[Federal Register Volume 59, Number 31 (Tuesday, February 15, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-3527] [[Page Unknown]] [Federal Register: February 15, 1994] ======================================================================= ----------------------------------------------------------------------- FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 303 RIN 3064-AB34 Notice of Mutual-to-Stock Conversions AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Interim rule with request for comments. ----------------------------------------------------------------------- SUMMARY: The interim rule requires FDIC-insured state-chartered savings banks that are not members of the Federal Reserve System (State Savings Banks) that apply to their applicable state banking regulator to convert from the mutual to stock form of ownership to provide the FDIC with a notice of the proposed conversion and a copy of the application and related disclosure materials. The interim rule also requires that State Savings Banks not finalize a mutual-to-stock conversion until either they receive a notice of the FDIC's intention not to object to the proposed conversion or 60 days pass after a complete notice and copy of the application materials are filed with the FDIC. A conversion may not be completed if the FDIC objects to the proposed conversion. The intended effect of the interim rule is to provide the FDIC with the opportunity to review proposed mutual-to-stock conversions of FDIC- regulated mutual savings banks to determine whether the proposed conversion would engender concerns about the safety and soundness of the institution, the institution's compliance with applicable law, and/ or insider abuse. DATES: Effective date: The interim rule is effective February 15, 1994. Written comments must be received by the FDIC on or before March 17, 1994. ADDRESSES: Written comments shall be addressed to the Office of the Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may be hand-delivered to room F-400, 1776 F Street, NW., Washington, DC, on business days between 8:30 a.m. and 5 p.m. (FAX number: (202) 898-3838). Comments will be available for inspection in room 7118, 550 17th Street, NW., Washington, DC between 9 a.m. and 4:30 p.m. on business days. FOR FURTHER INFORMATION CONTACT: Robert F. Miailovich, Associate Director, Division of Supervision (202/898-6918), Garfield Gimber, III, Examination Specialist, Division of Supervision (202/898-6913), Claude A. Rollin, Senior Counsel, Legal Division (202/898-3985) or Joseph A. DiNuzzo, Counsel, Legal Division (202/898-7349), Federal Deposit Insurance Corporation, Washington, DC 20429. SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in this interim final rule has been submitted to the Office of Management and Budget (OMB) for review and approval pursuant to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). Comments regarding the accuracy of the burden estimate, and suggestions for reducing the burden, should be addressed to the Office of Management and Budget, Paperwork Reduction Project (3064-AB34), Washington, DC 20503, with copies of such comments sent to Steven F. Hanft, Assistant Executive Secretary (Administration), room F-400, FDIC, 550 17th St. NW., Washington, DC 20429. The collection of information in this interim final rule is found in Sec. 303.15 and takes the form of copies of preexisting materials and other materials related to a State Savings Bank's proposed conversion from the mutual to stock form of ownership. The information will be used to enable the FDIC to identify and address issues involved in the proposed conversion relating to the safety and soundness of the bank, any abusive management practices and potential violations of applicable law. The estimated annual reporting burden for the collection of information requirement in this interim final rule is summarized as follows: Number of Respondents: 50. Number of Responses per Respondent: 1. Total Annual Responses: 50. Hours per Response: 2. Total Annual Burden Hours: 100. Regulatory Flexibility Act Because no notice of proposed rulemaking was required in connection with the adoption of this interim rule, no regulatory flexibility analysis is required under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Background The Proposed Policy Statement Recently, the FDIC issued for public comment a proposed policy statement on the conversions of State Savings Banks from mutual to stock ownership (Proposed Policy Statement). 59 FR 4712 (February 1, 1994). As explained in the proposal, in recent years a number of mutually owned State Savings Banks have converted to stockholder-owned State Savings Banks. In some cases, the conversion results in an acquisition by or merger into another institution (generally known as merger/conversions), with depositors/members obtaining the right to purchase stock in the acquiring institution and not the converting savings bank. Many of the institutions that converted from mutual to stock form first converted from federal or state mutual savings associations regulated by the Office of Thrift Supervision (OTS) to State Savings Banks. One consequence of these conversions to State Savings Banks is that the FDIC replaces the OTS as the institution's primary federal regulator. The mutual-to-stock conversion process is subject to the rules and protections of state law.1 Conversion rules under state law are not identical to and in some cases are less stringent than OTS regulations. The absence of consistent treatment under state laws or some federal oversight over State Savings Bank conversions to stock form presents an opportunity for inconsistency and abuse. In addition, the FDIC understands that the OTS is in the process of reviewing the adequacy of its own regulations and policies. --------------------------------------------------------------------------- \1\Some federal laws may still apply, such as the anti-fraud provisions of the federal securities law. E.g., 15 U.S.C. 78j. --------------------------------------------------------------------------- The areas of particular concern for potential abuse in conversions are: (1) Properly appraising the institution to be sold; (2) Pricing the stock sold in the conversion; (3) Apportioning the stock subscription rights; (4) Disclosure of information needed to make an informed investment decision; and (5) Compensation and benefits provided to insiders. The improper valuation of the institution and/or under-pricing of conversion stock, among other things, may unjustly enrich the purchasers, increase the temptation by insiders to acquire more shares than they are fairly entitled to, and deny the institution the additional capital it should receive to protect depositors and the insurance fund. The over-pricing of conversion stock, among other things, may result in poor investment decisions by depositors/members who may lack investment expertise. In some conversion transactions insiders may appear to have received (and, in some cases, have received) preferential treatment over the interests of depositors/members. In addition, mutual savings banks that convert to stock form undertake a major restructuring that possibly can lead to significant changes in the nature or volume of business conducted. In the recent past, some institutions, in leveraging capital raised through a conversion and reaching for a return on equity, have vigorously competed for loans and liberalized underwriting standards--activities which led to loan losses that in many instances depleted more capital than was raised through the mutual-to-stock conversion and, in some cases during the past ten years, resulted in failure of the converted thrift. The general purpose of the Proposed Policy Statement is to solicit public comment on the issues involved in mutual-to-stock conversions and whether and how the FDIC should regulate this activity. Need for the Interim Rule The Board of Directors of the FDIC (Board) has subsequently determined that during the pendency of the Proposed Policy Statement it is necessary for the FDIC to review applications filed by State Savings Banks with their respective state banking regulator and any other applicable state and federal banking and/or securities regulators to determine whether the proposed conversions contain any safety and soundness issues and/or issues of insider abuse that reflect on the integrity and competence of the management of the converting institution. The Board's concerns are caused by several recent and pending mutual-to-stock conversions of State Savings Banks that (as discussed below) have given rise to questions related to management abuse and excessive enrichment of insiders, fairness to depositors and general safety and soundness concerns. These conversions have been and currently are the subject of congressional hearings and numerous news articles and reports. The FDIC also has received (and continues to receive) direct complaints from depositors of State Savings Banks about unfair treatment and insider abuse in mutual-to-stock conversions. On January 26, 1994, Senator Riegle (the Chairman of the Senate Banking Committee) and Senator D'Amato (the ranking minority member of the Senate Banking Committee) introduced a bill (S. 1801, the ``Mutual Depository Institution Conversion Protection Act of 1994'') to ``combat abuses by management and insiders'' in mutual-to-stock conversions of depository institutions. In his statement accompanying the introduction of the bill, Senator Riegle noted that, ``[t]his self-dealing should stop, and stop now. These outrageous conversions are not victimless crimes. To the extent that management and insiders are skimming off the net worth of the institution through a conversion, they are doing so at the expense of the institution and its account holders. Significantly, such transactions also siphon capital that ultimately protects the deposit insurance system''. In January 1994, the Financial Institutions Subcommittee of the House Banking Committee held two hearings on mutual-to-stock conversions. At the first hearing, held in Winston-Salem, North Carolina, several depositors of recently converted State Savings Banks testified. One group of depositors characterized the conversion of their bank as providing ``astronomical benefits'' to officers and directors of the bank and accused such insiders of treating the assets of the bank as their ``own personal property''. They also contended that ``fraudulent intent'' had been involved in determining the value of the institution. A depositor of another converted State Savings Bank stated that he has done business with the bank since 1951 and had retirement deposits in the bank over the insured limit. He said that he ``will receive no compensation for my ownership interest in [the bank]. On the other hand, the officers and directors--who are not at risk and have no ownership interest by reason of their offices--will be paid millions of dollars * * * [S]omebody who is not at risk is getting rich--and quite rich.'' A depositor of another recently converted State Savings Bank stated at the hearing that the applicable state mutual-to- stock conversion rules are a ``legalized formula to abscond with the assets of a mutual savings bank''. A spokesman for the Consumer Federation of America testified at the Subcommittee's second hearing, held in Washington, D.C. He stated that ``[t]he Banking Committee can take justifiable pride in the work it performed in 1989 to reform the regulation of the savings and loan industry * * * [b]ut the job is not complete. One area of abuse--the conversion of mutual institutions into stock companies--was left untouched by reforms and this oversight--however accidental--has turned into a wonderful, fur-lined play pen for S&L insiders, conversion law firms and stock manipulating Wall Street fast-buck artists. And, once again, it is the depositor-consumer who is left out in the cold''. He also emphasized the immediacy of the situation in noting that ``[w]e are in the middle of a feeding frenzy''. A law school professor also submitted a written statement to the Subcommittee. He wrote that ``[b]y converting their institutions to the stock form of ownership, and granting themselves generous stock and option awards, trustees and managers can make millions of dollars in conversions. While the conversion form is beneficial, because it will infuse new capital and subject these institutions to market discipline, the decision about whether to convert is left solely in the hands of incumbent management. It is not uncommon for employees and trustees to own as much as 30 percent of the stock after the offering and the exercise of stock options. The stock is free, and--by pricing the options very low, with the help of cooperative regulators and appraisal firms--management can buy stock options at the offering price, secure in the knowledge that pervasive underpricing will enable them to make millions when share prices adjust to true market value''. Moreover, the primary federal regulator of state-chartered and federally chartered savings and loan associations has felt the need to take immediate action to stop abuses. On January 31, 1994, the OTS suspended the acceptance of applications involving merger conversions of mutual savings associations under its supervision. The press release announcing the moratorium noted that ``[the] OTS has grown increasingly troubled over the apparent advantages management of the mutual and the acquirer have in a merger conversion to the detriment of the depositors of the mutual. The moratorium * * * will provide an opportunity for the OTS to re-examine the conversion process''. In light of these frequent expressions of public and governmental concern, and the numerous reports of abusive insider practices, the Board has determined that, until the FDIC completes the ``rulemaking'' process in relation to the Proposed Policy Statement, there is a need to review all pending and new mutual-to-stock conversion applications. The Board believes that, without the immediate implementation of the interim rule, additional conversions will be completed that may entail abusive management action and unsafe and unsound practices. In order to properly fulfill its supervisory role over State Savings Banks, it is necessary that the FDIC have an early opportunity to review banks' conversion plans. As discussed below, if the FDIC identifies a safety- and-soundness concern, a breach of fiduciary duty by an institution's management or possible violation under applicable law, the FDIC will issue a notice of objection which, among other things, will advise the institution that the conversion shall not be consummated unless and until the FDIC rescinds the letter of objection. The enforcement actions available to the FDIC are discussed below. For the above-noted reasons, the Board of Directors has determined that the notice and public participation that are ordinarily required by the Administrative Procedure Act (5 U.S.C. 553) before a regulation may take effect would, in this case, be contrary to the public interest and that good cause exists for waiving the customary 30-day delayed effective date. Nevertheless, the Board desires to have the benefit of public comment before adoption of a permanent final rule on this subject, and so invites interested persons to submit comments during a 30-day comment period. In adopting a final regulation, the Board will make such revisions to the interim rule as may be appropriate based on the comments received on the interim rule and the Proposed Policy Statement. In the past, some State Savings Banks have provided the FDIC with copies of conversion documentation and application materials. This process has been voluntary, inconsistent and, thus, undependable. The interim rule requires State Savings Banks to provide such materials to the FDIC. As discussed below, the FDIC intends to review the conversion documentation and application materials to determine whether there are any issues involving the continued safe-and-sound operation of the bank, whether the proposal contains any potential abuses by management and whether the transaction involves any potential violation of applicable law. The FDIC's authority under section 8 of the FDI Act (12 U.S.C. 1818) includes, among other things, the ability to take action against a State Savings Bank and/or its management that is engaged, or about to engage, in an unsafe or unsound practice in conducting the business of the bank. In order to determine whether a State Savings Bank, in the course of its proposed mutual-to-stock conversion, is about to engage in an activity with safety and soundness implications, the FDIC must be aware of the details of the proposed conversion at an early date; for example, it is important that the FDIC know the bank's business plan for post-conversion operation, growth and investment of any newly injected capital. A mutual-to-stock conversion can be viewed as a material change in the operation of the institution for two reasons. First, substantially increasing the capitalization from the sale of stock can lead to new and additional risks in investing the funds. Secondly, management becomes susceptible to market discipline for the first time with shareholders who demand and expect a reasonable return on their investment--factors which also can lead to additional risks in investing funds. Because of the safety and soundness concerns inherent in the potential for new risks, a comprehensive and realistic business plan is needed for post conversion operations. That information typically is provided in conversion applications required by the state regulators. In the past, certain State Savings Banks that raised substantial capital in mutual-to-stock conversions either failed or became financially troubled because of imprudent use of funds raised through the sale of stock. The Board believes it is necessary for the FDIC to obtain information, as soon as possible, on an institution's intended use of funds generated by the conversion. In one proposed conversion transaction, a state mutual savings bank applied to convert to stock form via a mutual holding company reorganization in which all the non-holding company shares would be obtained only by bank insiders. In that situation, not only would the depositors be denied the opportunity to purchase any shares, but the institution reportedly would end up with less capital as a result of the conversion. This would result because the proceeds of the stock issuance would be less than the cost of the transaction. This particular contemplated transaction not only appears to be unfair to depositors but also raises safety and soundness concerns since capitalization would decline. Section 8(e) of the FDI Act also empowers the FDIC to bring an enforcement action against bank insiders who have committed or are engaged in any act, omission or practice that constitutes a breach of fiduciary duty. In a recent highly publicized case, the Superintendent of Banks of the State of New York (Superintendent) found that a bank's board of trustees breached its fiduciary duty by failing to assure themselves that the bank was properly valued prior to the initiation of the proxy solicitation process.\2\ Specifically, the Superintendent determined that the board of trustees did not, prior to the solicitation of proxies: ``(1) Inform or seek to inform itself about the factors that would be significant in valuing the Bank; (ii) inform or seek to inform itself about the methods by which the appraiser determined the value of the Bank; (iii) seek or receive any in-depth analysis of the Appraisal''. Consequently, the Superintendent found that the trustees violated a provision of New York Banking Law requiring them to exercise a duty of care to ensure the fairness of the conversion by informing themselves about the appraisal and exercising their judgment to determine the reasonableness of the appraisal. --------------------------------------------------------------------------- \2\See, Order Pursuant to Section 39 of the New York Banking Law--In the Matter of The Green Point Savings Bank, Page 18. --------------------------------------------------------------------------- The Superintendent also determined that the adequacy of certain disclosures in the original proxy statement issued by the bank was questionable. For example, the Superintendent found that the proxy statement contained no disclosures regarding another bank's interest in a merger conversion transaction, the trustees' response to that proposed merger and the reasons for the trustees' response. The Superintendent concluded that ``failure to provide depositors with such information about alternate proposals in the Proxy could deprive depositors of the information necessary to evaluate the Trustee's decision to convert, and therefore was misleading''. The Superintendent also found that disclosures in the proxy statement concerning certain stock awards to management and the trustees failed to state the actual dollar value of those benefits and thus were inadequate. In addition, the Superintendent found that the proxy materials did not contain an adequate discussion of the reasons for the conversion and that depositors should have been provided with all of the material factors which led to the trustees' decision to pursue the conversion transaction. Finally, the Superintendent sought and obtained a ``substantial reduction in the stock-based compensation awarded to management and the trustees in connection with the conversion and cancellation of all stock subscriptions at the initial offering price by such individuals and related parties''. As further stated in that Order, those modifications served ``to reduce the opportunities for self-enrichment that could influence the Board's review of the valuation of the Bank''. In this situation, the Superintendent interceded to ensure that the bank's trustees considered and reviewed the reasonableness of the bank's appraisal, provided adequate disclosure to the depositors via a supplemental proxy statement and limited the stock-based compensation awarded to management and the trustees in connection with the conversion transaction. Although state regulation worked in this case to prevent insider windfalls, the FDIC cannot assume that such intervention will occur in every state and in every conversion transaction involving possible insider abuses. The duties and obligations of trustees and officers of mutual savings banks, as illustrated in the foregoing case, are identical to the responsibilities the FDIC has historically enunciated and enforced concerning directors and officers of commercial banks.3 The two principal duties of care and loyalty that directors and officers of commercial banks must exercise on behalf of the institution and its constituencies (i.e., depositors, creditors and shareholders) also obligate trustees of depositor-owned mutual savings banks. Both duties have long antecedents in the common law of corporations and financial institutions.4 --------------------------------------------------------------------------- \3\See e.g., Statement Concerning the Responsibilities of Bank Directors and Officers (FDIC Legal Division, December 3, 1992); Pocket Guide for Directors (FDIC 1988). \4\Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 97 N.E. 897, 39 L.R.A.n.s. 173 (1912) provides a detailed discussion of liability of trustees of a savings bank. --------------------------------------------------------------------------- Trustees (as well as officers) of mutual savings institutions are held to the same standard of care and loyalty as directors and officers of commercial banks. Thus the trustees must fulfill their duty of loyalty to the institution by administering its affairs with the utmost candor, personal honesty and integrity. They are prohibited from advancing their own personal or business interests or those of others at the expense of the bank. This general fiduciary duty has been frequently interpreted to include an element of fairness and good faith which, in the context of mutual-to-stock conversions, affords protection to the depositors/owners of mutual savings banks. Through this interim rule, the FDIC seeks to protect these depositor/owners in a consistent manner. The FDIC, through the interim rule, also requires the trustees of mutual savings banks to adhere to the same standards of loyalty and care that are required of directors and officers of commercial banks in order to prevent insider abuse. Publicized insider abuse (and the lawsuits that such abuses may engender) may have a sufficiently significant impact upon the reputation of a bank to affect its continued viability and, thus, its safety and soundness, resulting in a regulatory violation. In addition, section 39 of the FDI Act (12 U.S.C. 1831p-1(c)) provides that excessive compensation, or compensation that could lead to a material financial loss for an institution, is an unsafe and unsound practice.5 As noted above, excessive profits to insiders is a troubling aspect of some recent State Savings Bank conversions to stock form. --------------------------------------------------------------------------- \5\Proposed regulations on section 39 of the FDI Act have been published. 58 FR 60819 (November 18, 1993). --------------------------------------------------------------------------- Explanation of the Interim Rule The interim rule adds a new section to part 303 of the FDIC's regulations (12 CFR 303.15) prohibiting State Savings Banks from converting to stock form without complying with the requirements of the section. The interim rule requires State Savings Banks that propose to convert to stock ownership to file with the FDIC a notice of intent to convert to stock form consisting of a description of the proposed conversion accompanied by a copy of all documentation and application materials filed with the applicable state and federal regulators. The notice may be in letter form and must be provided to the FDIC (along with copies of the application materials) at the same time the application materials are filed with the institution's primary state regulator. State Savings Banks that already have filed conversion applications and disclosure materials with the applicable state and federal banking and/or securities regulators (or otherwise have initiated a proposed mutual to stock conversion) prior to the effective date of the interim rule should contact their applicable FDIC Regional Office as soon as possible and provide that office with the conversion notice and application and disclosure materials as soon as practicable. The FDIC intends to review such materials expeditiously so as not to interfere with the completion of proposed conversions to which the FDIC would not object. The FDIC will review all conversion materials with a special interest in: The use of the proceeds from the sale of stock, as described in the business plan; the adequacy of the disclosure materials; the participation of depositors in approving the transaction; the form of the proxy statement required for the vote of the depositors/members on the conversion6; any increased compensation and other remuneration (including stock grants, stock option rights and other similar benefits) to be obtained by officers and directors/trustees of the bank in connection with the conversion; the adequacy and independence of the appraisal of the value of the mutual savings bank for purposes of determining the price of the shares of stock to be sold; the process by which the bank's trustees approved the appraisal, the pricing of the stock and the compensation arrangements for insiders; the nature and apportionment of stock subscription rights; and the extent of any existing and planned contributions to or investments in the community. In a merger/ conversion, the FDIC will pay particular attention to the value offered to depositors of the converting institution and the compensation packages offered to management. --------------------------------------------------------------------------- \6\ One issue would be whether the applicable state law and/or the plan of conversion requires a special proxy for the conversion or whether management expects to use an existing general proxy to vote for the depositor/member on the conversion. --------------------------------------------------------------------------- The FDIC generally expects proposed conversions to substantially satisfy the standards found in the mutual-to-stock conversions regulations of the OTS (12 CFR part 563b). Any variance from those regulations will be closely scrutinized. Compliance with OTS requirements will not, however, necessarily be sufficient for FDIC regulatory purposes. In imposing the requirements of the interim rule the Board does not intend to discourage State Savings Banks from converting to stock form for legitimate business purposes. The FDIC recognizes that stock conversions can be very effective and beneficial in raising capital, particularly for banks whose capital does not meet regulatory standards. In particular, the FDIC does not intend to impede the completion of supervisory conversions, which entail the capitalization of undercapitalized institutions and thereby minimize costs to the FDIC insurance funds. In such situations, the FDIC intends to act as quickly as reasonable in reviewing the proposed conversion materials and might not object to a conversion transaction that does not come within the parameters of the OTS' regulations, provided that the transaction likely would prevent a loss to the applicable deposit insurance fund. Under the interim rule, a bank's notice to the FDIC will not be deemed complete until the State Savings Bank provides the materials required by the interim rule, including any materials specifically requested by the FDIC after the bank's initial submission. The FDIC will notify the institution when the notice is complete. The FDIC will issue to the converting bank a notice of intent not to object to the proposed conversion, if the FDIC determines that the proposed conversion would not pose a risk to the safety and soundness of the bank, violate any law or regulation or present a breach of fiduciary duty. Such notice of non-objection shall be provided within 60 days after the FDIC receives a complete notice of the proposed conversion and a copy of all documentation and application materials. If the FDIC does not provide a non-objection letter within 60 days after the FDIC receives a complete notice of the proposed conversion, the bank may consummate the conversion; however, the FDIC has the discretion to extend the initial 60-day period an additional 60 days. In situations where the FDIC identifies a safety and concern, violation of any law or regulation or breach of fiduciary duty, the FDIC will issue to the institution a letter of objection to the proposed conversion. Under the interim rule, the State Savings Bank may not consummate the conversion until the FDIC has rescinded such a letter. The FDIC intends to use its administrative authority, if necessary, to correct the concerns expressed in the letter of objection and to enforce compliance with the interim rule. Violations of regulations can result in, among other things, the FDIC's issuance of a cease and desist order and/or temporary cease and desist order under 12 U.S.C. 1818(b) and/or (c). The order could not only prohibit conduct, but also require affirmative action. In addition, the FDIC could remove and/or prohibit a party from participating in the conduct of the affairs of a bank under section 8(e) of the FDI Act (12 U.S.C. 1818(e)). Moreover, anyone involved in a conversion transaction, not just the officers, directors and employees of the bank, could be subject to a cease and desist order under section 8(b) and/or (c) of the FDI Act (12 U.S.C. 1818(b), (c)), or a removal and prohibition order under section 8(e) of the FDI Act (12 U.S.C. 1818(e)). In addition, the FDIC could impose civil money penalties under section 8(i) of the FDI Act (12 U.S.C. 1818(i)). The FDIC also could terminate the deposit insurance of the bank under section 8(a)(2) of the FDI Act (12 U.S.C. 1818(a)(2)). Finally, the FDIC also could issue a directive based on noncompliance with section 39 of the FDI Act. Request for Public Comment The FDIC is issuing this interim rule in response to the immediate need to review proposed mutual-to-stock conversions of State Savings Banks. The FDIC is, however, hereby requesting comment during a 30-day comment period on all aspects of the interim rule. List of Subjects in 12 CFR Part 303 Administrative practice and procedure, Authority delegations (Government agencies), Bank deposit insurance, Banks, Banking, Reporting and recordkeeping requirements, Savings associations. For the reasons set out in the preamble, part 303 of chapter III of title 12 of the Code of Federal Regulations is amended as follows: PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR REGULATION 1. The authority citation for part 303 is revised to read as follows: Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(a)(2)(b), 1817(j), 1818, 1819 (``Seventh'' ``Eighth'' and ``Tenth''), 1828, 1831e, 1831o, 1831p-1(a); 15 U.S.C. 1607. 2. A new Sec. 303.15 is added to read as follows: Sec. 303.15 Mutual-to-stock conversions of mutually owned state- chartered savings banks. (a) Requirement for mutual-to-stock conversion. An insured state- chartered mutually owned savings bank shall not convert to stock form, except as provided for in this section. (b) Prior notice requirement. An insured state-chartered mutually owned savings bank that proposes to convert from mutual to stock form shall file with the FDIC a notice of intent to convert to stock form and copies of all documents filed with state and federal banking and/or securities regulators in connection with the proposed conversion. An institution that is in the process of converting to stock form that has filed a proposed stock conversion application with the applicable state and federal regulators (or otherwise has initiated a stock conversion) prior to the effective date of this section shall file the required materials with the FDIC as soon as practicable. An insured mutual savings bank chartered by a state that does not require the filing of application materials to convert from mutual to stock form that proposes to convert to the stock form shall notify the FDIC of the proposed conversion and provide the materials requested by the FDIC. (c) Content and filing of notice--(1) Content of notice. The notice required to be filed under paragraph (b) of this section shall provide a description of the proposed conversion and include a copy of all notices or applications concerning the proposed conversion, including all attachments or appendices thereto, that have been filed with any state and federal banking and/or securities regulators. Copies of all agreements entered into as part of the mutual-to-stock conversion between the institution, its officers, directors/trustees and any other institution and/or its successors also must be provided. (2) Filing of notice. Notices shall be filed with the regional director (Division of Supervision) in the region in which the institution seeking to convert is headquartered at the same time as the conversion application materials are filed with the institution's primary state regulator. (d) Review by FDIC. (1) The FDIC shall review the materials submitted by the institution seeking to convert from mutual to stock form. The FDIC, in its discretion, may request any additional information it deems necessary to evaluate the proposed conversion and the institution shall provide such information to the FDIC expeditiously. Among the factors to be reviewed by the FDIC are: (i) The use of the proceeds from the sale of stock, as described in the business plan; (ii) The adequacy of the disclosure materials; (iii) The participation of depositors in approving the transaction; (iv) The form of the proxy statement required for the vote of the depositors/members on the conversion; (v) Any increased compensation and other remuneration (including stock grants, stock option rights and other similar benefits) to be obtained by officers and directors/trustees of the bank in connection with the conversion; (vi) The adequacy and independence of the appraisal of the value of the mutual savings bank for purposes of determining the price of the shares of stock to be sold; (vii) The process by which the bank's trustees approved the appraisal, the pricing of the stock and the compensation arrangements for insiders; (viii) The nature and apportionment of stock subscription rights; and (ix) The extent of any existing and planned contributions to or investments in the community. (2) In reviewing the materials required to be submitted under this section, the FDIC will take into account the extent to which the proposed conversion conforms with the various provisions of the mutual- to-stock conversion regulations of the Office of Thrift Supervision (12 CFR Part 563b), as currently in effect at the time the FDIC reviews the required materials related to the proposed conversion. Any non- conformity with those provisions will be closely scrutinized. Conformity with the OTS requirements, however, will not be sufficient for FDIC regulatory purposes if the FDIC determines that the proposed conversion would pose a risk to the institution's safety and soundness, violate any law or regulation or present a breach of fiduciary duty. (e) Notification of completed filing of materials. The FDIC shall notify the institution when all the required materials related to the proposed conversion have been filed with the FDIC and the notice is thereby complete for purposes of computing the time periods designated in paragraphs (f) and (h) of this section. (f) Notice of intent not to object. If the FDIC determines, in its discretion, that the proposed conversion would not pose a risk to the institution's safety and soundness, violate any law or regulation or present a breach of fiduciary duty, then the FDIC shall issue to the bank seeking to convert, within 60 days of receipt of a complete notice of proposed conversion, a notice of intent not to object to the proposed conversion. The FDIC may, in its discretion, extend by written notice to the institution the initial 60-day period by an additional 60 days. (g) Letter of objection. If the FDIC determines, in its discretion, that the proposed conversion poses a risk to the institution's safety and soundness, violates any law or regulation or presents a breach of fiduciary duty, then the FDIC shall issue a letter to the institution stating its objection(s) to the proposed conversion and advising the institution that the conversion shall not be consummated until such letter is rescinded. A copy of the letter of objection shall be furnished to the institution's primary state regulator and any other state or federal banking and/or securities regulator involved in the conversion. The letter of objection shall advise the institution of its right to petition the FDIC for reconsideration under Sec. 303.6(e) of the FDIC's regulations. Such action shall not, in any way, prohibit the FDIC from taking any other action(s) that it may deem necessary. (h) Consummation of the conversion. An institution may consummate the proposed conversion upon either: (1) the receipt of a notice of intent not to object; or (2) the expiration of the 60-day period following acceptance of a complete notice by the FDIC, unless the FDIC issues a notice of objection before the end of that period and, in which case, the conversion shall not be consummated until such letter is rescinded. The FDIC may, in its discretion, extend by written notice to the institution the initial 60-day period by an additional 60 days. (i) Delegation of authority. The authority to issue notices of intent not to object or letters of objection, to rescind such letters, to determine and to issue letters of non-objection, to determine the adequacy of the information submitted, to determine when the time periods prescribed in this section begin to run and whether to extend the time periods under paragraphs (f) and (h) of this section, and to notify institutions of the completion of the filing of the required materials is delegated to the Executive Director of Supervision and Resolutions, the Director of the Division of Supervision, and, where confirmed in writing by the Director of Supervision, to an associate director of the Division of Supervision or the regional director(s) (Division of Supervision) or deputy regional director(s) (Division of Supervision). By the order of the Board of Directors. Dated at Washington, D.C., this 8th day of February, 1994. Federal Deposit Insurance Corporation Robert E. Feldman, Acting Executive Secretary. [FR Doc. 94-3527 Filed 2-14-94; 8:45 am] BILLING CODE 6714-01-P