PART 13-EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS

Sec.

13.1 Scope and application.

13.2

Source of shares.

13.3 Terms and procedure.

AUTHORITY: The provisions of this Part 13 issued under R.S. 324 et seq., as amended; 12 U.S.C.

SOURCE: The provisions of this Part 13 appear at 31 F.R. 6953, May 12, 1966, unless otherwise noted.

§ 13.1 Scope and application.

Any national bank may grant options to purchase, sell, or enter into agreements to sell, shares of its capital stock to its employees, whether or not such transactions qualify for special tax treatment under the Internal Revenue Code of 1954, as amended, and regulations promulgated thereunder, provided that the following conditions are met:

(a) Application for approval shall be made to the Comptroller of the Currency, Washington, D.C., 20220, in the form of a letter accompanied by the following information:

(1) Description of all material provisions of the plan.

(2) Proposed notice of shareholders' meeting, proxy and proxy statement.

(3) Number of shares of authorized but unissued stock to be allocated to the plan.

(4) Proposed amendments to articles of association creating authorized but unissued stock and eliminating preemptive rights as to the shares reserved under the plan;

(b) The plan is administered by a committee, none of whose members may participate in the plan;

(c) The number of shares allocable to any person under the plan is reasonable

in relation to the purpose of the plan and the needs of the bank; and

(d) In the case of a stock option plan, the number of shares subject to the plan is not unreasonable in relation to the bank's capital structure and anticipated growth.

§ 13.2 Source of shares.

Shares issued to employees pursuant to this part may be authorized but unissued stock which has been authorized by stockholders in accordance with the procedures outlined in Part 14 of this chapter.

§ 13.3 Terms and procedures.

(a) Employee stock option and stock purchase plans or agreements may provide that options may be exercisable or that shares may be purchased on any business day. Stock certificates representing the shares purchased pursuant to the exercise of options may be validly issued to such purchasers upon receipt of the purchase price.

(b) The increase in capital represented by stock certificates issued pursuant to this section will not be applicable, however, for the purposes of permitted investment in banking premises, 12 U.S.C. 371d, permitted indebtedness, 12 U.S.C. 82, lending limits, 12 U.S.C. 84, branches, 12 U.S.C. 36 and other like purposes, until a notarized notice specifying the amount paid into the bank therefor, shall be executed by the president, vice president or cashier of the bank and filed with the Regional Administrator of National Banks, and until the Comptroller's Certificate has been obtained specifying the amount of such increase of capital stock, and his approval thereof, and that it has been duly paid in as part of the capital of such association.

§ 14.1 Capital adequacy.

The Comptroller of the Currency will not hereafter rely on the ratios of capital to risk assets and to total deposits in assessing the adequacy of capital of national banking associations. These formulae, although of some value in assessing capital adequacy, do not take into account other factors of equal or greater importance. Henceforth, the capital position of the bank will be analyzed and appraised in relation to the character of its management and its asset and deposit position as a going institution under normal conditions, with due allowance for a reasonable margin of safety, and with due regard to the bank's capacity to furnish the broadest service to the public. These factors, which are necessarily imprecise, cannot be directly interpolated into any specific formula. The following factors will be considered by the Comptroller in assessing the adequacy of capital:

(a) The quality of management;
(b) The liquidity of assets;

(c) The history of earnings and of the retention thereof;

(d) The quality and character of ownership;

(e) The burden of meeting occupancy expenses;

(f) The potential volatility of deposit structure;

(g) The quality of operating procedures; and

(h) The bank's capacity to meet present and future financial needs of its trade area, considering the competition it faces.

§ 14.2

Authorized but unissued stock.

Any national banking association, with the approval of the Comptroller and by vote of stockholders owning two-thirds of the stock of the bank entitled to vote, may authorize an increase in the common stock of the bank in the category of authorized but unissued stock. Such authorized but unissued stock may be issued from time to time to employees of the bank pursuant to a stock option or stock purchase plan adopted in accordance with Part 13 of this chapter, or in exchange for convertible preferred stock or convertible capital debentures in accordance with the terms and provisions of such securities. Authorized but unissued stock may also be issued from time to time for such other purposes and considerations as may be approved by the board of directors of the bank, and by the Comptroller.

§ 14.2a Any national banking association which, under R.S. 5142; 12 U.S.C. 57, and § 14.2, makes application to the Comptroller of the Currency for approval to increase its authorized common capital stock or to issue shares of its common capital stock from the category of authorized but unissued stock for the purpose of acquiring the capital stock of another bank, must submit to the Comptroller in Washington, D.C., information relating to the following:

Stock for stock exchange.

(a) The financial history and condition of the banks concerned;

(b) The adequacy of the capital structure of the acquiring bank;

(c) The future earnings prospects of the banks concerned;

(d) The general character of their management;

(e) The convenience, needs, and welfare of the communities and the area concerned;

(f) Whether or not the effect of such acquisition would be to expand the size of the banks involved beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking. [31 F.R. 8951, June 29, 1966] § 14.3

Stock dividends.

(a) It is the policy of the Comptroller of the Currency not to discourage the re

tention of earnings by national banking associations in the form of stock dividends. Accordingly, stock dividends, whether on a recurring or nonrecurring basis, will not be subject to disapproval, except in rare or unusual circumstances.

(b) Subject to the provisions of 12 U.S.C. 57, any national banking association may increase its capital stock by the declaration of a stock dividend, with the approval of the Comptroller. For such approval, applications on Form 1904-C shall be filed with the appropriate Regional Administrator of National Banks. The Regional Administrator will communicate his written approval to the bank within 15 days after receipt of the application. Upon receipt of such approval, the bank may proceed to obtain the required approval of stockholders owning two-thirds of the stock of the bank entitled to vote if such approval has not been obtained previously. In cases where the Regional Administrator of National Banks disapproves the proposed stock dividend, he shall forward the application to the Office of the Comptroller in Washington for final disposition and shall advise the bank of such referral.

§ 14.4 Preferred stock.

It is the policy of the Comptroller of the Currency to permit the issuance of preferred stock by national banking associations in accordance with normal business considerations. Subject to the provisions of 12 U.S.C. 51a, 51b, and 51b-1, the bank may, by vote of stockholders owning a majority of the stock of the bank, issue convertible or nonconvertible preferred stock of one or more classes, with such other provisions and in such amount and with such par value as shall be approved by the Comptroller, and make such amendments to its Articles of Association as may be necessary for this purpose.

(a) It is the policy of the Comptroller of the Currency to permit the issuance of convertible or nonconvertible capital debentures by national banking associations in accordance with normal business considerations.

(b) Subject to the provisions of 12 U.S.C. 82, the bank may, with the approval of stockholders owning two-thirds of the stock of the bank, entitled to vote, or without such approval if authorized by its Articles of Association, issue convertible or nonconvertible capital debentures in such amounts and under such terms and conditions as shall be approved by the Comptroller: Provided, however, That the principal amount of capital debentures outstanding at any time, when added to all other outstanding indebtedness of the bank, except those forms of indebtedness exempt from the provisions of 12 U.S.C. 82, shall not exceed an amount equal to 100 percent of the bank's unimpaired paid-in capital stock plus 50 percent of the amount of its unimpaired surplus fund.

§ 14.6 Other increases of capital.

(a) Applications by a national banking association on Form 1904-B for the Comptroller's preliminary approval of proposed sales of additional common capital stock, other than under an employee stock option or employee stock purchase plan which has previously been approved by the stockholders of the bank and by the Comptroller pursuant to Part 13 of this chapter, and other than pursuant to the preceding sections of this part, shall be filed with the appropriate Regional Administrator of National Banks, whose approval shall be deemed to be the preliminary approval of the Comptroller. Upon such approval, the bank may proceed to obtain the approval of stockholders pursuant to the provisions of 12 U.S.C. 57, if such approval has

§ 15.1

Scope and application.

(a) On and after October 1, 1964, each national bank shall promptly notify the Comptroller of the Currency whenever a change occurs in the ownership of its outstanding voting stock of sufficient magnitude to effect a change in control of the bank.

(b) Any loan or loans made by a national bank and secured or to be secured by 25 per centum or more of the outstanding voting stock of an insured bank shall be reported as specified in § 15.3. § 15.2 Change in control-own bank. (a) It shall be the duty of the president or other chief executive officer of a national bank to submit a report to the Comptroller of the Currency whenever he believes that a change in controlling ownership of his bank has taken place. If there is any doubt concerning whether a particular change in ownership is sufficient to effect a change in control, such doubt shall be resolved in favor of submitting a report to the Comptroller. The report shall be in letter form and shall contain the following information to the extent that it is known to the person

making the report: (1) The number of shares involved; (2) the identity of the sellers (or transferors); (3) the names of the purchasers (or transferees); (4) the names of the beneficial owners if the shares are registered in another name; (5) the purchase price; (6) the total number of shares owned by the sellers (or transferors), the purchasers (or transferees); and (7) beneficial owners both immediately prior to and after the transaction.

(b) The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the bank.

§ 15.3 Report of loans secured by stock of other insured banks.

(a) Whenever a national bank makes a loan or loans, secured, or to be secured, by 25 per centum or more of the outstanding voting stock of an insured bank, the president or other chief executive officer of the lending bank shall promptly report such fact to the Board of Governors of the Federal Reserve System where the shares of a member bank are pledged or to the Federal Deposit Insurance Corporation where the shares of a nonmember insured bank are pledged. No report need be made in those cases where the borrower has been the owner of record of the stock for a period of 1 year or more, or the stock is that of a newly organized bank prior to its opening.

(b) The reports required under this section shall contain, to the extent that it is known by the person making the report, the same information called for in § 15.2.