(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1467a, 1831o, and 5412(b)(2)(B).
(b) Licensing requirements. A Federal savings association must file an application before making a capital distribution, as provided in this section.
(c) Scope. This section applies to all capital distributions by a Federal savings association and sets forth the procedures and standards relating to a capital distribution.
(d) Definitions. The following definitions apply to this section:
(1) Affiliate means an affiliate, as defined under regulations of the Board of Governors of the Federal Reserve System regarding transactions with affiliates, 12 CFR part 223 (Regulation W).
(2) Capital distribution means:
(i) A distribution of cash or other property to owners of a Federal savings association made on account of their ownership, but excludes:
(A) Any dividend consisting only of the shares of the savings association or rights to purchase the shares; or
(B) If the savings association is a Federal mutual savings association, any payment that the savings association is required to make under the terms of a deposit instrument and any other amount paid on deposits that the OCC determines is not a distribution for the purposes of this section;
(ii) A Federal savings association's payment to repurchase, redeem, retire or otherwise acquire any of its shares or other ownership interests; any payment to repurchase, redeem, retire, or otherwise acquire debt instruments included in its total capital under 12 CFR part 3; and any extension of credit to finance an affiliate's acquisition of the savings association's shares or interests;
(iii) Any direct or indirect payment of cash or other property to owners or affiliates made in connection with a corporate restructuring. This includes the Federal savings association's payment of cash or property to shareholders of another association or to shareholders of its holding company to acquire ownership in that association, other than by a distribution of shares;
(iv) Any other distribution charged against a Federal savings association's capital accounts if the savings association would not be well capitalized, as set forth in 12 CFR 6.4, following the distribution; and
(v) Any transaction that the OCC determines, by order or regulation, to be in substance a distribution of capital.
(3) Control has the same meaning as in section 10(a)(2) of the Home Owners' Loan Act (12 U.S.C. 1467a(a)(2)).
(4) Net income means a Federal savings association's net income computed in accordance with GAAP.
(5) Retained net income means a Federal savings association's net income for a specified period less total capital distributions declared in that period.
(6) Shares means common and preferred stock, and any options, warrants, or other rights for the acquisition of such stock. The term “share” also includes convertible securities upon their conversion into common or preferred stock. The term does not include convertible debt securities prior to their conversion into common or preferred stock or other securities that are not equity securities at the time of a capital distribution.
(e) Filing requirements -
(1) Application required. A Federal savings association must file an application with the OCC before making a capital distribution if:
(i) The Federal savings association would not be at least well capitalized or would not otherwise remain an eligible savings association following the distribution;
(ii) The total amount of all of the Federal savings association's capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds its net income for that year to date plus retained net income for the preceding two years. If the capital distribution is from retained earnings, the aggregate limitation in this paragraph may be calculated in accordance with § 5.64(c)(2), substituting “capital distributions” for “dividends” in that section;
(iii) The Federal savings association's proposed capital distribution would reduce the amount of or retire any part of its common or preferred stock or retire any part of debt instruments such as notes or debentures included in capital under 12 CFR part 3 (other than regular payments required under a debt instrument approved under § 5.56);
(iv) The Federal savings association's proposed capital distribution is payable in property other than cash;
(v) The Federal savings association is directly or indirectly controlled by a mutual savings and loan holding company or by a company that is not a savings and loan holding company; or
(vi) The Federal savings association's proposed capital distribution would violate a prohibition contained in any applicable statute, regulation, or agreement between the Federal savings association and the OCC or the OTS, or violate a condition imposed on the Federal savings association in an application or notice approved by the OCC or the OTS.
(2) No application required. A Federal savings association may make a capital distribution without filing an application with the OCC if it does not meet the filing requirements in paragraph (e)(1) of this section.
(3) Informational copy of Federal Reserve System notice required. If the Federal savings association is a subsidiary of a savings and loan holding company that is filing a notice with the Board of Governors of the Federal Reserve System (Board) for a dividend solely under 12 U.S.C. 1467a(f) and not also under 12 U.S.C. 1467a(o)(11), and no application under paragraph (e)(1) of this section is required, then the savings association must provide an informational copy to the OCC of the notice filed with the Board, at the same time the notice is filed with the Board.
(f) Application format -
(1) Contents. The application must:
(i) Be in narrative form;
(ii) Include all relevant information concerning the proposed capital distribution, including the amount, timing, and type of distribution; and
(iii) Demonstrate compliance with paragraph (h) of this section.
(2) Schedules. The application may include a schedule proposing capital distributions over a specified period.
(3) Combined filings. A Federal savings association may combine the application required under paragraph (e)(1) of this section with any other notice or application, if the capital distribution is a part of, or is proposed in connection with, another transaction requiring a notice or application under this chapter. If submitting a combined filing, the Federal savings association must state that the related notice or application is intended to serve as an application under this section.
(g) Filing procedures -
(1) Application. When a Federal savings association is required to file an application under paragraph (e)(1) of this section, it must file the application at least 30 days before the proposed declaration of dividend or approval of the proposed capital distribution by its board of directors. Except as provided in paragraph (g)(2) of this section, the OCC is deemed to have approved an application from an eligible savings association upon the expiration of 30 days after the filing date of the application unless, before the expiration of that time period, the OCC notifies the Federal savings association that:
(i) Additional information is required to supplement the application;
(ii) The application has been removed from expedited review, or the expedited review process is extended, under 5.13(a)(2); or
(iii) The application is denied.
(2) Applications not subject to expedited review. An application is not subject to expedited review if:
(i) The Federal savings association is not an eligible savings association;
(ii) The total amount of all of the Federal savings association's capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds its net income for that year to date plus retained net income for the preceding two years;
(iii) The Federal savings association would not be at least adequately capitalized, as set forth in 12 CFR 6.4, following the distribution; or
(iv) The Federal savings association's proposed capital distribution would violate a prohibition contained in any applicable statute, regulation, or agreement between the savings association and the OCC or the OTS, or violate a condition imposed on the savings association in an application or notice approved by the OCC or the OTS.
(3) OCC filing office -
(i) Appropriate licensing office. Except as provided in paragraph (g)(3)(ii) of this section, a Federal savings association that is required to file an application under paragraph (e)(1) of this section or an informational copy of a notice under paragraph (e)(3) of this section must submit the application or notice to the appropriate OCC licensing office.
(ii) Appropriate supervisory office. A Federal savings association that is required to file an application under paragraph (e)(1) of this section for capital distributions involving solely a cash dividend from retained earnings or involving a cash dividend from retained earnings and a concurrent cash distribution from permanent capital must submit the application to the appropriate OCC supervisory office.
(h) OCC review of capital distributions. After review of an application submitted pursuant to paragraph (e)(1) of this section:
(1) The OCC may deny the application in whole or in part, if it makes any of the following determinations:
(i) The Federal savings association will be undercapitalized, significantly undercapitalized, or critically undercapitalized as set forth in 12 CFR 6.4, as applicable, following the capital distribution. If so, the OCC will determine if the capital distribution is permitted under 12 U.S.C. 1831o(d)(1)(B).
(ii) The proposed capital distribution raises safety or soundness concerns.
(iii) The proposed capital distribution violates a prohibition contained in any statute, regulation, agreement between the Federal savings association and the OCC or the OTS, or a condition imposed on the Federal savings association in an application or notice approved by the OCC or the OTS.
(2) The OCC may approve the application in whole or in part. Notwithstanding paragraph (h)(1)(iii) of this section, the OCC may waive any waivable prohibition or condition to permit a distribution.
(i) Exceptions to rules of general applicability. Sections 5.8, 5.10, and 5.11 do not apply to capital distributions made by Federal savings associations.
[80 FR 28463, May 18, 2015, as amended at 85 FR 80466, Dec. 11, 2020]