52886 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97–26231 Filed 10–8–97; 8:45 am]

BILLING CODE 6714–01–P

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.

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information and guidance is out-of-date.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 §§ 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 § 303.10(e) within 15
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 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 § 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 § 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.
52888 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

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
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 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