually for your assessments. Assessments are due January 31 and July 31 of each year. At least seven days before your assessment is due, the Director will mail you a notice that indicates the amount of your assessment, explains how OTS calculated the amount, and specifies when payment is due.</P> </SECTION> <SECTION> <SECTNO>§ 502.35</SECTNO> <SUBJECT>How must I pay my assessment?</SUBJECT> <P>(a) <E T="03">Debit at Federal Home Loan Banks.</E> If you are a member of a Federal Home Loan Bank, you must maintain a demand deposit account at your Federal Home Loan Bank with sufficient funds to pay your assessment when due. OTS will notify your Federal Home Loan Bank of the amount of your assessment. OTS will debit your account for your assessments.</P> <P>(b) <E T="03">Direct billing.</E> If you are not a member of a Federal Home Loan Bank, OTS will directly debit an account you must maintain at your association.</P> </SECTION> <SECTION> <SECTNO>§ 502.40</SECTNO> <SUBJECT>Can I get a refund or proration of my assessment?</SUBJECT> <P>OTS will not refund or prorate your assessment, even if you cease to be a savings association. If you are a savings association for whom a conservator or receiver has been appointed, you must continue to pay assessments in accordance with this part. OTS will not increase or decrease your assessment based on events that occur after the date of the Thrift Financial Report upon which your assessment is based.</P> </SECTION> <SECTION> <SECTNO>§ 502.45</SECTNO> <SUBJECT>What if I do not pay my assessment on time?</SUBJECT> <P>The Director will charge interest on delinquent assessments. Interest will <PRTPAGE P="9"/>accrue at a rate (that OTS will determine quarterly) equal to 150 percent of the average of the bond-equivalent rates of 13-week Treasury bills auctioned during the preceding calendar quarter. Assessments under this subpart A are delinquent if you do not pay them when required by § 502.30.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Fees</HD> <SECTION> <SECTNO>§ 502.50</SECTNO> <SUBJECT>What fees does OTS charge?</SUBJECT> <P>(a) The Director assesses fees for examining or investigating savings associations that administer trust assets of $1 billion or less, and savings association affiliates. “Affiliate” has the meaning in 12 U.S.C. 1462(9), except that, for this part only, “affiliate” does not include any entity that is consolidated with a savings association on the Consolidated Statement of the Thrift Financial Report.</P> <P>(b) The Director assesses fees for processing notices, applications, securities filings, and requests, and for providing other services.</P> </SECTION> <SECTION> <SECTNO>§ 502.55</SECTNO> <SUBJECT>Where can I find OTS's fee schedule?</SUBJECT> <P>OTS will periodically publish a schedule of its fees in a Thrift Bulletin. OTS will publish these fees at least 30 days before they are effective.</P> </SECTION> <SECTION> <SECTNO>§ 502.60</SECTNO> <SUBJECT>When will OTS adjust, add, waive, or eliminate a fee?</SUBJECT> <P>Under unusual circumstances, the Director may deem it necessary or appropriate to adjust, add, waive, or eliminate a fee. For example, the Director may:</P> <P>(a) Reduce any fee to adjust for any inequities, efficiencies, or changed procedures that OTS projects will reduce its applications processing costs but that OTS did not consider in determining its fees;</P> <P>(b) Reduce or waive any fee if OTS determines that the fee would unduly or unjustifiably discourage particular types of applications or applications for particular categories of transactions;</P> <P>(c) Add a fee for a new type of application;</P> <P>(d) Increase a fee for an application that presents unusual or particularly complex issues of law or policy or otherwise causes the agency to incur unusually high processing costs; or</P> <P>(e) Charge a fee to recover extraordinary expenses related to examination, investigation, regulation, or supervision of savings associations or their affiliates.</P> </SECTION> <SECTION> <SECTNO>§ 502.65</SECTNO> <SUBJECT>When is an application fee due?</SUBJECT> <P>(a) You must pay the application fee when you file an application. OTS will not process your application if you do not include the required fee.</P> <P>(b) If OTS cannot complete its review of your application because the application is materially deficient and it refuses to accept your application for processing, you must pay a new application fee upon filing a revised application.</P> <P>(c) If a transaction involves multiple applications, you must pay the appropriate fee for each application, unless OTS specifies otherwise by Thrift Bulletin.</P> </SECTION> <SECTION> <SECTNO>§ 502.70</SECTNO> <SUBJECT>How must I pay an application fee?</SUBJECT> <P>You must pay an application fee to the Office of Thrift Supervision. You must include a statement of the fee and how you calculated the fee.</P> </SECTION> <SECTION> <SECTNO>§ 502.75</SECTNO> <SUBJECT>What if I do not pay my fees on time?</SUBJECT> <P>(a) <E T="03">Interest.</E> An examination or investigation fee is delinquent if OTS does not receive the fee within 30 days of the date specified in a bill. The Director will charge interest on a delinquent examination or investigation fee. Interest will accrue at a rate (that OTS will determine quarterly) equal to 150 percent of the average of the bond-equivalent rates of 13-week Treasury bills auctioned during the preceding calendar quarter.</P> <P>(b) <E T="03">Failure to pay.</E> If your holding company, affiliate, or subsidiary fails to pay any examination or investigation fee within 60 days of the date specified in a bill, the Director may assess that fee, with interest, against you and collect it from you. If any such entity is a holding company, affiliate, or subsidiary of more than one savings association, the Director may assess the fee <PRTPAGE P="10"/>against and collect it from each savings association as the Director may prescribe.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 503</EAR> <HD SOURCE="HED">PART 503—PRIVACY ACT</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>503.1</SECTNO> <SUBJECT>Scope and procedures.</SUBJECT> <SECTNO>503.2</SECTNO> <SUBJECT>Exemptions of records containing investigatory material compiled for law enforcement purposes.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>5 U.S.C. 552a; 12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <CROSSREF> <HD SOURCE="HED">Cross Reference: </HD> <P>See 31 CFR part 1, subpart C.</P> </CROSSREF> <SECTION> <SECTNO>§ 503.1</SECTNO> <SUBJECT>Scope and procedures.</SUBJECT> <P>(a) <E T="03">In general</E>. The Privacy Act regulations of the Department of the Treasury, 31 CFR part 1, subpart C, apply to the Office as a component part of the Department of the Treasury. This part 503 sets forth, for the Office, specific notification and access procedures with respect to particular systems of records, and identifies the officials designated to make the initial determinations with respect to notification and access to records and accountings of disclosures of records. This part 503 also sets forth the specific procedures for requesting amendment of records and identifies the officials designated to make the initial and appellate determinations with respect to requests for amendment of records. It identifies the officials designated to grant extensions of time on appeal, the officials with whom “Statements of Disagreement” may be filed, the official designated to receive service of process and the addresses for delivery of requests, appeals, and service of process. In addition, it references the notice of systems of records and notices of the routine uses of the information in the system required by 5 U.S.C. 552a(e) (4) and (11) and published annually by the Office of the Federal Register in “Privacy Act Issuances.”</P> <P>(b) <E T="03">Requests for notification and access to records and accountings of disclosures.</E> Initial determinations under 31 CFR 1.26, whether to grant requests for notification and access to records and accountings of disclosures for the Office, will be made by the head of the organizational unit having immediate custody of the records requested or an official designated by this official. This is indicated in the appropriate system notice in “Privacy Act Issuances” published annually by the Office of the Federal Register. Requests for information and specific guidance on where to send requests for records may be mailed or delivered personally to: Privacy Act Request, Manager, Dissemination Branch, Information Management & Services Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.</P> <P>(c) <E T="03">Requests for amendment of records.</E> Initial determinations under 31 CFR 1.27(a) through (d), whether to grant requests to amend records will be made by the head of the organizational unit having immediate custody of the records or the delegate of such official. Requests for amendment should be addressed to: Privacy Act Amendment Request, Manager, Dissemination Branch, Information Management & Services Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.</P> <P>(d) <E T="03">Administrative appeal of initial determinations refusing amendment of records</E>. Appellate determinations refusing amendment of records under 31 CFR 1.27(e) including extensions of time on appeal, with respect to records of the Office will be made by the Director of the Office of Thrift Supervision (“Director”) or Chief Counsel or the delegate of the Director or Chief Counsel. Appeals made by mail should be addressed to, or delivered personally to: Privacy Act Amendment Appeal, Deputy Chief Counsel for General Law, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.</P> <P>(e) <E T="03">Statements of disagreement</E>. “Statements of Disagreement” under 31 CFR 1.27(e)(4)(i) shall be filed with the Deputy Director for Washington Operations at the address indicated in the letter of notification within 35 days of the date of such notification and should be limited to one page.</P> <P>(f) <E T="03">Service of process</E>. Service of process will be received by the Chief Counsel's Office or the delegate of such official and shall be delivered to the following location: Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.<PRTPAGE P="11"/> </P> <P>(g) <E T="03">Annual notice of systems of records</E>. The annual notice of systems of records is published by the Office of the Federal Register, as specified in 5 U.S.C. 552a(f). The publication is entitled “Privacy Act Issuance.” Any specific requirements for access, including identification requirements, in addition to the requirements set forth in 31 CFR 1.26 and 1.27 are indicated in the notice for the pertinent system.</P> <CITA>[54 FR 49443, Nov. 30, 1989, as amended at 59 FR 18475, Apr. 19, 1994; 64 FR 69184, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 503.2</SECTNO> <SUBJECT>Exemptions of records containing investigatory material compiled for law enforcement purposes.</SUBJECT> <P>(a) <E T="03">Scope.</E> The Office has established a system of records, entitled the “Confidential Individual Information System.” The purpose of this system is to assist the Office in the accomplishment of its statutory and regulatory responsibilities in connection with supervision of savings associations. This system will be exempt from certain provisions of the Privacy Act of 1974 for the reasons set forth in paragraph (c) of this section.</P> <P>(b) <E T="03">Exemptions Under 5 U.S.C. 552a(k)(2).</E> (1) Pursuant to 5 U.S.C. 552a(k)(2), the head of an agency may issue rules to exempt any system of records within the agency from certain provisions of the Privacy Act of 1974 if the system contains investigatory material compiled for law enforcement purposes.</P> <P>(2) Provisions of the Privacy Act of 1974 from which exemptions will be made under 5 U.S.C. 552a(k)(2) are as follows:</P> <P>(i) 5 U.S.C. 552a(c)(3);</P> <P>(ii) 5 U.S.C. 552a(d)(1), (d)(2), (d)(3), and (d)(4);</P> <P>(iii) 5 U.S.C. 552a(e)(1);</P> <P>(iv) 5 U.S.C. 552a(e)(4)(G), (e)(4)(H), and (e)(4)(I); and</P> <P>(v) 5 U.S.C. 552a(f).</P> <P>(c) <E T="03">Reasons for exemptions under 5 U.S.C. 552a(k)(2).</E> (1) 5 U.S.C. 552a(c)(3) requires that an agency make accountings of disclosures of records available to individuals named in the records at their request. These accountings must state the date, nature, and purpose of each disclosure of a record and the name and address of the recipient. The application of this provision would make known to subjects of an investigation that an investigation is taking place and that they are the subjects of it. Release of such information could result in the alteration or destruction of documentary evidence, improper influencing of witnesses, and reluctance of witnesses to offer information, and could otherwise impede or compromise an investigation.</P> <P>(2) 5 U.S.C. 552a(d)(1), (d)(2), (d)(3), and (d)(4), (e)(4)(G) and (e)(4)(H), and (f), relate to an individual's right to be notified of the existence of, and the right to examine, records pertaining to such individual. Notifying an individual at the individual's request of the existence of records and allowing the individual to examine an investigative file pertaining to such individual, or granting access to an investigative file, could:</P> <P>(i) Interfere with investigations and enforcement proceedings;</P> <P>(ii) Constitute an unwarranted invasion of the personal privacy of others;</P> <P>(iii) Disclose the identity of confidential sources and reveal confidential information supplied by those sources; or</P> <P>(iv) Disclose investigative techniques and procedures.</P> <P>(3) 5 U.S.C. 552a(e)(4)(I) requires the publication of the categories of sources of records in each system. Application of this provision could disclose investigative techniques and procedures and cause sources to refrain from giving such information because of fear of reprisal, or fear of breach of promises of anonymity and confidentiality, thus compromising the agency's ability to conduct investigations and to identify, detect, and apprehend violators.</P> <P>(4) 5 U.S.C. 552a(e)(1) requires each agency to maintain in its records only information about an individual that is relevant and necessary to accomplish a purpose of the agency required by statute or Executive Order. Limiting the system as described would impede enforcement activities because:</P> <P>(i) It is not always possible to determine the relevance or necessity of specific information in the early stages of an investigation; and</P> <P>(ii) In any investigation the Office may obtain information concerning violations of laws other than those <PRTPAGE P="12"/>within the scope of its jurisdiction. In the interest of effective law enforcement, the Office should retain this information to aid in establishing patterns of criminal activity, and to provide leads for those law enforcement agencies charged with enforcing criminal or civil laws.</P> <P>(d) <E T="03">Documents exempted.</E> Exemptions will be applied only when appropriate under 5 U.S.C. 552a(k).</P> <CITA>[55 FR 31371, Aug. 2, 1990]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 505</EAR> <HD SOURCE="HED">PART 505—FREEDOM OF INFORMATION ACT</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>505.1</SECTNO> <SUBJECT>Basis and scope.</SUBJECT> <SECTNO>505.2</SECTNO> <SUBJECT>Public reference room.</SUBJECT> <SECTNO>505.3</SECTNO> <SUBJECT>Requests for records.</SUBJECT> <SECTNO>505.4</SECTNO> <SUBJECT>Administrative appeal of initial determination to deny records.</SUBJECT> <SECTNO>505.5</SECTNO> <SUBJECT>Delivery of process.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>5 U.S.C. 552; 12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <CROSSREF> <HD SOURCE="HED">Cross Reference: </HD> <P>See 31 CFR part 1, subpart A.</P> </CROSSREF> <SECTION> <SECTNO>§ 505.1</SECTNO> <SUBJECT>Basis and scope.</SUBJECT> <P>(a) This part is issued by the Office of Thrift Supervision (“OTS”) as a supplement to the Freedom of Information Act regulations of the Department of the Treasury, 31 CFR part 1, subpart A, which apply to the OTS as a component part of the Department of the Treasury.</P> <P>(b) This part is issued by the OTS pursuant to the requirement of section 552 of title 5 of the United States Code, which requires every federal agency to publish in the <E T="04">Federal Register</E> the established places at which, the employees from whom, and the methods whereby, the public may obtain information, make submittals on requests, or obtain decisions, and the forms available or the places at which forms and instructions as to the scope and contents of all papers, reports, or examinations may be found. Information about the Public Reading Room is set forth in § 505.2 of this part. Procedures for requests for information are set forth in § 505.3 of this part. Information about administrative appeals is set forth in § 505.4 of this part. Provisions relating to delivery of process upon the OTS are set forth in § 505.5 of this part.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 60 FR 66716, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 505.2</SECTNO> <SUBJECT>Public reference room.</SUBJECT> <P>The OTS will make materials available for review on an ad hoc basis when necessary. Contact the Dissemination Branch, Information Management & Services Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, or visit the Public Reference Room at 1700 G Street, NW., Lower Level, from 9:00 a.m. to 4:00 p.m. on business days.</P> <CITA>[60 FR 66716, Dec. 26, 1995, as amended at 64 FR 69184, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 505.3</SECTNO> <SUBJECT>Requests for records.</SUBJECT> <P>Initial determinations under 31 CFR 1.5(g) as to whether to grant requests for records of the OTS will be made by the Manager, Dissemination Branch or by an official so designated. Requests may be mailed to: Freedom of Information Act Request, Dissemination Branch, Information Management & Services Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, or marked “FOIA” and delivered in person to the Public Reference Room, Dissemination Branch, Information Management & Services Division, 1700 G Street, NW., Lower Level. Requests may also be sent by e-mail or facsimile.</P> <CITA>[60 FR 66716, Dec. 26, 1995, as amended at 64 FR 69184, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 505.4</SECTNO> <SUBJECT>Administrative appeal of initial determination to deny records.</SUBJECT> <P>Appellate determinations under 31 CFR 1.5(h) with respect to records of the OTS will be made by the Executive Director for Administration or the Director, Records Management and Information Policy Division. Appeals by mail should be addressed to: Deputy Chief Counsel for General Law, 1700 G Street, NW., Washington, DC 20552. Appeals may be delivered personally to the Dissemination Branch, Information Management & Services Division, Office of Thrift Supervision, 1700 G <PRTPAGE P="13"/>Street, NW., Lower Level. Appeals may also be sent by e-mail or facsimile.</P> <CITA>[60 FR 66716, Dec. 26, 1995, as amended at 64 FR 69184, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 505.5</SECTNO> <SUBJECT>Delivery of process.</SUBJECT> <P>Service of process will be received as set forth in § 510.4 of this chapter.</P> <CITA>[54 FR 49444, Nov. 30, 1989]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 506</EAR> <HD SOURCE="HED">PART 506—INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK REDUCTION ACT</HD> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>44 U.S.C. 3501 <E T="03">et seq.</E> </P> </AUTH> <SECTION> <SECTNO>§ 506.1</SECTNO> <SUBJECT>OMB control numbers assigned pursuant to the Paperwork Reduction Act.</SUBJECT> <P>(a) <E T="03">Purpose.</E> This part collects and displays the control numbers assigned to information collection requirements contained in regulations of the Office of Thrift Supervision by the Office of Management and Budget (OMB) pursuant to the Paperwork Reduction Act of 1995, Pub. L. 104-13, 109 Stat. 163, and is adopted in compliance with the requirements of 5 CFR 1320.8. Information collection requirements that are not mandated by statute must be assigned control numbers by OMB in order to be enforceable. Respondents/recordkeepers are not required to comply with any collection of information unless it displays a currently valid OMB control number.</P> <P>(b) <E T="03">Display.</E> </P> <GPOTABLE CDEF="s50,r50" COLS="2" OPTS="L2,i1"> <BOXHD> <CHED H="1">12 CFR part or section where identified and described</CHED> <CHED H="1">Current OMB control No.</CHED> </BOXHD> <ROW> <ENT I="01">502.70</ENT> <ENT>1550-0053.</ENT> </ROW> <ROW> <ENT I="01">510</ENT> <ENT>1550-0081.</ENT> </ROW> <ROW> <ENT I="01">Part 516</ENT> <ENT>1550-0005, 1550-0006, 1550-0016.</ENT> </ROW> <ROW> <ENT I="01">516.1(c)</ENT> <ENT>1550-0056.</ENT> </ROW> <ROW> <ENT I="01">Part 528</ENT> <ENT>1550-0021.</ENT> </ROW> <ROW> <ENT I="01">536.40</ENT> <ENT>1550-0106.</ENT> </ROW> <ROW> <ENT I="01">543.2</ENT> <ENT>1550-0005.</ENT> </ROW> <ROW> <ENT I="01">543.3</ENT> <ENT>1550-0005</ENT> </ROW> <ROW> <ENT I="01">543.9</ENT> <ENT>1550-0007.</ENT> </ROW> <ROW> <ENT I="01">544.2</ENT> <ENT>1550-0017.</ENT> </ROW> <ROW> <ENT I="01">544.5</ENT> <ENT>1550-0018.</ENT> </ROW> <ROW> <ENT I="01">544.8</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">545.74</ENT> <ENT>1550-0013.</ENT> </ROW> <ROW> <ENT I="01">545.92</ENT> <ENT>1550-0004.</ENT> </ROW> <ROW> <ENT I="01">545.95</ENT> <ENT>1550-0006.</ENT> </ROW> <ROW> <ENT I="01">545.96(c)</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">546.2</ENT> <ENT>1550-0016.</ENT> </ROW> <ROW> <ENT I="01">546.4</ENT> <ENT>1550-0066.</ENT> </ROW> <ROW> <ENT I="01">Part 550</ENT> <ENT>1550-0037.</ENT> </ROW> <ROW> <ENT I="01">552.2-1</ENT> <ENT>1550-0005.</ENT> </ROW> <ROW> <ENT I="01">552.2-6</ENT> <ENT>1550-0007.</ENT> </ROW> <ROW> <ENT I="01">552.4</ENT> <ENT>1550-0017.</ENT> </ROW> <ROW> <ENT I="01">552.5</ENT> <ENT>1550-0018.</ENT> </ROW> <ROW> <ENT I="01">552.6</ENT> <ENT>1550-0025.</ENT> </ROW> <ROW> <ENT I="01">552.7</ENT> <ENT>1550-0025.</ENT> </ROW> <ROW> <ENT I="01">552.11</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">552.13</ENT> <ENT>1550-0016, 1550-0025.</ENT> </ROW> <ROW> <ENT I="01">555.300</ENT> <ENT>1550-0095.</ENT> </ROW> <ROW> <ENT I="01">555.310</ENT> <ENT>1550-0095.</ENT> </ROW> <ROW> <ENT I="01">557.20</ENT> <ENT>1550-0092.</ENT> </ROW> <ROW> <ENT I="01">559.3</ENT> <ENT>1550-0077.</ENT> </ROW> <ROW> <ENT I="01">559.11</ENT> <ENT>1550-0067.</ENT> </ROW> <ROW> <ENT I="01">559.12</ENT> <ENT>1550-0013.</ENT> </ROW> <ROW> <ENT I="01">559.13</ENT> <ENT>1550-0065.</ENT> </ROW> <ROW> <ENT I="01">560.1</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.2</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.32</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.35</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.93(f)</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.101</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.170(c)</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.172</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">560.210</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">562.1</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">562.1(b)</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">562.4</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">563.1</ENT> <ENT>1550-0027.</ENT> </ROW> <ROW> <ENT I="01">563.1(b)</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">563.22</ENT> <ENT>1550-0016.</ENT> </ROW> <ROW> <ENT I="01">563.41(e)</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">563.42(e)</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">563.43</ENT> <ENT>1550-0075.</ENT> </ROW> <ROW> <ENT I="01">563.47(e)</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">563.74</ENT> <ENT>1550-0050.</ENT> </ROW> <ROW> <ENT I="01">563.76(c)</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">563.80</ENT> <ENT>1550-0030.</ENT> </ROW> <ROW> <ENT I="01">563.81</ENT> <ENT>1550-0061.</ENT> </ROW> <ROW> <ENT I="01">563.143 through 563.146</ENT> <ENT>1550-0059.</ENT> </ROW> <ROW> <ENT I="01">563.170</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">563.177</ENT> <ENT>1550-0041.</ENT> </ROW> <ROW> <ENT I="01">563.180</ENT> <ENT>1550-0084.</ENT> </ROW> <ROW> <ENT I="01">563.180(d)</ENT> <ENT>1550-0003.</ENT> </ROW> <ROW> <ENT I="01">563.180(e)</ENT> <ENT>1550-0079.</ENT> </ROW> <ROW> <ENT I="01">563.181</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">563.183</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">Part 563b</ENT> <ENT>1550-0014.</ENT> </ROW> <ROW> <ENT I="01">563b.4</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">563b.20 through 563b.32</ENT> <ENT>1550-0074.</ENT> </ROW> <ROW> <ENT I="01">Part 563d</ENT> <ENT>1550-0019.</ENT> </ROW> <ROW> <ENT I="01">Part 563e</ENT> <ENT>1550-0012.</ENT> </ROW> <ROW> <ENT I="01">Part 563f</ENT> <ENT>1550-0051.</ENT> </ROW> <ROW> <ENT I="01">Part 563g</ENT> <ENT>1550-0035.</ENT> </ROW> <ROW> <ENT I="01">Part 564</ENT> <ENT>1550-0078.</ENT> </ROW> <ROW> <ENT I="01">566.4</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">Part 568</ENT> <ENT>1550-0062.</ENT> </ROW> <ROW> <ENT I="01">572.6</ENT> <ENT>1550-0088.</ENT> </ROW> <ROW> <ENT I="01">572.7</ENT> <ENT>1550-0088.</ENT> </ROW> <ROW> <ENT I="01">572.9</ENT> <ENT>1550-0088.</ENT> </ROW> <ROW> <ENT I="01">572.10</ENT> <ENT>1550-0088.</ENT> </ROW> <ROW> <ENT I="01">Part 573</ENT> <ENT>1550-0103.</ENT> </ROW> <ROW> <ENT I="01">574.3(b)</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">574.4</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">574.5</ENT> <ENT>1550-0032.</ENT> </ROW> <ROW> <ENT I="01">574.6</ENT> <ENT>1550-0015.</ENT> </ROW> <ROW> <ENT I="01">Part 575</ENT> <ENT>1550-0072.</ENT> </ROW> <ROW> <ENT I="01">584.1(f)</ENT> <ENT>1550-0011.</ENT> </ROW> <ROW> <ENT I="01">584.2-1</ENT> <ENT>1550-0063.</ENT> </ROW> <ROW> <ENT I="01">584.2-2</ENT> <ENT>1550-0063.</ENT> </ROW> <ROW> <ENT I="01">584.9</ENT> <ENT>1550-0063.</ENT> </ROW> <ROW> <ENT I="01">590.4(h)</ENT> <ENT>1550-0078.</ENT> </ROW> </GPOTABLE> <PRTPAGE P="14"/> <CITA TYPE="W">[60 FR 66716, Dec. 26, 1995, as amended by 61 FR 65178, Dec. 11, 1996; 62 FR 54764, Oct. 22, 1997; 62 FR 66261, Dec. 18, 1997; 63 FR 71211, Dec. 24, 1998; 65 FR 78901, Dec. 18, 2000]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 508</EAR> <HD SOURCE="HED">PART 508—REMOVALS, SUSPENSIONS, AND PROHIBITIONS WHERE A CRIME IS CHARGED OR PROVEN</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>508.1</SECTNO> <SUBJECT>Scope.</SUBJECT> <SECTNO>508.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>508.3</SECTNO> <SUBJECT>Issuance of Notice or Order.</SUBJECT> <SECTNO>508.4</SECTNO> <SUBJECT>Contents and service of the Notice or Order.</SUBJECT> <SECTNO>508.5</SECTNO> <SUBJECT>Petition for hearing.</SUBJECT> <SECTNO>508.6</SECTNO> <SUBJECT>Initiation of hearing.</SUBJECT> <SECTNO>508.7</SECTNO> <SUBJECT>Conduct of hearings.</SUBJECT> <SECTNO>508.8</SECTNO> <SUBJECT>Default.</SUBJECT> <SECTNO>508.9</SECTNO> <SUBJECT>Rules of evidence.</SUBJECT> <SECTNO>508.10</SECTNO> <SUBJECT>Burden of persuasion.</SUBJECT> <SECTNO>508.11</SECTNO> <SUBJECT>Relevant considerations.</SUBJECT> <SECTNO>508.12</SECTNO> <SUBJECT>Proposed findings and conclusions and recommended decision.</SUBJECT> <SECTNO>508.13</SECTNO> <SUBJECT>Decision of the Office.</SUBJECT> <SECTNO>508.14</SECTNO> <SUBJECT>Miscellaneous.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1464, 1818.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49444, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 508.1</SECTNO> <SUBJECT>Scope.</SUBJECT> <P>The rules in this part apply to hearings, which are exempt from the adjudicative provisions of the Administrative Procedure Act, afforded to any officer, director, or other person participating in the conduct of the affairs of a savings association, affiliate service corporation, savings and loan holding company, or subsidiary of such a holding company, where such person has been suspended or removed from office or prohibited from further participation in the conduct of the affairs of one of the aforementioned entities by a Notice or Order served by the Office upon the grounds set forth in section 8(g) of the Federal Deposit Insurance Act, (12 U.S.C. 1818(g)).</P> </SECTION> <SECTION> <SECTNO>§ 508.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this part—</P> <P>(a) The term <E T="03">Office</E> means the Office of Thrift Supervision.</P> <P>(b) The term <E T="03">Secretary</E> means the Secretary to the Office and any Assistant or Acting Secretary to the Office.</P> <P>(c) The term <E T="03">Notice</E> means a Notice of Suspension or Notice of Prohibition issued by the Office pursuant to section 8(g) of the Federal Deposit Insurance Act.</P> <P>(d) The term <E T="03">Order</E> means an Order of Removal or Order of Prohibition issued by the Office pursuant to section 8(g) of the Federal Deposit Insurance Act.</P> <P>(e) The term <E T="03">association</E> means a savings association within the meaning of section 2(4) of the Home Owners' Loan Act of 1933, as amended, 12 U.S.C. 1462(4) (“HOLA”), an affiliate service corporation within the meaning of section 8(b)(8) of the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1818(b)(8) (“FDIA”), a savings and loan holding company within the meaning of section 10(a)(1)(D) of the HOLA, 12 U.S.C. 1467a(a)(1)(D) and a subsidiary of a savings and loan holding company (other than a savings association) within the meaning of section 10(a)(1)(G) of the Home Owners' Loan Act of 1933.</P> <P>(f) The term <E T="03">subject individual</E> means a person served with a Notice or Order.</P> <P>(g) The term <E T="03">petitioner</E> means a subject individual who has filed a petition for informal hearing under this part.</P> </SECTION> <SECTION> <SECTNO>§ 508.3</SECTNO> <SUBJECT>Issuance of Notice or Order.</SUBJECT> <P>(a) The Office may issue and serve a Notice upon an officer, director, or other person participating in the conduct of the affairs of an association, where the individual is charged in any information, indictment, or complaint with the commission of or participation in a crime involving dishonesty or breach of trust that is punishable by imprisonment for a term exceeding one year under State or Federal law, if the Office, upon due deliberation, determines that continued service or participation by the individual may pose a threat to the interests of the association's depositors or may threaten to impair public confidence in the association. The Notice shall remain in effect until the information, indictment, or complaint is finally disposed of or until terminated by the Office.</P> <P>(b) The Office may issue and serve an Order upon a subject individual against whom a judgment of conviction, or an agreement to enter a pretrial diversion <PRTPAGE P="15"/>or other similar program has been rendered, where such judgment is not subject to further appellate review, and the Office, upon the deliberation, has determined that continued service or participation by the subject individual may pose a threat to the interests of the association's depositors or may threaten to impair public confidence in the association.</P> </SECTION> <SECTION> <SECTNO>§ 508.4</SECTNO> <SUBJECT>Contents and service of the Notice or Order.</SUBJECT> <P>(a) The Notice or Order shall set forth the basis and facts in support of the Office's issuance of such Notice or Order, and shall inform the subject individual of his right to a hearing, in accordance with this part, for the purpose of determining whether the Notice or Order should be continued, terminated, or otherwise modified.</P> <P>(b) The Secretary shall serve a copy of the Notice or Order upon the subject individual and the related association in the manner set forth in § 509.11 of this chapter.</P> <P>(c) Upon receipt of the Notice or Order, the subject individual shall immediately comply with the requirements thereof.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 508.5</SECTNO> <SUBJECT>Petition for hearing.</SUBJECT> <P>(a) To obtain a hearing, the subject individual must file two copies of a petition with the Secretary within 30 days of being served with the Notice or Order.</P> <P>(b) The petition filed under this section shall admit or deny specifically each allegation in the Notice or Order, unless the petitioner is without knowledge or information, in which case the petition shall so state and the statement shall have the effect of a denial. Any allegation not denied shall be deemed to be admitted. When a petitioner intends in good faith to deny only a part of or to qualify an allegation, he shall specify so much of it as is true and shall deny only the remainder.</P> <P>(c) The petition shall state whether the petitioner is requesting termination or modification of the Notice or Order, and shall state with particularity how the petitioner intends to show that his continued service to or participation in the conduct of the affairs of the association would not, or is not likely to, pose a threat to the interests of the association's depositors or to impair public confidence in the association.</P> </SECTION> <SECTION> <SECTNO>§ 508.6</SECTNO> <SUBJECT>Initiation of hearing.</SUBJECT> <P>(a) Within 10 days of the filing of a petition for hearing, the Office shall notify the petitioner of the time and place fixed for hearing, and it shall designate one or more Office employees to serve as presiding officer.</P> <P>(b) The hearing shall be scheduled to be held no later than 30 days from the date the petition was filed, unless the time is extended at the request of the petitioner.</P> <P>(c) A petitioner may appear personally or through counsel, but if represented by counsel, said counsel is required to comply with § 509.6 of this chapter.</P> <P>(d) A representative(s) of the Office's Office of Enforcement also may attend the hearing and participate therein as a party.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 508.7</SECTNO> <SUBJECT>Conduct of hearings.</SUBJECT> <P>(a) Hearings provided by this section are not subject to the adjudicative provisions of the Administrative Procedure Act (5 U.S.C. 554-557). The presiding officer is, however, authorized to exercise all of the powers enumerated in § 509.5 of this chapter.</P> <P>(b) Witnesses may be presented, within time limits specified by the presiding officer, provided that at least 10 days prior to the hearing date, the party presenting the witnesses furnishes the presiding officer and the opposing party with a list of such witnesses and a summary of the proposed testimony. However, the requirement for furnishing such a witness list and summary of testimony shall not apply to the presentation of rebuttal witnesses. The presiding officer may ask questions of any witness, and each party shall have an opportunity to cross-examine any witness presented by an opposing party.<PRTPAGE P="16"/> </P> <P>(c) Upon the request of either the petitioner or a representative of the Office of Enforcement, the record shall remain open for a period of 5 business days following the hearing, during which time the parties may make any additional submissions for the record. Thereafter, the record shall be closed.</P> <P>(d) Following the introduction of all evidence, the petitioner and the representative of the Office of Enforcement shall have an opportunity for oral argument; however, the parties may jointly waive the right to oral argument, and, in lieu thereof, elect to submit written argument.</P> <P>(e) All oral testimony and oral argument shall be recorded, and transcripts made available to the petitioner upon payment of the cost thereof. A copy of the transcript shall be sent directly to the presiding officer, who shall have authority to correct the record sua sponte or upon the motion of any party.</P> <P>(f) The parties may, in writing, jointly waive an oral hearing and instead elect a hearing upon a written record in which all evidence and argument would be submitted to the presiding officer in documentary form and statements of individuals would be made by affidavit.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 508.8</SECTNO> <SUBJECT>Default.</SUBJECT> <P>If the subject individual fails to file a petition for a hearing, or fails to appear at a hearing, either in person or by attorney, or fails to submit a written argument where oral argument has been waived pursuant to § 508.7(d) or (f) of this part, the Notice shall remain in effect until the information, indictment, or complaint is finally disposed of and the Order shall remain in effect until terminated by the Office.</P> </SECTION> <SECTION> <SECTNO>§ 508.9</SECTNO> <SUBJECT>Rules of evidence.</SUBJECT> <P>(a) Formal rules of evidence shall not apply to a hearing, but the presiding officer may limit the introduction of irrelevant, immaterial, or unduly repetitious evidence.</P> <P>(b) All matters officially noticed by the presiding officer shall appear on the record.</P> </SECTION> <SECTION> <SECTNO>§ 508.10</SECTNO> <SUBJECT>Burden of persuasion.</SUBJECT> <P>The petitioner has the burden of showing, by a preponderance of the evidence, that his or her continued service to or participation in the conduct of the affairs of the association does not, or is not likely to, pose a threat to the interests of the association's depositors or threaten to impair public confidence in the association.</P> </SECTION> <SECTION> <SECTNO>§ 508.11</SECTNO> <SUBJECT>Relevant considerations.</SUBJECT> <P>(a) In determining whether the petitioner has shown that his or her continued service to or participation in the conduct of the affairs of the association would not, or is not likely to, pose a threat to the interests of the association's depositors or threaten to impair public confidence in the association, in order to decide whether the Notice or Order should be continued, terminated, or otherwise modified, the Office will consider:</P> <P>(1) The nature and extent of the petitioner's participation in the affairs of the association;</P> <P>(2) The nature of the offense with which the petitioner has been charged;</P> <P>(3) The extent of the publicity accorded the indictment and trial; and</P> <P>(4) Such other relevant factors as may be entered on the record.</P> <P>(b) When considering a request for the termination or modification of a Notice, the Office will not consider the ultimate guilt or innocence of the petitioner with respect to the criminal charge that is outstanding.</P> <P>(c) When considering a request for the termination or modification of an Order which has been issued following a final judgment of conviction against a subject individual, the Office will not collaterally review such final judgment of conviction.</P> </SECTION> <SECTION> <SECTNO>§ 508.12</SECTNO> <SUBJECT>Proposed findings and conclusions and recommended decision.</SUBJECT> <P>(a) Within 30 days after completion of oral argument or the submission of written argument where oral argument has been waived, the presiding officer shall file with the Secretary and certify to the Office for decision the entire record of the hearing, which shall include a recommended decision, the Notice or Order, and all other documents filed in connection with the hearing.<PRTPAGE P="17"/> </P> <P>(b) The recommended decision shall contain:</P> <P>(1) A statement of the issue(s) presented,</P> <P>(2) A statement of findings and conclusions, and the reasons or basis therefor, on all material issues of fact, law, or discretion presented on the record, and</P> <P>(3) An appropriate recommendation as to whether the suspension, removal, or prohibition should be continued, modified, or terminated.</P> </SECTION> <SECTION> <SECTNO>§ 508.13</SECTNO> <SUBJECT>Decision of the Office.</SUBJECT> <P>(a) Within 30 days after the recommended decision has been certified to the Office, the Office shall issue a final decision.</P> <P>(b) The Office's final decision shall contain a statement of the basis therefor. The Office may satisfy this requirement where it adopts the recommended decision of the presiding officer upon finding that the recommended decision satisfies the requirements of § 509.38 of this chapter.</P> <P>(c) The Secretary shall serve upon the petitioner and the representative of the Office of Enforcement a copy of the Office's final decision and the related recommended decision.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991; 59 FR 53570, Oct. 25, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 508.14</SECTNO> <SUBJECT>Miscellaneous.</SUBJECT> <P>The provisions of §§ 509.10, 509.11, and 509.12 of this chapter shall apply to proceedings under this part.</P> <CITA>[54 FR 49444, Nov. 30, 1989, as amended at 56 FR 38306, Aug. 12, 1991]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 509</EAR> <HD SOURCE="HED">PART 509—RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY PROCEEDINGS</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Uniform Rules of Practice and Procedure</HD> <SECHD>Sec.</SECHD> <SECTNO>509.1</SECTNO> <SUBJECT>Scope.</SUBJECT> <SECTNO>509.2</SECTNO> <SUBJECT>Rules of construction.</SUBJECT> <SECTNO>509.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>509.4</SECTNO> <SUBJECT>Authority of Director.</SUBJECT> <SECTNO>509.5</SECTNO> <SUBJECT>Authority of the administrative law judge.</SUBJECT> <SECTNO>509.6</SECTNO> <SUBJECT>Appearance and practice in adjudicatory proceedings.</SUBJECT> <SECTNO>509.7</SECTNO> <SUBJECT>Good faith certification.</SUBJECT> <SECTNO>509.8</SECTNO> <SUBJECT>Conflicts of interest.</SUBJECT> <SECTNO>509.9</SECTNO> <SUBJECT>Ex parte communications.</SUBJECT> <SECTNO>509.10</SECTNO> <SUBJECT>Filing of papers.</SUBJECT> <SECTNO>509.11</SECTNO> <SUBJECT>Service of papers.</SUBJECT> <SECTNO>509.12</SECTNO> <SUBJECT>Construction of time limits.</SUBJECT> <SECTNO>509.13</SECTNO> <SUBJECT>Change of time limits.</SUBJECT> <SECTNO>509.14</SECTNO> <SUBJECT>Witness fees and expenses.</SUBJECT> <SECTNO>509.15</SECTNO> <SUBJECT>Opportunity for informal settlement.</SUBJECT> <SECTNO>509.16</SECTNO> <SUBJECT>Office's right to conduct examination.</SUBJECT> <SECTNO>509.17</SECTNO> <SUBJECT>Collateral attacks on adjudicatory proceeding.</SUBJECT> <SECTNO>509.18</SECTNO> <SUBJECT>Commencement of proceeding and contents of notice.</SUBJECT> <SECTNO>509.19</SECTNO> <SUBJECT>Answer.</SUBJECT> <SECTNO>509.20</SECTNO> <SUBJECT>Amended pleadings.</SUBJECT> <SECTNO>509.21</SECTNO> <SUBJECT>Failure to appear.</SUBJECT> <SECTNO>509.22</SECTNO> <SUBJECT>Consolidation and severance of actions.</SUBJECT> <SECTNO>509.23</SECTNO> <SUBJECT>Motions.</SUBJECT> <SECTNO>509.24</SECTNO> <SUBJECT>Scope of document discovery.</SUBJECT> <SECTNO>509.25</SECTNO> <SUBJECT>Request for document discovery from parties.</SUBJECT> <SECTNO>509.26</SECTNO> <SUBJECT>Document subpoenas to nonparties.</SUBJECT> <SECTNO>509.27</SECTNO> <SUBJECT>Deposition of witness unavailable for hearing.</SUBJECT> <SECTNO>509.28</SECTNO> <SUBJECT>Interlocutory review.</SUBJECT> <SECTNO>509.29</SECTNO> <SUBJECT>Summary disposition.</SUBJECT> <SECTNO>509.30</SECTNO> <SUBJECT>Partial summary disposition.</SUBJECT> <SECTNO>509.31</SECTNO> <SUBJECT>Scheduling and prehearing conferences.</SUBJECT> <SECTNO>509.32</SECTNO> <SUBJECT>Prehearing submissions.</SUBJECT> <SECTNO>509.33</SECTNO> <SUBJECT>Public hearings.</SUBJECT> <SECTNO>509.34</SECTNO> <SUBJECT>Hearing subpoenas.</SUBJECT> <SECTNO>509.35</SECTNO> <SUBJECT>Conduct of hearings.</SUBJECT> <SECTNO>509.36</SECTNO> <SUBJECT>Evidence.</SUBJECT> <SECTNO>509.37</SECTNO> <SUBJECT>Post-hearing filings.</SUBJECT> <SECTNO>509.38</SECTNO> <SUBJECT>Recommended decision and filing of record.</SUBJECT> <SECTNO>509.39</SECTNO> <SUBJECT>Exceptions to recommended decision.</SUBJECT> <SECTNO>509.40</SECTNO> <SUBJECT>Review by the Director.</SUBJECT> <SECTNO>509.41</SECTNO> <SUBJECT>Stays pending judicial review.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Local Rules</HD> <SECTNO>509.100</SECTNO> <SUBJECT>Scope.</SUBJECT> <SECTNO>509.101</SECTNO> <SUBJECT>Appointment of Office of Financial Institution Adjudication.</SUBJECT> <SECTNO>509.102</SECTNO> <SUBJECT>Discovery.</SUBJECT> <SECTNO>509.103</SECTNO> <SUBJECT>Civil money penalties.</SUBJECT> <SECTNO>509.104</SECTNO> <SUBJECT>Additional procedures.</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a, 1468, 1817(j), 1818, 3349, 4717; 15 U.S.C. 78(l), 78o-5, 78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>56 FR 38306, Aug. 12, 1991, unless otherwise noted.</P> </SOURCE> <SUBPART> <HD SOURCE="HED">Subpart A—Uniform Rules of Practice and Procedure</HD> <SECTION> <SECTNO>§ 509.1</SECTNO> <SUBJECT>Scope.</SUBJECT> <P>This subpart prescribes Uniform Rules of practice and procedure applicable to adjudicatory proceedings as to <PRTPAGE P="18"/>which hearings on the record are provided for by the following statutory provisions:</P> <P>(a) Cease-and-desist proceedings under section 8(b) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1818(b));</P> <P>(b) Removal and prohibition proceedings under section 8(e) of the FDIA (12 U.S.C. 1818(e));</P> <P>(c) Change-in-control proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)) to determine whether the Office should issue an order to approve or disapprove a person's proposed acquisition of an institution and/or institution holding company;</P> <P>(d) Proceedings under section 15C(c)(2) of the Securities Exchange Act of 1934 (Exchange Act) (15 U.S.C. 78o-5), to impose sanctions upon any government securities broker or dealer or upon any person associated or seeking to become associated with a government securities broker or dealer for which the Office is the appropriate Office;</P> <P>(e) Assessment of civil money penalties by the Office against institutions, institution-affiliated parties, and certain other persons for which it is the appropriate Office for any violation of:</P> <P>(1) Section 5 of the Home Owners' Loan Act (HOLA) or any regulation or order issued thereunder, pursuant to 12 U.S.C. 1464 (d), (s) and (v);</P> <P>(2) Section 9 of the HOLA or any regulation or order issued thereunder, pursuant to 12 U.S.C. 1467(d);</P> <P>(3) Section 10 of the HOLA, pursuant to 12 U.S.C. 1467a (i) and (r);</P> <P>(4) Any provisions of the Change in Bank Control Act, any regulation or order issued thereunder or certain unsafe or unsound practices or breaches of fiduciary duty, pursuant to 12 U.S.C. 1817(j)(16);</P> <P>(5) Sections 22(h) and 23 of the Federal Reserve Act, or any regulation issued thereunder or certain unsafe or unsound practices or breaches of fiduciary duty, pursuant to 12 U.S.C. 1468;</P> <P>(6) Certain provisions of the Exchange Act, pursuant to section 21B of the Exchange Act (15 U.S.C. 78u-2);</P> <P>(7) Section 1120 of Financial Institutions Reform, Recovery and Enforcement Act of 1989 (12 U.S.C. 3349), or any order or regulation issued thereunder;</P> <P>(8) The terms of any final or temporary order issued or enforceable pursuant to section 8 of the FDIA or of any written agreement executed by the Office, the terms of any conditions imposed in writing by the Office in connection with the grant of an application or request, certain unsafe or unsound practices or breaches of fiduciary duty, or any law or regulation not otherwise provided herein pursuant to 12 U.S.C. 1818(i)(2);</P> <P>(9) Any provision of law referenced in section 102 of the Flood Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or regulation issued thereunder; and</P> <P>(10) Any provision of law referenced in 31 U.S.C. 5321 or any order or regulation issued thereunder;</P> <P>(f) Remedial action under section 102 of the Flood Disaster Protection Act of 1973 (42 U.S.C. 4012a(g)); and</P> <P>(g) This subpart also applies to all other adjudications required by statute to be determined on the record after opportunity for an agency hearing, unless otherwise specifically provided for in the Local Rules.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 56 FR 59866, Nov. 26, 1991; 61 FR 20353, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.2</SECTNO> <SUBJECT>Rules of construction.</SUBJECT> <P>For purposes of this subpart:</P> <P>(a) Any term in the singular includes the plural, and the plural includes the singular, if such use would be appropriate;</P> <P>(b) Any use of a masculine, feminine, or neuter gender encompasses all three, if such use would be appropriate;</P> <P>(c) The term <E T="03">counsel</E> includes a non-attorney representative; and</P> <P>(d) Unless the context requires otherwise, a party's counsel of record, if any, may, on behalf of that party, take any action required to be taken by the party.</P> </SECTION> <SECTION> <SECTNO>§ 509.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>For purposes of this subpart, unless explicitly stated to the contrary:</P> <P>(a) <E T="03">Administrative law judge</E> means one who presides at an administrative hearing under authority set forth at 5 U.S.C. 556.<PRTPAGE P="19"/> </P> <P>(b) <E T="03">Adjudicatory proceeding</E> means a proceeding conducted pursuant to these rules and leading to the formulation of a final order other than a regulation.</P> <P>(c) <E T="03">Decisional employee</E> means any member of the Office's or administrative law judge's staff who has not engaged in an investigative or prosecutorial role in a proceeding and who may assist the Office or the administrative law judge, respectively, in preparing orders, recommended decisions, decisions, and other documents under the Uniform Rules.</P> <P>(d) <E T="03">Director</E> means the Director of the Office of Thrift Supervision or his or her designee.</P> <P>(e) <E T="03">Enforcement Counsel</E> means any individual who files a notice of appearance as counsel on behalf of the Office in an adjudicatory proceeding.</P> <P>(f) <E T="03">Final order</E> means an order issued by the Office with or without the consent of the affected institution or the institution-affiliated party, that has become final, without regard to the pendency of any petition for reconsideration or review.</P> <P>(g) <E T="03">Institution</E> includes any savings association as that term is defined in section 3(b) of the FDIA (12 U.S.C. 1813(b)), any savings and loan holding company or any subsidiary thereof whether wholly or partly owned (other than a bank) as those terms are defined in section 10(a) of the HOLA (12 U.S.C. 1467(a)).</P> <P>(h) <E T="03">Institution-affiliated party</E> means any institution-affiliated party as that term is defined in section 3(u) of the FDIA (12 U.S.C. 1813(u)).</P> <P>(i) <E T="03">Local Rules</E> means those rules found in subpart B of this part.</P> <P>(j) <E T="03">Office</E> means the Office of Thrift Supervision in the case of any savings association or any savings and loan holding company, and subsidiary (other than a bank or subsidiary of that bank) of a savings and loan holding company, any service corporation of a savings association, and any subsidiary of such service corporation, whether wholly or partly owned.</P> <P>(k) <E T="03">Office of Financial Institution Adjudication</E> (OFIA) means the executive body charged with overseeing the administration of administrative enforcement proceedings for the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office.</P> <P>(l) <E T="03">Party</E> means the Office and any person named as a party in any notice.</P> <P>(m) <E T="03">Person</E> means an individual, sole proprietor, partnership, corporation, unincorporated association, trust, joint venture, pool, syndicate, agency or other entity or organization, including an institution as defined in paragraph (g) of this section.</P> <P>(n) <E T="03">Respondent</E> means any party other than the Office.</P> <P>(o) <E T="03">Uniform Rules</E> means those rules in subpart A of this part.</P> <P>(p) <E T="03">Violation</E> includes any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation.</P> </SECTION> <SECTION> <SECTNO>§ 509.4</SECTNO> <SUBJECT>Authority of Director.</SUBJECT> <P>The Director may, at any time during the pendency of a proceeding perform, direct the performance of, or waive performance of, any act which could be done or ordered by the administrative law judge.</P> </SECTION> <SECTION> <SECTNO>§ 509.5</SECTNO> <SUBJECT>Authority of the administrative law judge.</SUBJECT> <P>(a) <E T="03">General rule.</E> All proceedings governed by this part shall be conducted in accordance with the provisions of chapter 5 of title 5 of the United States Code. The administrative law judge shall have all powers necessary to conduct a proceeding in a fair and impartial manner and to avoid unnecessary delay.</P> <P>(b) <E T="03">Powers.</E> The administrative law judge shall have all powers necessary to conduct the proceeding in accordance with paragraph (a) of this section, including the following powers:</P> <P>(1) To administer oaths and affirmations;</P> <P>(2) To issue subpoenas, subpoenas duces tecum, and protective orders, as authorized by this part, and to quash or modify any such subpoenas and orders;</P> <P>(3) To receive relevant evidence and to rule upon the admission of evidence and offers of proof;<PRTPAGE P="20"/> </P> <P>(4) To take or cause depositions to be taken as authorized by this subpart;</P> <P>(5) To regulate the course of the hearing and the conduct of the parties and their counsel;</P> <P>(6) To hold scheduling and/or pre-hearing conferences as set forth in § 509.31 of this subpart;</P> <P>(7) To consider and rule upon all procedural and other motions appropriate in an adjudicatory proceeding, provided that only the Director shall have the power to grant any motion to dismiss the proceeding or to decide any other motion that results in a final determination of the merits of the proceeding;</P> <P>(8) To prepare and present to the Director a recommended decision as provided herein;</P> <P>(9) To recuse himself or herself by motion made by a party or on his or her own motion;</P> <P>(10) To establish time, place and manner limitations on the attendance of the public and the media for any public hearing; and</P> <P>(11) To do all other things necessary and appropriate to discharge the duties of a presiding officer.</P> </SECTION> <SECTION> <SECTNO>§ 509.6</SECTNO> <SUBJECT>Appearance and practice in adjudicatory proceedings.</SUBJECT> <P>(a) <E T="03">Appearance before an Office or an administrative law judge—</E>(1) <E T="03">By attorneys.</E> Any member in good standing of the bar of the highest court of any state, commonwealth, possession, territory of the United States, or the District of Columbia may represent others before the Office if such attorney is not currently suspended or debarred from practice before the Office.</P> <P>(2) <E T="03">By non-attorneys.</E> An individual may appear on his or her own behalf; a member of a partnership may represent the partnership; a duly authorized officer, director, or employee of any government unit, agency, institution, corporation or authority may represent that unit, agency, institution, corporation or authority if such officer, director, or employee is not currently suspended or debarred from practice before the Office.</P> <P>(3) <E T="03">Notice of appearance.</E> Any individual acting as counsel on behalf of a party, including the Director, shall file a notice of appearance with OFIA at or before the time that individual submits papers or otherwise appears on behalf of a party in the adjudicatory proceeding. The notice of appearance must include a written declaration that the individual is currently qualified as provided in paragraph (a)(1) or (a)(2) of this section and is authorized to represent the particular party. By filing a notice of appearance on behalf of a party in an adjudicatory proceeding, the counsel agrees and represents that he or she is authorized to accept service on behalf of the represented party and that, in the event of withdrawal from representation, he or she will, if required by the administrative law judge, continue to accept service until new counsel has filed a notice of appearance or until the represented party indicates that he or she will proceed on a <E T="03">pro se</E> basis.</P> <P>(b) <E T="03">Sanctions.</E> Dilatory, obstructionist, egregious, contemptuous or contumacious conduct at any phase of any adjudicatory proceeding may be grounds for exclusion or suspension of counsel from the proceeding.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.7</SECTNO> <SUBJECT>Good faith certification.</SUBJECT> <P>(a) <E T="03">General requirement.</E> Every filing or submission of record following the issuance of a notice shall be signed by at least one counsel of record in his or her individual name and shall state that counsel's address and telephone number. A party who acts as his or her own counsel shall sign his or her individual name and state his or her address and telephone number on every filing or submission of record.</P> <P>(b) <E T="03">Effect of signature.</E> (1) The signature of counsel or a party shall constitute a certification that: the counsel or party has read the filing or submission of record; to the best of his or her knowledge, information, and belief formed after reasonable inquiry, the filing or submission of record is well-grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and the filing or submission of record is not made for any improper purpose, such as to harass or to cause unnecessary delay or <PRTPAGE P="21"/>needless increase in the cost of litigation.</P> <P>(2) If a filing or submission of record is not signed, the administrative law judge shall strike the filing or submission of record, unless it is signed promptly after the omission is called to the attention of the pleader or movant.</P> <P>(c) <E T="03">Effect of making oral motion or argument.</E> The act of making any oral motion or oral argument by any counsel or party constitutes a certification that to the best of his or her knowledge, information, and belief formed after reasonable inquiry, his or her statements are well-grounded in fact and are warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and are not made for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.</P> </SECTION> <SECTION> <SECTNO>§ 509.8</SECTNO> <SUBJECT>Conflicts of interest.</SUBJECT> <P>(a) <E T="03">Conflict of interest in representation.</E> No person shall appear as counsel for another person in an adjudicatory proceeding if it reasonably appears that such representation may be materially limited by that counsel's responsibilities to a third person or by the counsel's own interests. The administrative law judge may take corrective measures at any stage of a proceeding to cure a conflict of interest in representation, including the issuance of an order limiting the scope of representation or disqualifying an individual from appearing in a representative capacity for the duration of the proceeding.</P> <P>(b) <E T="03">Certification and waiver.</E> If any person appearing as counsel represents two or more parties to an adjudicatory proceeding or also represents a non-party on a matter relevant to an issue in the proceeding, counsel must certify in writing at the time of filing the notice of appearance required by § 509.6(a):</P> <P>(1) That the counsel has personally and fully discussed the possibility of conflicts of interest with each such party and non-party; and</P> <P>(2) That each such party and non-party waives any right it might otherwise have had to assert any known conflicts of interest or to assert any non-material conflicts of interest during the course of the proceeding.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.9</SECTNO> <SUBJECT>Ex parte communications.</SUBJECT> <P>(a) <E T="03">Definition—</E>(1) <E T="03">Ex parte communication</E> means any material oral or written communication relevant to the merits of an adjudicatory proceeding that was neither on the record nor on reasonable prior notice to all parties that takes place between:</P> <P>(i) An interested person outside the Office (including such person's counsel); and</P> <P>(ii) The administrative law judge handling that proceeding, the Director, or a decisional employee.</P> <P>(2) <E T="03">Exception.</E> A request for status of the proceeding does not constitute an <E T="03">ex parte</E> communication.</P> <P>(b) <E T="03">Prohibition of ex parte communications.</E> From the time the notice is issued by the Director until the date that the Director issues the final decision pursuant to § 509.40(c) of this subpart:</P> <P>(1) No interested person outside the Office shall make or knowingly cause to be made an <E T="03">ex parte</E> communication to the Director, the administrative law judge, or a decisional employee; and</P> <P>(2) The Director, administrative law judge, or decisional employee shall not make or knowingly cause to be made to any interested person outside the Office any <E T="03">ex parte</E> communication.</P> <P>(c) <E T="03">Procedure upon occurrence of ex parte communication.</E> If an ex parte communication is received by the administrative law judge, the Director or other person identified in paragraph (a) of this section, that person shall cause all such written communications (or, if the communication is oral, a memorandum stating the substance of the communication) to be placed on the record of the proceeding and served on all parties. All other parties to the proceeding shall have an opportunity, within ten days of receipt of service of the ex parte communication to file responses thereto and to recommend any sanctions, in accordance with paragraph (d) of this section, that they believe to be appropriate under the circumstances.<PRTPAGE P="22"/> </P> <P>(d) <E T="03">Sanctions.</E> Any party or his or her counsel who makes a prohibited ex parte communication, or who encourages or solicits another to make any such communication, may be subject to any appropriate sanction or sanctions imposed by the Director or the administrative law judge including, but not limited to, exclusion from the proceedings and an adverse ruling on the issue which is the subject of the prohibited communication.</P> <P>(e) <E T="03">Separation-of-functions.</E> Except to the extent required for the disposition of <E T="03">ex parte</E> matters as authorized by law, the administrative law judge may not consult a person or party on any matter relevant to the merits of the adjudication, unless on notice and opportunity for all parties to participate. An employee or agent engaged in the performance of investigative or prosecuting functions for the Office in a case may not, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review of the recommended decision under § 509.40 of this subpart, except as witness or counsel in public proceedings.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 60 FR 28035, May 30, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.10</SECTNO> <SUBJECT>Filing of papers.</SUBJECT> <P>(a) <E T="03">Filing.</E> Any papers required to be filed, excluding documents produced in response to a discovery request pursuant to §§ 509.25 and 509.26 of this subpart, shall be filed with the OFIA, except as otherwise provided.</P> <P>(b) <E T="03">Manner of filing.</E> Unless otherwise specified by the Director or the administrative law judge, filing may be accomplished by:</P> <P>(1) Personal service;</P> <P>(2) Delivering the papers to a reliable commercial courier service, overnight delivery service, or to the U.S. Post Office for Express Mail delivery;</P> <P>(3) Mailing the papers by first class, registered, or certified mail; or</P> <P>(4) Transmission by electronic media, only if expressly authorized, and upon any conditions specified, by the Director or the administrative law judge. All papers filed by electronic media shall also concurrently be filed in accordance with paragraph (c) of this section as to form.</P> <P>(c) <E T="03">Formal requirements as to papers filed—</E>(1) <E T="03">Form.</E> All papers filed must set forth the name, address, and telephone number of the counsel or party making the filing and must be accompanied by a certification setting forth when and how service has been made on all other parties. All papers filed must be double-spaced and printed or typewritten on 8<FR>1/2</FR> x 11 inch paper, and must be clear and legible.</P> <P>(2) <E T="03">Signature.</E> All papers must be dated and signed as provided in § 509.7 of this subpart.</P> <P>(3) <E T="03">Caption.</E> All papers filed must include at the head thereof, or on a title page, the name of the Office and of the filing party, the title and docket number of the proceeding, and the subject of the particular paper.</P> <P>(4) <E T="03">Number of copies.</E> Unless otherwise specified by the Director, or the administrative law judge, an original and one copy of all documents and papers shall be filed, except that only one copy of transcripts of testimony and exhibits shall be filed.</P> </SECTION> <SECTION> <SECTNO>§ 509.11</SECTNO> <SUBJECT>Service of papers.</SUBJECT> <P>(a) <E T="03">By the parties.</E> Except as otherwise provided, a party filing papers shall serve a copy upon the counsel of record for all other parties to the proceeding so represented, and upon any party not so represented.</P> <P>(b) <E T="03">Method of service.</E> Except as provided in paragraphs (c)(2) and (d) of this section, a serving party shall use one or more of the following methods of service:</P> <P>(1) Personal service;</P> <P>(2) Delivering the papers to a reliable commercial courier service, overnight delivery service, or to the U.S. Post Office for Express Mail delivery;</P> <P>(3) Mailing the papers by first class, registered, or certified mail; or</P> <P>(4) Transmission by electronic media, only if the parties mutually agree. Any papers served by electronic media shall also concurrently be served in accordance with the requirements of § 509.10(c) of this subpart as to form.</P> <P>(c) <E T="03">By the Director or the administrative law judge.</E> (1) All papers required to be served by the Director or the administrative law judge upon a party who has appeared in the proceeding through a counsel of record, shall be served by <PRTPAGE P="23"/>any means specified in paragraph (b) of this section.</P> <P>(2) If a party has not appeared in the proceeding in accordance with § 509.6 of this subpart, the Director or the administrative law judge shall make service by any of the following methods:</P> <P>(i) By personal service;</P> <P>(ii) If the person to be served is an individual, by delivery to a person of suitable age and discretion at the physical location where the individual resides or works;</P> <P>(iii) If the person to be served is a corporation or other association, by delivery to an officer, managing or general agent, or to any other agent authorized by appointment or by law to receive service and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the party;</P> <P>(iv) By registered or certified mail addressed to the person's last known address; or</P> <P>(v) By any other method reasonably calculated to give actual notice.</P> <P>(d) <E T="03">Subpoenas.</E> Service of a subpoena may be made:</P> <P>(1) By personal service;</P> <P>(2) If the person to be served is an individual, by delivery to a person of suitable age and discretion at the physical location where the individual resides or works;</P> <P>(3) By delivery to an agent, which in the case of a corporation or other association, is delivery to an officer, managing or general agent, or to any other agent authorized by appointment or by law to receive service and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the party;</P> <P>(4) By registered or certified mail addressed to the person's last known address; or</P> <P>(5) By any other method reasonably calculated to give actual notice.</P> <P>(e) <E T="03">Area of service.</E> Service in any state, territory, possession of the United States, or the District of Columbia, on any person or company doing business in any state, territory, possession of the United States, or the District of Columbia, or on any person as otherwise provided by law, is effective without regard to the place where the hearing is held, provided that if service is made on a foreign bank in connection with an action or proceeding involving one or more of its branches or agencies located in any state, territory, possession of the United States, or the District of Columbia, service shall be made on at least one branch or agency so involved.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.12</SECTNO> <SUBJECT>Construction of time limits.</SUBJECT> <P>(a) <E T="03">General rule.</E> In computing any period of time prescribed by this subpart, the date of the act or event that commences the designated period of time is not included. The last day so computed is included unless it is a Saturday, Sunday, or Federal holiday. When the last day is a Saturday, Sunday, or Federal holiday, the period runs until the end of the next day that is not a Saturday, Sunday, or Federal holiday. Intermediate Saturdays, Sundays, and Federal holidays are included in the computation of time. However, when the time period within which an act is to be performed is ten days or less, not including any additional time allowed for in paragraph (c) of this section, intermediate Saturdays, Sundays, and Federal holidays are not included.</P> <P>(b) <E T="03">When papers are deemed to be filed or served.</E> (1) Filing and service are deemed to be effective:</P> <P>(i) In the case of personal service or same day commercial courier delivery, upon actual service;</P> <P>(ii) In the case of overnight commercial delivery service, U.S. Express mail delivery, or first class, registered, or certified mail, upon deposit in or delivery to an appropriate point of collection; or</P> <P>(iii) In the case of transmission by electronic media, as specified by the authority receiving the filing, in the case of filing, and as agreed among the parties, in the case of service.</P> <P>(2) The effective filing and service dates specified in paragraph (b)(1) of this section may be modified by the Director or administrative law judge in the case of filing or by agreement of the parties in the case of service.</P> <P>(c) <E T="03">Calculation of time for service and filing of responsive papers.</E> Whenever a time limit is measured by a prescribed <PRTPAGE P="24"/>period from the service of any notice or paper, the applicable time limits are calculated as follows:</P> <P>(1) If service is made by first class, registered, or certified mail, add three calendar days to the prescribed period;</P> <P>(2) If service is made by express mail or overnight delivery service, add one calendar day to the prescribed period; or</P> <P>(3) If service is made by electronic media transmission, add one calendar day to the prescribed period, unless otherwise determined by the Director or the administrative law judge in the case of filing, or by agreement among the parties in the case of service.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.13</SECTNO> <SUBJECT>Change of time limits.</SUBJECT> <P>Except as otherwise provided by law, the administrative law judge may, for good cause shown, extend the time limits prescribed by the Uniform Rules or any notice or order issued in the proceedings. After the referral of the case to the Director pursuant to § 509.38 of this subpart, the Director may grant extensions of the time limits for good cause shown. Extensions may be granted at the motion of a party or on the Director's or the administrative law judge's own motion after notice and opportunity to respond is afforded all non-moving parties.</P> </SECTION> <SECTION> <SECTNO>§ 509.14</SECTNO> <SUBJECT>Witness fees and expenses.</SUBJECT> <P>Witnesses subpoenaed for testimony or deposition shall be paid the same fees for attendance and mileage as are paid in the United States district courts in proceedings in which the United States is a party, provided that, in the case of a discovery subpoena addressed to a party, no witness fees or mileage need be paid. Fees for witnesses shall be tendered in advance by the party requesting the subpoena, except that fees and mileage need not be tendered in advance where the Office is the party requesting the subpoena. The Office shall not be required to pay any fees to, or expenses of, any witness not subpoenaed by the Office.</P> </SECTION> <SECTION> <SECTNO>§ 509.15</SECTNO> <SUBJECT>Opportunity for informal settlement.</SUBJECT> <P>Any respondent may, at any time in the proceeding, unilaterally submit to Enforcement Counsel written offers or proposals for settlement of a proceeding, without prejudice to the rights of any of the parties. No such offer or proposal shall be made to any Office representative other than Enforcement Counsel. Submission of a written settlement offer does not provide a basis for adjourning or otherwise delaying all or any portion of a proceeding under this part. No settlement offer or proposal, or any subsequent negotiation or resolution, is admissible as evidence in any proceeding.</P> </SECTION> <SECTION> <SECTNO>§ 509.16</SECTNO> <SUBJECT>Office's right to conduct examination.</SUBJECT> <P>Nothing contained in this subpart limits in any manner the right of the Office to conduct any examination, inspection, or visitation of any institution or institution-affiliated party, or the right of the Office to conduct or continue any form of investigation authorized by law.</P> </SECTION> <SECTION> <SECTNO>§ 509.17</SECTNO> <SUBJECT>Collateral attacks on adjudicatory proceeding.</SUBJECT> <P>If an interlocutory appeal or collateral attack is brought in any court concerning all or any part of an adjudicatory proceeding, the challenged adjudicatory proceeding shall continue without regard to the pendency of that court proceeding. No default or other failure to act as directed in the adjudicatory proceeding within the times prescribed in this subpart shall be excused based on the pendency before any court of any interlocutory appeal or collateral attack.</P> </SECTION> <SECTION> <SECTNO>§ 509.18</SECTNO> <SUBJECT>Commencement of proceeding and contents of notice.</SUBJECT> <P>(a) <E T="03">Commencement of proceeding.</E> (1)(i) Except for change-in-control proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), a proceeding governed by this subpart is commenced by issuance of a notice by the Director.</P> <P>(ii) The notice must be served by the Director upon the respondent and given to any other appropriate financial institution supervisory authority where required by law.<PRTPAGE P="25"/> </P> <P>(iii) The notice must be filed with the OFIA.</P> <P>(2) Change-in control proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the Director.</P> <P>(b) <E T="03">Contents of notice.</E> The notice must set forth:</P> <P>(1) The legal authority for the proceeding and for the Office's jurisdiction over the proceeding;</P> <P>(2) A statement of the matters of fact or law showing that the Office is entitled to relief;</P> <P>(3) A proposed order or prayer for an order granting the requested relief;</P> <P>(4) The time, place, and nature of the hearing as required by law or regulation;</P> <P>(5) The time within which to file an answer as required by law or regulation;</P> <P>(6) The time within which to request a hearing as required by law or regulation; and</P> <P>(7) The answer and/or request for a hearing shall be filed with OFIA.</P> </SECTION> <SECTION> <SECTNO>§ 509.19</SECTNO> <SUBJECT>Answer.</SUBJECT> <P>(a) <E T="03">When.</E> Within 20 days of service of the notice, respondent shall file an answer as designated in the notice. In a civil money penalty proceeding, respondent shall also file a request for a hearing within 20 days of service of the notice.</P> <P>(b) <E T="03">Content of answer.</E> An answer must specifically respond to each paragraph or allegation of fact contained in the notice and must admit, deny, or state that the party lacks sufficient information to admit or deny each allegation of fact. A statement of lack of information has the effect of a denial. Denials must fairly meet the substance of each allegation of fact denied; general denials are not permitted. When a respondent denies part of an allegation, that part must be denied and the remainder specifically admitted. Any allegation of fact in the notice which is not denied in the answer must be deemed admitted for purposes of the proceeding. A respondent is not required to respond to the portion of a notice that constitutes the prayer for relief or proposed order. The answer must set forth affirmative defenses, if any, asserted by the respondent.</P> <P>(c) <E T="03">Default—</E>(1) <E T="03">Effect of failure to answer.</E> Failure of a respondent to file an answer required by this section within the time provided constitutes a waiver of his or her right to appear and contest the allegations in the notice. If no timely answer is filed, Enforcement Counsel may file a motion for entry of an order of default. Upon a finding that no good cause has been shown for the failure to file a timely answer, the administrative law judge shall file with the Director a recommended decision containing the findings and the relief sought in the notice. Any final order issued by the Director based upon a respondent's failure to answer is deemed to be an order issued upon consent.</P> <P>(2) <E T="03">Effect of failure to request a hearing in civil money penalty proceedings.</E> If respondent fails to request a hearing as required by law within the time provided, the notice of assessment constitutes a final and unappealable order.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 78901, Dec. 18, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.20</SECTNO> <SUBJECT>Amended pleadings.</SUBJECT> <P>(a) <E T="03">Amendments</E>. The notice or answer may be amended or supplemented at any stage of the proceeding. The respondent must answer an amended notice within the time remaining for the respondent's answer to the original notice, or within ten days after service of the amended notice, whichever period is longer, unless the Director or administrative law judge orders otherwise for good cause.</P> <P>(b) <E T="03">Amendments to conform to the evidence.</E> When issues not raised in the notice or answer are tried at the hearing by express or implied consent of the parties, they will be treated in all respects as if they had been raised in the notice or answer, and no formal amendments are required. If evidence is objected to at the hearing on the ground that it is not within the issues raised by the notice or answer, the administrative law judge may admit the evidence when admission is likely to assist in adjudicating the merits of the action and the objecting party fails to satisfy the administrative law judge that the admission of such evidence would unfairly prejudice that party's action or defense upon the merits. The administrative law judge may grant a <PRTPAGE P="26"/>continuance to enable the objecting party to meet such evidence.</P> <CITA>[61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.21</SECTNO> <SUBJECT>Failure to appear.</SUBJECT> <P>Failure of a respondent to appear in person at the hearing or by a duly authorized counsel constitutes a waiver of respondent's right to a hearing and is deemed an admission of the facts as alleged and consent to the relief sought in the notice. Without further proceedings or notice to the respondent, the administrative law judge shall file with the Director a recommended decision containing the findings and the relief sought in the notice.</P> </SECTION> <SECTION> <SECTNO>§ 509.22</SECTNO> <SUBJECT>Consolidation and severance of actions.</SUBJECT> <P>(a) <E T="03">Consolidation.</E> (1) On the motion of any party, or on the administrative law judge's own motion, the administrative law judge may consolidate, for some or all purposes, any two or more proceedings, if each such proceeding involves or arises out of the same transaction, occurrence or series of transactions or occurrences, or involves at least one common respondent or a material common question of law or fact, unless such consolidation would cause unreasonable delay or injustice.</P> <P>(2) In the event of consolidation under paragraph (a)(1) of this section, appropriate adjustment to the prehearing schedule must be made to avoid unnecessary expense, inconvenience, or delay.</P> <P>(b) <E T="03">Severance.</E> The administrative law judge may, upon the motion of any party, sever the proceeding for separate resolution of the matter as to any respondent only if the administrative law judge finds that:</P> <P>(1) Undue prejudice or injustice to the moving party would result from not severing the proceeding; and</P> <P>(2) Such undue prejudice or injustice would outweigh the interests of judicial economy and expedition in the complete and final resolution of the proceeding.</P> </SECTION> <SECTION> <SECTNO>§ 509.23</SECTNO> <SUBJECT>Motions.</SUBJECT> <P>(a) <E T="03">In writing.</E> (1) Except as otherwise provided herein, an application or request for an order or ruling must be made by written motion.</P> <P>(2) All written motions must state with particularity the relief sought and must be accompanied by a proposed order.</P> <P>(3) No oral argument may be held on written motions except as otherwise directed by the administrative law judge. Written memoranda, briefs, affidavits or other relevant material or documents may be filed in support of or in opposition to a motion.</P> <P>(b) <E T="03">Oral motions.</E> A motion may be made orally on the record unless the administrative law judge directs that such motion be reduced to writing.</P> <P>(c) <E T="03">Filing of motions.</E> Motions must be filed with the administrative law judge, but upon the filing of the recommended decision, motions must be filed with the Director.</P> <P>(d) <E T="03">Responses.</E> (1) Except as otherwise provided herein, within ten days after service of any written motion, or within such other period of time as may be established by the administrative law judge or the Director, any party may file a written response to a motion. The administrative law judge shall not rule on any oral or written motion before each party has had an opportunity to file a response.</P> <P>(2) The failure of a party to oppose a written motion or an oral motion made on the record is deemed a consent by that party to the entry of an order substantially in the form of the order accompanying the motion.</P> <P>(e) <E T="03">Dilatory motions.</E> Frivolous, dilatory or repetitive motions are prohibited. The filing of such motions may form the basis for sanctions.</P> <P>(f) <E T="03">Dispositive motions.</E> Dispositive motions are governed by §§ 509.29 and 509.30 of this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 509.24</SECTNO> <SUBJECT>Scope of document discovery.</SUBJECT> <P>(a) <E T="03">Limits on discovery.</E> (1) Subject to the limitations set out in paragraphs (b), (c), and (d) of this section, a party to a proceeding under this subpart may obtain document discovery by serving a written request to produce documents. For purposes of a request to produce documents, the term “documents” may be defined to include drawings, graphs, charts, photographs, recordings, data stored in electronic form, and other data compilations from which information can be obtained, or <PRTPAGE P="27"/>translated, if necessary, by the parties through detection devices into reasonably usable form, as well as written material of all kinds.</P> <P>(2) Discovery by use of deposition is governed by § 509.102 of this part.</P> <P>(3) Discovery by use of interrogatories is not permitted.</P> <P>(b) <E T="03">Relevance.</E> A party may obtain document discovery regarding any matter, not privileged, that has material relevance to the merits of the pending action. Any request to produce documents that calls for irrelevant material, that is unreasonable, oppressive, excessive in scope, unduly burdensome, or repetitive of previous requests, or that seeks to obtain privileged documents will be denied or modified. A request is unreasonable, oppressive, excessive in scope or unduly burdensome if, among other things, it fails to include justifiable limitations on the time period covered and the geographic locations to be searched, the time provided to respond in the request is inadequate, or the request calls for copies of documents to be delivered to the requesting party and fails to include the requestor's written agreement to pay in advance for the copying, in accordance with § 509.25 of this subpart.</P> <P>(c) <E T="03">Privileged matter.</E> Privileged documents are not discoverable. Privileges include the attorney-client privilege, work-product privilege, any government's or government agency's deliberative-process privilege, and any other privileges the Constitution, any applicable act of Congress, or the principles of common law provide.</P> <P>(d) <E T="03">Time limits.</E> All discovery, including all responses to discovery requests, shall be completed at least 20 days prior to the date scheduled for the commencement of the hearing, except as provided in the Local Rules. No exceptions to this time limit shall be permitted, unless the administrative law judge finds on the record that good cause exists for waiving the requirements of this paragraph.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20354, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.25</SECTNO> <SUBJECT>Request for document discovery from parties.</SUBJECT> <P>(a) <E T="03">General rule.</E> Any party may serve on any other party a request to produce for inspection any discoverable documents that are in the possession, custody, or control of the party upon whom the request is served. The request must identify the documents to be produced either by individual item or by category, and must describe each item and category with reasonable particularity. Documents must be produced as they are kept in the usual course of business or must be organized to correspond with the categories in the request.</P> <P>(b) <E T="03">Production or copying</E>. The request must specify a reasonable time, place, and manner for production and performing any related acts. In lieu of inspecting the documents, the requesting party may specify that all or some of the responsive documents be copied and the copies delivered to the requesting party. If copying of fewer than 250 pages is requested, the party to whom the request is addressed shall bear the cost of copying and shipping charges. If a party requests 250 pages or more of copying, the requesting party shall pay for the copying and shipping charges. Copying charges are the current per-page copying rate imposed under 12 CFR 502.7 for requests under the Freedom of Information Act (5 U.S.C. 552). The party to whom the request is addressed may require payment in advance before producing the documents.</P> <P>(c) <E T="03">Obligation to update responses.</E> A party who has responded to a discovery request with a response that was complete when made is not required to supplement the response to include documents thereafter acquired, unless the responding party learns that:</P> <P>(1) The response was materially incorrect when made; or</P> <P>(2) The response, though correct when made, is no longer true and a failure to amend the response is, in substance, a knowing concealment.</P> <P>(d) <E T="03">Motions to limit discovery.</E> (1) Any party that objects to a discovery request may, within ten days of being served with such request, file a motion in accordance with the provisions of § 509.23 of this subpart to revoke or otherwise limit the request. If an objection is made to only a portion of an item or category in a request, the portion objected to shall be specified. Any objections not made in accordance with <PRTPAGE P="28"/>this paragraph and § 509.23 of this subpart are waived.</P> <P>(2) The party who served the request that is the subject of a motion to revoke or limit may file a written response within five days of service of the motion. No other party may file a response.</P> <P>(e) <E T="03">Privilege</E>. At the time other documents are produced, the producing party must reasonably identify all documents withheld on the grounds of privilege and must produce a statement of the basis for the assertion of privilege. When similar documents that are protected by deliberative process, attorney-work-product, or attorney-client privilege are voluminous, these documents may be identified by category instead of by individual document. The administrative law judge retains discretion to determine when the identification by category is insufficient.</P> <P>(f) <E T="03">Motions to compel production.</E> (1) If a party withholds any documents as privileged or fails to comply fully with a discovery request, the requesting party may, within ten days of the assertion of privilege or of the time the failure to comply becomes known to the requesting party, file a motion in accordance with the provisions of § 509.23 of this subpart for the issuance of a subpoena compelling production.</P> <P>(2) The party who asserted the privilege or failed to comply with the request may file a written response to a motion to compel within five days of service of the motion. No other party may file a response.</P> <P>(g) <E T="03">Ruling on motions</E>. After the time for filing responses pursuant to this section has expired, the administrative law judge shall rule promptly on all motions filed pursuant to this section. If the administrative law judge determines that a discovery request, or any of its terms, calls for irrelevant material, is unreasonable, oppressive, excessive in scope, unduly burdensome, or repetitive of previous requests, or seeks to obtain privileged documents, he or she may deny or modify the request, and may issue appropriate protective orders, upon such conditions as justice may require. The pendency of a motion to strike or limit discovery or to compel production is not a basis for staying or continuing the proceeding, unless otherwise ordered by the administrative law judge. Notwithstanding any other provision in this part, the administrative law judge may not release, or order a party to produce, documents withheld on grounds of privilege if the party has stated to the administrative law judge its intention to file a timely motion for interlocutory review of the administrative law judge's order to produce the documents, and until the motion for interlocutory review has been decided.</P> <P>(h) <E T="03">Enforcing discovery subpoenas.</E> If the administrative law judge issues a subpoena compelling production of documents by a party, the subpoenaing party may, in the event of noncompliance and to the extent authorized by applicable law, apply to any appropriate United States district court for an order requiring compliance with the subpoena. A party's right to seek court enforcement of a subpoena shall not in any manner limit the sanctions that may be imposed by the administrative law judge against a party who fails to produce subpoenaed documents.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.26</SECTNO> <SUBJECT>Document subpoenas to nonparties.</SUBJECT> <P>(a) <E T="03">General rules.</E> (1) Any party may apply to the administrative law judge for the issuance of a document discovery subpoena addressed to any person who is not a party to the proceeding. The application must contain a proposed document subpoena and a brief statement showing the general relevance and reasonableness of the scope of documents sought. The subpoenaing party shall specify a reasonable time, place, and manner for making production in response to the document subpoena.</P> <P>(2) A party shall only apply for a document subpoena under this section within the time period during which such party could serve a discovery request under § 509.24(d) of this subpart. The party obtaining the document subpoena is responsible for serving it on the subpoenaed person and for serving copies on all parties. Document subpoenas may be served in any state, territory, or possession of the United <PRTPAGE P="29"/>States, the District of Columbia, or as otherwise provided by law.</P> <P>(3) The administrative law judge shall promptly issue any document subpoena requested pursuant to this section. If the administrative law judge determines that the application does not set forth a valid basis for the issuance of the subpoena, or that any of its terms are unreasonable, oppressive, excessive in scope, or unduly burdensome, he or she may refuse to issue the subpoena or may issue it in a modified form upon such conditions as may be consistent with the Uniform Rules.</P> <P>(b) <E T="03">Motion to quash or modify.</E> (1) Any person to whom a document subpoena is directed may file a motion to quash or modify such subpoena, accompanied by a statement of the basis for quashing or modifying the subpoena. The movant shall serve the motion on all parties, and any party may respond to such motion within ten days of service of the motion.</P> <P>(2) Any motion to quash or modify a document subpoena must be filed on the same basis, including the assertion of privilege, upon which a party could object to a discovery request under § 509.25(d) of this subpart, and during the same time limits during which such an objection could be filed.</P> <P>(c) <E T="03">Enforcing document subpoenas.</E> If a subpoenaed person fails to comply with any subpoena issued pursuant to this section or any order of the administrative law judge which directs compliance with all or any portion of a document subpoena, the subpoenaing party or any other aggrieved party may, to the extent authorized by applicable law, apply to an appropriate United States district court for an order requiring compliance with so much of the document subpoena as the administrative law judge has not quashed or modified. A party's right to seek court enforcement of a document subpoena shall in no way limit the sanctions that may be imposed by the administrative law judge on a party who induces a failure to comply with subpoenas issued under this section.</P> </SECTION> <SECTION> <SECTNO>§ 509.27</SECTNO> <SUBJECT>Deposition of witness unavailable for hearing.</SUBJECT> <P>(a) <E T="03">General rules.</E> (1) If a witness will not be available for the hearing, a party may apply in accordance with the procedures set forth in paragraph (a)(2) of this section, to the administrative law judge for the issuance of a subpoena, including a subpoena duces tecum, requiring the attendance of the witness at a deposition. The administrative law judge may issue a deposition subpoena under this section upon showing that:</P> <P>(i) The witness will be unable to attend or may be prevented from attending the hearing because of age, sickness or infirmity, or will otherwise be unavailable;</P> <P>(ii) The witness' unavailability was not procured or caused by the subpoenaing party;</P> <P>(iii) The testimony is reasonably expected to be material; and</P> <P>(iv) Taking the deposition will not result in any undue burden to any other party and will not cause undue delay of the proceeding.</P> <P>(2) The application must contain a proposed deposition subpoena and a brief statement of the reasons for the issuance of the subpoena. The subpoena must name the witness whose deposition is to be taken and specify the time and place for taking the deposition. A deposition subpoena may require the witness to be deposed at any place within the country in which that witness resides or has a regular place of employment or such other convenient place as the administrative law judge shall fix.</P> <P>(3) Any requested subpoena that sets forth a valid basis for its issuance must be promptly issued, unless the administrative law judge on his or her own motion, requires a written response or requires attendance at a conference concerning whether the requested subpoena should be issued.</P> <P>(4) The party obtaining a deposition subpoena is responsible for serving it on the witness and for serving copies on all parties. Unless the administrative law judge orders otherwise, no deposition under this section shall be taken on fewer than ten days' notice to the witness and all parties. Deposition subpoenas may be served in any state, territory, possession of the United States, or the District of Columbia, on any person or company doing business in any state, territory, possession of <PRTPAGE P="30"/>the United States, or the District of Columbia, or as otherwise permitted by law.</P> <P>(b) <E T="03">Objections to deposition subpoenas.</E> (1) The witness and any party who has not had an opportunity to oppose a deposition subpoena issued under this section may file a motion with the administrative law judge to quash or modify the subpoena prior to the time for compliance specified in the subpoena, but not more than ten days after service of the subpoena.</P> <P>(2) A statement of the basis for the motion to quash or modify a subpoena issued under this section must accompany the motion. The motion must be served on all parties.</P> <P>(c) <E T="03">Procedure upon deposition.</E> (1) Each witness testifying pursuant to a deposition subpoena must be duly sworn, and each party shall have the right to examine the witness. Objections to questions or documents must be in short form, stating the grounds for the objection. Failure to object to questions or documents is not deemed a waiver except where the ground for the objection might have been avoided if the objection had been timely presented. All questions, answers, and objections must be recorded.</P> <P>(2) Any party may move before the administrative law judge for an order compelling the witness to answer any questions the witness has refused to answer or submit any evidence the witness has refused to submit during the deposition.</P> <P>(3) The deposition must be subscribed by the witness, unless the parties and the witness, by stipulation, have waived the signing, or the witness is ill, cannot be found, or has refused to sign. If the deposition is not subscribed by the witness, the court reporter taking the deposition shall certify that the transcript is a true and complete transcript of the deposition.</P> <P>(d) <E T="03">Enforcing subpoenas.</E> If a subpoenaed person fails to comply with any order of the administrative law judge which directs compliance with all or any portion of a deposition subpoena under paragraph (b) or (c)(2) of this section, the subpoenaing party or other aggrieved party may, to the extent authorized by applicable law, apply to an appropriate United States district court for an order requiring compliance with the portions of the subpoena that the administrative law judge has ordered enforced. A party's right to seek court enforcement of a deposition subpoena in no way limits the sanctions that may be imposed by the administrative law judge on a party who fails to comply with or procures a failure to comply with, a subpoena issued under this section.</P> </SECTION> <SECTION> <SECTNO>§ 509.28</SECTNO> <SUBJECT>Interlocutory review.</SUBJECT> <P>(a) <E T="03">General rule.</E> The Director may review a ruling of the administrative law judge prior to the certification of the record to the Director only in accordance with the procedures set forth in this section and § 509.23 of this subpart.</P> <P>(b) <E T="03">Scope of review.</E> The Director may exercise interlocutory review of a ruling of the administrative law judge if the Director finds that:</P> <P>(1) The ruling involves a controlling question of law or policy as to which substantial grounds exist for a difference of opinion;</P> <P>(2) Immediate review of the ruling may materially advance the ultimate termination of the proceeding;</P> <P>(3) Subsequent modification of the ruling at the conclusion of the proceeding would be an inadequate remedy; or</P> <P>(4) Subsequent modification of the ruling would cause unusual delay or expense.</P> <P>(c) <E T="03">Procedure.</E> Any request for interlocutory review shall be filed by a party with the administrative law judge within ten days of his or her ruling and shall otherwise comply with § 509.23 of this subpart. Any party may file a response to a request for interlocutory review in accordance with § 509.23(d) of this subpart. Upon the expiration of the time for filing all responses, the administrative law judge shall refer the matter to the Director for final disposition.</P> <P>(d) <E T="03">Suspension of proceeding.</E> Neither a request for interlocutory review nor any disposition of such a request by the Director under this section suspends or stays the proceeding unless otherwise ordered by the administrative law judge or the Director.</P> </SECTION> <SECTION> <PRTPAGE P="31"/> <SECTNO>§ 509.29</SECTNO> <SUBJECT>Summary disposition.</SUBJECT> <P>(a) <E T="03">In general.</E> The administrative law judge shall recommend that the Director issue a final order granting a motion for summary disposition if the undisputed pleaded facts, admissions, affidavits, stipulations, documentary evidence, matters as to which official notice may be taken, and any other evidentiary materials properly submitted in connection with a motion for summary disposition show that:</P> <P>(1) There is no genuine issue as to any material fact; and</P> <P>(2) The moving party is entitled to a decision in its favor as a matter of law.</P> <P>(b) <E T="03">Biling of motions and responses.</E> (1) Any party who believes that there is no genuine issue of material fact to be determined and that he or she is entitled to a decision as a matter of law may move at any time for summary disposition in its favor of all or any part of the proceeding. Any party, within 20 days after service of such a motion, or within such time period as allowed by the administrative law judge, may file a response to such motion.</P> <P>(2) A motion for summary disposition must be accompanied by a statement of the material facts as to which the moving party contends there is no genuine issue. Such motion must be supported by documentary evidence, which may take the form of admissions in pleadings, stipulations, depositions, investigatory depositions, transcripts, affidavits and any other evidentiary materials that the moving party contends support his or her position. The motion must also be accompanied by a brief containing the points and authorities in support of the contention of the moving party. Any party opposing a motion for summary disposition must file a statement setting forth those material facts as to which he or she contends a genuine dispute exists. Such opposition must be supported by evidence of the same type as that submitted with the motion for summary disposition and a brief containing the points and authorities in support of the contention that summary disposition would be inappropriate.</P> <P>(c) <E T="03">Hearing on motion.</E> At the request of any party or on his or her own motion, the administrative law judge may hear oral argument on the motion for summary disposition.</P> <P>(d) <E T="03">Decision on motion.</E> Following receipt of a motion for summary disposition and all responses thereto, the administrative law judge shall determine whether the moving party is entitled to summary disposition. If the administrative law judge determines that summary disposition is warranted, the administrative law judge shall submit a recommended decision to that effect to the Director. If the administrative law judge finds that no party is entitled to summary disposition, he or she shall make a ruling denying the motion.</P> </SECTION> <SECTION> <SECTNO>§ 509.30</SECTNO> <SUBJECT>Partial summary disposition.</SUBJECT> <P>If the administrative law judge determines that a party is entitled to summary disposition as to certain claims only, he or she shall defer submitting a recommended decision as to those claims. A hearing on the remaining issues must be ordered. Those claims for which the administrative law judge has determined that summary disposition is warranted will be addressed in the recommended decision filed at the conclusion of the hearing.</P> </SECTION> <SECTION> <SECTNO>§ 509.31</SECTNO> <SUBJECT>Scheduling and prehearing conferences.</SUBJECT> <P>(a) <E T="03">Scheduling conference.</E> Within 30 days of service of the notice or order commencing a proceeding or such other time as parties may agree, the administrative law judge shall direct counsel for all parties to meet with him or her in person at a specified time and place prior to the hearing or to confer by telephone for the purpose of scheduling the course and conduct of the proceeding. This meeting or telephone conference is called a “scheduling conference.” The identification of potential witnesses, the time for and manner of discovery, and the exchange of any prehearing materials including witness lists, statements of issues, stipulations, exhibits and any other materials may also be determined at the scheduling conference.</P> <P>(b) <E T="03">Prehearing conferences.</E> The administrative law judge may, in addition to the scheduling conference, on his or her own motion or at the request of <PRTPAGE P="32"/>any party, direct counsel for the parties to meet with him or her (in person or by telephone) at a prehearing conference to address any or all of the following:</P> <P>(1) Simplification and clarification of the issues;</P> <P>(2) Stipulations, admissions of fact, and the contents, authenticity and admissibility into evidence of documents;</P> <P>(3) Matters of which official notice may be taken;</P> <P>(4) Limitation of the number of witnesses;</P> <P>(5) Summary disposition of any or all issues;</P> <P>(6) Resolution of discovery issues or disputes;</P> <P>(7) Amendments to pleadings; and</P> <P>(8) Such other matters as may aid in the orderly disposition of the proceeding.</P> <P>(c) <E T="03">Transcript.</E> The administrative law judge, in his or her discretion, may require that a scheduling or prehearing conference be recorded by a court reporter. A transcript of the conference and any materials filed, including orders, becomes part of the record of the proceeding. A party may obtain a copy of the transcript at its expense.</P> <P>(d) <E T="03">Scheduling or prehearing orders.</E> At or within a reasonable time following the conclusion of the scheduling conference or any prehearing conference, the administrative law judge shall serve on each party an order setting forth any agreements reached and any procedural determinations made.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 78901, Dec. 18, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.32</SECTNO> <SUBJECT>Prehearing submissions.</SUBJECT> <P>(a) Within the time set by the administrative law judge, but in no case later than 14 days before the start of the hearing, each party shall serve on every other party, his or her:</P> <P>(1) Prehearing statement;</P> <P>(2) Final list of witnesses to be called to testify at the hearing, including name and address of each witness and a short summary of the expected testimony of each witness;</P> <P>(3) List of the exhibits to be introduced at the hearing along with a copy of each exhibit; and</P> <P>(4) Stipulations of fact, if any.</P> <P>(b) <E T="03">Effect of failure to comply.</E> No witness may testify and no exhibits may be introduced at the hearing if such witness or exhibit is not listed in the prehearing submissions pursuant to paragraph (a) of this section, except for good cause shown.</P> </SECTION> <SECTION> <SECTNO>§ 509.33</SECTNO> <SUBJECT>Public hearings.</SUBJECT> <P>(a) <E T="03">General rule.</E> All hearings shall be open to the public, unless the Director, in the Director's discretion, determines that holding an open hearing would be contrary to the public interest. Within 20 days of service of the notice or, in the case of change-in-control proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), within 20 days from service of the hearing order, any respondent may file with the Director a request for a private hearing, and any party may file a reply to such a request. A party must serve on the administrative law judge a copy of any request or reply the party files with the Director. The form of, and procedure for, these requests and replies are governed by § 509.23 of this subpart. A party's failure to file a request or a reply constitutes a waiver of any objections regarding whether the hearing will be public or private.</P> <P>(b) <E T="03">Filing document under seal.</E> Enforcement Counsel, in his or her discretion, may file any document or part of a document under seal if disclosure of the document would be contrary to the public interest. The administrative law judge shall take all appropriate steps to preserve the confidentiality of such documents or parts thereof, including closing portions of the hearing to the public.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.34</SECTNO> <SUBJECT>Hearing subpoenas.</SUBJECT> <P>(a) <E T="03">Issuance.</E> (1) Upon application of a party showing general relevance and reasonableness of scope of the testimony or other evidence sought, the administrative law judge may issue a subpoena or a subpoena duces tecum requiring the attendance of a witness at the hearing or the production of documentary or physical evidence at the hearing. The application for a hearing subpoena must also contain a proposed subpoena specifying the attendance of <PRTPAGE P="33"/>a witness or the production of evidence from any state, territory, or possession of the United States, the District of Columbia, or as otherwise provided by law at any designated place where the hearing is being conducted. The party making the application shall serve a copy of the application and the proposed subpoena on every other party.</P> <P>(2) A party may apply for a hearing subpoena at any time before the commencement of a hearing. During a hearing, a party may make an application for a subpoena orally on the record before the administrative law judge.</P> <P>(3) The administrative law judge shall promptly issue any hearing subpoena requested pursuant to this section. If the administrative law judge determines that the application does not set forth a valid basis for the issuance of the subpoena, or that any of its terms are unreasonable, oppressive, excessive in scope, or unduly burdensome, he or she may refuse to issue the subpoena or may issue it in a modified form upon any conditions consistent with this subpart. Upon issuance by the administrative law judge, the party making the application shall serve the subpoena on the person named in the subpoena and on each party.</P> <P>(b) <E T="03">Motion to quash or modify.</E> (1) Any person to whom a hearing subpoena is directed or any party may file a motion to quash or modify the subpoena, accompanied by a statement of the basis for quashing or modifying the subpoena. The movant must serve the motion on each party and on the person named in the subpoena. Any party may respond to the motion within ten days of service of the motion.</P> <P>(2) Any motion to quash or modify a hearing subpoena must be filed prior to the time specified in the subpoena for compliance, but not more than ten days after the date of service of the subpoena upon the movant.</P> <P>(c) <E T="03">Enforcing subpoenas.</E> If a subpoenaed person fails to comply with any subpoena issued pursuant to this section or any order of the administrative law judge which directs compliance with all or any portion of a document subpoena, the subpoenaing party or any other aggrieved party may seek enforcement of the subpoena pursuant to section § 509.26(c) of this subpart.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20355, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.35</SECTNO> <SUBJECT>Conduct of hearings.</SUBJECT> <P>(a) <E T="03">General rules.</E> (1) Hearings shall be conducted so as to provide a fair and expeditious presentation of the relevant disputed issues. Each party has the right to present its case or defense by oral and documentary evidence and to conduct such cross examination as may be required for full disclosure of the facts.</P> <P>(2) <E T="03">Order of hearing.</E> Enforcement Counsel shall present its case-in-chief first, unless otherwise ordered by the administrative law judge, or unless otherwise expressly specified by law or regulation. Enforcement Counsel shall be the first party to present an opening statement and a closing statement, and may make a rebuttal statement after the respondent's closing statement. If there are multiple respondents, respondents may agree among themselves as to their order of presentation of their cases, but if they do not agree the administrative law judge shall fix the order.</P> <P>(3) <E T="03">Examination of witnesses.</E> Only one counsel for each party may conduct an examination of a witness, except that in the case of extensive direct examination, the administrative law judge may permit more than one counsel for the party presenting the witness to conduct the examination. A party may have one counsel conduct the direct examination and another counsel conduct re-direct examination of a witness, or may have one counsel conduct the cross examination of a witness and another counsel conduct the re-cross examination of a witness.</P> <P>(4) <E T="03">Stipulations.</E> Unless the administrative law judge directs otherwise, all stipulations of fact and law previously agreed upon by the parties, and all documents, the admissibility of which have been previously stipulated, will be admitted into evidence upon commencement of the hearing.</P> <P>(b) <E T="03">Transcript.</E> The hearing must be recorded and transcribed. The reporter will make the transcript available to any party upon payment by that party <PRTPAGE P="34"/>to the reporter of the cost of the transcript. The administrative law judge may order the record corrected, either upon motion to correct, upon stipulation of the parties, or following notice to the parties upon the administrative law judge's own motion.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.36</SECTNO> <SUBJECT>Evidence.</SUBJECT> <P>(a) <E T="03">Admissibility.</E> (1) Except as is otherwise set forth in this section, relevant, material, and reliable evidence that is not unduly repetitive is admissible to the fullest extent authorized by the APA and other applicable law.</P> <P>(2) Evidence that would be admissible under the Federal Rules of Evidence is admissible in a proceeding conducted pursuant to this subpart.</P> <P>(3) Evidence that would be inadmissible under the Federal Rules of Evidence may not deemed or ruled to be inadmissible in a proceeding conducted pursuant to this subpart if such evidence is relevant, material, reliable and not unduly repetitive.</P> <P>(b) <E T="03">Official notice.</E> (1) Official notice may be taken of any material fact which may be judicially noticed by a United States district court and any material information in the official public records of any Federal or state government agency.</P> <P>(2) All matters officially noticed by the administrative law judge or Director shall appear on the record.</P> <P>(3) If official notice is requested or taken of any material fact, the parties, upon timely request, shall be afforded an opportunity to object.</P> <P>(c) <E T="03">Documents.</E> (1) A duplicate copy of a document is admissible to the same extent as the original, unless a genuine issue is raised as to whether the copy is in some material respect not a true and legible copy of the original.</P> <P>(2) Subject to the requirements of paragraph (a) of this section, any document, including a report of examination, supervisory activity, inspection or visitation, prepared by the appropriate Office or state regulatory agency, is admissible either with or without a sponsoring witness.</P> <P>(3) Witnesses may use existing or newly created charts, exhibits, calendars, calculations, outlines or other graphic material to summarize, illustrate, or simplify the presentation of testimony. Such materials may, subject to the administrative law judge's discretion, be used with or without being admitted into evidence.</P> <P>(d) <E T="03">Objections.</E> (1) Objections to the admissibility of evidence must be timely made and rulings on all objections must appear on the record.</P> <P>(2) When an objection to a question or line of questioning propounded to a witness is sustained, the examining counsel may make a specific proffer on the record of what he or she expected to prove by the expected testimony of the witness, either by representation of counsel or by direct interrogation of the witness.</P> <P>(3) The administrative law judge shall retain rejected exhibits, adequately marked for identification, for the record, and transmit such exhibits to the Director.</P> <P>(4) Failure to object to admission of evidence or to any ruling constitutes a waiver of the objection.</P> <P>(e) <E T="03">Stipulations.</E> The parties may stipulate as to any relevant matters of fact or the authentication of any relevant documents. Such stipulations must be received in evidence at a hearing, and are binding on the parties with respect to the matters therein stipulated.</P> <P>(f) <E T="03">Depositions of unavailable witnesses.</E> (1) If a witness is unavailable to testify at a hearing, and that witness has testified in a deposition to which all parties in a proceeding had notice and an opportunity to participate, a party may offer as evidence all or any part of the transcript of the deposition, including deposition exhibits, if any.</P> <P>(2) Such deposition transcript is admissible to the same extent that testimony would have been admissible had that person testified at the hearing, provided that if a witness refused to answer proper questions during the depositions, the administrative law judge may, on that basis, limit the admissibility of the deposition in any manner that justice requires.</P> <P>(3) Only those portions of a deposition received in evidence at the hearing constitute a part of the record.</P> </SECTION> <SECTION> <PRTPAGE P="35"/> <SECTNO>§ 509.37</SECTNO> <SUBJECT>Post-hearing filings.</SUBJECT> <P>(a) <E T="03">Proposed findings and conclusions and supporting briefs.</E> (1) Using the same method of service for each party, the administrative law judge shall serve notice upon each party, that the certified transcript, together with all hearing exhibits and exhibits introduced but not admitted into evidence at the hearing, has been filed. Any party may file with the administrative law judge proposed findings of fact, proposed conclusions of law, and a proposed order within 30 days following service of this notice by the administrative law judge or within such longer period as may be ordered by the administrative law judge.</P> <P>(2) Proposed findings and conclusions must be supported by citation to any relevant authorities and by page references to any relevant portions of the record. A post-hearing brief may be filed in support of proposed findings and conclusions, either as part of the same document or in a separate document. Any party who fails to file timely with the administrative law judge any proposed finding or conclusion is deemed to have waived the right to raise in any subsequent filing or submission any issue not addressed in such party's proposed finding or conclusion.</P> <P>(b) <E T="03">Reply briefs.</E> Reply briefs may be filed within 15 days after the date on which the parties' proposed findings, conclusions, and order are due. Reply briefs must be strictly limited to responding to new matters, issues, or arguments raised in another party's papers. A party who has not filed proposed findings of fact and conclusions of law or a post-hearing brief may not file a reply brief.</P> <P>(c) <E T="03">Simultaneous filing required.</E> The administrative law judge shall not order the filing by any party of any brief or reply brief in advance of the other party's filing of its brief.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.38</SECTNO> <SUBJECT>Recommended decision and filing of record.</SUBJECT> <P>(a) <E T="03">Filing of recommended decision and record.</E> Within 45 days after expiration of the time allowed for filing reply briefs under § 509.37(b) of this subpart, the administrative law judge shall file with and certify to the Director, for decision, the record of the proceeding. The record must include the administrative law judge's recommended decision, recommended findings of fact, recommended conclusions of law, and proposed order; all prehearing and hearing transcripts, exhibits, and rulings; and the motions, briefs, memoranda, and other supporting papers filed in connection with the hearing. The administrative law judge shall serve upon each party the recommended decision, findings, conclusions, and proposed order.</P> <P>(b) <E T="03">Filing of index.</E> At the same time the administrative law judge files with and certifies to the Director for final determination the record of the proceeding, the administrative law judge shall furnish to the Director a certified index of the entire record of the proceeding. The certified index shall include, at a minimum, an entry for each paper, document or motion filed with the administrative law judge in the proceeding, the date of the filing, and the identity of the filer. The certified index shall also include an exhibit index containing, at a minimum, an entry consisting of exhibit number and title or description for: Each exhibit introduced and admitted into evidence at the hearing; each exhibit introduced but not admitted into evidence at the hearing; each exhibit introduced and admitted into evidence after the completion of the hearing; and each exhibit introduced but not admitted into evidence after the completion of the hearing.</P> <CITA>[61 FR 20356, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.39</SECTNO> <SUBJECT>Exceptions to recommended decision.</SUBJECT> <P>(a) <E T="03">Filing exceptions.</E> Within 30 days after service of the recommended decision, findings, conclusions, and proposed order under § 509.38 of this subpart, a party may file with the Director written exceptions to the administrative law judge's recommended decision, findings, conclusions or proposed order, to the admission or exclusion of evidence, or to the failure of the administrative law judge to make a ruling proposed by a party. A supporting <PRTPAGE P="36"/>brief may be filed at the time the exceptions are filed, either as part of the same document or in a separate document.</P> <P>(b) <E T="03">Effect of failure to file or raise exceptions.</E> (1) Failure of a party to file exceptions to those matters specified in paragraph (a) of this section within the time prescribed is deemed a waiver of objection thereto.</P> <P>(2) No exception need be considered by the Director if the party taking exception had an opportunity to raise the same objection, issue, or argument before the administrative law judge and failed to do so.</P> <P>(c) <E T="03">Contents.</E> (1) All exceptions and briefs in support of such exceptions must be confined to the particular matters in, or omissions from, the administrative law judge's recommendations to which that party takes exception.</P> <P>(2) All exceptions and briefs in support of exceptions must set forth page or paragraph references to the specific parts of the administrative law judge's recommendations to which exception is taken, the page or paragraph references to those portions of the record relied upon to support each exception, and the legal authority relied upon to support each exception.</P> </SECTION> <SECTION> <SECTNO>§ 509.40</SECTNO> <SUBJECT>Review by the Director.</SUBJECT> <P>(a) <E T="03">Notice of submission to the Director.</E> When the Director determines that the record in the proceeding is complete, the Director shall serve notice upon the parties that the proceeding has been submitted to the Director for final decision.</P> <P>(b) <E T="03">Oral argument before the Director.</E> Upon the initiative of the Director or on the written request of any party filed with the Director within the time for filing exceptions, the Director may order and hear oral argument on the recommended findings, conclusions, decision, and order of the administrative law judge. A written request by a party must show good cause for oral argument and state reasons why arguments cannot be presented adequately in writing. A denial of a request for oral argument may be set forth in the Director's final decision. Oral argument before the Director must be on the record.</P> <P>(c) <E T="03">Director's final decision.</E> (1) Decisional employees may advise and assist the Director in the consideration and disposition of the case. The final decision of the Director will be based upon review of the entire record of the proceeding, except that the director may limit the issues to be reviewed to those findings and conclusions to which opposing arguments or exceptions have been filed by the parties.</P> <P>(2) The Director shall render a final decision within 90 days after notification of the parties that the case has been submitted for final decision, or 90 days after oral argument, whichever is later, unless the Director orders that the action or any aspect thereof be remanded to the administrative law judge for further proceedings. Copies of the final decision and order of the Director shall be served upon each party to the proceeding, upon other persons required by statute, and, if directed by the Director or required by statute, upon any appropriate state or Federal supervisory authority.</P> </SECTION> <SECTION> <SECTNO>§ 509.41</SECTNO> <SUBJECT>Stays pending judicial review.</SUBJECT> <P>The commencement of proceedings for judicial review of a final decision and order of the Office may not, unless specifically ordered by the Director or a reviewing court, operate as a stay of any order issued by the Director. The Director may, in its discretion, and on such terms as it finds just, stay the effectiveness of all or any part of its order pending a final decision on a petition for review of the order.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Local Rules</HD> <SECTION> <SECTNO>§ 509.100</SECTNO> <SUBJECT>Scope.</SUBJECT> <P>The rules and procedures in this subpart B shall apply to those proceedings covered by subpart A of this part. In addition, subpart A of this part and this subpart shall apply to adjudicatory proceedings for which hearings on the record are provided for by the following statutory provisions:</P> <P>(a) Proceedings under section 10(a)(2)(D) of the HOLA (12 U.S.C. 1467a(a)(2)(D)) to determine whether any person directly or indirectly exercises a controlling influence over the management or policies of a savings association or any other company;<PRTPAGE P="37"/> </P> <P>(b) Proceedings under section 10(g)(5)(A) of the HOLA (12 U.S.C. 1467a(g)(5)(A)) to determine whether to terminate certain activities by savings and loan holding companies or to terminate ownership or control of a non-insured savings and loan holding company subsidiary; and</P> <P>(c) Proceedings under section 15(c)(4) of the Securities and Exchange Act of 1934 (15 U.S.C. 78o(c)(4)) (Exchange Act) to determine whether any association or person subject to the jurisdiction of the Office pursuant to section 12(i) of the Exchange Act (15 U.S.C. 78<E T="03">l</E>(i)) has failed to comply with the provisions of sections 12, 13, 14(a), 14(c), 14(d) or 14(f) of the Exchange Act.</P> </SECTION> <SECTION> <SECTNO>§ 509.101</SECTNO> <SUBJECT>Appointment of Office of Financial Institution Adjudication.</SUBJECT> <P>Unless otherwise directed by the Office, all hearings under subpart A of this part and this subpart shall be conducted by administrative law judges under the direction of the Office of Financial Institution Adjudication, 1700 G Street NW., Washington, DC 20552.</P> </SECTION> <SECTION> <SECTNO>§ 509.102</SECTNO> <SUBJECT>Discovery.</SUBJECT> <P>(a) <E T="03">In general.</E> A party may take the deposition of an expert, or of a person, including another party, who has direct knowledge of matters that are non-privileged, relevant and material to the proceeding and where there is a need for the deposition. The deposition of experts shall be limited to those experts who are expected to testify at the hearing.</P> <P>(b) <E T="03">Notice.</E> A party desiring to take a deposition shall give reasonable notice in writing to the deponent and to every other party to the proceeding. The notice must state the time and place for taking the deposition and the name and address of the person to be deposed.</P> <P>(c) <E T="03">Time limits.</E> A party may take depositions at any time after the commencement of the proceeding, but no later than ten days before the scheduled hearing date, except with permission of the administrative law judge for good cause shown.</P> <P>(d) <E T="03">Conduct of the deposition.</E> The witness must be duly sworn, and each party shall have the right to examine the witness with respect to all non-privileged, relevant and material matters of which the witness has factual, direct and personal knowledge. Objections to questions or exhibits shall be in short form, stating the grounds for objection. Failure to object to questions or exhibits is not a waiver except where the grounds for the objection might have been avoided if the objection had been timely presented. The court reporter shall transcribe or otherwise record the witness's testimony, as agreed among the parties.</P> <P>(e) <E T="03">Protective orders.</E> At any time after notice of a deposition has been given, a party may file a motion for the issuance of a protective order. Such protective order may prohibit, terminate, or limit the scope or manner of the taking of a deposition. The administrative law judge shall grant such protective order upon a showing of sufficient grounds, including that the deposition:</P> <P>(1) Is unreasonable, oppressive, excessive in scope, or unduly burdensome;</P> <P>(2) Involves privileged, investigative, trial preparation, irrelevant or immaterial matters; or</P> <P>(3) Is being conducted in bad faith or in such manner as to unreasonably annoy, embarrass, or oppress the deponent.</P> <P>(f) <E T="03">Fees.</E> Deposition witnesses, including expert witnesses, shall be paid the same expenses in the same manner as are paid witnesses in the district courts of the United States in proceedings in which the United States Government is a party. Expenses in accordance with this paragraph shall be paid by the party seeking to take the deposition.</P> <P>(g) <E T="03">Deposition subpoenas</E>—(1) <E T="03">Issuance.</E> At the request of a party, the administrative law judge shall issue a subpoena requiring the attendance of a witness at a deposition. The attendance of a witness may be required from any place in any state or territory that is subject to the jurisdiction of the United States or as otherwise permitted by law.</P> <P>(2) <E T="03">Service.</E> The party requesting the subpoena must serve it on the person named therein or upon that person's counsel, by any of the methods identified in § 509.11(d) of this part. The party serving the subpoena must file proof of <PRTPAGE P="38"/>service with the administrative law judge.</P> <P>(3) <E T="03">Motion to quash.</E> A person named in the subpoena or a party may file a motion to quash or modify the subpoena. A statement of the reasons for the motion must accompany it and a copy of the motion must be served on the party that requested the subpoena. The motion must be made prior to the time for compliance specified in the subpoena and not more than ten days after the date of service of the subpoena, or if the subpoena is served within 15 days of the hearing, within five days after the date of service.</P> <P>(4) <E T="03">Enforcement of deposition subpoena.</E> Enforcement of a deposition subpoena shall be in accordance with the procedures of § 509.27(d) of this part.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 61 FR 20356, May 6, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.103</SECTNO> <SUBJECT>Civil money penalties.</SUBJECT> <P>(a) <E T="03">Assessment.</E> In the event of consent, or if upon the record developed at the hearing the Office finds that any of the grounds specified in the notice issued pursuant to § 509.18 of this part have been established, the Office may serve an order of assessment of civil money penalty upon the party concerned. The assessment order shall be effective immediately upon service or upon such other date as may be specified therein and shall remain effective and enforceable until it is stayed, modified, terminated, or set aside by the Office or by a reviewing court.</P> <P>(b) <E T="03">Payment.</E> (1) Civil penalties assessed pursuant to subpart A of this part and this subpart B are payable and to be collected within 60 days after the issuance of the notice of assessment, unless the Office fixes a different time for payment where it determines that the purpose of the civil money penalty would be better served thereby; however, if a party has made a timely request for a hearing to challenge the assessment of the penalty, the party may not be required to pay such penalty until the Office has issued a final order of assessment following the hearing. In such instances, the penalty shall be paid within 60 days of service of such order unless the Office fixes a different time for payment. Notwithstanding the foregoing, the Office may seek to attach the party's assets or to have a receiver appointed to secure payment of the potential civil money penalty or other obligation in advance of the hearing in accordance with section 8(i)(4) of the FDIA (12 U.S.C. 1818(i)(4)).</P> <P>(2) Checks in payment of civil penalties shall be made payable to the Treasurer of the United States and sent to the Controller's Division of the Office. Upon receipt, the Office shall forward the check to the Treasury of the United States.</P> <P>(c) <E T="03">Inflation adjustment.</E> Under the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), OTS must adjust for inflation the civil monetary penalties in statutes that it administers. The following chart displays the adjusted civil money penalties. The amounts in this chart apply to violations that occur after October 17, 2000:</P> <GPOTABLE CDEF="xs96,r50,13" COLS="3" OPTS="L2,tp0"> <BOXHD> <CHED H="1">U.S. Code citation</CHED> <CHED H="1">CMP description</CHED> <CHED H="1">New maximum amount</CHED> </BOXHD> <ROW> <ENT I="01">12 U.S.C. 1464(v)(4)</ENT> <ENT>Reports of Condition—1st Tier</ENT> <ENT>$2,200</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1464(v)(5)</ENT> <ENT>Reports of Condition—2nd Tier</ENT> <ENT>22,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1464(v)(6)</ENT> <ENT>Reports of Condition—3rd Tier</ENT> <ENT>1,175,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467(d)</ENT> <ENT>Refusal to Cooperate in Exam</ENT> <ENT>5,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467a(i)(2)</ENT> <ENT>Holding Company Act Violation</ENT> <ENT>27,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467a(i)(3)</ENT> <ENT>Holding Company Act Violation</ENT> <ENT>27,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467a(r)(1)</ENT> <ENT>Late/Inaccurate Reports—1st Tier</ENT> <ENT>2,200</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467a(r)(2)</ENT> <ENT>Late/Inaccurate Reports—2nd Tier</ENT> <ENT>22,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1467a(r)(3)</ENT> <ENT>Late/Inaccurate Reports—3rd Tier</ENT> <ENT>1,175,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1817(j)(16)(A)</ENT> <ENT>Change in Control—1st Tier</ENT> <ENT>5,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1817(j)(16)(B)</ENT> <ENT>Change in Control—2nd Tier</ENT> <ENT>27,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1817(j)(16)(C)</ENT> <ENT>Change in Control—3rd Tier</ENT> <ENT>1,175,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1818(i)(2)(A)</ENT> <ENT>Violation of Law or Unsafe or Unsound Practice—1st Tier</ENT> <ENT>5,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1818(i)(2)(B)</ENT> <ENT>Violation of Law or Unsafe or UnsoundPractice—2nd Tier</ENT> <ENT>27,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1818(i)(2)(C)</ENT> <ENT>Violation of Law or Unsafe or UnsoundPractice—3rd Tier</ENT> <ENT>1,175,000</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 1884</ENT> <ENT>Violation of Security Rules</ENT> <ENT>110</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 3349(b)</ENT> <ENT>Appraisals Violation—1st Tier</ENT> <ENT>5,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 3349(b)</ENT> <ENT>Appraisals Violation—2nd Tier</ENT> <ENT>27,500</ENT> </ROW> <ROW> <ENT I="01">12 U.S.C. 3349(b)</ENT> <ENT>Appraisals Violation—3rd Tier</ENT> <ENT>1,175,000</ENT> </ROW> <ROW> <PRTPAGE P="39"/> <ENT I="01">42 U.S.C. 4012a(f)</ENT> <ENT>Flood Insurance</ENT> <ENT>350/115,000</ENT> </ROW> </GPOTABLE> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 65 FR 61262, Oct. 17, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 509.104</SECTNO> <SUBJECT>Additional procedures.</SUBJECT> <P>(a) <E T="03">Replies to exceptions</E>. Replies to written exceptions to the administrative law judge's recommended decision, findings, conclusions or proposed order pursuant to § 509.39 of this part shall be filed within 10 days of the date such written exceptions were required to be filed.</P> <P>(b) <E T="03">Motions.</E> All motions shall be filed with the administrative law judge and an additional copy shall be filed with the Secretary to the Office, who receives adjudicatory filings, (“Secretary”); provided, however, that once the administrative law judge has certified the record to the Director pursuant to § 509.38 of this part, all motions must be filed with the Director, to the attention of the Secretary, within the 10 day period following the filing of exceptions allowed for the filing of replies to exceptions. Responses to such motions filed in a timely manner with the Director, other than motions for oral argument before the Director, shall be allowed pursuant to the procedures at § 509.23(d) of this part. No response is required for the Director to make a determination on a motion for oral argument.</P> <P>(c) <E T="03">Authority of administrative law judge</E>. In addition to the powers listed in § 509.5 of this part, the administrative law judge shall have the authority to deny any dispositive motion and shall follow the procedures set forth for motions for summary disposition at § 509.29 of this part and partial summary disposition at § 509.30 of this part in making determinations on such motions.</P> <P>(d) <E T="03">Notification of submission of proceeding to the Director</E>. Upon the expiration of the time for filing any exceptions, any replies to such exceptions or any motions and any ruling thereon, and after receipt of certified record, the Office shall notify the parties within ten days of the submission of the proceeding to the Director for final determination.</P> <P>(e) <E T="03">Extensions of time for final determination</E>. The Director may, <E T="03">sua sponte</E>, extend the time for final determination by signing an order of extension of time within the 90 day time period and notifying the parties of such extension thereafter.</P> <P>(f) <E T="03">Service upon the Office.</E> Service of any document upon the Office shall be made by filing with the Secretary, in addition to the individuals and/or offices designated by the Office in its Notice issued pursuant to § 509.18 of this part, or such other means reasonably suited to provide notice of the person and/or office designated to receive filings.</P> <P>(g) <E T="03">Filings with the Director.</E> An additional copy of all materials required or permitted to be filed with or referred to the administrative law judge pursuant to subpart A and B of this part shall be filed with the Secretary. This rule shall not apply to the transcript of testimony and exhibits adduced at the hearing or to proposed exhibits submitted in advance of the hearing pursuant to an order of the administrative law judge under § 509.32 of this part. Materials required or permitted to be filed with or referred to the Director pursuant to subparts A and B of this part shall be filed with the Director, to the attention of the Secretary.</P> <P>(h) <E T="03">Presence of cameras and other recording devices</E>. The use of cameras and other recording devices, other than those used by the court reporter, shall be prohibited and excluded from the proceedings.</P> <CITA>[56 FR 38306, Aug. 12, 1991, as amended at 58 FR 4311, Jan. 14, 1993; 61 FR 20356, May 6, 1996]</CITA> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 510</EAR> <HD SOURCE="HED">PART 510—MISCELLANEOUS ORGANIZATIONAL REGULATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>510.2</SECTNO> <SUBJECT>Provisions related to regulations of the Office.</SUBJECT> <SECTNO>510.4</SECTNO> <SUBJECT>Service of process.<PRTPAGE P="40"/> </SUBJECT> <SECTNO>510.5</SECTNO> <SUBJECT>Release of unpublished OTS information.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464; Pub. L. 101-410, 104 Stat. 890; Pub. L. 104-134, 110 Stat. 1321-358.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49456, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 510.2</SECTNO> <SUBJECT>Provisions related to regulations of the Office.</SUBJECT> <P>(a) <E T="03">Amendments.</E> The Office expressly reserves the right to amend (including the right to alter or repeal) the regulations set forth in this chapter.</P> <P>(b) <E T="03">Waiver or relaxation of regulatory provisions with respect to disaster or emergency areas.</E> Whenever the President of the United States determines that a major disaster or emergency exists, or declares an area a major disaster or emergency area, the Office may, to the extent not inconsistent with law, by resolution waive or relax any limitations pertaining to the operations of Federal savings associations and savings associations in any area or areas affected by such disaster or emergency so declared.</P> <P>(c) <E T="03">Bar on participation in notice and comment rulemaking by suspended or disbarred persons.</E> No person who has been suspended or debarred from practice before the Office in accordance with the provisions of part 513 of this chapter may submit to the Office, either directly or on behalf of an interested party, any written documents or petitions otherwise permitted by the Administrative Procedures Act.</P> <CITA>[54 FR 49456, Nov. 30, 1989, as amended at 60 FR 66716, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 510.4</SECTNO> <SUBJECT>Service of process.</SUBJECT> <P>(a) <E T="03">Service of Process.</E> Service of process may be made upon the Office by delivering a copy of the summons and complaint to the U.S. Attorney for the district in which the action is brought or to an assistant U.S. Attorney or clerical employee designated by the U.S. Attorney in a writing filed with the clerk of the court, and by sending copies of the summons and of the complaint by registered or certified mail to the Attorney General of the United States,Washington, DC, and to the Secretary of the Office.</P> <P>(b) <E T="03">Subpoenas.</E> Any subpoena to obtain information maintained by Office shall be duly issued and served upon the Secretary of the Office of Thrift Supervision, 1700 G Street, NW., Washington, DC, 20552.</P> </SECTION> <SECTION> <SECTNO>§ 510.5</SECTNO> <SUBJECT>Release of unpublished OTS information.</SUBJECT> <P>(a) <E T="03">Scope.</E> (1) This section applies to requests by the public for unpublished OTS information, such as requests for records or testimony from parties to lawsuits in which the OTS is not a party.</P> <P>(2) Unpublished OTS information includes records created or obtained in connection with the OTS's performance of its responsibilities, such as records concerning supervision, regulation, and examination of savings associations, their holding companies, and affiliates, and records compiled in connection with the OTS's enforcement responsibilities. Unpublished OTS information also includes information that current and former employees, officers, and agents obtained in their official capacities. Examples of unpublished information include:</P> <P>(i) Information in the memory of a current or former employee, officer, or agent of the OTS (or the Federal Home Loan Bank Board, the predecessor agency of the OTS), by testimony or informal interview, that was acquired in the course of performing official duties or because of the employee's, officer's or agent's official status;</P> <P>(ii) Reports of examination, supervisory correspondence, internal agency memoranda and investigatory files compiled in connection with an investigation, whether such records are in the possession of the OTS or some other individual or entity; and</P> <P>(iii) Unpublished OTS records obtained by or in the possession of third parties, including other government agencies.</P> <P>(3) This section does not apply to:</P> <P>(i) Requests for records or testimony in proceedings in which the OTS is a party;</P> <P>(ii) Requests for information by other government agencies, except when specifically provided; and</P> <P>(iii) Requests for records that are required to be disclosed under the Freedom of Information Act, <E T="03">see</E> 5 U.S.C. 552, and 31 CFR 1.1-1.6.<PRTPAGE P="41"/> </P> <P>(b) <E T="03">Purpose.</E> The purposes of this section are:</P> <P>(1) To afford an orderly mechanism for the OTS to expeditiously process requests for unpublished OTS information and, where appropriate, for the OTS to assert evidentiary privileges in litigation;</P> <P>(2) To balance the need for confidentiality of unpublished OTS information with the private party's interest in obtaining disclosure of that information;</P> <P>(3) To ensure that the time of OTS employees is utilized in the most efficient manner consistent with the OTS's statutory mission;</P> <P>(4) To prevent undue burdens on the OTS;</P> <P>(5) To limit the expenditure of the OTS's funds for private purposes; and</P> <P>(6) To maintain the impartiality of the OTS among private litigants.</P> <P>(c) <E T="03">Procedure</E>—(1) <E T="03">Requests for records and testimony in general.</E> A request for unpublished OTS information must be in writing, furnish the caption of the lawsuit if the request arises in the course of litigation, and support the requester's claim that the information sought is highly relevant to the purpose for which it is sought. In demonstrating that the information is highly relevant, the requester must explain in detail how the requested OTS information relates to the issues in the case or the matter.</P> <P>(i) For requests arising in lawsuits, the submission also must include:</P> <P>(A) A copy of the complaint or equivalent document in the case and any other pleadings necessary to show relevance;</P> <P>(B) A description of any prior decisions or pending motions in the case that may bear on the asserted relevance of the information being sought from the OTS; and</P> <P>(C) The names, addresses and phone numbers of counsel to all other parties in the case.</P> <P>(ii) In all instances, in addition to demonstrating that the information sought is highly relevant to the purpose for which it is sought, the requester must:</P> <P>(A) Demonstrate that the information sought is not available from any other source; and</P> <P>(B) Demonstrate that the need for the information clearly outweighs the need to maintain the confidentiality of the OTS information and the burden on the OTS to produce the information.</P> <P>(iii) If a request seeks a response in fewer than 30 days, it must include an explanation of why the requester was unable to submit the request earlier and why expediting the request is required.</P> <P>(2) <E T="03">Additional provisions relating to requests for records.</E> In addition to the requirements of paragraph (c)(1) of this section, the provisions in paragraphs (c)(2)(i) and (c)(2)(ii) of this section apply to requests for disclosure of records.</P> <P>(i) A request for records must list the categories of records sought and describe the specific information sought, including the relevant time period.</P> <P>(ii) When the OTS believes that another person has a claim of privilege regarding the information in the records and the records are in the possession or control of that person, such as reports prepared by a savings association's attorneys that are shared with the OTS, the OTS may respond to the request by authorizing that person to release the records pursuant to an appropriate confidentiality order rather than by the OTS releasing the records directly to the requesting party. This will enable the person possessing or controlling the records to argue any issues of privilege to the appropriate court.</P> <P>(3) <E T="03">Additional provisions relating to requests for testimony from OTS employees.</E> In addition to the requirements of paragraph (c)(1) of this section, the provisions in paragraphs (c)(3)(i) through (c)(3)(iv) of this section apply to requests that current or former OTS employees be authorized to give testimony.</P> <P>(i) The request must specifically describe the substance of the testimony sought and show a compelling need for the testimony. A showing of compelling need should include a demonstration that the requested information is not available from any other source, such as the books and records of other persons or entities, OTS records that have been or might be released, or the <PRTPAGE P="42"/>testimony of other non-OTS persons, including retained experts.</P> <P>(ii) OTS employees will not be authorized to provide expert or opinion testimony for private parties.</P> <P>(iii) The OTS expects litigants to anticipate their need for OTS testimony in sufficient time to request and obtain that testimony in deposition form. A request for testimony at a trial or hearing may not be granted unless the requester shows that properly developed deposition testimony could not be used or would not be adequate at the trial or hearing.</P> <P>(iv) The OTS shall specify the scope of any authorized testimony and may take steps to ensure that the scope of testimony taken adheres to the scope authorized. Parties to the case who did not join in the request and who wish to question the witness beyond the authorized scope should request expanded authorization pursuant to this regulation. The OTS will attempt to render decisions on such requests in an expedited manner.</P> <P>(4) <E T="03">Information available to savings associations, holding companies, state and Federal agencies and requesters.</E> (i) The regular report of examination of a savings association, savings and loan holding company, or other affiliate of a savings association is made available by the appropriate Regional Office to the entity examined.</P> <P>(ii) A subsidiary savings association of a savings and loan holding company may reproduce and furnish a copy of its report of examination and related supervisory correspondence of the savings association to its parent holding company(ies) without prior approval of the OTS. A savings and loan holding company may reproduce and furnish a copy of its report of examination and related supervisory correspondence to another affiliated savings and loan holding company that controls the same savings association or its subsidiary savings association(s) without prior approval of the OTS. This paragraph does not require such disclosure by a parent savings and loan holding company or subsidiary savings association.</P> <P>(iii) Reports of examination and other information relating to state-chartered savings associations and affiliates are made available, upon request, by the OTS to the state governmental authority having general supervision of such state-chartered savings associations.</P> <P>(iv) Reports of examination and other information may be made available by the OTS to other agencies of the United States, a state agency, or to the Federal Home Loan Banks, for use where necessary in the performance of their official duties.</P> <P>(v) All reports or other information made available to savings associations, holding companies, affiliates, other governmental agencies or requesters shall remain the property of the OTS and, except as permitted by this section or otherwise by the Director or his delegate, no person, company, agency, or authority to whom the information is made available, or any officer, director, employee or agent thereof, shall disclose any such information except published statistical material that would not disclose the identity of any individual or corporation.</P> <P>(5) <E T="03">Where to submit requests.</E> In all matters covered by this section, notification of the issuance of subpoenas or compulsory process and requests for records or testimony covered by this section must be sent to the OTS at 1700 G Street NW., Washington, DC 20552, to the attention of the Corporate Secretary, and should be labelled “Request for Release of Unpublished Information Under Section 510.5.” Requesters may furnish copies of the request or subpoenas simultaneously to the appropriate OTS Regional Office, but the furnishing of such copies does not constitute service on the OTS.</P> <P>(d) <E T="03">Consideration of requests—</E>(1) <E T="03">In general.</E> The OTS will generally process requests in the order in which they are received. The OTS will endeavor to respond to requests within 30 days, but this may vary depending on the scope and precision of the request. The OTS will weigh requests for processing in less than 30 days against the burden to the OTS of expedited processing and the unfairness to other parties whose pending requests may be delayed.</P> <P>(2) <E T="03">Consultation with requester.</E> The OTS may consult with the requester to:<PRTPAGE P="43"/> </P> <P>(i) Refine and limit the scope of the request so as to reduce the burden and expense on the OTS; or</P> <P>(ii) Obtain additional information necessary for the OTS to make an informed determination on the request. To the extent necessary to reach an informed determination on the request, the OTS may inquire into the circumstances of the underlying matter and rely on sources of information beyond the requester, including other interested parties.</P> <P>(3) <E T="03">Final determinations.</E> Final determinations on requests will be made by the Director or his delegate. All such determinations are the sole discretion of the Director or his delegate. Requesters will be notified in writing of the disposition of the request.</P> <P>(4) <E T="03">Denial of requests.</E> (i) The OTS may deny requests for records or testimony that seek information that the OTS deems to be:</P> <P>(A) Not highly relevant;</P> <P>(B) Privileged;</P> <P>(C) Available from other sources; or</P> <P>(D) Information that should not be disclosed for reasons that warrant restriction of discovery under the Federal Rules of Civil Procedure (28 U.S.C. appendix).</P> <P>(ii) The OTS may also deny a records or testimony request when it considers production of the information to be overly burdensome or contrary to the public interest, or where OTS determines that the need for the information does not clearly outweigh the need to maintain the confidentiality of the information, or where the requester seeks testimony and has not shown a compelling need for the testimony.</P> <P>(5) <E T="03">Confidentiality Orders and Agreements.</E> As is set forth in paragraph (f) of this section, the OTS may condition release of information on the entry by the relevant tribunal of an order satisfactory to the OTS or, in a non-litigated matter, the execution of a confidentiality agreement that limits access of third parties to the unpublished OTS information. It shall be the duty of the requesting party to obtain such an order or to execute a confidentiality agreement.</P> <P>(e) <E T="03">Parties with access to OTS information; restriction on dissemination</E>—(1) <E T="03">Current and former employees.</E> Except as authorized by this section or as otherwise authorized by the Director or his delegate, no current or former employee, officer or agent of the OTS or a predecessor agency shall disclose or permit the disclosure of any unpublished information of the OTS to anyone (other than an employee, officer or agent of the OTS properly entitled to such information for the performance of their official duties), whether by giving out or furnishing such information or a copy thereof or by allowing any person to inspect, examine, or copy such information or copy thereof, or otherwise.</P> <P>(2) <E T="03">Duty of person served.</E> If any person, whether or not a current or former employee, officer or agent of the OTS, has information of the OTS that may not be disclosed under the regulations of the OTS or other applicable law, and in connection therewith is served with a subpoena, order, or other process requiring personal attendance as a witness or production of records or information in any proceeding, that person shall promptly advise the OTS of such service or request for information. Upon such notice the OTS will take appropriate action to advise the court or tribunal that issued the process and the attorney for the party at whose instance the process was issued, if known, of the substance of this section. Such notice to the OTS shall be made by contacting the Litigation Division, Office of Chief Counsel, Office of Thrift Supervision, 1700 G Street NW., Washington, DC 20552. As provided in paragraph (e)(3) of this section, a person so served with process may not disclose OTS information without OTS authorization. To obtain OTS authorization, a request must be sent to the OTS in Washington, DC, in accordance with paragraph (c) of this section.</P> <P>(3) <E T="03">Appearance by person served.</E> Except as the OTS has authorized disclosure of the relevant information, or except as authorized by law, any person who has information of the OTS that may not be disclosed under this section and is required to respond to a subpoena or other legal process shall attend at the time and place therein mentioned and respectfully decline to produce such records or give any testimony with respect thereto, basing such <PRTPAGE P="44"/>refusal on this part. If, notwithstanding, the court or other body orders the disclosure of such records or the giving of such testimony, the person having such information of the OTS shall continue respectfully to decline to produce such information and shall promptly advise the Litigation Division of the Chief Counsel's Office, Office of Thrift Supervision. Upon such notice the OTS will take appropriate action to advise the court or tribunal which issued the order, of the substance of this section.</P> <P>(4) <E T="03">Non-waiver of privilege.</E> The possession by any entity or individual described in paragraph (c)(4) of this section of OTS records covered by this section shall not waive any privilege of the OTS or the OTS's right to supervise the further dissemination of these records.</P> <P>(f) <E T="03">Orders and agreements protecting the confidentiality of unpublished OTS information—</E>(1) <E T="03">Records.</E> Unless otherwise permitted by the OTS, release of records authorized pursuant to this section will be conditioned by the OTS upon entry of an acceptable protective order by the court or administrative tribunal presiding in the particular case, or, in non-litigated matters, upon execution of an acceptable confidentiality agreement. In cases where protective orders have already been entered, the OTS reserves the right to condition approval for release of information upon the inclusion of additional or amended provisions.</P> <P>(2) <E T="03">Testimony.</E> The OTS may condition its authorization of deposition testimony on an agreement of the parties that the transcript of the testimony will be kept under seal, or will be made available only to the parties, the court and the jury, except to the extent that the OTS may allow use of the transcript in related litigation. The party who requested the testimony shall, at its expense, furnish to the OTS a copy of the transcript of testimony of the OTS employee or former employee.</P> <P>(g) <E T="03">Limitation of burden on the OTS in connection with released records—</E>(1) <E T="03">Authentication for use as evidence.</E> The OTS will authenticate released records to facilitate their use as evidence. Requesters who require authenticated records should request certified copies at least 30 days prior to the date they will be needed. The request should be sent to the OTS Public Disclosure Branch and shall identify the records, giving the office or record depository where they are located (if known) and include copies of the records and payment of the certification fee.</P> <P>(2) <E T="03">Responsibility of litigants to share released records.</E> The party who has sought and obtained OTS records has the responsibility of:</P> <P>(i) Notifying other parties to the case of the release and, after entry of a protective order, providing copies of the records to the other parties who are subject to the protective order; and</P> <P>(ii) Retrieving any records from the court's file as soon as the records are no longer required by the court and returning them to the OTS. Where a party may be involved in related litigation, the OTS may, upon a request made to it pursuant to this section, authorize such party to transfer the records for use in that related case.</P> <P>(h) <E T="03">Fees—</E>(1) <E T="03">Fees for records searches, copying and certifications.</E> Requesters shall be charged fees in accordance with Treasury Department regulations, 31 CFR 1.7. With certain exceptions, the regulations in 31 CFR 1.7 provide for recovery of the full direct costs of searching, reviewing, certifying and duplicating the records sought. An estimate of the statement of charges will be sent to requesters, and fees shall be remitted by check payable to the OTS prior to release of the requested records. Where it deems appropriate, the OTS may contract with commercial copying concerns to copy the records, with the cost billed to the requester.</P> <P>(2) <E T="03">Witness fees and allowances.</E> (i) Litigants whose requests for testimony of current OTS employees are approved shall, upon completion of the testimonial appearance, promptly tender a check payable to the OTS for witness fees and allowances in accordance with 28 U.S.C. 1821.</P> <P>(ii) All litigants whose requests for testimony of former OTS employees are approved, shall also promptly tender witness fees and allowances to the <PRTPAGE P="45"/>witness in accordance with 28 U.S.C. 1821.</P> <CITA>[54 FR 49456, Nov. 30, 1989, as amended at 60 FR 28031, May 30, 1995]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 512</EAR> <HD SOURCE="HED">PART 512—RULES FOR INVESTIGATIVE PROCEEDINGS AND FORMAL EXAMINATION PROCEEDINGS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>512.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <SECTNO>512.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>512.3</SECTNO> <SUBJECT>Confidentiality of proceedings.</SUBJECT> <SECTNO>512.4</SECTNO> <SUBJECT>Transcripts.</SUBJECT> <SECTNO>512.5</SECTNO> <SUBJECT>Rights of witnesses.</SUBJECT> <SECTNO>512.6</SECTNO> <SUBJECT>Obstruction of the proceedings.</SUBJECT> <SECTNO>512.7</SECTNO> <SUBJECT>Subpoenas.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464, 1467, 1467a, 1813; 15 U.S.C. 78 <E T="03">l.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49457, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 512.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <P>This part prescribes rules of practice and procedure applicable to the conduct of investigative proceedings under section 10(g)(2) of the Home Owners' Loan Act, as amended, 12 U.S.C. 1467a(g)(2) (“HOLA”) and to the conduct of formal examination proceedings with respect to savings associations and their affiliates under section 5(d)(1)(B) of the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or section 7(j)(15) of the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) (“FDIA”), section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 10(c) of the FDIA, 12 U.S.C. 1820(c). This part does not apply to adjudicatory proceedings as to which hearings are required by statute, the rules for which are contained in part 509 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 512.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this part:</P> <P>(a) <E T="03">Office</E> means the Office of Thrift Supervision;</P> <P>(b) <E T="03">Investigative proceeding</E> means an investigation conducted under section 10(g)(2) of the HOLA;</P> <P>(c) <E T="03">Formal examination proceeding</E> means the administration of oaths and affirmations, taking and preserving of testimony, requiring the production of books, papers, correspondence, memoranda, and all other records, the issuance of subpoenas, and all related activities in connection with examination of savings associations and their affiliates conducted pursuant to section 5(d)(1)(B) of the HOLA, section 7(j)(15) of the FDIA, section 8(n) of the FDIA or section 10(c) of the FDIA; and</P> <P>(d) <E T="03">Designated representative</E> means the person or persons empowered by the Office to conduct an investigative proceeding or a formal examination proceeding.</P> </SECTION> <SECTION> <SECTNO>§ 512.3</SECTNO> <SUBJECT>Confidentiality of proceedings.</SUBJECT> <P>All formal examination proceedings shall be private and, unless otherwise ordered by the Office, all investigative proceedings shall also be private. Unless otherwise ordered or permitted by the Office, or required by law, and except as provided in §§ 512.4 and 512.5, the entire record of any investigative proceeding or formal examination proceeding, including the resolution of the Office or its delegate(s) authorizing the proceeding, the transcript of such proceeding, and all documents and information obtained by the designated representative(s) during the course of said proceedings shall be confidential.</P> </SECTION> <SECTION> <SECTNO>§ 512.4</SECTNO> <SUBJECT>Transcripts.</SUBJECT> <P>Transcripts or other recordings, if any, of investigative proceedings or formal examination proceedings shall be prepared solely by an official reporter or by any other person or means authorized by the designated representative. A person who has submitted documentary evidence or given testimony in an investigative proceeding or formal examination proceeding may procure a copy of his own documentary evidence or transcript of his own testimony upon payment of the cost thereof; <E T="03">provided,</E> that a person seeking a transcript of his own testimony must file a written request with the Deputy Chief Counsel for Enforcement or the appropriate Regional Counsel for Enforcement stating the reason he desires to procure such transcript, and said persons may for good cause deny such request. In any event, any witness (or his counsel) shall have the right to inspect the transcript of the witness' own testimony.</P> <CITA>[54 FR 49457, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <PRTPAGE P="46"/> <SECTNO>§ 512.5</SECTNO> <SUBJECT>Rights of witnesses.</SUBJECT> <P>(a) Any person who is compelled or requested to furnish documentary evidence or give testimony at an investigative proceeding or formal examination proceeding shall have the right to examine, upon request, the Office resolution authorizing such proceeding. Copies of such resolution shall be furnished, for their retention, to such persons only with the written approval of the Deputy Chief Counsel for Enforcement or the appropriate Regional Counsel for Enforcement.</P> <P>(b) Any witness at an investigative proceeding or formal examination proceeding may be accompanied and advised by an attorney personally representing that witness.</P> <P>(1) Such attorney shall be a member in good standing of the bar of the highest court of any state, Commonwealth, possession, territory, or the District of Columbia, who has not been suspended or debarred from practice by the bar of any such political entity or before the Office in accordance with the provisions of part 513 of this chapter and has not been excluded from the particular investigative proceeding or formal examination proceeding in accordance with paragraph (b)(3) of this section.</P> <P>(2) Such attorney may advise the witness before, during, and after the taking of his testimony and may briefly question the witness, on the record, at the conclusion of his testimony, for the sole purpose of clarifying any of the answers the witness has given. During the taking of the testimony of a witness, such attorney may make summary notes solely for his use in representing his client. All witnesses shall be sequestered, and, unless permitted in the discretion of the designated representative, no witness or accompanying attorney may be permitted to be present during the taking of testimony of any other witness called in such proceeding. Neither attorney(s) for the association(s) that are the subjects of the investigative proceedings or formal examination proceedings, nor attorneys for any other interested persons, shall have any right to be present during the testimony of any witness not personally being represented by such attorney.</P> <P>(3) The Office, for good cause, may exclude a particular attorney from further participation in any investigation in which the Office has found the attorney to have engaged in dilatory, obstructionist, egregious, contemptuous or contumacious conduct. The person conducting an investigation may report to the Office instances of apparently dilatory, obstructionist, egregious, contemptuous or contumacious conduct on the part of an attorney. After due notice to the attorney, the Office may take such action as the circumstances warrant based upon a written record evidencing the conduct of the attorney in that investigation or such other or additional written or oral presentation as the Office may permit or direct.</P> <CITA>[54 FR 49457, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 512.6</SECTNO> <SUBJECT>Obstruction of the proceedings.</SUBJECT> <P>The designated representative shall report to the Office any instances where any witness or counsel has engaged in dilatory, obstructionist, or contumacious conduct or has otherwise violated any provision of this part during the course of an investigative proceeding or formal examination proceeding; and the Office may take such action as the circumstances warrant, including the exclusion of counsel from further participation in such proceeding.</P> </SECTION> <SECTION> <SECTNO>§ 512.7</SECTNO> <SUBJECT>Subpoenas.</SUBJECT> <P>(a) <E T="03">Service</E>. Service of a subpoena in connection with any investigative proceeding or formal examination proceeding shall be effected in the following manner:</P> <P>(1) <E T="03">Service upon a natural person</E>. Service of a subpoena upon a natural person may be effected by handing it to such person; by leaving it at his office with the person in charge thereof, or, if there is no one in charge, by leaving it in a conspicuous place therein; by leaving it at his dwelling place or usual place of abode with some person of suitable age and discretion then residing therein; by mailing it to him by registered or certified mail or by an express delivery service at his last known address; or by any method whereby actual notice is given to him.<PRTPAGE P="47"/> </P> <P>(2) <E T="03">Service upon other persons</E>. When the person to be served is not a natural person, service of the subpoena may be effected by handing the subpoena to a registered agent for service, or to any officer, director, or agent in charge of any office of such person; by mailing it to any such representative by registered or certified mail or by an express delivery service at his last known address; or by any method whereby actual notice is given to such person.</P> <P>(b) <E T="03">Motions to quash</E>. Any person to whom a subpoena is directed may, prior to the time specified therein for compliance, but in no event more than 10 days after the date of service of such subpoena, apply to the Chief Counsel or his designee to quash or modify such subpoena, accompanying such application with a statement of the reasons therefor. The Chief Counsel or his designee, as appropriate, may:</P> <P>(1) Deny the application;</P> <P>(2) Quash or revoke the subpoena;</P> <P>(3) Modify the subpoena; or</P> <P>(4) Condition the granting of the application on such terms as the Chief Counsel or his designee determines to be just, reasonable, and proper.</P> <P>(c) <E T="03">Attendance of witnesses</E>. Subpoenas issued in connection with an investigative proceeding or formal examination proceeding may require the attendance and/or testimony of witnesses from any State or territory of the United States and the production by such witnesses of documentary or other tangible evidence at any designated place where the proceeding is being (or is to be) conducted. Foreign nationals are subject to such subpoenas if such service is made upon a duly authorized agent located in the United States.</P> <P>(d) <E T="03">Witness fees and mileage</E>. Witnesses summoned in any proceeding under this part shall be paid the same fees and mileage that are paid witnesses in the district courts of the United States. Such fees and mileage need not be tendered when the subpoena is issued on behalf of the Office by any of its designated representatives.</P> <CITA>[54 FR 49457, Nov. 30, 1989, as amended at 56 FR 38317, Aug. 12, 1991]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 513</EAR> <HD SOURCE="HED">PART 513—PRACTICE BEFORE THE OFFICE</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>513.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <SECTNO>513.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>513.3</SECTNO> <SUBJECT>Who may practice.</SUBJECT> <SECTNO>513.4</SECTNO> <SUBJECT>Suspension and debarment.</SUBJECT> <SECTNO>513.5</SECTNO> <SUBJECT>Reinstatement.</SUBJECT> <SECTNO>513.6</SECTNO> <SUBJECT>Duty to file information concerning adverse judicial or administrative action.</SUBJECT> <SECTNO>513.7</SECTNO> <SUBJECT>Proceeding under this part.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>Sec. 3, as added by sec. 301, 103 Stat. 278 (12 U.S.C. 1462a); sec. 4, as added by sec. 301, 103 Stat. 280 (12 U.S.C. 1463); sec. 5, 48 Stat. 132, as amended (12 U.S.C. 1464); sec. 12, sec. 3, 64 Stat. 873, as amended by sec. 204, 103 Stat. 190 (12 U.S.C. 1813); 48 Stat. 892, as amended (15 U.S.C. 78 <E T="03">1</E>).</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49459, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 513.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <P>This part prescribes rules with regard to general practice before the Office on one's own behalf or in a representative capacity and prescribes rules describing the circumstances under which attorneys, accountants, appraisers, or other persons may be suspended or debarred, either temporarily or permanently, from practicing before the Office. In connection with any particular matter, reference also should be made to any special requirements of procedure and practice that may be contained in the particular statute involved or the rules and forms adopted by the Office thereunder, which special requirements are controlling. In addition to any suspension hereunder, a person may be excluded from further participation under this chapter from a rulemaking hearing in accordance with § 510.2, from an adjudicatory proceeding in accordance with § 509.6(a)(1), from a removal hearing in accordance with § 508.3, or from an investigatory proceeding in accordance with § 512.5(b)(2) of this chapter.</P> <CITA>[54 FR 49459, Nov. 30, 1989, as amended at 56 FR 38317, Aug. 12, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 513.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this part:</P> <P>(a) <E T="03">Office</E> means the Office;</P> <P>(b) The term <E T="03">Secretary</E> means the Secretary and any Assistant or Acting Secretary to the Office;<PRTPAGE P="48"/> </P> <P>(c) The term <E T="03">presiding officer</E> includes the Office, his delegatee or an administrative law judge appointed under section 3105 or detailed pursuant to section 3344 of title 5 of the U.S. Code and, as used in this part, the term shall be construed to refer to whichever of the above-identified individuals presides at a hearing or other proceeding, except as otherwise specified in the text;</P> <P>(d) The term <E T="03">attorney</E> means any person who is a member in good standing of the bar of the highest court of any State, possession, territory, Commonwealth or the District of Columbia; and</P> <P>(e) The term <E T="03">practice</E> means transacting any business with the Office, including:</P> <P>(1) The representation of another person at any adjudicatory, investigatory, removal or rulemaking proceeding conducted before the Office, a presiding officer or the Office's staff, including those proceedings covered in parts 508, 509, 510, and 512 of this chapter;</P> <P>(2) The preparation of any statement, opinion, financial statement, appraisal report, audit report, or other document or report by any attorney, accountant, appraiser or other licensed expert which is filed with or submitted to the Office, with such expert's consent or knowledge in connection with any application or other filing with the Office;</P> <P>(3) A presentation to the Office, a presiding officer or the Office's staff at a conference or meeting relating to an association's or other person's rights, privileges or liabilities under the laws administered by the Office and rules and regulations promulgated thereunder;</P> <P>(4) Any business correspondence or communication with the Office, a presiding officer or the Office's staff; and</P> <P>(5) The transaction of any other formal business with the Office on behalf of another, in the capacity of an attorney, accountant, appraiser or other licensed expert.</P> </SECTION> <SECTION> <SECTNO>§ 513.3</SECTNO> <SUBJECT>Who may practice.</SUBJECT> <P>(a) <E T="03">By non-attorneys</E>—(1) An individual may appear on his own behalf (pro se); a member of a partnership may represent the partnership; a bona fide and duly authorized officer of a corporation, trust or association may represent the corporation, trust or association; and an officer or employee of a commission, department or political subdivision may represent that commission, department or political subdivision before the Office.</P> <P>(2) Any accountant, appraiser or other licensed expert may practice before the Office in a professional capacity.</P> <P>(b) <E T="03">By attorneys.</E> Any association or other person may be represented in any proceeding or other matter before the Office by an attorney.</P> <P>(c) Any licensed expert or professional transacting business with the Office in a representative capacity may be required to show his authority to act in such capacity.</P> </SECTION> <SECTION> <SECTNO>§ 513.4</SECTNO> <SUBJECT>Suspension and debarment.</SUBJECT> <P>(a) The Office may censure any person practicing before it or may deny, temporarily or permanently, the privilege of any person to practice before it if such person is found by the Office, after notice of and opportunity for hearing in the matter,</P> <P>(1) Not to possess the requisite qualifications to represent others,</P> <P>(2) To be lacking in character or professional integrity,</P> <P>(3) To have engaged in any dilatory, obstructionist, egregious, contemptuous, contumacious or other unethical or improper professional conduct before the Office, or</P> <P>(4) To have willfully violated, or willfully aided and abetted the violation of, any provision of the laws administered by the Office or the rules and regulations promulgated thereunder.</P> <P>(b) <E T="03">Automatic suspension.</E> (1) Any person who, after being licensed as a professional or expert by any competent authority, has been convicted of a felony, or of a misdemeanor involving moral turpitude, personal dishonesty or breach of trust, shall be suspended forthwith from practicing before the Office.</P> <P>(2) Any accountant, appraiser or other licensed expert whose license to practice has been revoked in any State, possession, territory, Commonwealth or the District of Co1umbia, shall be suspended forthwith from practice before the Office.<PRTPAGE P="49"/> </P> <P>(3) Any attorney who has been suspended or disbarred by a court of the United States or in any State, possession, territory, Commonwealth or the District of Columbia, shall be suspended forthwith from practicing before the Office.</P> <P>(4) A conviction (including a judgment or order on a plea of nolo contendere), revocation, suspension or disbarment under paragraphs (b)(1), (b)(2) and (b)(3) of this section shall be deemed to have occurred when the convicting, revoking, suspending or disbarring agency or tribunal enters its judgment or order, regardless of whether an appeal is pending or could be taken.</P> <P>(5) For purposes of this section, it shall be irrelevant that any attorney, accountant, appraiser or other licensed expert who has been suspended, disbarred or otherwise disqualified from practice before a court or in a jurisdiction continues in professional good standing before other courts or in other jurisdictions.</P> <P>(c) <E T="03">Temporary suspension.</E> (1) The Office, with due regard to the public interest and without preliminary hearing, by order, may temporarily suspend any person from appearing or practicing before it who, on or after June 20, 1984, by name, has been:</P> <P>(i) Permanently enjoined (whether by consent, default or summary judgment or after trial) by any court of competent jurisdiction or by the Office itself in a final administrative order, by reason of his misconduct in any action brought by the Office based upon violations of, or aiding and abetting the violation of, the Home Owners, Loan Act of 1933, as amended, 12 U.S.C. 1461 <E T="03">et seq.,</E> the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 <E T="03">et seq.</E> or any provision of the Securities Exchange Act of 1934, as amended, 15 U.S.C. 78a, <E T="03">et seq.,</E> which is administered by the Office, or of any rule or regulation promulgated thereunder; or</P> <P>(ii) Found by any court of competent jurisdiction (whether by consent, default, or summary judgment, or after trial) in any action brought by the Office to which he is a party or found by the Office (whether by consent, default, upon summary judgment or after hearing) in any administrative proceeding in which the Office is a complainant and he is a party, to have willfully committed, caused or aided or abetted a violation of any provision of the Home Owners' Loan Act of 1933, as amended, 12 U.S.C. 1461 <E T="03">et seq.,</E> the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 <E T="03">et seq.</E> or any provision of the Securities Exchange Act of 1934, as amended, 15 U.S.C. 78a, <E T="03">et seq.,</E> which is administered by the Office, or of any rule or regulation promulgated thereunder.</P> <P>(2) An order of temporary suspension shall become effective when served by certified or registered mail directed to the last known business or residential address of the person involved. No order of temporary suspension shall be entered by the Office pursuant to paragraph (c)(1) of this section more than three months after the final judgment or order entered in a judicial or administrative proceeding described in paragraphs (c)(1)(i) or (c)(1)(ii) of this section has become effective and all review or appeal procedures have been completed or are no longer available.</P> <P>(3) Any person temporarily suspended from appearing and practicing before the Office in accordance with paragraph (c)(1) of this section may, within 30 days after service upon him of the order of temporary suspension, petition the Office to lift such suspension. If no petition is received by the Office within those 30 days, the suspension shall become permanent.</P> <P>(4) Within 30 days after the filing of a petition in accordance with paragraph (c)(3) of this section, the Office shall either lift the temporary suspension or set the matter down for hearing at a time and place to be designated by the Office, or both. After opportunity for hearing, the Office may censure the petitioner or may suspend the petitioner from appearing or practicing before the Office temporarily or permanently. In every case in which the temporary suspension has not been lifted, the hearing and any other action taken pursuant to this paragraph (c)(4) shall be expedited by the Office in order to ensure the petitioner's right to address the allegations against him.</P> <P>(5) In any hearing held on a petition filed in accordance with paragraph (c)(3) of this section, a showing that the petitioner has been enjoined or has <PRTPAGE P="50"/>been found to have committed, caused or aided or abetted violations as described in paragraph (c)(1) of this section, without more, may be a basis for suspension or debarment; that showing having been made, the burden shall then be on the petitioner to show why he should not be censured or be temporarily or permanently suspended or debarred. A petitioner will not be permitted to contest any findings against him or any admissions made by him in the judicial or administrative proceedings upon which the proposed censure, suspension or debarment is based. A petitioner who has consented to the entry of a permanent injunction or order as described in paragraph (c)(1)(i) of this section, without admitting the facts set forth in the complaint, shall nevertheless be presumed for all purposes under this section to have been enjoined or ordered by reason of the misconduct alleged in the complaint.</P> </SECTION> <SECTION> <SECTNO>§ 513.5</SECTNO> <SUBJECT>Reinstatement.</SUBJECT> <P>(a) Any person who is suspended from practicing before the Office under paragraph (a) or (c) of § 513.4 of this part may file an application for reinstatement at any time. Denial of the privilege of practicing before the Office shall continue unless and until the applicant has been reinstated by order of the Office for good cause shown.</P> <P>(b) Any person suspended under paragraph (b) of § 513.4 shall be reinstated by the Office, upon appropriate application, if all of the grounds for application of the provisions of paragraph (b) of § 513.4 subsequently are removed by a reversal of the conviction or termination of the suspension, disbarment or revocation. An application for reinstatement on any other grounds by any person suspended under paragraph (b) of § 513.4 may be filed at any time. Such application shall state with particularity the relief desired and the grounds therefor and shall include supporting evidence, when available. The applicant shall be accorded an opportunity for an informal hearing in the matter, unless the applicant has waived a hearing in the application and, instead, has elected to have the matter determined on the basis of written submissions. Such hearing shall utilize the procedures established in § 508.3 and paragraph (a) of § 508.7 of this chapter. However, such suspension shall continue unless and until the applicant has been reinstated by order of the Office for good cause shown.</P> <CITA>[54 FR 49459, Nov. 30, 1989, as amended at 56 FR 38318, Aug. 12, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 513.6</SECTNO> <SUBJECT>Duty to file information concerning adverse judicial or administrative action.</SUBJECT> <P>Any person appearing or practicing before the Office who has been or is the subject of a conviction, suspension, debarment, license revocation, injunction or other finding of the kind described in § 513.4 (b) or (c) of this part in an action not instituted by the Office shall promptly file a copy of the relevant order, judgment or decree with the Secretary to the Office together with any related opinion or statement of the agency or tribunal involved. Any person who fails to so file a copy of the order, judgment or decree within 30 days after the later of June 15, 1984, the entry of the order, judgment or decree, or the date such person initiates practice before the Office, for that reason alone may be disqualified from practicing before the Office until such time as the appropriate filing shall be made, but neither the filing of these documents nor the failure of a person to file them shall in any way impair the operation of any other provision of this part.</P> </SECTION> <SECTION> <SECTNO>§ 513.7</SECTNO> <SUBJECT>Proceeding under this part.</SUBJECT> <P>(a) All hearings required or permitted to be held under paragraphs (a) and (c) of § 513.4 of this part shall be held before a presiding officer utilizing the procedures established in the rules of practice and procedure in adjudicatory proceedings under part 509 of this chapter.</P> <P>(b) All hearings held under this part shall be closed to the public unless the Office on its own motion or upon the request of a party otherwise directs.</P> <P>(c) Any proceeding brought under any section of this part 513 shall not preclude a proceeding under any other section of this part or any other part of the Office's regulations.</P> </SECTION> </PART> <PART> <PRTPAGE P="51"/> <EAR>Pt. 516</EAR> <HD SOURCE="HED">PART 516—APPLICATION PROCESSING GUIDELINES AND PROCEDURES</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Application Processing Guidelines</HD> <SECHD>Sec.</SECHD> <SECTNO>516.1</SECTNO> <SUBJECT>Offices of the Office of Thrift Supervision; information and submittals.</SUBJECT> <SECTNO>516.2</SECTNO> <SUBJECT>Applications processing guidelines.</SUBJECT> <SECTNO>516.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Publication Requirements</HD> <SECTNO>516.50</SECTNO> <SUBJECT>Who must publish a public notice of an application?</SUBJECT> <SECTNO>516.60</SECTNO> <SUBJECT>When must I publish the public notice?</SUBJECT> <SECTNO>516.70</SECTNO> <SUBJECT>Where must I publish the public notice?</SUBJECT> <SECTNO>516.80</SECTNO> <SUBJECT>What language must I use in my publication?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Comment Procedures</HD> <SECTNO>516.100</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <SECTNO>516.110</SECTNO> <SUBJECT>Who may submit a written comment?</SUBJECT> <SECTNO>516.120</SECTNO> <SUBJECT>What information should I include in my comment?</SUBJECT> <SECTNO>516.130</SECTNO> <SUBJECT>Where do I file my comment?</SUBJECT> <SECTNO>516.140</SECTNO> <SUBJECT>When do I file my comment?</SUBJECT> <SECTNO>516.150</SECTNO> <SUBJECT>Will I have additional opportunities to discuss the application?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Meeting Procedures</HD> <SECTNO>516.160</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <SECTNO>516.170</SECTNO> <SUBJECT>What procedures govern informal meetings on applications?</SUBJECT> <SECTNO>516.180</SECTNO> <SUBJECT>What procedures govern formal meetings on applications?</SUBJECT> <SECTNO>516.190</SECTNO> <SUBJECT>Will a meeting affect application processing time frames?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464, 2901 <E T="03">et seq.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>57 FR 14336, Apr. 20, 1992, unless otherwise noted.</P> </SOURCE> <SUBPART> <HD SOURCE="HED">Subpart A—Application Processing Guidelines</HD> <SECTION> <SECTNO>§ 516.1</SECTNO> <SUBJECT>Offices of the Office of Thrift Supervision; information and submittals.</SUBJECT> <P>(a) The headquarters of the OTS is located at 1700 G Street, NW., Washington, DC 20552. General information concerning the OTS may be obtained in person at that location or by written request to the OTS at the above address.</P> <P>(b) The Regional Offices of the OTS and their regions are as follows:</P> <P>(1) Northeast Regional Office, 10 Exchange Place Centre, 18th Floor, Jersey City, New Jersey 07302. (Region: Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, West Virginia.)</P> <P>(2) Southeast Regional Office, 1475 Peachtree Street, NE., Atlanta, Georgia 30309. (Region: Alabama, District of Columbia, Florida, Georgia, Maryland, North Carolina, Puerto Rico, South Carolina, the Virgin Islands, Virginia.)</P> <P>(3) Central Regional Office, 200 West Madison Street, Suite 1300, Chicago, Illinois 60606. (Region: Illinois, Indiana, Kentucky, Michigan, Ohio, Tennessee, Wisconsin.)</P> <P>(4) Midwest Regional Office, 122 W. John Carpenter Freeway, suite 600, Irving, Texas 75039. (Region: Arkansas, Colorado, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas.)</P> <P>(5) West Regional Office, 1 Montgomery Street, Suite 400, San Francisco, California 94104. (Region: Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington, Wyoming.)</P> <P>(c) <E T="03">Filings.</E> Applications, notices or other filings, as provided for in the OTS's regulations shall be submitted to the appropriate Regional Office, unless specifically noted otherwise in the procedures for a particular filing. The original and two conformed copies shall be filed for each application or notice. All copies should be clearly captioned as to the type of filing and should contain all exhibits and other pertinent documents. Application forms, notice forms and instructions are available from each Regional Office. Two additional conformed copies shall be filed with the Applications Filing Room, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC, 20552 of any application, notice or other filing that raises a significant issue of law or policy, as defined by OTS order or other OTS guidance. Additional copies, in addition to the three required for every application are required for the following applications:<PRTPAGE P="52"/> </P> <P>(1) Merger or branch purchase applications filed pursuant to § 563.22 of this chapter or notices filed pursuant to § 574.3(b) of this chapter involving a merger (including a merger involving an interim association) or applications filed on Form H-(e)3 require four additional copies of the application. The copies should be labeled, respectively, “Department of Justice Copy,” “Comptroller Copy,” “Federal Reserve Copy,” and “FDIC Copy”.</P> <P>(2) Any acquiror filing a notice pursuant to § 574.3(b) of this chapter shall file three additional copies of the notice, and shall label such copies “FDIC Copy,” “Comptroller Copy,” and “Federal Reserve Copy,” respectively. In addition, any acquiror filing a notice pursuant to § 574.3(b) of this chapter with respect to acquisition of a state-chartered association shall file an additional copy of the notice with the OTS labeled “State Supervisor Copy.”</P> <P>(3) In the case of an application filed on Form H-(e)2 (other than an application pursuant to § 574.3(c)(1)(iv) of this chapter), the applicant shall file one additional copy of the application with the OTS and shall label such copy “Department of Justice Copy.”</P> <CITA>[57 FR 14336, Apr. 20, 1992, as amended at 58 FR 4312, Jan. 14, 1993; 60 FR 66717, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 516.2</SECTNO> <SUBJECT>Applications processing guidelines.</SUBJECT> <P>(a) <E T="03">General.</E> (1) To ensure the timely processing of applications and notices, the OTS hereby sets forth guidelines for the processing of completed applications and notices (hereinafter collectively referred to as “applications”) filed with the OTS. This section does not apply to applications or requests related to transactions pursuant to section 13 (c) or (k) of the Federal Deposit Insurance Act, 12 U.S.C. 1823 (c), (k); or requests submitted in connection with cease-and-desist orders, temporary cease-and-desist orders, removal and/or prohibition orders, temporary suspension orders, supervisory agreements or directives, consent merger agreements, or documents negotiated in settlement of litigation (including requests for termination or modification of, or for approval pursuant to, such orders, agreements, or documents), or similar litigation or enforcement matters. Requests submitted in connection with cease-and-desist orders, removal and/or prohibition orders, supervisory agreements or directives, consent merger agreements, and other documents negotiated in settlement of litigation (“enforcement documents”) are not covered by this section. However, the fact that a regulation involving an application may be mentioned in an enforcement document does not mean that this section does not apply to that application. Requests to engage in activities that are specifically restricted by enforcement documents and requests for termination or modification of such documents are not covered by this section. Applications submitted pursuant to a regulatory requirement that the prior approval of the OTS be obtained before engaging in a proposed activity, however, are covered, whether or not mentioned in an enforcement document. If the application or request is unique to the enforcement document, then it is not covered by this section.</P> <P>(2) Requests for reconsideration, modification, or appeal of final agency actions of the OTS are not covered by this section. In addition, where other regulations of the OTS establish specific procedures for processing of applications or set forth specific time periods for automatic approval of applications unless such applications are disapproved or objections are raised, the provisions of those regulations are controlling with respect to the matters to which they pertain. Where a regulation sets forth a procedure for processing an application but does not contain a time period pursuant to which such application is to be processed, the application will be processed under the procedure established by the regulation, but will be subject to the time periods contained in this section.</P> <P>(b) <E T="03">Applications submitted for review.</E> An application submitted to the OTS for processing shall be submitted on the designated form and shall comply with all applicable regulations and guidelines governing the filing of such applications. The OTS is required to notify an applicant in writing within 5 business days of receipt of an application.<PRTPAGE P="53"/> </P> <P>(c) <E T="03">Accepting applications for processing.</E> (1) Within 30 calendar days of receipt of a properly submitted application for processing, the OTS shall:</P> <P>(i) Request in writing any additional information necessary to complete the application;</P> <P>(ii) Deem the application to be complete; or</P> <P>(iii) Decline to further process the application if it is deemed by the OTS to be materially deficient and/or substantially incomplete.</P> <FP>Failure by the OTS to act as described in paragraph (c)(1)(i), (c)(1)(ii), or (c)(1)(iii) of this section within 30 calendar days of receipt of an application for processing shall result in the filed application's being deemed complete, thereby commencing the period for review. If an application includes a request for a waiver of an application requirement that certain information be supplied, the waiver request shall be deemed granted, unless within 30 calendar days of receipt of a properly submitted application for processing, the OTS requests in writing additional information about the waiver request, or denies the waiver request in writing.</FP> <P>(2) Failure by an applicant to respond fully to a written request by the OTS for additional information within 30 calendar days of the date of such request may be deemed to constitute withdrawal of the application or may be treated as grounds for denial or disapproval of the application. If an application is deemed withdrawn, the application may be resubmitted for processing, but it will be deemed a new filing under the applicable statute or regulation.</P> <P>(3) An applicant may request in writing a brief extension of the 30-day period for responding to a request for additional information described in paragraph (c)(2) of this section prior to the expiration of the 30-day time period. The OTS, at its option, may grant an applicant a limited extension of time in writing. Failure by an applicant to respond fully to a written request for additional information by the expiration of the extended period permitted by the OTS may be deemed to constitute withdrawal of the application or may be treated as grounds for denial or disapproval of the application.</P> <P>(4) The period for review by the OTS of an application will commence on the date that the application is deemed complete. The OTS shall notify an applicant in writing as to whether the application is deemed complete within 15 calendar days after the timely filing of any additional information furnished in response to any initial or subsequent request by the OTS for additional information. If the OTS fails to notify an applicant in writing within such time, the application shall be deemed to be complete as of the expiration of such 15-day period. If additional information furnished in response to a written request by the OTS for additional information includes a request for a waiver of an application requirement that certain information be supplied, the waiver request shall be deemed granted, unless within 15 calendar days after the timely filing of such additional information the OTS:</P> <P>(i) Request in writing additional information about the waiver request; or</P> <P>(ii) Denies the waiver request in writing.</P> <P>(5) After additional information has been requested and supplied, the OTS may request additional information only with respect to matters derived from or prompted by information already furnished, or information of a material nature that was not reasonably available from the applicant at the time of the application, was concealed, or pertains to developments subsequent to the time of the OTS's initial request for additional information. With regard to information of a material nature that was not reasonably available from the applicant, was concealed at the time an application was deemed to be complete, or pertains to developments subsequent to the time an application was deemed to be complete, the OTS may request in writing such additional information as it considers necessary and, at its option, may deem the application not to be complete until such additional information is furnished. Upon receipt of such additional information, the OTS shall:</P> <P>(i) Request in writing further additional information to complete the application;<PRTPAGE P="54"/> </P> <P>(ii) Deem the application to be complete and commence a new review period of the completed application; or</P> <P>(iii) Deem the application to be materially deficient and/or substantially incomplete and return it to the applicant. In the case of an application that raises a significant issue of policy or law, actions taken by the Region shall not commence any of the periods for review of a completed application described in paragraph (d) of this section.</P> <P>(6) [Reserved]</P> <P>(7) The OTS, at its discretion, may deem an application to be materially deficient and/or substantially incomplete in the event that the applicant or an affiliate of the applicant is or becomes subject to an investigation, examination, administrative proceeding by a federal or state or municipal court, department, agency or commission or other governmental entity, or a self-regulatory trade or professional organization, or intra-governmental inquiry, that is pertinent to the standards applicable to the OTS's evaluation of the application or relates to a determination the OTS is required to make in connection with the application under the applicable statute or regulation.</P> <P>(d) <E T="03">Failure by the OTS to approve or deny an application or to disapprove a notice.</E> (1) If, upon expiration of the applicable period for review of any complete application to which this section applies, or any extension of such period, the OTS has failed to approve or deny such application (or, in the case of a notice, to disapprove such notice), the application shall, without further action, be deemed to be approved, or, in the case of a notice, not disapproved by the OTS. For purposes of the previous sentence, the period for review of all applications shall be 60 calendar days beginning from the application's deemed complete date, including any application or notice submitted pursuant to § 575.3(b) or part 574 of this chapter.</P> <P>(2) In the event that more than one application is being submitted in connection with a proposed transaction or other action, the applicable period for review of all such applications shall be the review period for the application having the longest period for review, subject to any applicable statutory periods.</P> <P>(e) <E T="03">Extension of time for review.</E> The period for review of an application deemed to be complete may be extended by the OTS for 30 days beyond the time period for review set forth in paragraph (d) of this section. The OTS shall notify an applicant at least 10 days prior to the expiration of the period for review of a complete application that such review period is being extended for 30 days and shall state the general reason(s) therefor.</P> <P>(f) <E T="03">Extension of time for OTS's review of applications raising significant issues of law or policy.</E> In those situations in which an application presents a significant issue of law or policy, the applicable period for review of such application also may be extended by the OTS beyond the time period for review set forth in paragraph (d) of this section or any extension thereof pursuant to paragraph (e) of this section until such time as the OTS acts upon the application. In such cases, written notice shall be provided to an applicant not later than the expiration of the time period set forth in paragraph (d) of this section or any extension thereof pursuant to paragraph (e) of this section that the period for review is being extended in accordance with this paragraph (f), which notice shall also state the general reason(s) therefor.</P> <CITA>[57 FR 14336, Apr. 20, 1992, as amended at 58 FR 44114, Aug. 19, 1993; 62 FR 64143, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 516.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>(a) <E T="03">Expedited treatment.</E> (1) A savings association is eligible for expedited treatment by the OTS if all of the following conditions exist:</P> <P>(i) The savings association has a composite rating of 1 or 2;</P> <P>(ii) The savings association has a Community Reinvestment Act (CRA) rating of satisfactory or better;</P> <P>(iii) The savings association has a Compliance rating of 1 or 2;</P> <P>(iv) The savings association is meeting all of its capital requirements under part 567 of this chapter; and</P> <P>(v) The savings association has not been notified by supervisory personnel that it is a problem association or an association in troubled condition.<PRTPAGE P="55"/> </P> <P>(2) Where specified by regulation, a savings association that qualifies for expedited treatment under paragraph (a)(1) of this section may engage in activities upon filing a notice with the OTS together with any necessary certifications. For these activities, a notice will be all that is required and an association may engage in the activity unless the OTS objects within 30 days. Such notices are deemed to be applications for purposes of statutory and regulatory references to “applications.”</P> <P>(3) The OTS may require complete applications from savings associations that otherwise qualify for expedited treatment in situations raising supervisory concern or a significant issue of law or policy and may request additional information from such associations when necessary. In these circumstances, the OTS may determine that such applications no longer qualify for expedited treatment.</P> <P>(b) <E T="03">Standard treatment.</E> (1) A savings association will receive standard treatment if any of the following conditions exist:</P> <P>(i) The savings association has a composite rating of 3, 4 or 5;</P> <P>(ii) The savings association has a less than satisfactory CRA rating;</P> <P>(iii) The savings association has a Compliance rating of 3, 4, or 5;</P> <P>(iv) The savings association has inadequate capital, including failing any one of its capital requirements under part 567 of this chapter; or</P> <P>(v) The savings association has otherwise been notified by supervisory personnel as being a problem association or an association in troubled condition.</P> <P>(2) Savings associations receiving standard treatment shall be required to file complete applications under the applicable regulations of this chapter with the OTS. Such applications will be denied unless the association affirmatively demonstrates how the application will clearly improve its financial and/or managerial condition or improve its compliance with the CRA or other consumer-related statutes without adversely affecting its financial or managerial resources.</P> <P>(c) <E T="03">Composite rating.</E> Composite rating means the composite numerical rating assigned to the savings association by the OTS under the Uniform Financial Institutions Rating System <SU>1</SU> <FTREF/> or an equivalent rating under a comparable rating system adopted by the OTS, and refers to the most recent rating (as determined either on-site or off-site by the most recent examination) of which the savings association has been notified in writing.</P> <FTNT> <P> <SU>1</SU> Copies are available at the address specified in § 516.1 of this part.</P> </FTNT> <P>(d) <E T="03">CRA rating.</E> Through June 30, 1989, savings associations received one of five CRA ratings: Outstanding (1), Good (2), Satisfactory (3), Needs Improvement (4), or Unsatisfactory (5). For examinations begun between July 1, 1989 and June 30, 1990, savings associations received numerical ratings of 1 through 5. During this period, ratings of 1 and 2 were considered satisfactory or better and 3, 4, and 5 were less than satisfactory. Savings associations examined for CRA performance after July 1, 1990 receive one of four ratings: Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance.</P> <P>(e) <E T="03">Compliance rating.</E> A savings association's Compliance rating is determined pursuant to the OTS Compliance Rating System which measures an association's compliance with civil rights, consumer protection, and public interest regulations, including the Bank Secrecy Act, Bank Protection Act, Equal Employment Opportunity, Economic Sanctions, and Advertising.</P> <CITA>[57 FR 14336, Apr. 20, 1992, as amended at 60 FR 66717, Dec. 26, 1995; 62 FR 3780, Jan. 27, 1997]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Publication Requirements</HD> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>62 FR 64143, Dec. 4, 1997, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 516.50</SECTNO> <SUBJECT>Who must publish a public notice of an application?</SUBJECT> <P>This subpart applies whenever an OTS regulation requires an applicant (“you”) to follow the public notice procedures in this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 516.60</SECTNO> <SUBJECT>When must I publish the public notice?</SUBJECT> <P>You must publish a public notice of the application no earlier than seven <PRTPAGE P="56"/>days before and no later than the date of filing of the application.</P> </SECTION> <SECTION> <SECTNO>§ 516.70</SECTNO> <SUBJECT>Where must I publish the public notice?</SUBJECT> <P>You must publish the notice in a newspaper having a general circulation in the following communities:</P> <P>(a) The community in which your home office(s) are located, or if you are filing an application for permission to organize, the community in which your home office will be located; and</P> <P>(b) If you are filing a branch application, the community to be served by the branch office.</P> </SECTION> <SECTION> <SECTNO>§ 516.80</SECTNO> <SUBJECT>What language must I use in my publication?</SUBJECT> <P>(a) <E T="03">English</E>. You must publish the notice in a newspaper printed in the English language.</P> <P>(b) <E T="03">Other than English</E>. If the OTS determines that the primary language of a significant number of adult residents of the community is a language other than English, the OTS may require that you simultaneously publish additional notice(s) in the community in the appropriate language(s).</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Comment Procedures</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P> 62 FR 64144, Dec. 4, 1997, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 516.100</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <P>This subpart contains the procedures governing the submission of public comments on certain types of applications or notices (“applications”) pending before the OTS. It applies whenever a regulation incorporates the procedures in this subpart, or where otherwise required by the OTS.</P> </SECTION> <SECTION> <SECTNO>§ 516.110</SECTNO> <SUBJECT>Who may submit a written comment?</SUBJECT> <P>Any person (“you”) may submit a written comment supporting or opposing an application.</P> </SECTION> <SECTION> <SECTNO>§ 516.120</SECTNO> <SUBJECT>What information should I include in my comment?</SUBJECT> <P>(a) Your comment should recite relevant facts, including any demographic, economic, or financial data, supporting your position. If you file a comment opposing an application, your comment should also:</P> <P>(1) Address at least one of the reasons a relevant regulation lists as to why the OTS may deny an application;</P> <P>(2) Recite any relevant facts and supporting data addressing these reasons; and</P> <P>(3) Address how the approval of the application could harm you or any community.</P> <P>(b) If you wish to request an informal meeting under § 516.170, you must file a request with your comment. You should describe the nature of the issues or facts to be discussed and the reasons why written submissions are insufficient to adequately address these facts or issues.</P> </SECTION> <SECTION> <SECTNO>§ 516.130</SECTNO> <SUBJECT>Where do I file my comment?</SUBJECT> <P>You must file your comment with the OTS office(s) set forth at § 516.1(c). If you request an informal meeting under § 516.170, you must simultaneously send a copy of the request to the applicant.</P> </SECTION> <SECTION> <SECTNO>§ 516.140</SECTNO> <SUBJECT>When do I file my comment?</SUBJECT> <P>(a) <E T="03">General.</E> Except as provided in paragraph (b) of this section, you must file a written comment with the OTS within 25 days after the application is filed with the OTS.</P> <P>(b) <E T="03">Late-filed comments</E>. The OTS will consider your late-filed comment if:</P> <P>(1) Within the comment period, you demonstrate to the OTS good cause why you could not submit a timely comment; and</P> <P>(2) The OTS concludes that your comment addresses a significant regulatory concern and will assist in disposing of the application.</P> </SECTION> <SECTION> <SECTNO>§ 516.150</SECTNO> <SUBJECT>Will I have additional opportunities to discuss the application?</SUBJECT> <P>The OTS may provide you with additional opportunities to discuss the application in informal or formal meetings under subpart D of this part.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Meeting Procedures</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P> 62 FR 64144, Dec. 4, 1997, unless otherwise noted.</P> </SOURCE> <SECTION> <PRTPAGE P="57"/> <SECTNO>§ 516.160</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <P>This subpart contains informal and formal meeting procedures. It applies whenever a regulation incorporates the procedures in this subpart, or when otherwise required by the OTS.</P> </SECTION> <SECTION> <SECTNO>§ 516.170</SECTNO> <SUBJECT>What procedures govern informal meetings on applications?</SUBJECT> <P>(a) <E T="03">When will the OTS arrange an informal meeting?</E> The OTS may arrange an informal meeting with the applicant, commenters, or any other interested persons to clarify and narrow the issues and to facilitate the resolution of the issues. If a commenter has filed a written request for an informal meeting containing the information described at § 516.120(b), the OTS will arrange an informal meeting. The OTS also may arrange an informal meeting on its own initiative.</P> <P>(b) <E T="03">What action will the OTS take on an informal meeting request?</E> The OTS will inform the applicant and commenters requesting an informal meeting of the OTS decision on a request for an informal meeting, or of its decision to hold an informal meeting on its own initiative.</P> <P>(c) <E T="03">How will the OTS inform the informal meeting participants of the date, time, location and format for the informal meeting?</E> The OTS will invite the applicant and the commenter filing the request for the informal meeting. The OTS may also invite any other interested persons to attend. The OTS will inform the participants of the date, time, location, and format for the informal meeting a reasonable time in advance of the informal meeting.</P> <P>(d) <E T="03">What procedures will govern the conduct of the informal meeting?</E> The OTS may hold informal meetings in any format, including a telephone conference or face-to-face meeting.</P> <P>(e) <E T="03">Will there be an additional opportunity to discuss the application?</E> Within three days after the informal meeting, any participant in the informal meeting may request the OTS to hold a formal meeting under § 516.180. The participant should describe the nature of the issues or facts to be presented and the reasons why a formal meeting is necessary to make an adequate presentation of the facts or issues. The participant must file the request with the OTS and send copies of the request to other participants in the informal meeting.</P> </SECTION> <SECTION> <SECTNO>§ 516.180</SECTNO> <SUBJECT>What procedures govern formal meetings on applications?</SUBJECT> <P>(a) <E T="03">When will the OTS hold a formal meeting?</E> The OTS will not grant a request for a formal meeting unless an informal meeting has been conducted under § 516.170. The OTS will grant all requests for a formal meeting filed under § 516.170(e). The OTS may also hold a formal meeting on its own initiative, if it determines that written submissions and informal meetings are insufficient to adequately present issues or facts to the OTS, or that a formal meeting would otherwise benefit the decisionmaking process. The OTS may limit the issues considered at the formal meeting to issues that the OTS deems relevant or material.</P> <P>(b) <E T="03">How will the OTS announce the formal meeting?</E> The OTS will issue a Notice of Formal Meeting that will state the subject and date of the filing, the time and place of the formal meeting and the issues to be addressed. The OTS will send the Notice to the applicant and any person requesting a formal meeting under § 516.170(e). The OTS may also invite other interested persons to participate in the formal meeting by sending the Notice to such persons.</P> <P>(c) <E T="03">Who may participate in the formal meeting?</E> A person receiving a Notice must notify the OTS of its intent to participate within ten days after the OTS issues the Notice. At least five days before the formal meeting, all participants in the formal meeting must provide the names of their witnesses and copies of proposed exhibits to the OTS, the applicant, and any other person designated by the OTS.</P> <P>(d) <E T="03">Will the formal meeting be transcribed?</E> The OTS will arrange for a transcript. Each participant must bear the cost of any copies of the transcript it requests for its use.</P> <P>(e) <E T="03">What procedures govern the conduct of the formal meeting?</E> (1) The OTS will appoint a presiding officer to conduct the formal meeting. The presiding officer is responsible for all procedural questions not governed by this section. Subject to the rulings of the presiding <PRTPAGE P="58"/>officer, a participant may make opening statements and present witnesses, material and data. If a participant presents documentary material, it must furnish copies of the material to the OTS and to each other participant. The OTS may keep the formal meeting record open for additional information for up to 14 days following the receipt of the transcript.</P> <P>(2) The Administrative Procedure Act (5 U.S.C. 551 <E T="03">et seq.</E>), the Federal Rules of Evidence (28 U.S.C. Appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 <E T="03">et seq.</E>) and the OTS Rules of Practice and Procedure in Adjudicatory Proceedings (12 CFR part 509) do not apply to formal meetings under this section.</P> </SECTION> <SECTION> <SECTNO>§ 516.190</SECTNO> <SUBJECT>Will a meeting affect application processing time frames?</SUBJECT> <P>If the OTS has arranged a meeting, it will suspend applicable application processing time frames, including the time frames for deeming an application complete and the applicable approval time frames specified in § 516.2 or 516.3. The time period will resume when the OTS determines that a record has been developed that sufficiently supports a determination on the issues raised in the comments.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 517</EAR> <HD SOURCE="HED">PART 517—THE MINORITY, WOMEN, AND INDIVIDUALS WITH DISABILITIES OUTREACH PROGRAM: CONTRACTING FOR GOODS AND SERVICES</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>517.1</SECTNO> <SUBJECT>Purpose and scope.</SUBJECT> <SECTNO>517.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>517.3</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>517.4</SECTNO> <SUBJECT>Oversight and monitoring.</SUBJECT> <SECTNO>517.5</SECTNO> <SUBJECT>Outreach.</SUBJECT> <SECTNO>517.6</SECTNO> <SUBJECT>Certification.</SUBJECT> <SECTNO>517.7</SECTNO> <SUBJECT>Contract award guidelines.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1833(e); 42 U.S.C. 12101 <E T="03">et seq.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>58 FR 33324, June 17, 1993, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 517.1</SECTNO> <SUBJECT>Purpose and scope.</SUBJECT> <P>The purpose of the OTS Minority-, Women- and Individuals with Disabilities-Owned Businesses Outreach Program (Outreach Program) is to ensure that firms owned and operated by minorities, women and individuals with disabilities are given the opportunity to participate to the maximum extent possible in all contracts entered into by the OTS. Sections 517.5 through 517.7 of this part apply to all contracting activities, with the exception of contracting for legal services, engaged in by OTS in any of its capacities, for all OTS functions authorized by law. These contracts will typically pertain to services in support of OTS's business operations, such as consulting, programming, auditing, expert witnesses, customized training, relocation services, information systems technology (computer systems, database management, software and office automation), or micrographic services; or in support of its day-to-day operations, such as facilities management, mail and printing services, or procurement of office supplies, furniture and office equipment.</P> </SECTION> <SECTION> <SECTNO>§ 517.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>The definitions included in this part are derived from common usage of these terms. A term in this part includes all those who are commonly understood to be included within that term.</P> <P>(a) <E T="03">Minority- and/or women-owned (small and large) businesses and entities owned by minorities and women</E> means firms at least fifty-one (51) percent owned by individuals who are members of the minority group or women and who are citizens of the United States. In the case of publicly-owned companies, at least fifty-one (51) percent of each class of voting stock must be owned by one or more members of the minority group or by one or more women, who are citizens of the United States. In the case of partnerships, at least fifty-one (51) percent of the partnership interest must be owned by one or more members of the minority group or by one or more women, who are citizens of the United States. Additionally, the management and daily business operations of the firm must be controlled by one or more such individuals.</P> <P>(b) <E T="03">Minority</E> means any Black/African-American; Native American (American Indians, Eskimos, Aleuts <PRTPAGE P="59"/>and Native Hawaiians); Hispanic American; Asian-Pacific American; or Subcontinent-Asian American.</P> <P>(c) <E T="03">Small and large businesses and entities owned by individuals with disabilities</E> means firms at least fifty-one (51) percent owned by individuals with disabilities who are citizens of the United States. In the case of publicly-owned companies, at least fifty-one (51) percent of each class of voting stock must be owned by individuals with disabilities who are citizens of the United States. In the case of partnerships, at least fifty-one (51) percent of the partnership interest must be owned by individuals with disabilities who are citizens of the United States. Additionally, the management and daily business operations must be controlled by one or more such individuals.</P> <P>(d) <E T="03">Disability,</E> as used in this part, has the same meaning as the term used in section 3 of the Americans With Disabilities Act of 1990, Public Law 101-336, 104 Stat. 327 (42 U.S.C. 12101 <E T="03">et seq</E>).</P> </SECTION> <SECTION> <SECTNO>§ 517.3</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>It is the policy of the OTS that minorities, women and individuals with disabilities and entities owned by minorities, women and individuals with disabilities are given the opportunity to participate to the maximum extent possible in all contracts entered into by the OTS.</P> </SECTION> <SECTION> <SECTNO>§ 517.4</SECTNO> <SUBJECT>Oversight and monitoring.</SUBJECT> <P>The Director of OTS shall appoint an Outreach Program Advocate, who shall have primary responsibility for furthering the purposes of the Outreach Program.</P> </SECTION> <SECTION> <SECTNO>§ 517.5</SECTNO> <SUBJECT>Outreach.</SUBJECT> <P>(a) The outreach program advocate shall perform outreach activities and act as liaison between the OTS and the public on outreach program issues.</P> <P>(b) Outreach activities include the identification and registration of minority-, women-owned (small and large) businesses and entities owned by individuals with disabilities who can provide goods and services utilized by the OTS. This includes distributing information concerning the Outreach Program and providing appropriate registration materials for use by vendors and contractors. Identification will primarily be accomplished by:</P> <P>(1) Obtaining various lists and directories maintained by other federal, state and local governmental agencies of Outreach Program businesses;</P> <P>(2) Participating in conventions, seminars and professional meetings oriented towards Outreach Programs;</P> <P>(3) Conducting seminars, meetings, workshops and various other functions; and</P> <P>(4) Monitoring proposed purchases and contracts to assure that OTS contracting staff understand and actively promote the Outreach Program.</P> </SECTION> <SECTION> <SECTNO>§ 517.6</SECTNO> <SUBJECT>Certification.</SUBJECT> <P>In order to qualify as an Outreach Program participant, each business or contractor must either:</P> <P>(a) Self-certify ownership status by filing with the OTS Outreach Program Advocate a completed and signed Solicitation Mailing List Application, Standard Form 129 (SF-129), as prescribed by the Federal Acquisition Regulation (48 CFR part 53);</P> <P>(b) Self-certify ownership status by filing with the OTS Outreach Program Advocate a completed and signed ABELS Registration/Certification Form, as prescribed by the U.S. Department of Commerce's Minority Business Development Agency and available from the Outreach Program Advocate at the headquarters address of the OTS as specified in 12 CFR 516.1(a); or</P> <P>(c) Submit a valid Outreach Program certification received from a Federal agency, or a designated state or authorized local agency.</P> </SECTION> <SECTION> <SECTNO>§ 517.7</SECTNO> <SUBJECT>Contract award guidelines.</SUBJECT> <P>Contracts for goods or services shall be awarded in accordance with OTS procurement rules and policies (48 CFR chapter 1 and FIRMR, 41 CFR chapter 201). The OTS Outreach Program Advocate shall work to facilitate the maximum participation of minority-, women-owned (small and large) businesses and entities owned by individuals with disabilities in the OTS procurement of goods or services.</P> </SECTION> </PART> <PART> <PRTPAGE P="60"/> <EAR>Pt. 528</EAR> <HD SOURCE="HED">PART 528—NONDISCRIMINATION REQUIREMENTS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>528.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>528.1a</SECTNO> <SUBJECT>Supplementary guidelines.</SUBJECT> <SECTNO>528.2</SECTNO> <SUBJECT>Nondiscrimination in lending and other services.</SUBJECT> <SECTNO>528.2a</SECTNO> <SUBJECT>Nondiscriminatory appraisal and underwriting.</SUBJECT> <SECTNO>528.3</SECTNO> <SUBJECT>Nondiscrimination in applications.</SUBJECT> <SECTNO>528.4</SECTNO> <SUBJECT>Nondiscriminatory advertising.</SUBJECT> <SECTNO>528.5</SECTNO> <SUBJECT>Equal Housing Lender Poster.</SUBJECT> <SECTNO>528.6</SECTNO> <SUBJECT>Loan application register.</SUBJECT> <SECTNO>528.7</SECTNO> <SUBJECT>Nondiscrimination in employment.</SUBJECT> <SECTNO>528.8</SECTNO> <SUBJECT>Complaints.</SUBJECT> <SECTNO>528.9</SECTNO> <SUBJECT>Guidelines relating to nondiscrimination in lending.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1464, 2810 <E T="03">et seq.,</E> 2901 <E T="03">et seq.</E>; 15 U.S.C. 1691; 42 U.S.C. 1981, 1982, 3601-3619.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>55 FR 1388, Jan. 16, 1990, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 528.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this part 528—</P> <P>(a) <E T="03">Application.</E> For purposes of this part, an application for a loan or other service is as defined in Regulation C, 12 CFR 203.2(b).</P> <P>(b) <E T="03">Savings association.</E> The term “savings association” means any savings association as defined in § 561.43 of this chapter other than a State-chartered savings bank whose deposits are insured by the Bank Insurance Fund.</P> <P>(c) <E T="03">Dwelling.</E> The term “dwelling” means a residential structure (whether or not it is attached to real property) located in a state of the United States of America, the District of Colombia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home.</P> <CITA>[55 FR 1388, Jan. 16, 1990, as amended at 58 FR 4312, Jan. 14, 1993; 63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.1a</SECTNO> <SUBJECT>Supplementary guidelines.</SUBJECT> <P>The Office's policy statement found at 12 CFR 528.9 supplements this part and should be read together with this part. Refer also to the HUD Fair Housing regulations at 24 CFR parts 100 <E T="03">et seq.</E>, Federal Reserve Regulation B at 12 CFR part 202, and Federal Reserve Regulation C at 12 CFR part 203.</P> <CITA>[63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.2</SECTNO> <SUBJECT>Nondiscrimination in lending and other services.</SUBJECT> <P>(a) No savings association may deny a loan or other service, or discriminate in the purchase of loans or securities or discriminate in fixing the amount, interest rate, duration, application procedures, collection or enforcement procedures, or other terms or conditions of such loan or other service on the basis of the age or location of the dwelling, or on the basis of the race, color, religion, sex, handicap, familial status (having one or more children under the age of 18), marital status, age (provided the person has the capacity to contract) or national origin of:</P> <P>(1) An applicant or joint applicant;</P> <P>(2) Any person associated with an applicant or joint applicant regarding such loan or other service, or with the purposes of such loan or other service;</P> <P>(3) The present or prospective owners, lessees, tenants, or occupants of the dwelling(s) for which such loan or other service is to be made or given;</P> <P>(4) The present or prospective owners, lessees, tenants, or occupants of other dwellings in the vicinity of the dwelling(s) for which such loan or other service is to be made or given.</P> <P>(b) A savings association shall consider without prejudice the combined income of joint applicants for a loan or other service.</P> <P>(c) No savings association may discriminate against an applicant for a loan or other service on any prohibited basis (as defined in 12 CFR 202.2(z) and 24 CFR part 100). </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P> See also, § 528.9 (b) and (c).</P> </NOTE> <CITA>[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.2a</SECTNO> <SUBJECT>Nondiscriminatory appraisal and underwriting.</SUBJECT> <P>(a) <E T="03">Appraisal.</E> No savings association may use or rely upon an appraisal of a dwelling which the savings association knows, or reasonably should know, is discriminatory on the basis of the age or location of the dwelling, or is discriminatory per se or in effect under the Fair Housing Act of 1968 or the Equal Credit Opportunity Act.</P> <P>(b) <E T="03">Underwriting.</E> Each savings association shall have clearly written, non-discriminatory loan underwriting <PRTPAGE P="61"/>standards, available to the public upon request, at each of its offices. Each association shall, at least annually, review its standards, and business practices implementing them, to ensure equal opportunity in lending </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P> See also, § 528.9(b), (c)(6), and (c)(7).</P> </NOTE> <CITA>[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.3</SECTNO> <SUBJECT>Nondiscrimination in applications.</SUBJECT> <P>(a) No savings association may discourage, or refuse to allow, receive, or consider, any application, request, or inquiry regarding a loan or other service, or discriminate in imposing conditions upon, or in processing, any such application, request, or inquiry on the basis of the age or location of the dwelling, or on the basis of the race, color, religion, sex, handicap, familial status (having one or more children under the age of 18), marital status, age (provided the person has the capacity to contract), national origin, or other characteristics prohibited from consideration in § 528.2(c) of this part, of the prospective borrower or other person, who:</P> <P>(1) Makes application for any such loan or other service;</P> <P>(2) Requests forms or papers to be used to make application for any such loan or other service; or</P> <P>(3) Inquires about the availability of such loan or other service.</P> <P>(b) A savings association shall inform each inquirer of his or her right to file a written loan application, and to receive a copy of the association's underwriting standards. </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P> See also, § 528.9(a) through (d).</P> </NOTE> <CITA>[55 FR 1388, Jan. 16, 1990, as amended at 63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.4</SECTNO> <SUBJECT>Nondiscriminatory advertising.</SUBJECT> <P>No savings association may directly or indirectly engage in any form of advertising which implies or suggests a policy of discrimination or exclusion in violation of title VIII of the Civil Rights Acts of 1968, the Equal Credit Opportunity Act, or this part 528. Advertisements, other than for savings, shall include a facsimile of the following logotype and legend:</P> <GPH DEEP="113" SPAN="1"> <GID>EC07SE91.000</GID> </GPH> </SECTION> <SECTION> <SECTNO>§ 528.5</SECTNO> <SUBJECT>Equal Housing Lender Poster.</SUBJECT> <P>(a) Each savings association shall post and maintain one or more Equal Housing Lender Posters, the text of which is prescribed in paragraph (b) of this section, in the lobby of each of its offices in a prominent place or places readily apparent to all persons seeking loans. The poster shall be at least 11 by 14 inches in size, and the text shall be easily legible. It is recommended that savings associations post a Spanish language version of the poster in offices serving areas with a substantial Spanish-speaking population.</P> <P>(b) The text of the Equal Housing Lender Poster shall be as follows:</P> <GPH DEEP="113" SPAN="1"> <GID>EC07SE91.001</GID> </GPH> <EXTRACT> <P>We Do Business In Accordance With Federal Fair Lending Laws.</P> <P>UNDER THE FEDERAL FAIR HOUSING ACT, IT IS ILLEGAL, ON THE BASIS OF RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX, HANDICAP, OR FAMILIAL STATUS (HAVING CHILDREN UNDER THE AGE OF 18) TO:</P> <P>[ ]Deny a loan for the purpose of purchasing, constructing, improving, repairing or maintaining a dwelling or to deny any loan secured by a dwelling; or</P> <P>[ ]Discriminate in fixing the amount, interest rate, duration, application procedures, or other terms or conditions of such a loan or in appraising property.<PRTPAGE P="62"/> </P> <P>IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD:</P> <P>SEND A COMPLAINT TO:</P> <P>Assistant Secretary for Fair Housing and Equal Opportunity, Department of Housing and Urban Development, Washington, DC 20410.</P> <P>For processing under the Federal Fair Housing Act</P> <P>AND TO:</P> <P>Director, Consumer Affairs, Office of Thrift Supervision, Washington, DC 20552.</P> <P>For processing under Office of Thrift Supervision Regulations. </P> <P>UNDER THE EQUAL CREDIT OPPORTUNITY ACT, IT IS ILLEGAL TO DISCRIMINATE IN ANY CREDIT TRANSACTION:</P> <P>[ ]On the basis of race, color, national origin, religion, sex, marital status, or age;</P> <P>[ ]Because income is from public assistance; or</P> <P>[ ]Because a right has been exercised under the Consumer Credit Protection Act.</P> <P>IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD SEND A COMPLAINT TO:</P> <P>Director, Consumer Affairs, Office of Thrift Supervision, Washington, DC 20552.</P> </EXTRACT> </SECTION> <SECTION> <SECTNO>§ 528.6</SECTNO> <SUBJECT>Loan application register.</SUBJECT> <P>Savings associations and other lenders required to file Home Mortgage Disclosure Act Loan Application Registers with the Office of Thrift Supervision in accordance with 12 CFR part 203 must enter the reason for denial, using the codes provided in 12 CFR part 203, with respect to all loan denials.</P> <CITA>[58 FR 4312, Jan. 14, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 528.7</SECTNO> <SUBJECT>Nondiscrimination in employment.</SUBJECT> <P>(a) No savings association shall, because of an individual's race, color, religion, sex, or national origin:</P> <P>(1) Fail or refuse to hire such individual;</P> <P>(2) Discharge such individual;</P> <P>(3) Otherwise discriminate against such individual with respect to such individual's compensation, promotion, or the terms, conditions, or privileges of such individual's employment; or</P> <P>(4) Discriminate in admission to, or employment in, any program of apprenticeship, training, or retraining, including on-the-job training.</P> <P>(b) No savings association shall limit, segregate, or classify its employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect such individual's status as an employee because of such individual's race, color, religion, sex, or national origin.</P> <P>(c) No savings association shall discriminate against any employee or applicant for employment because such employee or applicant has opposed any employment practice made unlawful by Federal, State, or local law or regulation or because he has in good faith made a charge of such practice or testified, assisted, or participated in any manner in an investigation, proceeding, or hearing of such practice by any lawfully constituted authority.</P> <P>(d) No savings association shall print or publish or cause to be printed or published any notice or advertisement relating to employment by such savings association indicating any preference, limitation, specification, or discrimination based on race, color, religion, sex, or national origin.</P> <P>(e) This regulation shall not apply in any case in which the Federal Equal Employment Opportunities law is made inapplicable by the provisions of section 2000e-1 or sections 2000e-2 (e) through (j) of title 42, United States Code.</P> <P>(f) Any violation of the following laws or regulations by a savings association shall be deemed to be a violation of this part 528:</P> <P>(1) The Equal Employment Opportunity Act, as amended, 42 U.S.C. 2000e-2000h-2, and Equal Employment Opportunity Commission (EEOC) regulations at 29 CFR part 1600;</P> <P>(2) The Age Discrimination in Employment Act, 29 U.S.C. 621-633, and EEOC and Department of Labor regulations;</P> <P>(3) Department of the Treasury regulations at 31 CFR part 12 and Office of Federal Contract Compliance Programs (OFCCP) regulations at 41 CFR part 60;</P> <P>(4) The Veterans Employment and Readjustment Act of 1972, 38 U.S.C. 2011-2012, and the Vietnam Era Veterans Readjustment Adjustment Assistance Act of 1974, 38 U.S.C. 2021-2026;</P> <P>(5) The Rehabilitation Act of 1973, 29 U.S.C. 701 <E T="03">et al.;</E> and<PRTPAGE P="63"/> </P> <P>(6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS regulations at 8 CFR part 274a.</P> </SECTION> <SECTION> <SECTNO>§ 528.8</SECTNO> <SUBJECT>Complaints.</SUBJECT> <P>Complaints regarding discrimination in lending by a savings association shall be referred to the Assistant Secretary for Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development, Washington, DC 20410 for processing under the Fair Housing Act, and to the Director, Consumer Affairs, Office of Thrift Supervision, Washington, DC 20552 for processing under Office regulations. Complaints regarding discrimination in employment by a savings association should be referred to the Equal Employment Opportunity Commission, Washington, DC 20506 and a copy, for information only, sent to the Director, Consumer Affairs, Office of Thrift Supervision, Washington, DC 20552.</P> </SECTION> <SECTION> <SECTNO>§ 528.9</SECTNO> <SUBJECT>Guidelines relating to nondiscrimination in lending.</SUBJECT> <P>(a) <E T="03">General.</E> Fair housing and equal opportunity in home financing is a policy of the United States established by Federal statutes and Presidential orders and proclamations. In furtherance of the Federal civil rights laws and the economical home financing purposes of the statutes administered by the Office, the Office has adopted, in part 528 of this chapter, nondiscrimination regulations that, among other things, prohibit arbitrary refusals to consider loan applications on the basis of the age or location of a dwelling, and prohibit discrimination based on race, color, religion, sex, handicap, familial status (having one or more children under the age of 18), marital status, age (provided the person has the capacity to contract), or national origin in fixing the amount, interest rate, duration, application procedures, collection or enforcement procedures, or other terms or conditions of housing related loans. Such discrimination is also prohibited in the purchase of loans and securities. This section provides supplementary guidelines to aid savings associations in developing and implementing nondiscriminatory lending policies. Each savings association should reexamine its underwriting standards at least annually in order to ensure equal opportunity.</P> <P>(b) <E T="03">Loan underwriting standards.</E> The basic purpose of the Office's nondiscrimination regulations is to require that every applicant be given an equal opportunity to obtain a loan. Each loan applicant's creditworthiness should be evaluated on an individual basis without reference to presumed characteristics of a group. The use of lending standards which have no economic basis and which are discriminatory in effect is a violation of law even in the absence of an actual intent to discriminate. However, a standard which has a discriminatory effect is not necessarily improper if its use achieves a genuine business need which cannot be achieved by means which are not discriminatory in effect or less discriminatory in effect.</P> <P>(c) <E T="03">Discriminatory practices—</E>(1) <E T="03">Discrimination on the basis of sex or marital status.</E> The Civil Rights Act of 1968 and the National Housing Act prohibit discrimination in lending on the basis of sex. The Equal Credit Opportunity Act, in addition to this prohibition, forbids discrimination on the basis of marital status. Refusing to lend to, requiring higher standards of creditworthiness of, or imposing different requirements on, members of one sex or individuals of one marital status, is discrimination based on sex or marital status. Loan underwriting decisions must be based on an applicant's credit history and present and reasonably foreseeable economic prospects, rather than on the basis of assumptions regarding comparative differences in creditworthiness between married and unmarried individuals, or between men and women.</P> <P>(2) <E T="03">Discrimination on the basis of language.</E> Requiring fluency in the English language as a prerequisite for obtaining a loan may be a discriminatory practice based on national origin.</P> <P>(3) <E T="03">Income of husbands and wives.</E> A practice of discounting all or part of either spouse's income where spouses apply jointly is a violation of section 527 of the National Housing Act. As with other income, when spouses apply jointly for a loan, the determination as to whether a spouse's income qualifies for credit purposes should depend upon <PRTPAGE P="64"/>a reasonable evaluation of his or her past, present, and reasonably foreseeable economic circumstances. Information relating to child-bearing intentions of a couple or an individual may not be requested.</P> <P>(4) <E T="03">Supplementary income.</E> Lending standards which consider as effective only the non-overtime income of the primary wage-earner may result in discrimination because they do not take account of variations in employment patterns among individuals and families. The Office favors loan underwriting which reasonably evaluates the credit worthiness of each applicant based on a realistic appraisal of his or her own past, present, and foreseeable economic circumstances. The determination as to whether primary income or additional income qualifies as effective for credit purposes should depend upon whether such income may reasonably be expected to continue through the early period of the mortgage risk. Automatically discounting other income from bonuses, overtime, or part-time employment, will cause some applicants to be denied financing without a realistic analysis of their credit worthiness. Since statistics show that minority group members and low- and moderate-income families rely more often on such supplemental income, the practice may be racially discriminatory in effect, as well as artificially restrictive of opportunities for home financing.</P> <P>(5) <E T="03">Applicant's prior history.</E> Loan decisions should be based upon a realistic evaluation of all pertinent factors respecting an individual's creditworthiness, without giving undue weight to any one factor. The savings association should, among other things, take into consideration that:</P> <P>(i) In some instances, past credit difficulties may have resulted from discriminatory practices;</P> <P>(ii) A policy favoring applicants who previously owned homes may perpetuate prior discrimination;</P> <P>(iii) A current, stable earnings record may be the most reliable indicator of credit-worthiness, and entitled to more weight than factors such as educational level attained;</P> <P>(iv) Job or residential changes may indicate upward mobility; and</P> <P>(v) Preferring applicants who have done business with the lender can perpetuate previous discriminatory policies.</P> <P>(6) <E T="03">Income level or racial composition of area.</E> Refusing to lend or lending on less favorable terms in particular areas because of their racial composition is unlawful. Refusing to lend, or offering less favorable terms (such as interest rate, downpayment, or maturity) to applicants because of the income level in an area can discriminate against minority group persons.</P> <P>(7) <E T="03">Age and location factors.</E> Sections 528.2, 528.2a, and 528.3 of this chapter prohibit loan denials based upon the age or location of a dwelling. These restrictions are intended to prohibit use of unfounded or unsubstantiated assumptions regarding the effect upon loan risk of the age of a dwelling or the physical or economic characteristics of an area. Loan decisions should be based on the present market value of the property offered as security (including consideration of specific improvements to be made by the borrower) and the likelihood that the property will retain an adequate value over the term of the loan. Specific factors which may negatively affect its short-range future value (up to 3-5 years) should be clearly documented. Factors which in some cases may cause the market value of a property to decline are recent zoning changes or a significant number of abandoned homes in the immediate vicinity of the property. However, not all zoning changes will cause a decline in property values, and proximity to abandoned buildings may not affect the market value of a property because of rehabilitation programs or affirmative lending programs, or because the cause of abandonment is unrelated to high risk. Proper underwriting considerations include the condition and utility of the improvements, and various physical factors such as street conditions, amenities such as parks and recreation areas, availability of public utilities and municipal services, and exposure to flooding and land faults. However, arbitrary decisions based on age or location are prohibited, since many older, soundly constructed homes provide housing opportunities which may <PRTPAGE P="65"/>be precluded by an arbitrary lending policy.</P> <P>(8) <E T="03">Fair Housing Act (title VIII, Civil Rights Act of 1968, as amended).</E> Savings associations, must comply with all regulations promulgated by the Department of Housing and Urban Development to implement the Fair Housing Act, found at 24 CFR part 100 <E T="03">et seq.,</E> except that they shall use the Equal Housing Lender logo and poster prescribed by Office regulations at 12 CFR 528.4 and 528.5 rather than the Equal Housing Opportunity logo and poster required by 24 CFR parts 109 and 110.</P> <P>(d) <E T="03">Marketing practices.</E> Savings associations should review their advertising and marketing practices to ensure that their services are available without discrimination to the community they serve. Discrimination in lending is not limited to loan decisions and underwriting standards; a savings association does not meet its obligations to the community or implement its equal lending responsibility if its marketing practices and business relationships with developers and real estate brokers improperly restrict its clientele to segments of the community. A review of marketing practices could begin with an examination of an association's loan portfolio and applications to ascertain whether, in view of the demographic characteristics and credit demands of the community in which the institution is located, it is adequately serving the community on a nondiscriminatory basis. The Office will systematically review marketing practices where evidence of discrimination in lending is discovered.</P> <CITA>[54 FR 49666, Nov. 30, 1989, as amended at 60 FR 66870, Dec. 27, 1995. Redesignated at 63 FR 71212, Dec. 24, 1998]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 535</EAR> <HD SOURCE="HED">PART 535—PROHIBITED CONSUMER CREDIT PRACTICES</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>535.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>535.2</SECTNO> <SUBJECT>Unfair credit practices.</SUBJECT> <SECTNO>535.3</SECTNO> <SUBJECT>Unfair or deceptive cosigner practices.</SUBJECT> <SECTNO>535.4</SECTNO> <SUBJECT>Late charges.</SUBJECT> <SECTNO>535.5</SECTNO> <SUBJECT>State exemptions.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>Sec. 18, as added by sec. 202, 88 Stat. 2193, as amended (15 U.S.C. 57a).</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49479, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 535.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>(a) <E T="03">Act.</E> For the purposes of this part, “Act” means the Federal Trade Commission Act, 15 U.S.C. 41 <E T="03">et seq</E>.</P> <P>(b) <E T="03">Consumer.</E> The term “consumer” means a natural person who seeks or acquires goods, services, or money for personal, family, or household purposes, and who applies for or is extended “consumer credit” as defined in § 561.12 of this chapter.</P> <P>(c) <E T="03">Cosigner.</E> The term “cosigner” means a natural person who assumes liability for the obligation of a consumer without receiving goods, services, or money in return for the obligation, or in the case of an open-end credit obligation, without receiving the contractual right to obtain extensions of credit under the account. The term shall include any person whose signature is requested as a condition to granting credit to a consumer, or as a condition for forbearance on collection of a consumer's obligation that is in default. The term shall not include a spouse or other person whose signature is required on a credit obligation to perfect a security interest pursuant to state law. A person is a cosigner within the meaning of this definition whether or not he or she is designated as such on a credit obligation.</P> <P>(d) <E T="03">Creditor.</E> The term “creditor” means a savings association.</P> <P>(e) <E T="03">Debt.</E> The term “debt” means money that is due or alleged to be due from one to another.</P> <P>(f) <E T="03">Earnings.</E> The term “earnings” means compensation paid or payable to an individual or for his or her account for personal services rendered or to be rendered by him or her, whether denominated as wages, salary, commission, bonus, or otherwise, including periodic payments pursuant to a pension, retirement, or disability program.</P> <P>(g) <E T="03">Household goods.</E> The term “household goods” means clothing, furniture, appliances, linens, china, crockery, kitchenware, and personal effects of the consumer and his or her dependents, provided that the following are not included within the scope of the term “household goods”:</P> <P>(1) Works of art;</P> <P>(2) Electronic entertainment equipment (except one television and one radio);<PRTPAGE P="66"/> </P> <P>(3) Antiques, i.e., any item over one hundred years of age, including such items that have been repaired or renovated without changing their original form or character, and</P> <P>(4) Jewelry (other than wedding rings).</P> <P>(h) <E T="03">Savings association.</E> For purposes of this part, the term “savings association” includes any savings association, and any service corporation that is wholly owned by one or more savings association, that engages in the business of providing credit to consumers.</P> <P>(i) <E T="03">Obligation.</E> The term “obligation” means an agreement between a consumer and a creditor.</P> <P>(j) <E T="03">Person.</E> The term “person” means an individual, corporation, or other business organization.</P> </SECTION> <SECTION> <SECTNO>§ 535.2</SECTNO> <SUBJECT>Unfair credit practices.</SUBJECT> <P>(a) In connection with the extension of credit to consumers after January 1, 1986, it is an unfair act or practice within the meaning of section 5 of the Act for a savings association directly or indirectly to enter into a consumer credit obligation that constitutes or contains, or to enforce in a consumer credit obligation purchased by a savings association, any of the following provisions:</P> <P>(1) A cognovit or confession of judgment (for purposes other than executory process in the State of Louisiana), warrant of attorney, or other waiver of the right to notice and the opportunity to be heard in the event of suit or process thereon;</P> <P>(2) An executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer, unless the waiver applies solely to property subject to a security interest executed in connection with the obligation;</P> <P>(3) An assignment of wages or other earnings, unless:</P> <P>(i) The assignment by its terms is revocable at the will of the debtor,</P> <P>(ii) The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment, or</P> <P>(iii) The assignment applies only to wages or other earnings already earned at the time of the assignment.</P> <P>(4) A nonpossessory security interest in household goods other than a purchase-money security interest.</P> </SECTION> <SECTION> <SECTNO>§ 535.3</SECTNO> <SUBJECT>Unfair or deceptive cosigner practices.</SUBJECT> <P>(a) <E T="03">General.</E> In connection with the extension of credit to consumers after January 1, 1986, it is:</P> <P>(1) A deceptive act or practice within the meaning of section 5 of the Act for a savings association, directly or indirectly, to misrepresent the nature or extent of cosigner liability to any person.</P> <P>(2) An unfair act or practice within the meaning of section 5 of the Act for a savings association, directly or indirectly, to obligate a cosigner unless the cosigner is informed, prior to becoming obligated, of the nature of his or her liability as cosigner.</P> <P>(b) <E T="03">Disclosure requirement.</E> (1) A clear and conspicuous document that shall contain the following statement or one which is substantially equivalent, shall be given to the consigner prior to becoming obligated (which, in the case of open-end credit, shall mean prior to the time that the cosigner becomes obligated for any fees or transaction on the account):</P> <EXTRACT> <HD SOURCE="HD1">Notice of Cosigner</HD> <P>You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.</P> <P>You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.</P> <P>The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.</P> </EXTRACT> <P>(2) Compliance with the disclosure requirement under paragraph (b)(1) of this section shall constitute compliance with the consumer information requirement of paragraph (a)(2) of this section.<PRTPAGE P="67"/> </P> <P>(3) If the notice is a separate document, nothing other than the following times may appear with the notice:</P> <P>(i) The name and address of the savings association;</P> <P>(ii) An identification of the debt to be cosigned (e.g., a loan identification number);</P> <P>(iii) The date; and</P> <P>(iv) The statement, “This notice is not the contract that makes you liable for the debt.”</P> </SECTION> <SECTION> <SECTNO>§ 535.4</SECTNO> <SUBJECT>Late charges.</SUBJECT> <P>(a) In connection with collecting a debt arising out of an extension of credit to a consumer after January 1, 1986, it is an unfair act or practice within the meaning of section 5 of the Act for a savings association, directly or indirectly, to levy or collect any delinquency charge on a payment, which payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period, when the only delinquency is attributable to late fee(s) or delinquency charge(s) assessed on earlier installment(s).</P> <P>(b) For the purposes of this part, “collecting a debt” means any activity, other than the use of judicial process, that is intended to bring about or does bring about repayment of all or part of a consumer debt.</P> </SECTION> <SECTION> <SECTNO>§ 535.5</SECTNO> <SUBJECT>State exemptions.</SUBJECT> <P>(a) Upon application to the Office by an appropriate state agency, the Office shall determine if:</P> <P>(1) There is a state requirement or prohibition in effect that applies to any transaction to which a provision of this rule applies; and</P> <P>(2) The state requirement or prohibition affords a level of protection to consumers that is substantially equivalent to, or greater than, the protection afforded by this rule.</P> <P>(b) If the Office makes a determination as specified under paragraph (a) of this section, then that provision of this section will not be in effect in that state to the extent specified by the Office in its determination, for as long as the state administers and enforces the state requirement or prohibition effectively, as determined by the Office.</P> <P>(c) The Director of Consumer Affairs in consultation with the Chief Counsel shall have delegated authority to make such determinations as are required under this part 535.</P> </SECTION> </PART> <PART> <EAR>Pt. 536</EAR> <HD SOURCE="HED">PART 536—CONSUMER PROTECTION IN SALES OF INSURANCE</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>536.10</SECTNO> <SUBJECT>Purpose and scope. </SUBJECT> <SECTNO>536.20</SECTNO> <SUBJECT>Definitions. </SUBJECT> <SECTNO>536.30</SECTNO> <SUBJECT>Prohibited practices.</SUBJECT> <SECTNO>536.40</SECTNO> <SUBJECT>What you must disclose.</SUBJECT> <SECTNO>536.50 </SECTNO> <SUBJECT>Where insurance activities may take place.</SUBJECT> <SECTNO>536.60 </SECTNO> <SUBJECT>Qualification and licensing requirements for insurance sales personnel.</SUBJECT> <APP>Appendix A to Part 536—Consumer Grievance Process.</APP> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>12 U.S.C. 1462a, 1463, 1464, 1467a, and 1831x.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>65 FR 75845, Dec. 4, 2000, unless otherwise noted.</P> </SOURCE> <EFFDNOTP> <HD SOURCE="HED">Effective Date Note:</HD> <P>At 65 FR 75845, Dec. 4, 2000, part 536 was added, effective April 1, 2001. </P> </EFFDNOTP> <SECTION> <SECTNO>§ 536.10</SECTNO> <SUBJECT>Purpose and scope.</SUBJECT> <P>(a) <E T="03">General rule.</E> This part establishes consumer protections in connection with retail sales practices, solicitations, advertising, or offers of any insurance product or annuity to a consumer by:</P> <P>(1) Any savings association; or</P> <P>(2) Any other person that is engaged in such activities at an office of a savings association or on behalf of a savings association.</P> <P>(b) <E T="03">Application to operating subsidiaries.</E> For purposes of § 559.3(h) of this chapter, an operating subsidiary is subject to this part only to the extent that it sells, solicits, advertises, or offers insurance products or annuities at an office of a savings association or on behalf of a savings association.</P> </SECTION> <SECTION> <SECTNO>§ 536.20</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this part:</P> <P> <E T="03">Affiliate</E> means a company that controls, is controlled by, or is under common control with another company.</P> <P> <E T="03">Company</E> means any corporation, partnership, business trust, association or similar organization, or any other trust (unless by its terms the trust must terminate within twenty-five <PRTPAGE P="68"/>years or not later than twenty-one years and ten months after the death of individuals living on the effective date of the trust). It does not include any corporation the majority of the shares of which are owned by the United States or by any State, or a qualified family partnership, as defined in section 2(o)(10) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1841(o)(10)).</P> <P> <E T="03">Consumer</E> means an individual who purchases, applies to purchase, or is solicited to purchase from a covered person insurance products or annuities primarily for personal, family, or household purposes.</P> <P> <E T="03">Control</E> of a company has the same meaning as in section 3(w)(5) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(5)).</P> <P> <E T="03">Domestic violence</E> means the occurrence of one or more of the following acts by a current or former family member, household member, intimate partner, or caretaker:</P> <P>(1) Attempting to cause or causing or threatening another person physical harm, severe emotional distress, psychological trauma, rape, or sexual assault;</P> <P>(2) Engaging in a course of conduct or repeatedly committing acts toward another person, including following the person without proper authority, under circumstances that place the person in reasonable fear of bodily injury or physical harm;</P> <P>(3) Subjecting another person to false imprisonment; or</P> <P>(4) Attempting to cause or causing damage to property so as to intimidate or attempt to control the behavior of another person.</P> <P> <E T="03">Electronic media</E> includes any means for transmitting messages electronically between a covered person and a consumer in a format that allows visual text to be displayed on equipment, for example, a personal computer monitor.</P> <P> <E T="03">Office</E> means the premises of a savings association where retail deposits are accepted from the public.</P> <P> <E T="03">Subsidiary</E> has the same meaning as in section 3(w)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)).</P> <P> <E T="03">You</E> means:</P> <P>(1) A savings association, as defined in § 561.43 of this chapter; or</P> <P>(2) Any other person only when the person sells, solicits, advertises, or offers an insurance product or annuity to a consumer at an office of a savings association, or on behalf of a savings association. For purposes of this definition, activities on behalf of a savings association include activities where a person, whether at an office of the savings association or at another location, sells, solicits, advertises, or offers an insurance product or annuity and at least one of the following applies:</P> <P>(i) The person represents to a consumer that the sale, solicitation, advertisement, or offer of any insurance product or annuity is by or on behalf of the savings association;</P> <P>(ii) The savings association refers a consumer to a seller of insurance products and annuities and the savings association has a contractual arrangement to receive commissions or fees derived from a sale of an insurance product or annuity resulting from that referral; or</P> <P>(iii) Documents evidencing the sale, solicitation, advertising, or offer of an insurance product or annuity identify or refer to the savings association.</P> </SECTION> <SECTION> <SECTNO>§ 536.30</SECTNO> <SUBJECT>Prohibited practices.</SUBJECT> <P>(a) <E T="03">Anticoercion and antitying rules.</E> You may not engage in any practice that would lead a consumer to believe that an extension of credit, in violation of section 5(q) of the Home Owners' Loan Act (12 U.S.C. 1464(q)), is conditional upon either:</P> <P>(1) The purchase of an insurance product or annuity from a savings association or any of its affiliates; or</P> <P>(2) An agreement by the consumer not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.</P> <P>(b) <E T="03">Prohibition on misrepresentations generally.</E> You may not engage in any practice or use any advertisement at any office of, or on behalf of, a savings association or a subsidiary of a savings association that could mislead any person or otherwise cause a reasonable person to reach an erroneous belief with respect to:<PRTPAGE P="69"/> </P> <P>(1) The fact that an insurance product or annuity you or any subsidiary of a savings association sell or offer for sale is not backed by the Federal government or a savings association, or the fact that the insurance product or annuity is not insured by the Federal Deposit Insurance Corporation;</P> <P>(2) In the case of an insurance product or annuity that involves investment risk, the fact that there is an investment risk, including the potential that principal may be lost and that the product may decline in value; or</P> <P>(3) In the case of a savings association or subsidiary of a savings association at which insurance products or annuities are sold or offered for sale, the fact that:</P> <P>(i) The approval of an extension of credit to a consumer by the savings association or subsidiary may not be conditioned on the purchase of an insurance product or annuity by the consumer from the savings association or a subsidiary of a savings association; and</P> <P>(ii) The consumer is free to purchase the insurance product or annuity from another source.</P> <P>(c) <E T="03">Prohibition on domestic violence discrimination.</E> You may not sell or offer for sale, as principal, agent, or broker, any life or health insurance product if the status of the applicant or insured as a victim of domestic violence or as a provider of services to victims of domestic violence is considered as a criterion in any decision with regard to insurance underwriting, pricing, renewal, or scope of coverage of such product, or with regard to the payment of insurance claims on such product, except as required or expressly permitted under State law.</P> </SECTION> <SECTION> <SECTNO>§ 536.40</SECTNO> <SUBJECT>What you must disclose.</SUBJECT> <P>(a) <E T="03">Insurance disclosures.</E> In connection with the initial purchase of an insurance product or annuity by a consumer from you, you must disclose to the consumer, except to the extent the disclosure would not be accurate, that:</P> <P>(1) The insurance product or annuity is not a deposit or other obligation of, or guaranteed by, a savings association or an affiliate of a savings association;</P> <P>(2) The insurance product or annuity is not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, a savings association, or (if applicable) an affiliate of a savings association; and</P> <P>(3) In the case of an insurance product or annuity that involves an investment risk, there is investment risk associated with the product, including the possible loss of value.</P> <P>(b) <E T="03">Credit disclosures.</E> In the case of an application for credit in connection with which an insurance product or annuity is solicited, offered, or sold, you must disclose that a savings association may not condition an extension of credit on either:</P> <P>(1) The consumer's purchase of an insurance product or annuity from the savings association or any of its affiliates; or</P> <P>(2) The consumer's agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.</P> <P>(c) <E T="03">Timing and method of disclosures</E>—(1) <E T="03">In general.</E> The disclosures required by paragraph (a) of this section must be provided orally and in writing before the completion of the initial sale of an insurance product or annuity to a consumer. The disclosure required by paragraph (b) of this section must be made orally and in writing at the time the consumer applies for an extension of credit in connection with which an insurance product or annuity is solicited, offered, or sold.</P> <P>(2) <E T="03">Exception for transactions by mail.</E> If you conduct an insurance product or annuity sale by mail, you are not required to make the oral disclosures required by paragraph (a) of this section. If you take an application for credit by mail, you are not required to make the oral disclosure required by paragraph (b) of this section.</P> <P>(3) <E T="03">Exception for transactions by telephone.</E> If a sale of an insurance product or annuity is conducted by telephone, you may provide the written disclosures required by paragraph (a) of this section by mail within 3 business days beginning on the first business day after the sale, solicitation, or offer, excluding Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). If you take an application for credit by <PRTPAGE P="70"/>telephone, you may provide the written disclosure required by paragraph (b) of this section by mail, provided you mail it to the consumer within three days beginning the first business day after the application is taken, excluding Sundays and the legal public holidays specified in 5 U.S.C. 6103(a).</P> <P>(4) <E T="03">Electronic form of disclosures.</E> (i) Subject to the requirements of section 101(c) of the Electronic Signatures in Global and National Commerce Act (12 U.S.C. 7001(c)), you may provide the written disclosures required by paragraph (a) and (b) of this section through electronic media instead of on paper, if the consumer affirmatively consents to receiving the disclosures electronically and if the disclosures are provided in a format that the consumer may retain or obtain later, for example, by printing or storing electronically (such as by downloading).</P> <P>(ii) You are not required to provide orally any disclosures required by paragraphs (a) or (b) of this section that you provide by electronic media.</P> <P>(5) <E T="03">Disclosures must be readily understandable.</E> The disclosures provided shall be conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided. For instance, you may use the following disclosures in visual media, such as television broadcasting, ATM screens, billboards, signs, posters and written advertisements and promotional materials, as appropriate and consistent with paragraphs (a) and (b) of this section: </P> <EXTRACT> <FP SOURCE="FP-1">• NOT A DEPOSIT</FP> <FP SOURCE="FP-1">• NOT FDIC-INSURED</FP> <FP SOURCE="FP-1">• NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY</FP> <FP SOURCE="FP-1">• NOT GUARANTEED BY THE SAVINGS ASSOCIATION</FP> <FP SOURCE="FP-1">• MAY GO DOWN IN VALUE</FP> </EXTRACT> <P>(6) <E T="03">Disclosures must be meaningful.</E> (i) You must provide the disclosures required by paragraphs (a) and (b) of this section in a meaningful form. Examples of the types of methods that could call attention to the nature and significance of the information provided include:</P> <P>(A) A plain-language heading to call attention to the disclosures;</P> <P>(B) A typeface and type size that are easy to read;</P> <P>(C) Wide margins and ample line spacing;</P> <P>(D) Boldface or italics for key words; and</P> <P>(E) Distinctive type size, style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.</P> <P>(ii) You have not provided the disclosures in a meaningful form if you merely state to the consumer that the required disclosures are available in printed material, but do not provide the printed material when required and do not orally disclose the information to the consumer when required.</P> <P>(iii) With respect to those disclosures made through electronic media for which paper or oral disclosures are not required, the disclosures are not meaningfully provided if the consumer may bypass the visual text of the disclosures before purchasing an insurance product or annuity.</P> <P>(7) <E T="03">Consumer acknowledgment.</E> You must obtain from the consumer, at the time a consumer receives the disclosures required under paragraphs (a) or (b) of this section, or at the time of the initial purchase by the consumer of an insurance product or annuity, a written acknowledgment by the consumer that the consumer received the disclosures. You may permit a consumer to acknowledge receipt of the disclosures electronically or in paper form. If the disclosures required under paragraphs (a) or (b) of this section are provided in connection with a transaction that is conducted by telephone, you must:</P> <P>(i) Obtain an oral acknowledgment of receipt of the disclosures and maintain sufficient documentation to show that the acknowledgment was given; and</P> <P>(ii) Make reasonable efforts to obtain a written acknowledgment from the consumer.</P> <P>(d) <E T="03">Advertisements and other promotional material for insurance products or annuities.</E> The disclosures described in paragraph (a) of this section are required in advertisements and promotional material for insurance products or annuities unless the advertisements and promotional material are of a general nature describing or listing <PRTPAGE P="71"/>the services or products offered by a savings association.</P> </SECTION> <SECTION> <SECTNO>§ 536.50</SECTNO> <SUBJECT>Where insurance activities may take place.</SUBJECT> <P>(a) <E T="03">General rule.</E> A savings association must, to the extent practicable:</P> <P>(1) Keep the area where the savings association conducts transactions involving insurance products or annuities physically segregated from areas where retail deposits are routinely accepted from the general public;</P> <P>(2) Identify the areas where insurance product or annuity sales activities occur; and</P> <P>(3) Clearly delineate and distinguish those areas from the areas where the savings association's retail deposit-taking activities occur.</P> <P>(b) <E T="03">Referrals.</E> Any person who accepts deposits from the public in an area where such transactions are routinely conducted in a savings association may refer a consumer who seeks to purchase an insurance product or annuity to a qualified person who sells that product only if the person making the referral receives no more than a one-time, nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction.</P> </SECTION> <SECTION> <SECTNO>§ 536.60</SECTNO> <SUBJECT>Qualification and licensing requirements for insurance sales personnel.</SUBJECT> <P>A savings association may not permit any person to sell or offer for sale any insurance product or annuity in any part of the savings association's office or on its behalf, unless the person is at all times appropriately qualified and licensed under applicable State insurance licensing standards with regard to the specific products being sold or recommended.</P> </SECTION> <APPENDIX> <EAR>Pt.536, App. A</EAR> <HD SOURCE="HED">Appendix A to Part 536—Consumer Grievance Process</HD> <P>Any consumer who believes that any savings association or any other person selling, soliciting, advertising, or offering insurance products or annuities to the consumer at an office of the savings association or on behalf of the savings association has violated the requirements of this part should contact the Director, Consumer Programs, Office of Thrift Supervision, at the following address: 1700 G Street, NW., Washington, DC 20552, or telephone 202-906-6237 or 800-842-6929, or e-mail consumer.complaint@ots.treas.gov.</P> </APPENDIX> </PART> <PART> <EAR>Pt. 541</EAR> <HD SOURCE="HED">PART 541—DEFINITIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>541.1</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>541.2</SECTNO> <SUBJECT>Act.</SUBJECT> <SECTNO>541.5</SECTNO> <SUBJECT>Commercial paper.</SUBJECT> <SECTNO>541.7</SECTNO> <SUBJECT>Corporate debt security.</SUBJECT> <SECTNO>541.8</SECTNO> <SUBJECT>Debit card.</SUBJECT> <SECTNO>541.10</SECTNO> <SUBJECT>Dwelling unit.</SUBJECT> <SECTNO>541.11</SECTNO> <SUBJECT>Federal savings association.</SUBJECT> <SECTNO>541.14</SECTNO> <SUBJECT>Home.</SUBJECT> <SECTNO>541.15</SECTNO> <SUBJECT>Improved nonresidential real estate.</SUBJECT> <SECTNO>541.16</SECTNO> <SUBJECT>Improved residential real estate.</SUBJECT> <SECTNO>541.18</SECTNO> <SUBJECT>Interim Federal savings association.</SUBJECT> <SECTNO>541.19</SECTNO> <SUBJECT>Interim state savings association.</SUBJECT> <SECTNO>541.20</SECTNO> <SUBJECT>Loans.</SUBJECT> <SECTNO>541.21</SECTNO> <SUBJECT>Nonresidential real estate.</SUBJECT> <SECTNO>541.22</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>541.23</SECTNO> <SUBJECT>Residential real estate.</SUBJECT> <SECTNO>541.25</SECTNO> <SUBJECT>Single-family dwelling.</SUBJECT> <SECTNO>541.26</SECTNO> <SUBJECT>Surplus.</SUBJECT> <SECTNO>541.27</SECTNO> <SUBJECT>Unimproved real estate.</SUBJECT> <SECTNO>541.28</SECTNO> <SUBJECT>Withdrawal value of a savings account.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49480, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 541.1</SECTNO> <SUBJECT>General.</SUBJECT> <P>Unless another definition is provided in this chapter, definitions in part 561 of this chapter apply.</P> </SECTION> <SECTION> <SECTNO>§ 541.2</SECTNO> <SUBJECT>Act.</SUBJECT> <P>The term <E T="03">Act</E> means the Home Owners' Loan Act of 1933, as amended.</P> </SECTION> <SECTION> <SECTNO>§ 541.5</SECTNO> <SUBJECT>Commercial paper.</SUBJECT> <P>The term <E T="03">commercial paper</E> means any note, draft, or bill of exchange which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.</P> </SECTION> <SECTION> <SECTNO>§ 541.7</SECTNO> <SUBJECT>Corporate debt security.</SUBJECT> <P>The term <E T="03">corporate debt security</E> means a marketable obligation, evidencing the indebtedness of any corporation in the form of a bond, note and/or debenture which is commonly regarded as a debt security and is not predominantly speculative in nature. A security is marketable if it may be sold <PRTPAGE P="72"/>with reasonable promptness at a price which corresponds reasonably to its fair value.</P> </SECTION> <SECTION> <SECTNO>§ 541.8</SECTNO> <SUBJECT>Debit card.</SUBJECT> <P>The term <E T="03">debit card</E> means a card that enables an accountholder to obtain access to a savings account for the purpose of making withdrawals or of transferring funds to a third party by non-transferable order or authorization.</P> </SECTION> <SECTION> <SECTNO>§ 541.10</SECTNO> <SUBJECT>Dwelling unit.</SUBJECT> <P>The term <E T="03">dwelling unit</E> means the unified combination of rooms designed for residential use by one family, other than a single-family dwelling.</P> </SECTION> <SECTION> <SECTNO>§ 541.11</SECTNO> <SUBJECT>Federal savings association.</SUBJECT> <P>The term <E T="03">Federal savings association</E> means a Federal savings association or Federal savings bank chartered under section 5(o) of the Act.</P> </SECTION> <SECTION> <SECTNO>§ 541.14</SECTNO> <SUBJECT>Home.</SUBJECT> <P>The term <E T="03">home</E> means real estate comprising a single-family dwelling(s) or a dwelling unit(s) for four or fewer families in the aggregate.</P> </SECTION> <SECTION> <SECTNO>§ 541.15</SECTNO> <SUBJECT>Improved nonresidential real estate.</SUBJECT> <P>The term <E T="03">improved nonresidential real estate</E> means nonresidential real estate:</P> <P>(a) Containing a permanent structure(s) constituting at least 25 percent of its value; or</P> <P>(b) Containing improvements which make it usable by a business or industrial enterprise; or</P> <P>(c) Used, or to be used within a reasonable time, for commercial farming, excluding hobby and vacation property.</P> </SECTION> <SECTION> <SECTNO>§ 541.16</SECTNO> <SUBJECT>Improved residential real estate.</SUBJECT> <P>The term <E T="03">improved residential real estate</E> means residential real estate containing offsite or other improvements sufficient to make the property ready for primarily residential construction, and real estate in the process of being improved by a building or buildings to be constructed or in the process of construction for primarily residential use.</P> </SECTION> <SECTION> <SECTNO>§ 541.18</SECTNO> <SUBJECT>Interim Federal savings association.</SUBJECT> <P>The term <E T="03">interim Federal savings association</E> means a Federal savings association chartered by the Office under section 5 of the Act to facilitate the acquisition of 100 percent of the voting shares of an existing Federal stock savings association or other insured stock savings association by a newly formed company or an existing savings and loan holding company or to facilitate any other transaction the Office may approve.</P> </SECTION> <SECTION> <SECTNO>§ 541.19</SECTNO> <SUBJECT>Interim state savings association.</SUBJECT> <P>The term <E T="03">interim state savings association</E> means a savings association, other than a Federal savings association, the accounts of which are insured by the FDIC to facilitate the acquisition of 100 percent of the voting shares of an existing Federal stock savings association or other insured stock savings association by a newly formed company or an existing savings and loan holding company or to facilitate any other transaction the Office may approve.</P> </SECTION> <SECTION> <SECTNO>§ 541.20</SECTNO> <SUBJECT>Loans.</SUBJECT> <P>The term <E T="03">loans</E> means obligations and extensions or advances of credit; and any reference to a loan or investment includes an interest in such a loan or investment.</P> </SECTION> <SECTION> <SECTNO>§ 541.21</SECTNO> <SUBJECT>Nonresidential real estate.</SUBJECT> <P>The terms <E T="03">nonresidential real estate</E> or <E T="03">nonresidential real property</E> mean real estate that is not <E T="03">residential real estate,</E> as that term is defined in § 541.23 of this part.</P> </SECTION> <SECTION> <SECTNO>§ 541.22</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 541.23</SECTNO> <SUBJECT>Residential real estate.</SUBJECT> <P>The terms <E T="03">residential real estate</E> or <E T="03">residential real property</E> mean:</P> <P>(a) Homes (including a dwelling unit in a multi-family residential property such as a condominium or a cooperative);</P> <P>(b) Combinations of homes and business property (<E T="03">i.e.,</E> a home used in part for business);</P> <P>(c) Other real estate used for primarily residential purposes other than a home (but which may include homes);<PRTPAGE P="73"/> </P> <P>(d) Combinations of such real estate and business property involving only minor business use (<E T="03">i.e.,</E> where no more than 20 percent of the total appraised value of the real estate is attributable to the business use);</P> <P>(e) Farm residences and combinations of farm residences and commercial farm real estate;</P> <P>(f) Property to be improved by the construction of such structures; or</P> <P>(g) Leasehold interests in the above real estate.</P> <CITA>[64 FR 46564, Aug. 26, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 541.25</SECTNO> <SUBJECT>Single-family dwelling.</SUBJECT> <P>A structure designed for residential use by one family, or a unit so designed, whose owner owns, directly or through a non-profit cooperative housing organization, an undivided interest in the underling real estate, including property owned in common with others which contributes to the use and enjoyment of the structure or unit.</P> </SECTION> <SECTION> <SECTNO>§ 541.26</SECTNO> <SUBJECT>Surplus.</SUBJECT> <P>The term <E T="03">surplus</E> means undistributed earnings held as unallocated reserves for general corporate use.</P> </SECTION> <SECTION> <SECTNO>§ 541.27</SECTNO> <SUBJECT>Unimproved real estate.</SUBJECT> <P>The term <E T="03">unimproved real estate</E> means real estate that will be improved, as defined in § 541.15 or § 541.16 of this part.</P> </SECTION> <SECTION> <SECTNO>§ 541.28</SECTNO> <SUBJECT>Withdrawal value of a savings account.</SUBJECT> <P>The term <E T="03">withdrawal value of a savings account</E> means the amount invested in a savings account plus earnings credited thereto, less lawful deductions therefrom.</P> </SECTION> </PART> <PART> <EAR>Pt. 543</EAR> <HD SOURCE="HED">PART 543—INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL MUTUAL ASSOCIATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>543.1</SECTNO> <SUBJECT>Corporate title.</SUBJECT> <SUBJGRP> <HD SOURCE="HED">Organization</HD> <SECTNO>543.2</SECTNO> <SUBJECT>Application for permission to organize.</SUBJECT> <SECTNO>543.3</SECTNO> <SUBJECT>“De novo” applications for a Federal savings association charter.</SUBJECT> <SECTNO>543.5</SECTNO> <SUBJECT>Issuance of charter.</SUBJECT> <SECTNO>543.6</SECTNO> <SUBJECT>Completion of organization.</SUBJECT> <SECTNO>543.7</SECTNO> <SUBJECT>Limitations on transaction of business.</SUBJECT> <SECTNO>543.7-1</SECTNO> <SUBJECT>Federal savings association created in connection with an association in default or in danger of default.</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Conversion</HD> <SECTNO>543.8</SECTNO> <SUBJECT>Conversion of depository institutions to Federal mutual charter.</SUBJECT> <SECTNO>543.9</SECTNO> <SUBJECT>Application for conversion to Federal mutual charter.</SUBJECT> <SECTNO>543.10</SECTNO> <SUBJECT>Organization after conversion.</SUBJECT> <SECTNO>543.11</SECTNO> <SUBJECT>Organization plan for governance during first years after issuance of Federal mutual savings bank charter.</SUBJECT> <SECTNO>543.11-1</SECTNO> <SUBJECT>Grandfathered authority.</SUBJECT> <SECTNO>543.14</SECTNO> <SUBJECT>Continuity of existence.</SUBJECT> </SUBJGRP> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 <E T="03">et seq.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49482, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 543.1</SECTNO> <SUBJECT>Corporate title.</SUBJECT> <P>(a) <E T="03">General.</E> A Federal savings association shall not adopt a title that misrepresents the nature of the institution or the services it offers.</P> <P>(b) <E T="03">Title change.</E> Prior to changing its corporate title, an association must file with the OTS a written notice indicating the intended change. The OTS, shall provide to the association a timely written acknowledgment stating when the notice was received. If, within 30 days of receipt of notice, the OTS does not notify the association of its objection on the grounds set forth in paragraph (a) of this section, the association may change its title by amending its charter in accordance with § 544.2(b) or § 552.4 and the amendment provisions of its charter, except that an association chartered as a Federal Savings and Loan Association may change its title to indicate that it is a Federal Savings Bank, and an association chartered as a Federal Savings Bank may change its title to indicate that it is a Federal Savings and Loan Association.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 57 FR 14338, Apr. 20, 1992; 58 FR 4312, Jan. 14, 1993; 61 FR 64015, Dec. 3, 1996]</CITA> </SECTION> <SUBJGRP> <PRTPAGE P="74"/> <HD SOURCE="HED">Organization</HD> <SECTION> <SECTNO>§ 543.2</SECTNO> <SUBJECT>Application for permission to organize.</SUBJECT> <P>(a) <E T="03">General.</E> Recommendations by employees of the OTS regarding applications for permission to organize a Federal savings association are privileged, confidential, and subject to § 510.5 (b) and (c) of this chapter.</P> <P>(b)-(c) [Reserved]</P> <P>(d) <E T="03">Public notice and inspection.</E> (1) The applicant must publish a public notice of the application to organize in accordance with the procedures specified in subpart B of part 516 of this chapter.</P> <P>(2) Promptly after publication, the applicant(s) shall transmit copies of each notice and publisher's affidavit of publication in the same manner as the original filing.</P> <P>(3) The OTS shall give notice of the application to the State official who supervises savings associations in the State in which the new association is to be located.</P> <P>(4) Any person may inspect the application and all related communications at the Regional Office during regular business hours, unless such information is exempt from public disclosure.</P> <P>(e) <E T="03">Submission of comments</E>. Commenters may submit comments on the application in accordance with the procedures specified in subpart C of part 516 of this chapter.</P> <P>(f) <E T="03">Meetings</E>. The OTS may arrange informal or formal meetings in accordance with the procedures specified in subpart D of part 516 of this chapter.</P> <P>(g) <E T="03">Approval.</E> (1) Factors that will be considered are:</P> <P>(i) Whether the applicants are persons of good character and responsibility;</P> <P>(ii) Whether a necessity exists for such association in the community to be served;</P> <P>(iii) Whether there is a reasonable probability of the association's usefulness and success;</P> <P>(iv) Whether the association can be established without undue injury to properly conducted existing local thrift and home financing institutions;</P> <P>(v) Whether the association will perform a role of providing credit for housing consistent with safe and sound operation of a Federal savings association; and</P> <P>(vi) Whether the factors set forth in § 543.3 are met, in the case of an application that would result in the formation of a <E T="03">de novo</E> association, as defined in § 543.3(a).</P> <P>(2) Approvals of applications will be conditioned on the following:</P> <P>(i) Receipt by the Office of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the Federal savings association will be insured by the Federal Deposit Insurance Corporation;</P> <P>(ii) A minimum amount of capital to be paid into the association's accounts prior to commencing business;</P> <P>(iii) The submission of a statement that—</P> <P>(A) The applicants have complied in all respects with the Act and these rules and regulations regarding organization of a Federal savings association;</P> <P>(B) The applicants have incurred no expense in forming the association which is chargeable to it, and no such expense will be incurred;</P> <P>(C) No funds have been collected on account of the association before the Office's approval;</P> <P>(D) An organization committee has been created (naming the committee and its officers);</P> <P>(E) The committee will organize the association and serve as temporary officers of the association until officers are elected by the association's board of directors under § 543.6 of this part; and</P> <P>(F) No funds will be accepted for deposit by the association until organization has been completed; and</P> <P>(iv) The satisfaction of any other requirement the Director, or his or her designee, may impose.</P> <P>(h) <E T="03">Alternative procedures for interim Federal savings associations.</E> (1) Applications for permission to organize an interim Federal savings association are not subject to paragraphs (d), (e), (f) or (g)(2) of this section.</P> <P>(2) Approval of an application for permission to organize an interim Federal savings association shall be conditioned on approval by the Office of an <PRTPAGE P="75"/>application to merge the interim Federal savings association and an existing insured stock association or on approval by the Office of such other transaction which the interim was chartered to facilitate. In evaluating the application, the Director or his or her designee will consider the purpose for which the association will be organized, the form of any proposed transactions involving the organizing association, the effect of the transactions on existing associations involved in the transactions, and the factors specified in section § 543.2(g)(1) to the extent relevant.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 57 FR 14338, Apr. 20, 1992; 62 FR 27180, May 19, 1997; 62 FR 64145, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 543.3</SECTNO> <SUBJECT>“De novo” applications for a Federal savings association charter.</SUBJECT> <P>(a) <E T="03">Definitions.</E> For purposes of this section, the term “<E T="03">de novo</E> association” means any Federal savings association chartered by the Office, the business of which has not been conducted previously under any charter or conducted in the previous three years in substantially the same form as is proposed by the <E T="03">de novo</E> association. A “<E T="03">de novo</E> applicant” means any person or persons who apply to establish a <E T="03">de novo</E> association.</P> <P>(b) <E T="03">Minimum initial capitalization.</E> (1) A <E T="03">de novo</E> association must have at least two million dollars in initial capital stock (stock institutions) or initial pledged savings or cash (mutual institutions), except as provided in paragraph (b)(2) of this section. The minimum initial capitalization is the amount of proceeds net of all incurred and anticipated securities issuance expenses, organization expenses, pre-opening expenses, or any expenses paid (or funds advanced) by organizers that are to be reimbursed from the proceeds of a securities offering. In securities offerings for a <E T="03">de novo</E> association, all securities of a particular class in the initial offering shall be sold at the same price.</P> <P>(2) On a case by case basis, the Director may, for good cause, approve a <E T="03">de novo</E> association that has less than two million dollars in initial capital or may require a <E T="03">de novo</E> association to have more than two million dollars in initial capital.</P> <P>(c) <E T="03">Business and investment plans of de novo associations.</E> (1) To assist the Office in making the determinations required under section 5(e) of the Home Owners' Loan Act, a <E T="03">de novo</E> applicant shall submit a business plan describing, for the first three years of operation of the <E T="03">de novo</E> association, the major areas of operation, including:</P> <P>(i) Lending, leasing and investment activity, including plans for meeting Qualified Thrift Lender requirements;</P> <P>(ii) Deposit, savings and borrowing activity;</P> <P>(iii) Interest-rate risk management;</P> <P>(iv) Internal controls and procedures;</P> <P>(v) Plans for meeting the credit needs of the proposed <E T="03">de novo</E> association's community (including low- and moderate-income neighborhoods);</P> <P>(vi) Projected statements of condition;</P> <P>(vii) Projected statements of operations; and</P> <P>(viii) Any other information requested by the Office.</P> <P>(2) The business plan shall:</P> <P>(i) Provide for the continuation or succession of competent management subject to the approval of the Regional Director;</P> <P>(ii) Provide that any material change in, or deviation from, the business plan must receive the prior approval of the Regional Director;</P> <P>(iii) Demonstrate the <E T="03">de novo</E> association's ability to maintain required minimum regulatory capital under 12 CFR parts 565 and 567 for the duration of the plan.</P> <P>(d) <E T="03">Composition of the board of directors.</E> (1) A majority of a <E T="03">de novo</E> association's board of directors must be representative of the state in which the savings association is located. The Office generally will consider a director to be representative of the state if the director resides, works or maintains a place of business in the state in which the savings association is located. If the association is located in a Metropolitan Statistical Area (MSA), Primary Metropolitan Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area (CMSA) that incorporates portions of more than one <PRTPAGE P="76"/>state, a director will be considered representative of the association's state if he or she resides, works or maintains a place of business in the MSA, PMSA or CMSA in which the association is located.</P> <P>(2) The <E T="03">de novo</E> association's board of directors must be diversified and composed of individuals with varied business and professional experience. In addition, except in the case of a <E T="03">de novo</E> association that is wholly-owned by a holding company, no more than one-third of a board of directors may be in closely related businesses. The background of each director must reflect a history of responsibility and personal integrity, and must show a level of competence and experience sufficient to demonstrate that such individual has the ability to direct the policies of the association in a safe and sound manner. Where a <E T="03">de novo</E> association is owned by a holding company that does not have substantial independent economic substance, the foregoing standards will be applied to the board of directors of the holding company.</P> <P>(e) <E T="03">Management Officials.</E> Proposed stockholders of ten percent or more of the stock of a <E T="03">de novo</E> association will be considered management officials of the association for the purpose of the Office's evaluation of the character and qualifications of the management of the association. In connection with the Office's consideration of an application for permission to organize and subsequent to issuance of a Federal savings association charter to the association by the Office, any individual or group of individuals acting in concert under 12 CFR part 574, who owns or proposes to acquire, directly or indirectly, ten percent or more of the stock of an association subject to this section, shall submit a Biographical and Financial Report, on forms prescribed by the Office, to the Regional Director.</P> <P>(f) <E T="03">Supervisory transactions.</E> This section does not apply to any application for a Federal savings association charter submitted in connection with a transfer or an acquisition of the business or accounts of a savings association if the Office determines that such transfer or acquisition is instituted for supervisory purposes, or in connection with applications for Federal charters for interim <E T="03">de novo</E> associations chartered for the purpose of facilitating mergers, holding company reorganizations, or similar transactions.</P> <CITA>[62 FR 27180, May 19, 1997; 62 FR 28983, May 29, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 543.5</SECTNO> <SUBJECT>Issuance of charter.</SUBJECT> <P>Approval by the Office of the organization of a Federal savings association or the conversion of an insured association to Federal savings association form shall constitute issuance of a charter and shall be final, provided that the association complies with the procedures set out at § 544.2(a) of this chapter. The charter shall conform with the requirements of § 544.1 of this chapter, the permissible provisions of § 544.2, or other provisions specifically approved by the Office.</P> </SECTION> <SECTION> <SECTNO>§ 543.6</SECTNO> <SUBJECT>Completion of organization.</SUBJECT> <P>(a)(1) <E T="03">Temporary officers.</E> When the Office approves an application for permission to organize a Federal savings association, the applicants shall constitute the organization committee and elect a chairperson, vice-chairperson, and a secretary, who shall act as the temporary officers of the association until their successors are duly elected and qualified. The temporary officers may effect compliance with any conditions prescribed by the Office.</P> <P>(2) <E T="03">Organization meeting.</E> Promptly upon receipt of a charter, the temporary officers shall call a meeting of the association's capital subscribers; notice of such meeting shall be mailed to each subscriber at least 5 days before the meeting day. Subscribers who have subscribed for a majority of the association's capital, present in person or by proxy, shall constitute a quorum. At such meeting, directors of the association shall be elected according to the association's charter and bylaws, and any other action permitted by such charter and bylaws may be taken; any such action shall be considered an acceptance by the association of such charter and of such bylaws, which shall be in the form provided in parts 544 and 552 of this chapter.</P> <P>(b) <E T="03">First meeting of directors.</E> Upon election, the association's board of directors shall hold a meeting to elect officers of the association as provided by <PRTPAGE P="77"/>its charter and bylaws and to take any other action necessary to permit operation of the association in accordance with law, the association's charter and bylaws, and these rules and regulations. When such officers have been bonded under § 563.190 of this chapter, they shall immediately collect the sums due on subscriptions to the association's capital.</P> <P>(c) <E T="03">Membership in Federal Home Loan Bank and insurance of accounts.</E> When a Federal savings association's charter is issued it must promptly qualify as a member of a Federal Home Loan Bank and meet all requirements necessary to obtain insurance of its accounts by the Federal Deposit Insurance Corporation.</P> <P>(d) <E T="03">Failure to complete.</E> Organization of a Federal savings association is completed when the organization meeting and the first meeting of its directors have been held, permanent officers have been bonded, the association holds the cash required to be paid on subscriptions to its capital, if required, Federal Home Loan Bank membership has been obtained and Federal Deposit Insurance Corporation insurance of accounts has been confirmed and any conditions imposed by the Office in connection with approval of the application have been met. If organization is not so completed within six months after issuance of a charter, or within such additional period as the Director or his or her designee may for good cause grant, and in the case of an interim Federal savings association, if a merger, or other transaction facilitated by the existence of an interim association, has not been approved, the charter shall become void and all cash collected on subscriptions shall thereupon be returned.</P> </SECTION> <SECTION> <SECTNO>§ 543.7</SECTNO> <SUBJECT>Limitations on transaction of business.</SUBJECT> <P>No person may organize a Federal savings association, collect money from others for such purpose, or represent himself or herself as authorized to do so, and no Federal savings association shall transact any business prior to completion of its organization, except as provided in this part.</P> </SECTION> <SECTION> <SECTNO>§ 543.7-1</SECTNO> <SUBJECT>Federal savings association created in connection with an association in default or in danger of default.</SUBJECT> <P>The preceding sections of this part do not apply to a Federal savings association which is proposed by the Federal Deposit Insurance Corporation or the Resolution Trust Corporation under section 11(c) of the Federal Deposit Insurance Act (12 U.S.C. 1821(c)) or section 21A of the Federal Home Loan Bank Act (12 U.S.C. 1441A), or is otherwise chartered by the Office in connection with an association in default or in danger of default. Incorporation and organization of such associations are complete when the Director or his or her designee so determines.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Conversion</HD> <SECTION> <SECTNO>§ 543.8</SECTNO> <SUBJECT>Conversion of depository institutions to Federal mutual charter.</SUBJECT> <P>(a) With the approval of the OTS, any depository institution, as defined in § 552.13 of this chapter, that is in mutual form, may convert into a Federal mutual savings association, provided that:</P> <P>(1) The depository institution, upon conversion, will have its deposits insured by the Federal Deposit Insurance Corporation;</P> <P>(2) The depository institution, in accomplishing the conversion, complies with all applicable state and federal statutes and regulations, and OTS policies, and obtains all necessary regulatory and member approvals; and</P> <P>(3) The resulting Federal mutual association conforms, within the time prescribed by the OTS, to the requirements of section 5(c) of the Home Owners' Loan Act.</P> <P>(b) Recommendations regarding applications for issuance of Federal charters are privileged, confidential and subject to § 510.5 (b) and (c) of this chapter.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 57 FR 14339, Apr. 20, 1992; 60 FR 66717, Dec. 26, 1995; 62 FR 45309, Aug. 27, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 543.9</SECTNO> <SUBJECT>Application for conversion to Federal mutual charter.</SUBJECT> <P>(a) <E T="03">Filing.</E> Any depository institution that proposes to convert to a Federal mutual association as provided in <PRTPAGE P="78"/>§ 543.8 shall, after approval by its board of directors, file in accordance with § 516.1 of this chapter an application on forms obtained from the OTS. The applicant shall submit any financial statements or other information the OTS may require.</P> <P>(b) <E T="03">Plan of conversion.</E> The applicant shall submit with its application a plan of conversion specifying the location of the home office and any branch offices to be maintained by the Federal savings association, and providing for:</P> <P>(1) Appropriate reserves and surplus for the Federal savings association;</P> <P>(2) Satisfaction in full or assumption by the Federal savings association of all creditor obligations of the applicant;</P> <P>(3) Issuance by the Federal savings association of savings accounts to current holders of withdrawable accounts in an amount equalling the value of such accounts; and</P> <P>(4) If applicable, issuance of additional savings accounts to current holders of nonwithdrawable capital stock of the applicant in an amount equalling the value of their nonwithdrawable capital stock, including the present value of any preference to which such holders are entitled.</P> <P>(c) <E T="03">Action on application.</E> The OTS will consider such application and any information submitted with the application, and may approve the application in accordance with section 5(e) of the Home Owners' Loan Act and § 543.2(g)(1). Converting depository institutions that have been in existence less than three years will be subject to all approval criteria and other requirements applicable to <E T="03">de novo</E> Federal associations. Approval of an application and issuance by the OTS of a charter will be subject to:</P> <P>(1) Compliance by the applicant with all conditions prescribed in the approval;</P> <P>(2) Receipt by the applicant of approval of the plan of conversion by such vote as may be required by the laws of the applicant's jurisdiction to consider such action;</P> <P>(3) In the case of a converting association the accounts of which are not insured by the Federal Deposit Insurance Corporation, receipt by the OTS of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the converting association will be insured by the Federal Deposit Insurance Corporation; and</P> <P>(4) Receipt by the OTS of written confirmation from the appropriate Federal Home Loan Bank of approval of the converting institution's application for Federal Home Loan Bank membership, if the institution is not a member.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 57 FR 14339, Apr. 20, 1992; 62 FR 45309, Aug. 27, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 543.10</SECTNO> <SUBJECT>Organization after conversion.</SUBJECT> <P>Except as provided in § 543.11, after a Federal charter is issued under § 543.9 the association's members shall, after due notice, or upon a valid adjournment of a previous legal meeting, hold a meeting to elect directors and take all other action necessary fully to effect the conversion and operate the association in accordance with law and these rules and regulations. Immediately thereafter the board of directors shall meet, elect officers, and transact any other appropriate business.</P> </SECTION> <SECTION> <SECTNO>§ 543.11</SECTNO> <SUBJECT>Organization plan for governance during first years after issuance of Federal mutual savings bank charter.</SUBJECT> <P>(a) <E T="03">Organizational meeting.</E> Except as provided in paragraph (c)(1) of this section, promptly upon receipt of a charter, the officers of a Federal mutual savings bank which, immediately prior to conversion, was a state chartered mutual savings bank, shall call a meeting of the members. Notice for, and conduct of, such meeting shall be in accordance with the bank's Federal charter and bylaws. Business to be conducted at the organizational meeting shall include the election of trustees (who may also be known as a board of directors) and any other matters permitted by the charter and bylaws. Any action taken at such meeting shall be deemed an acceptance of the charter and bylaws approved by the Office pursuant to § 544.1 of this chapter.</P> <P>(b) <E T="03">First meeting of trustees.</E> Upon election or appointment, the board of trustees shall hold a meeting to elect the officers of the bank in accordance <PRTPAGE P="79"/>with its Federal charter and bylaws, and to take other action necessary to permit the operation of the bank in accordance with the Home Owners' Loan Act of 1933, as amended, the bank's charter and bylaws, these rules and regulations, and orders of the Office.</P> <P>(c) <E T="03">Plan for governance of association during first six years after issuance of Federal charter.</E> (1)(i) An applicant for a Federal mutual savings bank charter may submit a plan which provides that each member of its governing board, <E T="03">i.e.,</E> board of trustees, managers, or directors, may continue to serve, provided that within two years of the issuance of a Federal charter at least one-fifth of the members of such board shall have been elected by vote, either in person or by proxy, of the bank's membership as provided in its Federal charter, that within three years of the issuance of its Federal charter at least two-fifths of the members of such board shall have been elected by such a membership vote, that within four years of the issuance of its Federal charter at least three-fifths of the members of such board shall have been elected by such a membership vote, that within five years of the issuance of its Federal charter at least four-fifths of the members of such board shall have been elected by such a membership vote, and that within six years of the issuance of its Federal charter all of the members of such board shall have been elected by such a membership vote.</P> <P>(ii) The plan:</P> <P>(A) Shall set forth the names of those persons who are being proposed for service on the applicant's governing board after conversion to a Federal charter,</P> <P>(B) Shall show how trustees not elected by the converted bank's membership will be appointed or otherwise selected, and</P> <P>(C) Shall provide that no trustees may be appointed or elected to terms of more than three years.</P> <P>(iii) The plan may provide that</P> <P>(A) After receipt of its Federal charter the bank will be organized by its existing governing board,</P> <P>(B) Within the first two years following receipt of its Federal charter, the bank's charter may be amended without a membership vote, provided any such amendment is first approved by a two-thirds vote of its board of trustees and is thereafter approved by the Office, and</P> <P>(C) The bank's first annua1 membership meeting need not take place until two years after receipt of its Federal charter.</P> <P>(2) Except to the extent that the Office approves a plan under this paragraph (c) which is inconsistent with other provisions of this section, a Federal mutual savings bank shall in all respects comply with those other provisions.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 543.11-1</SECTNO> <SUBJECT>Grandfathered authority.</SUBJECT> <P>(a) A Federal savings bank formerly chartered or designated as a mutual savings bank under state law may exercise any authority it was authorized to exercise as a mutual savings bank under state law at the time of its conversion from a state mutual savings bank to a Federal or other state charter. Except to the extent such authority may be exercised by Federal savings associations not enjoying grandfathered rights hereunder, such authority may be exercised only to the degree authorized under state law at the time of such conversion. Unless otherwise determined by the Director, an association, in the exercise of grandfathered authority, may continue to follow applicable state laws and regulations in effect at the time of such conversion.</P> <P>(b) A Federal savings association that acquires, or has acquired, a Federal savings bank by merger or consolidation may itself exercise any grandfathered rights enjoyed by the disappearing institution, whether such rights were obtained directly through conversion or through merger or consolidation. The extent of the grandfathered rights of a Federal savings association that disappeared prior to the effective date of this section shall be determined exclusively pursuant to this section.</P> <P>(c) This section shall not be construed to prevent the exercise by a Federal savings association enjoying <PRTPAGE P="80"/>grandfathered rights hereunder of authority that is available under the applicable state law only upon the occurrence of specific preconditions, such as the attainment of a particular future date or specified level of regulatory capital, which have not occurred at the time of conversion from a state mutual savings bank, provided they occur thereafter.</P> <P>(d) This section shall not be construed to permit the exercise of any particular authority on a more liberal basis than is allowable under the most liberal construction of either state or Federal law or regulation.</P> </SECTION> <SECTION> <SECTNO>§ 543.14</SECTNO> <SUBJECT>Continuity of existence.</SUBJECT> <P>The corporate existence of an association converting under this part shall continue in its successor. Each savings or demand accountholder shall receive a savings account or accounts in the converted association equal in amount to the value of accounts held in the former association.</P> <CITA>[54 FR 49482, Nov. 30, 1989, as amended at 61 FR 64015, Dec. 3, 1996]</CITA> </SECTION> </SUBJGRP> </PART> <PART> <EAR>Pt. 544</EAR> <HD SOURCE="HED">PART 544—CHARTER AND BYLAWS</HD> <CONTENTS> <SUBJGRP> <HD SOURCE="HED">Charter</HD> <SECHD>Sec.</SECHD> <SECTNO>544.1</SECTNO> <SUBJECT>Federal mutual charter.</SUBJECT> <SECTNO>544.2</SECTNO> <SUBJECT>Charter amendments.</SUBJECT> <SECTNO>544.4</SECTNO> <SUBJECT>Issuance of charter.</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Bylaws</HD> <SECTNO>544.5</SECTNO> <SUBJECT>Federal mutual savings association bylaws.</SUBJECT> <SECTNO>544.6</SECTNO> <SUBJECT>Effect of subsequent charter or bylaw change.</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Availability</HD> <SECTNO>544.7</SECTNO> <SUBJECT>In association offices.</SUBJECT> <SECTNO>544.8</SECTNO> <SUBJECT>Communication between members of a Federal mutual savings association.</SUBJECT> </SUBJGRP> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 <E T="03">et seq.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49486, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SUBJGRP> <HD SOURCE="HED">Charter</HD> <SECTION> <SECTNO>§ 544.1</SECTNO> <SUBJECT>Federal mutual charter.</SUBJECT> <P>A Federal mutual savings association shall have a charter in the following form, which may include any of the additional provisions set forth in § 544.2 of this Part, if such provisions are specifically requested. A charter for a Federal mutual savings bank shall substitute the term “savings bank” for “association.” The term “trustee” may be substituted for the term “director.” Associations adopting this charter with existing borrower members must grandfather those borrower members who were members as of the date of issuance of the new charter by the Office. Such borrowers shall have one vote for the period of time such borrowings are in existence.</P> <EXTRACT> <HD SOURCE="HD1">Federal Mutual Charter</HD> <P> <E T="03">Section 1. Corporate title.</E> The full corporate title of the Federal savings association is <E T="72">___</E>.</P> <P> <E T="03">Section 2. Office.</E> The home office shall be located in <E T="72">___</E> [city, state].</P> <P> <E T="03">Section 3. Duration.</E> The duration of the association is perpetual.</P> <P> <E T="03">Section 4. Purpose and powers.</E> The purpose of the association is to pursue any or all of the lawful objectives of a Federal mutual savings association chartered under section 5 of the Home Owners' Loan Act and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision (“Office”).</P> <P> <E T="03">Section 5. Capital.</E> The association may raise capital by accepting payments on savings and demand accounts and by any other means authorized by the Office.</P> <P> <E T="03">Section 6. Members.</E> All holders of the association's savings, demand, or other authorized accounts are members of the association. In the consideration of all questions requiring action by the members of the association, each holder of an account shall be permitted to cast one vote for each $100, or fraction thereof, of the withdrawal value of the member's account. No member, however, shall cast more than 1000 votes. All accounts shall be nonassessable.</P> <P> <E T="03">Section 7. Directors.</E> The association shall be under the direction of a board of directors. The authorized number of directors shall not be fewer than five nor more than fifteen persons, as fixed in the association's bylaws, except that the number of directors may be decreased to a number less than five or increased to a number greater than fifteen with the prior approval of the Director of the Office or his or her delegate.</P> <P> <E T="03">Section 8. Capital, surplus, and distribution of earnings.</E> The association shall maintain for the purpose of meeting losses the amount <PRTPAGE P="81"/>of capital required by section 5 of the Home Owners' Loan Act and by regulations of the Office. The association shall distribute net earnings on its accounts on such basis and in accordance with such terms and conditions as may from time to time be authorized by the Director of the Office: <E T="03">Provided,</E> That the association may establish minimum-balance requirements for accounts to be eligible for distribution of earnings.</P> <P>All holders of accounts of the association shall be entitled to equal distribution of assets, <E T="03">pro rata</E> to the value of their accounts, in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association. Moreover, in any such event, or in any other situation in which the priority of such accounts is in controversy, all such accounts shall, to the extent of their withdrawal value, be debts of the association having the same priority as the claims of general creditors of the association not having priority (other than any priority arising or resulting from consensual subordination) over other general creditors of the association.</P> <P> <E T="03">Section 9. Amendment of charter.</E> Adoption of any preapproved charter amendment shall be effective after such preapproved amendment has been approved by the members at a legal meeting. Any other amendment, addition, change, or repeal of this charter must be approved by the Office prior to approval by the members at a legal meeting, and shall be effective upon filing with the Office in accordance with regulatory procedures. </P> <FP SOURCE="FP-DASH">Attest:</FP> <FP>Secretary of the Association</FP> <FP SOURCE="FP-DASH">By:</FP> <FP>President or Chief Executive Officer of the Association</FP> <FP SOURCE="FP-DASH">Attest:</FP> <FP>Secretary of the Office of Thrift Supervision</FP> <FP SOURCE="FP-DASH">By:</FP> <FP>Director of the Office of Thrift Supervision</FP> <FP SOURCE="FP-DASH">Effective Date:</FP> </EXTRACT> <CITA>[54 FR 49486, Nov. 30, 1989, as amended at 61 FR 64015, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 544.2</SECTNO> <SUBJECT>Charter amendments.</SUBJECT> <P>(a) <E T="03">General.</E> In order to adopt a charter amendment, a Federal mutual savings association must comply with the following requirements:</P> <P>(1) <E T="03">Board of directors approval.</E> The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment;</P> <P>(2) <E T="03">Form of filing</E>—(i) <E T="03">Application requirement.</E> If the proposed charter amendment would: render more difficult or discourage a merger, proxy contest, the assumption of control by a mutual account holder of the association, or the removal of incumbent management; or involve a significant issue of law or policy; then, the association shall file the proposed amendment and obtain the prior approval of the OTS.</P> <P>(ii) <E T="03">Notice requirement.</E> If the proposed charter amendment does not involve a provision that would be covered by paragraph (a)(2)(i) of this section and is permissible under all applicable laws, rules and regulations, then the association shall submit the proposed amendment to the OTS, at least 30 days prior to the effective date of the proposed charter amendment.</P> <P>(b) <E T="03">Approval.</E> Any charter amendment filed pursuant to paragraph (a)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment. This automatic approval does not apply if, prior to the expiration of such 30-day period, the OTS notifies the association that such amendment is rejected or that such amendment is deemed to be filed under the provisions of paragraph (a)(2)(i) of this section. In addition, notwithstanding anything in paragraph (a) of this section to the contrary, the following charter amendments, including the adoption of the Federal mutual charter as set forth in § 544.1 of this part, shall be effective and deemed approved at the time of adoption, if adopted without change and filed with OTS, within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments:</P> <P>(1) <E T="03">Purpose and powers.</E> Add a second paragraph to section 4, as follows: </P> <EXTRACT> <P> <E T="03">Section 4. Purpose and powers.</E> * * * The association shall have the express power: (i) To act as fiscal agent of the United States when designated for that purpose by the Secretary of the Treasury, under such regulations as the Secretary may prescribe, to perform all such reasonable duties as fiscal agent of the United States as may be required, and to act as agent for any other instrumentality of the United States when designated for that purpose by any such instrumentality; (ii) To sue and be sued, complain and defend in any <PRTPAGE P="82"/>court of law or equity; (iii) To have a corporate seal, affixed by imprint, facsimile or otherwise; (iv) To appoint officers and agents as its business shall require and allow them suitable compensation; (v) To adopt bylaws not inconsistent with the Constitution or laws of the United States and rules and regulations adopted thereunder and under this Charter; (vi) To raise capital, which shall be unlimited, by accepting payments on savings, demand, or other accounts, as are authorized by rules and regulations made by the Office, and the holders of all such accounts or other accounts as shall, to such extent as may be provided by such rules and regulations, be members of the association and shall have such voting rights and such other rights as are thereby provided; (vii) To issue notes, bonds, debentures, or other obligations, or securities, provided by or under any provision of Federal statute as from time to time is in effect; (viii) To provide for redemption of insured accounts; (ix) To borrow money without limitation and pledge and otherwise encumber any of its assets to secure its debts; (x) To lend and otherwise invest its funds as authorized by statute and the rules and regulations of the Office; (xi) To wind up and dissolve, merge, consolidate, convert, or reorganize; (xii) To purchase, hold, and convey real estate and personalty consistent with its objects, purposes, and powers; (xiii) To mortgage or lease any real estate and personalty and take such property by gift, devise, or bequest; and (xiv) To exercise all powers conferred by law. In addition to the foregoing powers expressly enumerated, this association shall have power to do all things reasonably incident to the accomplishment of its express objects and the performance of its express powers. </P> </EXTRACT> <P>(2) <E T="03">Title change</E>. A Federal mutual savings association that has complied with § 543.1(b) of this chapter may amend its charter by substituting a new corporate title in section 1.</P> <P>(3) <E T="03">Home office.</E> A Federal mutual savings association that has complied with § 545.95 of this chapter may amend its charter by substituting a new home office in section 2.</P> <P>(4) <E T="03">Maximum number of votes.</E> A Federal mutual savings association may amend its charter by substituting <E T="72">___</E> votes per member in section 6. [Fill in a number from 1 to 1000.]</P> <P>(c) <E T="03">Reissuance of charter.</E> A Federal mutual savings association that has amended its charter may apply to have its charter, including the amendments, reissued by the Office. Such request for reissuance should be filed in accordance with § 516.1(c) of this chapter and, contain signatures required under § 544.1 of this part, together with such supporting documents as may be needed to demonstrate that the amendments were properly adopted.</P> <CITA>[54 FR 49486, Nov. 30, 1989, as amended at 55 FR 13510, Apr. 11, 1990; 57 FR 14339, Apr. 20, 1992; 61 FR 64016, Dec. 3, 1996; 63 FR 46160, Aug. 31, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 544.4</SECTNO> <SUBJECT>Issuance of charter.</SUBJECT> <P>Issuance by the Office of a charter to a Federal mutual savings association within the meaning of § 543.5 of this chapter constitutes the incorporation of that association by the Office.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Bylaws</HD> <SECTION> <SECTNO>§ 544.5</SECTNO> <SUBJECT>Federal mutual savings association bylaws.</SUBJECT> <P>(a) <E T="03">General.</E> A Federal mutual savings association shall operate under bylaws that contain provisions that comply with all requirements specified by the OTS in this section and that are not otherwise inconsistent with the provisions of this section, the association's charter, and all other applicable laws, rules, and regulations <E T="03">provided that,</E> a bylaw provision inconsistent with the provisions of this section may be adopted with the approval of the OTS. Bylaws may be adopted, amended or repealed by a majority of the votes cast by the members at a legal meeting or a majority of the association's board of directors. The bylaws for a Federal mutual savings bank shall substitute the term “savings bank” for “association”. The term “trustee” may be substituted for the term “director”.</P> <P>(b) The following requirements are applicable to Federal mutual savings associations:</P> <P>(1) <E T="03">Annual meetings of members</E>. An association shall provide for and conduct an annual meeting of its members for the election of directors and at which any other business of the association may be conducted. Such meeting shall be held, as designated by its board of directors, at a location within the state that constitutes the principal place of business of the association, or at any other convenient place the board of directors may designate, and at a date and time within 150 days after the end of the association's fiscal year. <PRTPAGE P="83"/>At each annual meeting, the officers shall make a full report of the financial condition of the association and of its progress for the preceding year and shall outline a program for the succeeding year.</P> <P>(2) <E T="03">Special meetings of members</E>. Procedures for calling any special meeting of the members and for conducting such a meeting shall be set forth in the bylaws. The subject matter of such special meeting must be established in the notice for such meeting. The board of directors of the association or the holders of 10 percent or more of the voting capital shall be entitled to call a special meeting. For purposes of this section, “voting capital” means FDIC-insured deposits as of the voting record date.</P> <P>(3) <E T="03">Notice of meeting of members.</E> Notice specifying the date, time, and place of the annual or any special meeting and adequately describing any business to be conducted shall be published for two successive weeks immediately prior to the week in which such meeting shall convene in a newspaper of general circulation in the city or county in which the principal place of business of the association is located, or mailed postage prepaid at least 15 days and not more than 45 days prior to the date on which such meeting shall convene to each of its members of record at the last address appearing on the books of the association. A similar notice shall be posted in a conspicuous place in each of the offices of the association during the 14 days immediately preceding the date on which such meeting shall convene. The bylaws may permit a member to waive in writing any right to receive personal delivery of the notice. When any meeting is adjourned for 30 days or more, notice of the adjournment and reconvening of the meeting shall be given as in the case of the original meeting.</P> <P>(4) <E T="03">Fixing of record date.</E> For the purpose of determining members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or in order to make a determination of members for any other proper purpose, the bylaws shall provide for the fixing of a record date and a method for determining from the books of the association the members entitled to vote. Such date shall be not more than 60 days nor fewer than 10 days prior to the date on which the action, requiring such determination of members, is to be taken. The same determination shall apply to any adjourned meeting.</P> <P>(5) <E T="03">Member quorum.</E> Any number of members present and voting, represented in person or by proxy, at a regular or special meeting of the members shall constitute a quorum. A majority of all votes cast at any meeting of the members shall determine any question, unless otherwise required by regulation. At any adjourned meeting, any business may be transacted that might have been transacted at the meeting as originally called. Members present at a duly constituted meeting may continue to transact business until adjournment.</P> <P>(6) <E T="03">Voting by proxy.</E> Procedures shall be established for voting at any annual or special meeting of the members by proxy pursuant to the rules and regulations of the Office, including the placing of such proxies on file with the secretary of the association, for verification, prior to the convening of such meeting. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the member. All proxies with a term greater than eleven months or solicited at the expense of the association must run to the board of directors as a whole, or to a committee appointed by a majority of such board.</P> <P>(7) <E T="03">Communications between members.</E> Provisions relating to communications between members shall be consistent with § 544.8 of this part. No member, however, shall have the right to inspect or copy any portion of any books or records of a Federal mutual savings association containing:</P> <P>(i) A list of depositors in or borrowers from such association;</P> <P>(ii) Their addresses;</P> <P>(iii) Individual deposit or loan balances or records; or</P> <P>(iv) Any data from which such information could be reasonably constructed.</P> <P>(8) <E T="03">Number of directors, membership.</E> The bylaws shall set forth a specific number of directors, not a range. The number of directors shall be not fewer <PRTPAGE P="84"/>than five nor more than fifteen, unless a higher or lower number has been authorized by the Director of the Office or his or her designee. Each director of the association shall be a member of the association. Directors may be elected for periods of one to three years and until their successors are elected and qualified, but if a staggered board is chosen, provision shall be made for the election of approximately one-third or one-half of the board each year, as appropriate. State-chartered savings banks converting to Federal savings banks may include alternative provisions for the election and term of office of directors so long as such provisions are authorized by the Office, and provide for compliance with the standard provisions of this section no later than six years after the conversion to a Federal savings association.</P> <P>(9) <E T="03">Meetings of the board.</E> The board of directors shall determine the place, frequency, time, procedure for notice, which shall be at least 24 hours unless waived by the directors, and waiver of notice for all regular and special meetings. The meetings shall be under the direction of a chairman, appointed annually by the board; or in the absence of the chairman, the meetings shall be under the direction of the president. The board also may permit telephonic participation at meetings. The bylaws may provide for action to be taken without a meeting if unanimous written consent is obtained for such action. A majority of the authorized directors shall constitute a quorum for the transaction of business. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board.</P> <P>(10) <E T="03">Officers, employees. and agents.</E> (i) The bylaws shall contain provisions regarding the officers of the association, their functions, duties, and powers. The officers of the association shall consist of a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected annually by the board of directors. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the board of directors or chosen in such other manner as may be prescribed in the bylaws. Any two or more offices may be held by the same person, except the offices of president and secretary.</P> <P>(ii) All officers and agents of the association, as between themselves and the association, shall have such authority and perform such duties in the management of the association as may be provided in the bylaws, or as may be determined by resolution of the board of directors not inconsistent with the bylaws. In the absence of any such provision, officers shall have such powers and duties as generally pertain to their respective offices. Any officer may be removed by the board of directors with or without cause, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.</P> <P>(iii) Any indemnification provision must provide that any indemnification is subject to applicable Federal law, rules, and regulations.</P> <P>(11) <E T="03">Vacancies, resignation or removal of directors.</E> Members of the association shall elect directors by ballot: Provided, that in the event of a vacancy on the board, the board of directors may, by their affirmative vote, fill such vacancy, even if the remaining directors constitute less than a quorum. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the members. The bylaws shall set out the procedure for the resignation of a director, which shall be by written notice or by any other procedure established in the bylaws. Directors may be removed only for cause as defined in § 563.39 of this chapter, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.</P> <P>(12) <E T="03">Powers of the board.</E> The board of directors shall have the power:</P> <P>(i) By resolution, to appoint from among its members and remove an executive committee and one or more other committees, which committee[s] shall have and may exercise all the powers of the board between the meetings or the board; but no such committee shall have the authority of the board to amend the charter or bylaws, adopt a plan of merger, consolidation, dissolution, or provide for the disposition of all or substantially all the property and assets of the association. Such <PRTPAGE P="85"/>committee shall not operate to relieve the board, or any member thereof, of any responsibility imposed by law;</P> <P>(ii) To fix the compensation of directors, officers, and employees; and to remove any officer or employee at any time with or without cause;</P> <P>(iii) To exercise any and all of the powers of the association not expressly reserved by the charter to the members.</P> <P>(13) <E T="03">Nominations for directors.</E> The bylaws shall provide that nominations for directors may be made at the annual meeting by any member and shall be voted upon, except, however, the bylaws may require that nominations by a member must be submitted to the secretary and then prominently posted in the principal place of business, at least 10 days prior to the date of the annual meeting. However, if such provision is made for prior submission of nominations by a member, then the bylaws must provide for a nominating committee, which, except in the case of a nominee substituted as a result of death or other incapacity, must submit nominations to the secretary and have such nominations similarly posted at least 15 days prior to the date of the annual meeting.</P> <P>(14) <E T="03">New business.</E> The bylaws shall provide procedures for the introduction of new business at the annual meeting. Those provisions may require that such new business be stated in writing and filed with the secretary prior to the annual meeting at least 30 days prior to the date of the annual meeting.</P> <P>(15) <E T="03">Amendment.</E> Bylaws may include any provision for their amendment that would be consistent with applicable law, rules, and regulations and adequately addresses its subject and purpose.</P> <P>(i) Amendments shall be effective:</P> <P>(A) After approval by a majority vote of the authorized board, or by a majority of the vote cast by the members of the association at a legal meeting; and</P> <P>(B) After receipt of any applicable regulatory approval.</P> <P>(ii) When an association fails to meet its quorum requirement, solely due to vacancies on the board, the bylaws may be amended by an affirmative vote of a majority of the sitting board.</P> <P>(16) <E T="03">Miscellaneous.</E> The bylaws may also address the subject of age limitations for directors or officers as long as they are consistent with applicable Federal law, rules or regulations, and any other subjects necessary or appropriate for effective operation of the association.</P> <P>(c) <E T="03">Form of filing</E>—(1) <E T="03">Application requirement.</E> (i) Any bylaw amendment shall be submitted to the OTS if it would:</P> <P>(A) Render more difficult or discourage a merger, proxy contest, the assumption of control by a mutual account holder of the association, or the removal of incumbent management;</P> <P>(B) Involve a significant issue of law or policy, including indemnification, conflicts of interest, and limitations on director or officer liability; or</P> <P>(C) Be inconsistent with the requirements of this section or with applicable laws, rules, regulations, or the association's charter.</P> <P>(ii) Applications submitted under paragraph (c)(1)(i) of this section shall be subject to the applications processing procedures set forth at § 516.2 of this chapter.</P> <P>(iii) For purposes of this paragraph (c), bylaw provisions that adopt the language of the model bylaws set forth in OTS's Application Processing Handbook, if adopted without change, and filed within 30 days after adoption, are effective upon adoption.</P> <P>(2) <E T="03">Filing requirement.</E> If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (c)(1) or (c)(3) of this section, then the association shall submit the amendment to the OTS at least 30 days prior to the date the bylaw amendment is to be adopted by the association.</P> <P>(3) <E T="03">Corporate governance procedures.</E> A Federal mutual association may elect to follow the corporate governance procedures of the laws of the state where the main office of the institution is located, provided that such procedures may be elected only to the extent not inconsistent with applicable Federal statutes, regulations, and safety and soundness, and such procedures are not of the type described in paragraph (c)(1) of this section. If this election is selected, a Federal mutual association <PRTPAGE P="86"/>shall designate in its bylaws the provision or provisions from the body of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (c)(1) of this section.</P> <P>(d) <E T="03">Effectiveness.</E> Any bylaw amendment filed pursuant to paragraph (c)(2) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment. This automatic effective date does not apply if, prior to the expiration of such 30-day period, the OTS notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (c)(1) of this section.</P> <CITA>[54 FR 49486, Nov. 30, 1989, as amended at 55 FR 13511, Apr. 11, 1990; 57 FR 14339, Apr. 20, 1992; 61 FR 64016, Dec. 3, 1996; 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 544.6</SECTNO> <SUBJECT>Effect of subsequent charter or bylaw change.</SUBJECT> <P>Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal mutual savings association to engage in any transaction shall be determined only by the association's charter or bylaws then in effect.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Availability</HD> <SECTION> <SECTNO>§ 544.7</SECTNO> <SUBJECT>In association offices.</SUBJECT> <P>A Federal mutual savings association shall make available to its members at all times in its offices a true copy of its charter and bylaws, including any amendments, and shall deliver such a copy to any member on request.</P> </SECTION> <SECTION> <SECTNO>§ 544.8</SECTNO> <SUBJECT>Communication between members of a Federal mutual savings association.</SUBJECT> <P>(a) <E T="03">Right of communication with other members.</E> A member of a Federal mutual savings association has the right to communicate, as prescribed in paragraph (b) of this section, with other members of the Federal savings association regarding any matter related to the Federal savings association's affairs, except for “improper” communications, as defined in paragraph (c) of this section. The association may not defeat that right by redeeming a savings member's savings account in the Federal mutual savings association.</P> <P>(b) <E T="03">Member communication procedures.</E> If a member of a Federal mutual savings association desires to communicate with other members, the following procedures shall be followed:</P> <P>(1) The member shall give the Federal mutual savings association a written request to communicate;</P> <P>(2) If the proposed communication is in connection with a meeting of the Federal savings association's members, the request shall be given at least thirty days before the annual meeting or 10 days before a special meeting;</P> <P>(3) The request shall contain—</P> <P>(i) The member's full name and address;</P> <P>(ii) The nature and extent of the member's interest in the Federal savings association at the time the information is given;</P> <P>(iii) A copy of the proposed communication; and</P> <P>(iv) If the communication is in connection with a meeting of the members, the date of the meeting;</P> <P>(4) The Federal savings association shall reply to the request within either—</P> <P>(i) Fourteen days;</P> <P>(ii) Ten days, if the communication is in connection with the annual meeting; or</P> <P>(iii) Three days, if the communication is in connection with a special meeting;</P> <P>(5) The reply shall provide either—</P> <P>(i) The number of the Federal savings association's members and the estimated reasonable cost to the Federal savings association of mailing to them the proposed communication; or</P> <P>(ii) Notification that the Federal savings association has determined not to mail the communication because it is “improper”, as defined in paragraph (c) of this section;</P> <P>(6) After receiving the amount of the estimated costs of mailing and sufficient copies of the communication, the Federal savings association shall mail <PRTPAGE P="87"/>the communication to all members, by a class of mail specified by the requesting member, either—</P> <P>(i) Within fourteen days;</P> <P>(ii) Within seven days, if the communication is in connection with the annual meeting;</P> <P>(iii) As soon as practicable before the meeting, if the communication is in connection with a special meeting; or</P> <P>(iv) On a later date specified by the member;</P> <P>(7) If the Federal savings association refuses to mail the proposed communication, it shall return the requesting member's materials together with a written statement of the specific reasons for refusal, and shall simultaneously send to the Regional Director two copies each of the requesting member's materials, the Federal savings association's written statement, and any other relevant material. The materials shall be sent within:</P> <P>(i) Fourteen days,</P> <P>(ii) Ten days if the communication is in connection with the annual meeting, or</P> <P>(iii) Three days, if the communication is in connection with a special meeting,</P> <FP>after the Federal savings association receives the request for communication.</FP> <P>(c) <E T="03">Improper communication.</E> A communication is an “improper communication” if it contains material which:</P> <P>(1) At the time and in the light of the circumstances under which it is made:</P> <P>(i) Is false or misleading with respect to any material fact; or</P> <P>(ii) Omits a material fact necessary to make the statements therein not false or misleading, or necessary to correct a statement in an earlier communication on the same subject which has become false or misleading;</P> <P>(2) Relates to a personal claim or a personal grievance, or is solicitous of personal gain or business advantage by or on behalf of any party;</P> <P>(3) Relates to any matter, including a general economic, political, racial, religious, social, or similar cause, that is not significantly related to the business of the Federal savings association or is not within the control of the Federal savings association; or</P> <P>(4) Directly or indirectly and without expressed factual foundation:</P> <P>(i) Impugns character, integrity, or personal reputation,</P> <P>(ii) Makes charges concerning improper, illegal, or immoral conduct, or</P> <P>(iii) Makes statements impugning the stability and soundness of the Federal savings association.</P> <CITA>[54 FR 49492, Nov. 30, 1989, as amended at 60 FR 66717, Dec. 26, 1995. Redesignated at 61 FR 64018, Dec. 3, 1996.]</CITA> </SECTION> </SUBJGRP> </PART> <PART> <EAR>Pt. 545</EAR> <HD SOURCE="HED">PART 545—OPERATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>545.1</SECTNO> <SUBJECT>General authority.</SUBJECT> <SECTNO>545.2</SECTNO> <SUBJECT>Federal preemption.</SUBJECT> <SECTNO>545.16</SECTNO> <SUBJECT>Public deposits, depositaries, and fiscal agents.</SUBJECT> <SECTNO>545.17</SECTNO> <SUBJECT>Funds transfer services.</SUBJECT> <SECTNO>545.74</SECTNO> <SUBJECT>Securities brokerage.</SUBJECT> <SECTNO>545.91</SECTNO> <SUBJECT>Home office.</SUBJECT> <SECTNO>545.92</SECTNO> <SUBJECT>Branch offices.</SUBJECT> <SECTNO>545.95</SECTNO> <SUBJECT>Change of office location and redesignation of offices.</SUBJECT> <SECTNO>545.96</SECTNO> <SUBJECT>Agency.</SUBJECT> <SECTNO>545.101</SECTNO> <SUBJECT>Fiscal agency.</SUBJECT> <SECTNO>545.121</SECTNO> <SUBJECT>Indemnification of directors, officers and employees.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464, 1828.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49492, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 545.1</SECTNO> <SUBJECT>General authority.</SUBJECT> <P>A Federal savings association may exercise all authority granted it by the Home Owners' Loan Act of 1933 (“Act”), 12 U.S.C. 1464, as amended, and its charter and bylaws, whether or not implemented specifically by Office regulations, subject to the limitations and interpretations contained in this part.</P> </SECTION> <SECTION> <SECTNO>§ 545.2</SECTNO> <SUBJECT>Federal preemption.</SUBJECT> <P>The regulations in this part 545 are promulgated pursuant to the plenary and exclusive authority of the Office to regulate all aspects of the operations of Federal savings associations, as set forth in section 5(a) of the Act. This exercise of the Office's authority is preemptive of any state law purporting to address the subject of the operations of a Federal savings association.</P> </SECTION> <SECTION> <SECTNO>§ 545.16</SECTNO> <SUBJECT>Public deposits, depositaries, and fiscal agents.</SUBJECT> <P>(a) <E T="03">Definitions.</E> As used in this section—<PRTPAGE P="88"/> </P> <P>(1) <E T="03">Moneys</E> includes <E T="03">monies</E> and has the meaning it has in applicable state law;</P> <P>(2) <E T="03">State law</E> includes actions by a governmental body which has a charter adopted under the constitution of the state with provisions respecting deposits of public money of that body;</P> <P>(3) <E T="03">Surety</E> means surety under real and/or personal suretyship, and includes guarantor; and</P> <P>(4) Terms in paragraph (b) of this section have the meanings they have under applicable state law.</P> <P>(b) <E T="03">Authority to act as surety for public deposits.</E> (1) A Federal savings association that is a deposit association may give bond or security for deposit in it of public moneys or investment in it by a governmental unit if required to do so by state law, either as an alternative condition or otherwise, regardless of the amount required. Any bond or security may be given and any substitution or increase thereof may be made under this section at any time.</P> <P>(2) If state law requires as a condition of such deposit or investment that the Federal savings association or its bond or security, or any combination thereof, be surety for or with respect to other deposits or instruments, whether of that depositor or investor or of any other(s), and whether in the Federal savings association or in any other institution(s) having, when the investments or deposits were made, insurance by the Federal Deposit Insurance Corporation, the same shall become, or if the state law is self-executing shall be, such surety.</P> <P>(c) <E T="03">Depositaries and fiscal agents.</E> Subject to regulation of the United States Treasury Department, a Federal savings association may serve as a depositary for Federal taxes, as a Treasury tax and loan depositary, or as a depositary of public money and fiscal agent of the Government or any other instrumentality thereof when designated for that purpose by such instrumentality and approved by the Office, and may satisfy any requirement in connection therewith, including maintaining accounts described in §§ 561.33, 561.52, 561.53, and 561.54 of this chapter; pledging collateral; and performing the services outlined in 31 CFR 202.3(b) or any section that supersedes or amends § 202.3(b).</P> </SECTION> <SECTION> <SECTNO>§ 545.17</SECTNO> <SUBJECT>Funds transfer services.</SUBJECT> <P>A Federal savings association is authorized to transfer, with or without fee, its customers' funds from any account (including a line of credit) of the customer at the Federal savings association or at another financial intermediary to third parties or other accounts of the customer on the customer's order or authorization by any mechanism or device, including cashier's checks, conforming with applicable laws and established commercial practices.</P> </SECTION> <SECTION> <SECTNO>§ 545.74</SECTNO> <SUBJECT>Securities brokerage.</SUBJECT> <P>(a) A service corporation may execute securities transactions on an agency or riskless principal basis solely upon the order of and for the account of customers, and may provide standardized and individualized investment advice to individuals or entities, provided that the service corporation:</P> <P>(1) Conducts securities brokerage and investment advisory activities in an area that is clearly identified and distinguished from the areas where the association's depository functions are performed;</P> <P>(2) Distinguishes advertising by the service corporation from that of the association, such that advertising does not confuse securities transactions executed, securities purchased, or investment advice provided by the service corporation with federally-insured deposits; that the advertising indicates that the service corporation and broker-dealer, and not the association, is providing the securities brokerage or investment advisory services, identifies the broker-dealer in advertising, and does not use the logo of the parent association in the text of any advertisement prepared or distributed by the service corporation or the broker-dealer or in the text of any advertisement for specific securities products;</P> <P>(3) Where the service corporation contracts with a third-party broker-dealer, has a written contract with the broker-dealer that provides that the broker-dealer agrees to indemnify fully the service corporation and the association for any liability arising from <PRTPAGE P="89"/>the negligence, recklessness, or intentional conduct of the broker-dealer or its employees, and that sets forth operating, marketing, compensation, and other relevant terms;</P> <P>(4) Provides to the OTS an initial opinion of counsel or an opinion from the senior securities principal responsible for overseeing the subject brokerage program that the program has been established pursuant to operational procedures that are intended to ensure that the program is conducted in conformity with applicable securities laws and regulations and that such procedures include internal controls and supervisory systems that have been established and are to be applied to detect and prevent violations of federal securities statutes, the rules adopted thereunder, and the rules of self-regulatory organizations applicable to broker-dealers, including but not limited to those provisions designed to prevent churning, unsuitable recommendations, charging excessive prices, and the making of fraudulent representations in connection with the offer, sale, or purchase of securities (“the regulations”); and on an annual basis thereunder provides a certification by the senior securities principal responsible for supervising and overseeing the subject brokerage program that he or she has discharged the obligations incumbent upon him or her by reason of such procedures and systems previously described and has no reasonable belief or cause to believe that such procedures and systems have not been and are not being complied with or that a violation of the regulations has occurred;</P> <P>(5) Does not condition the provision of securities services to a customer on the customer's utilizing services of any affiliate of the association, the service corporation, or a broker-dealer.</P> <P>(b) Service corporation activities authorized under this paragraph (b) may not include the following activities:</P> <P>(1) Execution of securities transactions on a principal basis, including market-making and underwriting, except on a riskless principal basis, and except as permitted under §559.4 of this chapter;</P> <P>(2) Payment to any employee of the association of a referral fee, bonus, or any incentive compensation, in cash or in kind, for referring any customer to the service corporation except as may be consistent with a “no-action” letter received by the association from the U.S. Securities and Exchange Commission (“SEC”), stating that the SEC will not recommend enforcement section if association employees receive the planned referral fee but do not register with a broker-dealer and the association does not register as a broker-dealer;</P> <P>(3) Solicitation of a person to execute a transaction in a specific security by any registered representative;</P> <P>(4) Indemnification by the service corporation to a degree greater than the indemnification provided to it by the third-party broker-dealer; and the association is prohibited from indemnifying a third party broker-dealer;</P> <P>(5) Extension of margin credit by the association to customers of the service corporation or broker-dealer;</P> <P>(6) Non-registered representatives who are dual or sole employees of the association performing tasks other than clerical for ministerial tasks; prohibited activities include accepting or delivering money or securities and taking orders to execute securities transactions.</P> <P>(c) Any association that intends to acquire or establish a service corporation to engage in preapproved securities brokerage activities shall furnish to the OTS at least 30 days prior to the commencement of operations, written notice containing a full description of the brokerage services to be provided and a certification from the board of directors of such association that such services will be in compliance with all of the requirements of this section. In addition, the association shall retain complete records of all executed contractual agreements and memoranda between the service corporation and broker-dealers, investment advisors, the parent savings association, and their affiliates, pro forma income statements for a three year period, any required professional opinions, and a reasoned legal opinion from counsel that the securities brokerage services qualify as preapproved under this section.<PRTPAGE P="90"/> </P> <P>(d) The Regional Director may request additional information at any time regarding the operations of the service corporation if there are supervisory concerns about the activity, has evidence that the activity may not be in the best interest of the association or service corporation, or has questions as to whether the activities are being conducted in a manner that is preapproved.</P> <CITA>[54 FR 49492, Nov. 30, 1989, as amended at 55 FR 13511, Apr. 11, 1990; 57 FR 14340, Apr. 20, 1992; 57 FR 33437, July 29, 1992; 57 FR 48949, Oct. 29, 1992; 57 FR 62474, Dec. 31, 1992; 59 FR 53570, Oct. 25, 1994; 60 FR 66717, Dec. 26, 1995; 61 FR 66570, Dec. 18, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 545.91</SECTNO> <SUBJECT>Home office.</SUBJECT> <P>All operations of a Federal savings association shall be subject to direction from the home office.</P> </SECTION> <SECTION> <SECTNO>§ 545.92</SECTNO> <SUBJECT>Branch offices.</SUBJECT> <P>(a) <E T="03">General.</E> A branch office of a Federal savings association is any office other than its home office, agency office, administrative office, data processing office, or an electronic means or facility under part 555 of this chapter.</P> <P>(b) <E T="03">Eligibility.</E> Federal savings associations eligible for expedited treatment pursuant to section 516.3(a) of this chapter may establish a branch office without prior approval subject to the procedures in paragraph (f) of this section. A Federal savings association subject to standard treatment as defined in § 516.3(b) of this chapter shall not establish a branch office without prior approval subject to the procedures in paragraph (e) of this section.</P> <P>(c) <E T="03">Application form; filing; completion; supervisory objection.</E> Applicants shall obtain application and notice forms and related instructions from the OTS.</P> <P>(d) <E T="03">Processing of applications/notices</E>. Processing of applications and notices shall be subject to the following procedures:</P> <P>(1) <E T="03">Publication</E>. (i) A federal savings association must publish a public notice of the branch application or notice in accordance with the procedures specified in subpart B of part 516 of this chapter.</P> <P>(ii) Promptly after publication of the public notice, the savings association shall transmit copies of the public notice and publisher's affidavit of publication to the OTS.</P> <P>(iii) The application or notice and all related communications may be inspected by any person at the Regional Office during regular business hours, unless such information is exempt from public disclosure.</P> <P>(2) <E T="03">Submission of application or notice.</E> A Federal savings association must comply with § 556.5 of this chapter and shall file the application required under § 516.3(b)(2) of this chapter or the notice required under § 516.3(a) of this chapter within three days after the publication of the public notice under paragraph (d)(1) of this section.</P> <P>(3) <E T="03">Submission of comments</E>. Commenters may submit comments on the application or notice in accordance with the procedures specified in subpart C of part 516 of this chapter.</P> <P>(4) <E T="03">Meetings</E>. The OTS may arrange informal or formal meetings in accordance with the procedures specified in subpart D of part 516 of this chapter.</P> <P>(e) <E T="03">Approval of branch application.</E> (1) The OTS shall approve an application only if the overall policies, condition, and operation of the applicant afford no basis for supervisory objection and the proposed branch will open within twelve months of approval unless otherwise allowed by the OTS. In considering whether to approve an application, the OTS will assess and take into account an association's record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, pursuant to part 563e of this chapter; assessment of an association's record of performance may be the basis for denying an application.</P> <P>(2) An application shall be deemed to be approved 30 days after notification that the application is complete, unless the OTS suspends the applicable processing time frames under § 516.190 of this chapter, or the OTS objects to the application on the grounds set forth under paragraph (e)(1) of this section.</P> <P>(f) <E T="03">Approval of branch notice</E>. A notice filed by a Federal savings association that qualifies for expedited treatment shall be deemed to be approved 30 days after its filing with the OTS, unless the OTS suspends the applicable processing <PRTPAGE P="91"/>time frames under § 516.190 of this chapter; the OTS objects to the application on the grounds set forth in paragraph (e)(1) of this section; or the OTS determines to process the filing as an application under § 516.3(a)(3) of this chapter. If the OTS suspends the applicable processing time frames, the savings association may not open a branch until the OTS provides a notification of its approval.</P> <P>(g) <E T="03">Offices not requiring prior written approval.</E> A Federal savings association may establish without prior approval a drive-in and/or pedestrian office opened in conjunction with an approved branch or home office of the association, located within 500 feet of a public entrance of that office and closer to that entrance than to a public entrance of any other SAIF-insured association, and the functions of which are limited to the ordinary functions performed at a teller-window.</P> <P>(h) <E T="03">Maintenance of branch office after conversion, consolidation, purchase of bulk assets, merger or purchase from receiver.</E> (1) An existing association which converts to a Federal savings association may maintain an existing office, and a Federal savings association that acquires offices through consolidation, purchase of bulk assets, merger or purchase from the receiver of an association may maintain any acquired office, except to the extent the approval by the OTS of the conversion, consolidation, merger, or purchase specifies otherwise.</P> <P>(2) A Federal savings association may not file a branch application after having filed an application to merge or otherwise surrender its Federal charter, unless the merger or conversion application has been pending for at least six months.</P> <CITA>[54 FR 49492, Nov. 30, 1989, as amended at 55 FR 13512, Apr. 11, 1990; 57 FR 14341, Apr. 20, 1992; 57 FR 37084, Aug. 18, 1992; 62 FR 64145, Dec. 4, 1997; 63 FR 65682, Nov. 30, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 545.95</SECTNO> <SUBJECT>Change of office location and redesignation of offices.</SUBJECT> <P>(a) <E T="03">Eligibility</E>. A Federal savings association may change the permanent location of its home office or any approved branch office, or redesignate a home or branch office subject to the appropriate expedited or standard treatment procedures for establishing a branch office set forth in § 545.92 of this part.</P> <P>(b) <E T="03">Processing of application.</E> (1) Processing of an application for a change of office location or redesignation of a home or branch office shall follow the procedures set forth in § 545.92 of this part, except that:</P> <P>(i) The applicant shall publish the required newspaper notice of application in the applicant's home office community, the community to be served by the new office, and the community where the office is to be closed or the home office is to be redesignated as a branch; and</P> <P>(ii) The applicant shall post notice of the application for 25 days from the date of first publication in a prominent location in the office to be closed or redesignated.</P> <P>(2) The OTS may approve an amendment to an association's charter in connection with approval of a home office relocation or redesignation under this section.</P> <P>(c) <E T="03">Short-distance relocations.</E> (1) Notwithstanding paragraph (a) of this section, an association may change the permanent location of a home or branch office, without applying for approval by the OTS, to a site within the market area and short-distance relocation area of the office site that has been approved in accordance with § 545.92 of this part or paragraph (a) of this section. The short-distance relocation area of an office site is:</P> <P>(i) The area within a 1,000-foot radius of the site if it is located within a central city of a Metropolitan Statistical Area (“MSA”) designated by the U.S. Department of Commerce;</P> <P>(ii) The area within a one-mile radius of the site if it is located within an MSA designated by the U.S. Department of Commerce but not within a central city; or</P> <P>(iii) The area within a two-mile radius of the site if it is not located within a MSA.</P> <P>(2) An association shall notify the OTS in writing at least 30 days before such an office relocation and may proceed with the relocation unless, within 30 days of receipt of the notice, the OTS notifies the association that the relocation does not satisfy the criteria <PRTPAGE P="92"/>set forth in the first sentence of paragraph (c)(1) of this section, in which case the association must file an application and obtain approval by the OTS in accordance with paragraph (b) of this section.</P> <CITA>[57 FR 14341, Apr. 20, 1992, as amended at 62 FR 64146, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 545.96</SECTNO> <SUBJECT>Agency.</SUBJECT> <P>(a) <E T="03">General.</E> A Federal savings association may, without approval of the Office, to the extent authorized by its board of directors, establish or maintain agencies that only service and originate (but do not approve) loans and contracts or manage or sell real estate owned by the Federal savings association.</P> <P>(b) <E T="03">Additional services.</E> Except for payment on savings accounts, offering of any services not listed in paragraph (a) of this section may be approved by the OTS.</P> <P>(c) <E T="03">Records.</E> An agency shall maintain records of all business it transacts and transmit copies to a branch or home office of the Federal savings association.</P> <CITA>[54 FR 49492, Nov. 30, 1989, as amended at 54 FR 50614, Dec. 8, 1989; 55 FR 13512, Apr. 11, 1990; 57 FR 14342, Apr. 20, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 545.101</SECTNO> <SUBJECT>Fiscal agency.</SUBJECT> <P>A Federal savings association designated fiscal agent by the Secretary of the Treasury or with Office approval by another instrumentality of the United States, shall, as such, perform such reasonable duties and exercise only such powers and privileges as the Secretary of the Treasury or such instrumentality may prescribe.</P> </SECTION> <SECTION> <SECTNO>§ 545.121</SECTNO> <SUBJECT>Indemnification of directors, officers and employees.</SUBJECT> <P>A Federal savings association shall indemnify its directors, officers, and employees in accordance with the following requirements:</P> <P>(a) <E T="03">Definitions and rules of construction</E>. (1) Definitions for purposes of this section.</P> <P>(i) <E T="03">Action</E>. The term “action” means any judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or other proceeding for review;</P> <P>(ii) <E T="03">Court</E>. The term “court” includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought.</P> <P>(iii) <E T="03">Final judgment</E>. The term “final judgment” means a judgment, decree, or order which is not appealable or as to which the period for appeal has expired with no appeal taken.</P> <P>(iv) <E T="03">Settlement</E>. The term “settlement” includes entry of a judgment by consent or confession or a plea of guilty or <E T="03">nolo contendere</E>.</P> <P>(2) References in this section to any individual or other person, including any association, shall include legal representatives, successors, and assigns thereof.</P> <P>(b) <E T="03">General</E>. Subject to paragraphs (c) and (g) of this section, a savings association shall indemnify any person against whom an action is brought or threatened because that person is or was a director, officer, or employee of the association, for:</P> <P>(1) Any amount for which that person becomes liable under a judgment if such action; and</P> <P>(2) Reasonable costs and expenses, including reasonable attorney's fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under this section if he or she attains a favorable judgment in such enforcement action.</P> <P>(c) <E T="03">Requirements</E>. Indemnification shall be made to such period under paragraph (b) of this section only if:</P> <P>(1) Final judgment on the merits is in his or her favor; or</P> <P>(2) In case of:</P> <P>(i) Settlement,</P> <P>(ii) Final judgment against him or her, or</P> <P>(iii) Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the savings association determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of the savings association or its members.<PRTPAGE P="93"/> </P> <FP>However, no indemnification shall be made unless the association gives the Office at least 60 days' notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the board of directors shall be sent to the Regional Director, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the association in writing, within such notice period, of his or her objection thereto.</FP> <P>(d) <E T="03">Insurance</E>. A savings association may obtain insurance to protect it and its directors, officers, and employees from potential losses arising from claims against any of them for alleged wrongful acts, or wrongful acts, committed in their capacity as directors, officers, or employees. However, no savings association may obtain insurance which provides for payment of losses of any person incurred as a consequence of his or her willful or criminal misconduct.</P> <P>(e) <E T="03">Payment of expenses</E>. If a majority of the directors of a savings association concludes that, in connection with an action, any person ultimately may become entitled to indemnification under this section, the directors may authorize payment of reasonable costs and expenses, including reasonable attorneys' fees, arising from the defense or settlement of such action. Nothing in this paragraph (e) shall prevent the directors of a savings association from imposing such conditions on a payment of expenses as they deem warranted and in the interests of the savings association. Before making advance payment of expenses under this paragraph (e), the savings association shall obtain an agreement that the savings association will be repaid if the person on whose behalf payment is made is later determined not to be entitled to such indemnification.</P> <P>(f) <E T="03">Exclusiveness of provisions</E>. No savings association shall indemnify any person referred to in paragraph (b) of this section or obtain insurance referred to in paragraph (d) of the section other than in accordance with this section. However, an association which has a bylaw in effect relating to indemnification of its personnel shall be governed solely by that bylaw, except that its authority to obtain insurance shall be governed by paragraph (d) of this section.</P> <P>(g) The indemnification provided for in paragraph (b) of this section is subject to and qualified by 12 U.S.C. 1821(k).</P> <CITA>[54 FR 49492, Nov. 30, 1989, as amended at 56 FR 59866, Nov. 26, 1991; 60 FR 66717, Dec. 26, 1995]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 546</EAR> <HD SOURCE="HED">PART 546—MERGER, DISSOLUTION, REORGANIZATION, AND CONVERSION</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>546.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>546.2</SECTNO> <SUBJECT>Procedure; effective date.</SUBJECT> <SECTNO>546.3</SECTNO> <SUBJECT>Transfer of assets upon merger or consolidation.</SUBJECT> <SECTNO>546.4</SECTNO> <SUBJECT>Voluntary dissolution.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 <E T="03">et seq.</E> </P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49517, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 546.1</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>The terms used in §§ 546.2 and 546.3 shall have the same meaning as set forth in §§ 552.13(b) and 563.22(g) of this chapter.</P> <CITA>[59 FR 44622, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 546.2</SECTNO> <SUBJECT>Procedure; effective date.</SUBJECT> <P>(a) A Federal mutual savings association may combine with any depository institution, provided that:</P> <P>(1) The combination is in compliance with, and receives all approvals required under, any applicable statutes and regulations;</P> <P>(2) Any resulting Federal savings association meets the requirements for Federal Home Loan Bank membership and insurance of accounts;</P> <P>(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 <PRTPAGE P="94"/>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</P> <P>(4) The resulting institution shall be a mutually held savings association, unless:</P> <P>(i) The transaction involves a supervisory merger;</P> <P>(ii) The transaction is approved under part 563b of this chapter; or</P> <P>(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.</P> <P>(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:</P> <P>(1) That the combination shall not be effective unless and until the combination receives any necessary approval from the Office pursuant to § 563.22 (a) or (c), or in the case of a transaction requiring a notice pursuant to § 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;</P> <P>(2) Which constituent institution is to be the resulting institution;</P> <P>(3) The name of the resulting institution;</P> <P>(4) The location of the home office and any other offices of the resulting institution;</P> <P>(5) The terms and conditions of the combination and the method of effectuation;</P> <P>(6) Any charter amendments, or the new charter in the combination;</P> <P>(7) The basis upon which the resulting institution's savings accounts will be issued;</P> <P>(8) If the Federal mutual savings association is the resulting institution, the number, names, residence addresses, and terms of directors;</P> <P>(9) The effect upon and assumption of any liquidation account of a disappearing institution by the resulting institution; and</P> <P>(10) Such other provisions, agreements, or understandings as relate to the combination.</P> <P>(c) Prior written notification to, notice to, or prior written approval of, the Office pursuant to § 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 § 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.</P> <P>(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 § 544.1 of this chapter within a reasonable period of time.</P> <P>(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.</P> <P>(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.</P> <P>(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 <PRTPAGE P="95"/>date, surrender its charter to the Office.</P> <CITA>[59 FR 44622, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 546.3</SECTNO> <SUBJECT>Transfer of assets upon merger or consolidation.</SUBJECT> <P>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.</P> <CITA>[59 FR 44623, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 546.4</SECTNO> <SUBJECT>Voluntary dissolution.</SUBJECT> <P>A Federal savings association's board of directors may propose a plan for dissolution of the association. The plan may provide for either:</P> <P>(a) Appointment of the Federal Deposit Insurance Corporation or the Resolution Trust Corporation (under section 5 of the Act and section 11 of the Federal Deposit Insurance Act, as amended or section 21A of the Federal Home Loan Bank Act, as amended) as receiver for the purpose of liquidation;</P> <P>(b) Transfer of all the association's assets to another association and home-financing institution under Federal or State charter either for cash sufficient to pay all obligations of the association and retire all outstanding accounts or in exchange for that association's payment of all the association's outstanding obligations and issuance of share accounts or other evidence of interest to the association's members on a <E T="03">pro rata</E> basis; or</P> <P>(c) Dissolution in a manner proposed by the directors which they consider best for all concerned.</P> <FP>The plan, and a statement of reasons for proposing dissolution and for proposing the plan, shall be submitted to the OTS for approval. The OTS will approve the plan if the OTS believes dissolution is advisable and the plan best for all concerned, but if the OTS considers the plan inadvisable, the OTS may either make recommendations to the association concerning the plan or disapprove it. When the plan is approved by the association's board of directors and by the OTS, it shall be submitted to the association's members at a duly called meeting and, when approved by a majority of votes cast at that meeting, shall become effective. After dissolution in accordance with the plan, a certificate evidencing dissolution, supported by such evidence as the OTS may require, shall immediately be filed with the OTS. When the OTS receives such evidence satisfactory to the OTS, it will terminate the corporate existence of the dissolved association and the association's charter shall thereby be canceled. 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 § 563.22(b) of this chapter.</FP> <CITA>[54 FR 49517, Nov. 30, 1989, as amended at 55 FR 13512, Apr. 11, 1990; 57 FR 14342, Apr. 20, 1992; 59 FR 44623, Aug. 30, 1994]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 550</EAR> <HD SOURCE="HED">PART 550—FIDUCIARY POWERS OF SAVINGS ASSOCIATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>550.10</SECTNO> <SUBJECT>What regulations govern the fiduciary operations of savings associations?</SUBJECT> <SECTNO>550.20</SECTNO> <SUBJECT>What are fiduciary powers?</SUBJECT> <SECTNO>550.30</SECTNO> <SUBJECT>What fiduciary capacities does this part cover?</SUBJECT> <SECTNO>550.40</SECTNO> <SUBJECT>When do I have investment discretion?</SUBJECT> <SECTNO>550.50</SECTNO> <SUBJECT>What is a fiduciary account?</SUBJECT> <SECTNO>550.60</SECTNO> <SUBJECT>What other definitions apply to this part?</SUBJECT> <SUBPART> <HD SOURCE="HED">Subpart A—Obtaining Fiduciary Powers</HD> <SECTNO>550.70</SECTNO> <SUBJECT>Must I obtain OTS approval before exercising fiduciary powers?</SUBJECT> <SECTNO>550.80</SECTNO> <SUBJECT>How do I obtain OTS approval?</SUBJECT> <SECTNO>550.90</SECTNO> <SUBJECT>What information must I include in my application?</SUBJECT> <SECTNO>550.100</SECTNO> <SUBJECT>What factors may the OTS consider in its review of my application?</SUBJECT> <SECTNO>550.110</SECTNO> <SUBJECT>Who will act on my application?</SUBJECT> <SECTNO>550.120</SECTNO> <SUBJECT>What action will the OTS take on my application?</SUBJECT> </SUBPART> <SUBPART> <PRTPAGE P="96"/> <HD SOURCE="HED">Subpart B—Exercising Fiduciary Powers</HD> <SECTNO>550.130</SECTNO> <SUBJECT>What fiduciary powers may I exercise?</SUBJECT> <SECTNO>550.140</SECTNO> <SUBJECT>Must I adopt and follow written policies and procedures in exercising fiduciary powers?</SUBJECT> <HD SOURCE="HD1">Fiduciary Personnel and Facilities</HD> <SECTNO>550.150</SECTNO> <SUBJECT>Who is responsible for the exercise of fiduciary powers?</SUBJECT> <SECTNO>550.160</SECTNO> <SUBJECT>What personnel and facilities may I use to perform fiduciary services?</SUBJECT> <SECTNO>550.170</SECTNO> <SUBJECT>May my other departments or affiliates use fiduciary personnel and facilities to perform other services?</SUBJECT> <SECTNO>550.180</SECTNO> <SUBJECT>May I perform fiduciary services for, or purchase fiduciary services from, another association or entity?</SUBJECT> <SECTNO>550.190</SECTNO> <SUBJECT>Must fiduciary officers and employees be bonded?</SUBJECT> <HD SOURCE="HD1">Review of a Fiduciary Account</HD> <SECTNO>550.200</SECTNO> <SUBJECT>Must I review a prospective account before I accept it?</SUBJECT> <SECTNO>550.210</SECTNO> <SUBJECT>Must I conduct another review of an account after I accept it?</SUBJECT> <SECTNO>550.220</SECTNO> <SUBJECT>Are any other account reviews required?</SUBJECT> <HD SOURCE="HD1">Custody and Control of Assets</HD> <SECTNO>550.230</SECTNO> <SUBJECT>Who must maintain custody or control of assets in a fiduciary account?</SUBJECT> <SECTNO>550.240</SECTNO> <SUBJECT>May I hold investments of a fiduciary account off-premises?</SUBJECT> <SECTNO>550.250</SECTNO> <SUBJECT>Must I keep fiduciary assets separate from other assets?</SUBJECT> <HD SOURCE="HD1">Investing Funds of a Fiduciary Account</HD> <SECTNO>550.260</SECTNO> <SUBJECT>How may I invest funds of a fiduciary account?</SUBJECT> <HD SOURCE="HD1">Funds Awaiting Investment or Distribution</HD> <SECTNO>550.290</SECTNO> <SUBJECT>What must I do with fiduciary funds awaiting investment or distribution?</SUBJECT> <SECTNO>550.300</SECTNO> <SUBJECT>Where may I deposit fiduciary funds awaiting investment or distribution?</SUBJECT> <SECTNO>550.310</SECTNO> <SUBJECT>What if the FDIC does not insure the deposits?</SUBJECT> <SECTNO>550.320</SECTNO> <SUBJECT>What is acceptable collateral for uninsured deposits?</SUBJECT> <HD SOURCE="HD1">Restrictions on Self Dealing</HD> <SECTNO>550.330</SECTNO> <SUBJECT>Are there investments in which I may not invest funds of a fiduciary account?</SUBJECT> <SECTNO>550.340</SECTNO> <SUBJECT>May I exercise rights to purchase additional stock or fractional shares of my stock or obligations or the stock or obligations of my affiliates?</SUBJECT> <SECTNO>550.350</SECTNO> <SUBJECT>May I lend, sell, or transfer assets of a fiduciary account if I have an interest in the transaction?</SUBJECT> <SECTNO>550.360</SECTNO> <SUBJECT>May I make a loan to a fiduciary account that is secured by an interest in the assets in the account?</SUBJECT> <SECTNO>550.370</SECTNO> <SUBJECT>May I sell assets or lend money between fiduciary accounts?</SUBJECT> <HD SOURCE="HD1">Compensation, Gifts, and Bequests</HD> <SECTNO>550.380</SECTNO> <SUBJECT>May I earn compensation for acting in a fiduciary capacity?</SUBJECT> <SECTNO>550.390</SECTNO> <SUBJECT>May my officer or employee retain compensation for acting as a co-fiduciary?</SUBJECT> <SECTNO>550.400</SECTNO> <SUBJECT>May my fiduciary officer or employee accept a gift or bequest?</SUBJECT> <HD SOURCE="HD1">Recordkeeping Requirements</HD> <SECTNO>550.410</SECTNO> <SUBJECT>What records must I keep?</SUBJECT> <SECTNO>550.420</SECTNO> <SUBJECT>How long must I keep these records?</SUBJECT> <SECTNO>550.430</SECTNO> <SUBJECT>Must I keep fiduciary records separate and distinct from other records?</SUBJECT> <HD SOURCE="HD1">Audit Requirements</HD> <SECTNO>550.440</SECTNO> <SUBJECT>When do I have to audit my fiduciary activities?</SUBJECT> <SECTNO>550.450</SECTNO> <SUBJECT>What standards govern the conduct of the audit?</SUBJECT> <SECTNO>550.460</SECTNO> <SUBJECT>Who may conduct an audit?</SUBJECT> <SECTNO>550.470</SECTNO> <SUBJECT>Who directs the conduct of the audit?</SUBJECT> <SECTNO>550.480</SECTNO> <SUBJECT>How do I report the results of the audit?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Depositing Securities With State Authorities</HD> <SECTNO>550.490</SECTNO> <SUBJECT>When must I deposit securities with State authorities?</SUBJECT> <SECTNO>550.500</SECTNO> <SUBJECT>How much must I deposit if I administer fiduciary assets in more than one State?</SUBJECT> <SECTNO>550.510</SECTNO> <SUBJECT>What must I do if State authorities refuse my deposit?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Terminating Fiduciary Activities</HD> <HD SOURCE="HD1">Receivership or Liquidation</HD> <SECTNO>550.520</SECTNO> <SUBJECT>What happens if I am placed in receivership or voluntary liquidation?</SUBJECT> <HD SOURCE="HD1">Surrender of Fiduciary Powers</HD> <SECTNO>550.530</SECTNO> <SUBJECT>How do I surrender fiduciary powers?</SUBJECT> <SECTNO>550.540</SECTNO> <SUBJECT>When will the OTS terminate my fiduciary powers?</SUBJECT> <SECTNO>550.550</SECTNO> <SUBJECT>May I recover my deposit from State authorities?</SUBJECT> <HD SOURCE="HD1">Revocation of Fiduciary Powers</HD> <SECTNO>550.560</SECTNO> <SUBJECT>When may the OTS revoke my fiduciary powers?</SUBJECT> <SECTNO>550.570</SECTNO> <SUBJECT>What procedures govern the revocation?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Activities Exempt From This Part</HD> <SECTNO>550.580</SECTNO> <SUBJECT>When may I act in a fiduciary capacity without obtaining OTS approval?<PRTPAGE P="97"/> </SUBJECT> <SECTNO>550.590</SECTNO> <SUBJECT>What standards must I observe when acting in exempt fiduciary capacities?</SUBJECT> <SECTNO>550.600</SECTNO> <SUBJECT>How may I invest funds when acting in exempt fiduciary capacities?</SUBJECT> <SECTNO>550.610</SECTNO> <SUBJECT>What disclosures must I make when acting in exempt fiduciary capacities?</SUBJECT> <SECTNO>550.620</SECTNO> <SUBJECT>May I receive compensation for acting in exempt fiduciary capacities?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P> 62 FR 67703, Dec. 30, 1997, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 550.10</SECTNO> <SUBJECT>What regulations govern the fiduciary operations of savings associations?</SUBJECT> <P>(a) <E T="03">Federal savings associations.</E> A Federal savings association (“you”) must conduct its fiduciary operations in accordance with 12 U.S.C. 1464(n) and this part.</P> <P>(b) <E T="03">State-chartered savings associations.</E> (1) A State-chartered savings association must conduct its fiduciary operations in accordance with applicable State law, and must exercise its fiduciary powers in a safe and sound manner. To ensure safe and sound operations, State-chartered savings associations and their subsidiaries should follow the standards for the exercise of fiduciary powers in this part.</P> <P>(2) The OTS will monitor the fiduciary operations of State-chartered savings associations and their subsidiaries to ensure that those operations are conducted in a safe and sound manner. The OTS may object to practices that deviate materially from the practices described in this part, and may restrict or prohibit activities that threaten the safety and soundness of a State-chartered savings association.</P> </SECTION> <SECTION> <SECTNO>§ 550.20</SECTNO> <SUBJECT>What are fiduciary powers?</SUBJECT> <P>Fiduciary powers are the authority that the OTS permits you to exercise under 12 U.S.C. 1464(n). The scope of permissible fiduciary powers depends on the powers that the State in which you are located grants to competing fiduciaries in that State.</P> </SECTION> <SECTION> <SECTNO>§ 550.30</SECTNO> <SUBJECT>What fiduciary capacities does this part cover?</SUBJECT> <P>You are subject to this part if you act in a fiduciary capacity, except as described in subpart E of this part. You act in a fiduciary capacity when you act in any of the following capacities:</P> <P>(a) Trustee.</P> <P>(b) Executor.</P> <P>(c) Administrator.</P> <P>(d) Registrar of stocks and bonds.</P> <P>(e) Transfer agent.</P> <P>(f) Assignee.</P> <P>(g) Receiver.</P> <P>(h) Guardian or conservator of the estate of a minor, an incompetent person, an absent person, or a person over whose estate a court has taken jurisdiction, other than under bankruptcy or insolvency laws.</P> <P>(i) A fiduciary in a relationship established under a State law that is substantially similar to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act as published by the American Law Institute.</P> <P>(j) Investment adviser, if you receive a fee for your investment advice.</P> <P>(k) Any capacity in which you have investment discretion on behalf of another.</P> <P>(l) Any other similar capacity that the OTS may authorize under 12 U.S.C. 1464(n).</P> </SECTION> <SECTION> <SECTNO>§ 550.40</SECTNO> <SUBJECT>When do I have investment discretion?</SUBJECT> <P>(a) <E T="03">General.</E> You have investment discretion when you have, with respect to a fiduciary account, the sole or shared authority to determine what securities or other assets to purchase or sell on behalf of that account. It does not matter whether you have exercised this authority.</P> <P>(b) <E T="03">Delegations.</E> You retain investment discretion if you delegate investment discretion to another. You also have investment discretion if you receive delegated authority to exercise investment discretion from another.</P> </SECTION> <SECTION> <SECTNO>§ 550.50</SECTNO> <SUBJECT>What is a fiduciary account?</SUBJECT> <P>A fiduciary account is an account that you administer acting in a fiduciary capacity.</P> </SECTION> <SECTION> <SECTNO>§ 550.60</SECTNO> <SUBJECT>What other definitions apply to this part?</SUBJECT> <P> <E T="03">Affiliate</E> has the same meaning as in 12 U.S.C. 221a(b). For purposes of this part, substitute the term “Federal savings association” for the term “member bank” whenever it appears in 12 U.S.C. 221a(b).</P> <P> <E T="03">Applicable law</E> means the law of a State or other jurisdiction governing <PRTPAGE P="98"/>your fiduciary relationships, any Federal law governing those relationships, the terms of the instrument governing a fiduciary relationship, and any court order pertaining to the relationship.</P> <P> <E T="03">Fiduciary officers and employees</E> means the officers and employees of a Federal savings association to whom the board of directors or its designee has assigned functions involving the exercise of the association's fiduciary powers.</P> </SECTION> <SUBPART> <HD SOURCE="HED">Subpart A—Obtaining Fiduciary Powers</HD> <SECTION> <SECTNO>§ 550.70</SECTNO> <SUBJECT>Must I obtain OTS approval before exercising fiduciary powers?</SUBJECT> <P>Unless you are covered by subpart E of this part, you must obtain prior approval from the OTS before exercising fiduciary powers.</P> </SECTION> <SECTION> <SECTNO>§ 550.80</SECTNO> <SUBJECT>How do I obtain OTS approval?</SUBJECT> <P>You must file an application under § 516.1(c) of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 550.90</SECTNO> <SUBJECT>What information must I include in my application?</SUBJECT> <P>You must describe the fiduciary powers that you or your affiliate will exercise. You must also include information necessary to enable the OTS to make the determinations described in § 550.100.</P> </SECTION> <SECTION> <SECTNO>§ 550.100</SECTNO> <SUBJECT>What factors may the OTS consider in its review of my application?</SUBJECT> <P>The OTS may consider the following factors when reviewing your application:</P> <P>(a) Your financial condition.</P> <P>(b) Your capital and whether that capital is sufficient under the circumstances.</P> <P>(c) Your overall performance.</P> <P>(d) The fiduciary powers you propose to exercise.</P> <P>(e) Your proposed supervision of those powers.</P> <P>(f) The availability of legal counsel.</P> <P>(g) The needs of the community to be served.</P> <P>(h) Any other facts or circumstances that the OTS considers proper.</P> </SECTION> <SECTION> <SECTNO>§ 550.110</SECTNO> <SUBJECT>Who will act on my application?</SUBJECT> <P>The Director of OTS may act on any application. The Regional Director may act on an application if it does not raise any significant issues of law or policy on which the OTS has not taken a formal position.</P> </SECTION> <SECTION> <SECTNO>§ 550.120</SECTNO> <SUBJECT>What action will the OTS take on my application?</SUBJECT> <P>The OTS may approve or deny your application. If your application is approved, the OTS may impose conditions to ensure that the requirements of this part are met.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Exercising Fiduciary Powers</HD> <SECTION> <SECTNO>§ 550.130</SECTNO> <SUBJECT>What fiduciary powers may I exercise?</SUBJECT> <P>You may exercise only those fiduciary powers specified in the OTS approval under § 550.120. Unless otherwise provided in the approval, you may exercise fiduciary powers only from those offices listed in the application.</P> </SECTION> <SECTION> <SECTNO>§ 550.140</SECTNO> <SUBJECT>Must I adopt and follow written policies and procedures in exercising fiduciary powers?</SUBJECT> <P>You must adopt and follow written policies and procedures adequate to maintain your fiduciary activities in compliance with applicable law. Among other relevant matters, the policies and procedures should address, where appropriate, the following areas:</P> <P>(a) Your brokerage placement practices.</P> <P>(b) Your methods for ensuring that your fiduciary officers and employees do not use material inside information in connection with any decision or recommendation to purchase or sell any security.</P> <P>(c) Your methods for preventing self-dealing and conflicts of interest.</P> <P>(d) Your selection and retention of legal counsel who is ready and available to advise you and your fiduciary officers and employees on fiduciary matters.</P> <P>(e) Your investment of funds held as fiduciary, including short-term investments and the treatment of fiduciary funds awaiting investment or distribution.</P> </SECTION> <SUBJGRP> <PRTPAGE P="99"/> <HD SOURCE="HED">Fiduciary Personnel and Facilities</HD> <SECTION> <SECTNO>§ 550.150</SECTNO> <SUBJECT>Who is responsible for the exercise of fiduciary powers?</SUBJECT> <P>The exercise of your fiduciary powers must be managed by or under the direction of your board of directors. In discharging its responsibilities, the board may assign any function related to the exercise of fiduciary powers to any director, officer, employee, or committee of directors, officers, or employees.</P> </SECTION> <SECTION> <SECTNO>§ 550.160</SECTNO> <SUBJECT>What personnel and facilities may I use to perform fiduciary services?</SUBJECT> <P>You may use your qualified personnel and facilities or an affiliate's qualified personnel and facilities to perform services related to the exercise of fiduciary powers.</P> </SECTION> <SECTION> <SECTNO>§ 550.170</SECTNO> <SUBJECT>May my other departments or affiliates use fiduciary personnel and facilities to perform other services?</SUBJECT> <P>Your other departments or affiliates may use fiduciary officers, employees, and facilities to perform services unrelated to the exercise of fiduciary powers, to the extent not prohibited by applicable law.</P> </SECTION> <SECTION> <SECTNO>§ 550.180</SECTNO> <SUBJECT>May I perform fiduciary services for, or purchase fiduciary services from, another association or entity?</SUBJECT> <P>You may perform services related to the exercise of fiduciary powers for another association or other entity under a written agreement. You may also purchase services related to the exercise of fiduciary powers from another association or other entity under a written agreement.</P> </SECTION> <SECTION> <SECTNO>§ 550.190</SECTNO> <SUBJECT>Must fiduciary officers and employees be bonded?</SUBJECT> <P>You must obtain an adequate bond for all fiduciary officers and employees.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Review of a Fiduciary Account</HD> <SECTION> <SECTNO>§ 550.200</SECTNO> <SUBJECT>Must I review a prospective account before I accept it?</SUBJECT> <P>Before accepting a prospective fiduciary account, you must review it to determine whether you can properly administer the account.</P> </SECTION> <SECTION> <SECTNO>§ 550.210</SECTNO> <SUBJECT>Must I conduct another review of an account after I accept it?</SUBJECT> <P>After you accept a fiduciary account for which you have investment discretion, you must conduct a prompt review of all assets of the account to evaluate whether they are appropriate, individually and collectively, for the account.</P> </SECTION> <SECTION> <SECTNO>§ 550.220</SECTNO> <SUBJECT>Are any other account reviews required?</SUBJECT> <P>At least once every calendar year, you must conduct a review of all assets of each fiduciary account for which you have investment discretion. In this review, you must evaluate whether the assets are appropriate, individually and collectively, for the account.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Custody and Control of Assets</HD> <SECTION> <SECTNO>§ 550.230</SECTNO> <SUBJECT>Who must maintain custody or control of assets in a fiduciary account?</SUBJECT> <P>You must place assets of fiduciary accounts in the joint custody or control of not fewer than two fiduciary officers or employees designated for that purpose by the board of directors.</P> </SECTION> <SECTION> <SECTNO>§ 550.240</SECTNO> <SUBJECT>May I hold investments of a fiduciary account off-premises?</SUBJECT> <P>You may hold the investments of a fiduciary account off-premises, if this practice is consistent with applicable law, and you maintain adequate safeguards and controls.</P> </SECTION> <SECTION> <SECTNO>§ 550.250</SECTNO> <SUBJECT>Must I keep fiduciary assets separate from other assets?</SUBJECT> <P>You must keep the assets of fiduciary accounts separate from your other assets. You must also keep the assets of each fiduciary account separate from all other accounts, or you must identify the investments as the property of <PRTPAGE P="100"/>a particular account, except as provided in §§ 550.260.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Investing Funds of a Fiduciary Account</HD> <SECTION> <SECTNO>§ 550.260</SECTNO> <SUBJECT>How may I invest funds of a fiduciary account?</SUBJECT> <P>(a) <E T="03">General.</E> You must invest funds of a fiduciary account in a manner consistent with applicable law.</P> <P>(b) <E T="03">Collective investment funds.</E> (1) You may invest funds of a fiduciary account in a collective investment fund, including a collective investment fund that you have established. In establishing and administering such funds, you must comply with 12 CFR 9.18.</P> <P>(2) If you must file a document with the Comptroller of the Currency under 12 CFR 9.18, you must also file that document with OTS under § 516.1(c) of this chapter. The OTS may review such documents for compliance with this part and other laws and regulations.</P> <P>(3) “Bank” and “national bank” as used in 12 CFR 9.18 shall be deemed to include a Federal savings association.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Funds Awaiting Investment or Distribution</HD> <SECTION> <SECTNO>§ 550.290</SECTNO> <SUBJECT>What must I do with fiduciary funds awaiting investment or distribution?</SUBJECT> <P>If you have investment discretion or discretion over distributions for a fiduciary account which contains funds awaiting investment or distribution, you must ensure that those funds do not remain uninvested and undistributed any longer than is reasonable for the proper management of the account and consistent with applicable law. You also must obtain a rate of return for those funds that is consistent with applicable law.</P> </SECTION> <SECTION> <SECTNO>§ 550.300</SECTNO> <SUBJECT>Where may I deposit fiduciary funds awaiting investment or distribution?</SUBJECT> <P>(a) <E T="03">Self deposits.</E> You may deposit funds of a fiduciary account that are awaiting investment or distribution in your other departments, unless prohibited by applicable law.</P> <P>(b) <E T="03">Affiliate deposits.</E> You may also deposit funds of a fiduciary account that are awaiting investment or distribution with an affiliated insured depository institution, unless prohibited by applicable law.</P> </SECTION> <SECTION> <SECTNO>§ 550.310</SECTNO> <SUBJECT>What if the FDIC does not insure the deposits?</SUBJECT> <P>If the FDIC does not insure the entire amount of a self deposit or an affiliate deposit, you must set aside collateral as security. The market value of the collateral must at all times equal or exceed the amount of the uninsured fiduciary funds. You must place the collateral under the control of appropriate fiduciary officers and employees.</P> </SECTION> <SECTION> <SECTNO>§ 550.320</SECTNO> <SUBJECT>What is acceptable collateral for uninsured deposits?</SUBJECT> <P>Any of the following is acceptable collateral for self deposits or affiliate deposits under § 550.310:</P> <P>(a) Direct obligations of the United States, or other obligations fully guaranteed by the United States as to principal and interest.</P> <P>(b) Readily marketable securities of the classes in which State-chartered corporate fiduciaries are permitted to invest fiduciary funds under applicable State law.</P> <P>(c) Other readily marketable securities as the OTS may determine.</P> <P>(d) Surety bonds, to the extent they provide adequate security, unless prohibited by applicable law.</P> <P>(e) Any other assets that qualify under applicable State law as appropriate security for deposits of fiduciary funds.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Restrictions on Self Dealing</HD> <SECTION> <SECTNO>§ 550.330</SECTNO> <SUBJECT>Are there investments in which I may not invest funds of a fiduciary account?</SUBJECT> <P>You may not invest funds of a fiduciary account for which you have investment discretion in the following assets, unless authorized by applicable law:</P> <P>(a) The stock or obligations of, or assets acquired from, you or any of your directors, officers, or employees.</P> <P>(b) The stock or obligations of, or assets acquired from, your affiliates or any of their directors, officers, or employees.</P> <P>(c) The stock or obligations of, or assets acquired from, other individuals or organizations if you have an interest in the individual or organization that <PRTPAGE P="101"/>might affect the exercise of your best judgment.</P> </SECTION> <SECTION> <SECTNO>§ 550.340</SECTNO> <SUBJECT>May I exercise rights to purchase additional stock or fractional shares of my stock or obligations or the stock or obligations of my affiliates?</SUBJECT> <P>If the retention of investments in your stock or obligations or the stock or obligations of an affiliate in fiduciary accounts is consistent with applicable law, you may do either of the following:</P> <P>(a) Exercise rights to purchase additional stock (or securities convertible into additional stock) when these rights are offered <E T="03">pro rata</E> to stockholders.</P> <P>(b) Purchase fractional shares to complement fractional shares acquired through the exercise of rights or through the receipt of a stock dividend resulting in fractional share holdings.</P> </SECTION> <SECTION> <SECTNO>§ 550.350</SECTNO> <SUBJECT>May I lend, sell, or transfer assets of a fiduciary account if I have an interest in the transaction?</SUBJECT> <P>(a) <E T="03">General restriction.</E> Except as provided in paragraph (b) of this section, you may not lend, sell, or otherwise transfer assets of a fiduciary account for which you have investment discretion to yourself or any of your directors, officers, or employees; to your affiliates or any of their directors, officers, or employees; or to other individuals or organizations with whom you have an interest that might affect the exercise of your best judgment.</P> <P>(b) <E T="03">Exceptions—</E>(1) <E T="03">Funds for which you have investment discretion.</E> You may lend, sell or otherwise transfer assets of a fiduciary account for which you have investment discretion to yourself or any of your directors, officers, or employees; to your affiliates or any of their directors, officers, or employees; or to other individuals or organizations with whom you have an interest that might affect the exercise of your best judgment, if you meet one of the following conditions:</P> <P>(i) The transaction is authorized by applicable law.</P> <P>(ii) Legal counsel advises you in writing that you have incurred, in your fiduciary capacity, a contingent or potential liability. Upon the sale or transfer of assets, you must reimburse the fiduciary account in cash in an amount equal to the greater of book or market value of the assets.</P> <P>(iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for defaulted fixed-income investments.</P> <P>(iv) The OTS requires you to do so.</P> <P>(2) <E T="03">Funds held as trustee.</E> You may make loans of funds held in trust to any of your directors, officers, or employees if the funds are held in an employee benefit plan and the loan is made in accordance with the exemptions found at section 408 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108).</P> </SECTION> <SECTION> <SECTNO>§ 550.360</SECTNO> <SUBJECT>May I make a loan to a fiduciary account that is secured by an interest in the assets of the account?</SUBJECT> <P>You may make a loan to a fiduciary account that is secured by an interest in the assets of the account, if the transaction is fair to the account and is not prohibited by applicable law.</P> </SECTION> <SECTION> <SECTNO>§ 550.370</SECTNO> <SUBJECT>May I sell assets or lend money between fiduciary accounts?</SUBJECT> <P>You may sell assets or lend money between fiduciary accounts, if the transaction is fair to both accounts and is not prohibited by applicable law.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Compensation, Gifts, and Bequests</HD> <SECTION> <SECTNO>§ 550.380</SECTNO> <SUBJECT>May I earn compensation for acting in a fiduciary capacity?</SUBJECT> <P>If the amount of your compensation for acting in a fiduciary capacity is not set or governed by applicable law, you may charge a reasonable fee for your services.</P> </SECTION> <SECTION> <SECTNO>§ 550.390</SECTNO> <SUBJECT>May my officer or employee retain compensation for acting as a co-fiduciary?</SUBJECT> <P>You may not permit your officers or employees to retain any compensation for acting as a co-fiduciary with you in the administration of a fiduciary account, except with the specific approval of your board of directors.</P> </SECTION> <SECTION> <SECTNO>§ 550.400</SECTNO> <SUBJECT>May my fiduciary officer or employee accept a gift or bequest?</SUBJECT> <P>You may not permit any fiduciary officer or employee to accept a bequest or gift of fiduciary assets, unless the bequest or gift is directed or made by a <PRTPAGE P="102"/>relative of the officer or employee or is specifically approved by your board of directors.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Recordkeeping Requirements</HD> <SECTION> <SECTNO>§ 550.410</SECTNO> <SUBJECT>What records must I keep?</SUBJECT> <P>You must keep adequate records for all fiduciary accounts. For example, you must keep documents on the establishment and termination of each fiduciary account.</P> </SECTION> <SECTION> <SECTNO>§ 550.420</SECTNO> <SUBJECT>How long must I keep these records?</SUBJECT> <P>You must keep fiduciary records for three years after the termination of the account or the termination of any litigation relating to the account, whichever is later.</P> </SECTION> <SECTION> <SECTNO>§ 550.430</SECTNO> <SUBJECT>Must I keep fiduciary records separate and distinct from other records?</SUBJECT> <P>You must keep fiduciary records separate and distinct from your other records.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Audit Requirements</HD> <SECTION> <SECTNO>§ 550.440</SECTNO> <SUBJECT>When do I have to audit my fiduciary activities?</SUBJECT> <P>(a) <E T="03">Annual Audit.</E> If you do not use a continuous audit system described in paragraph (b) of this section, then you must arrange for a suitable audit of all significant fiduciary activities at least once during each calendar year.</P> <P>(b) <E T="03">Continuous audit.</E> Instead of an annual audit, you may adopt a continuous audit system. Under a continuous audit system, you must arrange for a discrete audit of each significant fiduciary activity (<E T="03">i.e.,</E> on an activity-by-activity basis) at an interval commensurate with the nature and risk of that activity. Some fiduciary activities may receive audits at intervals greater or less than one year, as appropriate.</P> </SECTION> <SECTION> <SECTNO>§ 550.450</SECTNO> <SUBJECT>What standards govern the conduct of the audit?</SUBJECT> <P>Auditors must follow generally accepted standards for attestation engagements and other standards established by the OTS. An audit must ascertain whether your internal control policies and procedures provide reasonable assurance of three things:</P> <P>(a) You are administering fiduciary activities in accordance with applicable law.</P> <P>(b) You are properly safeguarding fiduciary assets.</P> <P>(c) You are accurately recording transactions in appropriate accounts in a timely manner.</P> </SECTION> <SECTION> <SECTNO>§ 550.460</SECTNO> <SUBJECT>Who may conduct an audit?</SUBJECT> <P>Internal auditors, external auditors, or other qualified persons who are responsible only to the board of directors, may conduct an audit.</P> </SECTION> <SECTION> <SECTNO>§ 550.470</SECTNO> <SUBJECT>Who directs the conduct of the audit?</SUBJECT> <P>Your fiduciary audit committee directs the conduct of the audit. Your fiduciary audit committee may consist of a committee of your directors or an audit committee of an affiliate. There are two restrictions on who may serve on the committee:</P> <P>(a) Your officers and officers of an affiliate who participate significantly in administering your fiduciary activities may not serve on the audit committee.</P> <P>(b) A majority of the members of the audit committee may not serve on any committee to which the board of directors has delegated power to manage and control your fiduciary activities.</P> </SECTION> <SECTION> <SECTNO>§ 550.480</SECTNO> <SUBJECT>How do I report the results of the audit?</SUBJECT> <P>(a) <E T="03">Annual audit.</E> If you conduct an annual audit, you must note the results of the audit (including significant actions taken as a result of the audit) in the minutes of the board of directors.</P> <P>(b) <E T="03">Continuous audit.</E> If you adopt a continuous audit system, you must note the results of all discrete audits conducted since the last audit report (including significant actions taken as a result of the audits) in the minutes of the board of directors at least once during each calendar year.</P> </SECTION> </SUBJGRP> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Depositing Securities With State Authorities</HD> <SECTION> <SECTNO>§ 550.490</SECTNO> <SUBJECT>When must I deposit securities with State authorities?</SUBJECT> <P>You must deposit securities with a State's authorities or, if applicable, a Federal Home Loan Bank under <PRTPAGE P="103"/>§ 550.510, if you meet all of the following:</P> <P>(a) You are located in the State.</P> <P>(b) You act as a private or court-appointed trustee.</P> <P>(c) The law of the State requires corporations acting in a fiduciary capacity to deposit securities with State authorities for the protection of private or court trusts.</P> </SECTION> <SECTION> <SECTNO>§ 550.500</SECTNO> <SUBJECT>How much must I deposit if I administer fiduciary assets in more than one State?</SUBJECT> <P>If you administer fiduciary assets in more than one State, you must compute the amount of deposit required for each State on the basis of fiduciary assets that you administer primarily from offices located in that State.</P> </SECTION> <SECTION> <SECTNO>§ 550.510</SECTNO> <SUBJECT>What must I do if State authorities refuse my deposit?</SUBJECT> <P>If State authorities refuse to accept your deposit under § 550.490, you must deposit the securities with the Federal Home Loan Bank of which you are a member. The Federal Home Loan Bank will hold the securities for the protection of private or court trusts to the same extent as if the securities had been deposited with State authorities.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Terminating Fiduciary Activities</HD> <SUBJGRP> <HD SOURCE="HED">Receivership or Liquidation</HD> <SECTION> <SECTNO>§ 550.520</SECTNO> <SUBJECT>What happens if I am placed in receivership or voluntary liquidation?</SUBJECT> <P>If the OTS appoints a conservator or receiver for you under part 558 of this chapter, or if you place yourself in voluntary liquidation, the receiver, conservator, or liquidating agent must promptly close or transfer all fiduciary accounts to a substitute fiduciary, in accordance with OTS instructions and the orders of the court having jurisdiction.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Surrender of Fiduciary Powers</HD> <SECTION> <SECTNO>§ 550.530</SECTNO> <SUBJECT>How do I surrender fiduciary powers?</SUBJECT> <P>If you want to surrender your fiduciary powers, you must file a certified copy of a resolution of your board of directors evidencing that intent. You must file the resolution with the OTS under § 516.1 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 550.540</SECTNO> <SUBJECT>When will the OTS terminate my fiduciary powers?</SUBJECT> <P>If, after appropriate investigation, the Regional Director is satisfied that you have been discharged from all fiduciary duties, the Regional Director will issue a written notice indicating that you are no longer authorized to exercise fiduciary powers.</P> </SECTION> <SECTION> <SECTNO>§ 550.550</SECTNO> <SUBJECT>May I recover my deposit from State authorities?</SUBJECT> <P>Upon issuance of the OTS written notice under § 550.540, you may recover any securities deposited with State authorities, or a Federal Home Loan Bank, under subpart C of this part.</P> </SECTION> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Revocation of Fiduciary Powers</HD> <SECTION> <SECTNO>§ 550.560</SECTNO> <SUBJECT>When may the OTS revoke my fiduciary powers?</SUBJECT> <P>The OTS may revoke your fiduciary powers if it determines that you have done any of the following:</P> <P>(a) Exercised those fiduciary powers unlawfully or unsoundly.</P> <P>(b) Failed to exercise those fiduciary powers for five consecutive years.</P> <P>(c) Otherwise failed to follow the requirements of this part.</P> </SECTION> <SECTION> <SECTNO>§ 550.570</SECTNO> <SUBJECT>What procedures govern the revocation?</SUBJECT> <P>The procedures for revocation of fiduciary powers are set forth in 12 U.S.C. 1464(n)(10). The OTS will conduct the hearing required under 12 U.S.C. 1464(n)(10)(B) under part 509 of this chapter.</P> </SECTION> </SUBJGRP> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Activities Exempt From This Part</HD> <SECTION> <SECTNO>§ 550.580</SECTNO> <SUBJECT>When may I act in a fiduciary capacity without obtaining OTS approval?</SUBJECT> <P>You do not need OTS approval under subpart B if you act in one of the following fiduciary capacities:</P> <P>(a) Trustee of a trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan qualifying for specific tax treatment under section 401(d) of <PRTPAGE P="104"/>the Internal Revenue Code of 1954 (26 U.S.C. 401(d)).</P> <P>(b) Trustee or custodian of a Individual Retirement Account within the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 U.S.C. 408(a)).</P> <P>(c) Trustee of a fiduciary account that involves no active fiduciary duties provided that the applicable law authorizes the savings association to act in this capacity.</P> </SECTION> <SECTION> <SECTNO>§ 550.590</SECTNO> <SUBJECT>What standards must I observe when acting in exempt fiduciary capacities?</SUBJECT> <P>You must observe principles of sound fiduciary administration, including those related to recordkeeping and segregation of assets.</P> </SECTION> <SECTION> <SECTNO>§ 550.600</SECTNO> <SUBJECT>How may I invest funds when acting in exempt fiduciary capacities?</SUBJECT> <P>If you act in an exempt fiduciary capacity under § 550.580, you may invest the funds of the fiduciary account in only the following:</P> <P>(a) Your accounts, deposits, obligations, or securities.</P> <P>(b) Other assets as the customer may direct, provided you do not exercise any investment discretion and do not directly or indirectly provide any investment advice for the fiduciary account.</P> </SECTION> <SECTION> <SECTNO>§ 550.610</SECTNO> <SUBJECT>What disclosures must I make when acting in exempt fiduciary capacities?</SUBJECT> <P>If you act in an exempt fiduciary capacity under § 550.580 and fiduciary investments are not limited to accounts or deposits insured by the FDIC, you must include the following language in bold type on the first page of any contract documents: </P> <EXTRACT> <P>Funds invested pursuant to this agreement are not insured by the Federal Deposit Insurance Corporation (“FDIC”) merely because the trustee or custodian is a Federal savings association the accounts of which are covered by such insurance. Only investments in the accounts of a Federal savings association are insured by the FDIC, subject to its rules and regulations.</P> </EXTRACT> </SECTION> <SECTION> <SECTNO>§ 550.620</SECTNO> <SUBJECT>May I receive compensation for acting in exempt fiduciary capacities?</SUBJECT> <P>You may receive reasonable compensation.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 552</EAR> <HD SOURCE="HED">PART 552—INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL STOCK ASSOCIATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>552.2-1</SECTNO> <SUBJECT>Procedure for organization of Federal stock association.</SUBJECT> <SECTNO>552.2-2</SECTNO> <SUBJECT>Procedures for organization of interim Federal stock association.</SUBJECT> <SECTNO>552.2-3</SECTNO> <SUBJECT>Federal stock association created in connection with an association in default or in danger of default.</SUBJECT> <SECTNO>552.2-6</SECTNO> <SUBJECT>Conversion from stock form depository institution to Federal stock association.</SUBJECT> <SECTNO>552.2-7</SECTNO> <SUBJECT>Conversion to National banking association or State bank.</SUBJECT> <SECTNO>552.3</SECTNO> <SUBJECT>Charters for Federal stock associations.</SUBJECT> <SECTNO>552.4</SECTNO> <SUBJECT>Charter amendments.</SUBJECT> <SECTNO>552.5</SECTNO> <SUBJECT>Bylaws.</SUBJECT> <SECTNO>552.6</SECTNO> <SUBJECT>Shareholders.</SUBJECT> <SECTNO>552.6-1</SECTNO> <SUBJECT>Board of directors.</SUBJECT> <SECTNO>552.6-2</SECTNO> <SUBJECT>Officers.</SUBJECT> <SECTNO>552.6-3</SECTNO> <SUBJECT>Certificates for shares and their transfer.</SUBJECT> <SECTNO>552.6-4</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>552.9</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>552.10</SECTNO> <SUBJECT>Annual reports to stockholders.</SUBJECT> <SECTNO>552.11</SECTNO> <SUBJECT>Books and records.</SUBJECT> <SECTNO>552.12</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>552.13</SECTNO> <SUBJECT>Combinations involving Federal stock associations.</SUBJECT> <SECTNO>552.14</SECTNO> <SUBJECT>Dissenter and appraisal rights.</SUBJECT> <SECTNO>552.15</SECTNO> <SUBJECT>Supervisory combinations.</SUBJECT> <SECTNO>552.16</SECTNO> <SUBJECT>Effect of subsequent charter or bylaw change.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49523, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 552.2-1</SECTNO> <SUBJECT>Procedure for organization of Federal stock association.</SUBJECT> <P>(a) <E T="03">Application for permission to organize</E>. Applications for permission to organize a Federal stock association are subject to this section and to § 543.3 of this chapter. Recommendations by employees of the OTS regarding applications for permission to organize are privileged, confidential, and subject to § 510.5 (b) and (c) of this chapter. The processing of an application under this <PRTPAGE P="105"/>section shall be subject to the following procedures:</P> <P>(1) <E T="03">Publication</E>. (i) The applicant shall publish a public notice of the application to organize in accordance with the procedures specified in subpart B of part 516 of this chapter.</P> <P>(ii) Promptly after publication of the public notice, the applicant shall transmit copies of the public notice and publisher's affidavit of publication to the OTS in the same manner as the original filing.</P> <P>(iii) Any person may inspect the application and all related communications at the Regional Office during regular business hours, unless such information is exempt from public disclosure.</P> <P>(2) <E T="03">Notification to interested parties</E>. The OTS shall give notice of the application to the State official who supervises savings associations in the State in which the new association is to be located.</P> <P>(3) <E T="03">Submission of comments</E>. Commenters may submit comments on the application in accordance with the procedures specified in subpart C of part 516 of this chapter.</P> <P>(4) <E T="03">Meetings</E>. The OTS may arrange informal or formal meetings in accordance with the procedures specified in subpart D of part 516 of this chapter.</P> <P>(b) <E T="03">Conditions of approval.</E> The OTS will decide all applications for permission to organize a Federal stock association.</P> <P>(1) Factors that will be considered on all applications for permission to organize a Federal stock association are:</P> <P>(i) Whether the applicants are persons of good character and responsibility;</P> <P>(ii) Whether a necessity exists for such association in the community to be served;</P> <P>(iii) Whether there is a reasonable probability of the association's usefulness and success;</P> <P>(iv) Whether the association can be established without undue injury to properly conducted existing local thrift and home financing institutions; and</P> <P>(v) Whether the association will perform a role of providing credit for housing consistent with safe and sound operation of a Federal savings association.</P> <P>(2) [Reserved]</P> <P>(3) Approvals of applications will be conditioned on the following:</P> <P>(i) Receipt by the Office of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the association will be insured by the Federal Deposit Insurance Corporation;</P> <P>(ii) The sale of a minimum amount of fully-paid capital stock of the association prior to commencing business;</P> <P>(iii) The submission of a statement that:</P> <P>(A) The applicants have incurred no expense in organization which is chargeable to the association, and that no such expense will be incurred, and</P> <P>(B) No funds will be accepted for deposit by the association until organization has been completed;</P> <P>(iv) Compliance with all applicable laws, rules, and regulations; and</P> <P>(v) The satisfaction of any other requirement or condition the Director or his or her designee may impose.</P> <P>(c) <E T="03">Issuance of charter.</E> Upon approval of an application, the Office shall issue to the association a charter for a Federal stock savings association or for a Federal stock savings bank, as requested by the applicants, which shall be in the form provided in this part. Issuance of the charter shall be subject to the condition subsequent that the organization of the association is completed pursuant to this section.</P> <P>(d) <E T="03">Interim board of directors and officers.</E> Upon approval of the application and the issuance of the charter, the applicants shall constitute the interim board of directors of the association until the board of directors of the association are elected by its stockholders at the organizational meeting required by paragraph (g) of this section, and the interim officers of the association shall be those persons set forth in the application for permission to organize.</P> <P>(e) <E T="03">Sale of capital stock.</E> Upon the issuance of the charter, the association shall proceed to offer and sell its capital stock pursuant to the requirements of part 563g of this chapter.</P> <P>(f) <E T="03">Bank membership and insurance of accounts.</E> Promptly upon the issuance of the charter, a Federal stock association must qualify as a member of the appropriate Federal Home Loan Bank <PRTPAGE P="106"/>and meet all requirements necessary to obtain insurance of accounts by the Federal Deposit Insurance Corporation.</P> <P>(g) <E T="03">Organizational meeting.</E> Promptly upon the completion of the sale of its capital stock, the association shall provide notice, pursuant to § 552.6(b), of a meeting of its stockholders to elect a board of directors. Immediately following such election, the directors shall meet to elect the officers of the association and to undertake any other action necessary under the charter or bylaws to complete corporate organization.</P> <P>(h) <E T="03">Completion of organization.</E> Organization of a Federal stock association shall be deemed complete for the purposes of this part when:</P> <P>(1) The association has obtained Federal Home Loan Bank membership and insurance of its accounts from the Federal Deposit Insurance Corporation;</P> <P>(2) It has completed the sale of and received full payment for its capital stock;</P> <P>(3) It has complied with all requirements of part 563g of this chapter;</P> <P>(4) It has held its organizational meeting for the election of directors and all directors have been elected;</P> <P>(5) Its officers have been elected and bonded; and</P> <P>(6) It has met the requirements and conditions imposed by the Office in connection with approval of the application.</P> <P>(i) <E T="03">Failure of completion.</E> If organization of a Federal stock association is not completed within six months after the OTS approves the application, or within such additional period as the OTS for good cause may grant, the charter shall become null and void and all subscriptions to capital stock shall be returned.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 57 FR 14342, Apr. 20, 1992; 62 FR 27181, May 19, 1997; 62 FR 64146, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.2-2</SECTNO> <SUBJECT>Procedures for organization of interim Federal stock association.</SUBJECT> <P>(a) Applications for permission to organize an interim Federal savings association are not subject to subparts B, C and D of part 516 of this chapter or § 552.2-1(b)(3) of this part.</P> <P>(b) Approval of an application for permission to organize an interim Federal stock association shall be conditioned upon approval by the Office of an application to merge the interim Federal stock association, or upon approval by the Office of other transaction which the interim was chartered to facilitate. Applications for permission to organize an interim Federal stock association shall be submitted in the same manner as the related filing(s). In evaluating the application, the Office will consider the purpose for which the association will be organized, the form of any proposed transactions involving the association, the effect of the transactions on existing associations involved in the transactions, and the factors specified in § 552.1(b)(1) to the extent relevant.</P> <P>(c) If a merger or other transaction facilitated by the existence of the interim Federal stock association has not been approved within six months of the approval of the application for permission to organize, unless extended by OTS for good cause shown, the charter shall be void and all subscriptions for capital stock shall be returned.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13513, Apr. 11, 1990; 57 FR 14342, Apr. 20, 1992; 62 FR 64146, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.2-3</SECTNO> <SUBJECT>Federal stock association created in connection with an association in default or in danger of default.</SUBJECT> <P>Sections 552.2-1 and 552.2-2 of this part do not apply to a Federal stock association which is proposed by the Federal Deposit Insurance Corporation, or the Resolution Trust Corporation under section 5(p) of the Home Owner's Loan Act of 1933, section 11(c) of the Federal Deposit Insurance Act, or section 21A of the Federal Home Loan Bank Act, or is otherwise chartered by the Office in connection with an association in default or in danger of default. Incorporation and organization of such associations are complete when and under such conditions as the Director or his or her designee so determines.</P> </SECTION> <SECTION> <PRTPAGE P="107"/> <SECTNO>§ 552.2-6</SECTNO> <SUBJECT>Conversion from stock form depository institution to Federal stock association.</SUBJECT> <P>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).</P> <CITA>[59 FR 44623, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.2-7</SECTNO> <SUBJECT>Conversion to National banking association or State bank.</SUBJECT> <P>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 § 563.22(b) of this chapter.</P> <CITA>[59 FR 44623, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.3</SECTNO> <SUBJECT>Charters for Federal stock associations.</SUBJECT> <P>The charter of a Federal stock association shall be in the following form, except that an association that has converted from the mutual form pursuant to part 563b of this chapter shall include in its charter a section establishing a liquidation account as required by § 563b.3(c)(13) of this chapter. A charter for a Federal stock savings bank shall substitute the term “savings bank” for “association.” Charters may also include any preapproved optional provision contained in § 552.4 of this part.</P> <EXTRACT> <HD SOURCE="HD1">Federal Stock Charter</HD> <P> <E T="03">Section 1. Corporate title.</E> The full corporate title of the association is <E T="72">___</E>.</P> <P> <E T="03">Section 2. Office.</E> The home office shall be located in <E T="72">___</E> [city, state].</P> <P> <E T="03">Section 3. Duration.</E> The duration of the association is perpetual.</P> <P> <E T="03">Section 4. Purpose and powers.</E> The purpose of the association is to pursue any or all of the lawful objectives of a Federal savings association chartered under section 5 of the Home Owners' Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision (“Office”).</P> <P> <E T="03">Section 5. Capital stock.</E> The total number of shares of all classes of the capital stock that the association has the authority to issue is <E T="72">___</E>, all of which shall be common stock of par [or if no par is specified then shares shall have a stated] value of <E T="72">___</E> per share. The shares may be issued from time to time as authorized by the board of directors without the approval of its shareholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted to the association), labor, or services actually performed for the association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the association that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.</P> <P>Except for shares issued in the initial organization of the association or in connection with the conversion of the association from the mutual to stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the association other than as part of a general public offering or as qualifying shares to a director, unless the issuance or the plan under which they would <PRTPAGE P="108"/>be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.</P> <P>The holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder, except as to the cumulation of votes for the election of directors, unless the charter provides that there shall be no such cumulative voting. Subject to any provision for a liquidation account, in the event of any liquidation, dissolution, or winding up of the association, the holders of the common stock shall be entitled, after payment or provision for payment of all debts and liabilities of the association, to receive the remaining assets of the association available for distribution, in cash or in kind. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.</P> <P> <E T="03">Section 6. Preemptive rights.</E> Holders of the capital stock of the association shall not be entitled to preemptive rights with respect to any shares of the association which may be issued.</P> <P> <E T="03">Section 7. Directors.</E> The association shall be under the direction of a board of directors. The authorized number of directors, as stated in the association's bylaws, shall not be fewer than five nor more than fifteen except when a greater or lesser number is approved by the Director of the Office, or his or her delegate.</P> <P> <E T="03">Section 8. Amendment of charter.</E> Except as provided in Section 5, no amendment, addition, alteration, change or repeal of this charter shall be made, unless such is proposed by the board of directors of the association, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the Office.</P> <FP SOURCE="FP-DASH">Attest:</FP> <FP>Secretary of the Association</FP> <FP SOURCE="FP-DASH">By:</FP> <FP>President or Chief Executive Officer of the Association</FP> <FP SOURCE="FP-DASH">Attest:</FP> <FP>Secretary of the Office of Thrift Supervision</FP> <FP SOURCE="FP-DASH">By:</FP> <FP>Director of the Office of Thrift Supervision</FP> <FP SOURCE="FP-DASH">Effective Date:</FP> </EXTRACT> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 59 FR 53571, Oct. 25, 1994; 61 FR 64018, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.4</SECTNO> <SUBJECT>Charter amendments.</SUBJECT> <P>(a) <E T="03">General.</E> In order to adopt a charter amendment, a Federal stock association must comply with the following requirements:</P> <P>(1) <E T="03">Board of directors approval.</E> The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment.</P> <P>(2) <E T="03">Form of filing</E>—(i) <E T="03">Application requirement.</E> If the proposed charter amendment would render more difficult or discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a block of the association's stock, the removal of incumbent management, or involve a significant issue of law or policy, the association shall file the proposed amendment and shall obtain the prior approval of the OTS; and</P> <P>(ii) <E T="03">Notice requirement.</E> If the proposed charter amendment does not involve a provision that would be covered by paragraph (a)(2)(i) of this section and such amendment is permissible under all applicable laws, rules or regulations, then the association shall submit the proposed amendments to the OTS, at least 30 days prior to the date the proposed charter amendment is to be mailed for consideration by the association's shareholders.</P> <P>(b) <E T="03">Approval.</E> Any charter amendment filed pursuant to paragraph (a)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment, unless prior to the expiration of such 30-day period the OTS notifies the association that such amendment is rejected or that such amendment is deemed to be filed under the provisions of paragraph (a)(2)(i) of this section. In addition, the following charter amendments, including the adoption of the Federal stock charter as set forth in § 552.3 of this part, shall be approved at the time of adoption, if adopted without change and filed with OTS within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments:</P> <P>(1) <E T="03">Title change.</E> A Federal stock association that has complied with § 543.1(b) of this chapter may amend its charter by substituting a new corporate title in section 1.<PRTPAGE P="109"/> </P> <P>(2) <E T="03">Home office.</E> A Federal stock association that has complied with § 545.95 of this chapter may amend its charter by substituting a new home office in section 2.</P> <P>(3) <E T="03">Number of shares of stock and par value.</E> A Federal stock association may amend Section 5 of its charter to change the number of authorized shares of stock, the number of shares within each class of stock, and the par or stated value of such shares.</P> <P>(4) <E T="03">Capital stock.</E> A Federal stock association may amend its charter by revising Section 5 to read as follows: </P> <EXTRACT> <P> <E T="03">Section 5. Capital stock.</E> The total number of shares of all classes of capital stock that the association has the authority to issue is <E T="72">___</E>, of which <E T="72">___</E> shall be common stock of par [or if no par value is specified the stated] value of <E T="72">___</E> per share and of which [list the number of each class of preferred and the par or if no par value is specified the stated value per share of each such class]. The shares may be issued from time to time as authorized by the board of directors without further approval of shareholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor, or services actually performed for the association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the association that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.</P> <P>Except for shares issued in the initial organization of the association or in connection with the conversion of the association from the mutual to the stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the association other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.</P> <P>Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class of a series of capital stock to vote as a separate class or series or to more than one vote per share, except as to the cumulation of votes for the election of directors, unless the charter otherwise provides that there shall be no such cumulative voting: <E T="03">Provided</E>, That this restriction on voting separately by class or series shall not apply:</P> <P>(i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the board of directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;</P> <P>(ii) To any provision that would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the association with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the association if the preferred stock is exchanged for securities of such other corporation: <E T="03">Provided,</E> That no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the Office or the Federal Deposit Insurance Corporation;</P> <P>(iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving association in a merger or consolidation for the association, shall not be considered to be such an adverse change.</P> <P>A description of the different classes and series (if any) of the association's capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:</P> <P>A. <E T="03">Common stock.</E> Except as provided in this Section 5 (or in any supplementary sections thereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of the common stock shall be entitled to one vote for each share held by each holder, except as to the cumulation of votes for the election of directors, unless the charter otherwise provides that there shall be no such cumulative voting.<PRTPAGE P="110"/> </P> <P>Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.</P> <P>In the event of any liquidation, dissolution, or winding up of the association, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the association available for distribution remaining after: (i) Payment or provision for payment of the association's debts and liabilities; (ii) distributions or provision for distributions in settlement of its liquidation account; and (iii) distributions or provision for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the association. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.</P> <P>B. <E T="03">Preferred stock.</E> The association may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:</P> <P>(a) The distinctive serial designation and the number of shares constituting such series;</P> <P>(b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends;</P> <P>(c) The voting powers, full or limited, if any, of shares of such series;</P> <P>(d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed;</P> <P>(e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association;</P> <P>(f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;</P> <P>(g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the association and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange.</P> <P>(h) The price or other consideration for which the shares of such series shall be issued; and</P> <P>(i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.</P> <P>Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series.</P> <P>The board of directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established.</P> <P>Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the board of directors, the association shall file with the Secretary to the Office a dated copy of that supplementary section of this charter established and designating the series and fixing and determining the relative rights and preferences thereof.</P> </EXTRACT> <P>(5) <E T="03">Limitations on subsequent issuances.</E> A Federal stock association may amend its charter to require shareholder approval of the issuance or reservation of common stock or securities convertible into common stock under circumstances which would require shareholder approval under the rules of the New York or American Stock Exchange if the shares were then listed on the New York or American Stock Exchange.<PRTPAGE P="111"/> </P> <P>(6) <E T="03">Cumulative voting.</E> A Federal stock association may amend its charter by substituting the following sentence for the second sentence in the third paragraph of Section 5: “Each holder of shares of common stock shall be entitled to one vote for each share held by such holder and there shall be no right to cumulate votes in an election of directors.”</P> <P>(7) [Reserved]</P> <P>(8) <E T="03">Anti-takeover provisions following mutual to stock conversion.</E> Notwithstanding the law of the state in which the association is located, a Federal stock association may amend its charter by renumbering existing sections as appropriate and adding a new section 8 as follows: </P> <EXTRACT> <P> <E T="03">Section 8. Certain Provisions Applicable for Five Years.</E> Notwithstanding anything contained in the Association's charter or bylaws to the contrary, for a period of [specify number of years up to five] years from the date of completion of the conversion of the Association from mutual to stock form, the following provisions shall apply:</P> <P>A. <E T="03">Beneficial Ownership Limitation</E>. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of an equity security of the association. This limitation shall not apply to a transaction in which the association forms a holding company without change in the respective beneficial ownership interests of its stockholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under § 574.3(c)(1)(vi) of the Office's regulations.</P> <P>In the event shares are acquired in violation of this section 8, all shares beneficially owned by any person in excess of 10% shall be considered “excess shares” and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the stockholders for a vote.</P> <P>For purposes of this section 8, the following definitions apply:</P> <P>(1) The term “person” includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the association.</P> <P>(2) The term “offer” includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value.</P> <P>(3) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.</P> <P>(4) The term “acting in concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangements, whether written or otherwise.</P> <P>B. <E T="03">Cumulative Voting Limitation</E>. Stockholders shall not be permitted to cumulate their votes for election of directors.</P> <P>C. <E T="03">Call for Special Meetings</E>. Special meetings of stockholders relating to changes in control of the association or amendments to its charter shall be called only upon direction of the board of directors.</P> </EXTRACT> <P>(c) <E T="03">Anti-takeover provisions.</E> The Office may grant approval to a charter amendment not listed in paragraph (b) of this section regarding the acquisition by any person or persons of its equity securities provided that the association shall file as part of its application for approval an opinion, acceptable to the OTS, of counsel independent from the association that the proposed charter provision would be permitted to be adopted by a corporation chartered by the state in which the principal office of the association is located. Any such provision must be consistent with applicable statutes, regulations, and OTS policies. Further, any such provision that would have the effect of rendering more difficult a change in control of the association and would require for any corporate action (other than the removal of directors) the affirmative vote of a larger percentage of shareholders than is required by this Part, shall not be effective unless adopted by a percentage of shareholder vote at least equal to the highest percentage that would be required to take any action under such provision.</P> <P>(d) <E T="03">Reissuance of charter</E>. A Federal stock association that has amended its charter may apply to have its charter, including the amendments, reissued by the Office. Such requests for reissuance should be filed in accordance with <PRTPAGE P="112"/>§ 516.1(c) of this chapter and contain signatures required under § 552.3 of this part, together with such supporting documents as needed to demonstrate that the amendments were properly adopted.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13513, Apr. 11, 1990; 57 FR 14343, Apr. 20, 1992; 59 FR 18476, Apr. 19, 1994; 61 FR 64018, Dec. 3, 1996; 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.5</SECTNO> <SUBJECT>Bylaws.</SUBJECT> <P>(a) <E T="03">General.</E> At its first organizational meeting, the board of directors of a Federal stock association shall adopt a set of bylaws for the administration and regulation of its affairs. Bylaws may be adopted, amended or repealed by either a majority of the votes cast by the shareholders at a legal meeting or a majority of the board of directors. The bylaws shall contain sufficient provisions to govern the association in accordance with the requirements of §§ 552.6, 552.6-1, 552.6-2, and 552.6-3 of this part and shall not contain any provision that is inconsistent with those sections or with applicable laws, rules, regulations or the association's charter, except that a bylaw provision inconsistent with §§ 552.6, 552.6-1, 552.6-3, and 552.6-4 of this part may be adopted with the approval of the OTS.</P> <P>(b) <E T="03">Form of Filing</E>—(1) <E T="03">Application requirement.</E> (i) Any bylaw amendment shall be submitted to the OTS for approval if it would:</P> <P>(A) Render more difficult or discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of the association's stock, or the removal of incumbent management; or</P> <P>(B) Be inconsistent with §§ 552.6, 552.6-1, 552.6-2, and 552.6-3 of this part, with applicable laws, rules, regulations or the association's charter or involve a significant issue of law or policy, including indemnification, conflicts of interest, and limitations on director or officer liability.</P> <P>(ii) Applications submitted under paragraph (b)(1)(i) of this section shall be subject to the applications processing procedures set forth at § 516.2 of this chapter.</P> <P>(iii) Bylaw provisions that adopt the language of the model bylaws set forth in the OTS's Application Processing Handbook, if adopted without change, and filed with OTS within 30 days after adoption, are effective upon adoption. </P> <P>(2) <E T="03">Filing requirement.</E> If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (b)(1) or (b)(3) of this section and is permissible under all applicable laws, rules, or regulations, then the association shall submit the amendment to the OTS at least 30 days prior to the date the bylaw amendment is to be adopted by the association.</P> <P>(3) <E T="03">Corporate governance procedures.</E> A Federal stock association may elect to follow the corporate governance procedures of: The laws of the state where the main office of the association is located; the laws of the state where the association's holding company, if any, is incorporated or chartered; Delaware General Corporation law; or The Model Business Corporation Act, provided that such procedures may be elected to the extent not inconsistent with applicable Federal statutes and regulations and safety and soundness, and such procedures are not of the type described in paragraph (b)(1) of this section. If this election is selected, a Federal stock association shall designate in its bylaws the provision or provisions from the body or bodies of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (b)(1) of this section.</P> <P>(c) <E T="03">Effectiveness.</E> Any bylaw amendment filed pursuant to paragraph (b)(2) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment, unless prior to the expiration of such 30-day period the OTS notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (b)(1) of this section.</P> <P>(d) <E T="03">Effect of subsequent charter or bylaw change.</E> Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal stock <PRTPAGE P="113"/>association to engage in any transaction shall be determined only by the association's charter or bylaws then in effect, unless otherwise provided by Federal law or regulation.</P> <CITA>[57 FR 14343, Apr. 20, 1992, as amended at 60 FR 66718, Dec. 26, 1995; 61 FR 64019, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.6</SECTNO> <SUBJECT>Shareholders.</SUBJECT> <P>(a) <E T="03">Shareholder meetings.</E> An annual meeting of the shareholders of the association for the election of directors and for the transaction of any other business of the association shall be held annually within 150 days after the end of the association's fiscal year. Unless otherwise provided in the association's charter, special meetings of the shareholders may be called by the board of directors or on the request of the holders of 10 percent or more of the shares entitled to vote at the meeting, or by such other persons as may be specified in the bylaws of the association. All annual and special meetings of shareholders shall be held at such place as the board of directors may determine in the state in which the association has its principal place of business, or at any other convenient place the board of directors may designate.</P> <P>(b) <E T="03">Notice of shareholder meetings.</E> Written notice stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, the secretary, or the directors, or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address appearing on the stock transfer books or records of the association as of the record date prescribed in paragraph (c) of this section, with postage thereon prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Notwithstanding anything in this section, however, a Federal stock association that is wholly owned shall not be subject to the shareholder notice requirement.</P> <P>(c) <E T="03">Fixing of record date.</E> For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof.</P> <P>(d) <E T="03">Voting lists.</E> (1) At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for the shares of the association shall make a complete list of the stockholders of record entitled to vote at such meeting, or any adjournments thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the association and shall be subject to inspection by any shareholder of record or the stockholder's agent during the entire time of the meeting. The original stock transfer book shall constitute <E T="03">prima facie</E> evidence of the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders. Notwithstanding anything in this section, however, a Federal stock association that is wholly owned shall not be subject to the voting list requirements.</P> <P>(2) In lieu of making the shareholders list available for inspection by any shareholders as provided in paragraph (d)(1) of this section, the board of directors may perform such acts as required by paragraphs (a) and (b) of Rule 14a-7 of the General Rules and Regulations under the Securities and Exchange Act <PRTPAGE P="114"/>of 1934 (17 CFR 240.14a-7) as may be duly requested in writing, with respect to any matter which may be properly considered at a meeting of shareholders, by any shareholder who is entitled to vote on such matter and who shall defray the reasonable expenses to be incurred by the association in performance of the act or acts required.</P> <P>(e) <E T="03">Shareholder quorum.</E> A majority of the outstanding shares of the association entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number of stockholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of directors.</P> <P>(f) <E T="03">Shareholder voting—</E>(1) <E T="03">Proxies.</E> Unless otherwise provided in the association's charter, at all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by a duly authorized attorney in fact. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the shareholder. A proxy may designate as holder a corporation, partnership or company as defined in Part 574 of this chapter, or other person. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.</P> <P>(2) <E T="03">Shares controlled by association.</E> Neither treasury shares of its own stock held by the association nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the association, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.</P> <P>(g) <E T="03">Nominations and new business submitted by shareholders.</E> Nominations for directors and new business submitted by shareholders shall be voted upon at the annual meeting if such nominations or new business are submitted in writing and delivered to the secretary of the association at least five days prior to the date of the annual meeting. Ballots bearing the names of all the persons nominated shall be provided for use at the annual meeting.</P> <P>(h) <E T="03">Informal action by stockholders.</E> If the bylaws of the association so provide, any action required to be taken at a meeting of the stockholders, or any other action that may be taken at a meeting of the stockholders, may be taken without a meeting if consent in writing has been given by all the stockholders entitled to vote with respect to the subject matter.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 59 FR 18476, Apr. 19, 1994; 61 FR 64019, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.6-1</SECTNO> <SUBJECT>Board of directors.</SUBJECT> <P>(a) <E T="03">General powers and duties.</E> The business and affairs of the association shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board from among its members and shall designate the chairman of the board, when present, to preside at its meeting. Directors need not be stockholders unless the bylaws so require.</P> <P>(b) <E T="03">Number and term.</E> The bylaws shall set forth a specific number of directors, not a range. The number of directors shall be not fewer than five nor more than fifteen, unless a higher or lower number has been authorized by the Director of the Office or his or her delegate. Directors shall be elected for a term of one to three years and until their successors are elected and qualified. If a staggered board is chosen, the directors shall be divided into two or three classes as nearly equal in number as possible and one class shall be elected by ballot annually. In the case of a converting or newly chartered association where all directors shall be elected at the first election of directors, if a <PRTPAGE P="115"/>staggered board is chosen, the terms shall be staggered in length from one to three years.</P> <P>(c) <E T="03">Regular meetings.</E> A regular meeting of the board of directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. The board of directors shall determine the place, frequency, time and procedure for notice of regular meetings.</P> <P>(d) <E T="03">Quorum.</E> A majority of the number of directors shall constitute a quorum for the transaction of business at any meeting of the board of directors. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the Office.</P> <P>(e) <E T="03">Vacancies.</E> Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders.</P> <P>(f) <E T="03">Removal or resignation of directors.</E> (1) At a meeting of shareholders called expressly for that purpose, any director may be removed only for cause, as defined in § 563.39 of this chapter, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Associations may provide for procedures regarding resignations in the bylaws.</P> <P>(2) If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against the removal would be sufficient to elect a director if then cumulatively voted at an election of the class of directors of which such director is a part.</P> <P>(3) Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.</P> <P>(g) <E T="03">Executive and other committees.</E> The board of directors, by resolution adopted by a majority of the full board, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution or bylaws of the association, shall have and may exercise all of the authority of the board of directors, except no committee shall have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the association; recommending to the stockholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all, or substantially all, of the property and assets of the association otherwise than in the usual and regular course of its business; a voluntary dissolution of the association; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. The designation of any committee and the delegation of authority thereto shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation.</P> <P>(h) <E T="03">Notice of special meetings.</E> Written notice of at least 24 hours regarding any special meeting of the board of directors or of any committee designated thereby shall be given to each director in accordance with the bylaws, although such notice may be waived by the director. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in the notice or waiver of notice of such meeting. The bylaws may provide for telephonic participation at a meeting.<PRTPAGE P="116"/> </P> <P>(i) <E T="03">Action without a meeting.</E> Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the actions so taken, shall be signed by all of the directors.</P> <P>(j) <E T="03">Presumption of assent.</E> A director of the association who is present at a meeting of the board of directors at which action on any association matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless a written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the association within five days after the date on which a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.</P> <P>(k) <E T="03">Age limitation on directors.</E> A Federal association may provide a bylaw on age limitation for directors. Bylaws on age limitations must comply with all Federal laws, rules and regulations.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 58 FR 4312, Jan. 14, 1993; 61 FR 64020, Dec. 3, 1996; 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.6-2</SECTNO> <SUBJECT>Officers.</SUBJECT> <P>(a) <E T="03">Positions.</E> The officers of the association shall be a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and the vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the association may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.</P> <P>(b) <E T="03">Removal.</E> Any officer may be removed by the board of directors whenever in its judgment the best interests of the association will be served thereby; but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Employment contracts shall conform with § 563.39 of this chapter.</P> <P>(c) <E T="03">Age limitation on officers.</E> A Federal association may provide a bylaw on age limitation for officers. Bylaws on age limitations must comply with all Federal laws, rules, and regulations.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 56 FR 59866, Nov. 26, 1991; 60 FR 66869, Dec. 27, 1995; 61 FR 64020, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.6-3</SECTNO> <SUBJECT>Certificates for shares and their transfer.</SUBJECT> <P>(a) <E T="03">Certificates for shares.</E> Certificates representing shares of capital stock of the association shall be in such form as shall be determined by the board of directors and approved by the OTS. The certificates shall be signed by the chief executive officer or by any other officer of the association authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the association itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the association. All certificates surrendered to the association for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost or destroyed certificate a new certificate may be issued upon such terms and indemnity to the <PRTPAGE P="117"/>association as the board of directors may prescribe.</P> <P>(b) <E T="03">Transfer of shares.</E> Transfer of shares of capital stock of the association shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by a legal representative, who shall furnish proper evidence of such authority, or by an attorney authorized by a duly executed power of attorney and filed with the association. The transfer shall be made only on surrender for cancellation of the certificate for the shares. The person in whose name shares of capital stock stand on the books of the association shall be deemed by the association to be the owner for all purposes.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 55 FR 13514, Apr. 11, 1990; 57 FR 14343, Apr. 20, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.6-4</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 552.9</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 552.10</SECTNO> <SUBJECT>Annual reports to stockholders.</SUBJECT> <P>A Federal stock association not wholly-owned by a holding company shall, within 130 days after the end of its fiscal year, mail to each of its stockholders entitled to vote at its annual meeting an annual report containing financial statements that satisfy the requirements of rule 14a-3 under the Securities Exchange Act of 1934. (17 CFR 240.14a-3). Concurrently with such mailing a certification of such mailing signed by the chairman of the board, the president or a vice president of the association, together with copies of the report, shall be transmitted by the association to the OTS.</P> <CITA>[57 FR 14343, Apr. 20, 1992, as amended at 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.11</SECTNO> <SUBJECT>Books and records.</SUBJECT> <P>(a) Each Federal stock association shall keep correct and complete books and records of account; shall keep minutes of the proceedings of its stockholders, board of directors, and committees of directors; and shall keep at its home office or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders, and the number, class and series, if any, of the shares held by each.</P> <P>(b) Any stockholder or group of stockholders of a Federal stock association, holding of record the number of voting shares of such association specified below, upon making written demand stating a proper purpose, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, nonconfidential portions of its books and records of account, minutes and record of stockholders and to make extracts therefrom. Such right of examination is limited to a stockholder or group of stockholders holding of record:</P> <P>(1) Voting shares having a cost of not less than $100,000 or constituting not less than one percent of the total outstanding voting shares, provided in either case such stockholder or group of stockholders have held of record such voting shares for a period of at least six months before making such written demand, or</P> <P>(2) Not less than five percent of the total outstanding voting shares.</P> <FP>No stockholder or group of stockholders of a Federal stock association shall have any other right under this section or common law to examine its books and records of account, minutes and record of stockholders, except as provided in its bylaws with respect to inspection of a list of stockholders.</FP> <P>(c) The right to examination authorized by paragraph (b) of this section and the right to inspect the list of stockholders provided by a Federal stock association's bylaws may be denied to any stockholder or group of stockholders upon the refusal of any such stockholder or group of stockholders to furnish such association, its transfer agent or registrar an affidavit that such examination or inspection is not desired for any purpose which is in the interest of a business or object other than the business of the association, that such stockholder has not within the five years preceding the date of the affidavit sold or offered for sale, and does not now intend to sell or offer for sale, any list of stockholders of the association or of any other corporation, and that such stockholder has not within said five-year period aided or abetted any other person in <PRTPAGE P="118"/>procuring any list of stockholders for purposes of selling or offering for sale such list.</P> <P>(d) Notwithstanding any provision of this section or common law, no stockholder or group of stockholders shall have the right to obtain, inspect or copy any portion of any books or records of a Federal stock association containing:</P> <P>(1) A list of depositors in or borrowers from such association;</P> <P>(2) Their addresses;</P> <P>(3) Individual deposit or loan balances or records; or</P> <P>(4) Any data from which such information could be reasonably constructed.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 61 FR 64020, Dec. 3, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 552.12</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 552.13</SECTNO> <SUBJECT>Combinations involving Federal stock associations.</SUBJECT> <P>(a) <E T="03">Scope and authority.</E> 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 § 563.22 of this chapter.</P> <P>(b) <E T="03">Definitions.</E> The following definitions apply to §§ 552.13 and 552.14 of this part:</P> <P>(1) <E T="03">Combination.</E> 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. <E T="03">Combine</E> means to be a constituent institution in a combination.</P> <P>(2) <E T="03">Consolidation.</E> Fusion of two or more depository institutions into a newly-created depository institution.</P> <P>(3) <E T="03">Constituent institution.</E> Resulting, disappearing, acquiring, or transferring depository institution in a combination.</P> <P>(4) <E T="03">Depository institution</E> 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.</P> <P>(5) <E T="03">Disappearing institution.</E> A depository institution whose corporate existence does not continue after a combination.</P> <P>(6) <E T="03">Merger.</E> 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.</P> <P>(7) <E T="03">Mutual savings association.</E> Any savings association organized in a form not requiring non-withdrawable stock under Federal or State law.</P> <P>(8) <E T="03">Resulting institution.</E> The depository institution whose corporate existence continues after a combination.</P> <P>(9) <E T="03">Savings association</E> has the same meaning as defined in § 561.43 of this chapter.</P> <P>(10) <E T="03">State.</E> Includes the District of Columbia, Commonwealth of Puerto Rico, and States, territories, and possessions of the United States.</P> <P>(11) <E T="03">Stock association.</E> Any savings association organized in a form requiring non-withdrawable stock.</P> <P>(c) <E T="03">Forms of combination.</E> A Federal stock association may combine with any depository institution, provided that:</P> <P>(1) The combination is in compliance with, and receives all approvals required under, any applicable statutes and regulations;</P> <P>(2) Any resulting Federal savings association meets the requirements for Federal Home Loan Bank membership and insurance of accounts;</P> <P>(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</P> <P>(4) If any constituent savings association is a mutual savings association, the resulting institution shall be mutually held, unless:<PRTPAGE P="119"/> </P> <P>(i) The transaction involves a supervisory merger;</P> <P>(ii) The transaction is approved under part 563b of this chapter;</P> <P>(iii) The transaction involves an interim Federal stock association or an interim State stock savings association; or</P> <P>(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.</P> <P>(d) <E T="03">Combinations.</E> Prior written notification to, notice to, or prior written approval of, the Office pursuant to § 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 § 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.</P> <P>(e) <E T="03">Approval of the board of directors.</E> Before filing a notice or application for any combination involving a Federal stock association, the combination shall be approved:</P> <P>(1) By a two-thirds vote of the entire board of each constituent Federal savings association; and</P> <P>(2) As required by other applicable Federal or state law, for other constituent institutions.</P> <P>(f) <E T="03">Combination agreement.</E> 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:</P> <P>(1) That the combination shall not be effective unless and until:</P> <P>(i) The combination receives any necessary approval from the Office pursuant to § 563.22 (a) or (c);</P> <P>(ii) In the case of a transaction requiring a notification pursuant to § 563.22(b), notification has been provided to the OTS; or</P> <P>(iii) In the case of a transaction requiring a notice pursuant to § 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;</P> <P>(2) Which constituent institution is to be the resulting institution;</P> <P>(3) The name of the resulting institution;</P> <P>(4) The location of the home office and any other offices of the resulting institution;</P> <P>(5) The terms and conditions of the combination and the method of effectuation;</P> <P>(6) Any charter amendments, or the new charter in the combination;</P> <P>(7) The basis upon which the savings accounts of the resulting institution shall be issued;</P> <P>(8) If a Federal association is the resulting institution, the number, names, residence addresses, and terms of directors;</P> <P>(9) The effect upon and assumption of any liquidation account of a disappearing institution by the resulting institution; and</P> <P>(10) Such other provisions, agreements, or understandings as relate to the combination.</P> <P>(g) [Reserved]</P> <P>(h) <E T="03">Approval by stockholders</E>—(1) <E T="03">General rule.</E> 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 § 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.</P> <P>(2) <E T="03">General exception.</E> Stockholders of the resulting Federal stock association need not authorize a combination agreement if:</P> <P>(i) It does not involve an interim Federal savings association or an interim state savings association;</P> <P>(ii) The association's charter is not changed;</P> <P>(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</P> <P>(iv) Either:<PRTPAGE P="120"/> </P> <P>(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</P> <P>(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.</P> <P>(3) <E T="03">Exceptions for certain combinations involving an interim association</E>. Stockholders of a Federal stock association need not authorize by a two-thirds affirmative vote combinations involving an interim Federal savings association or interim state savings association when the resulting Federal stock association is acquired pursuant to § 574.7(a)(2) of this chapter. In those cases, an affirmative vote of 50 percent of the shares of the outstanding voting stock of the Federal stock association plus one affirmative vote shall be required. If any class of shares is entitled to vote as a class pursuant to § 552.4 of this part, an affirmative vote of 50 percent of the shares of each voting class plus one affirmative vote shall be required. The required votes shall be taken at a meeting of the association.</P> <P>(i) <E T="03">Disclosure.</E> The OTS may require, in connection with a combination under this section, such disclosure of information as the OTS deems necessary or desirable for the protection of investors in any of the constituent associations.</P> <P>(j) <E T="03">Articles of combination.</E> (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:</P> <P>(i) The plan of combination;</P> <P>(ii) The number of shares outstanding in each depository institution; and</P> <P>(iii) The number of shares in each depository institution voted for and against such plan.</P> <P>(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.</P> <P>(k) <E T="03">Effective date.</E> 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.</P> <P>(l) <E T="03">Mergers and consolidations: transfer of assets and liabilities to the resulting institution.</E> 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.</P> <CITA>[54 FR 49523, Nov. 30, 1989, as amended at 57 FR 14343, Apr. 20, 1992; 59 FR 44623, Aug. 30, 1994]</CITA> </SECTION> <SECTION> <PRTPAGE P="121"/> <SECTNO>§ 552.14</SECTNO> <SUBJECT>Dissenter and appraisal rights.</SUBJECT> <P>(a) <E T="03">Right to demand payment of fair or appraised value</E>. Except as provided in paragraph (b) of this section, any stockholder of a Federal stock association combining in accordance with § 552.13 of this part shall have the right to demand payment of the fair or appraised value of his stock: <E T="03">Provided,</E> That such stockholder has not voted in favor of the combination and complies with the provisions of paragraph (c) of this section.</P> <P>(b) <E T="03">Exceptions</E>. No stockholder required to accept only qualified consideration for his or her stock shall have the right under this section to demand payment of the stock's fair or appraised value, if such stock was listed on a national securities exchange or quoted on the National Association of Securities Dealers' Automated Quotation System (“NASDAQ”) on the date of the meeting at which the combination was acted upon or stockholder action is not required for a combination made pursuant to § 552.13(h)(2) of this part. “Qualified consideration” means cash, shares of stock of any association or corporation which at the effective date of the combination will be listed on a national securities exchange or quoted on NASDAQ, or any combination of such shares of stock and cash.</P> <P>(c) <E T="03">Procedure</E>—(1) <E T="03">Notice.</E> Each constituent Federal stock association shall notify all stockholders entitled to rights under this section, not less than twenty days prior to the meeting at which the combination agreement is to be submitted for stockholder approval, of the right to demand payment of appraised value of shares, and shall include in such notice a copy of this section. Such written notice shall be mailed to stockholders of record and may be part of management's proxy solicitation for such meeting.</P> <P>(2) <E T="03">Demand for appraisal and payment</E>. Each stockholder electing to make a demand under this section shall deliver to the Federal stock association, before voting on the combination, a writing identifying himself or herself and stating his or her intention thereby to demand appraisal of and payment for his or her shares. Such demand must be in addition to and separate from any proxy or vote against the combination by the stockholder.</P> <P>(3) <E T="03">Notification of effective date and written offer</E>. Within ten days after the effective date of the combination, the resulting association shall:</P> <P>(i) Give written notice by mail to stockholders of constituent Federal stock associations who have complied with the provisions of paragraph (c)(2) of this section and have not voted in favor of the combination, of the effective date of the combination;</P> <P>(ii) Make a written offer to each stockholder to pay for dissenting shares at a specified price deemed by the resulting association to be the fair value thereof; and</P> <P>(iii) Inform them that, within sixty days of such date, the respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the notice) must be satisfied.</P> <FP>The notice and offer shall be accompanied by a balance sheet and statement of income of the association the shares of which the dissenting stockholder holds, for a fiscal year ending not more than sixteen months before the date of notice and offer, together with the latest available interim financial statements.</FP> <P>(4) <E T="03">Acceptance of offer</E>. If within sixty days of the effective date of the combination the fair value is agreed upon between the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section, payment therefor shall be made within ninety days of the effective date of the combination.</P> <P>(5) <E T="03">Petition to be filed if offer not accepted</E>. If within sixty days of the effective date of the combination the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section do not agree as to the fair value, then any such stockholder may file a petition with the Office, with a copy by registered or certified mail to the resulting association, demanding a determination of the fair market value of the stock of all such stockholders. A stockholder entitled to file a petition under this section who fails to file such petition within sixty days of the effective date of the combination shall be <PRTPAGE P="122"/>deemed to have accepted the terms offered under the combination.</P> <P>(6) <E T="03">Stock certificates to be noted</E>. Within sixty days of the effective date of the combination, each stockholder demanding appraisal and payment under this section shall submit to the transfer agent his certificates of stock for notation thereon that an appraisal and payment have been demanded with respect to such stock and that appraisal proceedings are pending. Any stockholder who fails to submit his or her stock certificates for such notation shall no longer be entitled to appraisal rights under this section and shall be deemed to have accepted the terms offered under the combination.</P> <P>(7) <E T="03">Withdrawal of demand</E>. Notwithstanding the foregoing, at any time within sixty days after the effective date of the combination, any stockholder shall have the right to withdraw his or her demand for appraisal and to accept the terms offered upon the combination.</P> <P>(8) <E T="03">Valuation and payment</E>. The Director shall, as he or she may elect, either appoint one or more independent persons or direct appropriate staff of the Office to appraise the shares to determine their fair market value, as of the effective date of the combination, exclusive of any element of value arising from the accomplishment or expectation of the combination. Appropriate staff of the Office shall review and provide an opinion on appraisals prepared by independent persons as to the suitability of the appraisal methodology and the adequacy of the analysis and supportive data. The Director after consideration of the appraisal report and the advice of the appropriate staff shall, if he or she concurs in the valuation of the shares, direct payment by the resulting association of the appraised fair market value of the shares, upon surrender of the certificates representing such stock. Payment shall be made, together with interest from the effective date of the combination, at a rate deemed equitable by the Director.</P> <P>(9) <E T="03">Costs and expenses</E>. The costs and expenses of any proceeding under this section may be apportioned and assessed by the Director as he or she may deem equitable against all or some of the parties. In making this determination the Director shall consider whether any party has acted arbitrarily, vexatiously, or not in good faith in respect to the rights provided by this section.</P> <P>(10) <E T="03">Voting and distribution</E>. Any stockholder who has demanded appraisal rights as provided in paragraph (c)(2) of this section shall thereafter neither be entitled to vote such stock for any purpose nor be entitled to the payment of dividends or other distributions on the stock (except dividends or other distribution payable to, or a vote to be taken by stockholders of record at a date which is on or prior to, the effective date of the combination): <E T="03">Provided</E>, That if any stockholder becomes unentitled to appraisal and payment of appraised value with respect to such stock and accepts or is deemed to have accepted the terms offered upon the combination, such stockholder shall thereupon be entitled to vote and receive the distributions described above.</P> <P>(11) <E T="03">Status</E>. Shares of the resulting association into which shares of the stockholders demanding appraisal rights would have been converted or exchanged, had they assented to the combination, shall have the status of authorized and unissued shares of the resulting association.</P> </SECTION> <SECTION> <SECTNO>§ 552.15</SECTNO> <SUBJECT>Supervisory combinations.</SUBJECT> <P>Notwithstanding the foregoing provisions of this part, the Director of the Office may waive or deem inapplicable any provision of § 552.13 or § 552.14 of this part if he or she determines that grounds exist, or may imminently exist, for appointment of a conservator or receiver for an association under subsection 5(d) of the Home Owners' Loan Act.</P> </SECTION> <SECTION> <SECTNO>§ 552.16</SECTNO> <SUBJECT>Effect of subsequent charter or bylaw change.</SUBJECT> <P>Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal stock association to engage in any transaction shall be determined only by the association's charter or bylaws then in effect.</P> </SECTION> </PART> <PART> <EAR>Pt. 555</EAR> <HD SOURCE="HED">PART 555—ELECTRONIC OPERATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>555.100</SECTNO> <SUBJECT>What does this part do?</SUBJECT> <SUBPART> <PRTPAGE P="123"/> <HD SOURCE="HED">Subpart A—Authority of Federal Savings Associations to Conduct Electronic Operations</HD> <SECTNO>555.200</SECTNO> <SUBJECT>How may I use or participate with others to use electronic means and facilities?</SUBJECT> <SECTNO>555.210</SECTNO> <SUBJECT>What precautions must I take?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Requirements Applicable to All Savings Associations</HD> <SECTNO>555.300</SECTNO> <SUBJECT>Must I inform OTS before I use electronic means or facilities?</SUBJECT> <SECTNO>555.310</SECTNO> <SUBJECT>How do I notify OTS?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>63 FR 65682, Nov. 30, 1998, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 555.100</SECTNO> <SUBJECT>What does this part do?</SUBJECT> <P>Subpart A of this part describes how a Federal savings association may provide products and services through electronic means and facilities. Subpart B of this part contains requirements applicable to all savings associations.</P> </SECTION> <SUBPART> <HD SOURCE="HED">Subpart A—Authority of Federal Savings Associations to Conduct Electronic Operations</HD> <SECTION> <SECTNO>§ 555.200</SECTNO> <SUBJECT>How may I use or participate with others to use electronic means and facilities?</SUBJECT> <P>(a) <E T="03">General.</E> A Federal savings association (“you”) may use, or participate with others to use, electronic means or facilities to perform any function, or provide any product or service, as part of an authorized activity. Electronic means or facilities include, but are not limited to, automated teller machines, automated loan machines, personal computers, the Internet, the World Wide Web, telephones, and other similar electronic devices.</P> <P>(b) <E T="03">Other.</E> To optimize the use of your resources, you may market and sell, or participate with others to market and sell, electronic capacities and by-products to third-parties, if you acquired or developed these capacities and by-products in good faith as part of providing financial services.</P> </SECTION> <SECTION> <SECTNO>§ 555.210</SECTNO> <SUBJECT>What precautions must I take?</SUBJECT> <P>If you use electronic means and facilities under this subpart, your management must:</P> <P>(a) Identify, assess, and mitigate potential risks and establish prudent internal controls; and</P> <P>(b) Implement security measures designed to ensure secure operations. Such measures must be adequate to:</P> <P>(1) Prevent unauthorized access to your records and your customers' records;</P> <P>(2) Prevent financial fraud through the use of electronic means or facilities; and</P> <P>(3) Comply with applicable security devices requirements of part 568 of this chapter.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Requirements Applicable to All Savings Associations</HD> <SECTION> <SECTNO>§ 555.300</SECTNO> <SUBJECT>Must I inform OTS before I use electronic means or facilities?</SUBJECT> <P>(a) <E T="03">General.</E> A savings association (“you”) are not required to inform OTS before you use electronic means or facilities, except as provided in paragraphs (b) and (c) of this section. However, OTS encourages you to consult with your Regional Office before you engage in any activities using electronic means or facilities.</P> <P>(b) <E T="03">Activities requiring advance notice.</E> You must file a written notice as described in § 555.310 before you establish a transactional web site. A transactional web site is an Internet site that enables users to conduct financial transactions such as accessing an account, obtaining an account balance, transferring funds, processing bill payments, opening an account, applying for or obtaining a loan, or purchasing other authorized products or services.</P> <P>(c) <E T="03">Other procedures.</E> If the OTS Regional Office informs you of any supervisory or compliance concerns that may affect your use of electronic means or facilities, you must follow any procedures it imposes in writing.</P> </SECTION> <SECTION> <PRTPAGE P="124"/> <SECTNO>§ 555.310</SECTNO> <SUBJECT>How do I notify OTS?</SUBJECT> <P>(a) <E T="03">Notice requirement.</E> You must file a written notice with the appropriate Regional Office at least 30 days before you establish a transactional web site. The notice must do three things:</P> <P>(1) Describe the transactional web site.</P> <P>(2) Indicate the date the transactional web site will become operational.</P> <P>(3) List a contact familiar with the deployment, operation, and security of the transactional web site.</P> <P>(b) <E T="03">Transition provision.</E> If you established a transactional web site after the date of your last regular onsite OTS safety and soundness examination but before January 1, 1999, you must file a notice describing your activity by February 1, 1999.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 556</EAR> <HD SOURCE="HED">PART 556—STATEMENTS OF POLICY</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>556.5</SECTNO> <SUBJECT>Branching by Federal savings associations.</SUBJECT> <SECTNO>556.13</SECTNO> <SUBJECT>Receipt of interest expressed as a percentage of other income.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>5 U.S.C. 552, 559; 12 U.S.C. 1464, 1701j-3; 15 U.S.C. 1693-1693r.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49538, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 556.5</SECTNO> <SUBJECT>Branching by Federal savings associations.</SUBJECT> <P>(a) <E T="03">General.</E> A Federal association may branch in any state or states of the United States and its territories, except as provided in paragraph (b) of this section, subject to the requirements of paragraph (c) of this section.</P> <P>(b) <E T="03">Limitations.</E> No branching will be permitted under paragraph (a) of this section that will result in the following:</P> <P>(1) Establishment or operation of a branch outside the state in which the association has its home office in violation of section 5(r) of the Home Owners' Loan Act;</P> <P>(2) Formation by any company of a multiple savings and loan holding company controlling savings associations in more than one state in violation of section 10(e)(3) of the Home Owners' Loan Act; or</P> <P>(3) Acquisition of a savings association and the establishment and operation of new branches by such savings association in violation of section 13(k)(4) of the Federal Deposit Insurance Act.</P> <P>(c) <E T="03">Branching applications.</E> (1) <E T="03">General.</E> Prior to opening a branch, an association must obtain approval of a branching application pursuant to § 545.92 of this chapter. The Office may approve or deny an application based on information available from any source and supervisory objection may be interposed at any point during the processing of the application. In granting supervisory clearance to an applicant, the Office will consider whether the policies, condition, and operation of the applicant are satisfactory and afford no basis for supervisory objection.</P> <P>(2) <E T="03">Regulatory capital.</E> For supervisory clearance, an association's regulatory capital should meet or exceed the minimum requirements established by law and applicable regulations of the Office upon acquisition or establishment of the proposed branch or branches, except as otherwise permitted under section 38(e)(4) of the Federal Deposit Insurance Act.</P> <P>(3) <E T="03">Community reinvestment.</E> Pursuant to the Community Reinvestment Act of 1977 (12 U.S.C. 2901), the Office encourages savings associations to help meet in an affirmative and continuing manner the credit needs of all communities in which they do business, including low- and moderate-income neighborhoods, consistent with safe and sound operation. The Office will evaluate an applicant's record under part 563e of this chapter, may deny an application based on the assessment of the association's CRA record, and may approve a branch application on the condition that the association improve specific aspects of its community investment-related practices and performance to the satisfaction of the Office. However, in most cases, commitments by an applicant to improve its record of compliance with the CRA shall not be regarded as sufficient to overcome a seriously deficient CRA record at the time of application.</P> <P>(4) <E T="03">Comment procedures</E>. Comments on applications for branches must be submitted in writing and factually documented. Comment procedures are set forth in subpart C of part 516 of this <PRTPAGE P="125"/>chapter, § 563e.29 (c) and (d) of this chapter, the OTS Application Processing Handbook, and other supervisory guidance issued by the OTS.</P> <P>(5) <E T="03">Expiration of approvals.</E> If an association does not open a branch within the time specified in the approval, and the Director or his or her designee finds that the association is not making a good-faith effort to open the branch promptly, the approval will be deemed to have expired and the association will be required to reapply if it wants to branch in that location.</P> <P>(d) <E T="03">Federal preemption.</E> This exercise of the OTS's authority is preemptive of any state law purporting to address the subject of branching by a Federal savings association.</P> <CITA>[57 FR 12207, Apr. 9, 1992, as amended at 60 FR 66718, Dec. 26, 1995; 62 FR 64146, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 556.13</SECTNO> <SUBJECT>Receipt of interest expressed as a percentage of other income.</SUBJECT> <P>(a) With limited exceptions, Federal savings associations lack the statutory authority to acquire an equity interest either in real estate or in a corporation. Accordingly, Federal savings associations cannot, as part of a loan transaction, acquire an ownership interest in the security property or in a corporate borrower. The issue has arisen as to whether the receipt of a share of the income generated by the security property or of a corporate borrower, or any similar participation with the borrower in the loan project, necessarily constitutes an unauthorized acquisition of an equity interest.</P> <P>(b) The Office has determined that the receipt of such income or the right to receive income should not be considered an equity interest if it in substance constitutes no more than a part of the compensation received for the use of the Federal savings association's funds. Accordingly, if the borrower has an unconditional obligation to repay the loan principal, and if a Federal savings association receives a substantial payment of interest calculated periodically as a percentage of the outstanding principal loan balance, it may receive additional interest calculated on the basis of the income from or the appreciation of the security property, the income of a corporate borrower, or some other measure of a venture's success. The means by which a Federal savings association calculates its share of the income is not a material consideration in determining whether the share constitutes an equity interest in the property.</P> </SECTION> </PART> <PART> <EAR>Pt. 557</EAR> <HD SOURCE="HED">PART 557—DEPOSITS</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—General</HD> <SECHD>Sec.</SECHD> <SECTNO>557.1</SECTNO> <SUBJECT>What does this part do?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Deposit Activities of Federal Savings Associations</HD> <SECTNO>557.10</SECTNO> <SUBJECT>What authorities govern the issuance of deposit accounts by a federal savings association?</SUBJECT> <SECTNO>557.11</SECTNO> <SUBJECT>To what extent does Federal law preempt deposit-related State laws?</SUBJECT> <SECTNO>557.12</SECTNO> <SUBJECT>What are some examples of preempted state laws affecting deposits?</SUBJECT> <SECTNO>557.13</SECTNO> <SUBJECT>What State laws affecting deposits are not preempted?</SUBJECT> <SECTNO>557.14</SECTNO> <SUBJECT>What interest rate may I pay on savings accounts?</SUBJECT> <SECTNO>557.15</SECTNO> <SUBJECT>Who owns a deposit account?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Deposit Activities of All Savings Associations</HD> <SECTNO>557.20</SECTNO> <SUBJECT>What records should I maintain on deposit activities?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462a, 1463, 1464.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P> 62 FR 54764, Oct. 22, 1997, unless otherwise noted.</P> </SOURCE> <SUBPART> <HD SOURCE="HED">Subpart A—General</HD> <SECTION> <SECTNO>§ 557.1</SECTNO> <SUBJECT>What does this part do?</SUBJECT> <P>This part applies to the deposit activities of savings associations. If you are a federal savings association, subpart B of this part applies to your deposit activities. Subpart C of this part applies to the deposit activities of all federal and state-chartered savings associations.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Deposit Activities of Federal Savings Associations</HD> <SECTION> <SECTNO>§ 557.10</SECTNO> <SUBJECT>What authorities govern the issuance of deposit accounts by a federal savings association?</SUBJECT> <P>A federal savings association (“you”) may raise funds through accounts and may issue evidence of accounts under <PRTPAGE P="126"/>section 5(b)(1) of the HOLA (12 U.S.C. 1464(b)(1)), your charter, and this part. Additionally, 12 CFR parts 204 and 230 apply to your deposit activities.</P> </SECTION> <SECTION> <SECTNO>§ 557.11</SECTNO> <SUBJECT>To what extent does Federal law preempt deposit-related State laws?</SUBJECT> <P>(a) Under sections 4(a), 5(a), and 5(b) of the HOLA, 12 U.S.C. 1463(a), 1464(a), and 1464(b), OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when appropriate to:</P> <P>(1) Facilitate the safe and sound operations of federal savings associations;</P> <P>(2) Enable federal savings associations to operate according to the best thrift institutions practices in the United States; or</P> <P>(3) Further other purposes of HOLA.</P> <P>(b) To further these purposes without undue regulatory duplication and burden, OTS hereby occupies the entire field of federal savings associations' deposit-related regulations. OTS intends to give federal savings associations maximum flexibility to exercise deposit-related powers according to a uniform federal scheme of regulation. Federal savings associations may exercise deposit-related powers as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise effect deposit activities, except to the extent provided in § 557.13. State law includes any statute, regulation, ruling, order, or judicial decision.</P> <CITA>[62 FR 54764, Oct. 22, 1997, as amended at 63 FR 71212, Dec. 24, 1998; 64 FR 69184, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 557.12</SECTNO> <SUBJECT>What are some examples of preempted state laws affecting deposits?</SUBJECT> <P>The OTS preempts state laws that purport to impose requirements governing the following:</P> <P>(a) Abandoned and dormant accounts;</P> <P>(b) Checking accounts;</P> <P>(c) Disclosure requirements;</P> <P>(d) Funds availability;</P> <P>(e) Savings account orders of withdrawal;</P> <P>(f) Service charges and fees;</P> <P>(g) State licensing or registration requirements; and</P> <P>(h) Special purpose savings services.</P> </SECTION> <SECTION> <SECTNO>§ 557.13</SECTNO> <SUBJECT>What State laws affecting deposits are not preempted?</SUBJECT> <P>(a) The OTS has not preempted the following types of state law, to the extent that the law only incidentally affects your deposit-related activities or is otherwise consistent with the purposes of § 557.11:</P> <P>(1) Contract and commercial law;</P> <P>(2) Tort law; and</P> <P>(3) Criminal law.</P> <P>(b) The OTS will not preempt any other state law if the OTS, upon review, finds that the law:</P> <P>(1) Furthers a vital state interest; and</P> <P>(2) Either only incidentally affects your deposit-related activities or is not otherwise contrary to the purposes expressed in § 557.11.</P> </SECTION> <SECTION> <SECTNO>§ 557.14</SECTNO> <SUBJECT>What interest rate may I pay on savings accounts?</SUBJECT> <P>(a) You may pay interest at any rate or anticipated rate of return on savings accounts, either in deposit or in share form, as provided in your charter and the account's terms.</P> <P>(b) You may pay fixed or variable rates. If you pay a variable rate, you must base it on a schedule, index, or formula that you specify in the account's terms.</P> </SECTION> <SECTION> <SECTNO>§ 557.15</SECTNO> <SUBJECT>Who owns a deposit account?</SUBJECT> <P>You may treat the holder of record as the account owner, even if you receive contrary notice, until you transfer the account on your records.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Deposit Activities of All Savings Associations</HD> <SECTION> <SECTNO>§ 557.20</SECTNO> <SUBJECT>What records should I maintain on deposit activities?</SUBJECT> <P>All federal and state chartered savings associations (“you”) should establish and maintain deposit documentation practices and records that demonstrate that you appropriately administer and monitor deposit-related activities. Your records should adequately evidence ownership, balances, and all transactions involving each account. You may maintain records on <PRTPAGE P="127"/>deposit activities in any format that is consistent with standard business practices.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 558</EAR> <HD SOURCE="HED">PART 558—POSSESSION BY CONSERVATORS AND RECEIVERS FOR FEDERAL AND STATE SAVINGS ASSOCIATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>558.1</SECTNO> <SUBJECT>Procedure upon taking possession.</SUBJECT> <SECTNO>558.2</SECTNO> <SUBJECT>Notice of appointment.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.</P> </AUTH> <SECTION> <SECTNO>§ 558.1</SECTNO> <SUBJECT>Procedure upon taking possession.</SUBJECT> <P>(a) The conservator or receiver for a Federal or state savings association shall take possession of the savings association by taking possession of the principal office of the Federal or state savings association in accordance with the terms of the Director's appointment.</P> <P>(b) Upon taking possession, the conservator or receiver shall immediately:</P> <P>(1) Give notice of the appointment to any officer or employee in the principal office who appears to be in charge of that office.</P> <P>(2) Serve a copy of the order of appointment upon the savings association or upon its conservator or receiver by:</P> <P>(i) Leaving a certified copy of the order of appointment at the principal office of the savings association; or</P> <P>(ii) Handing a certified copy of the order of appointment to the previous conservator, receiver or other legal custodian of the savings association, or to the officer or employee of the savings association or of the previous conservator, receiver or other legal custodian in the principal office of the savings association who appears to be in charge.</P> <P>(3) Take possession of the savings association's books, records and assets.</P> <P>(4) Notify in writing, served personally or by registered mail or telegraph, all persons and entities that the conservator or receiver knows to be holding or in possession of assets of the savings association, that the conservator or receiver has succeeded to all rights, titles, powers and privileges of the savings associations.</P> <P>(5) File with the Corporate Secretary a statement that possession was taken, including the time of the taking, which statement shall be conclusive evidence thereof.</P> <P>(6) Post a notice on the door of the principal and other offices of the savings association in the form prescribed by the Director of the OTS.</P> <P>(7) By operation of law and without any conveyance or other instrument, act or deed, succeed to the rights, titles, powers and privileges of the savings association, and to the rights, powers, and privileges of its stockholders, members, accountholders, depositors, officers, and directors. No stockholder, member, accountholder, depositor, officer or director shall thereafter have or exercise any right, power, or privilege, or act in connection with any of the savings association's assets or property.</P> <CITA>[58 FR 4312, Jan. 14, 1993, as amended at 59 FR 53571, Oct. 25, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 558.2</SECTNO> <SUBJECT>Notice of appointment.</SUBJECT> <P>If the Director of the OTS appoints a conservator or receiver under this part, notice of the appointment shall be filed immediately for publication in the <E T="04">Federal Register</E>.</P> <CITA>[59 FR 53571, Oct. 25, 1994]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 559 </EAR> <HD SOURCE="HED">PART 559—SUBORDINATE ORGANIZATIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>559.1</SECTNO> <SUBJECT>What does this part cover?</SUBJECT> <SECTNO>559.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SUBPART> <HD SOURCE="HED">Subpart A—Regulations Applicable to Federal Savings Associations</HD> <SECTNO>559.3</SECTNO> <SUBJECT>What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations?</SUBJECT> <SECTNO>559.4</SECTNO> <SUBJECT>What activities are preapproved for service corporations?</SUBJECT> <SECTNO>559.5</SECTNO> <SUBJECT>How much may a savings association invest in service corporations or lower-tier entities?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Regulations Applicable to All Savings Associations</HD> <SECTNO>559.10</SECTNO> <SUBJECT>How must separate corporate identities be maintained?<PRTPAGE P="128"/> </SUBJECT> <SECTNO>559.11</SECTNO> <SUBJECT>What notices are required to establish or acquire a new subsidiary or engage in new activities through an existing subsidiary?</SUBJECT> <SECTNO>559.12</SECTNO> <SUBJECT>How may a subsidiary of a savings association issue securities?</SUBJECT> <SECTNO>559.13</SECTNO> <SUBJECT>How may a savings association exercise its salvage power in connection with its service corporation or lower-tier entities?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1828.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>61 FR 66571, Dec. 18, 1996, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 559.1</SECTNO> <SUBJECT>What does this part cover?</SUBJECT> <P>(a) OTS is issuing this part 559 pursuant to its general rulemaking and supervisory authority under the Home Owners' Loan Act, 12 U.S.C. 1462 <E T="03">et seq.,</E> and its specific authority under section 18(m) of the Federal Deposit Insurance Act, 12 U.S.C. 1828(m). Subpart A of this part 559 applies to subordinate organizations of federal savings associations. Subpart B of this part applies to subordinate organizations of all savings associations. OTS may, at any time, limit a savings association's investment in any of these entities, or may limit or refuse to permit any activities of any of these entities for supervisory, legal, or safety and soundness reasons.</P> <P>(b) Notices under this part are applications for purposes of statutory and regulatory references to “applications.” Any conditions that OTS imposes in approving any application are enforceable as a condition imposed in writing by the OTS in connection with the granting of a request by a savings association within the meaning of 12 U.S.C. 1818(b) or 1818(i).</P> </SECTION> <SECTION> <SECTNO>§ 559.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>For purposes of this part:</P> <P> <E T="03">Control</E> has the same meaning as in part 574 of this chapter.</P> <P> <E T="03">GAAP-consolidated subsidiary</E> means an entity in which a savings association has a direct or indirect ownership interest and whose assets are consolidated with those of the savings association for purposes of reporting under Generally Accepted Accounting Principles (GAAP). Generally, these are entities in which a savings association has a majority ownership interest.</P> <P> <E T="03">Lower-tier entity</E> includes any company in which an operating subsidiary or a service corporation has a direct or indirect ownership interest.</P> <P> <E T="03">Operating subsidiary</E> means any entity that satisfies all of the requirements for an operating subsidiary set forth in § 559.3 of this part and that is designated by the parent savings association as an operating subsidiary pursuant to § 559.3 of this part. More than 50% of the voting shares of an operating subsidiary must be owned, directly or indirectly, by a federal savings association and no other person or entity may exercise effective operating control. An operating subsidiary may only engage in activities permissible for a federal savings association.</P> <P> <E T="03">Ownership interest</E> means any equity interest in a business organization, including stock, limited or general partnership interests, or shares in a limited liability company.</P> <P> <E T="03">Service corporation</E> means any entity that satisfies all of the requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and § 559.3 of this part and that is designated by the investing savings association as a service corporation pursuant to § 559.3 of this part. A service corporation must be organized under the laws of the state where the federal savings association's home office is located, may only be owned by savings associations with home offices in that state, and may engage in the activities identified in §§ 559.3(e)(2) and 559.4 of this part.</P> <P> <E T="03">Subordinate organization</E> means any corporation, partnership, business trust, association, joint venture, pool, syndicate, or other similar business organization in which a savings association has a direct or indirect ownership interest, unless that ownership interest qualifies as a pass-through investment pursuant to § 560.32 of this chapter and is so designated by the investing savings association.</P> <P> <E T="03">Subsidiary</E> means any subordinate organization directly or indirectly controlled by a savings association.</P> </SECTION> <SUBPART> <PRTPAGE P="129"/> <HD SOURCE="HED">Subpart A—Regulations Applicable to Federal Savings Associations</HD> <SECTION> <SECTNO>§ 559.3</SECTNO> <SUBJECT>What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations?</SUBJECT> <P>A federal savings association (“you”) that meets the requirements of this section, as detailed in the following chart, may establish, or obtain an interest in an operating subsidiary or a service corporation. For ease of reference, this section cross-references other regulations in this chapter affecting operating subsidiaries and service corporations. You should refer to those regulations for the details of how they apply. The chart also discusses the regulations that may apply to lower-tier entities in which you have an indirect ownership interest through your operating subsidiary or service corporation. The chart follows:</P> <GPOTABLE CDEF="xl75,xl75,xl75" COLS="3" OPTS="L2,tp0,p8,8/9,i1"> <BOXHD> <CHED H="1"/> <CHED H="1">Operating subsidiary</CHED> <CHED H="1">Service corporation</CHED> </BOXHD> <ROW RUL="04,s"> <ENT I="01">(a) How may a federal savings association (“you”) establish an operating subsidiary or a service corporation?</ENT> <ENT>(1) You must file a notice satisfying § 559.11. Any finance subsidiary that existed on January 1, 1997 is deemed an operating subsidiary without further action on your part.</ENT> <ENT>(2) You must file a notice satisfying § 559.11. Depending upon your condition and the activities in which the service corporation will engage, § 559.3(e)(2) may require you to file an application.</ENT> </ROW> <ROW RUL="04,s"> <ENT I="01">(b) Who may be an owner?</ENT> <ENT>(1) Anyone may have an ownership interest in an operating subsidiary.</ENT> <ENT>(2) Only savings associations with home offices in the state where you have your home office may have an ownership interest in any service corporation in which you invest.</ENT> </ROW> <ROW RUL="04,s"> <ENT I="01">(c) What ownership requirements apply?</ENT> <ENT>(1) You must own, directly or indirectly, more than 50% of the voting shares of the operating subsidiary. No one else may exercise effective operating control.</ENT> <ENT>(2) You are not required to have any particular percentage ownership interest and need not have control of the service corporation.</ENT> </ROW> <ROW RUL="04,s"> <ENT I="01">(d) What geographic restrictions apply?</ENT> <ENT>(1) An operating subsidiary may be organized in any geographic location.</ENT> <ENT>(2) A service corporation must be organized in the state where your home office is located.</ENT> </ROW> <ROW> <PRTPAGE P="130"/> <ENT I="01">(e) What activities are permissible?</ENT> <ENT>(1) After you have notified OTS in accordance with § 559.11, an operating subsidiary may engage in any activity that you may conduct directly. You may hold another insured depository institution as an operating subsidiary.</ENT> <ENT>(2)(i) If you are eligible for expedited treatment under § 516.3(a) of this chapter, and notify OTS as required by § 559.11, your service corporation may engage in the preapproved activities listed in § 559.4. You may request OTS approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions by filing an application in accordance with § 516.1 of this chapter.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="22"/> <ENT O="xl"/> <ENT>(ii) If you are subject to standard treatment under § 516.3(b) of this chapter, and notify OTS as required by § 559.11, your service corporation may engage in any activity that you may conduct directly except taking deposits. You may request OTS approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions, including the activities set forth in § 559.4(b)-(i), by filing an application in accordance with § 516.1 of this chapter.</ENT> </ROW> <ROW> <ENT I="01">(f) May the operating subsidiary or service corporation invest in lower-tier entities?</ENT> <ENT>(1)(i) An operating subsidiary may itself hold an operating subsidiary. Part 559 applies equally to a lower-tier operating subsidiary. In applying the regulations in this part, the investing operating subsidiary should substitute “investing operating subsidiary” wherever the part uses “you” or “savings association.”</ENT> <ENT>(2) A service corporation may invest in all types of lower-tier entities as long as the lower-tier entity is engaged solely in activities that are permissible for a service corporation. All of the requirements of this part apply to such entities except for paragraphs (b)(2) and (d)(2) of this section. </ENT> </ROW> <ROW RUL="03,s"> <PRTPAGE P="131"/> <ENT I="22"/> <ENT>(ii) An operating subsidiary may also invest in other types of lower-tier entities. These entities must comply with all of the requirements of this part 559 that apply to service corporations except for paragraphs (b)(2) and (d)(2) of this section.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(g) How much may a federal savings association invest?</ENT> <ENT>(1) There are no limits on the amount you may invest in your operating subsidiaries, either separately or in the aggregate.</ENT> <ENT>(2) Section 559.5 limits your aggregate investments in service corporations and indicates when your investments (both debt and equity) in lower-tier entities must be aggregated with your investments in service corporations.</ENT> </ROW> <ROW RUL="s"> <ENT I="01">(h) Do federal statutes and regulations that apply to the savings association apply?</ENT> <ENT>(1) Unless otherwise specifically provided by statute, regulation, or OTS policy, all federal statutes and regulations apply to operating subsidiaries in the same manner as they apply to you. You and your operating subsidiary are generally consolidated and treated as a unit for statutory and regulatory purposes.</ENT> <ENT>(2) (i) If the federal statute or regulation specifically refers to “service corporation,” it applies to all service corporations, even if you do not control the service corporation or it is not a GAAP-consolidated subsidiary.<LI>(ii) If the federal statute or regulation refers to “subsidiary,” it applies only to service corporations that you directly or indirectly control.</LI> </ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(i) Do the investment limits that apply to federal savings associations (HOLA section 5(c) and part 560 of this chapter) apply?</ENT> <ENT>(1) Your assets and those of your operating subsidiary are aggregated when calculating investment limitations.</ENT> <ENT>(2) Your service corporation's assets are not subject to the same investment limitations that apply to you. The investment activities of your service corporation are governed by paragraph (e)(2) of this section and § 559.4.</ENT> </ROW> <ROW RUL="03,s"> <PRTPAGE P="132"/> <ENT I="01">(j) How does the capital regulation (part 567 of this chapter) apply?</ENT> <ENT>(1) Your assets and those of your operating subsidiary are consolidated for all capital purposes.</ENT> <ENT>(2) The capital treatment of a service corporation depends upon whether it is an includable subsidiary. That determination is based upon factors set forth in part 567 of this chapter, including your percentage ownership of the service corporation and the activities in which the service corporation engages. Both debt and equity investments in service corporations that are GAAP-consolidated subsidiaries are considered investments in subsidiaries for purposes of the capital regulation, regardless of the authority under which they are made.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(k) How does the loans-to-one-borrower (LTOB) regulation (§ 560.93 of this chapter) apply?</ENT> <ENT>(1) The LTOB regulation does not apply to loans from you to your operating subsidiary or loans from your operating subsidiary to you. Other loans made by your operating subsidiary are aggregated with your loans for LTOB purposes.</ENT> <ENT>(2) The LTOB regulation does not apply to loans from you to your service corporation or from your service corporation to you. However, § 559.5 imposes restrictions on the amount of loans you may make to certain service corporations. Loans made by a service corporation that you control to entities other than you or your subordinate organizations are aggregated with your loans for LTOB purposes.</ENT> </ROW> <ROW RUL="03,s"> <PRTPAGE P="133"/> <ENT I="01">(l) How do the transactions with affiliates (TWA) regulations (§§ 563.41 and 563.42 of this chapter) apply?</ENT> <ENT>(1) Section 563.41 of this chapter explains how TWA applies. Generally, an operating subsidiary of a savings association is not deemed to be an affiliate unless it is a depository institution or the parent holding company or another affiliate has control of the subsidiary outside of the ownership chain that runs through the thrift. Transactions that an operating subsidiary engages in with an affiliate of the thrift are aggregated with those of the thrift.</ENT> <ENT>(2) Section 563.41 of this chapter explains how TWA applies. Generally, a service corporation that is controlled by a savings association is not deemed to be an affiliate of that savings association unless it is a depository institution or the parent holding company or another affiliate has control of the service corporation outside of the ownership chain that runs through the thrift. Transactions that a service corporation that is directly or indirectly controlled by the savings association engages in with an affiliate of the savings association are aggregated with those of the savings association.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(m) How does the Qualified Thrift Lender (QTL) (12 U.S.C. 1467a(m)) test apply?</ENT> <ENT>(1) Under 12 U.S.C. 1467a(m)(5), you may determine whether to consolidate the assets of a particular operating subsidiary for purposes of calculating your qualified thrift investments. If the operating subsidiary's assets are not consolidated with yours for that purpose, your investment in the operating subsidiary will be considered in calculating your qualified thrift investments.</ENT> <ENT>(2) Under 12 U.S.C. 1467a(m)(5), you may determine whether to consolidate the assets of a particular service corporation for purposes of calculating your qualified thrift investments. If a service corporation's assets are not consolidated with yours for that purpose, your investment in the service corporation will be considered in calculating your qualified thrift investments.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(n) Does state law apply?</ENT> <ENT>(1) State law applies to operating subsidiaries only to the extent it applies to you.</ENT> <ENT>(2) State law applies to service corporations regardless of whether it applies to you, except where there is a conflict with federal law.</ENT> </ROW> <ROW RUL="03,s"> <ENT I="01">(o) May OTS conduct examinations?</ENT> <ENT>(1) An operating subsidiary is subject to examination by OTS.</ENT> <ENT>(2) A service corporation is subject to examination by OTS.</ENT> </ROW> <ROW RUL="03,s"> <PRTPAGE P="134"/> <ENT I="01">(p) What must be done to redesignate an operating subsidiary as a service corporation or a service corporation as an operating subsidiary?</ENT> <ENT>(1) Before redesignating an operating subsidiary as a service corporation, you should consult with the OTS Regional Director for the Region in which your home office is located. You must maintain adequate internal records, available for examination by OTS, demonstrating that the redesignated service corporation meets all of the applicable requirements of this part and that your board of directors has approved the redesignation.</ENT> <ENT>(2) Before redesignating a service corporation as an operating subsidiary, you should consult with the OTS Regional Director for the Region in which your home office is located. You must maintain adequate internal records, available for examination by OTS, demonstrating that the redesignated operating subsidiary meets all of the applicable requirements of this part and that your board of directors has approved the redesignation.</ENT> </ROW> <ROW> <ENT I="01">(q) What are the consequences of failing to comply with the requirements of this part?</ENT> <ENT>(1) If an operating subsidiary, or any lower-tier entity in which the operating subsidiary invests pursuant to paragraph (f)(1) of this section fails to meet any of the requirements of this section, you must notify OTS. Unless otherwise advised by OTS, if the company cannot comply within 90 days with all of the requirements for either an operating subsidiary or a service corporation under this section, or any other investment authorized by 12 U.S.C. 1464(c) or part 560 of this chapter, you must promptly dispose of your investment.</ENT> <ENT>(2) If a service corporation, or any lower-tier entity in which the service corporation invests pursuant to paragraph (f)(2) of this section, fails to meet any of the requirements of this section, you must notify OTS. Unless otherwise advised by OTS, if the company cannot comply within 90 days with all of the requirements for either an operating subsidiary or a service corporation under this section, or any other investment authorized by 12 U.S.C. 1464(c) or part 560 of this chapter, you must promptly dispose of your investment.</ENT> </ROW> </GPOTABLE> <CITA TYPE="W">[61 FR 66571, Dec. 18, 1996, as amended at 62 FR 66262, Dec. 18, 1997; 63 FR 65683, Nov. 30, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 559.4</SECTNO> <SUBJECT>What activities are preapproved for service corporations?</SUBJECT> <P>This section sets forth the activities that have been preapproved for service corporations. Section 559.3(e)(2) of this part sets forth the procedures that govern engaging in a broader scope of activities on a case-by-case basis. You should read these two sections together to determine whether you must file a notice with OTS under § 559.11 of this part, or whether you must file an application under § 516.1 of this chapter and receive prior written OTS approval in order for your service corporation to engage in a particular activity. To the extent permitted by § 559.3(e)(2) of this part, a service corporation may engage in the following activities:</P> <P>(a) Any activity that all federal savings associations may conduct directly, except taking deposits.</P> <P>(b) Business and professional services. The following services are preapproved for service corporations only when they are limited to financial <PRTPAGE P="135"/>documents or financial clients or are generally finance-related:</P> <P>(1) Accounting or internal audit;</P> <P>(2) Advertising, marketing research and other marketing;</P> <P>(3) Clerical;</P> <P>(4) Consulting;</P> <P>(5) Courier;</P> <P>(6) Data processing;</P> <P>(7) Data storage facilities operation and related services;</P> <P>(8) Office supplies, furniture, and equipment purchasing and distribution;</P> <P>(9) Personnel benefit program development or administration;</P> <P>(10) Printing and selling forms that require Magnetic Ink Character Recognition (MICR) encoding;</P> <P>(11) Relocation of personnel;</P> <P>(12) Research studies and surveys;</P> <P>(13) Software development and systems integration; and</P> <P>(14) Remote service unit operation, leasing, ownership or establishment.</P> <P>(c) Credit-related activities.</P> <P>(1) Abstracting;</P> <P>(2) Acquiring and leasing personal property;</P> <P>(3) Appraising;</P> <P>(4) Collection agency;</P> <P>(5) Credit analysis;</P> <P>(6) Check or credit card guaranty and verification;</P> <P>(7) Escrow agent or trustee (under deeds of trust, including executing and deliverance of conveyances, reconveyances and transfers of title); and</P> <P>(8) Loan inspection.</P> <P>(d) Consumer services.</P> <P>(1) Financial advice or consulting;</P> <P>(2) Foreign currency exchange;</P> <P>(3) Home ownership counseling;</P> <P>(4) Income tax return preparation;</P> <P>(5) Postal services;</P> <P>(6) Stored value instrument sales;</P> <P>(7) Welfare benefit distribution;</P> <P>(8) Check printing and related services; and</P> <P>(9) Remote service unit operation, leasing, ownership, or establishment.</P> <P>(e) Real estate related services.</P> <P>(1) Acquiring real estate for prompt development or subdivision, for construction of improvements, for resale or leasing to others for such construction, or for use as manufactured home sites, in accordance with a prudent program of property development;</P> <P>(2) Acquiring improved real estate or manufactured homes to be held for rental or resale, for remodeling, renovating, or demolishing and rebuilding for sale or rental, or to be used for offices and related facilities of a stockholder of the service corporation;</P> <P>(3) Maintaining and managing real estate; and</P> <P>(4) Real estate brokerage for property owned by a savings association that owns capital stock of the service corporation, the service corporation, or a lower-tier entity in which the service corporation invests.</P> <P>(f) Securities brokerage, insurance and related services.</P> <P>(1) Execution of transactions in securities or other nondeposit investment products on an agency or riskless principal basis solely upon the order of and for the account of customers, provided that the service corporation complies with the provisions of § 545.74 of this chapter;</P> <P>(2) Investment advice, provided that the service corporation complies with the provisions of § 545.74 of this chapter;</P> <P>(3) Insurance brokerage or agency for liability, casualty, automobile, life, health, accident or title insurance;</P> <P>(4) Liquidity management;</P> <P>(5) Issuing notes, bonds, debentures or other obligations or securities; and</P> <P>(6) Purchase or sale of coins issued by the U.S. Treasury.</P> <P>(g) Investments.</P> <P>(1) Tax-exempt bonds used to finance residential real property for family units;</P> <P>(2) Tax-exempt obligations of public housing agencies used to finance housing projects with rental assistance subsidies;</P> <P>(3) Small business investment companies licensed by the U.S. Small Business Administration to invest in small businesses engaged exclusively in the activities listed in paragraphs (a) through (i) of this section; and</P> <P>(4) Investing in savings accounts of an investing thrift.</P> <P>(h) Community development and charitable activities:</P> <P>(1) Investments in governmentally insured, guaranteed, subsidized or otherwise sponsored programs for housing, small farms, or businesses that are local in character;<PRTPAGE P="136"/> </P> <P>(2) Investments that meet the community development needs of, and primarily benefit, low- and moderate-income communities;</P> <P>(3) Investments in low-income housing tax credit projects and entities authorized by statute (<E T="03">e.g.</E>, community development financial institutions) to promote community, inner city, and community development purposes; and</P> <P>(4) Establishing a corporation that is recognized by the Internal Revenue Service as organized for charitable purposes under 26 U.S.C. 501(c)(3) of the Internal Revenue Code and making a reasonable contribution to capitalize it, <E T="03">provided</E> that the corporation engages exclusively in activities designed to promote the well-being of communities in which the owners of the service corporation operate.</P> <P>(i) Activities reasonably incident to those listed in paragraphs (a) through (h) of this section if the service corporation engages in those activities.</P> </SECTION> <SECTION> <SECTNO>§ 559.5</SECTNO> <SUBJECT>How much may a savings association invest in service corporations or lower-tier entities?</SUBJECT> <P>The amount that a federal savings association (“you”) may invest in a service corporation or any lower-tier entity depends upon several factors. These include your total assets, your capital, the purpose of the investment, and your ownership interest in the service corporation or entity.</P> <P>(a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% of your assets in the capital stock, obligations, and other securities of service corporations. Any investment you make under this paragraph that would cause your investment, in the aggregate, to exceed 2% of your assets must serve primarily community, inner city, or community development purposes. You must designate the investments serving those purposes, which include:</P> <P>(1) Investments in governmentally insured, guaranteed, subsidized or otherwise sponsored programs for housing, small farms, or businesses that are local in character;</P> <P>(2) Investments for the preservation or revitalization of either urban or rural communities;</P> <P>(3) Investments designed to meet the community development needs of, and primarily benefit, low- and moderate-income communities; or</P> <P>(4) Other community, inner city, or community development-related investments approved by OTS.</P> <P>(b) In addition to the amounts you may invest under paragraph (a) of this section, and to the extent that you have authority under other provisions of section 5(c) of the HOLA and part 560 of this chapter, and available capacity within any applicable investment limits, you may make loans to any service corporation and any lower-tier entity, subject to the following conditions:</P> <P>(1) You and your GAAP-consolidated subsidiaries may, in the aggregate, make loans of up to 15% of your capital as defined in § 567.5(c) of this chapter to each subordinate organization that does not qualify as a GAAP-consolidated subsidiary. All loans made under this paragraph (b)(1) may not, in the aggregate, exceed 50% of your total capital, as defined in § 567.5(c) of this chapter.</P> <P>(2) The Regional Director may limit the amount of loans to a GAAP-consolidated subsidiary, or may adjust the limits set forth in paragraph (b)(1) of this section where safety and soundness considerations warrant such action.</P> <P>(c) For purposes of this section, the terms “loans” and “obligations” include all loans and other debt instruments (except accounts payable incurred in the ordinary course of business and paid within 60 days) and all guarantees or take-out commitments of such loans or debt instruments.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Regulations Applicable to All Savings Associations</HD> <SECTION> <SECTNO>§ 559.10</SECTNO> <SUBJECT>How must separate corporate identities be maintained?</SUBJECT> <P>(a) Each savings association and subordinate organization thereof must be operated in a manner that demonstrates to the public that each maintains a separate corporate existence. Each must operate so that:</P> <P>(1) Their respective business transactions, accounts, and records are not intermingled;</P> <P>(2) Each observes the formalities of their separate corporate procedures;<PRTPAGE P="137"/> </P> <P>(3) Each is adequately financed as a separate unit in light of normal obligations reasonably foreseeable in a business of its size and character;</P> <P>(4) Each is held out to the public as a separate enterprise; and</P> <P>(5) Unless the parent savings association has guaranteed a loan to the subordinate organization, all borrowings by the subordinate organization indicate that the parent is not liable.</P> <P>(b) OTS regulations that apply both to savings associations and subordinate organizations shall not be construed as requiring a savings association and its subordinate organizations to operate as a single entity.</P> </SECTION> <SECTION> <SECTNO>§ 559.11</SECTNO> <SUBJECT>What notices are required to establish or acquire a new subsidiary or engage in new activities through an existing subsidiary?</SUBJECT> <P>When required by section 18(m) of the Federal Deposit Insurance Act, a savings association (“you”) must file a notice (“Notice”) in accordance with § 516.1(c) of this chapter at least 30 days before establishing or acquiring a subsidiary or engaging in new activities in a subsidiary. The Notice must contain all of the information the Federal Deposit Insurance Corporation (FDIC) requires under 12 CFR 362.15. Providing OTS with a copy of the notice you file with the FDIC will satisfy this requirement. If OTS notifies you within 30 days that the Notice presents supervisory concerns, or raises significant issues of law or policy, you must apply for and receive OTS's prior written approval in accordance with § 516.1(c) of this chapter before establishing or acquiring the subsidiary or engaging in new activities in the subsidiary.</P> <CITA>[61 FR 66571, Dec. 18, 1996, as amended at 64 FR 69185, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 559.12</SECTNO> <SUBJECT>How may a subsidiary of a savings association issue securities?</SUBJECT> <P>(a) A subsidiary may issue, either directly or through a third party intermediary, any securities that its parent savings association (“you”) may issue. The subsidiary must not state or imply that the securities it issues are covered by federal deposit insurance. A subsidiary may not issue any security the payment, maturity, or redemption of which may be accelerated upon the condition that you are insolvent or have been placed into receivership.</P> <P>(b) You must file a notice with OTS in accordance with § 559.11 of this part at least 30 days before your first issuance of any securities through an existing subsidiary or in conjunction with establishing or acquiring a new subsidiary. If OTS notifies you within 30 days that the notice presents supervisory concerns or raises significant issues of law or policy, you must receive OTS's prior written approval before issuing securities through your subsidiary.</P> <P>(c) For as long as any securities are outstanding, you must maintain all records generated through each securities issuance in the ordinary course of business, including a copy of any prospectus, offering circular, or similar document concerning such issuance, and make such records available for examination by OTS. Such records must include, but are not limited to:</P> <P>(1) The amount of your assets or liabilities (including any guarantees you make with respect to the securities issuance) that have been transferred or made available to the subsidiary; the percentage that such amount represents of the current book value of your assets on an unconsolidated basis; and the current book value of all such assets of the subsidiary;</P> <P>(2) The terms of any guarantee(s) issued by you or any third party;</P> <P>(3) A description of the securities the subsidiary issued;</P> <P>(4) The net proceeds from the issuance of securities (or the pro rata portion of the net proceeds from securities issued through a jointly owned subsidiary); the gross proceeds of the securities issuance; and the market value of assets collateralizing the securities issuance (any assets of the subsidiary, including any guarantees of its securities issuance you have made);</P> <P>(5) The interest or dividend rates and yields, or the range thereof, and the frequency of payments on the subsidiary's securities;</P> <P>(6) The minimum denomination of the subsidiary's securities; and</P> <P>(7) Where the subsidiary marketed or intends to market the securities.<PRTPAGE P="138"/> </P> <P>(d) Sales of the subsidiary's securities to retail customers must comply with § 545.74 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 559.13</SECTNO> <SUBJECT>How may a savings association exercise its salvage power in connection with a service corporation or lower-tier entities?</SUBJECT> <P>(a) In accordance with this section, a savings association (“you”) may exercise your salvage power to make a contribution or a loan (including a guarantee of a loan made by any other person) to your service corporation or lower-tier entity (“salvage investment”) that exceeds the maximum amount otherwise permitted under law or regulation. You must notify OTS at least 30 days before making such a salvage investment. This notice must demonstrate that:</P> <P>(1) The salvage investment protects your interest in the service corporation or lower-tier entity;</P> <P>(2) The salvage investment is consistent with safety and soundness; and</P> <P>(3) You considered alternatives to the salvage investment and determined that such alternatives would not adequately satisfy paragraphs (a)(1) and (a)(2) of this section.</P> <P>(b) If OTS notifies you within 30 days that the Notice presents supervisory concerns, or raises significant issues of law or policy, you must apply for and receive OTS's prior written approval in accordance with § 516.1(c) of this chapter before making a salvage investment.</P> <P>(c) If your service corporation or lower-tier entity is a GAAP-consolidated subsidiary, your salvage investment under this section will be considered an investment in a subsidiary for purposes of part 567 of this chapter.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 560 </EAR> <HD SOURCE="HED">PART 560—LENDING AND INVESTMENT</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>560.1</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>560.2</SECTNO> <SUBJECT>Applicability of law.</SUBJECT> <SECTNO>560.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SUBPART> <HD SOURCE="HED">Subpart A—Lending and Investment Powers for Federal Savings Associations</HD> <SECTNO>560.30</SECTNO> <SUBJECT>General lending and investment powers of Federal savings associations.</SUBJECT> <SECTNO>560.31</SECTNO> <SUBJECT>Election regarding categorization of loans or investments and related calculations.</SUBJECT> <SECTNO>560.32</SECTNO> <SUBJECT>Pass-through investments.</SUBJECT> <SECTNO>560.33</SECTNO> <SUBJECT>Late charges.</SUBJECT> <SECTNO>560.34</SECTNO> <SUBJECT>Prepayments.</SUBJECT> <SECTNO>560.35</SECTNO> <SUBJECT>Adjustments to home loans.</SUBJECT> <SECTNO>560.36</SECTNO> <SUBJECT>De minimis investments.</SUBJECT> <SECTNO>560.37</SECTNO> <SUBJECT>Real estate for office and related facilities.</SUBJECT> <SECTNO>560.40</SECTNO> <SUBJECT>Commercial paper and corporate debt securities.</SUBJECT> <SECTNO>560.41</SECTNO> <SUBJECT>Leasing.</SUBJECT> <SECTNO>560.42</SECTNO> <SUBJECT>State and local government obligations.</SUBJECT> <SECTNO>560.43</SECTNO> <SUBJECT>Foreign assistance investments.</SUBJECT> <SECTNO>560.50</SECTNO> <SUBJECT>Letters of credit and other independent undertakings—authority.</SUBJECT> <SECTNO>560.60</SECTNO> <SUBJECT>Suretyship and guaranty.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Lending and Investment Provisions Applicable to all Savings Associations</HD> <SECTNO>560.93</SECTNO> <SUBJECT>Lending limitations.</SUBJECT> <SECTNO>560.100</SECTNO> <SUBJECT>Real estate lending standards; purpose and scope.</SUBJECT> <SECTNO>560.101</SECTNO> <SUBJECT>Real estate lending standards.</SUBJECT> <SECTNO>560.110</SECTNO> <SUBJECT>Most favored lender usury preemption.</SUBJECT> <SECTNO>560.120</SECTNO> <SUBJECT>Letters of credit and other independent undertakings to pay against documents.</SUBJECT> <SECTNO>560.121</SECTNO> <SUBJECT>Investment in State housing corporations.</SUBJECT> <SECTNO>560.130</SECTNO> <SUBJECT>Prohibition on loan procurement fees.</SUBJECT> <SECTNO>560.160</SECTNO> <SUBJECT>Asset classification.</SUBJECT> <SECTNO>560.170</SECTNO> <SUBJECT>Records for lending transactions.</SUBJECT> <SECTNO>560.172</SECTNO> <SUBJECT>Re-evaluation of real estate owned.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Alternative Mortgage Transactions</HD> <SECTNO>560.210</SECTNO> <SUBJECT>Disclosures for variable rate transactions.</SUBJECT> <SECTNO>560.220</SECTNO> <SUBJECT>Alternative Mortgage Parity Act.</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 3803, 3806; 42 U.S.C. 4106.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>61 FR 50971, Sept. 30, 1996, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 560.1</SECTNO> <SUBJECT>General.</SUBJECT> <P>(a) <E T="03">Authority and scope</E>. This part is being issued by OTS under its general rulemaking and supervisory authority under the Home Owners' Loan Act (HOLA), 12 U.S.C. 1462 <E T="03">et seq.</E> Subpart A of this part sets forth the lending and investment powers of Federal savings associations. Subpart B of this part contains safety-and-soundness based lending and investment provisions applicable to all savings associations. <PRTPAGE P="139"/>Subpart C of this part addresses alternative mortgages and applies to all savings associations.</P> <P>(b) <E T="03">General lending standards.</E> Each savings association is expected to conduct its lending and investment activities prudently. Each association should use lending and investment standards that are consistent with safety and soundness, ensure adequate portfolio diversification and are appropriate for the size and condition of the institution, the nature and scope of its operations, and conditions in its lending market. Each association should adequately monitor the condition of its portfolio and the adequacy of any collateral securing its loans.</P> </SECTION> <SECTION> <SECTNO>§ 560.2</SECTNO> <SUBJECT>Applicability of law.</SUBJECT> <P>(a) <E T="03">Occupation of field.</E> Pursuant to sections 4(a) and 5(a) of the HOLA, 12 U.S.C. 1463(a), 1464(a), OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal savings associations to conduct their operations in accordance with the best practices of thrift institutions in the United States, or to further other purposes of the HOLA. To enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section or § 560.110 of this part. For purposes of this section, “state law” includes any state statute, regulation, ruling, order or judicial decision.</P> <P>(b) <E T="03">Illustrative examples.</E> Except as provided in § 560.110 of this part, the types of state laws preempted by paragraph (a) of this section include, without limitation, state laws purporting to impose requirements regarding:</P> <P>(1) Licensing, registration, filings, or reports by creditors;</P> <P>(2) The ability of a creditor to require or obtain private mortgage insurance, insurance for other collateral, or other credit enhancements;</P> <P>(3) Loan-to-value ratios;</P> <P>(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;</P> <P>(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees;</P> <P>(6) Escrow accounts, impound accounts, and similar accounts;</P> <P>(7) Security property, including leaseholds;</P> <P>(8) Access to and use of credit reports;</P> <P>(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants;</P> <P>(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages;</P> <P>(11) Disbursements and repayments;</P> <P>(12) Usury and interest rate ceilings to the extent provided in 12 U.S.C. 1735f-7a and part 590 of this chapter and 12 U.S.C. 1463(g) and § 560.110 of this part; and</P> <P>(13) Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j-3 and part 591 of this chapter.</P> <P>(c) <E T="03">State laws that are not preempted.</E> State laws of the following types are not preempted to the extent that they <PRTPAGE P="140"/>only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section:</P> <P>(1) Contract and commercial law;</P> <P>(2) Real property law;</P> <P>(3) Homestead laws specified in 12 U.S.C. 1462a(f);</P> <P>(4) Tort law;</P> <P>(5) Criminal law; and</P> <P>(6) Any other law that OTS, upon review, finds:</P> <P>(i) Furthers a vital state interest; and</P> <P>(ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section.</P> </SECTION> <SECTION> <SECTNO>§ 560.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>For purposes of this part and any determination under 12 U.S.C. 1467a(m):</P> <P> <E T="03">Consumer loans</E> include loans for personal, family, or household purposes and loans reasonably incident thereto, and may be made as either open-end or closed-end consumer credit (as defined at 12 CFR 226.2(a) (10) and (20)). Consumer loans do not include credit extended in connection with credit card loans, bona fide overdraft loans, and other loans that the savings association has designated as made under investment or lending authority other than section 5(c)(2)(D) of the HOLA.</P> <P> <E T="03">Credit card</E> is any card, plate, coupon book, or other single credit device that may be used from time to time to obtain credit.</P> <P> <E T="03">Credit card account</E> is a credit account established in conjunction with the issuance of, or the extension of credit through, a credit card. This term includes loans made to consolidate credit card debt, including credit card debt held by other lenders, and participation certificates, securities and similar instruments secured by credit card receivables.</P> <P> <E T="03">Home loans</E> include any loans made on the security of a home (including a dwelling unit in a multi-family residential property such as a condominium or a cooperative), combinations of homes and business property (<E T="03">i.e.,</E> a home used in part for business), farm residences, and combinations of farm residences and commercial farm real estate.</P> <P> <E T="03">Loan commitment</E> includes a loan in process, a letter of credit, or any other commitment to extend credit.</P> <P> <E T="03">Real estate loan</E> includes any loan for which a Federal savings association relies substantially upon the real estate as the primary security for the loan. A loan is made on the security of real estate if:</P> <P>(1) The security property is real estate pursuant to the law of the state in which the property is located;</P> <P>(2) The security interest of the Federal savings association may be enforced as a real estate mortgage or its equivalent pursuant to the law of the state in which the property is located;</P> <P>(3) The security property is capable of separate appraisal; and</P> <P>(4) With regard to a security property that is a leasehold or other interest for a period of years, the term of the interest extends, or is subject to extension or renewal at the option of the Federal savings association for a term of at least five years following the maturity of the loan.</P> <P> <E T="03">Small business</E> includes a small business concern or entity as defined by section 3(a) of the Small Business Act, 15 U.S.C. 632(a), and implemented by the regulations of the Small Business Administration at 13 CFR Part 121.</P> <P> <E T="03"> Small business loans</E> and <E T="03">loans to small businesses</E> include any loan to a small business as defined in this section; or a loan (including a group of loans to one borrower) that meets the original amount restrictions and other criteria for “loans to small businesses and small farms” as defined in the instructions for preparation of the Thrift Financial Report.</P> <CITA>[61 FR 50971, Sept. 30, 1996, as amended at 61 FR 60184, Nov. 27, 1996; 62 FR 15825, Apr. 3, 1997; 64 FR 46565, Aug. 26, 1999]</CITA> </SECTION> <SUBPART> <HD SOURCE="HED">Subpart A—Lending and Investment Powers for Federal Savings Associations</HD> <SECTION> <SECTNO>§ 560.30</SECTNO> <SUBJECT>General lending and investment powers of Federal savings associations.</SUBJECT> <P>Pursuant to section 5(c) of the Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(c), a federal savings association <PRTPAGE P="141"/>may make, invest in, purchase, sell, participate in, or otherwise deal in (including brokerage or warehousing) all loans and investments allowed under section 5(c) of the HOLA including, without limitation, the following loans, extensions of credit, and investments, subject to the limitations indicated and any such terms, conditions, or limitations as may be prescribed from time to time by the OTS by policy directive, order, or regulation:</P> <GPOTABLE CDEF="s100,r100,r100" COLS="3" OPTS="L2,i1"> <TTITLE>Lending and Investment Powers Chart</TTITLE> <BOXHD> <CHED H="1">Category</CHED> <CHED H="1">HOLA authorization</CHED> <CHED H="1">Statutory investment limitations (Endnotes contain applicable regulatory limitations)</CHED> </BOXHD> <ROW> <ENT I="01">Bankers' bank stock</ENT> <ENT>5(c)(4)(E)</ENT> <ENT>Same terms as applicable to national banks.</ENT> </ROW> <ROW> <ENT I="01">Business development credit corporations</ENT> <ENT>5(c)(4)(A)</ENT> <ENT>The lesser of .5% of total outstanding loans or $250,000.</ENT> </ROW> <ROW> <ENT I="01">Commercial loans</ENT> <ENT>5(c)(2)(A)</ENT> <ENT>20% of total assets, provided that amounts in excess of 10% of total assets may be used only for small business loans.</ENT> </ROW> <ROW> <ENT I="01">Commercial paper and corporate debt securities</ENT> <ENT>5(c)(2)(D)</ENT> <ENT>Up to 35% of total assets.<SU>1,2</SU> </ENT> </ROW> <ROW> <ENT I="01">Community development loans and equity investments</ENT> <ENT>5(c)(3)(A)</ENT> <ENT>5% of total assets, provided equity investments do not exceed 2% of total assets.<SU>3</SU> </ENT> </ROW> <ROW> <ENT I="01">Construction loans without security</ENT> <ENT>5(c)(3)(C)</ENT> <ENT>In the aggregate, the greater of total capital or 5% of total assets.</ENT> </ROW> <ROW> <ENT I="01">Consumer loans</ENT> <ENT>5(c)(2)(D)</ENT> <ENT>Up to 35% of total assets.<SU>1,4</SU> </ENT> </ROW> <ROW> <ENT I="01">Credit card loans or loans made through credit card accounts</ENT> <ENT>(5)(c)(1)(T)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Deposits in insured depository institutions</ENT> <ENT>5(c)(1)(G)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Education loans</ENT> <ENT>5(c)(1)(U)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Federal government and government-sponsored enterprise securities and instruments</ENT> <ENT>5(c)(1)(C), 5(c)(1)(D), 5(c)(1)(E), 5(c)(1)(F)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Finance leasing</ENT> <ENT>5(c)(1)(B), 5(c)(2)(A), 5(c)(2)(B), 5(c)(2)(D)</ENT> <ENT>Based on purpose and property financed.<SU>6</SU> </ENT> </ROW> <ROW> <ENT I="01">Foreign assistance investments</ENT> <ENT>5(c)(4)(C)</ENT> <ENT>1% of total assets.<SU>7</SU> </ENT> </ROW> <ROW> <ENT I="01">General leasing</ENT> <ENT>5(c)(2)(C)</ENT> <ENT>10% of assets.<SU>6</SU> </ENT> </ROW> <ROW> <ENT I="01">Home improvement loans</ENT> <ENT>5(c)(1)(J)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Home (residential) loans <SU>8</SU> </ENT> <ENT>5(c)(1)(B)</ENT> <ENT>None.<SU>5,9</SU> </ENT> </ROW> <ROW> <ENT I="01">HUD-insured or guaranteed investments</ENT> <ENT>5(c)(1)(O)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Insured loans</ENT> <ENT>5(c)(1)(I), 5(c)(1)(K)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Liquidity investments</ENT> <ENT>5(c)(1)(M)</ENT> <ENT>None.<SU>5,10</SU> </ENT> </ROW> <ROW> <ENT I="01">Loans secured by deposit accounts</ENT> <ENT>5(c)(1)(A)</ENT> <ENT>None.<SU>5,11</SU> </ENT> </ROW> <ROW> <ENT I="01">Loans to financial institutions, brokers, and dealers</ENT> <ENT>5(c)(1)(L)</ENT> <ENT>None.<SU>5,12</SU> </ENT> </ROW> <ROW> <ENT I="01">Manufactured home loans</ENT> <ENT>5(c)(1)(J)</ENT> <ENT>None.<SU>5,13</SU> </ENT> </ROW> <ROW> <ENT I="01">Mortgage-backed securities</ENT> <ENT>5(c)(1)(R)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">National Housing Partnership Corporation and related partnerships and joint ventures</ENT> <ENT>5(c)(1)(N)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Nonconforming loans</ENT> <ENT>5(c)(3)(B)</ENT> <ENT>5% of total assets.</ENT> </ROW> <ROW> <ENT I="01">Nonresidential real property loans</ENT> <ENT>5(c)(2)(B)</ENT> <ENT>400% of total capital.<SU>14</SU> </ENT> </ROW> <ROW> <ENT I="01">Open-end management investment companies <SU>15</SU> </ENT> <ENT>5(c)(1)(Q)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">Service corporations</ENT> <ENT>5(c)(4)(B)</ENT> <ENT>3% of total assets, as long as any amounts in excess of 2% of total assets further community, inner city, or community development purposes.<SU>16</SU> </ENT> </ROW> <ROW> <ENT I="01">Small business investment companies <SU>17</SU> </ENT> <ENT>5(c)(4)(D)</ENT> <ENT>1% of total assets.</ENT> </ROW> <ROW> <ENT I="01">Small-business-related securities</ENT> <ENT>5(c)(1)(S)</ENT> <ENT>None.<SU>5</SU> </ENT> </ROW> <ROW> <ENT I="01">State and local government obligations</ENT> <ENT>5(c)(1)(H)</ENT> <ENT>None.<SU>5,18</SU> </ENT> </ROW> <ROW> <ENT I="01">State housing corporations</ENT> <ENT>5(c)(1)(P)</ENT> <ENT>None.<SU>5,19</SU> </ENT> </ROW> <ROW> <ENT I="01">Transaction account loans, including overdrafts</ENT> <ENT>5(c)(1)(A)</ENT> <ENT>None.<SU>5,20</SU> </ENT> </ROW> <TNOTE> <E T="02">Notes:</E> </TNOTE> <TNOTE> <SU>1</SU> For purposes of determining a Federal savings association's percentage of assets limitation, investment in commercial paper and corporate debt securities must be aggregated with the Federal savings association's investment in consumer loans.</TNOTE> <TNOTE> <SU>2</SU> A Federal savings association may invest in commercial paper and corporate debt securities, which includes corporate debt securities convertible into stock, subject to the provisions of § 560.40. Amounts in excess of 30% of assets, in the aggregate, may be invested only in obligations purchased by the association directly from the original obligor and for which no finder's or referral fees have been paid.<PRTPAGE P="142"/> </TNOTE> <TNOTE> <SU>3</SU> The 2% of assets limitation is a sublimit for investments within the overall 5% of assets limitation on community development loans and investments. The qualitative standards for such loans and investments are set forth in HOLA section 5(c)(3)(A) (formerly 5(c)(3)(B)), as explained in an opinion of the OTS Chief Counsel dated May 10, 1995 (available at www.ots.treas.gov).</TNOTE> <TNOTE> <SU>4</SU> Amounts in excess of 30% of assets, in aggregate, may be invested only in loans made by the association directly to the original obligor and for which no finder's or referral fees have been paid. A Federal savings association may include loans to dealers in consumer goods to finance inventory and floor planning in the total investment made under this section.</TNOTE> <TNOTE> <SU>5</SU> While there is no statutory limit on certain categories of loans and investments, including credit card loans, home improvement loans, education loans, and deposit account loans, OTS may establish an individual limit on such loans or investments if the association's concentration in such loans or investments presents a safety and soundness concern.</TNOTE> <TNOTE> <SU>6</SU> A Federal savings association may engage in leasing activities subject to the provisions of § 560.41.</TNOTE> <TNOTE> <SU>7</SU> This 1% of assets limitation applies to the aggregate outstanding investments made under the Foreign Assistance Act and in the capital of the Inter-American Savings and Loan Bank. Such investments may be made subject to the provisions of § 560.43.</TNOTE> <TNOTE> <SU>8</SU> A home (or residential) loan includes loans secured by one-to-four family dwellings, multi-family residential property and loans secured by a unit or units of a condominium or housing cooperative.</TNOTE> <TNOTE> <SU>9</SU> A Federal savings association may make home loans subject to the provisions of §§ 560.33, 560.34 and 560.35.</TNOTE> <TNOTE> <SU>10</SU> The assets qualifying as liquidity investments are described in § 566.1(g) of this chapter. The maturity limitations (except those for bankers acceptances) of § 566.1(g) of this chapter do not apply for purposes of this section.</TNOTE> <TNOTE> <SU>11</SU> Loans secured by savings accounts and other time deposits may be made without limitation, provided the Federal savings association obtains a lien on, or a pledge of, such accounts. Such loans may not exceed the withdrawable amount of the account.</TNOTE> <TNOTE> <SU>12</SU> A Federal savings association may only invest in these loans if they are secured by obligations of, or by obligations fully guaranteed as to principal and interest by, the United States or any of its agencies or instrumentalities, the borrower is a financial institution insured by the Federal Deposit Insurance Corporation or is a broker or dealer registered with the Securities and Exchange Commission, and the market value of the securities for each loan at least equals the amount of the loan at the time it is made.</TNOTE> <TNOTE> <SU>13</SU> If the wheels and axles of the manufactured home have been removed and it is permanently affixed to a foundation, a loan secured by a combination of a manufactured home and developed residential lot on which it sits may be treated as a home loan.</TNOTE> <TNOTE> <SU>14</SU> Without regard to any limitations of this part, a Federal savings association may make or invest in the fully insured or guaranteed portion of nonresidential real estate loans insured or guaranteed by the Economic Development Administration, the Farmers Home Administration, or the Small Business Administration. Unguaranteed portions of guaranteed loans must be aggregated with uninsured loans when determining an association's compliance with the 400% of capital limitation for other real estate loans.</TNOTE> <TNOTE> <SU>15</SU> This authority is limited to investments in open-end management investment companies that are registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The portfolio of the investment company must be restricted by the company's investment policy (changeable only if authorized by shareholder vote) solely to investments that a Federal savings association may, without limitation as to percentage of assets, invest in, sell, redeem, hold, or otherwise deal in. Separate and apart from this authority, a Federal savings association may make pass-through investments to the extent authorized by § 560.32.</TNOTE> <TNOTE> <SU>16</SU> A Federal savings association may invest in service corporations subject to the provisions of part 559 of this chapter.</TNOTE> <TNOTE> <SU>17</SU> A Federal savings association may only invest in small business investment companies formed pursuant to section 301(d) of the Small Business Investment Act of 1958.</TNOTE> <TNOTE> <SU>18</SU> This category includes obligations issued by any state, territory, or possession of the United States or political subdivision thereof (including any agency, corporation, or instrumentality of a state or political subdivision), subject to § 560.42.</TNOTE> <TNOTE> <SU>19</SU> A Federal savings association may invest in state housing corporations subject to the provisions of § 560.121.</TNOTE> <TNOTE> <SU>20</SU> Payments on accounts in excess of the account balance (overdrafts) on commercial deposit or transaction accounts shall be considered commercial loans for purposes of determining the association's percentage of assets limitation.</TNOTE> </GPOTABLE> <CITA TYPE="W">[61 FR 66577, Dec. 18, 1996, as amended at 65 FR 78901, Dec. 18, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.31</SECTNO> <SUBJECT>Election regarding categorization of loans or investments and related calculations.</SUBJECT> <P>(a) If a loan or other investment is authorized under more than one section of the HOLA, as amended, or this part, a Federal savings association may designate under which section the loan or investment has been made. Such a loan or investment may be apportioned among appropriate categories, and may be moved, in whole or part, from one category to another. A loan commitment shall be counted as an investment and included in total assets of a Federal savings association for purposes of calculating compliance with HOLA section 5(c)'s investment limitations only to the extent that funds have been advanced and not repaid pursuant to the commitment.</P> <P>(b) Loans or portions of loans sold to a third party shall be included in the calculation of a percentage-of-assets or percentage-of-capital investment limitation only to the extent they are sold with recourse.</P> <P>(c) A Federal savings association may make a loan secured by an assignment of loans to the extent that it could, under applicable law and regulations, make or purchase the underlying assigned loans.</P> </SECTION> <SECTION> <SECTNO>§ 560.32</SECTNO> <SUBJECT>Pass-through investments.</SUBJECT> <P>(a) A federal savings association (“you”) may make pass-through investments. A pass-through investment occurs when you invest in an entity (“company”) that engages only in activities that you may conduct directly and the investment meets the requirements of this section. If an investment is authorized under both this section and some other provision of law, you may designate under which authority or authorities the investment is made. When making a pass-through investment, you must comply with all the statutes and regulations that would <PRTPAGE P="143"/>apply if you were engaging in the activity directly. For example, your proportionate share of the company's assets will be aggregated with the assets you hold directly in calculating investment limits (<E T="03">e.g.</E>, no more than 400% of total capital may be invested in nonresidential real property loans).</P> <P>(b) You may make a pass-through investment without prior notice to OTS if all of the following conditions are met:</P> <P>(1) You do not invest more than 15% of your total capital in one company;</P> <P>(2) The book value of your aggregate pass-through investments does not exceed 50% of your total capital after making the investment;</P> <P>(3) Your investment would not give you direct or indirect control of the company;</P> <P>(4) Your liability is limited to the amount of your investment; and</P> <P>(5) The company falls into one of the following categories:</P> <P>(i) A limited partnership;</P> <P>(ii) An open-end mutual fund;</P> <P>(iii) A closed-end investment trust;</P> <P>(iv) A limited liability company; or</P> <P>(v) An entity in which you are investing primarily to use the company's services (<E T="03">e.g.</E>, data processing).</P> <P>(c) If you want to make other pass-through investments, you must provide OTS with 30 days' advance notice. If within that 30-day period OTS notifies you that an investment presents supervisory, legal, or safety and soundness concerns, you must file an application with OTS in accordance with § 516.1 of this chapter and may not make the investment without first receiving OTS's prior written approval. Notices under this section are deemed to be applications for purposes of statutory and regulatory references to “applications.” Any conditions that OTS imposes on any pass-through investment shall be enforceable as a condition imposed in writing by the OTS in connection with the granting of a request by a savings association within the meaning of 12 U.S.C. 1818(b) or 1818(i).</P> <CITA>[61 FR 66578, Dec. 18, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.33</SECTNO> <SUBJECT>Late charges.</SUBJECT> <P>A Federal savings association may include in a home loan contract a provision authorizing the imposition of a late charge with respect to the payment of any delinquent periodic payment. With respect to any loan made after July 31, 1976, on the security of a home occupied or to be occupied by the borrower, no late charge, regardless of form, shall be assessed or collected by a Federal savings association, unless any billing, coupon, or notice the Federal savings association may provide regarding installment payments due on the loan discloses the date after which the charge may be assessed. A Federal savings association may not impose a late charge more than one time for late payment of the same installment, and any installment payment made by the borrower shall be applied to the longest outstanding installment due. A Federal savings association shall not assess a late charge as to any payment received by it within fifteen days after the due date of such payment. No form of such late charge permitted by this paragraph shall be considered as interest to the Federal savings association and the Federal savings association shall not deduct late charges from the regular periodic installment payments on the loan, but must collect them as such from the borrower.</P> </SECTION> <SECTION> <SECTNO>§ 560.34</SECTNO> <SUBJECT>Prepayments.</SUBJECT> <P>Any prepayment on a real estate loan must be applied directly to reduce the principal balance on the loan unless the loan contract or the borrower specifies otherwise. Subject to the terms of the loan contract, a Federal savings association may impose a fee for any prepayment of a loan.</P> </SECTION> <SECTION> <SECTNO>§ 560.35</SECTNO> <SUBJECT>Adjustments to home loans.</SUBJECT> <P>(a) For any home loan secured by borrower-occupied property, or property to be occupied by the borrower, adjustments to the interest rate, payment, balance, or term to maturity must comply with the limitations of this section and the disclosure and notice requirements of § 560.210 of this part.</P> <P>(b) Adjustments to the interest rate shall correspond directly to the movement of an index satisfying the requirements of paragraph (d) of this section. A Federal savings association also may increase the interest rate pursuant to a formula or schedule that <PRTPAGE P="144"/>specifies the amount of the increase, the time at which it may be made, and which is set forth in the loan contract. A Federal savings association may decrease the interest rate at any time.</P> <P>(c) Adjustments to the payment and the loan balance that do not reflect an interest-rate adjustment may be made if:</P> <P>(1) The adjustments reflect a change in an index that may be used pursuant to paragraph (d) of this section;</P> <P>(2) In the case of a payment adjustment, the adjustment reflects a change in the loan balance or is made pursuant to a formula, or to a schedule specifying the percentage or dollar change in the payment as set forth in the loan contract; or</P> <P>(3) In the case of an open-end line-of-credit loan, the adjustment reflects an advance taken by the borrower under the line-of-credit and is permitted by the loan contract.</P> <P>(d)(1) Any index used must be readily available and independently verifiable. If set forth in the loan contract, an association may use any combination of indices, a moving average of index values, or more than one index during the term of a loan.</P> <P>(2) Except as provided in paragraph (d)(3) of this section, any index used must be a national or regional index.</P> <P>(3) A Federal savings association may use an index not satisfying the requirements of paragraph (d)(2) of this section 30 days after filing a notice in accordance with § 516.1(c) of this chapter unless, within that 30-day period, OTS has notified the association that the notice presents supervisory concerns or raises significant issues of law or policy. If OTS does notify the association of such concerns or issues, the Federal savings association may not use such an index unless and until it applies for and receives OTS's prior written approval in accordance with § 516.1(c) of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 560.36</SECTNO> <SUBJECT>De minimis investments.</SUBJECT> <P>A federal savings association may invest in the aggregate up to the greater of one-fourth of 1% of its total capital or $100,000 in community development investments of the type permitted for a national bank under 12 CFR Part 24.</P> <CITA>[61 FR 66579, Dec. 18, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.37</SECTNO> <SUBJECT>Real estate for office and related facilities.</SUBJECT> <P>A federal savings association may invest in real estate (improved or unimproved) to be used for office and related facilities of the association, or for such office and related facilities and for rental or sale, if such investment is made and maintained under a prudent program of property acquisition to meet the federal savings association's present needs or its reasonable future needs for office and related facilities. A federal savings association may not make an investment that would cause the outstanding book value of all such investments (including investments under § 559.4(e)(2) of this chapter) to exceed its total capital.</P> <CITA>[61 FR 66579, Dec. 18, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.40</SECTNO> <SUBJECT>Commercial paper and corporate debt securities.</SUBJECT> <P>Pursuant to HOLA section 5(c)(2)(D), a Federal savings association may invest in, sell, or hold commercial paper and corporate debt securities subject to the provisions of this section.</P> <P>(a) <E T="03">Limitations.</E> (1) Commercial paper must be:</P> <P>(i) As of the date of purchase, rated in either one of the two highest categories by at least two nationally recognized investment ratings services as shown by the most recently published rating made of such investments; or</P> <P>(ii) If unrated, guaranteed by a company having outstanding paper that is rated as provided in paragraph (a)(1)(i) of this section.</P> <P>(2) Corporate debt securities must be:</P> <P>(i) Securities that may be sold with reasonable promptness at a price that corresponds reasonably to their fair value; and</P> <P>(ii) Rated in one of the four highest categories by a nationally recognized investment ratings service at its most recently published rating before the date of purchase of the security.</P> <P>(3) A Federal savings association's total investment in the commercial paper and corporate debt securities of any one issuer, or issued by any one person or entity affiliated with such issuer, together with other loans, shall <PRTPAGE P="145"/>not exceed the general lending limitations contained in § 560.93(c) of this part.</P> <P>(4) Investments in corporate debt securities convertible into stock are subject to the following additional limitations:</P> <P>(i) The purchase of securities convertible into stock at the option of the issuer is prohibited;</P> <P>(ii) At the time of purchase, the cost of such securities must be written down to an amount that represents the investment value of the securities considered independently of the conversion feature; and</P> <P>(iii) Federal savings associations are prohibited from exercising the conversion feature.</P> <P>(5) A Federal savings association shall maintain information in its files adequate to demonstrate that it has exercised prudent judgment in making investments under this section.</P> <P>(b) Notwithstanding the limitations contained in this section, the Office may permit investment in corporate debt securities of another savings association in connection with the purchase or sale of a branch office or in connection with a supervisory merger or acquisition.</P> </SECTION> <SECTION> <SECTNO>§ 560.41</SECTNO> <SUBJECT>Leasing.</SUBJECT> <P>(a) <E T="03">Permissible activities.</E> Subject to the limitations of this section, a Federal savings association may engage in leasing activities. These activities include becoming the legal or beneficial owner of tangible personal property or real property for the purpose of leasing such property, obtaining an assignment of a lessor's interest in a lease of such property, and incurring obligations incidental to its position as the legal or beneficial owner and lessor of the leased property.</P> <P>(b) <E T="03">Definitions.</E> For the purposes of this section:</P> <P>(1) The term <E T="03">net lease</E> means a lease under which the Federal savings association will not, directly or indirectly, provide or be obligated to provide for:</P> <P>(i) The servicing, repair or maintenance of the leased property during the lease term;</P> <P>(ii) The purchasing of parts and accessories for the leased property, except that improvements and additions to the leased property may be leased to the lessee upon its request in accordance with the full-payout requirements of paragraph (c)(2)(i) of this section;</P> <P>(iii) The loan of replacement or substitute property while the leased property is being serviced;</P> <P>(iv) The purchasing of insurance for the lessee, except where the lessee has failed to discharge a contractual obligation to purchase or maintain insurance; or</P> <P>(v) The renewal of any license, registration, or filing for the property unless such action by the Federal savings association is necessary to protect its interest as an owner or financier of the property.</P> <P>(2) The term <E T="03">full-payout lease</E> means a lease transaction in which any unguaranteed portion of the estimated residual value relied on by the association to yield the return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease, does not exceed 25% of the original cost of the property to the lessor. In general, a lease will qualify as a full-payout lease if the scheduled payments provide at least 75% of the principal and interest payments that a lessor would receive if the finance lease were structured as a market-rate loan.</P> <P>(3) The term <E T="03">realization of investment</E> means that a Federal savings association that enters into a lease financing transaction must reasonably expect to realize the return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease from:</P> <P>(i) Rentals;</P> <P>(ii) Estimated tax benefits, if any; and</P> <P>(iii) The estimated residual value of the property at the expiration of the term of the lease.</P> <P>(c) <E T="03">Finance leasing</E>—(1) <E T="03">Investment limits.</E> A Federal savings association may exercise its authority under HOLA sections 5(c)(1)(B) (residential real estate loans), 5(c)(2)(A) (commercial, business, corporate or agricultural loans), 5(c)(2)(B) (nonresidential real estate loans), and 5(c)(2)(D) (consumer loans) by conducting leasing activities that are the functional equivalent of loans made under those HOLA sections. <PRTPAGE P="146"/>These activities are commonly referred to as financing leases. Such financing leases are subject to the same investment limits that apply to loans made under those sections. For example, a financing lease of tangible personal property made to a natural person for personal, family or household purposes is subject to all limitations applicable to the amount of a Federal savings association's investment in consumer loans. A financing lease made for commercial, corporate, business, or agricultural purposes is subject to all limitations applicable to the amount of a Federal savings association's investment in commercial loans. A financing lease of residential or nonresidential real property is subject to all limitations applicable to the amount of a Federal savings association's investment in these types of real estate loans.</P> <P>(2) <E T="03">Functional equivalent of lending.</E> To qualify as the functional equivalent of a loan:</P> <P>(i) The lease must be a net, full-payout lease representing a non-cancelable obligation of the lessee, notwithstanding the possible early termination of the lease;</P> <P>(ii) The portion of the estimated residual value of the property relied upon by the lessor to satisfy the requirements of a full-payout lease must be reasonable in light of the nature of the leased property and all relevant circumstances so that realization of the lessor's full investment plus the cost of financing the property depends primarily on the creditworthiness of the lessee, and not on the residual market value of the leased property; and</P> <P>(iii) At the termination of a financing lease, either by expiration or default, property acquired must be liquidated or released on a net basis as soon as practicable. Any property held in anticipation of re-leasing must be reevaluated and recorded at the lower of fair market value or book value.</P> <P>(d) <E T="03">General leasing.</E> Pursuant to section 5(c)(2)(C) of the HOLA, a Federal savings association may invest in tangible personal property, including vehicles, manufactured homes, machinery, equipment, or furniture, for the purpose of leasing that property. In contrast to financing leases, lease investments made under this authority need not be the functional equivalent of loans.</P> <P>(e) <E T="03">Leasing salvage powers.</E> If, in good faith, a Federal savings association believes that there has been an unanticipated change in conditions that threatens its financial position by significantly increasing its exposure to loss, it may:</P> <P>(1) As the owner and lessor, take reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease;</P> <P>(2) As the assignee of a lessor's interest in a lease, become the owner and lessor of the leased property pursuant to its contractual right, or take any reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease; or</P> <P>(3) Include any provisions in a lease, or make any additional agreements, to protect its financial position or investment in the circumstances set forth in paragraphs (e)(1) and (e)(2) of this section.</P> </SECTION> <SECTION> <SECTNO>§ 560.42</SECTNO> <SUBJECT>State and local government obligations.</SUBJECT> <P>Pursuant to HOLA section 5(c)(1)(H), a Federal savings association may invest in obligations issued by any state, territory, possession, or political subdivision thereof, subject to the following conditions:</P> <P>(a) A Federal savings association may not invest more than 10% of its total capital in obligations of any one issuer, exclusive of general obligations of the issuer.</P> <P>(b) Except as provided in paragraph (c) of this section, the obligations must:</P> <P>(1) Continue to hold one of the four highest national investment grade ratings; or</P> <P>(2) Must be issued by a public housing agency and backed by the full faith and credit of the United States.</P> <P>(c) Notwithstanding the limitations in paragraph (b) of this section, a Federal savings association may invest:</P> <P>(1) In the aggregate, up to one percent of its assets in the obligations of <PRTPAGE P="147"/>a state, territory, possession, or political subdivision in which the association's home office or a branch office is located; or</P> <P>(2) In any obligations approved by the Office.</P> </SECTION> <SECTION> <SECTNO>§ 560.43</SECTNO> <SUBJECT>Foreign assistance investments.</SUBJECT> <P>Pursuant to HOLA section 5(c)(4)(C), a Federal savings association may make foreign assistance investments in an aggregate amount not to exceed one percent of its assets, subject to the following conditions:</P> <P>(a) For any investment made under the Foreign Assistance Act, the loan agreement shall specify what constitutes an event of default, and provide that upon default in payment of principal or interest under such agreement, the entire amount of outstanding indebtedness thereunder shall become immediately due and payable, at the lender's option. Additionally, the contract of guarantee shall cover 100% of any loss of investment thereunder, except for any portion of the loan arising out of fraud or misrepresentation for which the party seeking payment is responsible, and provide that the guarantor shall pay for any such loss in U.S. dollars within a specified reasonable time after the date of application for payment.</P> <P>(b) To make any investments in the share capital and capital reserve of the Inter-American Savings and Loan Bank, a Federal savings association must be adequately capitalized and have adequate allowances for loan and lease losses. The Federal savings association's aggregate investment in such capital or capital reserve, including the amount of any obligations undertaken to provide said Bank with reserve capital in the future (call-able capital), must not, as a result of such investment, exceed the lesser of one-quarter of 1% of its assets or $100,000.</P> </SECTION> <SECTION> <SECTNO>§ 560.50</SECTNO> <SUBJECT>Letters of credit and other independent undertakings—authority.</SUBJECT> <P>A Federal savings association may issue letters of credit and may issue such other independent undertakings as are approved by OTS, subject to the restrictions in § 560.120.</P> <CITA>[64 FR 46565, Aug. 26, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.60</SECTNO> <SUBJECT>Suretyship and guaranty.</SUBJECT> <P>Pursuant to section 5(b)(2) of the HOLA, a Federal savings association may enter into a repayable suretyship or guaranty agreement, subject to the conditions in this section.</P> <P>(a) <E T="03">What is a suretyship or guaranty agreement?</E> Under a suretyship, a Federal savings association is bound with its principal to pay or perform an obligation to a third person. Under a guaranty agreement, a Federal savings association agrees to satisfy the obligation of the principal only if the principal fails to pay or perform.</P> <P>(b) <E T="03">What requirements apply to suretyship and guaranty agreements under this section?</E> A Federal savings association may enter into a suretyship or guaranty agreement under this section, subject to each of the following requirements:</P> <P>(1) The Federal savings association must limit its obligations under the agreement to a fixed dollar amount and a specified duration.</P> <P>(2) The Federal savings association's performance under the agreement must create an authorized loan or other investment.</P> <P>(3) The Federal savings association must treat its obligation under the agreement as a loan to the principal for purposes of §§ 560.93 and 563.43 of this chapter.</P> <P>(4) The Federal savings association must take and maintain a perfected security interest in collateral sufficient to cover its total obligation under the agreement.</P> <P>(c) <E T="03">What collateral is sufficient?</E> (1) The Federal savings association must take and maintain a perfected security interest in real estate or marketable securities equal to at least 110 percent of its obligation under the agreement, except as provided in paragraph (c)(2) of this section.</P> <P>(i) If the collateral is real estate, the Federal savings association must establish the value by a signed appraisal or evaluation in accordance with part 564 of this chapter. In determining the value of the collateral, the Federal savings association must factor in the <PRTPAGE P="148"/>value of any existing senior mortgages, liens or other encumbrances on the property, except those held by the principal to the suretyship or guaranty agreement.</P> <P>(ii) If the collateral is marketable securities, the Federal savings association must be authorized to invest in that security taken as collateral. The Federal savings association must ensure that the value of the security is 110 percent of the obligation at all times during the term of agreement.</P> <P>(2) The Federal savings association may take and maintain a perfected security interest in collateral which is at all times equal to at least 100 percent of its obligation, if the collateral is:</P> <P>(i) Cash;</P> <P>(ii) Obligations of the United States or its agencies;</P> <P>(iii) Obligations fully guarantied by the United States or its agencies as to principal and interest; or</P> <P>(iv) Notes, drafts, or bills of exchange or bankers' acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank.</P> <CITA>[64 FR 46565, Aug. 26, 1999]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Lending and Investment Provisions Applicable to all Savings Associations</HD> <SECTION> <SECTNO>§ 560.93</SECTNO> <SUBJECT>Lending limitations.</SUBJECT> <P>(a) <E T="03">Scope.</E> This section applies to all loans and extensions of credit to third parties made by a savings association and its subsidiaries. This section does not apply to loans made by a savings association or a GAAP-consolidated subsidiary to subordinate organizations or affiliates of the savings association. The terms <E T="03">subsidiary, GAAP-consolidated subsidiary,</E> and <E T="03">subordinate organization</E> have the same meanings as specified in § 559.2 of this chapter. The term <E T="03">affiliate</E> has the same meaning as specified in § 563.41 of this chapter.</P> <P>(b) <E T="03">Definitions.</E> In applying these lending limitations, savings associations shall apply the definitions and interpretations promulgated by the Office of the Comptroller of the Currency consistent with 12 U.S.C. 84. See 12 CFR part 32. In applying these definitions, pursuant to 12 U.S.C. 1464, savings associations shall use the terms <E T="03">savings association, savings associations,</E> and <E T="03">savings association's</E> in place of the terms <E T="03">national bank</E> and <E T="03">bank, banks, and bank's,</E> respectively. For purposes of this section:</P> <P>(1) The term <E T="03">one borrower</E> has the same meaning as the term <E T="03">person</E> set forth at 12 CFR part 32. It also includes, in addition to the definition cited therein, a <E T="03">financial institution</E> as defined at § 561.19 of this chapter.</P> <P>(2) The term <E T="03">company</E> means a corporation, partnership, business trust, association, or similar organization and, unless specifically excluded, the term <E T="03">company</E> includes a <E T="03">savings association</E> and a <E T="03">bank.</E> </P> <P>(3) <E T="03">Contractual commitment to advance funds</E> has the meaning set forth in 12 CFR part 32.</P> <P>(4) <E T="03">Loans and extensions of credit</E> has the meaning set forth in 12 CFR part 32, and includes investments in commercial paper and corporate debt securities. The Office expressly reserves its authority to deem other arrangements that are, in substance, <E T="03">loans and extensions of credit</E> to be encompassed by this term.</P> <P>(5) The term <E T="03">loans</E> as used in the phrase <E T="03">Loans to one borrower to finance the sale of real property acquired in satisfaction of debts previously contracted for in good faith</E> does not include an association's taking of a purchase money mortgage note from the purchaser <E T="03">provided that:</E> </P> <P>(i) No new funds are advanced by the association to the borrower; and</P> <P>(ii) The association is not placed in a more detrimental position as a result of the sale.</P> <P>(6) [Reserved]</P> <P>(7) <E T="03">Readily marketable collateral</E> has the meaning set forth in 12 CFR part 32.</P> <P>(8) <E T="03">Residential housing units</E> has the same meaning as the term <E T="03">residential real estate</E> set forth in § 541.23 of this chapter. The term <E T="03">to develop</E> includes the various phases necessary to produce housing units as an end product, to include: acquisition, development and construction; development and construction; construction; rehabilitation; or conversion. The term <E T="03">domestic</E> includes units within the fifty <PRTPAGE P="149"/>states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and the Pacific Islands.</P> <P>(9) <E T="03">Single family dwelling unit</E> has the meaning set forth in § 541.20 of this chapter.</P> <P>(10) A <E T="03">standby letter of credit</E> has the meaning set forth in 12 CFR part 32.</P> <P>(11) <E T="03">Unimpaired capital and unimpaired surplus</E> means—</P> <P>(i) A savings association's core capital and supplementary capital included in its total capital under part 567 of this chapter; plus</P> <P>(ii) The balance of a savings association's allowance for loan and lease losses not included in supplementary capital under part 567 of this chapter; plus</P> <P>(iii) The amount of a savings association's loans to, investments in, and advances to subsidiaries not included in calculating core capital under part 567 of this chapter.</P> <P>(c) <E T="03">General limitation.</E> Section 5200 of the Revised Statutes (12 U.S.C. 84) shall apply to savings associations in the same manner and to the same extent as it applies to national banks. This statutory provision and lending limit regulations and interpretations promulgated by the Office of the Comptroller of the Currency pursuant to a rulemaking conducted in accordance with the provisions of the Administrative Procedure Act, 5 U.S.C. 553 et seq. (including the regulations appearing at 12 CFR part 32) shall apply to savings associations in the same manner and to the same extent as these provisions apply to national banks:</P> <P>(1) The total loans and extensions of credit by a savings association to one borrower outstanding at one time and not fully secured, as determined in the same manner as determined under 12 U.S.C. 84(a)(2), by collateral having a market value at least equal to the amount of the loan or extension of credit shall not exceed 15 percent of the unimpaired capital and unimpaired surplus of the association.</P> <P>(2) The total loans and extensions of credit by a savings association to one borrower outstanding at one time and fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the funds outstanding shall not exceed 10 per centum of the unimpaired capital and unimpaired surplus of the association. This limitation shall be separate from and in addition to the limitation contained in paragraph (c)(1) of this section.</P> <P>(d) <E T="03">Exceptions to the general limitation</E>—(1) <E T="03">$500,000 exception.</E> If a savings association's aggregate lending limitation calculated under paragraphs (c)(1) and (c)(2) of this section is less than $500,000, notwithstanding this aggregate limitation in paragraphs (c)(1) and (c)(2) of this section, such savings association may have total loans and extensions of credit, for any purpose, to one borrower outstanding at one time not to exceed $500,000.</P> <P>(2) <E T="03">Statutory exceptions.</E> The exceptions to the lending limits set forth in 12 U.S.C. 84 and 12 CFR part 32 are applicable to savings associations in the same manner and to the extent as they apply to national banks.</P> <P>(3) <E T="03">Loans to develop domestic residential housing units.</E> Subject to paragraph (d)(4) of this section, a savings association may make loans to one borrower to develop domestic residential housing units, not to exceed the lesser of $30,000,000 or 30 percent of the savings association's unimpaired capital and unimpaired surplus, including all amounts loaned under the authority of the General Limitation set forth under paragraphs (c)(1) and (c)(2) of this section, <E T="03">provided that:</E> </P> <P>(i) The final purchase price of each single family dwelling unit the development of which is financed under this paragraph (d)(3) does not exceed $500,000;</P> <P>(ii) The savings association is, and continues to be, in compliance with its capital requirements under part 567 of this chapter.</P> <P>(iii) OTS permits, subject to conditions it may impose, the savings association to use the higher limit set forth under this paragraph (d)(3). A savings association that meets the requirements of paragraphs (d)(3) (i), (ii), (iv) and (v) of this section and that meets the requirements for “expedited treatment” under § 516.3(a) of this chapter may use the higher limit set forth <PRTPAGE P="150"/>under this paragraph (d)(3) if the savings association has filed a notice with OTS that it intends to use the higher limit at least 30 days prior to the proposed use. A savings association that meets the requirements of paragraphs (d)(3) (i), (ii), (iv) and (v) of this section and that meets the requirements for “standard treatment” under § 516.3(b) of this chapter may use the higher limit set forth under this paragraph (d)(3) if the savings association has filed a notice with OTS and an order has been issued permitting the savings association to use the higher limit;</P> <P>(iv) Loans made under this paragraph (d)(3) to all borrowers do not, in aggregate, exceed 150 percent of the savings association's unimpaired capital and unimpaired surplus; and</P> <P>(v) Such loans comply with the applicable loan-to-value requirements that apply to Federal savings associations.</P> <P>(4) The authority of a savings association to make a loan or extension of credit under the exception in paragraph (d)(3) of this section ceases immediately upon the association's failure to comply with any one of the requirements set forth in paragraph (d)(3) of this section or any condition(s) set forth in a Director's order under paragraph (d)(3)(iii) of this section.</P> <P>(5) Notwithstanding the limit set forth in paragraphs (c)(1) and (c)(2) of this section, a savings association may invest up to 10 percent of unimpaired capital and unimpaired surplus in the obligations of one issuer evidenced by:</P> <P>(i) Commercial paper rated, as of the date of purchase, as shown by the most recently published rating by at least two nationally recognized investment rating services in the highest category; or</P> <P>(ii) Corporate debt securities that may be sold with reasonable promptness at a price that corresponds reasonably to their fair value, and that are rated in one of the two highest categories by a nationally recognized investment rating service in its most recently published ratings before the date of purchase of the security.</P> <P>(e) <E T="03">Loans to finance the sale of REO.</E> A savings association's loans to one borrower to finance the sale of real property acquired in satisfaction of debts previously contracted for in good faith shall not, when aggregated with all other loans to such borrower, exceed the General Limitation in paragraph (c)(1) of this section.</P> <P>(f) <E T="03">Calculating compliance and recordkeeping.</E> (1) The amount of an association's unimpaired capital and unimpaired surplus pursuant to paragraph (b)(11) of this section shall be calculated as of the association's most recent periodic report required to be filed with OTS prior to the date of granting or purchasing the loan or otherwise creating the obligation to repay funds, unless the association knows, or has reason to know, based on transactions or events actually completed, that such level has changed significantly, upward or downward, subsequent to filing of such report.</P> <P>(2) If a savings association or subsidiary thereof makes a loan or extension of credit to any one borrower, as defined in paragraph (b)(1) of this section, in an amount that, when added to the total balances of all outstanding loans owed to such association and its subsidiary by such borrower, exceeds the greater of $500,000 or 5 percent of unimpaired capital and unimpaired surplus, the records of such association or its subsidiary with respect to such loan shall include documentation showing that such loan was made within the limitations of paragraphs (c) and (d) of this section; for the purpose of such documentation such association or subsidiary may require, and may accept in good faith, a certification by the borrower identifying the persons, entities, and interests described in the definition of one borrower in paragraph (b)(1) of this section.</P> <P>(g) [Reserved]</P> <P>(h) <E T="03">More stringent restrictions.</E> The Director may impose more stringent restrictions on a savings association's loans to one borrower if the Director determines that such restrictions are necessary to protect the safety and soundness of the savings association.</P> </SECTION> <APPENDIX> <HD SOURCE="HED">Appendix to § 560.93—Interpretations</HD> <HD SOURCE="HD2">Section 560.93-100Interrelation of General Limitation With Exception for Loans To Develop Domestic Residential Housing Units</HD> <P>1. The § 560.93(d)(3) exception for loans to one person to develop domestic residential <PRTPAGE P="151"/>housing units is characterized in the regulation as an “alternative” limit. This exceptional $30,000,000 or 30 percent limitation does not operate <E T="03">in addition to</E> the 15 percent General Limitation or the 10 percent additional amount an association may loan to one borrower secured by readily marketable collateral, but serves as the uppermost limitation on a savings association's lending to any one person once an association employs this exception. An example will illustrate the Office's interpretation of the application of this rule:</P> <P> <E T="03">Example:</E> Savings Associations A's lending limitation as calculated under the 15 percent General Limitation is $800,000. If Association A lends Y $800,000 for commercial purposes, Association A cannot lend Y <E T="03">an additional</E> $1,600,000, or 30 percent of capital and surplus, to develop residential housing units under the paragraph (d)(3) exception. The (d)(3) exception operates as the uppermost limitation on all lending to one borrower (for associations that may employ this exception) <E T="03">and includes any amounts loaned to the same borrower under the General Limitation.</E> Association A, therefore, may lend only an additional $800,000 to Y, provided the paragraph (d)(3) prerequisites have been met. The amount loaned under the authority of the General Limitation ($800,000), when added to the amount loaned under the exception ($800,000), yields a sum that does not exceed the 30 percent uppermost limitation ($1,600,000).</P> <P>2. This result does not change even if the facts are altered to assume that some or all of the $800,000 amount of lending permissible under the General Limitation's 15 percent basket is not used, or is devoted to the development of domestic residential housing units.</P> <P>In other words, using the above example, if Association A lends Y $400,000 for commercial purposes and $300,000 for residential purposes—both of which would be permitted under the Association's $800,000 General Limitation—Association A's remaining permissible lending to Y would be: first, an additional $100,000 under the General Limitation, and then another $800,000 to develop domestic residential housing units if the Association meets the paragraph (d)(3) prerequisites. (The latter is $800,000 because in no event may the total lending to Y exceed 30 percent of unimpaired capital and unimpaired surplus). If Association A did not lend Y the remaining $100,000 permissible under the General Limitation, its permissible loans to develop domestic residential housing units under paragraph (d)(3) would be $900,000 instead of $800,000 (the total loans to Y would still equal $1,600,000).</P> <P>3. In short, under the paragraph (d)(3) exception, the 30 percent or $30,000,000 limit will always operate as the uppermost limitation, unless of course the association does not avail itself of the exception and merely relies upon its General Limitation.</P> <HD SOURCE="HD2">Section 560.93-101Interrelationship Between the General Limitation and the 150 Percent Aggregate Limit on Loans to all Borrowers To Develop Domestic Residential Housing Units</HD> <P>1. The Office has already received numerous questions regarding the allocation of loans between the different lending limit “baskets,” <E T="03">i.e.,</E> the 15 percent General Limitation basket and the 30 percent Residential Development basket. In general, the inquiries concern the manner in which an association may “move” a loan from the General Limitation basket to the Residential Development basket. The following example is intended to provide guidance:</P> <P> <E T="03">Example:</E> Association A's General Limitation under section 5(u)(1) is $15 million. In January, Association A makes a $10 million loan to Borrower to develop domestic residential housing units. At the time the loan was made, Association A had not received approval under a Director order to avail itself of the residential development exception to lending limits. Therefore, the $10 million loan is made under Association A's General Limitation.</P> <P>2. In June, Association A receives authorization to lend under the Residential Development exception. In July, Association A lends $3 million to Borrower to develop domestic residential housing units. In August, Borrower seeks an additional $12 million commercial loan from Association A. Association A cannot make the loan to Borrower, however, because it already has an outstanding $10 million loan to Borrower that counts against Association A's General Limitation of $15 million. Thus, Association A may lend only up to an additional $5 million to Borrower under the General Limitation.</P> <P>3. However, Association A may be able to reallocate the $10 million loan it made to Borrower in January to its Residential Development basket provided that: (1) Association A has obtained authority under a Director's order to avail itself of the additional lending authority for residential development and maintains compliance with all prerequisites to such lending authority; (2) the original $10 million loan made in January constitutes a loan to develop domestic residential housing units as defined; and (3) the housing unit(s) constructed with the funds from the January loan remain in a stage of “development” at the time Association A reallocates the loan to the domestic residential housing basket. The project must be in a stage of acquisition, development, construction, rehabilitation, or conversion in order for the loan to be reallocated.</P> <P>4. If Association A is able to reallocate the $10 million loan made to Borrower in January to its Residential Development basket, it may make the $12 million commercial loan <PRTPAGE P="152"/>requested by Borrower in August. Once the January loan is reallocated to the Residential Development basket, however, the $10 million loan counts towards Association's 150 percent aggregate limitation on loans to all borrowers under the residential development basket (section 5(u)(2)(A)(ii)(IV)).</P> <P>5. If Association A reallocates the January loan to its domestic residential housing basket and makes an additional $12 million commercial loan to Borrower, Association A's totals under the respective limitations would be: $12 million under the General Limitation; and $13 million under the Residential Development limitation. The full $13 million residential development loan counts toward Association A's aggregate 150 percent limitation.</P> <CITA>[61 FR 50976, Sept. 30, 1996, as amended at 61 FR 66579, Dec. 18, 1996; 62 FR 66262, Dec. 18, 1997]</CITA> </APPENDIX> <SECTION> <SECTNO>§ 560.100</SECTNO> <SUBJECT>Real estate lending standards; purpose and scope.</SUBJECT> <P>This section, and § 560.101 of this subpart, issued pursuant to section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991, 12 U.S.C. 1828(o), prescribe standards for real estate lending to be used by savings associations and all their includable subsidiaries, as defined in 12 CFR 567.1, over which the savings associations exercise control, in adopting internal real estate lending policies.</P> <CITA>[61 FR 50971, Sept. 30, 1996, as amended at 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.101</SECTNO> <SUBJECT>Real estate lending standards.</SUBJECT> <P>(a) Each savings association shall adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate.</P> <P>(b)(1) Real estate lending policies adopted pursuant to this section must:</P> <P>(i) Be consistent with safe and sound banking practices;</P> <P>(ii) Be appropriate to the size of the institution and the nature and scope of its operations; and</P> <P>(iii) Be reviewed and approved by the savings association's board of directors at least annually.</P> <P>(2) The lending policies must establish:</P> <P>(i) Loan portfolio diversification standards;</P> <P>(ii) Prudent underwriting standards, including loan-to-value limits, that are clear and measurable;</P> <P>(iii) Loan administration procedures for the savings association's real estate portfolio; and</P> <P>(iv) Documentation, approval, and reporting requirements to monitor compliance with the savings association's real estate lending policies.</P> <P>(c) Each savings association must monitor conditions in the real estate market in its lending area to ensure that its real estate lending policies continue to be appropriate for current market conditions.</P> <P>(d) The real estate lending policies adopted pursuant to this section should reflect consideration of the Interagency Guidelines for Real Estate Lending Policies established by the Federal bank and thrift supervisory agencies.</P> </SECTION> <APPENDIX> <HD SOURCE="HED">Appendix to § 560.101—Interagency Guidelines for Real Estate Lending Policies</HD> <P>The agencies' regulations require that each insured depository institution adopt and maintain a written policy that establishes appropriate limits and standards for all extensions of credit that are secured by liens on or interests in real estate or made for the purpose of financing the construction of a building or other improvements.<SU>1</SU> <FTREF/> These guidelines are intended to assist institutions in the formulation and maintenance of a real estate lending policy that is appropriate to the size of the institution and the nature and scope of its individual operations, as well as satisfies the requirements of the regulation.</P> <FTNT> <P> <SU>1</SU> The agencies have adopted a uniform rule on real estate lending. See 12 CFR Part 365 (FDIC); 12 CFR Part 208, Subpart C (FRB); 12 CFR Part 34, Subpart D (OCC); and 12 CFR 560.100-560.101 (OTS).</P> </FTNT> <P>Each institution's policies must be comprehensive, and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions' business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism.<PRTPAGE P="153"/> </P> <HD SOURCE="HD1">Loan Portfolio Management Considerations</HD> <P>The lending policy should contain a general outline of the scope and distribution of the institution's credit facilities and the manner in which real estate loans are made, serviced, and collected. In particular, the institution's policies on real estate lending should:</P> <P>• Identify the geographic areas in which the institution will consider lending.</P> <P>• Establish a loan portfolio diversification policy and set limits for real estate loans by type and geographic market (e.g., limits on higher risk loans).</P> <P>• Identify appropriate terms and conditions by type of real estate loan.</P> <P>• Establish loan origination and approval procedures, both generally and by size and type of loan.</P> <P>• Establish prudent underwriting standards that are clear and measurable, including loan-to-value limits, that are consistent with these supervisory guidelines.</P> <P>• Establish review and approval procedures for exception loans, including loans with loan-to-value percentages in excess of supervisory limits.</P> <P>• Establish loan administration procedures, including documentation, disbursement, collateral inspection, collection, and loan review.</P> <P>• Establish real estate appraisal and evaluation programs.</P> <P>• Require that management monitor the loan portfolio and provide timely and adequate reports to the board of directors.</P> <P>The institution should consider both internal and external factors in the formulation of its loan policies and strategic plan. Factors that should be considered include:</P> <P>• The size and financial condition of the institution.</P> <P>• The expertise and size of the lending staff.</P> <P>• The need to avoid undue concentrations of risk.</P> <P>• Compliance with all real estate related laws and regulations, including the Community Reinvestment Act, anti-discrimination laws, and for savings associations, the Qualified Thrift Lender test.</P> <P>• Market conditions.</P> <P>The institution should monitor conditions in the real estate markets in its lending area so that it can react quickly to changes in market conditions that are relevant to its lending decisions. Market supply and demand factors that should be considered include:</P> <P>• Demographic indicators, including population and employment trends.</P> <P>• Zoning requirements.</P> <P>• Current and projected vacancy, construction, and absorption rates.</P> <P>• Current and projected lease terms, rental rates, and sales prices, including concessions.</P> <P>• Current and projected operating expenses for different types of projects.</P> <P>• Economic indicators, including trends and diversification of the lending area.</P> <P>• Valuation trends, including discount and direct capitalization rates.</P> <HD SOURCE="HD1">Underwriting Standards</HD> <P>Prudently underwritten real estate loans should reflect all relevant credit factors, including:</P> <P>• The capacity of the borrower, or income from the underlying property, to adequately service the debt.</P> <P>• The value of the mortgaged property.</P> <P>• The overall creditworthiness of the borrower.</P> <P>• The level of equity invested in the property.</P> <P>• Any secondary sources of repayment.</P> <P>• Any additional collateral or credit enhancements (such as guarantees, mortgage insurance or takeout commitments).</P> <P>The lending policies should reflect the level of risk that is acceptable to the board of directors and provide clear and measurable underwriting standards that enable the institution's lending staff to evaluate these credit factors. The underwriting standards should address:</P> <P>• The maximum loan amount by type of property.</P> <P>• Maximum loan maturities by type of property.</P> <P>• Amortization schedules.</P> <P>• Pricing structure for different types of real estate loans.</P> <P>• Loan-to-value limits by type of property.</P> <P>For development and construction projects, and completed commercial properties, the policy should also establish, commensurate with the size and type of the project or property:</P> <P>• Requirements for feasibility studies and sensitivity and risk analyses (<E T="03">e.g.</E>, sensitivity of income projections to changes in economic variables such as interest rates, vacancy rates, or operating expenses).</P> <P>• Minimum requirements for initial investment and maintenance of hard equity by the borrower (<E T="03">e.g.</E>, cash or unencumbered investment in the underlying property).</P> <P>• Minimum standards for net worth, cash flow, and debt service coverage of the borrower or underlying property.</P> <P>• Standards for the acceptability of and limits on non-amortizing loans.</P> <P>• Standards for the acceptability of and limits on the use of interest reserves.</P> <P>• Pre-leasing and pre-sale requirements for income-producing property.</P> <P>• Pre-sale and minimum unit release requirements for non-income-producing property loans.<PRTPAGE P="154"/> </P> <P>• Limits on partial recourse or nonrecourse loans and requirements for guarantor support.</P> <P>• Requirements for takeout commitments.</P> <P>• Minimum covenants for loan agreements.</P> <HD SOURCE="HD1">Loan Administration</HD> <P>The institution should also establish loan administration procedures for its real estate portfolio that address:</P> <P>• Documentation, including:</P> <P>Type and frequency of financial statements, including requirements for verification of information provided by the borrower;</P> <P>Type and frequency of collateral evaluations (appraisals and other estimates of value).</P> <P>• Loan closing and disbursement.</P> <P>• Payment processing.</P> <P>• Escrow administration.</P> <P>• Collateral administration.</P> <P>• Loan payoffs.</P> <P>• Collections and foreclosure, including:</P> <P>Delinquency follow-up procedures;</P> <P>Foreclosure timing;</P> <P>Extensions and other forms of forbearance;</P> <P>Acceptance of deeds in lieu of foreclosure.</P> <P>• Claims processing (<E T="03">e.g.</E>, seeking recovery on a defaulted loan covered by a government guaranty or insurance program).</P> <P>• Servicing and participation agreements.</P> <HD SOURCE="HD1">Supervisory Loan-to-Value Limits</HD> <P>Institutions should establish their own internal loan-to-value limits for real estate loans. These internal limits should not exceed the following supervisory limits:</P> <GPOTABLE CDEF="s25,10" COLS="2" OPTS="L2,i1"> <BOXHD> <CHED H="1">Loan category</CHED> <CHED H="1">Loan-to-value limit <LI>(percent)</LI> </CHED> </BOXHD> <ROW> <ENT I="01">Raw land</ENT> <ENT>65</ENT> </ROW> <ROW> <ENT I="01">Land development</ENT> <ENT>75</ENT> </ROW> <ROW> <ENT I="11">Construction:</ENT> </ROW> <ROW> <ENT I="02">Commercial, multifamily,<SU>1</SU> and other nonresidential</ENT> <ENT>80</ENT> </ROW> <ROW> <ENT I="02">1- to 4-family residential</ENT> <ENT>85</ENT> </ROW> <ROW> <ENT I="02">Improved property</ENT> <ENT>85</ENT> </ROW> <ROW> <ENT I="02">Owner-occupied 1- to 4-family and home equity</ENT> <ENT>( <SU>2</SU> )</ENT> </ROW> <TNOTE> <SU>1</SU> Multifamily construction includes condominiums and cooperatives.</TNOTE> <TNOTE> <SU>2</SU> A loan-to-value limit has not been established for permanent mortgage or home equity loans on owner-occupied, 1- to 4-family residential property. However, for any such loan with a loan-to-value ratio that equals or exceeds 90 percent at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.</TNOTE> </GPOTABLE> <P>The supervisory loan-to-value limits should be applied to the underlying property that collateralizes the loan. For loans that fund multiple phases of the same real estate project (e.g., a loan for both land development and construction of an office building), the appropriate loan-to-value limit is the limit applicable to the final phase of the project funded by the loan; however, loan disbursements should not exceed actual development or construction outlays. In situations where a loan is fully cross-collateralized by two or more properties or is secured by a collateral pool of two or more properties, the appropriate maximum loan amount under supervisory loan-to-value limits is the sum of the value of each property, less senior liens, multiplied by the appropriate loan-to-value limit for each property. To ensure that collateral margins remain within the supervisory limits, lenders should redetermine conformity whenever collateral substitutions are made to the collateral pool.</P> <P>In establishing internal loan-to-value limits, each lender is expected to carefully consider the institution-specific and market factors listed under “Loan Portfolio Management Considerations,” as well as any other relevant factors, such as the particular subcategory or type of loan. For any subcategory of loans that exhibits greater credit risk than the overall category, a lender should consider the establishment of an internal loan-to-value limit for that subcategory that is lower than the limit for the overall category.</P> <P>The loan-to-value ratio is only one of several pertinent credit factors to be considered when underwriting a real estate loan. Other credit factors to be taken into account are highlighted in the “Underwriting Standards” section above. Because of these other factors, the establishment of these supervisory limits should not be interpreted to mean that loans at these levels will automatically be considered sound.</P> <HD SOURCE="HD1">Loans in Excess of the Supervisory Loan-to-Value Limits</HD> <P>The agencies recognize that appropriate loan-to-value limits vary not only among categories of real estate loans but also among individual loans. Therefore, it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits, based on the support provided by other credit factors. Such loans should be identified in the institutions' records, and their aggregate amount reported at least quarterly to the institution's board of directors. (See additional reporting requirements described under “Exceptions to the General Policy.”) The aggregate amount of all loans in excess of the supervisory loan-to-value limits should not exceed 100 percent of total capital.<SU>2</SU> <FTREF/> Moreover, within the aggregate <PRTPAGE P="155"/>limit, total loans for all commercial, agricultural, multifamily or other non-1-to- 4 family residential properties should not exceed 30 percent of total capital. An institution will come under increased supervisory scrutiny as the total of such loans approaches these levels.</P> <FTNT> <P> <SU>2</SU> For the state member banks, the term “total capital” means “total risk-based capital” as defined in Appendix A to 12 CFR Part 208. For insured state non-member banks, “total capital” refers to that term described in table I of Appendix A to 12 CFR <PRTPAGE/>Part 325. For national banks, the term “total capital” is defined at 12 CFR 3.2(e). For savings associations, the term “total capital” is defined at 12 CFR 567.5(c).</P> </FTNT> <P>In determining the aggregate amount of such loans, institutions should: (a) Include all loans secured by the same property if any one of those loans exceeds the supervisory loan-to-value limits; and (b) include the recourse obligation of any such loan sold with recourse. Conversely, a loan should no longer be reported to the directors as part of aggregate totals when reduction in principal or senior liens, or additional contribution of collateral or equity (e.g., improvements to the real property securing the loan), bring the loan-to-value ratio into compliance with supervisory limits.</P> <HD SOURCE="HD1">Excluded Transactions</HD> <P>The agencies also recognize that there are a number of lending situations in which other factors significantly outweigh the need to apply the supervisory loan-to-value limits.</P> <P>These include:</P> <P>• Loans guaranteed or insured by the U.S. government or its agencies, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit.</P> <P>• Loans backed by the full faith and credit of a state government, provided that the amount of the assurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit.</P> <P>• Loans guaranteed or insured by a state, municipal or local government, or an agency thereof, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit, and provided that the lender has determined that the guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement.</P> <P>• Loans that are to be sold promptly after origination, without recourse, to a financially responsible third party.</P> <P>• Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs), or loans that are renewed, refinanced, or restructured in connection with a workout situation, either with or without the advancement of new funds, where consistent with safe and sound banking practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan.</P> <P>• Loans that facilitate the sale of real estate acquired by the lender in the ordinary course of collecting a debt previously contracted in good faith.</P> <P>• Loans for which a lien on or interest in real property is taken as additional collateral through an abundance of caution by the lender (e.g., the institution takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real property is low relative to the aggregate value of all other collateral).</P> <P>• Loans, such as working capital loans, where the lender does not rely principally on real estate as security and the extension of credit is not used to acquire, develop, or construct permanent improvements on real property.</P> <P>• Loans for the purpose of financing permanent improvements to real property, but not secured by the property, if such security interest is not required by prudent underwriting practice.</P> <HD SOURCE="HD1">Exceptions to the General Lending Policy</HD> <P>Some provision should be made for the consideration of loan requests from creditworthy borrowers whose credit needs do not fit within the institution's general lending policy. An institution may provide for prudently underwritten exceptions to its lending policies, including loan-to-value limits, on a loan-by-loan basis. However, any exceptions from the supervisory loan-to-value limits should conform to the aggregate limits on such loans discussed above.</P> <P>The board of directors is responsible for establishing standards for the review and approval of exception loans. Each institution should establish an appropriate internal process for the review and approval of loans that do not conform to its own internal policy standards. The approval of any such loan should be supported by a written justification that clearly sets forth all of the relevant credit factors that support the underwriting decision. The justification and approval documents for such loans should be maintained as a part of the permanent loan file. Each institution should monitor compliance with its real estate lending policy and individually report exception loans of a significant size to its board of directors.</P> <HD SOURCE="HD1">Supervisory Review of Real Estate Lending Policies and Practices</HD> <P>The real estate lending policies of institutions will be evaluated by examiners during the course of their examinations to determine if the policies are consistent with safe <PRTPAGE P="156"/>and sound lending practices, these guidelines, and the requirements of the regulation. In evaluating the adequacy of the institution's real estate lending policies and practices, examiners will take into consideration the following factors:</P> <P>• The nature and scope of the institution's real estate lending activities.</P> <P>• The size and financial condition of the institution.</P> <P>• The quality of the institution's management and internal controls.</P> <P>• The expertise and size of the lending and loan administration staff.</P> <P>• Market conditions.</P> <P>Lending policy exception reports will also be reviewed by examiners during the course of their examinations to determine whether the institutions' exceptions are adequately documented and appropriate in light of all of the relevant credit considerations. An excessive volume of exceptions to an institution's real estate lending policy may signal a weakening of its underwriting practices, or may suggest a need to revise the loan policy.</P> <HD SOURCE="HD1">Definitions</HD> <P>For the purposes of these Guidelines:</P> <P> <E T="03">Construction loan</E> means an extension of credit for the purpose of erecting or rehabilitating buildings or other structures, including any infrastructure necessary for development.</P> <P> <E T="03">Extension of credit or loan means:</E> </P> <P>(1) The total amount of any loan, line of credit, or other legally binding lending commitment with respect to real property; and</P> <P>(2) The total amount, based on the amount of consideration paid, of any loan, line of credit, or other legally binding lending commitment acquired by a lender by purchase, assignment, or otherwise.</P> <P> <E T="03">Improved property loan</E> means an extension of credit secured by one of the following types of real property:</P> <P>(1) Farmland, ranchland or timberland committed to ongoing management and agricultural production;</P> <P>(2) 1- to 4-family residential property that is not owner-occupied;</P> <P>(3) Residential property containing five or more individual dwelling units;</P> <P>(4) Completed commercial property; or</P> <P>(5) Other income-producing property that has been completed and is available for occupancy and use, except income-producing owner-occupied 1- to 4-family residential property.</P> <P> <E T="03">Land development loan</E> means an extension of credit for the purpose of improving unimproved real property prior to the erection of structures. The improvement of unimproved real property may include the laying or placement of sewers, water pipes, utility cables, streets, and other infrastructure necessary for future development.</P> <P> <E T="03">Loan origination</E> means the time of inception of the obligation to extend credit (i.e., when the last event or prerequisite, controllable by the lender, occurs causing the lender to become legally bound to fund an extension of credit).</P> <P> <E T="03">Loan-to-value</E> or <E T="03">loan-to-value ratio</E> means the percentage or ratio that is derived at the time of loan origination by dividing an extension of credit by the total value of the property(ies) securing or being improved by the extension of credit plus the amount of any readily marketable collateral and other acceptable collateral that secures the extension of credit. The total amount of all senior liens on or interests in such property(ies) should be included in determining the loan-to-value ratio. When mortgage insurance or collateral is used in the calculation of the loan-to-value ratio, and such credit enhancement is later released or replaced, the loan-to-value ratio should be recalculated.</P> <P> <E T="03">Other acceptable collateral</E> means any collateral in which the lender has a perfected security interest, that has a quantifiable value, and is accepted by the lender in accordance with safe and sound lending practices. Other acceptable collateral should be appropriately discounted by the lender consistent with the lender's usual practices for making loans secured by such collateral. Other acceptable collateral includes, among other items, unconditional irrevocable standby letters of credit for the benefit of the lender.</P> <P> <E T="03">Owner-occupied,</E> when used in conjunction with the term <E T="03">1- to 4-family residential property</E> means that the owner of the underlying real property occupies at least one unit of the real property as a principal residence of the owner.</P> <P> <E T="03">Readily marketable collateral</E> means insured deposits, financial instruments, and bullion in which the lender has a perfected interest. Financial instruments and bullion must be salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, on an auction or similarly available daily bid and ask price market. Readily marketable collateral should be appropriately discounted by the lender consistent with the lender's usual practices for making loans secured by such collateral.</P> <P> <E T="03">Value</E> means an opinion or estimate, set forth in an appraisal or evaluation, whichever may be appropriate, of the market value of real property, prepared in accordance with the agency's appraisal regulations and guidance. For loans to purchase an existing property, the term “value” means the lesser of the actual acquisition cost or the estimate of value.<PRTPAGE P="157"/> </P> <P> <E T="03">1- to 4-family residential property</E> means property containing fewer than five individual dwelling units, including manufactured homes permanently affixed to the underlying property (when deemed to be real property under state law).</P> </APPENDIX> <SECTION> <SECTNO>§ 560.110</SECTNO> <SUBJECT>Most favored lender usury preemption.</SUBJECT> <P>(a) <E T="03">Definition.</E> The term “interest” as used in 12 U.S.C. 1463(g) includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended. It includes, among other things, the following fees connected with credit extension or availability: numerical periodic rates, late fees, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash advance fees, and membership fees. It does not ordinarily include appraisal fees, premiums and commissions attributable to insurance guaranteeing repayment of any extension of credit, finders' fees, fees for document preparation or notarization, or fees incurred to obtain credit reports.</P> <P>(b) <E T="03">Authority.</E> A savings association located in a state may charge interest at the maximum rate permitted to any state-chartered or licensed lending institution by the law of that state. If state law permits different interest charges on specified classes of loans, a federal savings association making such loans is subject only to the provisions of state law relating to that class of loans that are material to the determination of the permitted interest. For example, a federal savings association may lawfully charge the highest rate permitted to be charged by a state-licensed small loan company, without being so licensed, but subject to state law limitations on the size of loans made by small loan companies. Except as provided in this paragraph, the applicability of state law to Federal savings associations shall be determined in accordance with § 560.2 of this part. State supervisors determine the degree to which state-chartered savings associations must comply with state laws other than those imposing restrictions on interest, as defined in paragraph (a) of this section.</P> <P>(c) <E T="03">Effect on state definitions of interest.</E> The Federal definition of the term “interest” in paragraph (a) of this section does not change how interest is defined by the individual states (nor how the state definition of interest is used) solely for purposes of state law. For example, if late fees are not “interest” under state law where a savings association is located but state law permits its most favored lender to charge late fees, then a savings association located in that state may charge late fees to its intrastate customers. The savings association may also charge late fees to its interstate customers because the fees are interest under the Federal definition of interest and an allowable charge under state law where the savings association is located. However, the late fees would not be treated as interest for purposes of evaluating compliance with state usury limitations because state law excludes late fees when calculating the maximum interest that lending institutions may charge under those limitations.</P> </SECTION> <SECTION> <SECTNO>§ 560.120</SECTNO> <SUBJECT>Letters of credit and other independent undertakings to pay against documents.</SUBJECT> <P>(a) <E T="03">General authority.</E> A savings association may issue and commit to issue letters of credit within the scope of applicable laws or rules of practice recognized by law. It may also issue other independent undertakings within the scope of such laws or rules of practice recognized by law, that have been approved by OTS (approved undertaking).<SU>1</SU> <FTREF/> Under such letters of credit <PRTPAGE P="158"/>and approved undertakings, the savings association's obligation to honor depends upon the presentation of specified documents and not upon nondocumentary conditions or resolution of questions of fact or law at issue between the account party and the beneficiary. A savings association may also confirm or otherwise undertake to honor or purchase specified documents upon their presentation under another person's independent undertaking within the scope of such laws or rules.</P> <FTNT> <P> <SU>1</SU> Samples of laws or rules of practice applicable to letters of credit and other independent undertakings include, but are not limited to: the applicable version of Article 5 of the Uniform Commercial Code (UCC) (1962, as amended 1990) or revised Article 5 of the UCC (as amended 1995) (available from West Publishing Co., 1/800/328-4880); the Uniform Customs and Practice for Documentary Credits (International Chamber of Commerce (ICC) Publication No. 500) (available from ICC Publishing, Inc., 212/206-1150; the United Nations Convention on Independent Guarantees and Standby Letters of Credit (adopted by the U.N. General Assembly in 1995 and signed by the U.S. in 1997) (available from the U.N. Commission on International Trade <PRTPAGE/>Law, 212/963-5353); and the Uniform Rules for Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication No. 525) (available from ICC Publishing, Inc., 212/206-1150).</P> </FTNT> <P>(b) <E T="03">Safety and soundness considerations</E>—(1) <E T="03">Terms.</E> As a matter of safe and sound banking practice, savings associations that issue letters of credit or approved undertakings should not be exposed to undue risk. At a minimum, savings associations should consider the following:</P> <P>(i) The independent character of the letter of credit or approved undertaking should be apparent from its terms (such as terms that subject it to laws or rules providing for its independent character);</P> <P>(ii) The letter of credit or approved undertaking should be limited in amount;</P> <P>(iii) The letter of credit or approved undertaking should:</P> <P>(A) Be limited in duration; or</P> <P>(B) Permit the savings association to terminate the letter of credit or approved undertaking, either on a periodic basis (consistent with the savings association's ability to make any necessary credit assessments) or at will upon either notice or payment to the beneficiary; or</P> <P>(C) Entitle the savings association to cash collateral from the account party on demand (with a right to accelerate the customer's obligations, as appropriate); and</P> <P>(iv) The savings association either should be fully collateralized or have a post-honor right of reimbursement from its customer or from another issuer of a letter of credit or an independent undertaking. Alternatively, if the savings association's undertaking is to purchase documents of title, securities, or other valuable documents, it should obtain a first priority right to realize on the documents if the savings association is not otherwise to be reimbursed.</P> <P>(2) <E T="03">Additional considerations in special circumstances.</E> Certain letters of credit and approved undertakings require particular protections against credit, operational, and market risk:</P> <P>(i) In the event that the undertaking is to honor by delivery of an item of value other than money, the savings association should ensure that market fluctuations that affect the value of the item will not cause the savings association to assume undue market risk;</P> <P>(ii) In the event that the undertaking provides for automatic renewal, the terms for renewal should allow the savings association to make any necessary credit assessment prior to renewal;</P> <P>(iii) In the event that a savings association issues an undertaking for its own account, the underlying transaction for which it is issued must be within the savings association's authority and comply with any safety and soundness requirements applicable to that transaction.</P> <P>(3) <E T="03">Operational expertise.</E> The savings association should possess operational expertise that is commensurate with the sophistication of its letter of credit or independent undertaking activities.</P> <P>(4) <E T="03">Documentation.</E> The savings association must accurately reflect its letters of credit or approved undertakings in its records, including any acceptance or deferred payment or other absolute obligation arising out of its contingent undertaking.</P> <CITA>[61 FR 50971, Sept. 30, 1996, as amended at 64 FR 46565, Aug. 26, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.121</SECTNO> <SUBJECT>Investment in State housing corporations.</SUBJECT> <P>(a) Any savings association to the extent it has legal authority to do so, may make investments in, commitments to invest in, loans to, or commitments to lend to any state housing corporation; provided, that such obligations or loans are secured directly, or indirectly through a fiduciary, by a first lien on improved real estate which is insured under the National Housing Act, as amended, and that in the event <PRTPAGE P="159"/>of default, the holder of such obligations or loans has the right directly, or indirectly through a fiduciary, to subject to the satisfaction of such obligations or loans the real estate described in the first lien, or the insurance proceeds.</P> <P>(b) Any savings association that is adequately capitalized may, to the extent it has legal authority to do so, invest in obligations (including loans) of, or issued by, any state housing corporation incorporated in the state in which such savings association has its home or a branch office; provided (except with respect to loans), that:</P> <P>(1) The obligations are rated in one of the four highest grades as shown by the most recently published rating made of such obligations by a nationally recognized rating service; or</P> <P>(2) The obligations, if not rated, are approved by the Office. The aggregate outstanding direct investment in obligations under paragraph (b) of this section shall not exceed the amount of the savings association's total capital.</P> <P>(c) Each state housing corporation in which a savings association invests under the authority of paragraph (b) of this section shall agree, before accepting any such investment (including any loan or loan commitment), to make available at any time to the Office such information as the Office may consider to be necessary to ensure that investments are properly made under this section.</P> </SECTION> <SECTION> <SECTNO>§ 560.130</SECTNO> <SUBJECT>Prohibition on loan procurement fees.</SUBJECT> <P>If you are a director, officer, or other natural person having the power to direct the management or policies of a savings association, you must not receive, directly or indirectly, any commission, fee, or other compensation in connection with the procurement of any loan made by the savings association or a subsidiary of the savings association.</P> <CITA>[61 FR 60178, Nov. 27, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.160</SECTNO> <SUBJECT>Asset classification.</SUBJECT> <P>(a)(1) Each savings association shall evaluate and classify its assets on a regular basis in a manner consistent with, or reconcilable to, the asset classification system used by OTS in its Thrift Activities Handbook (Available at the address listed in § 516.1 of this chapter).</P> <P>(2) In connection with the examination of a savings association or its affiliates, OTS examiners may identify problem assets and classify them, if appropriate. The association must recognize such examiner classifications in its subsequent reports to OTS.</P> <P>(b) Based on the evaluation and classification of its assets, each savings association shall establish adequate valuation allowances or charge-offs, as appropriate, consistent with generally accepted accounting principles and the practices of the federal banking agencies.</P> </SECTION> <SECTION> <SECTNO>§ 560.170</SECTNO> <SUBJECT>Records for lending transactions.</SUBJECT> <P>In establishing and maintaining its records pursuant to § 563.170 of this chapter, each savings association and service corporation should establish and maintain loan documentation practices that:</P> <P>(a) Ensure that the institution can make an informed lending decision and can assess risk on an ongoing basis;</P> <P>(b) Identify the purpose and all sources of repayment for each loan, and assess the ability of the borrower(s) and any guarantor(s) to repay the indebtedness in a timely manner;</P> <P>(c) Ensure that any claims against a borrower, guarantor, security holders, and collateral are legally enforceable;</P> <P>(d) Demonstrate appropriate administration and monitoring of its loans; and</P> <P>(e) Take into account the size and complexity of its loans.</P> </SECTION> <SECTION> <SECTNO>§ 560.172</SECTNO> <SUBJECT>Re-evaluation of real estate owned.</SUBJECT> <P>A savings association shall appraise each parcel of real estate owned at the earlier of in-substance foreclosure or at the time of the savings association's acquisition of such property, and at such times thereafter as dictated by prudent management policy; such appraisals shall be consistent with the requirements of part 564 of this chapter. The Regional Director or his or her designee may require subsequent appraisals if, in his or her discretion, such subsequent appraisal is necessary <PRTPAGE P="160"/>under the particular circumstances. The foregoing requirement shall not apply to any parcel of real estate that is sold and reacquired less than 12 months subsequent to the most recent appraisal made pursuant to this part. A dated, signed copy of each report of appraisal made pursuant to any provisions of this part shall be retained in the savings association's records.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Alternative Mortgage Transactions</HD> <SECTION> <SECTNO>§ 560.210</SECTNO> <SUBJECT>Disclosures for variable rate transactions.</SUBJECT> <P>A savings association must provide the initial disclosures described at 12 CFR 226.19(b) and the adjustment notices described at 12 CFR 226.20(c) for variable rate transactions, as described in those regulations. The OTS administers and enforces those provisions for savings associations.</P> <CITA>[63 FR 38463, July 17, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 560.220</SECTNO> <SUBJECT>Alternative Mortgage Parity Act.</SUBJECT> <P>Pursuant to 12 U.S.C. 3803, housing creditors that are not commercial banks, credit unions, or Federal savings associations may make alternative mortgage transactions as defined by that section and further defined and described by applicable regulations identified in this section, notwithstanding any state constitution, law, or regulation. In accordance with section 807(b) of Public Law 97-320, 12 U.S.C. 3801 note, §§ 560.33, 560.34, 560.35, and 560.210 of this part are identified as appropriate and applicable to the exercise of this authority and all regulations not so identified are deemed inappropriate and inapplicable. Housing creditors engaged in credit sales should read the term “loan” as “credit sale” wherever applicable.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 561</EAR> <HD SOURCE="HED">PART 561—DEFINITIONS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>561.1</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>561.2</SECTNO> <SUBJECT>Account.</SUBJECT> <SECTNO>561.3</SECTNO> <SUBJECT>Accountholder.</SUBJECT> <SECTNO>561.4</SECTNO> <SUBJECT>Affiliate.</SUBJECT> <SECTNO>561.5</SECTNO> <SUBJECT>Affiliated person.</SUBJECT> <SECTNO>561.6</SECTNO> <SUBJECT>Audit period.</SUBJECT> <SECTNO>561.7</SECTNO> <SUBJECT>BIF.</SUBJECT> <SECTNO>561.8</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>561.9</SECTNO> <SUBJECT>Certificate account.</SUBJECT> <SECTNO>561.12</SECTNO> <SUBJECT>Consumer credit.</SUBJECT> <SECTNO>561.14</SECTNO> <SUBJECT>Controlling person.</SUBJECT> <SECTNO>561.15</SECTNO> <SUBJECT>Corporation.</SUBJECT> <SECTNO>561.16</SECTNO> <SUBJECT>Demand accounts.</SUBJECT> <SECTNO>561.18</SECTNO> <SUBJECT>Director.</SUBJECT> <SECTNO>561.19</SECTNO> <SUBJECT>Financial institution.</SUBJECT> <SECTNO>561.24</SECTNO> <SUBJECT>Immediate family.</SUBJECT> <SECTNO>561.26</SECTNO> <SUBJECT>Land loan.</SUBJECT> <SECTNO>561.27</SECTNO> <SUBJECT>Low-rent housing.</SUBJECT> <SECTNO>561.28</SECTNO> <SUBJECT>Money Market Deposit Accounts.</SUBJECT> <SECTNO>561.29</SECTNO> <SUBJECT>Negotiable Order of Withdrawal Accounts.</SUBJECT> <SECTNO>561.30</SECTNO> <SUBJECT>Nonresidential construction loan.</SUBJECT> <SECTNO>561.31</SECTNO> <SUBJECT>Nonwithdrawable account.</SUBJECT> <SECTNO>561.33</SECTNO> <SUBJECT>Note account.</SUBJECT> <SECTNO>561.34</SECTNO> <SUBJECT>Office.</SUBJECT> <SECTNO>561.35</SECTNO> <SUBJECT>Officer.</SUBJECT> <SECTNO>561.37</SECTNO> <SUBJECT>Parent company; subsidiary.</SUBJECT> <SECTNO>561.38</SECTNO> <SUBJECT>Political subdivision.</SUBJECT> <SECTNO>561.39</SECTNO> <SUBJECT>Principal office.</SUBJECT> <SECTNO>561.40</SECTNO> <SUBJECT>Public unit.</SUBJECT> <SECTNO>561.41</SECTNO> <SUBJECT>SAIF.</SUBJECT> <SECTNO>561.42</SECTNO> <SUBJECT>Savings account.</SUBJECT> <SECTNO>561.43</SECTNO> <SUBJECT>Savings association.</SUBJECT> <SECTNO>561.44</SECTNO> <SUBJECT>Security.</SUBJECT> <SECTNO>561.45</SECTNO> <SUBJECT>Service corporation.</SUBJECT> <SECTNO>561.49</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>561.50</SECTNO> <SUBJECT>State.</SUBJECT> <SECTNO>561.51</SECTNO> <SUBJECT>Subordinated debt security.</SUBJECT> <SECTNO>561.52</SECTNO> <SUBJECT>Tax and loan account.</SUBJECT> <SECTNO>561.53</SECTNO> <SUBJECT>United States Treasury General Account.</SUBJECT> <SECTNO>561.54</SECTNO> <SUBJECT>United States Treasury Time Deposit Open Account.</SUBJECT> <SECTNO>561.55</SECTNO> <SUBJECT>With recourse.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49545, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 561.1</SECTNO> <SUBJECT>General.</SUBJECT> <P>Unless another definition is provided in this chapter, definitions in part 541 of this chapter apply.</P> </SECTION> <SECTION> <SECTNO>§ 561.2</SECTNO> <SUBJECT>Account.</SUBJECT> <P>The term <E T="03">account</E> means any savings account, demand account, certificate account, tax and loan account, note account, United States Treasury general account or United States Treasury time deposit-open account, whether in the form of a deposit or a share, held by an accountholder in a savings association.</P> </SECTION> <SECTION> <SECTNO>§ 561.3</SECTNO> <SUBJECT>Accountholder.</SUBJECT> <P>The term <E T="03">accountholder</E> means the holder of an account or accounts in a savings association insured by the SAIF. The term does not include the <PRTPAGE P="161"/>holder of any subordinated debt security or any mortgage-backed bond issued by the savings association.</P> </SECTION> <SECTION> <SECTNO>§ 561.4</SECTNO> <SUBJECT>Affiliate.</SUBJECT> <P>The term <E T="03">affiliate</E> of a savings association, unless otherwise defined, means any corporation, business trust, association, or other similar organization:</P> <P>(a) Of which a savings association, directly or indirectly, owns or controls either a majority of the voting shares or more than 50 percentum of the number of shares voted for the election of its directors, trustees, or other persons exercising similar functions at the preceding election, or controls in any manner the election of a majority of its directors, trustees, or other persons exercising similar functions; or</P> <P>(b) Of which control is held, directly or indirectly through stock ownership or in any other manner, by the shareholders of a savings association who own or control either a majority of the shares of such savings association or more than 50 per centum of the number of shares voted for the election of directors of such savings association at the preceding election, or by trustees for the benefit of the shareholders of any such savings association; or</P> <P>(c) Of which a majority of its directors, trustees, or other persons exercising similar functions are directors of any one savings association.</P> </SECTION> <SECTION> <SECTNO>§ 561.5</SECTNO> <SUBJECT>Affiliated person.</SUBJECT> <P>The term <E T="03">affiliated person</E> of a savings association means the following:</P> <P>(a) A director, officer, or controlling person of such association;</P> <P>(b) A spouse of a director, officer, or controlling person of such association;</P> <P>(c) A member of the immediate family of a director, officer, or controlling person of such association, who has the same home as such person or who is a director or officer of any subsidiary of such association or of any holding company affiliate of such association;</P> <P>(d) Any corporation or organization (other than the savings association or a corporation or organization through which the savings association operates) of which a director, officer or the controlling person of such association:</P> <P>(1) Is chief executive officer, chief financial officer, or a person performing similar functions;</P> <P>(2) Is a general partner;</P> <P>(3) Is a limited partner who, directly or indirectly either alone or with his or her spouse and the members of his or her immediate family who are also affiliated persons of the association, owns an interest of 10 percent or more in the partnership (based on the value of his or her contribution) or who, directly or indirectly with other directors, officers, and controlling persons of such association and their spouses and their immediate family members who are also affiliated persons of the association, owns an interest of 25 percent or more in the partnership; or</P> <P>(4) Directly or indirectly either alone or with his or her spouse and the members of his or her immediate family who are also affiliated persons of the association, owns or controls 10 percent or more of any class of equity securities or owns or controls, with other directors, officers, and controlling persons of such association and their spouses and their immediate family members who are also affiliated persons of the association, 25 percent or more of any class of equity securities; and</P> <P>(5) Any trust or other estate in which a director, officer, or controlling person of such association or the spouse of such person has a substantial beneficial interest or as to which such person or his or her spouse serves as trustee or in a similar fiduciary capacity.</P> <CITA>[59 FR 18476, Apr. 19, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 561.6</SECTNO> <SUBJECT>Audit period.</SUBJECT> <P>The <E T="03">audit period</E> of a savings association means the twelve month period (or other period in the case of a change in audit period) covered by the annual audit conducted to satisfy § 563.170.</P> </SECTION> <SECTION> <SECTNO>§ 561.7</SECTNO> <SUBJECT>BIF.</SUBJECT> <P>The term <E T="03">BIF</E> means the Bank Insurance Fund established by the Federal Deposit Insurance Act. (12 U.S.C. 1821 <E T="03">et seq.)</E> </P> </SECTION> <SECTION> <PRTPAGE P="162"/> <SECTNO>§ 561.8</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 561.9</SECTNO> <SUBJECT>Certificate account.</SUBJECT> <P>The term <E T="03">certificate account</E> means a savings account evidenced by a certificate that must be held for a fixed or minimum term.</P> </SECTION> <SECTION> <SECTNO>§ 561.12</SECTNO> <SUBJECT>Consumer credit.</SUBJECT> <P>The term <E T="03">consumer credit</E> means credit extended to a natural person for personal, family, or household purposes, including loans secured by liens on real estate and chattel liens secured by mobile homes and leases of personal property to consumers that may be considered the functional equivalent of loans on personal security: <E T="03">Provided,</E> the savings association relies substantially upon other factors, such as the general credit standing of the borrower, guaranties, or security other than the real estate or mobile home, as the primary security for the loan. Appropriate evidence to demonstrate justification for such reliance should be retained in a savings association's files. Among the types of credit included within this term are consumer loans; educational loans; unsecured loans for real property alteration, repair or improvement, or for the equipping of real property; loans in the nature of overdraft protection; and credit extended in connection with credit cards.</P> </SECTION> <SECTION> <SECTNO>§ 561.14</SECTNO> <SUBJECT>Controlling person.</SUBJECT> <P>The term <E T="03">controlling person</E> of a savings association means any person or entity which, either directly or indirectly, or acting in concert with one or more other persons or entities, owns, controls, or holds with power to vote, or holds proxies representing, ten percent or more of the voting shares or rights of such savings association; or controls in any manner the election or appointment of a majority of the directors of such savings association. However, a director of a savings association will not be deemed to be a controlling person of such savings association based upon his or her voting, or acting in concert with other directors in voting, proxies:</P> <P>(a) Obtained in connection with an annual solicitation of proxies, or</P> <P>(b) Obtained from savings account holders and borrowers if such proxies are voted as directed by a majority vote of the entire board of directors of such association, or of a committee of such directors if such committee's composition and authority are controlled by a majority vote of the entire board and if its authority is revocable by such a majority.</P> </SECTION> <SECTION> <SECTNO>§ 561.15</SECTNO> <SUBJECT>Corporation.</SUBJECT> <P>The terms <E T="03">Corporation</E> and <E T="03">FDIC</E> mean the Federal Deposit Insurance Corporation.</P> </SECTION> <SECTION> <SECTNO>§ 561.16</SECTNO> <SUBJECT>Demand accounts.</SUBJECT> <P>(a) The term <E T="03">demand accounts</E> means non-interest-bearing demand deposits which are subject to check or to withdrawal or transfer on negotiable or transferable order to the savings association and which are permitted to be issued by statute, regulation, or otherwise and are payable on demand.</P> <P>(b) A fee paid by a savings association to a person who introduces a depositor to the savings association shall not be deemed a payment of interest to the depositor if the fee:</P> <P>(1) Consists of bonuses in cash or merchandise to the savings association's employees for participation in an account drive, contest or other incentive plan: <E T="03">Provided, That</E> such bonuses are tied to the total amount of deposits solicited; or</P> <P>(2) Is paid to a bona fide broker if:</P> <P>(i) The broker is principally engaged in the business of acting as a broker or dealer in regard to deposits, securities, or money market instruments;</P> <P>(ii) The relationship between the broker and savings association is memorialized in a written agreement, a copy of which is retained by the savings association and made available to examiners; and</P> <P>(iii) An officer of the broker certifies that no portion of the fee paid to the broker is directly or indirectly passed on to the depositor, and a copy of the certification is given to the savings association to be retained on file with the agreement.</P> <CITA>[54 FR 49545, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993; 62 FR 54765, Oct. 22, 1997]</CITA> </SECTION> <SECTION> <PRTPAGE P="163"/> <SECTNO>§ 561.18</SECTNO> <SUBJECT>Director.</SUBJECT> <P>(a) The term <E T="03">director</E> means any director, trustee, or other person performing similar functions with respect to any organization whether incorporated or unincorporated. Such term does not include an advisory director, honorary director, director emeritus, or similar person, unless the person is otherwise performing functions similar to those of a director.</P> <P>(b) The term <E T="03">Director</E> means the Director of the Office of Thrift Supervision as established in section 3 of the Act.</P> </SECTION> <SECTION> <SECTNO>§ 561.19</SECTNO> <SUBJECT>Financial institution.</SUBJECT> <P>The term <E T="03">financial institution</E> has the same meaning as the term <E T="03">depository institution</E> set forth in 12 U.S.C. 1813(c)(1).</P> </SECTION> <SECTION> <SECTNO>§ 561.24</SECTNO> <SUBJECT>Immediate family.</SUBJECT> <P>The term <E T="03">immediate family</E> of any natural person means the following (whether by the full or half blood or by adoption):</P> <P>(a) Such person's spouse, father, mother, children, brothers, sisters, and grandchildren;</P> <P>(b) The father, mother, brothers, and sisters of such person's spouse; and</P> <P>(c) The spouse of a child, brother, or sister of such person.</P> </SECTION> <SECTION> <SECTNO>§ 561.26</SECTNO> <SUBJECT>Land loan.</SUBJECT> <P>The term <E T="03">land loan</E> means a loan:</P> <P>(a) Secured by real estate upon which all facilities and improvements have been completely installed, as required by local regulations and practices, so that it is entirely prepared for the erection of structures;</P> <P>(b) To finance the purchase of land and the accomplishment of all improvements required to convert it to developed building lots; or</P> <P>(c) Secured by land upon which there is no structure.</P> </SECTION> <SECTION> <SECTNO>§ 561.27</SECTNO> <SUBJECT>Low-rent housing.</SUBJECT> <P>The term <E T="03">low-rent housing</E> means real estate which is, or which is being constructed, remodeled, rehabilitated, modernized, or renovated to be, the subject of an annual contributions contract for low-rent housing under the provisions of the United States Housing Act of 1937, as amended.</P> </SECTION> <SECTION> <SECTNO>§ 561.28</SECTNO> <SUBJECT>Money Market Deposit Accounts.</SUBJECT> <P>(a) Money Market Deposit Accounts (<E T="03">MMDAs</E>) offered by Federal savings associations in accordance with 12 U.S.C. 1464(b)(1) and by state-chartered savings associations in accordance with applicable state law are savings accounts on which interest may be paid if issued subject to the following limitations:</P> <P>(1) The savings association shall reserve the right to require at least seven days' notice prior to withdrawal or transfer of any funds in the account; and</P> <P>(2)(i) The depositor is authorized by the savings association to make no more than six transfers per calendar month or statement cycle (or similar period) of at least four weeks by means of preauthorized, automatic, telephonic, or data transmission agreement, order, or instruction to another account of the depositor at the same savings association to the savings association itself, or to a third party: <E T="03">Provided, That</E> no more than three of the six transfers provided for in this paragraph (a)(2)(i) may be by check, draft, debit card, or similar order made by the depositor and payable to third parties.</P> <P>(ii) Savings associations may permit holders of MMDAs to make unlimited transfers for the purpose of repaying loans (except overdraft loans on the depositor's demand account) and associated expenses at the same savings association (as originator or servicer), to make unlimited transfers of funds from this account to another account of the same depositor at the same savings association or to make unlimited payments directly to the depositor from the account when such transfers or payments are made by mail, messenger, automated teller machine, or in person, or when such payments are made by telephone (via check mailed to the depositor).</P> <P>(3) In order to ensure that no more than the number of transfers specified in paragraph (a)(2)(i) of this section are made, a savings association must either:<PRTPAGE P="164"/> </P> <P>(i) Prevent transfers of funds in excess of the limitations; or</P> <P>(ii) Adopt procedures to monitor those transfers on an after-the-fact basis and contact customers who exceed the limits on more than an occasional basis. For customers who continue to violate those limits after being contacted by the depository savings association the depository savings association must either place funds in another account that the depositor is eligible to maintain or take away the account's transfer and draft capacities.</P> <P>(iii) Insured savings association at their option, may use on a consistent basis either the date on a check or the date it is paid in determining whether the transfer limitations within the specified interval are exceeded.</P> <P>(b) Federal savings associations may offer MMDAs to any depositor, and state-chartered savings associations may offer MMDAs to any depositor not inconsistent with applicable state law.</P> </SECTION> <SECTION> <SECTNO>§ 561.29</SECTNO> <SUBJECT>Negotiable Order of Withdrawal Accounts.</SUBJECT> <P>(a) Negotiable Order of Withdrawal (<E T="03">NOW</E>) accounts are savings accounts authorized by 12 U.S.C. 1832 on which the savings association reserves the right to require at least seven days' notice prior to withdrawal or transfer of any funds in the account.</P> <P>(b) For purposes of 12 U.S.C. 1832:</P> <P>(1) An organization shall be deemed “operated primarily for religious, philanthropic, charitable, educational, or other similar purposes and * * * not * * * for profit” if it is described in sections 501(c)(3) through (13), 501(c)(19), or 528 of the Internal Revenue Code; and</P> <P>(2) The funds of a sole proprietorship or unincorporated business owned by a husband and wife shall be deemed beneficially owned by “one or more individuals.”</P> </SECTION> <SECTION> <SECTNO>§ 561.30</SECTNO> <SUBJECT>Nonresidential construction loan.</SUBJECT> <P>The term <E T="03">nonresidential construction loan</E> means a loan for construction of other than one or more dwelling units.</P> </SECTION> <SECTION> <SECTNO>§ 561.31</SECTNO> <SUBJECT>Nonwithdrawable account.</SUBJECT> <P>The term <E T="03">nonwithdrawable account</E> means an account which by the terms of the contract of the accountholder with the savings association or by provisions of state law cannot be paid to the accountholder until all liabilities, including other classes of share liability of the savings association have been fully liquidated and paid upon the winding up of the savings association is referred to as a <E T="03">nonwithdrawable account.</E> </P> </SECTION> <SECTION> <SECTNO>§ 561.33</SECTNO> <SUBJECT>Note account.</SUBJECT> <P>The term <E T="03">note account</E> means a note, subject to the right of immediate call, evidencing funds held by depositories electing the note option under applicable United States Treasury Department regulations. Note accounts are not savings accounts or savings deposits.</P> </SECTION> <SECTION> <SECTNO>§ 561.34</SECTNO> <SUBJECT>Office.</SUBJECT> <P>The term <E T="03">Office</E> means the Office as established in section 3 of the Act or any official duly authorized to act on its behalf. Where appropriate in context, it also refers to the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation as predecessor agencies to the Office.</P> </SECTION> <SECTION> <SECTNO>§ 561.35</SECTNO> <SUBJECT>Officer.</SUBJECT> <P>The term <E T="03">Officer</E> means the president, any vice-president (but not an assistant vice-president, second vice-president, or other vice president having authority similar to an assistant or second vice-president), the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. The term <E T="03">officer</E> also includes the chairman of the board of directors if the chairman is authorized by the charter or by-laws of the organization to participate in its operating management or if the chairman in fact participates in such management.</P> </SECTION> <SECTION> <SECTNO>§ 561.37</SECTNO> <SUBJECT>Parent company; subsidiary.</SUBJECT> <P>The terms <E T="03">parent company</E> and <E T="03">subsidiary</E> have the meanings given to them by §§ 583.15 and 583.23 of this chapter, respectively.</P> </SECTION> <SECTION> <SECTNO>§ 561.38</SECTNO> <SUBJECT>Political subdivision.</SUBJECT> <P>The term <E T="03">political subdivision</E> includes any subdivision of a public unit, any <PRTPAGE P="165"/>principal department of such public unit:</P> <P>(a) The creation of which subdivision or department has been expressly authorized by state statute,</P> <P>(b) To which some functions of government have been delegated by state statute, and</P> <P>(c) To which funds have been allocated by statute or ordinance for its exclusive use and control. It also includes drainage, irrigation, navigation, improvement, levee, sanitary, school or power districts and bridge or port authorities and other special districts created by state statute or compacts between the states. Excluded from the term are subordinate or nonautonomous divisions, agencies or boards within principal departments.</P> </SECTION> <SECTION> <SECTNO>§ 561.39</SECTNO> <SUBJECT>Principal office.</SUBJECT> <P>The term <E T="03">principal office</E> means the home office of a savings association established as such in conformity with the laws under which the savings association is organized.</P> </SECTION> <SECTION> <SECTNO>§ 561.40</SECTNO> <SUBJECT>Public unit.</SUBJECT> <P>The term <E T="03">public unit</E> means the United States, any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, the Virgin Islands, any county, any municipality or any political subdivision thereof.</P> </SECTION> <SECTION> <SECTNO>§ 561.41</SECTNO> <SUBJECT>SAIF.</SUBJECT> <P>The term <E T="03">SAIF</E> means the Savings Association Insurance Fund, established by the Federal Deposit Insurance Act. (12 U.S.C. 1811 <E T="03">et seq</E>.).</P> </SECTION> <SECTION> <SECTNO>§ 561.42</SECTNO> <SUBJECT>Savings account.</SUBJECT> <P>The term <E T="03">savings account</E> means any withdrawable account, except a demand account as defined in § 561.16 of this chapter, a tax and loan account, a note account, a United States Treasury general account, or a United States Treasury time deposit-open account.</P> <CITA>[54 FR 49545, Nov. 30, 1989, as amended at 62 FR 54765, Oct. 22, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 561.43</SECTNO> <SUBJECT>Savings association.</SUBJECT> <P>The term <E T="03">savings association</E> means a savings association as defined in section 3 of the Federal Deposit Insurance Act, the deposits of which are insured by the Corporation. It includes a Federal savings association or Federal savings bank, chartered under section 5 of the Act, or a building and loan, savings and loan, or homestead association, or a cooperative bank (other than a cooperative bank which is a State bank as defined in section 3(a)(2) of the Federal Deposit Insurance Act) organized and operating according to the laws of the State in which it is chartered or organized, or a corporation (other than a bank as defined in section 3(a)(1) of the Federal Deposit Insurance Act) that the Board of Directors of the Federal Deposit Insurance Corporation and the Director of the Office of Thrift Supervision jointly determine to be operating substantially in the same manner as a savings association.</P> </SECTION> <SECTION> <SECTNO>§ 561.44</SECTNO> <SUBJECT>Security.</SUBJECT> <P>The term <E T="03">security</E> means any non-withdrawable account, note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, or, in general, any interest or instrument commonly known as a <E T="03">security,</E> or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing, except that a <E T="03">security</E> shall not include an account or deposit insured by the Federal Deposit Insurance Corporation.</P> </SECTION> <SECTION> <SECTNO>§ 561.45</SECTNO> <SUBJECT>Service corporation.</SUBJECT> <P>The term <E T="03">service corporation</E> means any corporation, the majority of the capital stock of which is owned by one or more savings associations and which engages, directly or indirectly, in any activities similar to activities which may be engaged in by a service corporation in which a Federal savings association may invest under part 559 of this chapter.</P> <CITA>[54 FR 49545, Nov. 30, 1989, as amended at 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> <SECTION> <PRTPAGE P="166"/> <SECTNO>§ 561.50</SECTNO> <SUBJECT>State.</SUBJECT> <P>The term <E T="03">State</E> means a State, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands of the United States.</P> </SECTION> <SECTION> <SECTNO>§ 561.51</SECTNO> <SUBJECT>Subordinated debt security.</SUBJECT> <P>The term <E T="03">subordinated debt security</E> means any unsecured note, debenture, or other debt security issued by a savings association and subordinated on liquidation to all claims having the same priority as account holders or any higher priority.</P> </SECTION> <SECTION> <SECTNO>§ 561.52</SECTNO> <SUBJECT>Tax and loan account.</SUBJECT> <P>The term <E T="03">tax and loan account</E> means an account, the balance of which is subject to the right of immediate withdrawal, established for receipt of payments of Federal taxes and certain United States obligations. Such accounts are not savings accounts or savings deposits.</P> </SECTION> <SECTION> <SECTNO>§ 561.53</SECTNO> <SUBJECT>United States Treasury General Account.</SUBJECT> <P>The term <E T="03">United States Treasury General Account</E> means an account maintained in the name of the United States Treasury the balance of which is subject to the right of immediate withdrawal, except in the case of the closure of the member, and in which a zero balance may be maintained. Such accounts are not savings accounts or savings deposits.</P> </SECTION> <SECTION> <SECTNO>§ 561.54</SECTNO> <SUBJECT>United States Treasury Time Deposit Open Account.</SUBJECT> <P>The term <E T="03">United States Treasury Time Deposit Open Account</E> means a non-interest-bearing account maintained in the name of the United States Treasury which may not be withdrawn prior to the expiration of 30 days' written notice from the United States Treasury, or such other period of notice as the Treasury may require. Such accounts are not savings accounts or savings deposits.</P> </SECTION> <SECTION> <SECTNO>§ 561.55</SECTNO> <SUBJECT>With recourse.</SUBJECT> <P>(a) The term <E T="03">with recourse</E> means, in connection with the sale of a loan or a participation interest in a loan, an agreement or arrangement under which the purchaser is to be entitled to receive from the seller a sum of money or thing of value, whether tangible or intangible (including any substitution), upon default in payment of any loan involved or any part thereof or to withhold or to have withheld from the seller a sum of money or anything of value by way of security against default. The recourse liability resulting from a sale with recourse shall be the total book value of any loan sold with recourse less:</P> <P>(1) The amount of any insurance or guarantee against loss in the event of default provided by a third party,</P> <P>(2) The amount of any loss to be borne by the purchaser in the event of default, and</P> <P>(3) The amount of any loss resulting from a recourse obligation entered on the books and records of the savings association.</P> <P>(b) The term <E T="03">with recourse</E> does not include loans or interests therein where the agreement of sale provides for the savings association directly or indirectly</P> <P>(1) To hold or retain a subordinate interest in a specified percentage of the loans or interests; or</P> <P>(2) To guarantee against loss up to a specified percentage of the loans or interests, which specified percentage shall not exceed ten percent of the outstanding balance of the loans or interests at the time of sale: <E T="03">Provided,</E> That the savings association designates adequate reserves for the subordinate interest or guarantee.</P> <P>(c) This definition does not apply for purposes of determining the capital adequacy requirements under part 567 of this chapter.</P> <CITA>[54 FR 49545, Nov. 30, 1989, as amended at 57 FR 33437, July 29, 1992]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 562</EAR> <HD SOURCE="HED">PART 562—REGULATORY REPORTING STANDARDS</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>562.1</SECTNO> <SUBJECT>Regulatory reporting requirements.</SUBJECT> <SECTNO>562.2</SECTNO> <SUBJECT>Regulatory reports.</SUBJECT> <SECTNO>562.4</SECTNO> <SUBJECT>Audit of savings associations and savings association holding companies.</SUBJECT> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1463.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>57 FR 40090, Sept. 2, 1992, unless otherwise noted.</P> </SOURCE> <SECTION> <PRTPAGE P="167"/> <SECTNO>§ 562.1</SECTNO> <SUBJECT>Regulatory reporting requirements.</SUBJECT> <P>(a) <E T="03">Authority and scope.</E> This part is issued by the Office of Thrift Supervision (OTS) pursuant to section 4(b) and 4(c) of the Home Owners' Loan Act (HOLA). It applies to all savings associations regulated by the OTS.</P> <P>(b) <E T="03">Records and reports—general—</E>(1) <E T="03">Records.</E> Each savings association and its affiliates shall maintain accurate and complete records of all business transactions. Such records shall support and be readily reconcilable to any regulatory reports submitted to the OTS and financial reports prepared in accordance with GAAP. The records shall be maintained in the United States and be readily accessible for examination and other supervisory purposes within 5 business days upon request by the OTS, at a location acceptable to the OTS.</P> <P>(2) <E T="03">Reports.</E> For purposes of examination by and regulatory reports to the OTS and compliance with this chapter, all savings associations shall use such forms and follow such regulatory reporting requirements as the OTS may require by regulation or otherwise.</P> </SECTION> <SECTION> <SECTNO>§ 562.2</SECTNO> <SUBJECT>Regulatory reports.</SUBJECT> <P>(a) <E T="03">Definition and scope.</E> This section applies to all regulatory reports, as defined herein. A regulatory report is any report that the OTS prepares, or is submitted to, or is used by the OTS, to determine compliance with its rules and regulations, and to evaluate the safe and sound condition and operation of savings associations. The Report of Examination and the Thrift Financial Report (TFR) are examples of regulatory reports. Regulatory reports are regulatory documents, not accounting documents.</P> <P>(b) <E T="03">Regulatory reporting requirements</E>—(1) <E T="03">General.</E> The instructions to regulatory reports are referred to as “regulatory reporting requirements.” Regulatory reporting requirements include, but are not limited to, the accounting instructions provided in the TFR, guidance contained in OTS regulations, bulletins, and examination handbooks, and safe and sound practices. Regulatory reporting requirements are not limited to the minimum requirements under generally accepted accounting principles (GAAP) because of the special supervisory, regulatory, and economic policy needs served by such reports. Regulatory reporting by savings associations that purports to comply with GAAP shall incorporate the GAAP that best reflects the underlying economic substance of the transaction at issue. Regulatory reporting requirements shall, at a minimum:</P> <P>(i) Incorporate GAAP whenever GAAP is the referenced accounting instruction for regulatory reports to the Federal banking agencies;</P> <P>(ii) Incorporate safe and sound practices contained in OTS regulations, bulletins, examination handbooks and instructions to regulatory reports. Such safety and soundness requirements shall be no less stringent than those applied by the Comptroller of the Currency for national banks; and</P> <P>(iii) Incorporate additional safety and soundness requirements more stringent than GAAP, as the Director may prescribe.</P> <P>(2) <E T="03">Exceptions.</E> Regulatory reporting requirements that are not consistent with GAAP, if any, are not required to be reflected in audited financial statements, including financial statements contained in securities filings submitted to the OTS pursuant to the Securities and Exchange Act of 1934 or parts 563b, 563d, or 563g of this chapter.</P> <P>(3) <E T="03">Compliance.</E> When the OTS determines that a savings association's regulatory reports did not conform to regulatory reporting requirements in previous reporting periods, the association shall correct its regulatory reports in accordance with the directions of the OTS.</P> </SECTION> <SECTION> <SECTNO>§ 562.4</SECTNO> <SUBJECT>Audit of savings associations and savings association holding companies.</SUBJECT> <P>(a) <E T="03">General.</E> The OTS may require, at any time, an independent audit of the financial statements of, or the application of procedures agreed upon by the OTS to a savings association, savings and loan holding company, or affiliate (as defined by 12 CFR 563.41(b)(1)) by qualified independent public accountants when needed for any safety and soundness reason identified by the Director.<PRTPAGE P="168"/> </P> <P>(b) <E T="03">Audits required for safety and soundness purposes.</E> The OTS requires an independent audit for safety and soundness purposes:</P> <P>(1) If a savings association has received a composite rating of 3, 4 or 5, as defined at § 516.3(c) of this chapter; or</P> <P>(2) If, as of the beginning of its fiscal year, a savings and loan holding company controls savings association subsidiary(ies) with aggregate consolidated assets of $500 million or more.</P> <P>(c) <E T="03">Procedures.</E> (1) When the OTS requires an independent audit because such an audit is needed for safety and soundness purposes, the Director shall determine whether the audit was conducted and filed in a manner satisfactory to the OTS.</P> <P>(2) The Director may waive the independent audit requirement described at paragraph (b)(1) of this section, if the Director determines that an audit would not provide further information on safety and soundness issues relevant to the examination rating.</P> <P>(d) <E T="03">Qualifications for independent public accountants.</E> The audit shall be conducted by an independent public accountant who:</P> <P>(1) Is registered or licensed to practice as a public accountant, and is in good standing, under the laws of the state or other political subdivision of the United States in which the savings association's or holding company's principal office is located;</P> <P>(2) Agrees in the engagement letter to provide the OTS with access to and copies of any work papers, policies, and procedures relating to the services performed;</P> <P>(3) Is in compliance with the American Institute of Certified Public Accountants' (AICPA) Code of Professional Conduct and meets the independence requirements and interpretations of the Securities and Exchange Commission and its staff; and</P> <P>(4) Has received, or is enrolled in, a peer review program that meets guidelines acceptable to the OTS.</P> <P>(e) <E T="03">Voluntary audits.</E> When a savings association, savings and loan holding company, or affiliate (as defined by 12 CFR 563.41(b)(1)) obtains an independent audit voluntarily, it shall be performed only by an independent public accountant who satisfies the requirements of paragraphs (d)(1), (d)(2), and (d)(3) of this section.</P> <CITA>[59 FR 60304, Nov. 23, 1994, as amended at 62 FR 3780, Jan. 27, 1997]</CITA> </SECTION> </PART> <PART> <EAR>Pt. 563</EAR> <HD SOURCE="HED">PART 563—OPERATIONS</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Accounts</HD> <SECHD>Sec.</SECHD> <SECTNO>563.1</SECTNO> <SUBJECT>Chartering documents.</SUBJECT> <SECTNO>563.4</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>563.5</SECTNO> <SUBJECT>Securities: Statement of non-insurance.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Operation and Structure</HD> <SECTNO>563.22</SECTNO> <SUBJECT>Merger, consolidation, purchase or sale of assets, or assumption of liabilities.</SUBJECT> <SECTNO>563.27</SECTNO> <SUBJECT>Advertising.</SUBJECT> <SECTNO>563.33</SECTNO> <SUBJECT>Directors, officers, and employees.</SUBJECT> <SECTNO>563.36</SECTNO> <SUBJECT>Tying restriction exception.</SUBJECT> <SECTNO>563.39</SECTNO> <SUBJECT>Employment contracts.</SUBJECT> <SECTNO>563.41</SECTNO> <SUBJECT>Loans and other transactions with affiliates and subsidiaries.</SUBJECT> <SECTNO>563.42</SECTNO> <SUBJECT>Additional standards applicable to transactions with affiliates and subsidiaries.</SUBJECT> <SECTNO>563.43</SECTNO> <SUBJECT>Loans by savings associations to their executive officers, directors and principal shareholders.</SUBJECT> <SECTNO>563.47</SECTNO> <SUBJECT>Pension plans.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Securities and Borrowings</HD> <SECTNO>563.74</SECTNO> <SUBJECT>Mutual capital certificates.</SUBJECT> <SECTNO>563.76</SECTNO> <SUBJECT>Offers and sales of securities at an office of a savings association.</SUBJECT> <SECTNO>563.80</SECTNO> <SUBJECT>Borrowing limitations.</SUBJECT> <SECTNO>563.81</SECTNO> <SUBJECT>Issuance of subordinated debt securities and mandatorily redeemable preferred stock.</SUBJECT> </SUBPART> <SUBPART> <RESERVED>Subpart D [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Capital Distributions</HD> <SECTNO>563.140</SECTNO> <SUBJECT>What does this subpart cover?</SUBJECT> <SECTNO>563.141</SECTNO> <SUBJECT>What is a capital distribution?</SUBJECT> <SECTNO>563.142</SECTNO> <SUBJECT>What other definitions apply to this subpart?</SUBJECT> <SECTNO>563.143</SECTNO> <SUBJECT>Must I file with the OTS?</SUBJECT> <SECTNO>563.144</SECTNO> <SUBJECT>How do I file with the OTS?</SUBJECT> <SECTNO>563.145</SECTNO> <SUBJECT>May I combine my notice or application with other notices or applications?</SUBJECT> <SECTNO>563.146</SECTNO> <SUBJECT>Will the OTS permit my capital distribution?</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart F—Financial Management Policies</HD> <SECTNO>563.161</SECTNO> <SUBJECT>Management and financial policies.</SUBJECT> <SECTNO>563.170</SECTNO> <SUBJECT>Examinations and audits; appraisals; establishment and maintenance of records.</SUBJECT> <SECTNO>563.171</SECTNO> <SUBJECT>Frequency of safety and soundness examination.<PRTPAGE P="169"/> </SUBJECT> <SECTNO>563.172</SECTNO> <SUBJECT>Financial derivatives.</SUBJECT> <SECTNO>563.176</SECTNO> <SUBJECT>Interest-rate-risk-management procedures.</SUBJECT> <SECTNO>563.177</SECTNO> <SUBJECT>Procedures for monitoring Bank Secrecy Act compliance.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart G—Reporting and Bonding</HD> <SECTNO>563.180</SECTNO> <SUBJECT>Suspicious Activity Reports and other reports and statements.</SUBJECT> <SECTNO>563.181</SECTNO> <SUBJECT>Reports of change in control of mutual savings associations.</SUBJECT> <SECTNO>563.183</SECTNO> <SUBJECT>Reports of change in chief executive officer or director; other reports; form and filing of such reports.</SUBJECT> <SECTNO>563.190</SECTNO> <SUBJECT>Bonds for directors, officers, employees, and agents; form of and amount of bonds.</SUBJECT> <SECTNO>563.191</SECTNO> <SUBJECT>Bonds for agents.</SUBJECT> <SECTNO>563.200</SECTNO> <SUBJECT>Conflicts of interest.</SUBJECT> <SECTNO>563.201</SECTNO> <SUBJECT>Corporate opportunity.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart H—Notice of Change of Director or Senior Executive Officer</HD> <SECTNO>563.550</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <SECTNO>563.555</SECTNO> <SUBJECT>What definitions apply to this subpart?</SUBJECT> <SECTNO>563.560</SECTNO> <SUBJECT>Who must give prior notice?</SUBJECT> <SECTNO>563.565</SECTNO> <SUBJECT>What procedures govern the filing of my notice?</SUBJECT> <SECTNO>563.570</SECTNO> <SUBJECT>What information must I include in my notice?</SUBJECT> <SECTNO>563.575</SECTNO> <SUBJECT>What procedures govern OTS review of my notice for completeness?</SUBJECT> <SECTNO>563.580</SECTNO> <SUBJECT>What standards and procedures will govern OTS review of the substance of my notice?</SUBJECT> <SECTNO>563.585</SECTNO> <SUBJECT>When may a proposed director or senior executive officer begin service?</SUBJECT> <SECTNO>563.590</SECTNO> <SUBJECT>When will the OTS waive the prior notice requirement?</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 1817, 1820, 1828, 1831o, 3806; 42 U.S.C. 4106.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49552, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SUBPART> <HD SOURCE="HED">Subpart A—Accounts</HD> <SECTION> <SECTNO>§ 563.1</SECTNO> <SUBJECT>Chartering documents.</SUBJECT> <P>(a) <E T="03">Submission for approval.</E> Any <E T="03">de novo</E> savings association prior to commencing operations shall file its charter and bylaws with the OTS for approval, together with a certification that such charter and bylaws are permissible under all applicable laws, rules and regulations.</P> <P>(b) <E T="03">Availability of chartering documents.</E> Each savings association shall cause a true copy of its charter and bylaws and all amendments thereto to be available to accountholders at all times in each office of the savings association, and shall upon request deliver to any accountholders a copy of such charter and bylaws or amendments thereto.</P> <CITA>[57 FR 14344, Apr. 20, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.4</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 563.5</SECTNO> <SUBJECT>Securities: Statement of non-insurance.</SUBJECT> <P>Every security issued by a savings association must include in its provisions a clear statement that the security is not insured by the Federal Deposit Insurance Corporation.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Operation and Structure</HD> <SECTION> <SECTNO>§ 563.22</SECTNO> <SUBJECT>Merger, consolidation, purchase or sale of assets, or assumption of liabilities.</SUBJECT> <P>(a) No savings association may, without application to and approval by the Office:</P> <P>(1) Combine with any insured depository institution, if the acquiring or resulting institution is to be a savings association; or</P> <P>(2) Assume liability to pay any deposit made in, any insured depository institution.</P> <P>(b)(1) No savings association may, without notifying the Office, as provided in paragraph (h)(1) of this section:</P> <P>(i) Combine with another insured depository institution where a savings association is not the resulting institution; or</P> <P>(ii) In the case of a savings association that meets the conditions for expedited treatment under § 516.3(a) of this chapter, convert, directly or indirectly, to a national or state bank.</P> <P>(2) No savings association that does not meet the conditions for expedited treatment under § 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.</P> <P>(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 <PRTPAGE P="170"/>(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.</P> <P>(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:</P> <P>(i) The capital level of any resulting savings association;</P> <P>(ii) The financial and managerial resources of the constituent institutions;</P> <P>(iii) The future prospects of the constituent institutions;</P> <P>(iv) The convenience and needs of the communities to be served;</P> <P>(v) The conformity of the transaction to applicable law, regulation, and supervisory policies;</P> <P>(vi) Factors relating to the fairness of and disclosure concerning the transaction, including, but not limited to:</P> <P>(A) <E T="03">Equitable treatment.</E> 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.</P> <P>(B) <E T="03">Full disclosure.</E> 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.</P> <P>(C) <E T="03">Compensation to officers.</E> 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.</P> <P>(D) <E T="03">Advisory boards.</E> 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:</P> <P>(<E T="03">1</E>) 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<PRTPAGE P="171"/> </P> <P>(<E T="03">2</E>) 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.</P> <P>(E) The accounting and tax treatment of the transaction; and</P> <P>(F) Fees paid and professional services rendered in connection with the transaction.</P> <P>(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:</P> <P>(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</P> <P>(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.</P> <P>(3) Applications and notices filed under this section shall be upon forms prescribed by the Office.</P> <P>(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 § 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.</P> <P>(e)(1) Unless the OTS finds that it must act immediately in order to prevent the probable default of one of the savings associations involved, the applicant must publish a public notice of the application in accordance with the procedures specified in subpart B of part 516 of this chapter. In addition to initial publication, the applicant must publish on a weekly basis during the period allowed for furnishing reports under paragraph (e)(2) of this section.</P> <P>(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.</P> <P>(3) If the Office has found that it must act immediately to prevent the probable default of one of the savings associations involved and the reports on the competitive factors have been dispensed with, the transaction may be consummated immediately upon approval by the Office and any applicable state regulatory authorities. If the Office has advised the Attorney General and the other three banking agencies of the existence of an emergency requiring expeditious action and has requested reports on the competitive factors within ten days, the transaction may not be consummated before the fifth calendar day after the date of approval by the Office. In all other cases, the transaction may not be consummated before the thirtieth calendar day after the date of approval by the Office.</P> <P>(4) Commenters may submit comments on the application in accordance with the procedures set forth in subpart C of part 516 of this chapter, except that comments may be submitted at any time during the period described in paragraph (e)(2) of this section. The OTS may arrange informal or formal <PRTPAGE P="172"/>meetings in accordance with the procedures set forth in subpart D of part 516 of this chapter.</P> <P>(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:</P> <P>(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</P> <P>(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.</P> <P>(f) <E T="03">Automatic approvals by the Office</E>. 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:</P> <P>(1) The acquiring savings association does not meet the criteria for expedited treatment under § 516.3(a)(1) of this chapter;</P> <P>(2) The OTS recommends the imposition of non-standard conditions prior to approving the application;</P> <P>(3) The OTS suspends the applicable processing time frames under § 516.190 of this chapter;</P> <P>(4) The OTS raises objections to the transaction;</P> <P>(5) The resulting savings association would be one of the 3 largest depository institutions competing in the relevant geographic area where before the transaction there were 5 or fewer depository institutions, the resulting savings association would have 25 percent or more of the total deposits held by depository institutions in the relevant geographic area, and the share of total deposits would have increased by 5 percent or more;</P> <P>(6) The resulting savings association would be one of the 2 largest depository institutions competing in the relevant geographic area where before the transaction there were 6 to 11 depository institutions the resulting savings association would have 30 percent or more of the total deposits held by depositing institutions in the relevant geographic area, and the share of total deposits would have increased by 10 percent or more;</P> <P>(7) The resulting savings association would be one of the 2 largest depository institutions competing in the relevant geographic area where before the transaction there were 12 or more depository institutions, the resulting savings association would have 35 percent or more of the total deposits held by the depository institutions in the relevant geographic area, and the share of total deposits would have increased by 15 percent or more;</P> <P>(8) The Herfindahl-Hirschman Index (HHI) in the relevant geographic area was more than 1800 before the transaction, and the increase in the HHI used by the transaction would be 50 or more;</P> <P>(9) In a transaction involving potential competition, the OTS determines that the acquiring savings association is one of three or fewer potential entrants into the relevant geographic area;</P> <P>(10) The acquiring savings association has assets of $1 billion or more and proposes to acquire assets of $1 billion or more;</P> <P>(11) The savings association that will be the resulting savings association in the transaction has a composite Community Reinvestment Act rating of less than satisfactory, or is otherwise seriously deficient with respect to the Office's nondiscrimination regulations and the deficiencies have not been resolved to the satisfaction of the OTS;</P> <P>(12) The transaction involves any supervisory or assistance agreement with the Office, the Resolution Trust Corporation, or the Federal Deposit Insurance Corporation;</P> <P>(13) The transaction is part of a conversion under part 563b of this chapter;</P> <P>(14) The transaction raises a significant issue of law or policy; or</P> <P>(15) The transaction is opposed by any constituent institution or contested by a competing acquiror.<PRTPAGE P="173"/> </P> <P>(g) <E T="03">Definitions.</E> (1) The terms used in this section shall have the same meaning as set forth in § 552.13(b) of this chapter.</P> <P>(2) <E T="03">Insured depository institution. Insured depository institution</E> has the same meaning as defined in section 3(c)(2) of the Federal Deposit Insurance Act.</P> <P>(3) With regard to paragraph (f) of this section, the term <E T="03">relevant geographic area</E> is used as a substitute for <E T="03">relevant geographic market,</E> 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.</P> <P>(h) <E T="03">Special requirements and procedures for transactions under paragraphs (b) and (c) of this section</E>—(1) <E T="03">Certain transactions with no surviving savings association</E>. 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.</P> <P>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.</P> <P>(2) <E T="03">Other transfer transactions</E>—(i) <E T="03">Expedited treatment</E>. A notice in conformity with § 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 § 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.</P> <P>(ii) <E T="03">Standard treatment</E>. An application in conformity with § 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 § 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 § 516.2 of this chapter.</P> <P>(iii) <E T="03">Standard treatment for transactions under section 5(d)(3) of the Federal Deposit Insurance Act</E>. An application in conformity with § 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 § 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 § 516.3(a) of this chapter. Applications under this paragraph shall be processed in accordance with the time frames set forth in § 516.2 of this chapter, provided that the period for review <PRTPAGE P="174"/>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.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 13514, Apr. 11, 1990; 57 FR 14344, Apr. 20, 1992; 59 FR 44624, Aug. 30, 1994; 59 FR 66159, Dec. 23, 1994; 62 FR 64146, Dec. 4, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.27</SECTNO> <SUBJECT>Advertising.</SUBJECT> <P>No savings association shall use advertising (which includes print or broadcast media, displays or signs, stationery, and all other promotional materials), or make any representation which is inaccurate in any particular or which in any way misrepresents its services, contracts, investments, or financial condition.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.33</SECTNO> <SUBJECT>Directors, officers, and employees.</SUBJECT> <P>(a) <E T="03">Directors—</E>(1) <E T="03">Requirements.</E> The composition of the board of directors of a savings association must be in accordance with the following requirements:</P> <P>(i) A majority of the directors must not be salaried officers or employees of the savings association or of any subsidiary or (except in the case of a savings association having 80% or more of any class of voting shares owned by a holding company) any holding company affiliate thereof.</P> <P>(ii) Not more than two of the directors may be members of the same immediate family.</P> <P>(iii) Not more than one director may be an attorney with a particular law firm.</P> <P>(2) <E T="03">Prospective application.</E> In the case of an association whose board of directors does not conform with any requirement set forth in paragraph (a)(1) of this section as of October 5, 1983, this paragraph (a) shall not prohibit the uninterrupted service, including re-election and re-appointment, of any person serving on the board of directors at that date.</P> <P>(b) [Reserved]</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 4313, Jan. 14, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.36</SECTNO> <SUBJECT>Tying restriction exception.</SUBJECT> <P>(a) <E T="03">Safe harbor for combined-balance discounts.</E> A savings and loan holding company or any savings association or any affiliate of either may vary the consideration for any product or package of products based on a customer's maintaining a combined minimum balance in certain products specified by the company varying the consideration (eligible products), if:</P> <P>(1) That company (if it is a savings association) or a savings association affiliate of that company (if it is not a savings association) offers deposits, and all such deposits are eligible products; and</P> <P>(2) Balances in deposits count at least as much as non-deposit products toward the minimum balance.</P> <P>(b) <E T="03">Limitations on exception.</E> This exception shall terminate upon a finding by the OTS that the arrangement is resulting in anti-competitive practices. The eligibility of a savings and loan holding company or savings association or affiliate of either to operate under this exception shall terminate upon a finding by the OTS that its exercise of this authority is resulting in anti-competitive practices.</P> <CITA>[61 FR 60184, Nov. 27, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.39</SECTNO> <SUBJECT>Employment contracts.</SUBJECT> <P>(a) <E T="03">General.</E> A savings association may enter into an employment contract with its officers and other employees only in accordance with the requirements of this section. All employment contracts shall be in writing and shall be approved specifically by an association's board of directors. An association shall not enter into an employment contract with any of its officers or other employees if such contract would constitute an unsafe or unsound practice. The making of such an employment contract would be an unsafe or unsound practice if such contract could lead to material financial loss or damage to the association or could interfere materially with the exercise <PRTPAGE P="175"/>by the members of its board of directors of their duty or discretion provided by law, charter, bylaw or regulation as to the employment or termination of employment of an officer or employee of the association. This may occur, depending upon the circumstances of the case, where an employment contract provides for an excessive term.</P> <P>(b) <E T="03">Required provisions.</E> Each employment contract shall provide that:</P> <P>(1) The association's board of directors may terminate the officer or employee's employment at any time, but any termination by the association's board of directors other than termination for cause, shall not prejudice the officer or employee's right to compensation or other benefits under the contract. The officer or employee shall have no right to receive compensation or other benefits for any period after termination for cause. Termination for cause shall include termination because of the officer or employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract.</P> <P>(2) If the officer or employee is suspended and/or temporarily prohibited from participating in the conduct of the association's affairs by a notice served under section 8 (e)(3) or (g)(1) of Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) the association's obligations under the contract shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the association may in its discretion (i) pay the officer or employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.</P> <P>(3) If the officer or employee is removed and/or permanently prohibited from participating in the conduct of the association's affairs by an order issued under section 8 (e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the association under the contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.</P> <P>(4) If the savings association is in default (as defined in section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under the contract shall terminate as of the date of default, but this paragraph (b)(4) shall not affect any vested rights of the contracting parties: <E T="03">Provided,</E> that this paragraph (b)(4) need not be included in an employment contract if prior written approval is secured from the Director or his or her designee.</P> <P>(5) All obligations under the contract shall be terminated, except to the extent determined that continuation of the contract is necessary of the continued operation of the association</P> <P>(i) By the Director or his or her designee, at the time the Federal Deposit Insurance Corporation or Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the association under the authority contained in 13(c) of the Federal Deposit Insurance Act; or</P> <P>(ii) By the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the association or when the association is determined by the Director to be in an unsafe or unsound condition.</P> <FP>Any rights of the parties that have already vested, however, shall not be affected by such action.</FP> </SECTION> <SECTION> <SECTNO>§ 563.41</SECTNO> <SUBJECT>Loans and other transactions with affiliates and subsidiaries.</SUBJECT> <P>(a) <E T="03">Restrictions on transactions with affiliates and subsidiaries.</E> A savings association and its subsidiaries may engage in a covered transaction with an affiliate only if the transaction is permissible under section 23A of the Federal Reserve Act, 12 U.S.C. 371c, and the additional restrictions set forth in this section, as follows:</P> <P>(1) A savings association and its subsidiaries may engage in a covered transaction with an affiliate only if:<PRTPAGE P="176"/> </P> <P>(i) In the case of any affiliate, the aggregate amount of covered transactions of the savings association and its subsidiaries shall not exceed 10 per centum of the capital stock and surplus of the savings association; and</P> <P>(ii) In the case of all affiliates, the aggregate amount of covered transactions of the savings association and its subsidiaries shall not exceed 20 per centum of the capital stock and surplus of the savings association;</P> <P>(2) For purposes of paragraph (a)(1) of this section, any transaction by a savings association or its subsidiaries with any person shall be deemed to be a transaction with an affiliate to the extent that proceeds of the transaction are used for the benefit of, or transferred to, that affiliate;</P> <P>(3) A savings association (or its subsidiary) may not make a loan or other extension of credit to an affiliate, unless the affiliate is engaged solely in activities described in 12 U.S.C. 1467a(c)(2)(F)(i), as defined in § 584.2-2 of this chapter. For the purposes of this paragraph (a)(3), a loan or other extension of credit includes a purchase of assets from an affiliate that is subject to the affiliate's agreement to repurchase the assets. Such a purchase of assets, however, will not be considered a loan or other extension of credit if the savings association (or its subsidiary) has entered into a transaction or series of transactions that meets all of the following requirements:</P> <P>(i) The savings association (or its subsidiary) purchases United States Treasury securities from the affiliate, the affiliate agrees to repurchase the securities at the end of a stated term, the remaining term of the securities purchased by the savings association (or its subsidiary) exceeds the term of the affiliate's repurchase agreement, and the savings association (or its subsidiary) has possession or control of the securities and the right to dispose of the securities at any time during the term of the agreement and upon default.</P> <P>(ii) The affiliate purchases United States Treasury securities from the savings association (or its subsidiary) and the savings association (or its subsidiary) agrees to repurchase the securities at the end of a stated term.</P> <P>(iii) The aggregate amount of the affiliate's outstanding obligations to repurchase securities from the savings association (or its subsidiary) under the repurchase obligation described at paragraph (a)(3)(i) of this section, at all times, is less than the aggregate amount of the savings association's (or its subsidiary's) outstanding obligations to repurchase securities from the affiliate under paragraph (a)(3)(ii) of this section;</P> <P>(4) A savings association and its subsidiaries may not purchase or invest in the securities of any affiliate other than with respect to shares of a subsidiary which, for purposes of this paragraph (a)(4), shall include a bank and a savings association;</P> <P>(5) A savings association and its subsidiaries may not purchase a low-quality asset from an affiliate unless the association or such subsidiary, pursuant to an independent credit evaluation, committed itself to purchase the asset prior to the time the asset was acquired by the affiliate; and</P> <P>(6) Any covered transactions and any transactions exempt under paragraph (d) of this section and section 23A(d) of the Federal Reserve Act, 12 U.S.C. 371c(d), between a savings association or its subsidiaries and an affiliate shall be on terms and conditions that are consistent with safe and sound banking practices.</P> <P>(b) <E T="03">Definitions.</E> For the purpose of this section:</P> <P>(1) The term <E T="03">affiliate</E> with respect to a savings association means:</P> <P>(i) Any company that controls the savings association and any other company that is controlled by the company that controls the savings association;</P> <P>(ii) A bank or savings association subsidiary of the savings association;</P> <P>(iii) Any company:</P> <P>(A) That is controlled directly or indirectly, by a trust or otherwise, by or for the benefit of shareholders who beneficially or otherwise control, directly or indirectly, by trust or otherwise, the savings association or any company that controls the savings association; or</P> <P>(B) In which a majority of its directors, partners or trustees constitute a majority of the persons holding any such office with the savings association <PRTPAGE P="177"/>or any company that controls the savings association;</P> <P>(iv)(A) Any company, including a real estate investment trust, that is sponsored and advised on a contractual basis by the savings association or any subsidiary or affiliate of the savings association; or</P> <P>(B) Any investment company with respect to which a savings association or any affiliate thereof is an investment adviser as defined in section 2(a)(20) of the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(2); and</P> <P>(v) Any company: (A) That the Office or the Board of Governors of the Federal Reserve System determines by regulation or order to have a relationship with the savings association or any subsidiary or affiliate of the savings association such that covered transactions by the savings association or its subsidiary with that company may be affected by the relationship to the detriment of the savings association or its subsidiary; or</P> <P>(B) That the Office determines presents a risk to the safety or soundness of the savings association, based on the nature of the activities conducted by the company, amount of transactions with the savings associations or its subsidiaries, financial condition of the company or its parent savings association, or other supervisory factors;</P> <P>(2) The following shall not be considered to be an affiliate:</P> <P>(i) Any company, other than a bank or savings association, that is a subsidiary of a savings association, unless a determination is made by the Board of Governors of the Federal Reserve System under section 23A(b)(1)(E) of the Federal Reserve Act, 12 U.S.C. 371c(b)(1)(E), or by the Office under § 563.41(b)(1)(v), not to exclude the subsidiary company from the definition of affiliate and, provided that any company that would be an affiliate under paragraph (b)(1) of this section but for the fact that it is a subsidiary of a savings association, shall nonetheless be deemed to be an affiliate unless the Office determines to exclude such company from the definition of affiliate;</P> <P>(ii) Any company engaged solely in holding the premises of the savings association;</P> <P>(iii) Any company engaged solely in conducting a safe deposit business;</P> <P>(iv) Any company engaged solely in holding obligations of the United States or its agencies or obligations fully guaranteed by the United States or its agencies as to principal and interest; and</P> <P>(v) Any company where control results from the exercise of rights arising out of a bona fide debt previously contracted, but only for the period of time specifically authorized under applicable State or Federal law or regulation or, in the absence of a law or regulation, for a period of two years from the date of the exercise of those rights, subject, upon application, to authorization by the Office for good cause shown of extensions of time for not more than one year at a time, but extensions in the aggregate shall not exceed three years;</P> <P>(3)(i) A company or shareholder shall be deemed to have control over another company if:</P> <P>(A) The company or shareholder, directly or indirectly, or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the other company;</P> <P>(B) The company or shareholder would be deemed to control the company under § 574.4(a) of this chapter, or presumed to control the company under § 574.4(b) of this chapter, and in the latter case, control has not been rebutted; and</P> <P>(ii) Notwithstanding any other provision of this section, no company shall be deemed to own or control another company by virtue of its ownership or control of shares in a fiduciary capacity, except as provided in paragraph (b)(1)(iii) of this section;</P> <P>(4) The term <E T="03">subsidiary,</E> when used in connection with a savings association means a company that is controlled by that savings association within the meaning of part 574 of this chapter;</P> <P>(5) The term <E T="03">savings association</E> has the same meaning as that term is defined at § 583.21 of this chapter; and the term <E T="03">bank</E> includes a state bank, national bank, banking association, or trust company;</P> <P>(6) The term <E T="03">company</E> means a corporation, partnership, business trust, <PRTPAGE P="178"/>association, or similar organization and, unless specifically excluded, the term “company” includes a “savings association” and a “bank”;</P> <P>(7) The term <E T="03">covered transaction</E> means with respect to an affiliate of a savings association:</P> <P>(i) A loan or extension of credit to the affiliate;</P> <P>(ii) A purchase of assets, including assets subject to an agreement to repurchase, from the affiliate, except purchases of real and personal property that may be specifically exempted by the Board of Governors of the Federal Reserve System by order or regulation;</P> <P>(iii) The acceptance of securities issued by the affiliate as collateral security for a loan or extension of credit to any person or company; or</P> <P>(iv) The issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of an affiliate;</P> <P>(8) The term <E T="03">aggregate amount of covered transactions</E> means the amount of the covered transactions about to be engaged in added to the current amount of all outstanding covered transactions. For this purpose, the outstanding balance of any credits extended to an affiliate shall be added to the value of any asset acquired from the affiliate (or all affiliates), as reflected on the financial records of the savings association or its subsidiaries, subject to the following conditions:</P> <P>(i) With respect to a loan or extension of credit made by the savings association or its subsidiaries, any principal amount that has been amortized may be deducted from the <E T="03">aggregate amount of covered transactions;</E> </P> <P>(ii) With respect to a purchase of assets by the savings association or its subsidiaries:</P> <P>(A) Any amounts of depreciation that have been deducted from the cost of an asset for federal income tax purposes by the purchaser may be deducted from the <E T="03">aggregate amount of covered transactions;</E> and</P> <P>(B) Upon the sale of an asset that was previously purchased in a covered transaction, the <E T="03">aggregate amount of covered transactions</E> shall be reduced by an amount equal to the purchase price of the asset at the time of the covered transaction less depreciation subsequently taken and previously deducted from the <E T="03">aggregate amount of covered transactions;</E> </P> <P>(9) The term <E T="03">securities</E> means stocks, bonds, debentures, notes, and other similar obligations;</P> <P>(10) The term <E T="03">low-quality asset</E> means an asset that falls in any one or more of the following categories:</P> <P>(i) An asset classified as <E T="03">substandard, doubtful,</E> or <E T="03">loss</E> or treated as <E T="03">other loans especially mentioned</E> in the most recent report of examination or inspection of an affiliate prepared by either a Federal or State supervisory agency;</P> <P>(ii) An asset in a nonaccrual status;</P> <P>(iii) An asset on which principal or interest payments are more than thirty days past due; or</P> <P>(iv) An asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor;</P> <P>(11) The term <E T="03">capital stock and surplus of the savings association</E> means “unimpaired capital and unimpaired surplus” as defined at § 560.93(b)(11) of this chapter.</P> <P>(c) <E T="03">Collateral for certain transactions with affiliates.</E> (1) Each loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate by a savings association or its subsidiary shall be secured at the time of the transaction by collateral having a market value equal to:</P> <P>(i) 100 per centum of the amount of the loan or extension or credit, guarantee, acceptance, or letter of credit, if the collateral is composed of:</P> <P>(A) Obligations of the United States or its agencies;</P> <P>(B) Obligations fully guaranteed by the United States or its agencies as to principal and interest;</P> <P>(C) Notes, drafts, bills of exchange or bankers' acceptances that are eligible for rediscount or purchase by a Federal Home Loan Bank or Federal Reserve Bank; or</P> <P>(D) A segregated, earmarked deposit account with the savings associations;</P> <P>(ii) 110 per centum of the amount of the loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of obligations of any State or political subdivision of any State;<PRTPAGE P="179"/> </P> <P>(iii) 120 per centum of the amount of the loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of other debt instruments, including receivables; or</P> <P>(iv) 130 per centum of the amount of the loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of stock, leases, or other real or personal property.</P> <P>(2) Any such collateral that is subsequently retired or amortized shall be replaced by additional eligible collateral where needed to keep the percentage of the collateral value relative to the amount of the outstanding loan or extension of credit, guarantee, acceptance, or letter of credit equal to the minimum percentage required at the inception of the transaction.</P> <P>(3) A low-quality asset shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate.</P> <P>(4) The securities issued by an affiliate of the savings association shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, that affiliate or any other affiliate of the savings association.</P> <P>(5) The collateral requirements of this paragraph shall not be applicable to an acceptance that is already fully secured either by attached documents or by other property having an ascertainable market value that is involved in the transaction.</P> <P>(d) <E T="03">Exemptions.</E> The provisions of this section, except paragraph (a)(6) of this section, shall not be applicable to the following transactions by a savings association:</P> <P>(1) Any transaction, subject to the prohibition contained in paragraph (a)(5) of this section with a savings association or a bank:</P> <P>(i) That controls 80 per centum or more of the voting shares of the savings association;</P> <P>(ii) In which the savings association controls 80 per centum or more of the voting shares; or</P> <P>(iii) In which 80 per centum or more of the voting shares are controlled by the company that controls 80 per centum or more of the voting shares of the savings association;</P> <P>(2) Making deposits in an affiliated bank, affiliated savings association or affiliated foreign bank in the ordinary course of correspondent business, subject to any restrictions that the Office or the Board of Governors of the Federal Reserve System may prescribe by regulation or order;</P> <P>(3) Giving immediate credit to an affiliate for uncollected items received in the ordinary course of business;</P> <P>(4) Subject to paragraph (a)(3) of this section, making a loan or extension of credit to, or issuing a guarantee, acceptance, or letter of credit on behalf of, an affiliate, if such loan, extension of credit, guarantee, acceptance, or letter of credit is fully secured by:</P> <P>(i) Obligations of the United States or its agencies;</P> <P>(ii) Obligations fully guaranteed by the United States or its agencies as to principal and interest; or</P> <P>(iii) A segregated, earmarked deposit account with the savings association;</P> <P>(5) Purchasing assets having a readily identifiable and publicly available market quotation and purchased at that market quotation or, subject to the prohibition contained in paragraph (a)(5) of this section, purchasing loans on a nonrecourse basis from affiliated banks or savings associations; and</P> <P>(6) Purchasing from an affiliate a loan or extension of credit that was originated by the savings association and sold to the affiliate subject to a repurchase agreement or with recourse.</P> <P>(e) <E T="03">Recordkeeping and notice requirements.</E> (1) With respect to all transactions between a savings association and its subsidiaries and the association's affiliates or between a savings association and an unaffiliated party to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, an affiliate, the association shall make and retain records that reflect those transactions in reasonable detail. The association's records shall, at a minimum:</P> <P>(i) Identify the affiliate;</P> <P>(ii) Indicate the dollar amount of the transaction and reflect that the amount is within the applicable quantitative limitations specified in this <PRTPAGE P="180"/>section or that the transaction is not subject to those limitations;</P> <P>(iii) Indicate whether the transaction involves a low-quality asset as that term is defined in paragraph (b)(10) of this section;</P> <P>(iv) Indicate the type and amount of any collateral involved in the transaction and that such collateral complies in all respects with the requirements of this section or that the transaction is not subject to those limitations;</P> <P>(v) With respect to any transaction subject to § 563.42 of this part, demonstrate that the terms and circumstances of the transaction comply with the standards set forth therein;</P> <P>(vi) Reflect that loans and extensions of credit made to affiliates comply with paragraph (a)(3) of this section; and</P> <P>(vii) Be readily accessible for examination and other supervisory purposes.</P> <P>(2) Notwithstanding paragraphs (a) through (d) of this section, and except with respect to transactions of the type described in 12 CFR 250.250, the Office may require prior notification by a savings association and its subsidiaries of any and all transactions with any or all of the association's affiliates or subsidiaries under the following circumstances:</P> <P>(i) A de novo savings association that commenced operations or an association or holding company thereof that has been the subject of an application or notice under part 574 of this chapter that was approved during the preceding two year period; or</P> <P>(ii) A savings association that:</P> <P>(A) Has a composite rating of 4 or 5, as defined in § 516.3(c) of this chapter;</P> <P>(B) Is not meeting all of its regulatory capital requirements;</P> <P>(C) Has entered into a consent to merge, a supervisory agreement or cease and desist order during the preceding two year period, or is subject to a formal enforcement proceeding; or</P> <P>(D) The OTS determines is a problem association or in troubled condition.</P> <P>(3) Upon receipt of written notice from the Office identifying one or more of the circumstances described in paragraph (e)(2) of this section and stating that the Office has determined that prior notification by a savings association will be required pursuant to this paragraph, the association shall provide, no later than 30 days prior to entering into any transaction for which prior notification has been required, written notice containing a full description of the proposed transaction. If no objections are raised by the Office during such 30 day period, the association or its subsidiaries may proceed with the proposed transaction.</P> <CITA>[56 FR 34011, July 25, 1991, as amended at 57 FR 14344, Apr. 20, 1992; 60 FR 66869, Dec. 27, 1995; 61 FR 65179, Dec. 11, 1996; 61 FR 66579, Dec. 18, 1996; 62 FR 3781, Jan. 27, 1997; 62 FR 66262, Dec. 18, 1997; 63 FR 43293, Aug. 13, 1998; 64 FR 69185, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.42</SECTNO> <SUBJECT>Additional standards applicable to transactions with affiliates and subsidiaries.</SUBJECT> <P>(a) <E T="03">General.</E> A savings association and its subsidiaries may engage in a transaction with an affiliate only if the transaction is permissible under section 23B of the Federal Reserve Act, 12 U.S.C. 371c-1, and the additional restrictions set forth in this section, as follows:</P> <P>(1) <E T="03">Standards.</E> A savings association and its subsidiaries may engage in any of the transactions described in paragraph (a)(2) of this section only:</P> <P>(i) On terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the association or its subsidiary, as those prevailing at the time for comparable transactions with or involving nonaffiliated companies; or</P> <P>(ii) In the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies;</P> <P>(2) <E T="03">Transactions covered.</E> Paragraph (a)(1) of this section applies to the following:</P> <P>(i) Any covered transaction with an affiliate;</P> <P>(ii) The sale of securities or other assets to an affiliate, including assets subject to an agreement to repurchase;</P> <P>(iii) The payment of money or the furnishing of services to an affiliate under contract, lease, or otherwise;<PRTPAGE P="181"/> </P> <P>(iv) Any transaction in which an affiliate acts as an agent or broker or receives a fee for its services to the savings association or to any other person;</P> <P>(v) Any transaction or series of transactions with a third party:</P> <P>(A) If an affiliate has a financial interest in the third party; or</P> <P>(B) If an affiliate is a participant in the transaction or series of transactions;</P> <P>(3) <E T="03">Transactions that benefit an affiliate.</E> For the purpose of this section, any transaction by a savings association or its subsidiaries with any person shall be deemed to be a transaction with an affiliate if any of the proceeds of the transaction are used for the benefit of, or transferred to, that affiliate.</P> <P>(b) <E T="03">Prohibited transactions</E>—(1) <E T="03">General.</E> A savings association and its subsidiaries:</P> <P>(i) Shall not purchase as fiduciary any securities or other assets from any affiliate unless the purchase is permitted:</P> <P>(A) Under the instrument creating the fiduciary relationship;</P> <P>(B) By court order; or</P> <P>(C) By law of the jurisdiction governing the fiduciary relationship; and</P> <P>(ii) Whether acting as principal or fiduciary, shall not knowingly purchase or otherwise acquire, during the existence of any underwriting or selling syndicate, any security if a principal underwriter of that security is an affiliate of the association.</P> <P>(2) <E T="03">Exception.</E> Paragraph (b)(1)(ii) of this section shall not apply if the purchase or acquisition of securities has been approved, before the securities are initially offered for sale to the public, by a majority of the directors of the savings association who are not officers or employees of the association or any affiliate thereof.</P> <P>(c) <E T="03">Advertising restriction.</E> A savings association and its subsidiaries and any affiliate of a savings association shall not publish any advertisement or enter into any agreement stating or suggesting that the association shall in any way be responsible for the obligations of its affiliates.</P> <P>(d) <E T="03">Definitions.</E> For the purpose of this section:</P> <P>(1) The terms <E T="03">affiliate, bank, covered transaction, savings association</E> and <E T="03">subsidiary</E> have the meaning given to each term in § 563.41 of this part, (but the term <E T="03">affiliate</E> does not include any company described in paragraph (b)(2) of § 563.41 of this part, any bank, or any savings association).</P> <P>(2) The term <E T="03">security</E> has the meaning given to that term in section 3(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10); and</P> <P>(3) The term <E T="03">principal underwriter</E> means any underwriter who, in connection with a primary distribution of securities:</P> <P>(i) Is in privity of contract with the issuer or an affiliated person of the issuer;</P> <P>(ii) Acting alone or in concert with one or more other persons, initiates or directs the formation of an underwriting syndicate; or</P> <P>(iii) Is allowed a rate of gross commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution.</P> <P>(e) <E T="03">Recordkeeping requirements.</E> With respect to all transactions subject to this section between a savings association and its subsidiaries and the association's affiliates or between a savings association and an unaffiliated party to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, an affiliate, the association shall make and retain records, that reflect those transactions in reasonable detail. The association's records shall, at a minimum, include the information required by § 563.41(e)(1)(v) of this part.</P> <CITA>[56 FR 34013, July 25, 1991, as amended at 60 FR 66869, Dec. 27, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.43</SECTNO> <SUBJECT>Loans by savings associations to their executive officers, directors and principal shareholders.</SUBJECT> <P>Pursuant to 12 U.S.C. 1463(a) and 1468, a savings association, its subsidiaries and its insiders (as defined) shall be subject to the restrictions contained in 12 CFR Part 215, subparts A and B of the Federal Reserve Board's Regulation O, with the exception of 12 CFR 215.13, in the same manner and to the same extent as if the association were a bank and a member bank of the Federal Reserve System, except that:<PRTPAGE P="182"/> </P> <P>(a) Such provisions shall be administered and enforced by the OTS;</P> <P>(b) References to the term “bank holding company” shall be deemed to refer to “savings and loan holding company”;</P> <P>(c) References to “report of condition filed under 12 U.S.C. 1817(a)(3)” shall be deemed to refer to “Thrift Financial Report”;</P> <P>(d) The term <E T="03">subsidiary</E> shall include a savings association that is “controlled,” within the meaning of § 563.41(a)(3) of this part, by a company (including for this purpose an insured depository institution) that is a savings and loan holding company. When used to refer to a subsidiary of a savings association, the term <E T="03">subsidiary</E> shall mean a “subsidiary” as that term is defined at § 563.41(b)(4) of this part; and</P> <P>(e) References to the Reserve Bank or the Comptroller shall be deemed to include the Director of the Office of Thrift Supervision.</P> <P>(f) References to the term “unimpaired capital and unimpaired surplus” shall be deemed to refer to “unimpaired capital and unimpaired surplus” as defined at § 563.93(b)(11) of this part.</P> <CITA>[57 FR 45980, Oct. 6, 1992, as amended at 59 FR 53571, Oct. 25, 1994; 60 FR 66869, Dec. 27, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.47</SECTNO> <SUBJECT>Pension plans.</SUBJECT> <P>(a) <E T="03">General.</E> No savings association or service corporation thereof shall sponsor an employee pension plan which, because of unreasonable costs or any other reason, could lead to material financial loss or damage to the sponsor. For purposes of this section, an employee pension plan is defined in section 3(2) of the Employee Retirement Income Security Act of 1974, as amended. The prospective obligation or liability of a plan sponsor to each plan participant shall be stated in or determinable from the plan, and, for a defined benefit plan, shall also be based upon an actuarial estimate of future experience under the plan.</P> <P>(b) <E T="03">Funding.</E> Actuarial cost methods permitted under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1954, as amended, shall be used to determine plan funding.</P> <P>(c) <E T="03">Plan amendment.</E> A plan may be amended to provide reasonable annual cost-of-living increases to retired participants: <E T="03">Provided,</E> That</P> <P>(1) Any such increase shall be for a period and amount determined by the sponsor's board of directors, but in no event shall it exceed the annual increase in the Consumer Price Index published by the Bureau of Labor Statistics; and</P> <P>(2) No increase shall be granted unless (i) anticipated charges to net income for future periods have first been found by such board of directors to be reasonable and are documented by appropriate resolution and supporting analysis; and (ii) the increase will not reduce the association's regulatory capital below its regulatory capital requirement.</P> <P>(d) <E T="03">Termination.</E> The plan shall permit the sponsor's board of directors and its successors to terminate such plan. Notice of intent to terminate shall be filed with the OTS at least 60 days prior to the proposed termination date.</P> <P>(e) <E T="03">Records.</E> Each savings association or service corporation maintaining a plan not subject to recordkeeping and reporting requirements of the Employee Retirement Income Security Act of 1974, and the Internal Revenue Code of 1954, as amended, shall establish and maintain records containing the following:</P> <P>(1) Plan description;</P> <P>(2) Schedule of participants and beneficiaries;</P> <P>(3) Schedule of participants and beneficiaries' rights and obligations;</P> <P>(4) Plan's financial statements; and</P> <P>(5) Except for defined contribution plans, an opinion signed by an enrolled actuary (as defined by the Employee Retirement Income Security Act of 1974) affirming that actuarial assumptions in the aggregate are reasonable, take into account the plan's experience and expectations, and represent the actuary's best estimate of the plan's projected experiences.</P> <CITA>[59 FR 66159, Dec. 23, 1994]</CITA> </SECTION> </SUBPART> <SUBPART> <PRTPAGE P="183"/> <HD SOURCE="HED">Subpart C—Securities and Borrowings</HD> <SECTION> <SECTNO>§ 563.74</SECTNO> <SUBJECT>Mutual capital certificates.</SUBJECT> <P>(a) <E T="03">General.</E> No savings association that is in the mutual form shall issue mutual capital certificates pursuant to this section or amend the terms of such certificates unless it has obtained written approval of the Office. No approval shall be granted unless the proposed issuance of the mutual capital certificates and the form and manner of filing of the application are in accordance with the provisions of this section.</P> <P>(b) <E T="03">Eligibility Requirements.</E> The Office will consider and process an application for approval of the issuance of mutual capital certificates pursuant to this section only if the issuance is authorized by applicable law and regulation and is not inconsistent with any provision of the applicant's charter, constitution or bylaws.</P> <P>(c) <E T="03">Application form; supporting information.</E> An application for approval of the issuance of mutual capital certificates pursuant to this section shall be in the form prescribed by the Office. Such application and instructions may be obtained from the OTS. Information and exhibits shall be furnished in support of the application in accordance with such instructions, setting forth all of the terms and provisions relating to the proposed issue and showing that all of the requirements of this section have been or will be met.</P> <P>(d) <E T="03">Charter amendment.</E> No application for approval of the issuance of mutual capital certificates pursuant to this section may be filed unless the amendment to the mutual association's charter, constitution or bylaws or other actions conferring such authority shall have been approved pursuant to the procedures and requirements set forth in the mutual association's charter, constitution or bylaws, or as may otherwise be required by applicable law.</P> <P>(e) <E T="03">Filing requirements.</E> The application for issuance of mutual capital certificates shall be publicly filed with the OTS.</P> <P>(f) <E T="03">Supervisory objection.</E> No application or approval of the issuance of mutual capital certificates pursuant to this section shall be approved if, in the opinion of the Office, the policies, condition, or operation of the applicant afford a basis for supervisory objection to the application.</P> <P>(g) <E T="03">Limitation on offering period.</E> Following the date of the approval of the application by the Office, the association shall have an offering period of not more than one year in which to complete the sale of the mutual capital certificates issued pursuant to this section. The Office may in its discretion extend such offering period if a written request showing good cause for such extension is filed with it not later than 30 days before the expiration of such offering period or any extension thereof.</P> <P>(h) <E T="03">Reports.</E> Within 30 days after completion of the sale of mutual capital certificates issued pursuant to this section, the association shall transmit to the OTS a written report stating the total dollar amount of securities sold, and the amount of net proceeds received by the association, and within 90 days it shall transmit a written report stating the number of purchasers.</P> <P>(i) <E T="03">Requirements as to mutual capital certificates</E>—(1) <E T="03">Form of certificate.</E> Each mutual capital certificate and any governing agreement evidencing a mutual capital certificate issued by an association pursuant to this section:</P> <P>(i) Shall bear on its face, in bold-face type, the following legend: “This security is not a savings account or a deposit and it is not insured by the United States or any agency or fund of the United States”; and</P> <P>(ii) Shall clearly state that the certificate is subject to the requirements of § 563.74(i)(2).</P> <P>(2) <E T="03">Legal requirements.</E> Mutual capital certificates issued pursuant to this section shall:</P> <P>(i) Be subordinate to all claims against the association having the same priority as savings accounts, savings certificates, debt obligations or any higher priority;</P> <P>(ii) Not be eligible for use as collateral for any loan made by the issuing association;</P> <P>(iii) Constitute a claim in liquidation not exceeding the face value plus accrued dividends of the certificates, on <PRTPAGE P="184"/>the general reserves, surplus and undivided profits of the association remaining after the payment in full of all savings accounts, savings certificates and debt obligations;</P> <P>(iv) Be entitled to the payment of dividends, which may be fixed, variable, participating, or cumulative, or any combination thereof, only if, when and as declared by the association's board of directors out of funds legally available for that purpose, provided that no dividend may be declared or paid without the approval of the Office if such payment would cause the association to fail to meet its regulatory capital requirement under § 567.2 of this chapter, and provided further that no dividend may be paid if such payment would constitute a violation of 12 U.S.C. 1828(b);</P> <P>(v) Not be redeemable, except: (A) Where the dollar weighted average term of each issue of mutual capital certificates to be redeemed is seven years or more and redemption is to be made pursuant to a redemption schedule; (B) in the event of a merger, consolidation or reorganization approved by the Office; or (C) where the funds for redemption are raised by the issuance of mutual capital certificates approved pursuant to this section, or in conjunction with the issuance of capital stock pursuant to part 563b of this chapter: <E T="03">Provided,</E> that mandatory redemption shall not be required; that mutual capital certificates shall not be redeemable on the demand or at the option of the holder; and that mutual capital certificates shall not receive, benefit from, be credited with or otherwise be entitled to or due payments in or for redemption if such payments would cause the association to fail to meet its regulatory capital requirement under § 567.2 of this chapter; <E T="03">And Provided further,</E> for the purposes of this paragraph (i)(2)(v), the “dollar weighted average term” of an issue of mutual capital certificates shall be the sum of the products calculated for each year that the mutual capital certificates in the issue have been redeemed or are scheduled to be redeemed. Each product shall be calculated by multiplying the number of years of each mutual capital certificate of a given term by a fraction, the numerator of which shall be the total dollar amount of each mutual capital certificate in the issue with the same term and the denominator of which shall be the total dollar amount of mutual capital certificates in the entire issue;</P> <P>(vi) Not have preemptive rights;</P> <P>(vii) Not have voting rights, except that an association may provide for voting rights if:</P> <P>(A) The savings association fails to pay dividends for a minimum of three consecutive dividend periods, and then the holders of the class or classes of mutual capital certificates granted such voting rights, and voting as a single class, with one vote for each outstanding certificate, may elect by a majority vote a maximum of one-third of the association's board of directors, the directors so elected to serve until the next annual meeting of the association succeeding the payment of all current and past dividends;</P> <P>(B) Any merger, consolidation, or reorganization (except in a supervisory case) is sought to be authorized, where the issuing association is not the survivor, provided that the regulatory capital of the resulting association available for payment of any class of mutual capital certificate on liquidation is less than the regulatory capital available for such class prior to the merger, consolidation, or reorganization;</P> <P>(C) Action is sought to be authorized which would create any class of mutual capital certificates having a preference or priority over an outstanding class or classes of mutual capital certificates;</P> <P>(D) Any action is sought to be authorized which would adversely change the specific terms of any class of mutual capital certificates;</P> <P>(E) Action is sought to be authorized which would increase the number of a class of mutual capital certificates, or the number of a class of mutual capital certificates ranking prior to or on parity with another class of mutual capital certificates; or</P> <P>(F) Action is sought which would authorize the issuance of an additional class or classes of mutual capital certificates without the association having met specific financial standards;</P> <P>(viii) Not constitute an obligation of the association and shall confer no <PRTPAGE P="185"/>rights which would give rise to any claim of or action for default;</P> <P>(ix) Not be convertible into any account, security, or interest, except that mutual capital certificates may be surrendered in exchange for preferred stock issued in connection with the conversion of the issuing savings association to the stock form pursuant to part 563b of this chapter, provided that the preferred stock shall have substantially the same voting rights, designations, preferences and relative, participating optional, or other special rights, and qualifications, limitations, and restrictions, as the mutual capital certificates exchanged for the preferred stock.</P> <P>(x) Provide for charging of losses after the exhaustion of all other items in the regulatory capital account.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 13515, Apr. 11, 1990; 57 FR 14345, Apr. 20, 1992; 59 FR 66159, Dec. 23, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.76</SECTNO> <SUBJECT>Offers and sales of securities at an office of a savings association.</SUBJECT> <P>(a) A saving association may not offer or sell debt or equity securities issued by the association or an affiliate of the association at an office of the association; except that equity securities issued by the association or an affiliate in connection with the association's conversion from the mutual to stock form of organization in a conversion approved pursuant to part 563b of this chapter may be offered and sold at the association's offices: <E T="03">Provided,</E> That:</P> <P>(1) The Regional Director does not object on supervisory grounds that the offer and sale of the securities at the offices of the association;</P> <P>(2) No commissions, bonuses, or comparable payments are paid to any employee of the savings association or its affiliates or to any other person in connection with the sale of securities at an office of a savings association; except that compensation and commissions consistent with industry norms may be paid to securities personnel of registered broker-dealers;</P> <P>(3) No offers or sales are made by tellers or at the teller counter, or by comparable persons at comparable locations;</P> <P>(4) Sales activity is conducted in a segregated or separately identifiable area of the savings association's offices apart from the area accessible to the general public for the purposes of making or withdrawing deposits;</P> <P>(5) Offers and sales are made only by regular, full-time employees of the savings association or by securities personnel who are subject to supervision by a registered broker-dealer;</P> <P>(6) An acknowledgment, in the form set forth in paragraph (c) of this section, is signed by any customer to whom the security is sold in the savings association's offices prior to the sale of any such securities;</P> <P>(7) A legend that the security is not a deposit or account and is not federally insured or guaranteed appears conspicuously on the security and in all offering documents and advertisements for the securities; the legend must state in bold or other prominent type at least as large as other textual type in the document that “This security is not a deposit or account and is not federally insured or guaranteed”; and</P> <P>(8) The savings association will be in compliance with its current capital requirements upon completion of the conversion stock offering.</P> <P>(b) Securities sales practices, advertisements, and other sales literature used in connection with offers and sales of securities by savings associations shall be subject to § 563g.10 of this chapter.</P> <P>(c) Offers and sales of securities of a savings association or its affiliates in any office of the savings association must use a one-page, unambiguous, certification in substantially the following form:</P> <HD SOURCE="HD3">FORM OF CERTIFICATION</HD> <EXTRACT> <P>I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name of savings association] OR BY THE FEDERAL GOVERNMENT.</P> <P>If anyone asserts that this security is federally insured or guaranteed, or is as safe as an insured deposit, I should call the Office of Thrift Supervision Regional Director [insert Regional Director's name and telephone number with area code].</P> <P>I further certify that, before purchasing the <E T="03">[description of security being offered]</E> of <E T="03">[name of issuer, name of savings association and affiliation to issuer (if different)]</E>, I received an offering circular.<PRTPAGE P="186"/> </P> <P>The offering circular that I received contains disclosure concerning the nature of the security being offered and describes the risks involved in the investment, including:</P> <P>[List briefly the principal risks involved and cross reference certain specified pages of the offering circular where a more complete description of the risks is made.] </P> <FP SOURCE="FP-DASH">Signature:</FP> <FP SOURCE="FP-DASH">Date:</FP> </EXTRACT> <P>(d) For purposes of this section, an “office” of an association means any premises used by the association that are identified to the public through advertising or signage using the association's name, trade name, or logo.</P> <CITA>[57 FR 46088, Oct. 7, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.80</SECTNO> <SUBJECT>Borrowing limitations.</SUBJECT> <P>(a) <E T="03">General.</E> Except as the Office otherwise may permit by advice in writing, a savings association may borrow only in accordance with the provisions of this section.</P> <P>(b) <E T="03">Amount of borrowing.</E> A savings association may borrow up to the amount authorized by the laws under which the savings association operates.</P> <P>(c) <E T="03">Security.</E> An association may give security for borrowings subject to any requirements imposed by the Office or the FDIC regarding notice of default on borrowings and any FDIC right of first refusal to purchase collateral.</P> <P>(d) <E T="03">Required statement for all securities evidencing outside borrowings.</E> Each security shall bear on its face, in a prominent place, the following legend: </P> <EXTRACT> <P>This security is not a savings account or a deposit and it is not insured by the United States or any agency or fund of the United States. </P> </EXTRACT> <P>(e) <E T="03">Filing requirements for outside borrowings with maturities in excess of one year.</E> (1) Unless the savings association meets its capital requirement under part 567 of this chapter, it shall, at least ten business days prior to issuance, file with the Regional Director or his or her designee a notice of intent to issue securities evidencing such borrowings. Such notice shall contain a summary of the items of the security, including:</P> <P>(i) Principal amount of the securities;</P> <P>(ii) Anticipated interest rate range and price range at which the securities are to be sold;</P> <P>(iii) Minimum denomination;</P> <P>(iv) Stated and average effective maturity;</P> <P>(v) Mandatory and optional prepayment provisions;</P> <P>(vi) Description, amount, and maintenance of collateral if any;</P> <P>(vii) Trustee provisions if any;</P> <P>(viii) Events of default and remedies of default;</P> <P>(ix) Any provisions which restrict, conditionally or otherwise, the operations of the association.</P> <P>(2) The OTS shall have 10 business days after receipt of such filing to object to the issuance of such securities. The OTS shall object if the terms or covenants of the proposed issue place unreasonable burdens on, or control over, the operations of the association. If no objection is taken, the savings association shall have 120 calendar days within which to issue such securities.</P> <P>(f) <E T="03">Note accounts.</E> For purposes of this section, note accounts are not borrowings.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 7300, Mar. 1, 1990; 55 FR 13515, Apr. 11, 1990; 57 FR 14345, Apr. 20, 1992; 57 FR 33438, July 29, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.81</SECTNO> <SUBJECT>Issuance of subordinated debt securities and mandatorily redeemable preferred stock.</SUBJECT> <P>(a) <E T="03">General</E>—(1) <E T="03">Savings associations receiving standard treatment.</E> No savings association subject to standard treatment of its applications, as defined at § 516.3(b) of this chapter, shall issue subordinated debt securities or mandatorily redeemable preferred stock includable in regulatory capital pursuant to this section or amend the terms of such securities unless it has obtained the written approval of the OTS. Approval of the issuance under this section, in order to meet the requirements of § 567.5 of this chapter, may be obtained either before or after the securities are issued. No approval shall be granted unless issuance of the securities and the form and manner of filing of the application are in accordance with the provisions of this section.</P> <P>(2) <E T="03">Savings associations receiving expedited treatment.</E> No savings association eligible for expedited treatment, as defined at § 516.3(a) of this chapter, shall <PRTPAGE P="187"/>issue subordinated debt securities or mandatorily redeemable preferred stock pursuant to this section for inclusion in regulatory capital or amend the terms of such securities unless it provides notice to the OTS, and such notice contains a statement of the association's intent to include such securities in regulatory capital. Notice should be made 30 days in advance of an issuance of subordinated debt securities or mandatorily redeemable preferred stock under this section, if the association intends to qualify such securities or stock as supplementary capital under § 567.5(b)(2) of this chapter. Notice may be made either before or after such securities are issued, but will only be includable in regulatory capital (to the extent permitted by § 567.5(b) of this chapter) if the issuance of the securities and the filing of the notice are in accordance with the provisions of this section and the savings association certifies, in writing, to the Office that all regulatory requirements have been met. The Office reserves the right to determine after the 30-day notice period has expired that the issuance does not comply with the requirements of this section or those of Part 567 for inclusion in capital.</P> <P>(b) <E T="03">Eligibility requirements.</E> In determining whether an issuance of subordinated debt securities or mandatorily redeemable preferred stock is includable in the regulatory capital of a savings association pursuant to this section, the OTS will consider the following factors:</P> <P>(1) Whether the issuance of such securities by the savings association is authorized by applicable law and regulation and is not inconsistent with any provision of the savings association's charter or bylaws. Proof of such provision shall be submitted with the notice or application;</P> <P>(2)(i) Whether, in the opinion of the OTS the overall policies, condition and operation of the savings association do not afford a basis for supervisory objection to the application or notice. The OTS shall establish guidelines that shall identify supervisory bases that may be used to object to the inclusion of specific subordinated debt and preferred stock issuances as regulatory capital. Such guidelines shall constitute illustrative but not exclusive bases for supervisory objection to subordinated debt and mandatorily redeemable preferred stock applications and notices. Such bases for supervisory objection may include, but are not limited to instances where:</P> <P>(A) Regulatory capital, without regard to the amount of any subordinated debt and mandatorily redeemable preferred stock to be included in regulatory capital, does not meet the requirements of § 567.2 of this chapter;</P> <P>(B) Actual and expected losses have not been offset by specific and general valuation allowances to the extent required pursuant to § 563.160 and § 563.172 of this part; and</P> <P>(C) Actual and anticipated income from operations, after distribution of earnings to the holders of savings accounts, payment of dividends on outstanding equity securities and payment of interest on borrowings but before income taxes, is not demonstrably sufficient for payment of dividends and redemption price, discount and related expenses of the proposed issuance.</P> <P>(ii) The OTS may modify the guidelines in paragraph (b)(2)(i) of this section from time to time, as appropriate, and any such changes shall be effective for those applications and notices filed after the date of the changes to the guidelines and for those applications and notices submitted to the OTS but not yet deemed “complete.”</P> <P>(3) Whether the issuance of such securities by the savings association in the transaction and any related transactions will result in a transfer of risk from the Savings Association Insurance Fund or the Bank Insurance Fund, as the case may be, to parties other than savings associations. In this connection, the issuance of subordinated debt securities shall not be deemed to result in a sufficient transfer of risk if such securities or any indenture or related agreement pursuant to which they are issued provides for events of default or includes other provisions that could result in a mandatory prepayment of principle by declaration or otherwise, other than events of default arising out of the obligor's failure to make timely payment of interest and principal, its failure to <PRTPAGE P="188"/>comply with reasonable financial, operating and maintenance covenants of a type that are customarily included in indentures relating to publicly offered issues of debt securities, and events of default relating to certain events of bankruptcy or insolvency, receivership and similar events.</P> <P>(c) <E T="03">Form of application or notice; supporting information.</E> Applications subject to standard treatment under § 516.3(b) of this chapter, or notices eligible for expedited treatment under § 516.3(a) of this chapter, pursuant to this section, shall be in the form prescribed by the OTS. The form of application and instructions for a savings association subject to standard treatment, and instructions for a notice by a savings association subject to expedited treatment, may be obtained from the OTS. Information and exhibits shall be furnished in support of an application or notice in accordance with the applicable instructions, setting forth all of the terms and provisions relating to the proposed issuance and showing that all of the requirements of this section have been or will be met.</P> <P>(d) <E T="03">Requirements as to securities.</E> Subordinated debt securities and mandatorily redeemable preferred stock issued pursuant to this section shall meet all of the following requirements unless one or more of such requirements, not including paragraphs (d)(1)(i)(A) and (d)(1)(ii) of this section which are not eligible for waiver, are waived by the OTS:</P> <P>(1) <E T="03">Form of certificate.</E> Each certificate evidencing subordinated debt or mandatorily redeemable preferred stock issued by a savings association pursuant to this section shall:</P> <P>(i) Bear on its face, in bold-face type, the following legends:</P> <P>(A) “This security is not a savings account or deposit and it is not insured by the United States or any agency or fund of the United States”; and</P> <P>(B) “Absent prior written approval by the Office, this security is not eligible for purchase by any savings association or a corporate affiliate thereof, except that this security may be purchased by a corporate affiliate of the issuer or by any diversified savings and loan holding company and any non-savings association subsidiary thereof.”</P> <P>(ii) Clearly state that the security—</P> <P>(A) Is subordinated on liquidation, as to principal, interest, and premium, if any, to all claims (including post-default interest) against the savings association having the same priority as savings account holders or any higher priority;</P> <P>(B) Is unsecured by the assets of the issuing association, or any of its affiliates; and</P> <P>(C) Is not eligible as collateral for any loan by the issuing association.</P> <P>(iii) In connection only with a certificate evidencing subordinated debt, state or refer to a document stating the terms under which the issuing savings association may prepay the obligation, which shall include at least the right to prepay without premium or other penalty during the fifteen months immediately prior to the maturity date;</P> <P>(iv) State or refer to a document stating that, in connection with a certificate evidencing subordinated debt, no voluntary prepayment of principal shall be made and that no payment of principal shall be accelerated and, in connection with a certificate evidencing mandatorily redeemable preferred stock, no voluntary redemption, other than scheduled redemptions, shall be made without the approval of the OTS if the savings association is failing to meet its regulatory capital requirements under part 567 of this chapter or, if after giving effect to such payment, the association would fail to meet such regulatory capital requirements;</P> <P>(v) State the limitations upon payment of interest or dividends, as appropriate imposed by 12 U.S.C. 1828(b); and</P> <P>(vi) In connection only with a certificate evidencing subordinated debt, set forth, in the certificate and the purchase agreement or indenture, precisely the following statement: </P> <EXTRACT> <P>Notwithstanding anything to the contrary in this certificate (or in any related document); (A) if the FDIC shall be appointed receiver for the issuer of this certificate (the “issuer”) and in its capacity as such shall cause the issuer to merge with or into another financial institution, or in such capacity shall sell or otherwise convey part or all of the assets of the issuer to another financial institution or shall arrange for the assumption of less than all of the liabilities of <PRTPAGE P="189"/>the issuer by one or more other financial institutions, the FDIC shall have no obligation, either in its capacity as receiver or in its corporate capacity, to contract for or to otherwise arrange for the assumption of the obligation represented by this certificate in whole or in part by any financial institution or institutions which results from any such merger or which has purchased or otherwise acquired from the FDIC as receiver for the issuer, any of the assets of the issuer, or which, pursuant to any arrangement with the FDIC, has assumed less than all of the liabilities of the issuer. To the extent that obligations represented by this certificate have not been assumed in full by a financial institution with or into which the issuer may have been merged, as described in this paragraph (A), and/or by one or more financial institutions which have succeeded to all or a portion of the assets of the issuer, or which have assumed a portion but not all of the liabilities of the issuer as a result of one or more transactions entered into by the FDIC as receiver for the issuer, then the holder of this certificate shall be entitled to payments on this obligation in accordance with the procedures and priorities set forth in any applicable receivership regulations or in orders of the FDIC relating to such receivership.</P> <P>(B) In the event that the obligation represented by this certificate is assumed in full by another financial institution, which shall succeed by merger or otherwise to substantially all of the assets and the business of the issuer, or which shall by arrangement with the FDIC assume all or a portion of the liabilities of the issuer, and payment or provision for payment shall have been made in respect of all matured installments of interests upon the certificates together with all matured installments of principal on such certificates which shall have become due otherwise than by acceleration, then any default caused by the appointment of a receiver for the issuer shall be deemed to have been cured, and any declaration consequent upon such default declaring the principal and interest on the certificate to be immediately due and payable shall be deemed to have been rescinded.</P> <P>(C) This security is not eligible to be purchased or held by any savings association or corporate affiliate thereof except that this security may be purchased or held by a corporate affiliate of the issuer or by a diversified savings and loan holding company and its non-savings association subsidiaries. The issuer of this security may not recognize on its transfer books any transfer made to a savings association or any corporate affiliate thereof (except as provided in the preceding sentence) and will not be obligated to make any payments of principal or interest on this security if the owner of this security is a savings association or any corporate affiliate thereof (except as provided in the preceding sentence).</P> </EXTRACT> <P>(2) <E T="03">Limitation as to term.</E> No subordinated debt security or mandatorily redeemable preferred stock issued by a savings association pursuant to this section shall have an original period to maturity or required redemption of less than seven years. During the first six years that such a security is outstanding, the total of all required sinking fund payments, other required prepayments, required purchase-fund payments, required reserve allocations and required redemptions with respect to the portion of such six years as have elapsed shall at no time exceed the original principal amount or original redemption price, thereof multiplied by a fraction, the numerator of which is the number of years that have elapsed since the issuance of the security and the denominator of which is the number of years covered by the original period to maturity or required redemption.</P> <P>(3) <E T="03">Limitations on sale to certain associations.</E> (i) No savings association may sell any subordinated debt securities issued pursuant to this section to a Federal Home Loan Bank or, except with prior written approval of the Office in a supervisory case, to the FDIC; and</P> <P>(ii) Without the prior written approval of the Office, no savings association may sell, either directly or indirectly through an underwriter or otherwise, any subordinated debt securities issued pursuant to this section to a savings association or any corporate affiliate thereof, except that a savings association may sell such securities to its corporate affiliates or to a diversified savings and loan holding company and its non-savings association subsidiaries.</P> <P>(4) <E T="03">Indenture.</E> An issuer must use an indenture, as described herein, for subordinated debt securities offered pursuant to this section. Such an indenture must provide for the appointment of a trustee other than the obligor or an affiliate of the obligor (as defined in 12 CFR 583.2) and provide for the collective enforcement of the rights and remedies of the security holders, if the aggregate amount of debt securities “publicly offered” (sales in a private <PRTPAGE P="190"/>non-public offering as defined in 12 CFR 563g.4 are excluded) and sold by a single obligor in any consecutive twelve month period exceeds $2,000,000 and/or $5,000,000 in any consecutive thirty-six month period.</P> <P>(e) [Reserved]</P> <P>(f) <E T="03">Additional requirements.</E> The Office may impose on the savings association such requirements or conditions with regard to the securities or the offering or issuance thereof as it may deem necessary or desirable for the protection of purchasers, the savings association, the Office, or the Savings Association Insurance Fund or the Bank Insurance Fund, as the case may be.</P> <P>(g) <E T="03">Limitation on offering period.</E> Following the date of approval of an application by a savings association subject to standard treatment by the OTS, or the earlier of the date of non-objection by the OTS of a notice by a savings association eligible for expedited treatment or 30 days after submission of a notice by such a savings association, unless the OTS has rejected such notice or issued a request for additional information on such notice, the association shall have an offering period of not more than one year in which to complete the sale of the subordinated debt securities or mandatorily redeemable preferred stock issued pursuant to this section. The Office may in its discretion extend such offering period if a written request showing good cause for such extension is filed with it not later than 30 days before the expiration of such offering period or any previous extension thereof.</P> <P>(h) <E T="03">Reports.</E> Within 30 days after completion of the sale of the subordinated debt securities or mandatorily redeemable preferred stock issued pursuant to this section, the savings association shall transmit a written report to the OTS stating the number of purchases, the total dollar amount of securities sold, and the amount of net proceeds received by the savings association. The association's report shall clearly state the amount of subordinated debt or mandatorily redeemable preferred stock, net of all expenses, that the association intends to be counted as regulatory capital.</P> <P>(i)—(j) [Reserved]</P> <P>(k) <E T="03">Conditions of approval and acceptance for subordinated debt and mandatorily redeemable preferred stock applications and notices.</E> Issuance of subordinated debt and mandatorily redeemable preferred stock applications and notices shall be subject to the following conditions:</P> <P>(1) Where securities are to be sold pursuant to an offering circular required to be filed with the OTS pursuant to 12 CFR 563g.2, and where such offering circular has not yet been declared effective prior to the date of approval of or nonobjection to the subordinated debt or preferred stock application or notice, the offering circular in the form declared effective shall not disclose any material adverse information concerning the savings association's business, operations, prospects, or financial condition not disclosed in the latest form of offering circular filed as an exhibit to the application or notice;</P> <P>(2) The savings association shall submit to the OTS no later than 30 days from the completion of the sale of the securities, certification of compliance with all applicable laws and regulations in connection with the offering, issuance, and sale of the securities;</P> <P>(3) The savings association shall submit to the OTS no later than 30 days from the completion of the sale of the securities, the report(s) required by paragraph (h) of this section and the following additional items:</P> <P>(i) Three copies of an executed form of the securities issued pursuant to the subject application or notice and a copy of any related agreement or indenture governing the issuance of securities; and</P> <P>(ii) A certificate from the principal executive officer of the savings association that states that to the best of his or her knowledge, none of the securities issued pursuant to the subject application or notice were sold to any association whose accounts are insured by the Savings Association Insurance Fund, or a corporate affiliate thereof, except as permitted by 12 CFR 563.81;</P> <P>(4) That as of the date of approval or nonobjection, there have been no material changes with respect to the information disclosed in the application or notice as submitted to the OTS;<PRTPAGE P="191"/> </P> <P>(5) The savings association receives prior written approval or nonobjection from the OTS for any post-approval amendment to the securities or any related indenture if:</P> <P>(i) The proposed amendment modifies or is inconsistent with any provision of the securities, or the indenture that is required to be included therein by the OTS's regulations as may then be in effect or would result in a transfer of risk to the savings association or the Savings Association Insurance Fund or the Bank Insurance Fund, as appropriate; and</P> <P>(ii) All or a portion of the proceeds from the issuance and sale of the securities would continue to be included in the regulatory capital of the savings association following adoption of the amendment;</P> <P>(6) The savings association shall submit to the OTS promptly after execution, one copy of each amendment to the securities or the related indenture, made after approval or nonobjection, and if prior approval of or nonobjection to such amendment was not obtained, shall also state the reason(s) such prior approval or nonobjection was not required; and</P> <P>(7) Before any offers or sales of the securities are made on the premises of the association or its affiliates, the savings association shall submit to the OTS a set of policies and procedures for such sale of the securities satisfactory to the OTS.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 13515, Apr. 11, 1990; 57 FR 14345, Apr. 20, 1992; 62 FR 66262, Dec. 18, 1997]</CITA> </SECTION> </SUBPART> <SUBPART> <RESERVED>Subpart D [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Capital Distributions</HD> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>64 FR 2809, Jan. 19, 1999, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 563.140</SECTNO> <SUBJECT>What does this subpart cover?</SUBJECT> <P>This subpart applies to all capital distributions by a savings association (“you”).</P> </SECTION> <SECTION> <SECTNO>§ 563.141</SECTNO> <SUBJECT>What is a capital distribution?</SUBJECT> <P>A capital distribution is:</P> <P>(a) A distribution of cash or other property to your owners made on account of their ownership, but excludes:</P> <P>(1) Any dividend consisting only of your shares or rights to purchase your shares; or</P> <P>(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;</P> <P>(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 § 567.5 of this chapter, and any extension of credit to finance an affiliate's acquisition of your shares or interests;</P> <P>(c) Any direct or indirect payment of cash or other property to owners or affiliates made in connection with a corporate restructuring. This includes your payment of cash or property to shareholders of another association or to shareholders of its holding company to acquire ownership in that association, other than by a distribution of shares;</P> <P>(d) Any other distribution charged against your capital accounts if you would not be well capitalized, as set forth in § 565.4(b)(1) of this chapter, following the distribution; and</P> <P>(e) Any transaction that the OTS or the Corporation determines, by order or regulation, to be in substance a distribution of capital.</P> </SECTION> <SECTION> <SECTNO>§ 563.142</SECTNO> <SUBJECT>What other definitions apply to this subpart?</SUBJECT> <P>The following definitions apply to this subpart:</P> <P> <E T="03">Affiliate</E> means an affiliate, as defined under § 563.41(b) of this part.</P> <P> <E T="03">Capital</E> means total capital, as defined under § 567.5(c) of this chapter.</P> <P> <E T="03">Net income</E> means your net income computed in accordance with generally accepted accounting principles.</P> <P> <E T="03">Retained net income</E> means your net income for a specified period less total capital distributions declared in that period.<PRTPAGE P="192"/> </P> <P> <E T="03">Shares</E> 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.</P> </SECTION> <SECTION> <SECTNO>§ 563.143</SECTNO> <SUBJECT>Must I file with the OTS?</SUBJECT> <P>Whether and what you must file with the OTS depends on whether you and your proposed capital distribution fall within certain criteria.</P> <P>(a) <E T="03">Application required.</E> </P> <GPOTABLE CDEF="s100,xls190" COLS="2" OPTS="L3,g1,t1,bl"> <BOXHD> <CHED H="1">If:</CHED> <CHED H="1">Then you:</CHED> </BOXHD> <ROW RUL="s"> <ENT I="01">(1) You are not eligible for expedited treatment under § 516.3(a) of this chapter</ENT> <ENT>Must file an application with the OTS.</ENT> </ROW> <ROW RUL="s"> <ENT I="01">(2) The total amount of all of your capital distributions (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</ENT> <ENT>Must file an application with the OTS.</ENT> </ROW> <ROW RUL="s"> <ENT I="01">(3) You would not be at least adequately capitalized, as set forth in § 565.4(b)(2) of this chapter, following the distribution</ENT> <ENT>Must file an application with the OTS.</ENT> </ROW> <ROW> <ENT I="01">(4) Your proposed capital distribution would violate a prohibition 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</ENT> <ENT>Must file an application with the OTS.</ENT> </ROW> </GPOTABLE> <P>(b) <E T="03">Notice required.</E> </P> <GPOTABLE CDEF="s100,xls190" COLS="2" OPTS="L3,g1,t1,bl"> <BOXHD> <CHED H="1">If you are not required to file an application under paragraph (a) of this section, but:</CHED> <CHED H="1">Then you:</CHED> </BOXHD> <ROW RUL="s"> <ENT I="01">(1) You would not be well capitalized, as set forth under § 565.4(b)(1), following the distribution</ENT> <ENT>Must file a notice with the OTS.</ENT> </ROW> <ROW RUL="s"> <ENT I="01">(2) Your proposed capital distribution would reduce the amount of 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 § 563.81)</ENT> <ENT>Must file a notice with the OTS.</ENT> </ROW> <ROW> <ENT I="01">(3) You are a subsidiary of a savings and loan holding company</ENT> <ENT>Must file a notice with the OTS.</ENT> </ROW> </GPOTABLE> <P>(c) <E T="03">No prior notice required.</E> </P> <GPOTABLE CDEF="s100,xls190" COLS="2" OPTS="L3,p1,7/8,g1,t1,b1"> <BOXHD> <CHED H="1"/> <CHED H="1"/> </BOXHD> <ROW> <ENT I="01">If neither you nor your proposed capital distribution meet any of the criteria listed in paragraphs (a) and (b) of this section</ENT> <ENT>Then you do not need to file a notice or an application with the OTS before making a capital distribution.</ENT> </ROW> </GPOTABLE> </SECTION> <SECTION> <PRTPAGE P="193"/> <SECTNO>§ 563.144</SECTNO> <SUBJECT>How do I file with the OTS?</SUBJECT> <P>(a) <E T="03">Contents.</E> Your notice or application must:</P> <P>(1) Be in narrative form.</P> <P>(2) Include all relevant information concerning the proposed capital distribution, including the amount, timing, and type of distribution.</P> <P>(3) Demonstrate compliance with § 563.146.</P> <P>(b) <E T="03">Schedules.</E> Your notice or application may include a schedule proposing capital distributions over a specified period, not to exceed 12 months.</P> <P>(c) <E T="03">Timing.</E> 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.</P> </SECTION> <SECTION> <SECTNO>§ 563.145</SECTNO> <SUBJECT>May I combine my notice or application with other notices or applications?</SUBJECT> <P>You may combine the notice or application required under § 563.143 with any other notice or application, if the capital distribution is a part of, or is proposed in connection with, another transaction requiring a notice or application under this chapter. If you submit a combined filing, you must:</P> <P>(a) State that the related notice or application is intended to serve as a notice or application under this subpart; and</P> <P>(b) Submit the notice or application in a timely manner.</P> </SECTION> <SECTION> <SECTNO>§ 563.146</SECTNO> <SUBJECT>Will the OTS permit my capital distribution?</SUBJECT> <P>The OTS will review your notice or application under the review procedures in 12 CFR part 516, subpart A. The OTS may disapprove your notice or deny your application filed under § 563.143, in whole or in part, if the OTS makes any of the following determinations.</P> <P>(a) You will be undercapitalized, significantly undercapitalized, or critically undercapitalized as set forth in § 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).</P> <P>(b) Your proposed capital distribution raises safety or soundness concerns.</P> <P>(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.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart F—Financial Management Policies</HD> <SECTION> <SECTNO>§ 563.161</SECTNO> <SUBJECT>Management and financial policies.</SUBJECT> <P>(a) For the protection of its account holders and other savings associations each savings association and service corporation thereof shall maintain safe and sound management and shall pursue financial policies that are safe and consistent with economical home financing and the purposes of federal savings associations and are appropriate to their respective types of operations; in implementing this regulation the Office will take into consideration that service corporations may be authorized to engage in activities which involve a higher degree of risk than do activities permitted to savings associations.</P> <P>(b) Compensation to officers, directors, and employees of each savings association and its service corporations shall not be in excess of that which is reasonable and commensurate with their duties and responsibilities. Former officers, directors, and employees of savings association or its service corporation who regularly perform services therefor under consulting contracts are employees thereof for purposes of this paragraph (b).</P> </SECTION> <SECTION> <SECTNO>§ 563.170</SECTNO> <SUBJECT>Examinations and audits; appraisals; establishment and maintenance of records.</SUBJECT> <P>(a) <E T="03">Examinations and audits.</E> Each savings association and affiliate thereof shall be examined periodically, and may be examined at any time, by the Office, with appraisals when deemed advisable, in accordance with general policies from time to time established by the Office. The costs, as computed by the Office, of any examinations made by it, including office analysis, <PRTPAGE P="194"/>overhead, per diem, travel expense, other supervision by the Office, and other indirect costs, shall be paid by the savings associations examined, except that in the case of service corporations of Federal savings associations the cost of examinations, as determined by the Office, shall be paid by the service corporations. Payments shall be made in accordance with a schedule of annual assessments based upon each savings association's total assets and of rates for examiner time in amounts determined by the Office.</P> <P>(b) <E T="03">Appraisals.</E> (1) Unless otherwise ordered by the Office, appraisal of real estate by the Office in connection with any examination or audit of a savings association, affiliate, or service corporation shall be made by an appraiser, or by appraisers, selected by the Office's Regional Director of the Region in which such savings association is located. The cost of such appraisal shall promptly be paid by such savings association, affiliate, or service corporation direct to such appraiser or appraisers upon receipt by the savings association, affiliate, or service corporation of a statement of such cost as approved by such Regional Director. A copy of the report of each appraisal made by the Office pursuant to any of the foregoing provisions of this section shall be furnished to the savings association, affiliate, or service corporation, as appropriate within a reasonable time, not to exceed 90 days, following the completion of such appraisals and the filing of a report thereof by the appraiser, or appraisers, with such Regional Director.</P> <P>(2) The Office may obtain at any time, at its expense, such appraisals of any of the assets, including the security therefor, of a savings association, affiliate, or service corporation as the Office deems appropriate.</P> <P>(c) <E T="03">Establishment and maintenance of records.</E> To enable the Office to examine savings associations and affiliates and audit savings associations, affiliates, and service corporations pursuant to the provisions of paragraph (a) of this section, each savings association, affiliate, and service corporation shall establish and maintain such accounting and other records as will provide an accurate and complete record of all business it transacts. This includes, without limitation, establishing and maintaining such other records as are required by statute or any other regulation to which the savings association, affiliate, or service corporation is subject. The documents, files, and other material or property comprising said records shall at all times be available for such examination and audit wherever any of said records, documents, files, material, or property may be.</P> <P>(d) <E T="03">Change in location of records.</E> A savings association shall not transfer the location of any of its general accounting or control records, or the maintenance thereof, from its home office to a branch or service office, or from a branch or service office to its home office or to another branch or service office unless prior to the date of transfer its board of directors has:</P> <P>(1) By resolution authorized the transfer or maintenance and;</P> <P>(2) Sent a certified copy of the resolution to the Regional Director of the OTS Region in which the principal office of the savings association is located.</P> <P>(e) <E T="03">Use of data processing services for maintenance of records.</E> A savings association which determines to maintain any of its records by means of data processing services shall so notify the Regional Director of the Region in which the principal office of such savings association is located, in writing, at least 90 days prior to the date on which such maintenance of records will begin. Such notification shall include identification of the records to be maintained by data processing services and a statement as to the location at which such records will be maintained. Any contract, agreement, or arrangement made by a savings association pursuant to which data processing services are to be performed for such savings association shall be in writing and shall expressly provide that the <PRTPAGE P="195"/>records to be maintained by such services shall at all times be available for examination and audit.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 55 FR 34547, Aug. 23, 1990; 57 FR 14335, Apr. 20, 1992; 57 FR 40092, Sept. 2, 1992; 58 FR 28348, May 13, 1993; 59 FR 29502, June 7, 1994; 59 FR 53571, Oct. 25, 1994; 59 FR 60304, Nov. 23, 1994; 60 FR 66718, Dec. 26, 1995; 61 FR 50984, Sept. 30, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.171</SECTNO> <SUBJECT>Frequency of safety and soundness examination.</SUBJECT> <P>(a) <E T="03">General.</E> The OTS examines savings associations pursuant to authority conferred by 12 U.S.C. 1463 and the requirements of 12 U.S.C. 1820(d). The OTS is required to conduct a full-scope, on-site examination of every savings association at least once during each 12-month period.</P> <P>(b) <E T="03">18-month rule for certain small institutions.</E> The OTS may conduct a full-scope, on-site examination of a savings association at least once during each 18-month period, rather than each 12-month period as provided in paragraph (a) of this section, if the following conditions are satisfied:</P> <P>(1) The savings association has total assets of $250 million or less;</P> <P>(2) The savings association is well capitalized as defined in § 565.4 of this chapter;</P> <P>(3) At its most recent examination, the OTS found the savings association to be well managed;</P> <P>(4) At its most recent examination, the OTS assigned the savings association a composite rating of 1 or 2, as defined in § 516.3(c) of this chapter;</P> <P>(5) The savings association currently is not subject to a formal enforcement proceeding or order; and</P> <P>(6) No person acquired control of the savings association during the preceding 12-month period in which a full-scope, on-site examination would have been required but for this section.</P> <P>(c) <E T="03">Authority to conduct more frequent examinations.</E> This section does not limit the authority of the OTS to examine any savings association as frequently as the agency deems necessary.</P> <CITA>[63 FR 16381, Apr. 2, 1998, as amended at 64 FR 69185, Dec. 10, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.172</SECTNO> <SUBJECT>Financial derivatives.</SUBJECT> <P>(a) <E T="03">What is a financial derivative?</E> A financial derivative is a financial contract whose value depends on the value of one or more underlying assets, indices, or reference rates. The most common types of financial derivatives are futures, forward commitments, options, and swaps. A mortgage derivative security, such as a collateralized mortgage obligation or a real estate mortgage investment conduit, is not a financial derivative under this section.</P> <P>(b) <E T="03">May I engage in transactions involving financial derivatives?</E> (1) If you are a Federal savings association, you may engage in a transaction involving a financial derivative if you are authorized to invest in the assets underlying the financial derivative, the transaction is safe and sound, and you otherwise meet the requirements in this section.</P> <P>(2) If you are a state-chartered savings association, you may engage in a transaction involving a financial derivative if your charter or applicable State law authorizes you to engage in such transactions, the transaction is safe and sound, and you otherwise meet the requirements in this section.</P> <P>(3) In general, if you engage in a transaction involving a financial derivative, you should do so to reduce your risk exposure.</P> <P>(c) <E T="03">What are my board of directors' responsibilities with respect to financial derivatives?</E> (1) Your board of directors is responsible for effective oversight of financial derivatives activities.</P> <P>(2) Before you may engage in any transaction involving a financial derivative, your board of directors must establish written policies and procedures governing authorized financial derivatives. Your board of directors should review Thrift Bulletin 13a, “Management of Interest Rate Risk, Investment Securities, and Derivatives Activities,” and other applicable agency guidance on establishing a sound risk management program.</P> <P>(3) Your board of directors must periodically review:</P> <P>(i) Compliance with the policies and procedures established under paragraph (c)(2) of this section; and</P> <P>(ii) The adequacy of these policies and procedures to ensure that they <PRTPAGE P="196"/>continue to be appropriate to the nature and scope of your operations and existing market conditions.</P> <P>(4) Your board of directors must ensure that management establishes an adequate system of internal controls for transactions involving financial derivatives.</P> <P>(d) <E T="03">What are management's responsibilities with respect to financial derivatives?</E> (1) Management is responsible for daily oversight and management of financial derivatives activities. Management must implement the policies and procedures established by the board of directors and must establish a system of internal controls. This system of internal controls should, at a minimum, provide for periodic reporting to the board of directors and management, segregation of duties, and internal review procedures.</P> <P>(2) Management must ensure that financial derivatives activities are conducted in a safe and sound manner and should review Thrift Bulletin 13a, “Management of Interest Rate Risk, Investment Securities, and Derivatives Activities” (available at the address listed at § 516.1 of this chapter), and other applicable agency guidance on implementing a sound risk management program.</P> <P>(e) <E T="03">What records must I keep on financial derivative transactions?</E> You must maintain records adequate to demonstrate compliance with this section and with your board of directors' policies and procedures on financial derivatives.</P> <CITA>[63 FR 66349, Dec. 1, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.176</SECTNO> <SUBJECT>Interest-rate-risk-management procedures.</SUBJECT> <P>Savings associations shall take the following actions:</P> <P>(a) The board of directors or a committee thereof shall review the savings association's interest-rate-risk exposure and devise a policy for the savings association's management of that risk.</P> <P>(b) The board of directors shall formerly adopt a policy for the management of interest-rate risk. The management of the savings association shall establish guidelines and procedures to ensure that the board's policy is successfully implemented.</P> <P>(c) The management of the savings association shall periodically report to the board of directors regarding implementation of the savings association's policy for interest-rate-risk management and shall make that information available upon request to the Office.</P> <P>(d) The savings association's board of directors shall review the results of operations at least quarterly and shall make such adjustments as it considers necessary and appropriate to the policy for interest-rate-risk management, including adjustments to the authorized acceptable level of interest-rate risk.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 58 FR 45813, Aug. 31, 1993; 59 FR 53571, Oct. 25, 1994]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.177</SECTNO> <SUBJECT>Procedures for monitoring Bank Secrecy Act compliance.</SUBJECT> <P>(a) <E T="03">Purpose.</E> The purpose of this regulation is to require savings associations (as defined by § 561.43 of this chapter) to establish and maintain procedures reasonably designed to assure and monitor compliance with the requirements of subchapter II of chapter 53 of title 31, United States Code, and the implementing regulations promulgated thereunder by the U.S. Department of Treasury, 31 CFR part 103.</P> <P>(b) <E T="03">Compliance procedure.</E> On or before April 27, 1987, each savings association shall develop and provide for the continued administration of a program reasonably designed to assure and monitor compliance with the recordkeeping and reporting requirements set forth in subchapter II of chapter 53 of title 31, United States Code, and the implementing regulations promulgated thereunder by the Department of Treasury, 31 CFR part 103. The compliance program shall be reduced to writing, approved by the savings association's board of directors, and reflected in the minutes of the savings association.</P> <P>(c) <E T="03">Contents of compliance program.</E> The compliance program shall, at a minimum:</P> <P>(1) Provide for a system of internal controls to assure ongoing compliance;</P> <P>(2) Provide for independent testing for compliance to be conducted by a savings association's in-house personnel or by an outside party;<PRTPAGE P="197"/> </P> <P>(3) Designate individual(s) responsible for coordinating and monitoring day-to-day compliance; and</P> <P>(4) Provide training for appropriate personnel.</P> <APPRO>(Approved by the Office of Management and Budget under control number 3068-0530)</APPRO> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart G—Reporting and Bonding</HD> <SECTION> <SECTNO>§ 563.180</SECTNO> <SUBJECT>Suspicious Activity Reports and other reports and statements.</SUBJECT> <P>(a) <E T="03">Periodic reports.</E> Each savings association and service corporation thereof shall make such periodic or other reports of its affairs in such manner and on such forms as the Office may prescribe. The Office may provide that reports filed by savings associations or service corporations to meet the requirements of other regulations also satisfy requirements imposed under this section.</P> <P>(b) <E T="03">False or misleading statements or omissions.</E> No savings association or director, officer, agent, employee, affiliated person, or other person participating in the conduct of the affairs of such association nor any person filing or seeking approval of any application shall knowingly:</P> <P>(1) Make any written or oral statement to the Office or to an agent, representative or employee of the Office that is false or misleading with respect to any material fact or omits to state a material fact concerning any matter within the jurisdiction of the Office; or</P> <P>(2) Make any such statement or omission to a person or organization auditing a savings association or otherwise preparing or reviewing its financial statements concerning the accounts, assets, management condition, ownership, safety, or soundness, or other affairs of the association.</P> <P>(c) <E T="03">Notifications of loss and reports of increase in deductible amount of bond.</E> A savings association maintaining bond coverage as required by § 563.190 of this part shall promptly notify its bond company and file a proof of loss under the procedures provided by its bond, concerning any covered losses greater than twice the deductible amount. Whenever a deductible amount specified in a bond is increased above the permissible deductible amount specified in the table in § 563.190(b) of this part, the affected savings association or service corporation shall report promptly the facts concerning such increase in writing to the OTS.</P> <P>(d) <E T="03">Suspicious Activity Reports—</E>(1) <E T="03">Purpose and scope.</E> This paragraph (d) ensures that savings associations and service corporations file a Suspicious Activity Report when they detect a known or suspected violation of Federal law or a suspicious transaction related to a money laundering activity or a violation of the Bank Secrecy Act.</P> <P>(2) <E T="03">Definitions.</E> For the purposes of this paragraph (d):</P> <P>(i) <E T="03">FinCEN</E> means the Financial Crimes Enforcement Network of the Department of the Treasury.</P> <P>(ii) <E T="03">Institution-affiliated party</E> means any institution-affiliated party as that term is defined in sections 3(u) and 8(b)(9) of the Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(9)).</P> <P>(iii) <E T="03">SAR</E> means a Suspicious Activity Report on the form prescribed by the OTS.</P> <P>(3) <E T="03">SARs required.</E> A savings association or service corporation shall file a SAR with the appropriate Federal law enforcement agencies and the Department of the Treasury in accordance with the form's instructions, by sending a completed SAR to FinCEN in the following circumstances:</P> <P>(i) <E T="03">Insider abuse involving any amount.</E> Whenever the savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation, where the savings association or service corporation believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that it was used to facilitate a criminal transaction, and it has a substantial basis for identifying one of its directors, officers, employees, agents or other institution-affiliated parties as having committed or aided in the commission of a criminal act, regardless of the amount involved in the violation.<PRTPAGE P="198"/> </P> <P>(ii) <E T="03">Violations aggregating $5,000 or more where a suspect can be identified.</E> Whenever the savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation and involving or aggregating $5,000 or more in funds or other assets, where the savings association or service corporation believes that it was either an actual or potential victim of a criminal violation or series of criminal violations, or that it was used to facilitate a criminal transaction, and it has a substantial basis for identifying a possible suspect or group of suspects. If it is determined prior to filing this report that the identified suspect or group of suspects has used an alias, then information regarding the true identity of the suspect or group of suspects, as well as alias identifiers, such as drivers' license or social security numbers, addresses and telephone numbers, must be reported.</P> <P>(iii) <E T="03">Violations aggregating $25,000 or more regardless of potential suspects.</E> Whenever the savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation and involving or aggregating $25,000 or more in funds or other assets, where the savings association or service corporation believes that it was either an actual or potential victim of a criminal violation or series of criminal violations, or that it was used to facilitate a criminal transaction, even though there is no substantial basis for identifying a possible suspect or group of suspects.</P> <P>(iv) <E T="03">Transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act.</E> Any transaction (which for purposes of this paragraph (d)(3)(iv) means a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument or investment security, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected) conducted or attempted by, at or through the savings association or service corporation and involving or aggregating $5,000 or more in funds or other assets, if the savings association or service corporation knows, suspects, or has reason to suspect that:</P> <P>(A) The transaction involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any law or regulation or to avoid any transaction reporting requirement under Federal law;</P> <P>(B) The transaction is designed to evade any regulations promulgated under the Bank Secrecy Act; or</P> <P>(C) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.</P> <P>(4) <E T="03">Service corporations.</E> When a service corporation is required to file a SAR under paragraph (d)(3) of this section, either the service corporation or a savings association that wholly or partially owns the service corporation may file the SAR.</P> <P>(5) <E T="03">Time for reporting.</E> A savings association or service corporation is required to file a SAR no later than 30 calendar days after the date of initial detection of facts that may constitute a basis for filing a SAR. If no suspect was identified on the date of detection of the incident requiring the filing, a savings association or service corporation may delay filing a SAR for an additional 30 calendar days to identify a suspect. In no case shall reporting be delayed more than 60 calendar days after the date of initial detection of a <PRTPAGE P="199"/>reportable transaction. In situations involving violations requiring immediate attention, such as when a reportable violation is ongoing, the savings association or service corporation shall immediately notify, by telephone, an appropriate law enforcement authority and the OTS in addition to filing a timely SAR.</P> <P>(6) <E T="03">Reports to state and local authorities.</E> A savings association or service corporation is encouraged to file a copy of the SAR with state and local law enforcement agencies where appropriate.</P> <P>(7) <E T="03">Exception.</E> A savings association or service corporation need not file a SAR for a robbery or burglary committed or attempted that is reported to appropriate law enforcement authorities.</P> <P>(8) <E T="03">Retention of records.</E> A savings association or service corporation shall maintain a copy of any SAR filed and the original or business record equivalent of any supporting documentation for a period of five years from the date of the filing of the SAR. Supporting documentation shall be identified and maintained by the savings association or service corporation as such, and shall be deemed to have been filed with the SAR. A savings association or service corporation shall make all supporting documentation available to appropriate law enforcement agencies upon request.</P> <P>(9) <E T="03">Notification to board of directors</E>—(i) <E T="03">Generally.</E> Whenever a savings association (or a service corporation in which the savings association has an ownership interest) files a SAR pursuant to this paragraph (d), the management of the savings association or service corporation shall promptly notify its board of directors, or a committee of directors or executive officers designated by the board of directors to receive notice.</P> <P>(ii) <E T="03">Suspect is a director or executive officer.</E> If the savings association or service corporation files a SAR pursuant to this paragraph (d) and the suspect is a director or executive officer, the savings association or service corporation may not notify the suspect, pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who are not suspects.</P> <P>(10) <E T="03">Compliance.</E> Failure to file a SAR in accordance with this section and the instructions may subject the savings association or service corporation, its directors, officers, employees, agents, or other institution-affiliated parties to supervisory action.</P> <P>(11) <E T="03">Obtaining SARs.</E> A savings association or service corporation may obtain SARs and the instructions from the appropriate OTS Regional Office listed in 12 CFR 516.1(b).</P> <P>(12) <E T="03">Confidentiality of SARs.</E> SARs are confidential. Any institution or person subpoenaed or otherwise requested to disclose a SAR or the information contained in a SAR shall decline to produce the SAR or to provide any information that would disclose that a SAR has been prepared or filed, citing this paragraph (d), applicable law (<E T="03">e.g.</E>, 31 U.S.C. 5318(g)), or both, and shall notify the OTS.</P> <P>(13) <E T="03">Safe harbor.</E> The safe harbor provision of 31 U.S.C. 5318(g), which exempts any financial institution that makes a disclosure of any possible violation of law or regulation from liability under any law or regulation of the United States, or any constitution, law or regulation of any state or political subdivision, covers all reports of suspected or known criminal violations and suspicious activities to law enforcement and financial institution supervisory authorities, including supporting documentation, regardless of whether such reports are filed pursuant to this paragraph (d), or are filed on a voluntary basis.</P> <P>(e) <E T="03">Adjustable-rate mortgage indices</E>—(1) <E T="03">Reporting obligation.</E> Upon the request of a Federal Home Loan Bank, all savings associations within the jurisdiction of that Federal Home Loan Bank shall report the data items set forth in paragraph (e)(2) of this section for the Federal Home Loan Bank to use in calculating and publishing an adjustable-rate mortgage index.</P> <P>(2) <E T="03">Data to be reported.</E> For purposes of paragraph (e)(1) of this section, the term “data items” means the data items previously collected from the monthly Thrift Financial Report and such data items as may be altered, amended, or substituted by the requesting Federal Home Loan Bank.</P> <P>(3) <E T="03">Applicable indices.</E> For the purpose of this reporting requirement, the term “adjustable-rate mortgage index” <PRTPAGE P="200"/>means any of the adjustable-rate mortgage indices calculated and published by a Federal Home Loan Bank or the Federal Home Loan Bank Board on or before August 9, 1989.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 56 FR 29566, June 28, 1991; 56 FR 32474, July 16, 1991; 57 FR 61251, Dec. 24, 1992; 59 FR 66159, Dec. 23, 1994; 61 FR 6105, Feb. 16, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.181</SECTNO> <SUBJECT>Reports of change in control of mutual savings associations.</SUBJECT> <P>(a) <E T="03">Reports of change in control—</E>(1) <E T="03">When reports are required.</E> Reports are required under this paragraph (a) whenever any change occurs in the control of savings association and no report is required under any other paragraph of this section. As used in this section, the term “control” means power, directly or indirectly, to direct or cause the direction of the management or policies of the savings association, and the term “savings association” means a mutual savings association. Reports shall be made to the Office by the president or other chief executive officer of the savings association involved within 15 days after he or she obtains knowledge of such change. If there is any doubt as to whether a change in control has occurred, such doubt shall be resolved in favor of reporting to the Office.</P> <P>(2) <E T="03">Contents of reports.</E> Reports of change in the control of a savings association, as required under this paragraph (a), shall contain the following information to the extent that such information is known by the person making the report:</P> <P>(i) The name or names of the person or persons who acquired such control;</P> <P>(ii) The basis of such control; and</P> <P>(iii) The date and a description of the transaction or transactions by which such control was acquired.</P> <P>(b) <E T="03">Reports of changes in voting stock or voting rights—</E>(1) <E T="03">When reports are required.</E> (i) Reports are required under this paragraph (b) whenever a change occurs in the outstanding voting stock or voting rights of a savings association resulting in control or a change in the control of such savings association. Reports shall be made to the Office by the president or other chief executive officer of the savings association involved within 15 days after he or she obtains knowledge of such change. If there is any doubt as to whether such a change has resulted in control or a change in control, such doubt shall be resolved in favor of reporting to the Office.</P> <P>(ii) Without any limitation on the foregoing, a report is required under this paragraph (b) whenever any person, partnership, corporation, trust or group of associated persons acquires, receives, or becomes the holder of:</P> <P>(A) Ten percent or more of the outstanding shares of any class of the voting stock of the savings association or of the voting rights thereto;</P> <P>(B) Ten percent or more of the outstanding voting rights of the savings association; or</P> <P>(C) Any appointment, designation or right of substitution with respect to 10 percent or more of the outstanding voting rights of the savings association.</P> <P>(2) <E T="03">Contents of reports—</E>(i) <E T="03">General.</E> The reports required under this paragraph (b) shall contain the items of information set forth below to the extent that such information is known by the person making the report. In addition, such reports shall contain such other information as may be available to inform the Office of the effect of the transaction upon control of the savings association.</P> <P>(ii) <E T="03">Reports of changes in voting stock or voting rights with respect to such stock.</E> Reports of changes in ownership of voting stock or holdings of voting rights with respect to such stock, resulting in control or a change in the control of a savings association, shall contain the following information:</P> <P>(A) The number of shares of each class of voting stock and the number of voting rights with respect thereto involved in the transaction;</P> <P>(B) The names of the purchasers (or transferees) of such stock or such voting rights;</P> <P>(C) The names of the sellers (or transferors) of such stock or voting rights;</P> <P>(D) The amount of consideration received by the sellers (or transferors) in connection with the transaction;</P> <P>(E) The names of the beneficial owners if the shares or voting rights are of record in another name or other names;<PRTPAGE P="201"/> </P> <P>(F) The total number of shares of each class of voting stock owned by the sellers (or transferors), the purchasers (or transferees), and the beneficial owners both immediately before and after the transaction;</P> <P>(G) The total number of shares of each class of voting stock outstanding both immediately before and after the transaction;</P> <P>(H) The total number of voting rights (with respect to voting stock) held by the sellers (or transferors), the purchasers (or transferees), and the beneficial owners both immediately before and after the transaction;</P> <P>(I) The total number of such voting rights outstanding both immediately before and after the transaction; and</P> <P>(J) In the case of any appointment, designation, or substitution of a holder or holders of such voting rights, the name or names of the holder or holders both immediately before and after the transaction.</P> <P>(iii) <E T="03">Reports of changes in voting rights with respect to withdrawable accounts.</E> Reports of changes in holding of voting rights with respect to withdrawable accounts, resulting in control or a change in the control of a savings association, shall contain the following information:</P> <P>(A) In the case of a transfer or transfers of such voting rights from one holder or group of holders to another holder or group of holders;</P> <P>(<E T="03">1</E>) The date of each such transfer; and</P> <P>(<E T="03">2</E>) The name or names of the acquiring holder or holders and of the transferor or transferors (unless such transferors are the original owners of the accounts to which such voting rights attach);</P> <P>(B) In the case of any appointment, designation, or substitution of a holder or holders of voting rights, with respect to a holder or group of holders already having control:</P> <P>(<E T="03">1</E>) The date of such appointment, designation or substitution; and</P> <P>(<E T="03">2</E>) The names of each of the holders both immediately before and after such change; and</P> <P>(C) In the case of any other acquisition of or change in control (without regard to the number of voting rights involved):</P> <P>(<E T="03">1</E>) The name or names of the person or persons acquiring such control;</P> <P>(<E T="03">2</E>) The basis of such control; and</P> <P>(<E T="03">3</E>) The date and a description of such acquisition or change.</P> <P>(c) <E T="03">Reports of solicitation of voting rights—</E>(1) <E T="03">When reports are required.</E> Reports are required under this paragraph (c) whenever any person, partnership, corporation, trust, or group of associated persons:</P> <P>(i) Solicits voting rights with respect to 10 percent or more of the outstanding shares of any class of voting stock of a savings association.</P> <P>(ii) Solicits 10 percent or more of the outstanding voting rights in a savings association; or</P> <P>(iii) Solicits any voting rights in a savings association when such solicitor already holds either:</P> <P>(A) Voting rights with respect to 10 percent or more of the outstanding shares of any class of the voting stock of such savings association; or</P> <P>(B) Ten percent or more of the outstanding voting rights in such savings association.</P> <P>(2) <E T="03">Content of reports—</E>(i) <E T="03">General.</E> The reports required under this paragraph (c) shall contain the items of information set forth below to the extent that such information is known by the person making the report. In addition, such reports shall contain such other information as may be available to inform the Office of the possible impact of the solicitation upon control of the savings association.</P> <P>(ii) <E T="03">Voting rights with respect to stock.</E> Reports of solicitation of voting rights with respect to any class of voting stock of a savings association shall contain the following information:</P> <P>(A) The name or names of the person or persons making the solicitation;</P> <P>(B) The extent of such solicitation (including relevant dates) and the class or classes of such voting stock with respect to which the solicitation of voting rights is made;</P> <P>(C) The number of shares of such class or classes of voting stock which the solicitor already owns and the total number of voting rights with respect thereto which he or she holds at the time of such solicitation; and</P> <P>(D) The total number of shares of such class or classes of voting stock <PRTPAGE P="202"/>outstanding at the time of such solicitation.</P> <P>(iii) <E T="03">Voting rights with respect to withdrawable accounts.</E> Reports of solicitation of voting rights with respect to withdrawable accounts of a savings association shall contain the following information:</P> <P>(A) The name or names of the person or persons making the solicitation;</P> <P>(B) The extent of such solicitation (including relevant dates); and</P> <P>(C) The approximate percentage of the outstanding voting rights which the solicitor already holds at the time of such solicitation.</P> <P>(d) <E T="03">Definitions.</E> As used in this section—</P> <P>(1) The term <E T="03">stock</E> means rights, interest, or powers with respect to a mutual savings association.</P> <P>(2) The term <E T="03">voting rights</E> means stock which carries voting rights.</P> <P>(3) The term <E T="03">voting rights</E> means proxies, consents, or authorizations which give the holder or holders the right to vote with respect to shares of voting stock, or with respect to withdrawable accounts, in a savings association.</P> </SECTION> <SECTION> <SECTNO>§ 563.183</SECTNO> <SUBJECT>Reports of change in chief executive officer or director; other reports; form and filing of such reports.</SUBJECT> <P>(a) <E T="03">Definitions used in this section—</E>(1) <E T="03">Control.</E> The term “control” means power, directly or indirectly, to direct the management or policies of a savings association or to vote 25 percent or more of any class of the voting stock or voting rights in a savings association.</P> <P>(2) <E T="03">Savings association.</E> The term “savings association” means a savings association, whether in mutual or stock form, and any savings and loan holding company as defined in section 10 of the Home Owners' Loan Act.</P> <P>(3) <E T="03">Stock.</E> The term “stock” means any permanent or guaranty stock or other nonwithdrawable account, share, or equity security in a savings association.</P> <P>(4) <E T="03">Voting stock.</E> The term “voting stock” means any stock which carries voting rights.</P> <P>(5) <E T="03">Voting rights.</E> The term “voting rights” means any proxies, consents, or authorizations which give the holder(s) the right to vote with respect to shares of voting stock or withdrawable accounts in a savings association.</P> <P>(b) <E T="03">Reports of change in chief executive officer or director.</E> Whenever a change resulting in control or a change in control of a savings association has occurred concurrently with or within 60 days after or 12 months before a change or replacement of the chief executive officer or any director of the savings association, a report shall be filed containing the following:</P> <P>(1) The name of the new chief executive officer or director;</P> <P>(2) The effective date of the person's appointment or election; and</P> <P>(3) A statement of the person's past and current business and professional affiliations.</P> <P>(c) <E T="03">Form and filing of reports.</E> (1) Unless otherwise specified by the Office, a report required by § 563.181 of this part or this section § 563.183 shall be done in accordance with § 516.1(c) of this chapter.</P> <P>(2) Such a report shall be made by the president or other chief executive officer of the savings association.</P> <P>(3) Such a report shall be filed within 15 days after the person making it learns of the change in control or the activity which necessitates filing the report, except that a report required under paragraph (b) of this section shall be filed within 15 days after the effective date of the change or replacement of the chief executive officer or director, or within 15 days after the officer making the report obtains knowledge of the change or replacement, whichever occurs later.</P> <P>(d) <E T="03">Other reports.</E> The Office may also require savings associations and individuals or other persons who have or have had any connection with the management of any savings association, including any present or former director, officer, controlling person, or agent of a savings association, to provide such periodic or other reports as it may determine to be necessary or appropriate for protection of investors or the Office.</P> <CITA>[54 FR 49552, Nov. 30, 1989, as amended at 60 FR 66718, Dec. 26, 1995]</CITA> </SECTION> <SECTION> <PRTPAGE P="203"/> <SECTNO>§ 563.190</SECTNO> <SUBJECT>Bonds for directors, officers, employees, and agents; form of and amount of bonds.</SUBJECT> <P>(a) Each savings association shall maintain fidelity bond coverage. The bond shall cover each director, officer, employee, and agent who has control over or access to cash, securities, or other property of the savings association.</P> <P>(b) The amount of coverage to be required for each savings association shall be determined by the association's management, based on its assessment of the level that would be safe and sound in view of the association's potential exposure to risk; provided, such determination shall be subject to approval by the association's board of directors.</P> <P>(c) Each savings association may maintain bond coverage in addition to that provided by the insurance underwriter industry's standard forms, through the use of endorsements, riders, or other forms of supplemental coverage, if, in the judgment of the association's board of directors, additional coverage is warranted.</P> <P>(d) The board of directors of each savings association shall formally approve the association's bond coverage. In deciding whether to approve the bond coverage, the board shall review the adequacy of the standard coverage and the need for supplemental coverage. Documentation of the board's approval shall be included as a part of the minutes of the meeting at which the board approves coverage. Additionally, the board of directors shall review the association's bond coverage at least annually to assess the continuing adequacy of coverage.</P> <CITA>[57 FR 12698, Apr. 13, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.191</SECTNO> <SUBJECT>Bonds for agents.</SUBJECT> <P>In lieu of the bond provided in § 563.190 of this part in the case of agents appointed by a savings association, a fidelity bond may be provided in an amount at least twice the average monthly collections of such agents, provided such agents shall be required to make settlement with the savings association at least monthly, and provided such bond is approved by the board of directors of the savings association. No bond need be obtained for any agent that is a financial institution insured by the Federal Deposit Insurance Corporation.</P> </SECTION> <SECTION> <SECTNO>§ 563.200</SECTNO> <SUBJECT>Conflicts of interest.</SUBJECT> <P>If you are a director, officer, or employee of a savings association, or have the power to direct its management or policies, or otherwise owe a fiduciary duty to a savings association:</P> <P>(a) You must not advance your own personal or business interests, or those of others with whom you have a personal or business relationship, at the expense of the savings association; and</P> <P>(b) You must, if you have an interest in a matter or transaction before the board of directors:</P> <P>(1) Disclose to the board all material nonprivileged information relevant to the board's decision on the matter or transaction, including:</P> <P>(i) The existence, nature and extent of your interests; and</P> <P>(ii) The facts known to you as to the matter or transaction under consideration;</P> <P>(2) Refrain from participating in the board's discussion of the matter or transaction; and</P> <P>(3) Recuse yourself from voting on the matter or transaction (if you are a director).</P> <CITA>[61 FR 60178, Nov. 27, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 563.201</SECTNO> <SUBJECT>Corporate opportunity.</SUBJECT> <P>(a) If you are a director or officer of a savings association, or have the power to direct its management or policies, or otherwise owe a fiduciary duty to a savings association, you must not take advantage of corporate opportunities belonging to the savings association.</P> <P>(b) A corporate opportunity belongs to a savings association if:</P> <P>(1) The opportunity is within the corporate powers of the savings association or a subsidiary of the savings association; and</P> <P>(2) The opportunity is of present or potential practical advantage to the savings association, either directly or through its subsidiary.<PRTPAGE P="204"/> </P> <P>(c) OTS will not deem you to have taken advantage of a corporate opportunity belonging to the savings association if a disinterested and independent majority of the savings association's board of directors, after receiving a full and fair presentation of the matter, rejected the opportunity as a matter of sound business judgment.</P> <CITA>[61 FR 60179, Nov. 27, 1996]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart H—Notice of Change of Director or Senior Executive Officer</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>63 FR 51274, Sept. 25, 1998, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 563.550</SECTNO> <SUBJECT>What does this subpart do?</SUBJECT> <P>This subpart implements 12 U.S.C. 1831i, which requires certain savings associations and savings and loan holding companies to notify the OTS before appointing or employing directors and senior executive officers.</P> </SECTION> <SECTION> <SECTNO>§ 563.555</SECTNO> <SUBJECT>What definitions apply to this subpart?</SUBJECT> <P>The following definitions apply to this subpart:</P> <P> <E T="03">Director</E> means an individual who serves on the board of directors of a savings association or savings and loan holding company. This term does not include an advisory director who:</P> <P>(1) Is not elected by the shareholders;</P> <P>(2) Is not authorized to vote on any matters before the board of directors or any committee of the board of directors;</P> <P>(3) Provides only general policy advice to the board of directors or any committee of the board of directors; and</P> <P>(4) Has not been identified by the OTS in writing as an individual who performs the functions of a director, or who exercises significant influence over, or participates in, major policymaking decisions of the board of directors.</P> <P> <E T="03">Senior executive officer</E> means an individual who holds the title or performs the function of one or more of the following positions (without regard to title, salary, or compensation): president, chief executive officer, chief operating officer, chief financial officer, chief lending officer, or chief investment officer. <E T="03">Senior executive officer</E> also includes any other person identified by the OTS in writing as an individual who exercises significant influence over, or participates in, major policymaking decisions, whether or not hired as an employee.</P> <P> <E T="03">Troubled condition</E> means:</P> <P>(1) A savings association that has a composite rating of 4 or 5, as defined in § 516.3(c) of this chapter;</P> <P>(2) A savings and loan holding company that has an unsatisfactory rating under the OTS's holding company rating system, or that is informed in writing by the OTS that it has an adverse effect on its subsidiary savings association;</P> <P>(3) A savings association or savings and loan holding company that is subject to a capital directive, a cease-and-desist order, a consent order, a formal written agreement, or a prompt corrective action directive relating to the safety and soundness or financial viability of the savings association, unless otherwise informed in writing by the OTS; or</P> <P>(4) A savings association or savings and loan holding company that is informed in writing by the OTS that it is in troubled condition based on information available to the OTS.</P> </SECTION> <SECTION> <SECTNO>§ 563.560</SECTNO> <SUBJECT>Who must give prior notice?</SUBJECT> <P>(a) <E T="03">Savings association or savings and loan holding company.</E> Except as provided under § 563.590, you must notify the OTS at least 30 days before adding or replacing any member of your board of directors, employing any person as a senior executive officer, or changing the responsibilities of any senior executive officer so that the person would assume a different senior executive position if:</P> <P>(1) You are a savings association and at least one of the following circumstances apply:</P> <P>(i) You do not comply with all minimum capital requirements under part 567 of this chapter;</P> <P>(ii) You are in troubled condition; or</P> <P>(iii) The OTS has notified you, in connection with its review of a capital restoration plan required under section 38 of the Federal Deposit Insurance Act or part 565 of this chapter or otherwise, <PRTPAGE P="205"/>that a notice is required under this subpart; or</P> <P>(2) You are a savings and loan holding company and you are in troubled condition.</P> <P>(b) <E T="03">Notice by individual.</E> If you are an individual seeking election to the board of directors of a savings association or savings and loan holding company described in paragraph (a) of this section, and have not been nominated by management, you must either provide the prior notice required under paragraph (a) of this section or follow the process under § 563.590(b).</P> </SECTION> <SECTION> <SECTNO>§ 563.565</SECTNO> <SUBJECT>What procedures govern the filing of my notice?</SUBJECT> <P>The procedures found in § 516.1 of this chapter govern the filing of your notice under § 563.560.</P> </SECTION> <SECTION> <SECTNO>§ 563.570</SECTNO> <SUBJECT>What information must I include in my notice?</SUBJECT> <P>(a) <E T="03">Content requirements.</E> Your notice must include:</P> <P>(1) The information required under 12 U.S.C. 1817(j)(6)(A), and the information prescribed in the Interagency Notice of Change in Director or Senior Executive Officer and the Interagency Biographical and Financial Report which are available from OTS headquarters at the address in part 516 of this chapter; or from any OTS regional office;</P> <P>(2) Legible fingerprints of the proposed director or senior executive officer. You are not required to file fingerprints if, within three years prior to the date of submission of the notice, the proposed director or senior executive officer provided legible fingerprints as part of a notice filed with the OTS under 12 U.S.C. 1831i; and</P> <P>(3) Such other information required by the OTS.</P> <P>(b) <E T="03">Modification of content requirements.</E> The OTS may require or accept other information in place of the content requirements in paragraph (a) of this section.</P> </SECTION> <SECTION> <SECTNO>§ 563.575</SECTNO> <SUBJECT>What procedures govern OTS review of my notice for completeness?</SUBJECT> <P>The OTS will first review your notice to determine whether it is complete.</P> <P>(a) If your notice is complete, the OTS will notify you in writing of the date that the OTS received the complete notice.</P> <P>(b) If your notice is not complete, the OTS will notify you in writing what additional information you need to submit, why we need the information, and when you must submit it. You must, within the specified time period, provide additional information or request that the OTS suspend processing of the notice. If you fail to act within the specified time period, the OTS may treat the notice as withdrawn or may review the application based on the information provided.</P> </SECTION> <SECTION> <SECTNO>§ 563.580</SECTNO> <SUBJECT>What standards and procedures will govern OTS review of the substance of my notice?</SUBJECT> <P>The OTS will disapprove a notice if, pursuant to the standard set forth in 12 U.S.C. 1831i(e), the OTS finds that the competence, experience, character, or integrity of the proposed director or senior executive officer indicates that it would not be in the best interests of the depositors of the savings association or of the public to permit the individual to be employed by, or associated with, the savings association or savings and loan holding company. If the OTS disapproves a notice, it will issue a written notice that explains why the OTS disapproved the notice. The OTS will send the notice to the savings association or savings and loan holding company and the individual.</P> </SECTION> <SECTION> <SECTNO>§ 563.585</SECTNO> <SUBJECT>When may a proposed director or senior executive officer begin service?</SUBJECT> <P>(a) A proposed director or senior executive officer may begin service 30 days after the date the OTS receives all required information, unless:</P> <P>(1) The OTS notifies you that it has disapproved the notice; or</P> <P>(2) The OTS extends the 30-day period for an additional period not to exceed 60 days. If the OTS extends the 30-day period, it will notify you in writing that the period has been extended, and will state the reason for the extension. The proposed director or senior executive officer may begin service upon expiration of the extended period, unless <PRTPAGE P="206"/>the OTS notifies you that it has disapproved the notice during the extended period.</P> <P>(b) Notwithstanding paragraph (a) of this section, a proposed director or senior executive officer may begin service after the OTS notifies you, in writing, of its intention not to disapprove the notice.</P> </SECTION> <SECTION> <SECTNO>§ 563.590</SECTNO> <SUBJECT>When will the OTS waive the prior notice requirement?</SUBJECT> <P>(a) <E T="03">Waiver request.</E> (1) An individual may serve as a director or senior executive officer before filing a notice under this subpart if the OTS issues a written finding that:</P> <P>(i) Delay would threaten the safety or soundness of the savings association;</P> <P>(ii) Delay would not be in the public interest; or</P> <P>(iii) Other extraordinary circumstances exist that justify waiver of prior notice.</P> <P>(2) If the OTS grants a waiver, you must file a notice under this subpart within the time period specified by the OTS.</P> <P>(b) <E T="03">Automatic waiver.</E> An individual may serve as a director before filing a notice under this subpart, if the individual was not nominated by management and the individual submits a notice under this subpart within seven days after election as a director.</P> <P>(c) <E T="03">Subsequent OTS action.</E> The OTS may disapprove a notice within 30 days after the OTS issues a waiver under paragraph (a) of this section or within 30 days after the election of an individual who has filed a notice and is serving pursuant to an automatic waiver under paragraph (b) of this section.</P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 563b</EAR> <HD SOURCE="HED">PART 563b—CONVERSIONS FROM MUTUAL TO STOCK FORM</HD> <CONTENTS> <SECHD>Sec.</SECHD> <SECTNO>563b.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <SECTNO>563b.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SUBPART> <HD SOURCE="HED">Subpart A—Standard Conversions</HD> <SECTNO>563b.3</SECTNO> <SUBJECT>General principles for conversions.</SUBJECT> <SECTNO>563b.4</SECTNO> <SUBJECT>Notice of filing; public statements; confidentiality.</SUBJECT> <SECTNO>563b.5</SECTNO> <SUBJECT>Solicitation of proxies; proxy statement.</SUBJECT> <SECTNO>563b.6</SECTNO> <SUBJECT>Vote by members.</SUBJECT> <SECTNO>563b.7</SECTNO> <SUBJECT>Pricing and sale of securities.</SUBJECT> <SECTNO>563b.8</SECTNO> <SUBJECT>Procedural requirements.</SUBJECT> <SECTNO>563b.9</SECTNO> <SUBJECT>Conversion of a savings association in connection with the formation of a holding company.</SUBJECT> <SECTNO>563b.10</SECTNO> <SUBJECT>Conversion of a savings association through merger with an existing holding company or stock savings association.</SUBJECT> <SECTNO>563b.11</SECTNO> <SUBJECT>Convenience and needs considerations.</SUBJECT> </SUBPART> <SUBPART> <RESERVED>Subpart B [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Voluntary Supervisory Stock Conversions</HD> <SECTNO>563b.20</SECTNO> <SUBJECT>Scope of subpart.</SUBJECT> <SECTNO>563b.21</SECTNO> <SUBJECT>Voluntary supervisory conversions.</SUBJECT> <SECTNO>563b.22</SECTNO> <SUBJECT>Purpose of subpart.</SUBJECT> <SECTNO>563b.23</SECTNO> <SUBJECT>Authorization of supervisory conversions.</SUBJECT> <SECTNO>563b.24</SECTNO> <SUBJECT>Qualification for supervisory conversion of SAIF-insured associations.</SUBJECT> <SECTNO>563b.25</SECTNO> <SUBJECT>Qualification for supervisory conversion of BIF-insured savings associations.</SUBJECT> <SECTNO>563b.26</SECTNO> <SUBJECT>Viability of converted savings association.</SUBJECT> <SECTNO>563b.27</SECTNO> <SUBJECT>Application for voluntary supervisory stock conversion.</SUBJECT> <SECTNO>563b.28</SECTNO> <SUBJECT>Liquidation account.</SUBJECT> <SECTNO>563b.29</SECTNO> <SUBJECT>Procedural requirements.</SUBJECT> <SECTNO>563b.30</SECTNO> <SUBJECT>Conditions of approval.</SUBJECT> <SECTNO>563b.31</SECTNO> <SUBJECT>Sale of conversion stock.</SUBJECT> <SECTNO>563b.32</SECTNO> <SUBJECT>Expenses.</SUBJECT> <SECTNO>563b.33</SECTNO> <SUBJECT>Employment contracts.</SUBJECT> </SUBPART> <SUBPART> <RESERVED>Subpart D [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Forms</HD> <SECTNO>563b.100</SECTNO> <SUBJECT>Form AC—Application for Conversion.</SUBJECT> <SECTNO>563b.101</SECTNO> <SUBJECT>Form PS—Proxy Statements.</SUBJECT> <SECTNO>563b.102</SECTNO> <SUBJECT>Form OC—Offering Circulars.</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority: </HD> <P>12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 U.S.C. 78c, 78l, 78m, 78n, 78w.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source: </HD> <P>54 FR 49596, Nov. 30, 1989, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 563b.1</SECTNO> <SUBJECT>Scope of part.</SUBJECT> <P>(a) <E T="03">General.</E> Except as the Office may otherwise determine, the provisions of this part shall exclusively govern the conversion of mutual savings associations to capital stock associations, and no mutual savings association shall convert to the capital stock form without the prior written consent of the Office. The Office may grant a waiver in writing from any requirement of this part for good cause shown.</P> <P>(b) <E T="03">Provisions of prescribed forms.</E> Any provision in a form prescribed under this part and covering the same subject matter as any provision of this part <PRTPAGE P="207"/>shall have the same force and effect as if it were a provision of this part except as it relates to information not deemed material.</P> <P>(c) <E T="03">Conflicts with State law.</E> (1) In the event an applicant finds that compliance with any provision of this part would be in conflict with applicable State law, the applicant may file a written request for waiver of compliance with such provision by the Office. Such request may be incorporated in the application for conversion; otherwise, the applicant shall file four copies of such request.</P> <P>(2) In making any such request, the applicant shall:</P> <P>(i) Specify the provision or provisions of this part with respect to which the applicant desires waiver;</P> <P>(ii) Furnish an opinion of counsel demonstrating that applicable State law is in conflict with the specified provision or provisions of this part; and</P> <P>(iii) Demonstrate that the requested waiver would not result in any effects that would be inequitable or detrimental to the applicant, its account holders or other savings associations or be contrary to the public interest.</P> </SECTION> <SECTION> <SECTNO>§ 563b.2</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>(a) As used in this part and in the forms under this part, the following definitions apply, unless the context otherwise requires:</P> <P>(1) <E T="03">Acting in concert.</E> The term “acting in concert” shall be defined as provided in § 574.2(c).</P> <P>(2) <E T="03">Affiliate.</E> An “affiliate” of, or a person “affiliated” with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.</P> <P>(3) <E T="03">Amount.</E> The term “amount”, when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to shares, and the number of units if relating to any other kind of security.</P> <P>(4) <E T="03">Applicant.</E> An “applicant” is a savings association which has applied to convert pursuant to this part.</P> <P>(5) <E T="03">Associate.</E> The term “associate”, when used to indicate a relationship with any person, means:</P> <P>(i) Any corporation or organization (other than the applicant or a majority-owned subsidiary of the applicant) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities,</P> <P>(ii) Any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, except that, for the purposes of § 563b.3 (c)(6), (c)(7), (c)(9), and (d)(4), it does not include any tax-qualified employee stock benefit plan or non-tax-qualified employee stock benefit plan in which a person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and that, for the purposes of § 563b.3(c)(8), it does not include any tax-qualified employee stock benefit plan, and</P> <P>(iii) Any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the applicant or any of its parents or subsidiaries.</P> <P>(6) <E T="03">Association members.</E> The term “association members” refers to persons who, pursuant to the charter or bylaws of the applicant, are eligible to vote at the applicant's meeting at which conversion will be voted upon.</P> <P>(7) <E T="03">BIF.</E> The term “BIF” means the Bank Insurance Fund, as established by the Federal Deposit Insurance Act, 12 U.S.C. 1811 <E T="03">et seq.</E> </P> <P>(8) <E T="03">Broker.</E> The term “broker” means any person engaged in the business of effecting transactions in securities for the account of others.</P> <P>(9) <E T="03">Capital stock.</E> The term “capital stock” includes permanent stock, guaranty stock, permanent reserve stock, or any similar certificate evidencing nonwithdrawable capital.</P> <P>(10) <E T="03">Charter.</E> The term “charter” includes articles of incorporation, articles of association, or any similar instrument, as amended, effecting (either with or without filing with any governmental agency) the organization or creation of an incorporated or unincorporated person.<PRTPAGE P="208"/> </P> <P>(11) <E T="03">Control.</E> The term “control” (including the terms “controlling”, “controlled by”, and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.</P> <P>(12) <E T="03">Dealer.</E> The term “dealer” means any person who engages either for all or part of his or her time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person.</P> <P>(13) <E T="03">Director.</E> The term “director” means any director of a corporation or any person performing similar functions with respect to any organization whether incorporated or unincorporated.</P> <P>(14) <E T="03">Eligibility record date.</E> The term “eligibility record date” means the record date for determining eligible account holders of a converting association.</P> <P>(15) <E T="03">Eligible account holder.</E> The term <E T="03">eligible account holder</E> means any person holding a qualifying deposit as determined in accordance with § 563b.3(e) of this part, but shall include only those account holders with savings accounts in place for a minimum of one year prior to board of director adoption of the plan of conversion.</P> <P>(16) <E T="03">Employee.</E> The term <E T="03">employee</E> does not include a director or officer.</P> <P>(17) <E T="03">Equity security.</E> The term “equity security” means any stock or similar security; or any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such security; or any such warrant or right.</P> <P>(18) <E T="03">FDIC.</E> The term “FDIC” means the Federal Deposit Insurance Corporation, as established by the Federal Deposit Insurance Act, 12 U.S.C. 1811 <E T="03">et seq.</E> </P> <P>(19) <E T="03">Local community.</E> The term <E T="03">local community</E> includes all counties in which the converting association has its home office or a branch office, all zip code areas corresponding to the converting association's delineated Community Reinvestment Act service area, each county's metropolitan statistical area and/or such other area or category as delineated by the savings association and provided for in the plan of conversion, as approved by the OTS.</P> <P>(20) <E T="03">Market Maker.</E> The term “market maker” means a dealer who, with respect to a particular security:</P> <P>(i) Regularly publishes <E T="03">bona fide</E>, competitive bid and offer quotations in a recognized inter-dealer quotation system; or</P> <P>(ii) Furnishes <E T="03">bona fide</E> competitive bid and offer quotations on request; and</P> <P>(iii) Is ready, willing and able to effect transactions in reasonable quantities at his or her quoted prices with other brokers or dealers.</P> <P>(21) <E T="03">Material.</E> The term “material”, when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters as to which an average prudent investor ought reasonably to be informed before purchasing an equity security of the applicant, or matters as to which an average prudent association member ought reasonably to be informed in voting upon the plan of conversion of the applicant.</P> <P>(22) <E T="03">Member.</E> The term “member” means any person qualifying as a member of a savings association pursuant to its charter or bylaws.</P> <P>(23) <E T="03">Offer.</E> The term “offer”, “offer to sell”, or “offer of sale” shall include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value. These terms shall not include preliminary negotiations or agreements between an applicant and any underwriter or among underwriters who are or are to be in privity of contract with an applicant.</P> <P>(24) <E T="03">Office.</E> The term “Office” means the Office of Thrift Supervision.</P> <P>(25) <E T="03">Officer.</E> The term “officer” means the chairman of the board, president, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.<PRTPAGE P="209"/> </P> <P>(26) <E T="03">Person.</E> The term “person” means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof.</P> <P>(27) <E T="03">Proxy.</E> The term “proxy” includes every form of authorization by which a person is, or may be deemed to be, designated to act for an association member in the exercise of his or her voting rights in the affairs of a savings association. Such an authorization may take the form of failure to dissent or object.</P> <P>(28) <E T="03">Purchase.</E> The terms “purchase” and “buy” include every contract to purchase, buy, or otherwise acquire a security or interest in a security for value.</P> <P>(29) <E T="03">Regional Director.</E> The term <E T="03">regional director</E> means the senior representative of the Director of the Office of Thrift Supervision for all matters dealing with examination and supervision of savings associations in the region in which the converting savings association has its principal office.</P> <P>(30) <E T="03">SAIF.</E> The term “SAIF” means the Savings Association Insurance Fund, as established by the Federal Deposit Insurance Act, 12 U.S.C. 1811 <E T="03">et seq.</E> </P> <P>(31) <E T="03">Sale.</E> The terms “sale” and “sell” include every contract to sell or otherwise dispose of a security or interest in a security for value; but such terms do not include an exchange of securities in connection with a merger or acquisition approved by the Office.</P> <P>(32) <E T="03">Savings account.</E> The term “savings account” has the same meaning as in part 561 of this chapter and includes certificates of deposit.</P> <P>(33) <E T="03">Savings association.</E> The term “savings association” has the same meaning as in part 561 of this chapter.</P> <P>(34) <E T="03">Security.</E> The term “security” includes any note, stock, treasury stock, bond, debenture, transferable share, investment contract, voting trust certificate, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing.</P> <P>(35) <E T="03">Solicitation; solicit.</E> The terms “solicitation” and “solicit” refer to:</P> <P>(i) Any request for a proxy whether or not accompanied by or included in a form of proxy;</P> <P>(ii) Any request to execute, not execute, or revoke a proxy; or</P> <P>(iii) The furnishing of a form of proxy or other communication to association members under circumstances reasonably calculated to result in the procurement, withholding, or revocation of a proxy.</P> <FP>The terms do not apply, however, to the furnishing of a form of proxy to an association member upon the unsolicited request of such association member, the performance of acts required by § 563b.5(f), or to the performance by any person of ministerial acts on behalf of a person soliciting a proxy.</FP> <P>(36) <E T="03">Subscription offering.</E> The term “subscription offering” refers to the offering of shares of capital stock, through nontransferable subscription rights issued to:</P> <P>(i) Eligible account holders as required by § 563b.3(c)(2);</P> <P>(ii) Supplemental eligible account holders as required by § 563b.3(c)(4);</P> <P>(iii) Members entitled to vote at the meeting called to consider the conversion as required by § 563b.3(c)(5);</P> <P>(iv) Directors, officers and employees, as permitted by § 563b.3(d)(2); and</P> <P>(v) Eligible account holders, supplemental eligible account holders, and voting members as permitted by § 563b.3(d)(3).</P> <P>(37) <E T="03">Subsidiary.</E> A “subsidiary” of a specified person is an affiliate controlled by such person, directly or indirectly through one or more intermediaries.</P> <P>(38) <E T="03">Supplemental eligibility record date.</E> The term “supplemental eligibility record date” means the supplemental record date for determining supplemental eligible account holders of a converting association required by § 563b.3(c)(4). The date shall be the last day of the calendar quarter preceding the Office's approval of the application for conversion.</P> <P>(39) <E T="03">Supplemental eligible account holder.</E> The term “supplemental eligible account holder” means any person holding a qualifying deposit, except officers, directors and their associates, as <PRTPAGE P="210"/>of the supplemental eligibility record date.</P> <P>(40) <E T="03">Tax-qualified employee stock benefit plan.</E> A “tax-qualified employee stock benefit plan” is any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be “qualified” under section 401 of the Internal Revenue Code. A “non-tax-qualified employee stock benefit plan” is any defined benefit plan or defined contribution plan which is not so qualified.</P> <P>(41) <E T="03">Underwriter.</E> The term “underwriter” means any person who has purchased from an applicant with a view to, or offers or sells for an applicant in connection with, the distribution of any security, or participates or has a direct or indirect participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers commission. The term “principal underwriter” means an underwriter in privity of contract with the applicant or other issuer of securities as to which he or she is the underwriter.</P> <P>(b) Terms defined in other parts of this chapter, when used in this part, shall have the meanings given in such definitions, to the extent such definitions are not inconsistent with the definitions contained in this part, unless the context otherwise requires.</P> <CITA>[54 FR 49596, Nov. 30, 1989, as amended at 59 FR 22732, May 3, 1994; 59 FR 61261, Nov. 30, 1994; 60 FR 66718, Dec. 26, 1995]</CITA> </SECTION> <SUBPART> <HD SOURCE="HED">Subpart A—Standard Conversions</HD> <SECTION> <SECTNO>§ 563b.3</SECTNO> <SUBJECT>General principles for conversions.</SUBJECT> <P>(a) <E T="03">Applicability of subpart.</E> The provisions of this subpart shall govern conversions undertaken pursuant to any other subpart of this part unless clearly inapplicable.</P> <P>(b) <E T="03">General requirements.</E> No application for conversion shall be approved by the Office if:</P> <P>(1) The plan of conversion adopted by the applicant's board of directors is not in accordance with the provisions of this part;</P> <P>(2) The conversion would cause the applicant to fail to meet any regulatory capital requirement of § 567.2 of this chapter;</P> <P>(3) The conversion may result in a taxable reorganization of the applicant under the Internal Revenue Code of 1986, as amended; or</P> <P>(4) The converted association would not have its accounts insured by the FDIC.</P> <P>(c) <E T="03">Required provisions in plan of conversion.</E> The plan of conversion shall:</P> <P>(1) Provide that the converting savings association shall issue and sell its capital stock at a total price equal to the estimated <E T="03">pro forma</E> market value of such stock in the converted savings association, based on an independent valuation, as provided in § 563b.7.</P> <P>(2) Provide that each eligible account holder shall receive, without payment, nontransferable subscription rights to purchase capital stock in an amount equal to the greater of the maximum purchase limitation established for the public offering or the direct community offering pursuant to paragraph (c)(6) or (d)(4) of this section, one-tenth of one percent of the total offering of shares, or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of capital stock to be issued by a fraction of which the numerator is the amount of the qualifying deposit of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders in the converting savings association.</P> <P>(i) In the event of an oversubscription to capital stock pursuant to this paragraph (c)(2), shares shall be allocated among subscribing eligible account holders so as to permit each such account holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation equal to 100 shares.</P> <P>(ii) Any shares not allocated in accordance with paragraph (c)(2)(i) of this section shall be allocated among the subscribing eligible account holders on such equitable basis, related to <PRTPAGE P="211"/>the amounts of their respective qualifying deposits, as may be provided in the plan of conversion.</P> <P>(3) Nontransferable subscription rights to purchase capital stock received by officers and directors and their associates of the converting savings association based on their increased deposits in the converting association in the one year period preceding the eligibility record date shall be subordinated to all other subscriptions involving the exercise of nontransferable subscription rights to purchase shares pursuant to paragraph (c)(2) of this section.</P> <P>(4) Provide that, in plans involving an eligibility record date that is more than 15 months prior to the date of the latest amendment to the application for conversion filed prior to the Office's approval, a supplemental eligibility record date be determined whereby each supplemental eligible account holder of the converting association shall receive, without payment, nontransferable subscription rights to purchase capital stock in an amount equal to the greater of the maximum purchase limitation established for the public offering or the direct community offering pursuant to paragraph (c)(6) or (d)(4) of this section, one-tenth of one percent of the total offering of shares, or 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of capital stock to be issued by a fraction of which the numerator is the amount of the qualifying deposit of the supplemental eligible account holder and the denominator is the total amount of the qualifying deposits of all supplemental eligible account holders in the converting savings association on the supplemental eligibility record date.</P> <P>(i) Subscription rights received pursuant to this paragraph (c)(4) shall be subordinated to all rights received by eligible account holders to purchase shares pursuant to paragraphs (c)(2) and (c)(3) of this section.</P> <P>(ii) Any nontransferable subscription rights to purchase shares received by an eligible account holder in accordance with paragraph (c)(2) of this section shall be applied in partial satisfaction of the subscription rights to be distributed pursuant to this paragraph (c)(4) of this section.</P> <P>(iii) In the event of an oversubscription to capital stock pursuant to this paragraph (c)(4), shares shall be allocated among the subscribing supplemental eligible account holders so as to permit each such supplemental account holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in accordance with paragraph (c)(2) of this section) equal to 100 shares.</P> <P>(iv) Any shares not allocated in accordance with paragraph (c)(4)(iii) of this section shall be allocated among the subscribing supplemental eligible account holders on such equitable basis, related to the amounts of their respective qualifying deposits, as may be provided in the plan of conversion.</P> <P>(5) Provide that association voting members who are not either eligible account holders or supplemental eligible account holders shall receive, without payment, nontransferable subscription rights to purchase capital stock in an amount equal to the greater of the maximum purchase limitation established for the public offering or the direct community offering pursuant to paragraph (c)(6) or (d)(4) of this section, or one-tenth of one percent of the total offering of shares.</P> <P>(i) Subscription rights received pursuant to this paragraph (c)(5) shall be subordinated to all rights received by eligible account holders and supplemental account holders to purchase shares pursuant to paragraphs (c)(2), (c)(3), and (c)(4) of this section.</P> <P>(ii) In the event of an oversubscription to capital stock pursuant to this paragraph (c)(5), shares shall be allocated among the subscribing voting members on such equitable basis as may be provided in the plan of conversion.</P> <P>(6) Provide that any shares of the converting savings association not sold to persons with subscription rights shall be sold either in a public offering through an underwriter or directly by the converting savings association in a direct community offering, subject to the applicant demonstrating to the Office the feasibility of the method of <PRTPAGE P="212"/>sale and to such conditions as may be provided in the plan of conversion. Such conditions shall include, but not be limited to:</P> <P>(i) Subject to the adoption in the plan of conversion of the optional provision of paragraph (d)(4) of this section, a condition limiting purchases in the public offering or the direct community offering by any person together with any associate or group of persons acting in concert to not more than five percent (5%) of the total offering of shares, except that any one or more tax-qualified employee benefit plans may purchase in the aggregate not more than ten percent (10%) of the total offering of shares. Shares held by one or more tax-qualified employee stock benefit plans and attributed to a person shall not be aggregated with other shares purchased directly by or otherwise attributable to that person.</P> <P>(ii) A condition requiring that orders for stock in any public offering or direct community offering shall first be filled up to a maximum of two percent of the conversion stock and thereafter remaining shares shall be allocated on an equal number of shares per order basis until all orders have been filled.</P> <P>(iii) A condition requiring the stock to be offered and sold in the public offering or the direct community offering to be offered and sold in a manner that will achieve the widest distribution of the stock.</P> <P>(iv) A condition that any direct community offering by the converting savings association shall give a preference to natural persons residing in the association's local community.</P> <P>(7) Subject to the adoption in the plan of conversion of the optional provision of paragraph (d)(4) of this section, provide that the total shares that any person and any associate or group of persons acting in concert may subscribe for or purchase in the conversion shall not exceed five percent (5%) of the total offering of shares, except that any one or more tax-qualified employee benefit plans may purchase in the aggregate not more than ten percent (10%) of the total offering of shares. Shares held by one or more tax-qualified employee stock benefit plans and attributed to a person shall not be aggregated with shares purchased directly by or otherwise attributable to that person.</P> <P>(8) Provide that the officers and directors of the converting association and their associates may purchase in the conversion, up to thirty-five percent (35%) of the total offering of shares of the converting association provided that the converting association has less than $50 million in total assets, and up to twenty-five percent (25%) in the total offering of shares if the converting association has more than $500 million in total assets. If the converting association has between $50 million and $500 million, in total assets, the maximum percentage shall be equal to thirty-five percent (35%) minus one percent (1%) multiplied by the quotient of the total assets less $50 million divided by $45 million. For example, for a converting association with $275 million in total assets, the percentage will be thirty percent (30%), calculated as thirty-five percent (35%) minus one percent (1%) multiplied by the quotient of $275 million less $50 million, or $225 million, divided by $45 million, which equals five, or five percent (5%), which when subtracted leaves a difference of thirty percent (30%). In calculating the number of shares which may be purchased, any shares attributable to the officers and directors and their associates but held by one or more tax-qualified employee stock benefit plans shall not be included. In the case of merger conversions undertaken pursuant to § 563b.10, any shares owned prior to the merger conversion by officers, directors, and their associates shall not be included in calculating the aggregate amount which may be purchased by such persons.</P> <P>(9) Provide that an officer or director, or his or her associates, shall not purchase, without the prior written approval of the Office, the capital stock of the converted savings association except from a broker or dealer registered with the Securities and Exchange Commission, for a period of three years following the date of the conversion; except that, this paragraph (c)(9) shall not apply to:<PRTPAGE P="213"/> </P> <P>(i) Negotiated transactions involving more than one percent (1%) of the outstanding capital stock of the converted savings association; or</P> <P>(ii) Purchases of stock made by and held by any one or more tax-qualified or non-tax-qualified employee stock benefit plan which may be attributable to individual officers or directors.</P> <P>(10) Provide that the sales price of the shares of capital stock to be sold in the conversion shall be a uniform price determined in accordance with § 563b.7 of this part; and specify the underwriting and/or other marketing arrangements to be made to ensure the sale of all shares not sold to persons with subscription rights.</P> <P>(11) Establish a time period within which the conversion must be completed prior to termination. The time period shall be not more than 24 months from the date the association members approve the plan of conversion and shall not be extended