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FDIC Federal Register Citations

[Federal Register: October 9, 1997 (Volume 62, Number 196)]
[Page 52886-52889]
From the Federal Register Online via GPO Access []
Applications To Relocate Main Office or Branch Statement of 
Policy (Includes Remote Service Facilities; Rescission of Policy 
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 The information and guidance is out-of-date.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 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 
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 
    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 
    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 
    (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 
    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 
    (b) The fee customarily charged in the locality for similar legal 
    (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]

Last Updated 10/09/1997

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