[Federal Register Volume 62, Number 196 (Thursday, October 9, 1997)]
[Notices]
[Pages 52886-52889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26230]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Applications To Relocate Main Office or Branch Statement of
Policy (Includes Remote Service Facilities; Rescission of Policy
Statement)
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed rescission of statement of policy.
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SUMMARY: As part of the FDIC's systematic review of its regulations and
written policies under section 303(a) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC
proposes to rescind its Statement of Policy ``Applications to Relocate
a Main Office or Branch (Includes Remote Service Facilities)''
(Statement of Policy).
The Statement of Policy provides information and guidance to state
nonmember banks planning to relocate the bank's main office or a
branch. The information and guidance is out-of-date. The FDIC proposes
to rescind the Statement of Policy because proposed revisions to its
applications regulation published elsewhere in today's Federal Register
update the requirements and sufficiently address all required
application procedures to relocate a main office or a branch.
DATES: Comments must be submitted on or before January 7, 1998.
ADDRESSES: Send written comments to Robert E. Feldman, Executive
Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may
be hand-delivered to the guard station at the rear of the 17th Street
building (located on F Street), on business days between 7 a.m. and 5
p.m. (Fax number (202) 898-3838; Internet address: comments@fdic.gov).
Comments may be inspected and photocopied in the FDIC Public
Information Center, Room 100, 801 17th Street, NW., Washington, DC
20429, between 9 a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Jesse G. Snyder, Assistant Director,
(202/898-6915), Division of Supervision; Susan van den Toorn, Counsel,
(202/898-8707), Legal Division, FDIC, 550 17th Street, NW, Washington,
DC 20429.
SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review
of its regulations and written policies. Section 303(a) of the CDRI (12
U.S.C. 4803(a)) requires the FDIC to streamline and modify its
regulations and written policies in order to improve efficiency, reduce
unnecessary costs, and eliminate unwarranted constraints on credit
availability. Section 303(a) also requires the FDIC to remove
inconsistencies and outmoded and duplicative requirements from its
regulations and written policies. As part of this review, the FDIC has
determined that the Statement of Policy is outmoded, and that the
FDIC's written policies can be streamlined by its elimination.
The FDIC developed the Statement of Policy to provide general
supervisory information and guidance to state nonmember banks relative
to the application process and the evaluation of statutory factors in
relocating main office or branches. The FDIC last amended the Statement
of Policy September 8, 1980. 2 FDIC Law, Regulations, and Related Acts
(FDIC) 5125.
In the time since the Statement of Policy was last amended, the
application process for relocating branches and main offices has
changed significantly. As a result, the supervisory information and
guidance contained in the Policy Statement, which although general in
nature, are now out-of-date.
As part of the FDIC's comprehensive review of its applications
process, elsewhere in today's Federal Register, the FDIC is proposing
to amend part 303. The proposed revisions to part 303 cover the
relocation of main offices and branches in sufficient detail so as to
address the required application procedures. Commenters are invited to
review subpart C of proposed part 303 in conjunction with the proposal
to rescind the Statement of Policy.
For the above reasons, the FDIC proposes to rescind the following
Statement of Policy:
Applications To Relocate Main Office or Branch (Includes Remote
Service Facilities)
A. Introduction
Section 18(d) of the Federal Deposit Insurance Act (12 U.S.C.
1828(d); hereafter the (Act) requires the prior written consent of the
Corporation before any state nonmember insured bank may move its main
office or any branch. In analyzing these applications, the Corporation
must evaluate each application in relation to the six statutory factors
prescribed in section 6 of the Act (12 U.S.C. 1816) as well as the
requirements of the National Historic Preservation Act, the National
Environmental Policy Act of 1969, and the Community Reinvestment Act.
The six statutory factors under section 6 of the Act are: the financial
history and condition of the bank, the adequacy of its capital
structure, its future earnings prospects, the general character of
management, the convenience and needs of the community to be served by
the bank, and whether its corporate powers are consistent with the
purposes of the Act.
The degree and extent to which the six statutory factors are
applied in reviewing relocation applications depend largely upon the
nature and purpose of the relocation which, in the majority of
instances, are of two basic types: (1) Relocations to a different
primary market area; and (2) relocations within the same primary market
area. It is noteworthy that the Corporation will analyze all relocation
applications from the standpoint of the convenience and needs of the
community the office is leaving as well as the community to which it is
moving.
B. Procedures
Application forms to relocate and instructions for their completion
may be obtained from the regional office of the FDIC region in which
the main office of the applicant is located. Upon receipt of an
application which is found complete, the regional director will notify
the bank, in writing, that the application has been accepted for filing
and the date thereof. The procedures governing the administrative
processing of relocation applications are contained in part 303 of the
Corporation's rules and regulations (12 CFR part 303), particularly
Secs. 303.3, 303.10, 303.11, 303.12, and 303.14. Section 303.14 sets
forth, among other things, the procedures controlling establishment of
a public file, publication requirements, and consideration of comments
and protests received in connection with an application.
The Corporation will normally not render a decision on any
relocation application until the State Authority has approved or
expressed its intent to approve the proposal; however, applicants are
encouraged to submit their applications to the Corporation at the same
time an application is forwarded to the State Authority in order to
promote concurrent and more timely processing of the proposal.
Notification of the granting or denial of an application will be
provided together with a statement supporting the decision. Under
Sec. 303.10(e) within 15
[[Page 52887]]
days of receipt of notice that its application has been denied, the
applicant may petition the Board of Directors for reconsideration of
the application. Opinions will be published when the Corporation
determines that the decision represents a new or change in policy or
presents issues of general importance to the public or the banking
industry.
Under Sec. 303.14(i) of the Corporation's rules and regulations,
where the Board of Directors, based upon available information at the
time, plans to deny an application and no hearing has been held under
Sec. 303.14(e), the Director of the Division of Bank Supervision may be
instructed to notify the applicant in writing of the tentative denial.
The applicant has 15 days from receipt of the notice to file a written
request to amend the application or to submit information in rebuttal
of the deficiencies noted. Upon filing of such a request, the applicant
has 30 days to amend its application or to provide rebuttal
information.
There is no application form for the relocation of a remote service
facility. The regulations issued by the Corporation in March 1979
provide that an applicant merely notify the regional director of its
intention, comply with the appropriate publication requirements and,
unless notified otherwise by the regional director, the remote service
facility may be relocated 30 days after the last publication date.
C. Statutory Factors--Application To Relocate to Different Primary
Market Area
1. Financial History and Condition
In connection with applications for relocation to a different
primary market area the emphasis will, of course, be placed on the
financial history and condition of the existing bank. The relocation of
an office to a different primary market area normally encompasses risks
or a degree of management attention which banks that are experiencing
financial difficulties are not generally prepared to undertake. Banks
with excessive volumes of subquality assets, significant liquidity
problems, or other problems threatening the soundness of the
institution would fall in this category.
Under this factor, as well as under the general character of
management factor, the current asset condition of the bank and its
compliance with applicable laws and regulations are primary areas of
consideration. Other primary areas of consideration here are investment
in fixed assets, including leases, and insider transactions, all of
which also impact importantly on the evaluation of the general
character of management factor. Lease transactions shall be reported in
accordance with Financial Accounting Standards Board Statement 13 as
required by the Instructions for the Preparation of Consolidated Report
of Income and Condition.
(a) Investment in Fixed Assets and Leases--The applicant's
aggregate direct and indirect fixed asset investment, including lease
obligations, must be reasonable in relation to its projected earnings
capacity, capital and other pertinent bases for consideration. Except
where state law obviates the need, lease agreements should contain a
bankruptcy termination clause acceptable to the Corporation. An example
of such clause may be obtained from the regional office.
It is recommended that applicants should not purchase any fixed
assets or enter into any noncancelable construction contracts, lease
agreements, or other binding arrangements related to the proposed
relocation unless and until the Corporation approves the application.
The Corporation expects applicants to follow closely the
representations made in the application regarding fixed asset
arrangements. If any substantive changes become necessary in fixed
asset arrangements, including increases of 10% or more in the cost of
any major category of fixed assets (such as land, building, or
furniture fixtures and equipment), after submission of the application,
applicant must promptly advise the regional director of these changes
as well as its plans for the old quarters. Major changes may result in
reconsideration.
(b) Insider Transactions--Any financial arrangement or transaction
involving the applicant, its directors, officers, 5% shareholders, or
their associates and interest (hereafter referred to as ``insiders'')
should ordinarily be avoided. If there are arrangements or transactions
of that type, the applicant must demonstrate clearly that any proposed
transactions with insiders are made on substantially the same terms as
those prevailing at the time for comparable transactions with
noninsiders and do not involve more than normal risk or present other
unfavorable features to the applicant bank. In addition, full
disclosure of any arrangements with an insider must be made to all
directors and shareholders and, in the event any new capital offering
is to be made, included in any new capital offering material
distributed in connection with the application.
Whenever any transaction between the applicant and an insider
involves the purchase of real property or a construction contract, the
purchase price must be supported by an independent appraisal or in the
case of a construction contract by competitive bids. Further, with
respect to any lease arrangement between the applicant and an insider,
the applicant must submit reliable evidence showing that the lease
arrangement is as beneficial to the applicant as the purchase of the
property and direct ownership. Normally, this type of lease arrangement
will also be required to include terms protecting the bank against
unreasonable escalation of payments under the lease and granting the
bank the option to purchase the property during the life of the lease
on appropriate terms.
2. Adequacy of Capital Structure
The relocation of an office to a different primary market area
generally involves an expansion of deposits and/or an increase in
expenses not immediately offset by additional income. This normally
results in some dissipation of relative capital strength. Consequently,
banks contemplating a relocation must possess an adequate level of
capital protection or, in the case of capital deficiencies not
considered overly extreme, set forth a plan which will improve capital
to more than offset any deterioration which may flow from the
relocation.
The applicant's adjusted capital and reserves, including written
commitments for additional capital funds, should be adequate relative
to its adjusted gross assets. The adjusted capital and reserves is
computed by deducting from total capital and reserves all assets and
nonbook liabilities classified ``loss'' and 50% of those classified
``doubtful'' at the last examination of the applicant. Such facts as
the quality of assets, prospective earnings capacity, volume of risk
assets, liquidity, capability of management, and other factors
affecting the relative strength of a bank will exert either positive or
negative influences on the level of capital protection.
3. Future Earnings Prospects
This factor will be considered both in terms of the relocation and
the applicant bank as a whole. This factor will be measured in terms of
the ability of overall bank earnings to absorb the anticipated expenses
resulting from the proposal. In addition, anticipated future earnings
for the bank as a whole should be adequate, after expenses, to absorb
normal losses, pay reasonable dividends, and provide some meaningful
contribution to capital.
[[Page 52888]]
4. General Character of Management
To be acceptable under this factor a management must, except in
exigent circumstances, have demonstrated, or be expected to
demonstrate, an ability to operate the bank in a manner which is free
of excessive criticism or concern as to the overall soundness and
viability of the institution. In summary, the Corporation views the
quality of a bank's management as critical to its overall success and
will seriously question the relocation of an office to a different
primary market area if the quality of management is not considered
adequate prior to the proposed relocation.
The Corporation will not question fees for legal services or other
organizational expenses solely because of an amount but will consider
the reasonableness of fees in relation to the services performed.
Applicants are required to furnish the amounts of fees for such
services which have been incurred and estimates of additional fees to
be incurred in connection with the proposed transaction. All fees for
legal, organizational or similar services should be disclosed whether
directly or indirectly related to the application pending before the
Corporation. If legal or other organizational fees appear to be
excessive in relation to fees for comparable services, or if the volume
of services performed exceeds that usually incurred with respect to
comparable applications, supportive documentation will be required. In
the case of legal fees, such documentation may consist of materials
such as itemized time sheets showing the time actually expended by
counsel on the applications concerned, the hourly rate charged, and the
specific circumstances, including unusual complexities, the necessity
for agency or court appearances, and the like necessitating the time
expended. In reviewing legal fees for reasonableness, the following
factors will ordinarily serve as guides:
(a) The time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the services
obtained;
(b) The fee customarily charged in the locality for similar legal
services;
(c) The time limitations imposed by the client or by the
circumstances; and
(d) The experience and ability of the lawyer or lawyers performing
the services.
Even though a fee may be wholly or partially absorbed by another
entity such as a holding company, that fee or organizational expense
will nonetheless be reviewed by the Corporation under the terms of this
policy statement in view of the fact that the commitment for the fee or
organizational expense is a commitment of management of the proposed or
existing institution. Expenses for legal or other services rendered by
organizers, present or prospective board members or major shareholders
will receive special scrutiny in this regard for any evidence of self-
dealing to the detriment of the bank and its other shareholders. As a
matter of practice, the FDIC requires full disclosure to all directors
and shareholders of any fee in excess of $5,000 paid to insiders or
their interests.
In no case, states the policy, will an FDIC application be approved
when the payment of a fee, in whole or in part, is contingent upon any
act or forebearance by the Corporation or by any other federal or state
agency or official.
The applicant bank should at all times maintain sufficient surety
bond coverage on its active officers and employees to conform with
generally accepted banking practices and should at all times maintain
an excess employee dishonesty bond in the amount of $1 million or more
if primary blanket bond coverage is less than $1 million.
5. Convenience and Needs of the Community To Be Served
It should be noted that the provisions of the Community
Reinvestment Act are especially relevant in evaluating this statutory
factor. Guidelines on the Community Reinvestment Act may be obtained
from the appropriate regional office.
The essential considerations in evaluating this factor are the
legitimate deposit and credit needs of the community to be served and
the nature and extent of the banking opportunity available to the
applicant in that location and the willingness and ability of the
applicant to serve those needs. Largely because of the requirements of
the Community Reinvestment Act, the Corporation will also evaluate this
factor in terms of the impact of the proposal on the community which
the office is leaving to ascertain the adequacy of banking services
there in light of the move. The ensuing discussion of this factor deals
mainly with the community to which the office is moving.
In keeping with the Corporation's policy of promoting competition
among financial institutions, this factor will generally be considered
favorably when there is reasonable assurance of successful operation of
the office to be relocated (as measured by future earning prospects).
However, competitive considerations will also include whether the
potential viability of a newly organized bank within a market would be
threatened significantly by a proposed relocation.
The applicant bank must clearly define the community it intends to
serve and provide the type of information on that community discussed
below. It is emphasized, however, that the degree of detail that must
be provided may vary depending on the size and type of service to be
offered at the proposed relocation site.
(a) Economic Data--The economic condition and growth potential of
the area to which the bank proposes to relocate, both presently and in
the near term, are important in evaluating the business potential
available, the amount of that business that it can reasonably expect to
secure, and the probable success of the operation. Indicators of the
available business would include, but not be limited to, a description
of the principal industrial, trade, or agricultural activity as well as
the annual value of the primary products in the geographic area. In
addition, trends in employment, residential and commercial
construction, sales, company payrolls, and businesses established are
also important indicators.
(b) Demographic Data--Population figures within the new community
or trade area as well as the surrounding areas are important
determinants in considering convenience and needs. These population
figures should include not only the present population but also data on
population trends for the future. Population characteristics such as
income, age distribution, educational level, occupation, and stability
should be considered.
(c) Competition--Some consideration will be given to the adequacy
or inadequacy of existing bank facilities in the community and in
nearby communities. The growth rate and size of bank and other
financial institutions in the community or trade area may provide
meaningful indications of the economic condition of the area and the
potential business for the office to be relocated. Other financial
institutions such as savings and loan associations, credit unions,
finance companies, mortgage companies and insurance companies may be
considered competing institutions to the extent their services parallel
those of the proposed newly located office.
(d) Other Supporting Data--The extent of new or proposed
residential, commercial and industrial development and construction is
a significant secondary consideration in resolving the
[[Page 52889]]
convenience and needs factor. Evidence of plans for development of
shopping centers, apartment complexes and other residential
subdivisions, factories, or other major facilities near the proposed
site of the proposed newly located office are also relevant.
6. Consistency of Corporate Powers
This factor will rarely be applicable to relocation proposals,
except in those instances where a bank may contemplate some additional
corporate power, not normally exercised by banks, in connection with
its application.
D. Statutory Factors--Application To Relocate Within Same Market Area
Normally, office relocations within the same primary market area
are of a short geographic distance and are intended to expand or
improve services to the consumer. In addition, such relocations are, in
most cases, regarded by the Corporation of less significance than moves
to different primary market areas. Thus, relocations within the same
primary market area generally entail some adjustment and less stringent
application of the standards and the six statutory factors discussed in
section C above. Accordingly, in assessing these types of applications
the Corporation focuses largely on the following factors:
(a) Whether any real estate or other transactions involve any
insiders of the applicant and, if so, whether any insider would realize
a profit or other advantage which would not normally accrue to
noninsiders in comparable transactions;
(b) The impact of fixed asset or other additional expenses
associated with the proposal on the bank's capital adequacy and
earnings capacity;
(c) Whether the bank has or agrees to obtain sufficient surety bond
coverage of its officers and employees to conform with generally
accepted banking practices and maintains or will maintain an excess
employee dishonesty bond in the amount of $1 million or more, if the
primary blanket bond coverage is less than $1 million; and
(d) Whether the application involves special factors, which, in the
opinion of the Board of Directors, have substantial bearing on its
final determination. For example, although the factors described in
paragraphs (a), (b), and (c) above are favorable, the Corporation may
nevertheless deny the application because of the overall serious
financial condition of the applicant bank.
E. Statutory Factors--Relocate Remote Service Facility
In view of the nature of the remote service facility, the six
statutory factors will not be applied to the same degree and extent as
in the case of a traditional branch. For instance, with respect to the
earnings factor, detailed projections of deposits, income and expenses,
are not necessary. A determination that operating expenses will not
burden the bank's future earnings will generally suffice. Similarly,
detailed or extensive economic information and demographic data are not
required when considering the convenience and needs factor.
By order of the Board of Directors.
Dated at Washington, D.C. this 23rd day of September, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 97-26230 Filed 10-8-97; 8:45 am]
BILLING CODE 6714-01-P
