(a) Pre-filing meeting and consultation.
(1) The mutual holding company’s board,
or a subcommittee of the board, may meet with the staff of the appropriate
Reserve Bank or Board staff before the mutual holding company’s board
of directors votes on the plan of conversion. At that meeting the
mutual holding company may provide the Reserve Bank or Board staff
with a written strategic plan that outlines the objectives of the
proposed conversion and the intended use of the conversion proceeds.
(2) The mutual holding
company should also consult with the Board or appropriate Reserve
Bank before it files its application for conversion. The Reserve Bank
or Board will discuss the information that the mutual holding company
must include in the application for conversion, general issues that
the mutual holding company may confront in the conversion process,
and any other pertinent issues.
(b) Business plan.
(1) Prior to filing an application for
conversion, the mutual holding company must adopt a business plan
reflecting the mutual holding company’s intended plans for deployment
of the proposed conversion proceeds. The business plan is required,
under section 239.55(b), to be included in the mutual holding company’s
conversion application. At a minimum, the business plan must address:
(i) The subsidiary savings association’s projected operations and
activities for three years following the conversion. The business
plan must describe how the conversion proceeds will be deployed at
the savings association (and holding company, if applicable), what
opportunities are available to reasonably achieve the planned deployment
of conversion proceeds in the relevant proposed market areas, and
how its deployment will provide a reasonable return on investment
commensurate with investment risk, investor expectations, and industry
norms, by the final year of the business plan. The business plan must
include three years of projected financial statements. The business
plan must provide that the subsidiary savings associations receive
at least 50 percent of the net conversion proceeds. The Board may
require that a larger percentage of proceeds be contributed to the
subsidiary savings associations.
(ii) The mutual holding company’s plan
for deploying conversion proceeds to meet credit and lending needs
in the proposed market areas. The Board strongly discourages business
plans that provide for a substantial investment in mortgage securities
or other securities, except as an interim measure to facilitate orderly,
prudent deployment of proceeds during the three years following the
conversion, or as part of a properly managed leverage strategy.
(iii) The
risks associated with the plan for deployment of conversion proceeds,
and the effect of this plan on management resources, staffing, and
facilities.
(iv)
The expertise of the mutual holding company and saving association
subsidiary’s management and board of directors, or that the mutual
holding company has planned for adequate staffing and controls to
prudently manage the growth, expansion, new investment, and other
operations and activities proposed in its business plan.
(2) The mutual holding
company may not project returns of capital or special dividends in
any part of the business plan. A newly converted company may not plan
on stock repurchases in the first year of the business plan.
(c) Management and board
review of business plan.
(1) The chief executive officer and members
of the board of directors of the mutual holding company must review,
and at least two-thirds of the board of directors must approve, the
business plan.
(2) The
chief executive officer and at least two-thirds of the board of directors
of the mutual holding company must certify that the business plan
accurately reflects the intended plans for deployment of conversion
proceeds, and that any new initiatives reflected in the business plan
are reasonably achievable. The mutual holding company must submit
these certifications with its business plan, as part of the conversion
application under paragraph (b) of this section.
(d) Board review of the business
plan.
(1) The Board will review
the business plan to determine whether it demonstrates a safe and
sound deployment of conversion proceeds, as part of its review of
the conversion application. In making its determination, the Board
will consider how the mutual holding company has addressed the applicable
factors of paragraph (b) of this section. No single factor will be
determinative. The Board will review every case on its merits.
(2) The mutual holding
company must file its business plan with the appropriate Reserve Bank.
The Board or appropriate Reserve Bank may request additional information,
if necessary, to support its determination under paragraph (d)(1)
of this section. The mutual holding company must file its business
plan as a confidential exhibit to the Form AC.
(3) If the Board approves the application
for conversion and the mutual holding company completes the conversion,
the resulting stock holding company must operate within the parameters
of the business plan. The Board must approve any material deviation
from the business plan in writing prior to such material deviation.
(e) Disclosure
of business plan.
(1) The mutual holding company may discuss
information about the conversion with individuals that it authorizes
to prepare documents for the conversion.
(2) Except as permitted under paragraph
(e)(1) of this section, the mutual holding company must keep all information
about the conversion confidential until the board of directors adopts
the plan of conversion.
(3) If the mutual holding company violates this section, the Board
may require it to take remedial action. For example, the Board may
require the mutual holding company to take any or all of the following
actions:
(i) Publicly announce that the mutual
holding company is considering a conversion;
(ii) Set an eligibility record date
acceptable to the Board;
(iii) Limit the subscription rights
of any person who violates or aids in a violation of this section;
or
(iv) Take any
other action to ensure that the conversion is fair and equitable.
