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  99-1040. Capital Distributions

  • [Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
    [Rules and Regulations]
    [Pages 2805-2810]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-1040]
    
    
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    DEPARTMENT OF THE TREASURY
    
    Office of Thrift Supervision
    
    12 CFR Parts 563, 563b
    
    [No. 99-1]
    RIN 1550-AA72
    
    
    Capital Distributions
    
    AGENCY: Office of Thrift Supervision, Treasury.
    
    ACTION: Final rule.
    
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    SUMMARY: The Office of Thrift Supervision (OTS) is issuing a final rule 
    revising its capital distribution regulation. Today's rule updates, 
    simplifies, and streamlines this regulation to reflect OTS's 
    implementation of the system of prompt corrective action (PCA) 
    established under the Federal Deposit Insurance Corporation Improvement 
    Act of 1991 (FDICIA). The final rule also conforms OTS's capital 
    distribution requirements more closely to those of the other banking 
    agencies.
    
    EFFECTIVE DATE: April 1, 1999.
    
    FOR FURTHER INFORMATION CONTACT: Edward J. O'Connell, III, Project 
    Manager, (202) 906-5694; Evelyne Bonhomme, Counsel (Banking and 
    Finance), (202) 906-7052; Karen Osterloh, Assistant Chief Counsel, 
    (202) 906-6639, Regulations and Legislation Division, Chief Counsel's 
    Office, Office of Thrift Supervision, 1700 G Street NW., Washington, 
    D.C. 20552.
    
    SUPPLEMENTARY INFORMATION:
    
    I. Background
    
        On January 7, 1998, the OTS published a proposed rule adding a new 
    subpart E to part 563 to govern capital distributions by savings 
    associations.1 The proposal was intended to update, 
    simplify, and streamline the existing capital distribution rule to 
    reflect OTS's implementation of the system of prompt corrective action 
    (PCA) established under the Federal Deposit Insurance Corporation 
    Improvement Act of 1991 (FDICIA). Consistent with section 303 of the 
    Community Development and Regulatory Improvement Act of 1994 (CDRIA), 
    the proposed rule was also designed to conform the OTS capital 
    distribution regulation to the rules of the other banking agencies, to 
    the extent possible.
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        \1\ 63 FR 1044 (Jan. 7, 1998).
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    II. Summary of Comments and Description of Final Rule
    
    A. General Discussion of the Comments
    
        The public comment period on the proposed rule closed on March 9, 
    1998. Four commenters responded: one federal savings bank, one savings 
    and loan holding company, one law firm representing a federal savings 
    bank, and one trade association. Two commenters supported the proposed 
    rule with certain modifications and clarifications. One commenter, the 
    savings and loan holding company, opposed the proposed changes. Another 
    commenter addressed coverage of capital distributions by operating 
    subsidiaries. The issues raised by the commenters are addressed in the 
    section-by-section analysis below.
    
    B. Section-by-Section Analysis
    
    Proposed Sec. 563.140--What Does this Subpart Cover?
    
        Section 563.140 of the proposed rule described the scope of the 
    regulation. Proposed subpart E would apply to all capital distributions 
    by savings associations. The OTS specifically requested comment on 
    whether the capital distribution rule should also apply to capital 
    distributions by operating subsidiaries of savings associations. This 
    issue is addressed below under Sec. 563.141.
    
    Proposed Sec. 563.141--What is a Capital Distribution?
    
        Proposed Sec. 563.141 defined the term ``capital distribution'' as 
    a distribution of cash or other property to a savings association's 
    owners, made on account of their ownership. The proposed definition, at 
    Sec. 563.141(a), excluded dividends consisting only of a savings 
    association's shares or rights to purchase shares, and excluded 
    payments that a mutual savings association is required to make under 
    the terms of a deposit instrument.
        Capital distributions would also include a savings association's 
    payment to repurchase, redeem, retire, or otherwise acquire any of its 
    shares or other ownership interests, any payment to repurchase, redeem, 
    or otherwise acquire debt instruments included in total capital, and 
    any extension of credit to finance an affiliate's acquisition of those 
    shares or interests. Proposed Sec. 563.141(b). Additionally, a capital 
    distribution would include any direct or indirect payment of cash or 
    other property to owners or affiliates made in connection with a 
    corporate
    
    [[Page 2806]]
    
    restructuring. Proposed Sec. 563.141(c). Finally, proposed 
    Sec. 563.141(d) included as a capital distribution, any transaction the 
    OTS or the Federal Deposit Insurance Corporation (FDIC) determines, by 
    order or regulation, to be in substance a distribution of capital.
        Two commenters addressed this proposed definition. Both responded 
    to OTS's request for comment on whether the final rule, like OTS's 
    existing regulation, should state that a capital distribution includes 
    other distributions charged against the capital accounts of an 
    association. See current Sec. 563.134(a)(1)(iii). Both commenters 
    agreed with the OTS's initial conclusion that all distributions 
    described by this section would be covered under other provisions of 
    the proposed definition of capital distribution.2 The OTS, 
    however, has decided to retain this provision based on its review of a 
    related issue regarding distributions by operating subsidiaries.
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        \2\ 63 FR 1044, at 1046.
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        In the preamble to the proposed rule, the OTS specifically 
    requested comment on whether the capital distribution rule should apply 
    to capital distributions made by operating subsidiaries of savings 
    associations. One commenter argued that the application of the rule to 
    operating subsidiaries would make it more difficult for institutions to 
    raise capital at favorable pricing for the operating subsidiary. The 
    commenter also noted that, in certain instances, distributions by an 
    operating subsidiary would have no impact on the capital accounts of 
    savings associations.
        The final rule does not apply to capital distributions by wholly-
    owned operating subsidiaries. Rather, the OTS believes that its capital 
    distribution rule should apply only when a distribution by an operating 
    subsidiary (or any other subordinate organization) is made to minority 
    shareholders and consequently affects the capital accounts of an 
    association. Generally, for reporting purposes, the accounts of a 
    majority-owned subsidiary are consolidated with those of the parent 
    savings association. For regulatory capital purposes, where the 
    consolidated subsidiary is not wholly owned, the balance sheet account 
    ``minority interests in the equity accounts of subsidiaries that are 
    fully consolidated'' may be included in Tier 1 capital and total 
    capital if certain conditions are met.3 Distributions by 
    such consolidated subsidiaries to shareholders other than the savings 
    association reduce the cited balance sheet account and, therefore, 
    reduce regulatory capital. Accordingly, final Sec. 563.141(d) states 
    that a capital distribution includes any distribution charged against 
    the capital accounts of an association. For example, any distribution 
    by a subsidiary, as defined under the capital rules at 12 CFR 567.1, 
    falls under this subsection if the distribution reduces the savings 
    association's regulatory capital. To ensure that this application of 
    the regulation does not impose undue regulatory burdens that are not 
    justified by safety and soundness considerations, these distributions 
    are not considered capital distributions under the final rule if the 
    savings association will be well capitalized following the 
    distribution.4
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        \3\ 12 CFR 567.5(a)(1)(iii).
        \4\ Of course, OTS may, nonetheless, determine that such a 
    distribution is, in substance, a distribution of capital under final 
    Sec. 563.141(e).
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    Proposed Sec. 563.142--What Other Definitions Apply to this Subpart?
    
        Proposed Sec. 563.142 included other definitions of terms used in 
    Subpart E, including ``affiliate,'' ``capital,'' ``net income,'' 
    ``retained net income,'' and ``shares.'' No commenter addressed this 
    section.
        The final rule amends the definition of affiliate. The proposed 
    rule defined affiliate as any company that controls, is controlled by, 
    or is under common control with another company. The term ``affiliate'' 
    is used twice in the final definition of capital distribution. See 
    Sec. 563.141 (b) and (c), which provide that a capital distribution 
    includes any direct payment of cash or property to owners or affiliates 
    made in connection with a corporate restructuring and includes any 
    extension of credit to finance an affiliate's acquisition of the 
    savings association's shares or ownership interests. The OTS does not 
    believe that direct payments of cash or property or extensions of 
    credit to a subsidiary that is controlled by the thrift should be 
    considered to be a capital distribution. The definition of 
    ``affiliate'' at 12 CFR 563.41(b) generally excludes a thrift's 
    subsidiaries. The OTS believes that this definition is better suited to 
    the capital distribution rule and has amended the final rule 
    accordingly.5 This change will also promote the use of 
    consistent and uniform definitions in OTS regulations.
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        \5\ The proposed definition of ``affiliate'' was based on the 
    Federal Deposit Insurance Act definition. See 12 U.S.C. 1813(w). 
    However, since the PCA capital distribution restrictions do not use 
    this term, the OTS is not required to apply this definition in its 
    rule.
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    Proposed Sec. 563.143--Must I File With the OTS?
    
        The current OTS capital distribution regulation requires all 
    savings associations to file a notice or an application for approval 
    before making any capital distribution.6 The OTS proposed to 
    amend existing procedures to exempt certain savings associations from 
    filing with the OTS.
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        \6\ 12 CFR 563.134 (b) and (c).
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        Proposed Sec. 563.143(a) described when a savings association must 
    file an application and obtain prior OTS approval of a proposed capital 
    distribution. Under this proposed section, a savings association would 
    be required to file an application if the association is not eligible 
    for expedited treatment under OTS's application processing rules at 12 
    CFR 516.3(a), or the total amount of all capital distributions, 
    including the proposed capital distribution, for the applicable 
    calendar year would exceed an amount equal to the savings association's 
    net income for that year to date plus the savings association's 
    retained net income for the preceding two years (the ``retained net 
    income standard'').
        Proposed Sec. 563.143(b) described when a savings association must 
    file a notice of a proposed capital distribution. Under the proposed 
    rule, a savings association would be required to file a notice whenever 
    an application would not be required under Sec. 563.143(a) and: (1) The 
    savings association will not be at least adequately capitalized 
    following the capital distribution; (2) The capital distribution would 
    reduce the amount of, or retire any part of the savings association's 
    common or preferred stock, or retire any part of debt instruments such 
    as notes or debentures included in capital under part 567; (3) The 
    proposed distribution would violate a prohibition contained in any 
    applicable statute, regulation, or agreement between the savings 
    association and the OTS (or the FDIC), or a condition imposed on the 
    savings association in an OTS-approved application or notice; or (4) 
    The savings association is a subsidiary of a savings and loan holding 
    company.
        If neither the savings association nor the proposed capital 
    distribution met any of the criteria listed in Sec. 563.143 (a) or (b), 
    the savings association would not be required to file a notice or an 
    application before making a distribution. See proposed Sec. 563.143(c).
        Two commenters addressed the proposed retained net income standard. 
    One commenter claimed that this standard is too stringent because it 
    would require applications from savings associations that have a large 
    amount of capital, but low retained earnings in the years preceding the 
    capital distribution. Another commenter suggested a
    
    [[Page 2807]]
    
    different standard which would require an application whenever a 
    capital distribution exceeded the association's net income for the year 
    plus an amount equal to the greater of the retained net income for the 
    preceding two years or the amount of available capital above the well 
    capitalized level. The commenter asserted that this change would 
    provide additional flexibility because it would permit associations 
    with strong capital positions to provide dividend distributions or 
    other types of capital distributions through all phases of the economic 
    and business cycle.
        The final rule continues to require an application whenever a 
    proposed capital distribution exceeds the retained net income standard. 
    This standard is based on similar requirements currently imposed on 
    national banks and state member banks. Under 12 U.S.C. 60 and 12 CFR 
    5.64 (1998), a national bank may not declare a dividend if the total 
    amount of all dividends (common and preferred), including the proposed 
    dividend, declared by the national bank in any calendar year exceeds 
    the total of the national bank's retained net income of that year to 
    date, combined with its retained net income of the preceding two years, 
    unless the dividend is approved by the OCC. The Federal Reserve System 
    regulation at 12 CFR 208.19(b)(1998) imposes a similar requirement on 
    state member banks. Adoption of the net income standard will bring the 
    OTS capital distribution regulation into greater uniformity with these 
    other banking agencies and is, thus, consistent with section 303 of the 
    CDRIA.
        One commenter feared that the OTS would use the retained net income 
    standard as a benchmark for approving capital distributions. The final 
    rule does not prohibit capital distributions in excess of this uniform 
    retained net income standard, but rather merely subjects these 
    distributions to greater regulatory scrutiny through the application 
    process. Under the final rule, the OTS may disapprove or deny a capital 
    distribution if it raises safety and soundness concerns. The OTS will 
    make this determination on a case-by-case basis. It has not proposed, 
    and will not use, the retained net income standard as a proxy for a 
    safety and soundness review.
        One commenter recommended that an application and prior OTS 
    approval should be required whenever an institution would not be at 
    least adequately capitalized following the distribution and whenever a 
    proposed distribution would violate a statute or regulation, an 
    agreement with the OTS or the FDIC, or a condition in an OTS-approved 
    application. OTS agrees that a notice procedure is not appropriate 
    under these circumstances. Where a savings association would not be 
    adequately capitalized following a distribution or where a distribution 
    would violate an applicable statute, regulation, agreement or 
    condition, OTS must have a sufficient opportunity to review the 
    specific facts and circumstances and to affirmatively determine whether 
    a proposed distribution should, nonetheless, be permitted.7 
    To ensure that OTS is permitted to fully and adequately make these 
    determinations, the final rule has been revised to require an 
    application under these circumstances.
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        \7\ For example, the PCA statute provides that OTS may permit 
    certain repurchases, redemptions, retirements or other acquisitions 
    of shares or other ownership interests notwithstanding the general 
    prohibition on distributions by inadequately capitalized 
    institutions. To do so, however, OTS must have an opportunity to 
    consult with FDIC and must review the circumstances to determine 
    whether it should permit the capital distribution under the 
    statutory exemption authority. I.e., the OTS must determine that the 
    proposed transaction will be made in connection with the issuance of 
    additional shares or obligations of the institution in at least an 
    equivalent amount, and that the proposed distribution will reduce 
    the institution's financial obligations or otherwise improve the 
    institution's financial position. 12 U.S.C. 1831o(d)(1)(B).
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        One commenter, a savings and loan holding company, asserted that 
    the proposed regulation inappropriately exempts many adequately 
    capitalized institutions from any advance notice or application. The 
    commenter argued that the proposed rule does not provide a sufficient 
    cushion against losses, could pose an unjustifiable risk to the 
    insurance fund, and would not permit the OTS to consider trends within 
    the institution and the long-term consequences of disbursal of capital.
        The OTS has modified the final Sec. 563.143(b) to require a notice 
    when an institution would not be well capitalized following the 
    distribution. Such advance notice will provide the OTS with the 
    opportunity to consider whether a proposed distribution by an 
    adequately capitalized institution raises safety and soundness 
    concerns. Such safety and soundness concerns may arise, for example, 
    where the amount of capital held by an adequately capitalized 
    institution following a distribution would be insufficient to offset 
    other factors, such as high risk activities conducted by the 
    institution.
        The proposed and final rule require a notice or application 
    whenever the savings association is a subsidiary of a savings and loan 
    holding company. This provision implements 12 U.S.C. 1467a(f), which 
    requires such savings associations to notify OTS at least 30 days 
    before the proposed declaration of any dividend. Two commenters 
    objected to this provision, but recognized its statutory basis.
    
    Proposed Sec. 563.144--How Do I File With the OTS?
    
        Proposed Sec. 563.144 prescribed the procedures for filing of 
    capital distribution notices or applications with the OTS. Proposed 
    Sec. 563.144(c) would permit a savings association to file schedules of 
    proposed capital distributions over a specified period not to exceed 12 
    months. One commenter urged the OTS to clarify that if the agency 
    objects to one or more capital distributions in the proposed schedule, 
    the savings association would not be required to refile a notice or 
    application for the other capital distributions on the schedule. 
    Section 563.146 has been revised to specifically state that the OTS may 
    disapprove a notice or deny an application ``in whole or in part.'' 
    Accordingly, under the final rule, the savings association would not be 
    required to refile its application or notice for the approved 
    distributions on the schedule.
    
    Proposed Sec. 563.145--May I Combine my Notice or Application With 
    Other Notices or Applications?
    
        Proposed Sec. 563.145 would allow a savings association to combine 
    a capital distribution notice or application with any related notice or 
    application filed with the OTS.
        One commenter objected to combined filings, particularly combined 
    filings by a less than well capitalized association. When a savings 
    association combines a capital distribution notice or application with 
    another filing, it must include all relevant information necessary to 
    support each request. The OTS will review each request under the 
    applicable review standards for that request. Since combined filings 
    will not affect the OTS's review of requests, but may reduce the 
    regulatory burden of filing separate applications, the final rule 
    continues to permit these filings.
        Another commenter argued that the reference to ``related'' notices 
    or applications was vague and urged the OTS to permit combined filings 
    without restrictions. As noted above, OTS policy is to minimize burden, 
    including paperwork burdens associated with applications and notices, 
    whenever possible. The final rule has been clarified to state that a 
    savings association may combine filings when the proposed capital 
    distribution is a part of, or proposed in connection with,
    
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    any other transaction requiring a notice or application under OTS 
    regulations.
    
    Proposed Sec. 563.146--Will the OTS Permit my Capital Distribution?
    
        Proposed Sec. 563.146 set forth the standards under which the OTS 
    would disapprove a notice or deny an application for a capital 
    distribution. Under proposed Sec. 563.146, the OTS could deny a capital 
    distribution if the savings association would be undercapitalized 
    following the distribution and the distribution did not fall within the 
    statutory exemption at 12 U.S.C. 1831o(d)(1)(B). This statutory 
    exception permits the OTS, in consultation with the FDIC, to approve an 
    undercapitalized institution's repurchase, redemption, retirement or 
    acquisition of shares or ownership interests. To be exempt, however, 
    the distribution must be made in connection with the issuance of 
    additional shares in at least an equivalent amount, and must either 
    reduce the institution's financial obligations or otherwise improve its 
    financial condition.
        One commenter urged the OTS to authorize the use of the statutory 
    exception if the distribution would improve the savings association's 
    capital position, even though the savings association would not become 
    adequately capitalized as a result of the distribution. Provided all 
    other statutory conditions for exemption are met, the statutory 
    prerequisite that a capital distribution must ``otherwise improve the 
    institution's financial condition'' does not, on its face, require that 
    the association be adequately capitalized following the transaction. In 
    exercising its discretion under the statute, the OTS may consider this 
    factor. The OTS, however, will make the decision to grant or deny an 
    exemption on a case-by-case basis.
        The OTS has made a minor change to Sec. 563.146 to clarify that the 
    OTS will review all notices and applications under the review 
    procedures in 12 CFR 516, subpart A. In light of this clarifying 
    change, the OTS has also revised the application and notice content 
    requirements at Sec. 563.144(a) to delete the unnecessary cross-
    reference to application review standards at Sec. 516.3(b).
    
    Conditions Imposed in Written Agreements
    
        Existing Sec. 563.134(e)(2) and (3) address the impact of the 
    capital distribution rule on more stringent and less stringent 
    provisions or conditions imposed in written agreements between a 
    savings association and the OTS, or imposed on a savings association in 
    an OTS-approved application or notice. Specifically, existing 
    Sec. 563.134(e)(2) states that the capital distribution rule supersedes 
    less stringent agreements and conditions of approved applications. 
    Under existing Sec. 563.134(e)(3), a savings association is subject to 
    agreements and approval conditions that are more stringent than the 
    capital distribution rule.\8\
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        \8\ The savings association may file a written notice with the 
    OTS requesting relief from the application of the more stringent 
    condition or agreement. See 12 CFR 563.134(e)(3).
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        One commenter argued that these provisions would be helpful in 
    determining when a proposed distribution would violate a prohibition 
    contained in an agreement between the savings association and the OTS 
    (or the FDIC), or a condition in an OTS-approved application. See final 
    Sec. 563.143(a)(4), which requires an application under these 
    circumstances. The OTS, however, believes that Sec. 563.134(e)(2) and 
    (3) do not provide significant useful guidance in interpreting the 
    regulation. Moreover, because these paragraphs have only a limited 
    applicability, they have not been included in the final rule.
    
    III. Executive Order 12866
    
        The Director of the OTS has determined that this final rule does 
    not constitute a ``significant regulatory action'' for purposes of 
    Executive Order 12866.
    
    IV. Regulatory Flexibility Act
    
        Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
    OTS certifies that this proposed regulation will not have a significant 
    economic impact on a substantial number of small entities. The final 
    rule conforms the capital distribution regulation to standards already 
    in place for all depository institutions, including savings 
    associations, as a result of PCA and makes other revisions designed to 
    lower paperwork and other burdens on savings associations.
    
    V. Unfunded Mandates Act of 1995
    
        Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
    104-4 (Unfunded Mandates Act), requires that an agency prepare a 
    budgetary impact statement before promulgating a rule that includes a 
    federal mandate that may result in expenditure by state, local, and 
    tribal governments, in the aggregate, or by the private sector, of $100 
    million or more in any one year. If a budgetary impact statement is 
    required, section 205 of the Unfunded Mandates Act also requires an 
    agency to identify and consider a reasonable number of regulatory 
    alternatives before promulgating a rule. The OTS has determined that 
    the final rule will not result in expenditures by state, local, or 
    tribal governments or by the private sector of $100 million or more. As 
    discussed in the preamble, the final rule merely conforms the capital 
    distribution regulation to standards already in place for all 
    depository institutions as a result of PCA and makes other revisions 
    designed to lower paperwork and other burdens on savings associations. 
    Accordingly, this rulemaking is not subject to section 202 of the 
    Unfunded Mandates Act.
    
    VI. Paperwork Reduction Act
    
        The information collection requirements contained in this final 
    rule have been submitted to and approved by the Office of Management 
    and Budget in accordance with the Paperwork Reduction Act of 1995 (44 
    U.S.C. 3507(d)) under OMB Control No. 1550-0059. Comments on the 
    collections of information should be sent to the Office of Management 
    and Budget, Paperwork Reduction Project (1550-0059), Washington, D.C. 
    20503, with copies to the Regulations & Legislation Division (1550-
    0059), Chief Counsel's Office, Office of Thrift Supervision, 1700 G 
    Street, NW., Washington, D.C. 20552.
        The information collection requirements contained in this rule are 
    found in 12 CFR 563.143-563.146. The OTS requires this information for 
    the proper supervision of capital distributions by savings 
    associations. The likely respondents/recordkeepers are savings 
    associations.
        Respondents/recordkeepers are not required to respond to the 
    collections of information unless the collection displays a currently 
    valid OMB control number.
    
    List of Subjects
    
    12 CFR Part 563
    
        Accounting, Advertising, Crime, Currency, Investments, Reporting 
    and recordkeeping requirements, Savings associations, Securities, 
    Security bonds.
    
    12 CFR Part 563b
    
        Reporting and recordkeeping requirements, Savings associations, 
    Securities.
    
        Accordingly, the Office of Thrift Supervision amends chapter V, 
    title 12 of the Code of Federal Regulations as set forth below.
    
    PART 563--OPERATIONS
    
        1. The authority citation for part 563 is revised to read as 
    follows:
    
    
    [[Page 2809]]
    
    
        Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
    1817, 1820, 1828, 1831o, 3806; 42 U.S.C. 4106.
    
    
    Sec. 563.134  [Removed]
    
        2. Section 563.134 is removed.
        3. Subpart E is revised to read as follows:
    
    Subpart E--Capital Distributions
    
    Sec.
    563.140  What does this subpart cover?
    563.141  What is a capital distribution?
    563.142  What other definitions apply to this subpart?
    563.143  Must I file with the OTS?
    563.144  How do I file with the OTS?
    563.145  May I combine my notice or application with other notices 
    or applications?
    563.146  Will the OTS permit my capital distribution?
    
    Subpart E--Capital Distributions
    
    
    Sec. 563.140  What does this subpart cover?
    
        This subpart applies to all capital distributions by a savings 
    association (``you'').
    
    
    Sec. 563.141  What is a capital distribution?
    
        A capital distribution is:
        (a) A distribution of cash or other property to your owners made on 
    account of their ownership, but excludes:
        (1) Any dividend consisting only of your shares or rights to 
    purchase your shares; or
        (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;
        (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 Sec. 567.5 of this chapter, and 
    any extension of credit to finance an affiliate's acquisition of your 
    shares or interests;
        (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;
        (d) Any other distribution charged against your capital accounts if 
    you would not be well capitalized, as set forth in Sec. 565.4(b)(1) of 
    this chapter, following the distribution; and
        (e) Any transaction that the OTS or the Corporation determines, by 
    order or regulation, to be in substance a distribution of capital.
    
    
    Sec. 563.142  What other definitions apply to this subpart?
    
        The following definitions apply to this subpart:
        Affiliate means an affiliate, as defined under Sec. 563.41(b) of 
    this part.
        Capital means total capital, as defined under Sec. 567.5(c) of this 
    chapter.
        Net income means your net income computed in accordance with 
    generally accepted accounting principles.
        Retained net income means your net income for a specified period 
    less total capital distributions declared in that period.
        Shares 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.
    
    
    Sec. 563.143  Must I file with the OTS?
    
        Whether and what you must file with the OTS depends on whether you 
    and your proposed capital distribution fall within certain criteria.
        (a) Application required.
    
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                      If:                                                   Then you:
    ----------------------------------------------------------------------------------------------------------------
    (1) You are not eligible for expedited  Must file an application with the OTS.
     treatment under Sec.  516.3(a) of
     this chapter.
    ----------------------------------------------------------------------------------------------------------------
    (2) The total amount of all of your     Must file an application with the OTS.
     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.
    ----------------------------------------------------------------------------------------------------------------
    (3) You would not be at least           Must file an application with the OTS.
     adequately capitalized, as set forth
     in Sec.  565.4(b)(2) of this chapter,
     following the distribution.
    ----------------------------------------------------------------------------------------------------------------
    (4) Your proposed capital distribution  Must file an application with the OTS.
     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.
    ----------------------------------------------------------------------------------------------------------------
    
        (b) Notice required.
    
    ----------------------------------------------------------------------------------------------------------------
      If you are not required to file an
      application under paragraph (a) of                                    Then you:
              this section, but:
    ----------------------------------------------------------------------------------------------------------------
    (1) You would not be well capitalized,  Must file a notice with the OTS.
     as set forth under Sec.  565.4(b)(1),
     following the distribution.
    ----------------------------------------------------------------------------------------------------------------
    (2) Your proposed capital distribution  Must file a notice with the OTS.
     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 Sec.
     563.81).
    ----------------------------------------------------------------------------------------------------------------
    (3) You are a subsidiary of a savings   Must file a notice with the OTS.
     and loan holding company.
    ----------------------------------------------------------------------------------------------------------------
    
    
    [[Page 2810]]
    
        (c) No prior notice required.
    
    ----------------------------------------------------------------------------------------------------------------
     
    ----------------------------------------------------------------------------------------------------------------
    If neither you nor your proposed        Then you do not need to file a notice or an application with the OTS
     capital distribution meet any of the    before making a capital distribution.
     criteria listed in paragraphs (a) and
     (b) of this section.
    ----------------------------------------------------------------------------------------------------------------
    
    Sec. 563.144  How do I file with the OTS?
    
        (a) Contents. Your notice or application must:
        (1) Be in narrative form.
        (2) Include all relevant information concerning the proposed 
    capital distribution, including the amount, timing, and type of 
    distribution.
        (3) Demonstrate compliance with Sec. 563.146.
        (b) Schedules. Your notice or application may include a schedule 
    proposing capital distributions over a specified period, not to exceed 
    12 months.
        (c) Timing. 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.
    
    
    Sec. 563.145  May I combine my notice or application with other notices 
    or applications?
    
        You may combine the notice or application required under 
    Sec. 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:
        (a) State that the related notice or application is intended to 
    serve as a notice or application under this subpart; and
        (b) Submit the notice or application in a timely manner.
    
    
    Sec. 563.146  Will the OTS permit my capital distribution?
    
        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 Sec. 563.143, in whole or 
    in part, if the OTS makes any of the following determinations.
        (a) You will be undercapitalized, significantly undercapitalized, 
    or critically undercapitalized as set forth in Sec. 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).
        (b) Your proposed capital distribution raises safety or soundness 
    concerns.
        (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.
    
    PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM
    
        4. The authority citation for part 563b continues to read as 
    follows:
    
        Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 
    U.S.C. 78c, 78l, 78m, 78n, 78w.
    
    
    Sec. 563b.3  [Amended]
    
        5. Section 563b.3(g)(2) is amended by removing the phrase 
    ``Sec. 563.134'', and by adding in lieu thereof the phrase 
    ``Secs. 563.140-563.146''.
    
        Dated: January 8, 1999.
    
        By the Office of Thrift Supervision.
    Ellen Seidman,
    Director.
    [FR Doc. 99-1040 Filed 1-15-99; 8:45 am]
    BILLING CODE 6720-01-P
    
    
    

Document Information

Effective Date:
4/1/1999
Published:
01/19/1999
Department:
Thrift Supervision Office
Entry Type:
Rule
Action:
Final rule.
Document Number:
99-1040
Dates:
April 1, 1999.
Pages:
2805-2810 (6 pages)
Docket Numbers:
No. 99-1
RINs:
1550-AA72: Capital Distributions
RIN Links:
https://www.federalregister.gov/regulations/1550-AA72/capital-distributions
PDF File:
99-1040.pdf
CFR: (13)
12 CFR 563b.3
12 CFR 563.134
12 CFR 563.140
12 CFR 563.141
12 CFR 563.142
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