APPLICATIONS
Institutions Eligible for Expedited Application Process (Part 303)
-Composite 1 or 2 rating at most recent federal or state examination
-Satisfactory or better CRA rating from primary regulatory agency
-Compliance rating of 1 or 2
-Well capitalized
-Not subject to cease and desist order, consent order, prompt corrective action directive, written agreement, MOU, or other administrative agreement
Applications for Deposit Insurance
-FDIC must ensure
-That the institution is in the business of receiving deposits other than trust funds
-That the applicant meets (satisfactorily) the seven statutory factors (financial history and condition of the bank, adequacy of capital structure, future earnings prospects, general character of management, risk to the fund, convenience and needs of the community, and whether or not corporate powers are consistent with the purposes of the Act)
-Any person may inspect or request a copy of the non-confidential portions of a filing (application) until 180 days following the final disposition of the filing
-If the FDIC disapproves an application, the applicant has a right to be informed by the FDIC of the reasons for disapproval
-In a newly organized bank the FDIC views management and capital adequacy as the most important
-Examiners should in no way indicate to an applicant (during review) the probable nature of the recommendation or the chance of being approved/disapproved (unless noted to do so by the RD)
Report
-Findings of the investigation of the applicant will be submitted in a report
-Each of the seven factors should be addressed and state the examiners opinion as to whether the criteria has been met. A negative opinion must be explained and supported and should indicate how the situation can be corrected
-Report should also include a general list of conditions to be imposed (when warranted)
Statutory Factors
Financial History and Condition
-Report should contain pro forma financial statements for the first 3 years of operation
-Major assets which the bank intends to begin business with should be fairly valued and supported with appraisals
-Significant assets should be described in detail
-If leases exist, terms should be described, estimations should be given for any anticipated improvements, and a termination clause should exist.
-Any financial arrangement or transaction involving the applicant, its organizers, directors, officers, 10% or more shareholders, or their associates (insiders) should be avoided. But if these transactions already exist full disclosure should be made to all proposed officers and directors and should be on terms comparable to like transactions with other parties
-Report should contain a comment about the security program (Part 326)
-Legal fees and all other organizational expenses should be reasonable and fully supportable
-In no case will an application be approved where they payment of a fee is contingent upon any act or forbearance by the FDIC or by any other regulatory agency
Adequacy of the Capital Structure
-Initial capital should be sufficient to prove a Tier 1 leverage ratio of not less than 8% for the first 3 years of operations
-Initial capital should be normally in excess of $2 million net of any pre-opening expenses
-Must maintain adequate ALLL
-When applicant is being established as a wholly owned subsidiary of a holding company, the FDIC considers the resources of the parent
-When applicable, the holding company should also provide a written commitment to maintain Tier 1 Leverage capital at not less than 8% throughout the first 3 years of operations
-Must also evaluate deposit projections for reasonableness (deposit volume is important because it serves the dual purpose of measuring earnings capability as well as capital adequacy)
-Note the number of shares of stock, its par value, and per share price
-Stock of a particular class in the initial offering should be sold at the same price, and have the same voting rights
Future Earnings Prospects
-New banks are not typically profitable for at least the first year
-Estimates of operating income and expenses should be made for the first 3 years
-Comments on plans for payment of dividends, bonuses, directors’ fees, retainer fees, etc.
-During the first 3 years, dividends shall be paid only from net operating income after tax and not until an appropriate allowance or loan and lease losses has been established and overall capital is adequate
General Character of the Management
-Most important element in determining the applicant’s acceptability for insurance
-Evidence must support a management rating equal to a 1 or a 2
-Report should contain a schedule giving the name, address, approximate age, and total liabilities of directors and officers. Comments should include past professions and success in that profession, length of residence in the community or trade area. (Similar information should be provided for persons owning 10% or more of stock)
-Stock holdings of each director and officer are to be indicated
-Stock financing programs/arrangements should be noted
-(Stock financing is okay as long as the individual can service the debt)
-Stock benefit plans should also be noted (conditions/terms)
-Without the prior written of the FDIC, a person convicted of a criminal offense involving dishonest/breach of trust/money laundering, or who has entered into a pretrial diversion, is precluded from:
-Directly or indirectly owning or controlling a bank OR
-Participating in the affairs of the bank (directors, officers, employees, IAPs)
-Report should note the type and amount of insurance to be carried
-Banks must have in force at all times a $1 million excess bank employee dishonesty bond, if primary blanket bond coverage is less than $1 million
-The following policies should be developed (in written form):
-Investment
-Loan
-Funds management and liquidity
-Establish an acceptable audit program
-Banks are to obtain an audit by an independent public accountant for at least the first 3 years of operations
-(If bank does not plan to engage in international banking, it should state so)
Risk to the Insurance Fund
-Banks are to submit a business plan
-Significant deviations from the business plan within the first 3 years should be reported
-Business plan should demonstrate the following:
-Adequate policies, procedures, and management expertise
-Ability to achieve a reasonable market share
-Reasonable earnings prospects
-Ability to attract and maintain adequate capital AND
-Responsiveness to community needs
Convenience and Needs of the Community to be Served
-Examiners should ascertain to whether or not existing depository institutions are satisfactory, and if they meet the legitimate credit needs of the community
-Evaluate compliance with CRA of existing institutions
-Bank’s proposed trade area should be noted
-Condition of trade area economy (employment, outlook, population)
-Competitors of the proposed institution should be contacted for input. Any formal objections to the proposed new institution should be investigated with comments of the objector’s noted in the report
Consistency of Corporate Powers
-Applicant should agree in the application to not exercise non-banking powers
Miscellaneous
-Trust powers
-A separate application may need to be filed to be approved to conduct trust powers (largely depends on how trust functions will impact the bank)
Statutory Factors for Existing Institutions
Generally the same as for new/proposed institutions
Financial History and Condition
-Report should especially note:
-Date of primary organization
-Past attitude on the prompt recognition and current charge-off of losses and the administration of dividend policies
-Quality of assets
-Summary of Violations, existing litigation, dividend policies, contingent liabilities, and any other factors that could affect the institutions condition
Adequacy of the Capital Structure
-Adequacy of capital levels given risk profile
-Complete (or reasonably complete) list of shareholders, their holdings, and related interest
Future Earnings Prospects
-Earnings performance thus far
-If earnings have not been sufficient, note areas where income may be improved or expenses reduced
-Comment on the effect deposit insurance coverage might have on the institutions income and expenses in the future
General Character of Management
-Management’s past performance (review past examination reports and minutes from meetings)
-A management rating of 1 or 2 is necessary to satisfy the requirements of this statutory factor
-If management rating is not a 1 or 2, indicate what changes are believed essential to warrant such a rating
Risk Present to the Insurance Fund
Convenience and Needs of the Community
-CRA
Consistency of Corporate Powers
-If the institution is exercising any powers not authorized the application should contain an agreement and plan for eliminating the activity as soon as possible, or a separate application should be submitted seeking the FDIC’s consent to continue the activity
Miscellaneous
-The number of teller windows at which insured deposits will be received should be noted
Applications To Establish A Branch or To Move Main Office or Branch
-No bank may establish and operate any new branch, or change the location of any existing branch, or movie its main office, unless it obtains the prior written consent of the FDIC
-No bank shall establish or operate any foreign branch, except with the prior written consent of the FDIC
Filing Procedures
-In applying to establish a branch or to relocate an existing office, the bank must file an application in letter form with the FDIC. The letter application should include:
-Statement of intent to establish branch or relocate branch or main office
-Exact location of the proposed site
-Details concerning any involvement in the proposal by an insider of the bank
-Impact of the proposal on the human environment????????
-Is the site on the national register of historical places
-Comments on any changes in services offered, community served, impact on CRA
-A copy of each newspaper publication required, AND
-When the main office will be relocated from one state to another, a statement of the applicant’s intent regarding retention of branches in the state where the main office exists prior to relocation
Available for Expedited Processing if Eligible
Change in Bank Control Act
-Any person seeking to acquire control (25% or more) of any insured bank or holding company, is required to provide sixty days prior written notice to the appropriate agency
-In these applications, the burden of making a case in support of a proposal falls on the applicant (unlike when filing an application for insurance)
-Factors for disapproval:
-Would result in a monopoly
-Substantially lessen competition within any section of the country or otherwise be in restraint of trade
-The financial condition of the acquiring party and its potential impact on the bank or prejudice the interests of the depositors
-The competence , experience, or integrity of any acquiring person or proposed management
-Any acquiring party neglects, fails, or refuses to furnish all the information required by the FDIC, OR
-The effect on the deposit insurance funds is adverse
-A transaction triggering the notice requirement may not result in the acquiring party actually gaining effective control of the institution (a person acquiring 25% still must notify the FDIC even though someone else controls 50% of stock)
-Once complying with the notification requirements, further acquisitions by the same person in the same bank do not require filing notices.
-Only one notice per bank to be in compliance
-Transactions resulting in a rebuttable presumption of control are not subject to prior notification along with several other types of transactions. However, after the fact notice is required
-Report changes or replacement of CEOs or directors occurring within 12 months after change in control
-CEO of a bank that makes a loan secured or to be secured by 25% or more of the voting stock of another insured bank to report the facts to the appropriate regulatory agency (does not apply to stock for new banks)
Applications for Retirement
-Banks to obtain prior approval from the FDIC to retire or reduce the amount of stock
-Approval should be granted, unless the bank is in a condition which indicates that it might fail within a reasonable amount of time
-Banks should be well capitalized before and after the proposed transaction
Capital Notes and Debentures
-All new subordinated note and debenture agreements must contain a statement to the effect that the prior consent of the FDIC is required before any portion of the debt can be retired
Applications for Mergers
Bank Merger Act
-Except with prior written approval of the FDIC, no insured depository institution may merge with any other insured depository institution, if the acquiring, assuming or resulting institution is to be a nonmember bank
-FDIC is prohibited for approving anticompetitive mergers
-When the liabilities of an insured bank are assumed by another insured bank, the insured status of the bank whose liabilities are assumed terminates on the date of receipt by the FDIC of satisfactory evidence of the assumptions, and separate insurance of all assumed deposits terminates at the end of six months from the date the assumption takes effect or, in the case of any time deposit, the earliest maturity after the sixth-month period
-Branch closings in connection with a merger transaction are subject to notice requirements
Statement of Policy – Bank Merger Transactions
-FDIC is prohibited by law from approving any merger that would tend to create or result in a monopoly, or which would further a combination, conspiracy or attempt to monopolize the business of banking in any part of the US
-FDIC may approve if the anticompetitive effects are outweighed by its probable effect in meeting the needs of the community (bank assumed by another bank which will fail otherwise if not assumed)
-FDIC will not take final action on an application until notice of the proposed transaction is published in a newspaper
-Evaluation factors
-Extent of existing competition between and among the merging institutions, other depository institutions, and other providers of similar or equivalent services in the relevant product markets within the relevant geographic markets
-A merger not having adverse competitive effect may still be denied if the FDIC concludes that the resultant bank will have inadequate capital, unsatisfactory management, or poor earnings prospects.
Minority Ownership
-Minority institution – any bank where more than 50% of the voting stock is owned or controlled by minority individuals or organizations (or at times the majority of the Board) Minority – Black American, Native American, Asian American
Other Applications
-All banks (at a minimum) should establish a screening process that provides the bank with information concerning any convictions of applicants
Change in Management
-30 days written notice to the FDIC is required prior to:
-Adding or replacing any member of the Board,
-Employing any person as a senior executive officer, OR
-Changing the responsibilities of any senior executive officer so that the person would assume a different senior executive officer position if:
-The bank is not in compliance with all minimum capital requirements
-Bank is in troubled condition OR
-FDIC determines, in connection with its review of a capital restoration plan that such notice is appropriate
-In an election of a new director (not proposed by management) at a meeting of shareholders, the prior 30 day notice is automatically waved, BUT the FDIC must be notified 2 business days after the election
Golden Parachutes
-Bank or bank holding company may not make golden parachute payments or excess nondiscriminatory severance plan payments unless permission is obtained