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§ 708a.101
disclosure a credit union should insert in the
space provided (for example, a credit union
might insert ‘‘March 25, 1995’’ in the blank
for ‘‘(date)’’ disclosure). Brackets and diagonals (‘‘/’’) indicate a credit union must
choose the alternative that describes its
practice (for example, [daily balance/average
daily balance]).
7. Sample forms. The sample forms (B–4
through B–11) serve a purpose different from
the model clauses. They illustrate various
ways of adapting the model clauses to specific accounts. The clauses shown relate only
to the specific transactions described.
708a.304 Notice to NCUA and request to proceed with member vote.
708a.305 Disclosures and communications to
members.
708a.306 Membership approval of a proposal
to merge.
708a.307 Certification of vote on merger proposal.
708a.308 NCUA approval of the merger.
708a.309 Completion of merger.
708a.310 Limits on compensation of officials.
708a.311 Voting incentives.
708a.312 Voting guidelines.
[59 FR 59899, Nov. 21, 1994, as amended at 60
FR 21699, May 3, 1995; 61 FR 68129, Dec. 27,
1996; 63 FR 71575, Dec. 29, 1998; 66 FR 33163,
June 21, 2001; 70 FR 72899, Dec. 8, 2005; 72 FR
30246, May 31, 2007; 74 FR 36105, July 22, 2009;
75 FR 47175, Aug. 5, 2010; 77 FR 71085, Nov. 29,
2012]
AUTHORITY: 12 U.S.C. 1766, 1785(b), and
1785(c).
EDITORIAL NOTE: At 74 FR 36105, July 22,
2009, part 707, appendix C was amended in
section 707.11 by redesignating (a)(1)–3
through (a)(1)–8 as (a)(1)–1 through (a)(1)–6;
however (a)(1)–1 already existed.
PART 708a—BANK CONVERSIONS
AND MERGERS
Subpart A—Conversion of Insured Credit
Unions to Mutual Savings Banks
Sec.
708a.101 Definitions.
708a.102 Authority to convert.
708a.103 Board of directors’ approval and
members’ opportunity to comment.
708a.104 Disclosures and communications to
members.
708a.105 Notice to NCUA.
708a.106 Membership approval of a proposal
to convert.
708a.107 Certification of vote on conversion
proposal.
708a.108 NCUA oversight of methods and
procedures of membership vote.
708a.109 Other regulatory oversight of
methods and procedures of membership
vote.
708a.110 Completion of conversion.
708a.111 Limit on compensation of officials.
708a.112 Voting incentives.
708a.113 Voting guidelines.
Subpart B [Reserved]
Subpart C—Merger of Insured Credit
Unions Into Banks
708a.301 Definitions.
708a.302 Authority to merge.
708a.303 Board of directors’ approval and
members’ opportunity to comment.
SOURCE: 71 FR 77167, Dec 22, 2006, unless
otherwise noted.
Subpart A—Conversion of Insured
Credit Unions to Mutual Savings Banks
§ 708a.101 Definitions.
As used in this part:
Clear and conspicuous means text in
bold type in a font size at least one size
larger than any other text used in the
document (exclusive of headings), but
in no event smaller than 12 point.
Conducted by an independent entity
means:
(1) The independent entity will receive the ballots directly from voting
members.
(2) After the conclusion of the special
meeting that ends the ballot period,
the independent entity will open all
the ballots in its possession and tabulate the results. The entity must not
open or tabulate any ballots before the
conclusion of the special meeting.
(3) The independent entity will certify the final vote tally in writing to
the credit union and provide a copy to
the NCUA Regional Director. The certification will include, at a minimum,
the number of members who voted, the
number of affirmative votes, and the
number of negative votes. During the
course of the voting period the independent entity may provide the credit
union with the names of members who
have not yet voted, but may not provide any voting results to the credit
union prior to certifying the final vote
tally.
Credit union has the same meaning as
insured credit union in section 101 of
the Federal Credit Union Act.
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§ 708a.102
12 CFR Ch. VII (1–1–15 Edition)
Federal banking agencies have the
same meaning as in section 3 of the
Federal Deposit Insurance Act.
Independent entity means a company
with experience in conducting corporate elections. No official or senior
management official of the credit
union, or the immediate family member of any official or senior management official, may have any ownership
interest in, or be employed by, the entity.
Mutual savings bank and savings association have the same meaning as in
section 3 of the Federal Deposit Insurance Act.
Regional Director means either the director of the NCUA Regional Office for
the region where a natural person credit union’s main office is located or the
director of the NCUA’s Office of Consumer Protection. For corporate credit
unions and natural person credit
unions with $10 billion or more in assets, Regional Director means the director of NCUA’s Office of National Examinations and Supervision.
Secret ballot means no credit union
employee or official can determine how
a particular member voted. Credit
union employees and officials are prohibited from assisting members in
completing ballots or handling completed ballots.
Senior management official means a
chief executive officer, an assistant
chief executive officer, a chief financial
officer, and any other senior executive
officer as defined by the appropriate
federal banking agencies pursuant to
section 32(f) of the Federal Deposit Insurance Act.
[71 FR 77167, Dec. 22, 2006. Redesignated and
amended at 75 FR 81386, Dec. 28, 2010; 76 FR
13505, Mar. 14, 2011; 78 FR 32544, May 31, 2013]
§ 708a.102
Authority to convert.
A credit union, with the approval of
its members, may convert to a mutual
savings bank or a savings association
that is in mutual form without the
prior approval of the NCUA, subject to
applicable law governing mutual savings banks and savings associations
and the other requirements of this
part.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.103 Board of directors’ approval
and members’ opportunity to comment.
(a) A credit union’s board of directors
must comply with the following notice
requirements before voting on a proposal to convert.
(1) No later than 30 days before a
board of directors votes on a proposal
to convert, it must publish a notice in
a general circulation newspaper, or in
multiple newspapers if necessary, serving all areas where the credit union has
an office, branch, or service center. It
must also post the notice in a clear and
conspicuous fashion in the lobby of the
credit union’s home office and branch
offices and on the credit union’s Web
site, if it has one. If the notice is not
on the home page of the Web site, the
home page must have a clear and conspicuous link, visible on a standard
monitor without scrolling, to the notice.
(2) The public notice must include
the following:
(i) The name and address of the credit union;
(ii) The type of institution to which
the credit union’s board is considering
a proposal to convert;
(iii) A brief statement of why the
board is considering the conversion and
the major positive and negative effects
of the proposed conversion;
(iv) A statement that directs members to submit any comments on the
proposal to the credit union’s board of
directors by regular mail, electronic
mail, or facsimile;
(v) The date on which the board plans
to vote on the proposal and the date by
which members must submit their
comments for consideration, which
may not be more than 5 days before the
board vote;
(vi) The street address, electronic
mail address, and facsimile number of
the credit union where members may
submit comments; and
(vii) A statement that, in the event
the board approves the proposal to convert, the proposal will be submitted to
the membership of the credit union for
a vote following a notice period that is
no shorter than 90 days.
(3) The board of directors must approve publication of the notice.
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National Credit Union Administration
§ 708a.104
(b) The credit union must collect
member comments and retain copies at
the credit union’s main office until the
conversion process is completed.
(c) The board of directors may vote
on the conversion proposal only after
reviewing and considering all member
comments. The conversion proposal
may only be approved by an affirmative vote of a majority of board members who have determined the conversion is in the best interests of the
members. If approved, the board of directors must set a date for a vote on
the proposal by the members of the
credit union.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.104 Disclosures and communications to members.
(a) After the board of directors has
complied with § 708a.3 and approves a
conversion proposal, the credit union
must provide written notice of its intent to convert to each member who is
eligible to vote on the conversion. The
notice to members must be submitted
90 calendar days, 60 calendar days, and
30 calendar days before the date of the
membership vote on the conversion. A
ballot must be included in the same envelope as the 30-day notice and only in
the 30-day notice. A converting credit
union may not distribute ballots with
either the 90-day or 60-day notice, in
any other written communications, or
in person before the 30-day notice is
sent.
(b)(1) The notice to members must
adequately describe the purpose and
subject matter of the vote to be taken
at the special meeting or by submission of the written ballot. The notice
must clearly inform members that
they may vote at the special meeting
or by submitting the written ballot.
The notice must state the date, time,
and place of the meeting.
(2) The notices that are submitted 90
and 60 days before the membership vote
on the conversion must state in a clear
and conspicuous fashion that a written
ballot will be mailed together with another notice 30 days before the date of
the membership vote on conversion.
The notice submitted 30 days before
the membership vote on the conversion
must state in a clear and conspicuous
fashion that a written ballot is included in the same envelope as the 30day notice materials.
(3) For purposes of facilitating the
member-to-member contact described
in paragraph (f) of this section, the 90day notice must indicate the number of
credit union members eligible to vote
on the conversion proposal and state
how many members have agreed to accept communications from the credit
union in electronic form. The 90-day
notice must also include the information listed in paragraph (f)(9) of this
section.
(4) The member ballot must include:
(i) A brief description of the proposal
(e.g., ‘‘Proposal: Approval of the Plan
of Charter Conversion by which (insert
name of credit union) will convert its
charter to that of a federal mutual savings bank.’’);
(ii) Two blocks marked respectively
as ‘‘FOR’’ and ‘‘AGAINST;’’ and
(iii) The following language: ‘‘A vote
FOR the proposal means that you want
your credit union to become a mutual
savings bank. A vote AGAINST the
proposal means that you want your
credit union to remain a credit union.’’
This language must be displayed in a
clear and conspicuous fashion immediately beneath the FOR and AGAINST
blocks.
(5) The ballot may also include voting instructions and the recommendation of the board of directors (i.e.,
‘‘Your Board of Directors recommends
a vote FOR the Plan of Conversion’’)
but may not include any further information without the prior written approval of the Regional Director.
(c) An adequate description of the
purpose and subject matter of the
member vote on conversion, as required by paragraph (b) of this section,
must include:
(1) A clear and conspicuous disclosure
that the conversion from a credit union
to a mutual savings bank could lead to
members losing their ownership interests in the credit union if the mutual
savings bank subsequently converts to
a stock institution and the members do
not become stockholders;
(2) A clear and conspicuous disclosure
of how a conversion from a credit
union to a mutual savings bank will affect members’ voting rights and if the
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§ 708a.104
12 CFR Ch. VII (1–1–15 Edition)
mutual savings bank intends to base
voting rights on account balances;
(3) A clear and conspicuous disclosure
of any conversion-related economic
benefit a director or senior management official will or may receive including receipt of or an increase in
compensation and an explanation of
any foreseeable stock-related benefits
associated with a subsequent conversion to a stock institution or mutual
holding company structure. The explanation of stock-related benefits must
include a comparison of the opportunities to acquire stock available to officials and employees with those opportunities available to the general membership;
(4) An affirmative statement that, at
the time of conversion to a mutual savings bank, the credit union does or
does not intend to convert to a stock
institution or a mutual holding company structure;
(5) A clear and conspicuous disclosure
of the estimated, itemized cost of the
proposed conversion, including printing
fees, postage fees, advertising, consulting and professional fees, legal fees,
staff time, the cost of holding a special
meeting, other costs of conducting the
vote, and any other conversion-related
expenses;
(6) A clear and conspicuous disclosure
of how the conversion from a credit
union to a mutual savings bank will affect the institution’s ability to make
non-housing-related consumer loans
because of a mutual savings bank’s obligations to satisfy certain lending requirements as a mutual savings bank.
This disclosure should specify possible
reductions in some kinds of loans to
members;
(7) A clear and conspicuous disclosure
that the National Credit Union Administration does not approve or disapprove of the conversion proposal or
the reasons advanced in support of and
the reasons against the proposal; and
(8) A clear and conspicuous disclosure
of how the conversion from a credit
union to a mutual savings bank is likely to affect the availability of facilities
and services. At a minimum, this disclosure should include the name and location of any branches, including
shared branches, and automatic teller
networks, to which members may lose
access as a result of the conversion.
This disclosure must be based on research and analysis completed before
the date the board of directors votes to
adopt the conversion proposal.
(d)(1) A converting credit union must
provide the following disclosures in a
clear and conspicuous fashion with the
90-, 60-, and 30-day notices it sends to
its members regarding the conversion:
IMPORTANT REGULATORY DISCLOSURE ABOUT YOUR VOTE
The National Credit Union Administration, the federal government agency that supervises
credit unions, requires [insert name of credit union] to provide the following disclosures:
1. LOSS OF CREDIT UNION MEMBERSHIP. A vote ‘‘FOR’’ the proposed conversion means
you want your credit union to become a mutual savings bank. A vote ‘‘AGAINST’’ the proposed conversion means you want your credit union to remain a credit union.
2. RATES ON LOANS AND SAVINGS. If your credit union converts to a bank, you may experience changes in your loan and savings rates. Available historic data indicates that, for
most loan products, credit unions on average charge lower rates than banks. For most savings products, credit unions on average pay higher rates than banks.
3. POTENTIAL PROFITS BY OFFICERS AND DIRECTORS. Conversion to a mutual savings
bank is often the first step in a two-step process to convert to a stock-issuing bank or holding company structure. In such a scenario, the officers and directors of the institution often
profit by obtaining stock in excess of that available to other members.
(2) This text must be placed in a box,
must be the only text on the front side
of a single piece of paper, and must be
placed so that the member will see the
text after reading the credit union’s
cover letter but before reading any
other part of the member notice. The
back side of the paper must be blank. A
converting credit union may modify
this text only with the prior written
consent of the Regional Director and,
in the case of a state-chartered credit
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National Credit Union Administration
§ 708a.104
union, the appropriate state regulatory
agency.
(e) All written communications from
a converting credit union to its members regarding the conversion must be
written in a manner that is simple and
easy to understand. Simple and easy to
understand means the communications
are written in plain language designed
to be understood by ordinary consumers and use clear and concise sentences, paragraphs, and sections. For
purposes of this part, examples of factors to be considered in determining
whether a communication is in plain
language and uses clear and concise
sentences, paragraphs and sections include the use of short explanatory sentences; use of definite, concrete, everyday words; use of active voice; avoidance of multiple negatives; avoidance
of legal and technical business terminology; avoidance of explanations that
are imprecise and reasonably subject to
different interpretations; and use of
language that is not misleading.
(f)(1) A converting credit union must
mail or e-mail a requesting member’s
proper conversion-related materials to
other members eligible to vote if:
(i) A credit union’s board of directors
has adopted a proposal to convert;
(ii) A member makes a written request that the credit union mail or email materials for the member;
(iii) The request is received by the
credit union no later than 35 days after
it sends out the 90-day member notice;
and
(iv) The requesting member agrees to
reimburse the credit union for the reasonable expenses, excluding overhead,
of mailing or e-mailing the materials
and also provides the credit union with
an appropriate advance payment.
(2) A member’s request must indicate
if the member wants the materials
mailed or e-mailed. If a member requests that the materials be mailed,
the credit union will mail the materials to all eligible voters. If a member
requests the materials be e-mailed, the
credit union will e-mail the materials
to all members who have agreed to accept communications electronically
from the credit union. The subject line
of the credit union’s e-mail will be
‘‘Proposed Credit Union Conversion to
a Bank—Views of Member (insert member name).’’
(3) (i) A converting credit union may,
at its option, include the following
statement with a member’s material:
On (date), the board of directors of (name
of converting credit union) adopted a proposal to convert from a credit union to a mutual savings bank. Credit union members
who wish to express their opinions about the
proposed conversion to other members may
provide those opinions to (name of credit
union). By law, the credit union, at the requesting members’ expense, must then send
those opinions to the other members. The attached document represents the opinion of a
member of this credit union. This opinion is
a personal opinion and does not necessarily
reflect the views of the management or directors of the credit union.
(ii) A converting credit union may
not add anything other than this statement to a member’s material without
the prior approval of the Regional Director.
(4) The term ‘‘proper conversion-related materials’’ does not include materials that:
(i) Due to size or similar reasons are
impracticable to mail or e-mail;
(ii) Are false or misleading with respect to any material fact;
(iii) Omit a material fact necessary
to make the statements in the material not false or misleading;
(iv) Relate to a personal claim or a
personal grievance, or solicit personal
gain or business advantage by or on behalf of any party;
(v) Relate to any matter, including a
general economic, political, racial, religious, social, or similar cause, that is
not significantly related to the proposed conversion;
(vi) Directly or indirectly and without expressed factual foundation impugn a person’s character, integrity, or
reputation;
(vii) Directly or indirectly and without expressed factual foundation make
charges concerning improper, illegal,
or immoral conduct; or
(viii) Directly or indirectly and without expressed factual foundation make
statements impugning the stability
and soundness of the credit union.
(5) If a converting credit union believes some or all of a member’s request is not proper it must submit the
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§ 708a.105
12 CFR Ch. VII (1–1–15 Edition)
member materials to the Regional Director within seven days of receipt.
The credit union must include with its
transmittal letter a specific statement
of why the materials are not proper
and a specific recommendation for how
the materials should be modified, if
possible, to make them proper. The Regional Director will review the communication, communicate with the requesting member, and respond to the
credit union within seven days with a
determination on the propriety of the
materials. The credit union must then
immediately mail or e-mail the material to the members if so directed by
NCUA.
(6) A credit union must ensure that
its members receive all materials that
meet the requirements of § 708a.4(f) on
or before the date the members receive
the 30-day notice and associated ballot.
If a credit union cannot meet this delivery requirement, it must postpone
mailing the 30-day notice until it can
deliver the member materials. If a
credit union postpones the mailing of
the 30-day notice, it must also postpone the special meeting by the same
number of days. When the credit union
has completed the delivery, it must inform the requesting member that the
delivery was completed and provide the
number of recipients.
(7) The term ‘‘appropriate advance
payment’’ means:
(i) For requests to mail materials to
all eligible voters, a payment in the
amount of 150% of the first class postage rate times the number of mailings,
and
(ii) For requests to e-mail materials
only to members that have agreed to
accept electronic communications, a
payment in the amount of 200 dollars.
(8) If a credit union posts conversionrelated information or material on its
Web site, then it must simultaneously
make a portion of its Web site available free of charge to its members to
post and share their opinions on the
conversion. A link to the portion of the
Web site available to members to post
their views on the conversion must be
marked ‘‘Members: Share your views
on the proposed conversion and see
other members views’’ and the link
must also be visible on all pages on
which the credit union posts its own
conversion-related information or material, as well as on the credit union’s
homepage. If a credit union believes a
particular member submission is not
proper for posting, it will provide that
submission to the Regional Director
for review as described in paragraph
(f)(5) of this section. The credit union
may also post a content-neutral disclaimer using language similar to the
language in paragraph (f)(3)(i) of this
section.
(9) A converting credit union must
inform members with the 90-day notice
that if they wish to provide their opinions about the proposed conversion to
other members they can submit their
opinions in writing to the credit union
no later than 35 days from the date of
the notice and the credit union will
forward those opinions to other members. The 90-day notice will provide a
contact at the credit union for delivery
of communications, will explain that
members must agree to reimburse the
credit union’s costs of transmitting the
communication including providing an
advance payment, and will refer members to this section of NCUA’s rules for
further information about the communication process. The credit union, at
its option, may include additional factual information about the communication process with its 90-day notice.
(10) A group of members may make a
joint request that the credit union send
its materials to other members. For
purposes of paragraphs (f)(2) and (f)(3)
of this section, the credit union will
use the group name provided by the
group.
[71 FR 77167, Dec. 22, 2006, as amended at 75
FR 34621, June 18, 2010. Redesignated and
amended at 75 FR 81386, Dec. 28, 2010]
§ 708a.105 Notice to NCUA.
(a) If a converting credit union’s
board of directors approves a proposal
to convert, it must provide the Regional Director with notice of its intent to convert during the 90 calendar
day period preceding the date of the
membership vote on the conversion.
(1) A credit union must give notice to
the Regional Director of its intent to
convert by providing a letter describing the material features of the conversion or a copy of the filing the credit
union has made or intends to make
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National Credit Union Administration
§ 708a.105
with another federal or state regulatory agency in which the credit
union seeks that agency’s approval of
the conversion. A credit union must include with the notice to the Regional
Director copies of the notices the credit union has provided or intends to provide to members under §§ 708a.3 and
708a.4. The credit union must also include a copy of the ballot form and all
written materials the credit union has
distributed or intends to distribute to
members. The term ‘‘written materials’’ includes written documentation
or information of any sort, including
electronic communications posted on a
Web site or transmitted by electronic
mail.
(2) As part of its notice to NCUA of
intent to convert, the credit union’s
board of directors must provide the Regional Director with a certification of
its support for the conversion proposal
and plan. Each director who voted in
favor of the conversion proposal must
sign the certification. The certification
must contain the following:
(i) A statement that each director
signing the certification supports the
proposed conversion and believes the
proposed conversion is in the best interests of the members of the credit
union;
(ii) A description of all materials
submitted to the Regional Director
with the notice and certification;
(iii) A statement that each board
member signing the certification has
examined all these materials carefully
and these materials are true, correct,
current, and complete as of the date of
submission; and
(iv) An acknowledgement that federal law (18 U.S.C. 1001) prohibits any
misrepresentations or omissions of material facts, or false, fictitious or
fraudulent statements or representations made with respect to the certification or the materials provided to the
Regional Director or any other documents or information provided to the
members of the credit union or NCUA
in connection with the conversion.
(3) A state-chartered credit union
must state as part of the notice required by § 708a.5(a) if its state chartering law permits it to convert to a
mutual savings bank and provide the
specific legal citation. A state-char-
tered credit union will remain subject
to any state law requirements for conversion that are more stringent than
those this part imposes, including any
internal
governance
requirements,
such as the requisite membership vote
for conversion and the determination
of a member’s eligibility to vote. If a
state-chartered credit union relies for
its authority to convert to a mutual
savings bank on a state law parity provision, meaning a provision in state
law permitting a state-chartered credit
union to operate with the same or
similar authority as a federal credit
union, it must:
(i) Include in its notice a statement
that its state regulatory authority
agrees that it may rely on the state
law parity provision as authority to
convert; and
(ii) Indicate its state regulatory
authority’s position as to whether federal law and regulations or state law
will control internal governance issues
in the conversion such as the requisite
membership vote for conversion and
the determination of a member’s eligibility to vote.
(b) If it chooses, a credit union may
seek a preliminary determination from
the Regional Director regarding any of
the notices required under this part
and its proposed methods and procedures applicable to the membership
conversion vote. The Regional Director
will make a preliminary determination
regarding the notices and methods and
procedures applicable to the membership vote within 30 calendar days of receipt of a credit union’s request for review unless the Regional Director extends the period as necessary to request additional information or review
a credit union’s submission. A credit
union’s prior submission of any notice
or proposed voting procedures does not
relieve the credit union of its obligation to certify the results of the membership vote required by § 708a.6 or
eliminate the right of the Regional Director to disapprove the actual methods and procedures applicable to the
membership vote if the credit union
fails to conduct the membership vote
in a fair and legal manner consistent
with the Federal Credit Union Act and
these rules.
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§ 708a.106
12 CFR Ch. VII (1–1–15 Edition)
(c) After receiving the notice described in paragraph (a)(3) of this section, the Regional Director will contact and consult with the appropriate
State Supervisory Authority.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.106 Membership approval of a
proposal to convert.
(a) A proposal for conversion approved by a board of directors requires
approval by a majority of the members
who vote on the proposal.
(b) The board of directors must set a
voting record date to determine member voting eligibility that is at least
one day before the publication of notice required in § 708a.3.
(c) A member may vote on a proposal
to convert in person at a special meeting held on the date set for the vote or
by written ballot filed by the member.
The vote on the conversion proposal
must be by secret ballot and conducted
by an independent entity. The independent entity must be a company
with experience in conducting corporate elections. No official or senior
management official of the credit
union or the immediate family members of any official or senior management official may have any ownership
interest in or be employed by the independent entity.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.107 Certification of vote on conversion proposal.
(a) The board of directors of the converting credit union must certify the
results of the membership vote to the
Regional Director within 14 calendar
days after the vote is taken.
(b) The certification must also include a statement that the notice, ballot and other written materials provided to members were identical to
those submitted to NCUA pursuant to
§ 708a.5. If the board cannot certify
this, the board must provide copies of
any new or revised materials and an
explanation of the reasons for any
changes.
(c) The certification must be accompanied by copies of all correspondence
between the credit union and any Fed-
eral banking agency whose approval is
required for the conversion.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010. Amended at 75 FR
81387, Dec. 28, 2010]
§ 708a.108 NCUA oversight of methods
and procedures of membership
vote.
(a) The Regional Director will review
the methods by which the membership
vote was taken and the procedures applicable to the membership vote. The
Regional Director will determine: if
the notices and other communications
to members were accurate, not misleading, and timely; the membership
vote was conducted in a fair and legal
manner; and the credit union has otherwise complied with part 708a.
(b) After completion of this review,
the Regional Director will issue a determination that the methods and procedures applicable to the membership
vote are approved or disapproved. The
Regional Director will issue this determination within 30 calendar days of receipt from the credit union of the certification of the result of the membership vote required under § 708a.7 unless
the Regional Director extends the period as necessary to request additional
information or review the credit
union’s submission. Approval of the
methods and procedures under this
paragraph remains subject to a credit
union fulfilling the requirements in
§ 708a.10 for timely completion of the
conversion.
(c) If the Regional Director disapproves the methods by which the
membership vote was taken or the procedures applicable to the membership
vote, the Regional Director may direct
that a new vote be taken.
(d) A converting credit union may appeal the Regional Director’s determination to the NCUA Board. The
credit union must file the appeal within 30 days after receipt of the Regional
Director’s determination. The NCUA
Board will act on the appeal within 90
days of receipt.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
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National Credit Union Administration
§ 708a.113
§ 708a.109 Other regulatory oversight
of methods and procedures of membership vote.
The federal or state regulatory agency that will have jurisdiction over the
financial institution after conversion
must verify the membership vote and
may direct that a new vote be taken, if
it disapproves of the methods by which
the membership vote was taken or the
procedures applicable to the membership vote.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.110 Completion of conversion.
(a) After receipt of the approvals
under § 708a.8 and § 708a.9 the credit
union may complete the conversion.
(b) The credit union must complete
the conversion within one year of the
date of receipt of NCUA approval under
§ 708a.8. If a credit union fails to complete the conversion within one year
the Regional Director will disapprove
of the methods and procedures. The
credit union’s board of directors must
then adopt a new conversion proposal
and solicit another member vote if it
still desires to convert.
(c) The Regional Director may, upon
timely request and for good cause, extend the one year completion period for
an additional six months.
(d) After notification by the board of
directors of the mutual savings bank or
mutual savings association that the
conversion has been completed, the
NCUA will cancel the insurance certificate of the credit union and, if applicable, the charter of a federal credit
union.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.111 Limit on compensation of
officials.
No director or senior management official of an insured credit union may
receive any economic benefit in connection with the conversion of a credit
union other than compensation and
other benefits paid to directors or senior management officials of the converted institution in the ordinary
course of business.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.112
Voting incentives.
If a converting credit union offers an
incentive to encourage members to
participate in the vote, including a
prize raffle, every reference to such incentive made by the credit union in a
written communication to its members
must also state that members are eligible for the incentive regardless of
whether they vote for or against the
proposed conversion.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010]
§ 708a.113
Voting guidelines.
A converting credit union must conduct its member vote on conversion in
a fair and legal manner. NCUA provides
the following guidelines as suggestions
to help a credit union obtain a fair and
legal vote and otherwise fulfill its regulatory obligations. These guidelines
are not an exhaustive checklist and do
not by themselves guarantee a fair and
legal vote.
(a) Applicability of state law. While
NCUA’s conversion rule applies to all
conversions of federally insured credit
unions, federally insured state-chartered credit unions (FISCUs) are also
subject to state law on conversions.
NCUA’s position is that a state legislature or state supervisory authority
may impose conversion requirements
more stringent or restrictive than
NCUA’s. States that permit this kind
of conversion may have substantive
and procedural requirements that vary
from federal law. For example, there
may be different voting standards for
approving a vote. While the Federal
Credit Union Act requires a simple majority of those who vote to approve a
conversion, some states have higher
voting standards requiring two-thirds
or more of those who vote. A FISCU
should be careful to understand both
federal and state law to navigate the
conversion process and conduct a proper vote.
(b) Eligibility to vote. (1) Determining
who is eligible to cast a ballot is fundamental to any vote. No conversion vote
can be fair and legal if some members
are improperly excluded. A converting
credit union should be cautious to
identify all eligible members and make
certain they are included on its voting
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§ 708a.113
12 CFR Ch. VII (1–1–15 Edition)
list. NCUA recommends that a converting credit union establish internal
procedures to manage this task.
(2) A converting credit union should
be careful to make certain its member
list is accurate and complete. For example, when a credit union converts
from paper recordkeeping to computer
recordkeeping, some member names
may not transfer unless the credit
union is careful in this regard. This
same problem can arise when a credit
union converts from one computer system to another where the software is
not completely compatible.
(3) Problems with keeping track of
who is eligible to vote can also arise
when a credit union converts from a
federal charter to a state charter or
vice versa. NCUA is aware of an instance where a federal credit union
used membership materials allowing
two or more individuals to open a joint
account and also allowed each to become a member. The federal credit
union later converted to a state-chartered credit union that, like most
other state-chartered credit unions in
its state, used membership materials
allowing two or more individuals to
open a joint account but only allowed
the first person listed on the account
to become a member. The other individuals did not become members as a
result of their joint account, but were
required to open another account
where they were the first or only person listed on the account. Over time,
some individuals who became members
of the federal credit union as the second person listed on a joint account
were treated like those individuals who
were listed as the second person on a
joint account opened directly with the
state-chartered credit union. Specifically, both of those groups were treated as non-members not entitled to
vote. This example makes the point
that a credit union must be diligent in
maintaining a reliable membership
list.
(c) Scheduling the special meeting.
NCUA’s conversion rule requires a converting credit union to permit members to vote by written mail ballot or
in person at a special meeting held for
the purpose of voting on the conversion. Although most members may
choose to vote by mail, a significant
number may choose to vote in person.
As a result, a converting credit union
should be careful to conduct its special
meeting in a manner conducive to accommodating all members wishing to
attend, including selecting a meeting
location that can accommodate the anticipated number of attendees and is
conveniently located. The meeting
should also be held on a day and time
suitable to most members’ schedules. A
credit union should conduct its meeting in accordance with applicable federal and state law, its bylaws, Robert’s
Rules of Order or other appropriate
parliamentary procedures, and determine before the meeting the nature
and scope of any discussion to be permitted.
(d) Voting incentives. Some credit
unions may wish to offer incentives to
members, such as entry to a prize raffle, to encourage participation in the
conversion vote. The credit union must
exercise care in the design and execution of such incentives.
(1) The credit union should ensure
that the incentive complies with all
applicable state, federal, and local
laws.
(2) The incentive should not be unreasonable in size. The cost of the incentive should have a negligible impact
on the credit union’s net worth ratio
and the incentive should not be so
large that it distracts the member
from the purpose of the vote. If the
board desires to use such incentives,
the cost of the incentive should be included in the directors’ deliberation
and determination that the conversion
is in the best interests of the credit
union’s members.
(3) The credit union should ensure
that the incentive is available to every
member that votes regardless of how or
when he or she votes. All of the credit
union’s written materials promoting
the incentive to the membership must
disclose to the members, as required by
§ 708a.12 of this part, that they have an
equal opportunity to participate in the
incentive program regardless of whether they vote for or against the conversion. The credit union should also design its incentives so that they are
available equally to all members who
vote, regardless of whether they vote
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National Credit Union Administration
§ 708a.301
by mail or in person at the special
meeting.
(e) Solicitation of votes. Some credit
unions may wish to contact members
who have not voted and encourage
them to vote on the conversion proposal. NCUA believes, however, that
using credit union employees to solicit
votes is problematic. Employees directed to solicit votes could easily neglect everyday duties critical to the
credit union’s safe and sound operation. Also, employees may very well
feel pressured to solicit votes for the
conversion, regardless of whether or
not they support the conversion. Accordingly, NCUA strongly encourages
converting credit unions to use an
independent third party to solicit votes
rather than diverting credit union employees from their usual duties.
[71 FR 77167, Dec. 22, 2006. Redesignated at 75
FR 81386, Dec. 28, 2010. Amended at 75 FR
81387, Dec. 28, 2010]
Subpart B [Reserved]
Subpart C—Merger of Insured
Credit Unions Into Banks
SOURCE: 75 FR 81387, Dec. 28, 2010, unless
otherwise noted.
§ 708a.301 Definitions.
As used in this part:
Bank has the same meaning as in section 3(a) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(a).
Clear and conspicuous means text in
bold type in a font size at least one size
larger than any other text used in the
document (exclusive of headings), but
in no event smaller than 12 point.
Conducted by an independent entity
means:
(1) The independent entity will receive the ballots directly from voting
members.
(2) After the conclusion of the special
meeting that ends the ballot period,
the independent entity will open all
the ballots in its possession and tabulate the results. The entity must not
open or tabulate any ballots before the
conclusion of the special meeting.
(3) The independent entity will certify the final vote tally in writing to
the credit union and provide a copy to
the NCUA Regional Director. The certification will include, at a minimum,
the number of members who voted, the
number of affirmative votes, and the
number of negative votes. During the
course of the voting period the independent entity may provide the credit
union with the names of members who
have not yet voted, but may not provide any voting results to the credit
union prior to certifying the final vote
tally.
Credit union has the same meaning as
insured credit union in section 101 of
the Federal Credit Union Act.
Distribution formula is the formula
the bank will use to determine each
member’s portion of that payment to
be received upon completion of the
merger.
Federal banking agencies have the
same meaning as in section 3 of the
Federal Deposit Insurance Act.
Merger means any transaction in
which a credit union transfers all, or
substantially all, of its assets to a
bank. The term merger includes any
purported conversion of a credit union
to a bank if the purported conversion is
conducted pursuant to an agreement
between a preexisting bank and the
credit union that provides—
(1) The credit union will not conduct
business as a stand-alone bank, and
(2) The purported conversion will be
followed by the transfer of all, or substantially all, of the credit union’s assets to the preexisting bank.
Merger value or merger valuation is the
amount that a stock bank would pay in
an arm’s-length transaction to purchase the credit union’s assets and assume its liabilities and shares (deposits).
Qualified appraisal entity means entity that has significant experience in
the valuation of depository institutions and that has no past financial relationship with the merging credit
union; the continuing bank, the continuing bank’s owners, affiliates, or
holding companies; or any law firm
representing the credit union or the
bank in connection with the merger.
Regional Director means the director
of the NCUA Regional Office for the region where a natural person credit
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§ 708a.302
12 CFR Ch. VII (1–1–15 Edition)
union’s main office is located. For corporate credit unions and natural person credit unions with $10 billion or
more in assets, Regional Director means
the Director of NCUA’s Office of National Examinations and Supervision.
Secret ballot means no credit union
employee or official can determine how
a particular member voted. Credit
union employees and officials are prohibited from assisting members in
completing ballots or handling completed ballots.
Senior management official means a
chief executive officer, an assistant
chief executive officer, a chief financial
officer, and any other senior executive
officer as defined by the appropriate
Federal banking agencies pursuant to
section 32(f) of the Federal Deposit Insurance Act.
[75 FR 81387, Dec. 28, 2010, as amended at 78
FR 32544, May 31, 2013]
§ 708a.302
Authority to merge.
A credit union, with the approval of
its members, may merge into a bank
only with the prior approval of NCUA,
the Federal Deposit Insurance Corporation, and the regulator of the bank. If
the credit union is State chartered, it
also needs the prior approval of its
State regulator.
§ 708a.303 Board of directors’ approval
and members’ opportunity to comment.
(a) Merger valuation. Before selecting
a bank merger partner and voting on a
proposal to merge, a credit union’s
board of directors must determine, as
part of its due diligence, the merger
value of the credit union. In making its
determination of the merger value of
the credit union, the credit union must
either:
(1) Conduct a well-publicized merger
auction
and
obtain
purchase
quotations from at least three banks,
two or more of which must be stock
banks; or
(2) Retain a qualified appraisal entity
to analyze and estimate the merger
value of the credit union.
(b) Advance notice. A credit union
that does not conduct a public auction
as described in paragraph (a)(1) of this
section must comply with the fol-
lowing notice requirements before voting on a proposal to merge.
(1) No later than 30 days before a
board of directors votes on a proposal
to merge, it must publish a notice in a
general circulation newspaper, or in
multiple newspapers if necessary, serving all areas where the credit union has
an office, branch, or service center. It
must also post the notice in a clear and
conspicuous fashion in the lobby of the
credit union’s home office and branch
offices and on the credit union’s Web
site, if it has one. If the notice is not
on the home page of the Web site, the
home page must have a clear and conspicuous link, visible on a standard
monitor without scrolling, to the notice.
(2) The public notice must include
the following:
(i) The name and address of the credit union;
(ii) The name and type of institution
into which the credit union’s board is
considering a proposal to merge;
(iii) A brief statement of why the
board is considering the merger and
the major positive and negative effects
of the proposed merger;
(iv) A statement that directs members to submit any comments on the
proposal to the credit union’s board of
directors by regular mail, electronic
mail, or facsimile;
(v) The date on which the board plans
to vote on the proposal and the date by
which members must submit their
comments for consideration; which
submission date may not be more than
5 days before the board vote;
(vi) The street address, electronic
mail address, and facsimile number of
the credit union where members may
submit comments; and
(vii) A statement that, in the event
the board approves the proposal to
merge, the proposal will be submitted
to the membership of the credit union
for a vote following a notice period
that is no shorter than 90 days.
(3) The board of directors must approve publication of the notice.
(c) Member comments. A credit union
must collect and review any member
comments about the merger received
during the merger process. The credit
union must retain the comments until
the merger is consummated.
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National Credit Union Administration
§ 708a.304
(d) Approval of proposal to merge. The
merger proposal may only be approved
by an affirmative vote of a majority of
board members who have determined:
(1) A merger with a bank is in the
best interests of the members, and
(2) The merger partner selected by
the directors is the best choice for the
members, taking into account the
merger value of the credit union and
the amount that the selected merger
partner is willing to pay the credit
union’s members to effect the merger.
§ 708a.304 Notice to NCUA and request
to proceed with member vote.
(a) NIMRA. If a credit union’s board
of directors adopts a proposal to merge,
it must, within 30 days of the adoption,
provide the Regional Director with a
Notice of its Intent to Merge and Request
for
NCUA
Authorization
(NIMRA) to conduct a member vote.
The NIMRA must include the following:
(1) The merger plan (as described
below in paragraph (b) of this section);
(2) Resolutions of the boards of directors of both institutions;
(3) Certification of the board of directors (as described below);
(4) Proposed Merger Agreement;
(5) Proposed Notice of Special Meeting of the Members and any other communications about the merger that the
credit union intends to send to its
members, including electronic communications posted on a Web site or transmitted by electronic mail;
(6) Proposed ballot to be sent to the
members;
(7) For State chartered credit unions,
evidence that the proposed merger is
authorized under State law (as described below);
(8) A copy of the bank’s last two examination reports;
(9) A statement of the merger valuation of the credit union;
(10) A statement of whether any
merger payment will be made to the
members and how such a payment will
be distributed among the members;
(11) Information about the due diligence of the directors in locating a
merger partner and determining that
the merger is in best interests of the
members of the credit union (as described below);
(12) Copies of all contracts reflecting
any merger-related compensation or
other benefit to be received by any director or senior management official of
the credit union;
(13) If the merging credit union’s assets on its latest call report are equal
to or greater than the threshold
amount established annually by the
Federal Trade Commission under 15
U.S.C. 18a(a)(2)(B)(i), currently $63.4
million, a statement about whether the
two institutions intend to make a
Hart-Scott-Rodino Act premerger notification filing with the Federal Trade
Commission and, if not, an explanation
why not;
(14) Copies of any filings the credit
union or bank intends to make with
another Federal or State regulatory
agency in which the credit union or
bank seeks that agency’s approval of
the merger; and
(15) Proof that the accounts of the
credit union will be accepted for coverage by the Federal Deposit Insurance
Corporation.
(b) Merger plan. The merger plan
must include:
(1) Current financial statements for
both institutions;
(2) Current delinquent loan summaries and analyses of the adequacy of
the Allowance for Loan and Lease
Losses account for both institutions;
(3) Consolidated financial statements
of the continuing institution after the
merger;
(4) Explanation of any provisions for
reserves, undivided earnings or dividends;
(5) Provisions with respect to notification and payment of creditors; and
(6) Explanation of any changes relative to insurance such as life savings
and loan protection insurance and insurance of member accounts.
(c) Director certification. The NIMRA
must include a certification by the
credit union’s board of directors of
their support for the merger proposal
and plan. Each director who voted in
favor of the merger proposal must sign
the certification. The certification
must contain the following:
(1) A statement that each director
signing the certification supports the
proposed merger and believes the proposed merger, and the selected bank
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§ 708a.304
12 CFR Ch. VII (1–1–15 Edition)
merger partner, are both in the best interests of the members of the credit
union;
(2) A description of all materials submitted to the Regional Director with
the notice and certification;
(3) A statement that each board
member signing the certification has
examined all these materials carefully
and these materials are true, correct,
current, and complete as of the date of
submission; and
(4) An acknowledgement that Federal
law (18 U.S.C. 1001) prohibits any misrepresentations or omissions of material facts, or false, fictitious or fraudulent statements or representations
made with respect to the certification
or the materials provided to the Regional Director or any other documents or information provided to the
members of the credit union or NCUA
in connection with the merger.
(d) Due diligence. The NIMRA must
include a description of all the credit
union’s due diligence in determining
that the merger satisfies the factors
contained in section 205(c) of the Act.
In particular, the NIMRA must describe how the board located the merger partner, how the board negotiated
the merger agreement, and how the
board determined that this merger was
in the best interests of the credit
union’s members. The description must
include all information relied upon by
the credit union in determining the
merger value of the credit union, the
amount of any payment to be made by
the bank to the credit union’s members
(the ‘‘merger payment’’), and, if that
merger payment is less than the merger value of the credit union, an explanation why the merger and the merger
partner selected is in the best interests
of the members. The description must
include an explanation of the distribution formula by which the merger payment will be distributed among the
credit union’s members.
(e) State chartered credit unions. A
State chartered credit union must
state as part of its NIMRA if its State
chartering law permits it to merge into
a bank and provide the specific legal
citation. A State chartered credit
union will remain subject to any State
law requirements for merger that are
more stringent than those this part im-
poses, including any internal governance requirements, such as the requisite membership vote for merger and
the determination of a member’s eligibility to vote. If a State chartered
credit union relies for its authority to
merge into a bank on a State law parity provision, meaning a provision in
State law permitting a State chartered
credit union to operate with the same
or similar authority as a Federal credit
union, it must:
(1) Include in its notice a statement
that its State regulatory authority
agrees that it may rely on the State
law parity provision as authority to
merge; and
(2) Indicate its State regulatory
authority’s position as to whether Federal law and regulations or State law
will control internal governance issues
in the merger such as the requisite
membership vote for merger and the
determination of a member’s eligibility
to vote.
(f) Consultation with State authorities.
After receiving a NIMRA from a State
chartered credit union, the Regional
Director will consult with the appropriate State supervisory authority.
(g) Regional Director approval. After
receiving a NIMRA, the Regional Director will either disapprove the proposed merger or authorize the credit
union to proceed with its membership
vote.
(1) The Regional Director will disapprove the proposed merger if the
NIMRA either lacks the documentation
required by this section or lacks substantial evidence to support each of the
factors in section 205(c) of the Act. As
part of this determination, the Regional Director must disapprove the
proposed merger if:
(i) The merger payment offered by
the bank to the members is less than
the merger valuation, absent some additional, quantifiable benefit to the
members from the selected merger
partner; or
(ii) The NIMRA fails to adequately
explain the nature and amount of any
compensation to be received by the
credit union’s directors or senior management officials in connection with
the merger or to justify that compensation.
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National Credit Union Administration
§ 708a.305
(2) NCUA’s authorization to proceed
with the member vote does not mean
NCUA has approved of the merger proposal.
(h) Appeal of adverse decision. If the
Regional Director disapproves a merger
proposal, the credit union may appeal
the Regional Director’s determination
to the Board. The credit union must
file the appeal within 30 days after receipt of the Regional Director’s determination. The Board will act on the appeal within 120 days of receipt.
§ 708a.305 Disclosures and communications to members.
(a) After the board of directors approves a merger proposal and receives
NCUA’s authorization as described in
§§ 708a.303 and 708a.304, the credit union
must provide written notice of its intent to merge to each member who is
eligible to vote on the merger. The notice to members must be mailed 90 calendar days and 30 calendar days before
the date of the membership vote on the
merger. A ballot must be included in
the same envelope as the 30-day notice
and only with the 30-day notice. A
merging credit union may not distribute ballots with the 90-day notice,
in any other written communications,
or in person before the 30-day notice is
sent.
(b)(1) The notice to members must
adequately describe the purpose and
subject matter of the vote and clearly
inform members that they may vote at
the special meeting or by submitting
the written ballot. The notice must
state the date, time, and place of the
meeting.
(2) The 90-day notice must state in a
clear and conspicuous fashion that a
written ballot will be mailed together
with another notice 30 days before the
date of the membership vote on merger. The 30-day notice must state in a
clear and conspicuous fashion that a
written ballot is included in the same
envelope as the 30-day notice materials.
(3) For purposes of facilitating the
member-to-member contact described
in paragraph (f) of this section, the 90day notice must indicate the number of
credit union members eligible to vote
on the merger proposal and state how
many members have agreed to accept
communications from the credit union
in electronic form. The 90-day notice
must also include the information listed in paragraph (g)(9) of this section.
(4) The member ballot must include:
(i) A brief description of the proposal
(e.g., ‘‘Proposal: Approval of the Plan
of Merger by which [insert name of
credit union] will merge with a bank’’);
(ii) Two blocks marked respectively
as ‘‘FOR’’ and ‘‘AGAINST;’’ and
(iii) The following language: ‘‘A vote
FOR the proposal means that you want
your credit union to merge with and
become a bank. A vote AGAINST the
proposal means that you want your
credit union to remain a credit union.’’
This language must be displayed in a
clear and conspicuous fashion immediately beneath the FOR and AGAINST
blocks.
(5) The ballot may also include voting instructions and the recommendation of the board of directors (i.e.,
‘‘Your Board of Directors recommends
a vote FOR the Plan of Merger’’) but
may not include any further information without the prior written approval
of the Regional Director.
(c) For mergers into stock banks, an
adequate description of the purpose
and subject matter of the member vote
on merger, as required by paragraph (b)
of this section, must include:
(1) A clear and conspicuous disclosure
that if the merger is approved the
members will lose all of their ownership interests in the institution, including the right to vote, the right to
share in the value of the institution
should it be liquidated, the right to
share in any extraordinary dividends,
and the right to have the net worth of
the institution managed in their best
interests;
(2) A clear and conspicuous disclosure
of any post-merger employment or consulting relationships offered by the
bank to any of the credit union’s directors and senior management officials
and the amount of the associated compensation;
(3) A clear and conspicuous disclosure
of how the merger of the credit union
will affect the members’ ability to obtain
non-housing-related
consumer
loans from the bank because of because
of the bank’s obligations to satisfy
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§ 708a.305
12 CFR Ch. VII (1–1–15 Edition)
statutory or regulatory lending requirements (if any). This disclosure
should specify possible reductions in
some kinds of loans to members;
(4) A clear and conspicuous statement of the merger value of the credit
union, the total dollar amount the selected bank merger partner has agreed
to pay to effect the merger, and the
distribution formula the bank will use
to determine each member’s portion of
that payment to be received upon completion of the merger; and
(d) For mergers into mutual banks,
an adequate description of the purpose
and subject matter of the member vote
on merger, as required by paragraph (b)
of this section, must include:
(1) A clear and conspicuous disclosure
of how the merger will affect members’
voting rights including whether the
bank bases voting rights on account
balances;
(2) A clear and conspicuous disclosure
that the merger could lead to members
losing all of their ownership interests
in the credit union if the bank subsequently converts to a stock institution
and the members do not purchase
stock;
(3) A clear and conspicuous disclosure
of any post-merger employment or consulting relationships offered by the
bank to the credit union’s directors
and senior management officials and
the associated compensation for each;
(4) A clear and conspicuous disclosure
of how the merger of the credit union
will affect the members’ ability to obtain
non-housing-related
consumer
loans from the bank because of the
bank’s obligations to satisfy statutory
or regulatory lending requirements (if
any). This disclosure should specify
possible reductions in some kinds of
loans to members;
(5) A clear and conspicuous statement that, at the time of merger, the
bank does or does not intend to convert
to a stock institution or a mutual
holding company structure;
(6) A clear and conspicuous statement of the merger value of the credit
union, the total dollar amount the selected bank merger partner has agreed
to pay to effect the merger, and the
distribution formula the bank will use
to determine each member’s portion of
that payment to be received upon completion of the merger; and
(7) If the bank plans to add one or
more of the credit union’s directors to
its board or employ one or more senior
officials of the credit union, a clear and
conspicuous statement that bank could
convert to a stock bank in the future
and a comparison of the opportunities
available to those officials and employees to obtain stock with the opportunities available to the depositors of the
bank.
(e)(1) A merging credit union must
provide the following disclosures in a
clear and conspicuous fashion with the
90-day and 30-day notices it sends to its
members regarding the merger:
IMPORTANT REGULATORY DISCLOSURE
ABOUT YOUR VOTE
The National Credit Union Administration,
the Federal government agency that supervises credit unions, requires [insert
name of credit union] to provide the following disclosures:
1. LOSS OF CREDIT UNION MEMBERSHIP. A vote ‘‘FOR’’ the proposed merger
means you want your credit union to
merge with and become a bank. A vote
‘‘AGAINST’’ the proposed merger means
you want your credit union to remain a
credit union.
2. [For Mergers into Stock Banks Only].
LOSS OF OWNERSHIP INTERESTS. If
your credit union merges into the bank,
you will lose all the ownership interests
you currently have in the credit union and
you will become a customer of the bank.
The bank’s stockholders own the bank,
and the directors of the bank have a fiduciary responsibility to run the bank in the
best interests of the stockholders, not the
customers.
2. [For Mergers into Mutual Banks Only].
POTENTIAL PROFITS BY OFFICERS
AND DIRECTORS. Merger into a mutual
savings bank is often the first step in a
two-step process to convert to a stockissuing bank or holding company structure. In such a scenario, the officers and
directors of the bank often profit by obtaining stock in excess of that available to
other members.
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31
National Credit Union Administration
§ 708a.305
3. RATES ON LOANS AND SAVINGS. If
your credit union merges into the bank,
you may experience changes in your loan
and savings rates. Available historic data
indicates that, for most loan products,
credit unions on average charge lower
rates than banks. For most savings products, credit unions on average pay higher
rates than banks.
(2) This text must be placed in a box,
must be the only text on the front side
of a single piece of paper, and must be
placed so that the member will see the
text after reading the credit union’s
cover letter but before reading any
other part of the member notice. The
back side of the paper must be blank. A
merging credit union may modify this
text only with the prior written consent of the Regional Director and, in
the case of a State chartered credit
union, the appropriate State regulatory agency.
(f) All written communications from
a merging credit union to its members
regarding the merger must be written
in a manner that is simple and easy to
understand. Simple and easy to understand means the communications are
written in plain language designed to
be understood by ordinary consumers
and use clear and concise sentences,
paragraphs, and sections. For purposes
of this part, examples of factors to be
considered in determining whether a
communication is in plain language
and uses clear and concise sentences,
paragraphs and sections include the
use of short explanatory sentences; use
of definite, concrete, everyday words;
use of active voice; avoidance of multiple negatives; avoidance of legal and
technical business terminology; avoidance of explanations that are imprecise
and reasonably subject to different interpretations; and use of language that
is not misleading.
(g)(1) A merging credit union must
mail or e-mail a requesting member’s
proper merger-related materials to
other members eligible to vote if:
(i) A credit union’s board of directors
has adopted a proposal to merge;
(ii) A member makes a written request that the credit union mail or email materials for the member;
(iii) The request is received by the
credit union no later than 35 days after
it sends out the 90-day member notice;
and
(iv) The requesting member agrees to
reimburse the credit union for the reasonable expenses, excluding overhead,
of mailing or e-mailing the materials
and also provides the credit union with
an appropriate advance payment.
(2) A member’s request must indicate
if the member wants the materials
mailed or e-mailed. If a member requests that the materials be mailed,
the credit union will mail the materials to all eligible voters. If a member
requests the materials be e-mailed, the
credit union will e-mail the materials
to all members who have agreed to accept communications electronically
from the credit union. The subject line
of the credit union’s e-mail will be
‘‘Proposed Credit Union Merger—Views
of Member (insert member name).’’
(3)(i) A merging credit union may, at
its option, include the following statement with a member’s material:
On (date), the board of directors of (name
of merging credit union) adopted a proposal
to merge the credit union into a bank. Credit
union members who wish to express their
opinions about the proposed merger to other
members may provide those opinions to
(name of credit union). By law, the credit
union, at the requesting members’ expense,
must then send those opinions to the other
members. The attached document represents
the opinion of a member (or group of members) of this credit union. This opinion is a
personal opinion and does not necessarily reflect the views of the management or directors of the credit union.
(ii) A merging credit union may not
add anything other than this statement to a member’s material without
the prior approval of the Regional Director.
(4) The term ‘‘proper merger-related
materials’’ does not include materials
that:
(i) Due to size or similar reasons are
impracticable to mail or e-mail;
(ii) Are false or misleading with respect to any material fact;
(iii) Omit a material fact necessary
to make the statements in the material not false or misleading;
(iv) Relate to a personal claim or a
personal grievance, or solicit personal
gain or business advantage by or on behalf of any party;
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§ 708a.305
12 CFR Ch. VII (1–1–15 Edition)
(v) Relate to any matter, including a
general economic, political, racial, religious, social, or similar cause, that is
not significantly related to the proposed merger;
(vi) Directly or indirectly and without expressed factual foundation impugn a person’s character, integrity, or
reputation;
(vii) Directly or indirectly and without expressed factual foundation make
charges concerning improper, illegal,
or immoral conduct; or
(viii) Directly or indirectly and without expressed factual foundation make
statements impugning the stability
and soundness of the credit union.
(5) If a merging credit union believes
some or all of a member’s request is
not proper it must submit the member
materials to the Regional Director
within seven days of receipt. The credit
union must include with its transmittal letter a specific statement of
why the materials are not proper and a
specific recommendation for how the
materials should be modified, if possible, to make them proper. The Regional Director will review the communication, communicate with the requesting member, and respond to the
credit union within seven days with a
determination on the propriety of the
materials. The credit union must then
mail or e-mail the material to the
members if so directed by NCUA.
(6) A credit union must ensure that
its members receive all materials that
meet the requirements of § 708a.305(g)
on or before the date the members receive the 30-day notice and associated
ballot. If a credit union cannot meet
this delivery requirement, it must
postpone mailing the 30-day notice
until it can deliver the member materials. If a credit union postpones the
mailing of the 30-day notice, it must
also postpone the special meeting by
the same number of days. When the
credit union has completed the delivery, it must inform the requesting
member that the delivery was completed and provide the number of recipients.
(7) The term ‘‘appropriate advance
payment’’ means:
(i) For requests to mail materials to
all eligible voters, a payment in the
amount of 150 percent of the first class
postage rate times the number of mailings, and
(ii) For requests to e-mail materials
only to members that have agreed to
accept electronic communications, a
payment in the amount of 200 dollars.
(8) If a credit union posts merger-related information or material on its
Web site, then it must simultaneously
make a portion of its Web site available free of charge to its members to
post and share their opinions on the
merger. A link to the portion of the
Web site available to members to post
their views on the merger must be
marked ‘‘Members: Share your views
on the proposed merger and see other
members’ views’’ and the link must
also be visible on all pages on which
the credit union posts its own mergerrelated information or material, as
well as on the credit union’s homepage.
If a credit union believes a particular
member submission is not proper for
posting, it will provide that submission
to the Regional Director for review as
described in paragraph (g)(5) of this
section. The credit union may also post
a content-neutral disclaimer using language similar to the language in paragraph (g)(3)(i) of this section.
(9) A merging credit union must inform members with the 90-day notice
that if they wish to provide their opinions about the proposed merger to
other members they can submit their
opinions in writing to the credit union
no later than 35 days from the date of
the notice and the credit union will
forward those opinions to other members. The 90-day notice will provide a
contact at the credit union for delivery
of communications, will explain that
members must agree to reimburse the
credit union’s costs of transmitting the
communication including providing an
advance payment, and will refer members to this section of NCUA’s rules for
further information about the communication process. The credit union, at
its option, may include additional factual information about the communication process with its 90-day notice.
(10) A group of members may make a
joint request that the credit union send
its materials to other members. For
purposes of paragraphs (g)(2) and (g)(3)
of this section, the credit union will
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National Credit Union Administration
§ 708a.308
use the group name provided by the
group.
(h) If it chooses, a credit union may
seek a preliminary determination from
the Regional Director regarding any of
the notices required under this subchapter and its proposed methods and
procedures applicable to the membership merger vote. The Regional Director will make a preliminary determination regarding the notices and methods
and procedures applicable to the membership vote within 30 calendar days of
receipt of a credit union’s request for
review unless the Regional Director extends the period as necessary to request additional information or review
a credit union’s submission. A credit
union’s prior submission of any notice
or proposed voting procedures does not
relieve the credit union of its obligation to certify the results of the membership vote required by § 708a.307 or
eliminate the right of the Regional Director to disapprove the merger if the
credit union fails to conduct the membership vote in a fair and legal manner
consistent with the Federal Credit
Union Act and these rules.
§ 708a.306 Membership approval of a
proposal to merge.
(a) A proposal for merger approved by
a board of directors also requires approval by a majority of the members
who vote on the proposal. At least 20
percent of the members eligible to vote
must participate in the vote. The credit union must also have NCUA’s written authorization to proceed with the
member vote.
(b) The board of directors must set a
voting record date to determine member voting eligibility. The record date
must be at least one day before the
publication of notice required in
§ 708a.303.
(c) A member may vote on a proposal
to merge in person at a special meeting
held on the date set for the vote or by
written ballot delivered by mail or otherwise. The vote on the merger proposal must be by secret ballot and conducted by an independent entity. The
independent entity must be a company
with experience in conducting corporate elections. No official or senior
management official of the credit
union or the immediate family mem-
bers of any official or senior management official may have any ownership
interest in or be employed by the independent entity.
§ 708a.307 Certification of vote on
merger proposal.
(a) The board of directors of the
merging credit union must certify the
results of the membership vote to the
Regional Director within 14 calendar
days after the vote is taken.
(b) The certification must also include a statement that the notice, ballot, and other written materials provided to members were identical to
those submitted to NCUA pursuant to
§ 708a.305. If the board cannot certify
this, the board must provide copies of
any new or revised materials and an
explanation of the reasons for any
changes.
(c) The certification must include
copies of any correspondence between
the credit union and other regulators
related to the pending merger.
§ 708a.308 NCUA approval of the merger.
(a) The Regional Director will review
the methods by which the membership
vote was taken and the procedures applicable to the membership vote. The
Regional Director will determine if the
notices and other communications to
members were accurate, not misleading, and timely; if the membership
vote was conducted in a fair and legal
manner; and if the credit union has
otherwise met the requirements of this
subpart, including whether there is
substantial evidence that the factors in
section 205(c) of the Act are satisfied.
(b) After completion of this review,
the Regional Director will approve or
disapprove the proposed merger. The
Regional Director will issue the approval or disapproval within 30 calendar days of receipt from the credit
union of the certification of the result
of the membership vote required under
§ 708a.307, unless the Regional Director
extends the period as necessary to request additional information or review
the credit union’s submission. The Regional Director’s approval is conditional on the credit union completing
the merger in the timeframes required
by § 708a.309.
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§ 708a.309
12 CFR Ch. VII (1–1–15 Edition)
(c) If the Regional Director disapproves the methods by which the
membership vote was taken or the procedures applicable to the membership
vote, the Regional Director may direct
that a new vote be taken.
(d) A merging credit union may appeal a Regional Director’s disapproval
to the NCUA Board. The credit union
must file the appeal within 30 days
after receipt of the Regional Director’s
determination. The NCUA Board will
act on the appeal within 120 days of receipt.
§ 708a.309 Completion of merger.
(a) After receipt of the approvals
under §§ 708a.302 and 708a.308 a credit
union may complete the merger.
(b) The credit union must complete
the merger within one year of the date
of NCUA approval under § 708a.308. If a
credit union fails to complete the
merger within one year the Regional
Director will disapprove the merger.
The credit union’s board of directors
must then adopt a new merger proposal
and solicit another member vote if it
still desires to merge.
(c) The Regional Director may, upon
timely request and for good cause, extend the one year completion period for
an additional six months.
(d) After notification by the board of
directors of the bank that the merger
has been completed, the NCUA will
cancel the insurance certificate of the
credit union and, if applicable, the
charter of a Federal credit union.
§ 708a.310 Limits on compensation of
officials.
No director or senior management official of an insured credit union may
receive any economic benefit in connection with the merger of a credit
union other than reasonable compensation and other benefits paid in the ordinary course of business.
§ 708a.311 Voting incentives.
If a merging credit union offers an incentive to encourage members to participate in the vote, including a prize
raffle, every reference to such incentive made by the credit union in a written communication to its members
must also state that members are eligible for the incentive regardless of
whether they vote for or against the
proposed merger.
§ 708a.312 Voting guidelines.
A merging credit union must conduct
its member vote on merger in a fair
and legal manner. NCUA provides the
following guidelines as suggestions to
help a credit union obtain a fair and
legal vote and otherwise fulfill its regulatory obligations. These guidelines
are not an exhaustive checklist and do
not by themselves guarantee a fair and
legal vote.
(a) Applicability of State law. While
NCUA’s merger rules apply to all mergers of Federally insured credit unions,
Federally insured State chartered credit unions (FISCUs) are also subject to
State law on mergers. NCUA’s position
is that no merger of a State chartered
credit union is authorized unless permitted by State law, and also that a
State legislature or State supervisory
authority may impose merger requirements more stringent or restrictive
than NCUA’s. States that permit mergers may have substantive and procedural requirements that vary from
Federal law. For example, there may
be different voting standards for approving a vote. While the Federal Credit Union Act requires a simple majority of those who vote to approve a
merger, some States have higher voting standards requiring two-thirds or
more of those who vote. A FISCU
should be careful to understand both
Federal and State law to navigate the
merger process and conduct a proper
vote.
(b) Eligibility to vote. (1) Determining
who is eligible to cast a ballot is fundamental to any vote. No merger vote
can be fair and legal if some members
are improperly excluded. A merging
credit union should be cautious to
identify all eligible members and make
certain they are included on its voting
list. NCUA recommends that a merging
credit union establish internal procedures to manage this task.
(2) A merging credit union should be
careful to make certain its member list
is accurate and complete. For example,
when a credit union converts from
paper record keeping to computer
record keeping, some member names
may not transfer unless the credit
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National Credit Union Administration
§ 708a.312
union is careful in this regard. This
same problem can arise when a credit
union merges from one computer system to another where the software is
not completely compatible.
(3) Problems with keeping track of
who is eligible to vote can also arise
when a credit union merges from a
Federal charter to a State charter or
vice versa. NCUA is aware of an instance where a Federal credit union
used membership materials allowing
two or more individuals to open a joint
account and also allowed each to become a member. The Federal credit
union later converted to a State chartered credit union that, like most
other State chartered credit unions in
its State, used membership materials
allowing two or more individuals to
open a joint account but only allowed
the first person listed on the account
to become a member. The other individuals did not become members as a
result of their joint account, but were
required to open another account
where they were the first or only person listed on the account. Over time,
some individuals who became members
of the Federal credit union as the second person listed on a joint account
were treated like those individuals who
were listed as the second person on a
joint account opened directly with the
State chartered credit union. Specifically, both of those groups were treated as non-members not entitled to
vote. This example makes the point
that a credit union must be diligent in
maintaining a reliable membership
list.
(c) Scheduling the special meeting.
NCUA’s merger rule requires a merging
credit union to permit members to vote
by written mail ballot or in person at
a special meeting held for the purpose
of voting on the merger. Although
most members may choose to vote by
mail, a significant number may choose
to vote in person. As a result, a merging credit union should be careful to
conduct its special meeting in a manner conducive to accommodating all
members wishing to attend, including
selecting a meeting location that can
accommodate the anticipated number
of attendees and is conveniently located. The meeting should also be held
on a day and time suitable to most
members’ schedules. A credit union
should conduct its meeting in accordance with applicable Federal and State
law, its bylaws, Robert’s Rules of Order
or other appropriate parliamentary
procedures, and determine before the
meeting the nature and scope of any
discussion to be permitted.
(d) Voting incentives. Some credit
unions may wish to offer incentives to
members, such as entry to a prize raffle, to encourage participation in the
merger vote. The credit union must exercise care in the design and execution
of such incentives.
(1) The credit union should ensure
that the incentive complies with all
applicable State, Federal, and local
laws.
(2) The incentive should not be unreasonable in size. The cost of the incentive should have a negligible impact
on the credit union’s net worth ratio
and the incentive should not be so
large that it distracts the member
from the purpose of the vote. If the
board desires to use such incentives,
the cost of the incentive should be included in the directors’ deliberation
and determination that the merger is
in the best interests of the credit
union’s members.
(3) The credit union should ensure
that the incentive is available to every
member that votes regardless of how or
when he or she votes. All of the credit
union’s written materials promoting
the incentive to the membership must
disclose to the members, as required by
§ 708a.311 of this part, that they have an
equal opportunity to participate in the
incentive program regardless of whether they vote for or against the merger.
The credit union should also design its
incentives so that they are available
equally to all members who vote, regardless of whether they vote by mail
or in person at the special meeting.
(e) Solicitation of votes. Some credit
unions may wish to contact members
who have not voted and encourage
them to vote on the merger proposal.
NCUA believes, however, that using
credit union employees to solicit votes
is problematic. Employees directed to
solicit votes could easily neglect everyday duties critical to the credit union’s
safe and sound operation. Also, employees may very well feel pressured to
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Pt. 708b
12 CFR Ch. VII (1–1–15 Edition)
solicit votes for the merger, regardless
of whether or not they support the
merger. Accordingly, NCUA strongly
encourages credit unions to use an
independent third party to solicit votes
rather than diverting credit union employees from their usual duties.
PART 708b—MERGERS OF FEDERALLY-INSURED CREDIT UNIONS;
VOLUNTARY TERMINATION OR
CONVERSION OF INSURED STATUS
Sec.
708b.1
708b.2
Scope.
Definitions.
Subpart A—Mergers
708b.101 Mergers generally.
708b.102 Special provisions for federal insurance.
708b.103 Preparation of merger plan.
708b.104 Submission of merger proposal to
the NCUA.
708b.105 Approval of merger proposal by the
NCUA.
708b.106 Approval of the merger proposal by
members.
708b.107 Certification of vote on merger proposal.
708b.108 Completion of merger.
Subpart B—Voluntary Termination or
Conversion of Insured Status
708b.201 Termination of insurance.
708b.202 Notice to members of proposal to
terminate insurance.
708b.203 Conversion of insurance.
708b.204 Notice to members of proposal to
convert insurance.
708b.205 Modifications to notice and ballot.
708b.206 Share insurance communications
to members.
Subpart C—Forms
708b.301 Conversion of insurance (State
Chartered Credit Union)
708b.302 Conversion of insurance (Federal
Credit Union).
708b.303 Conversion of insurance through
merger.
AUTHORITY: 12 U.S.C. 1752(7), 1766, 1785, 1786,
1789.
SOURCE: 70 FR 3288, Jan. 24, 2005, unless
otherwise noted.
credit unions with a continuing credit
union where at least one of the credit
unions is federally-insured.
(b) Subpart B of this partprescribes
the procedures and notice requirements
for termination of federal insurance or
conversion of federal insurance to nonfederal insurance, including termination or conversion resulting from a
merger.
(c) Subpart C prescribes required
forms for use in conversion of federal
insurance to nonfederal insurance.
(d) Nothing in this partrestricts or
otherwise impairs the authority of the
NCUA to approve a merger pursuant to
section 205(h) of the Act.
(e) This part does not address procedures or requirements that may be applicable under state law for a state
credit union.
§ 708b.2
Definitions.
Conducted by an independent entity
means:
(1) The independent entity will receive the ballots directly from voting
members.
(2) After the conclusion of the special
meeting that ends the ballot period,
the independent entity will open all
the ballots in its possession and tabulate the results. The entity must not
open or tabulate any ballots before the
conclusion of the special meeting.
(3) The independent entity will certify the final vote tally in writing to
the credit union and provide a copy to
the NCUA Regional Director. The certification will include, at a minimum,
the number of members who voted, the
number of affirmative votes, and the
number of negative votes. During the
course of the voting period the independent entity may provide the credit
union with the names of members who
have not yet voted, but may not provide any voting results to the credit
union prior to certifying the final vote
tally.
Continuing credit union means the
credit union that will continue in operation after the merger.
§ 708b.1 Scope.
(a) Subpart A of this partprescribes
the procedures for merging one or more
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| File Type | application/pdf |
| File Title | CFR-2015-title12-vol7-chapVII.pdf |
| Author | dwolfgang |
| File Modified | 2016-01-19 |
| File Created | 2016-01-19 |