Disclosure of Merger Related Compensation Arrangements, 20067-20070 [E7-7608]

Download as PDF Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules List of Subjects in 12 CFR Part 701 Credit unions, Records. By the National Credit Union Administration Board on April 12, 2007. Mary F. Rupp, Secretary of the Board. Accordingly, NCUA proposes to amend 12 CFR part 701 as follows: PART 701—ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS 1. The authority citation for part 701 continues to read as follows: Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601–3610. Section 701.35 is also authorized by 42 U.S.C. 4311– 4312. 2. Add § 701.3 to read as follows: pwalker on PROD1PC71 with PROPOSALS § 701.3 Member inspection of credit union books, records, and minutes. (a) Member inspection rights. A group of members of a federal credit union has the right, upon submission of a petition to the credit union as described in paragraph (b) of this section, to inspect and copy nonconfidential portions of the credit union’s: (1) Books and records of account; and (2) Minutes of the proceedings of the credit union’s members, board of directors, and committees of directors. (b) Petition for inspection. The petition must describe the particular records to be inspected and state a purpose for the inspection related to the business of the credit union. The petition must state that the petitioners as a whole, or certain named petitioners, agree to pay the direct and reasonable costs associated with search and duplication of requested material. The petition must also state that the inspection is not desired for any purpose in the interest of a business or object other than the business of the credit union; that the members signing the petition have not within five years preceding the signature date sold or offered for sale, and do not now intend to sell or offer for sale, any information obtained from the credit union; and that the members signing the petition have not within the past five years aided or abetted any other person in procuring any information from the credit union for purposes of sale. The petition must name one or more members who will represent the petitioners on issues such as inspection procedures, costs, and potential disputes. At least one percent of the credit union’s members, with a VerDate Aug<31>2005 16:49 Apr 20, 2007 Jkt 211001 minimum of 20 members and a maximum of 250 members, must sign the petition. (c) Inspection procedures. Within 14 days of receipt of a petition, the federal credit union must either allow inspection and copying of all requested material or inform the petitioning members in writing why it is not able to do so. Inspection may be made in person or by agent or attorney and at any reasonable time or times. Member inspection rights under this paragraph are in addition to any other member inspection rights afforded by law, regulation, or the credit union’s bylaws. (d) Confidential books, records, and minutes. Members do not have the right to inspect any portion of the books, records, or minutes of a federal credit union if: (1) Federal law or regulation prohibits disclosure of that portion, (2) The portion contains nonpublic personal information as defined in § 716.4 of this part; or (3) The portion contains information about credit union employees or officials the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. Members may, however, inspect materials describing the compensation and benefits provided by the credit union to its senior executive officers, and the qualifications of the senior executive officers, as that term is defined in § 701.14 of this part. (e) Costs. A federal credit union may charge petitioners the direct and reasonable costs associated with search and duplication. The credit union may not charge for other costs, including indirect costs or attorney’s fees. (f) Dispute resolution. In the event of a dispute between a federal credit union and its members concerning a petition for inspection or the associated costs, either party may submit the dispute to the regional director. The regional director, after obtaining the views of both parties, will direct the credit union either to withhold the disputed materials or to make them available for member inspection and copying. The regional director may place conditions upon release, if appropriate. The decision of the regional director is a final agency decision and is not appealable to the Board. [FR Doc. E7–7610 Filed 4–20–07; 8:45 am] BILLING CODE 7535–01–P PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 20067 NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 708b Disclosure of Merger Related Compensation Arrangements National Credit Union Administration (NCUA). ACTION: Proposed rule with request for comments. AGENCY: SUMMARY: NCUA is issuing a proposed rule on mergers to require all federally insured credit unions to include in the merger plan submitted to NCUA a description of any arrangements providing a material increase in compensation or benefits to senior management officials in connection with the merger. The proposed rule also requires federal credit unions to disclose the existence of such compensation arrangements in the materials provided to members voting on whether to approve the merger. The proposed rule will ensure members of a merging federal credit union and NCUA are fully informed about arrangements providing for a material increase in compensation or benefits to senior management officials before considering whether to approve the merger. NCUA believes this requirement will assure merger decisions are based on the best interests of the members. DATES: Comments must be received on or before June 22, 2007. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Web site: http:// www.ncua.gov/news/proposed_regs/ proposed_regs.html. Follow the instructions for submitting comments. • E-mail: Address to regcomments@ncua.gov. Include ‘‘[Your name] Comments on Proposed Rule Part 708b (Disclosure of Merger Related Compensation)’’ in the e-mail subject line. • Fax: (703) 518–6319. Use the subject line described above for e-mail. • Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. FOR FURTHER INFORMATION CONTACT: Ross Kendall, Staff Attorney, Office of General Counsel, at the above address or telephone: (703) 518–6540. SUPPLEMENTARY INFORMATION: E:\FR\FM\23APP1.SGM 23APP1 20068 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules A. Background The Federal Credit Union Act (Act) authorizes the NCUA Board to prescribe rules regarding mergers of federallyinsured credit unions and changes in insured status and requires written approval of the Board before one or more federally-insured credit unions merge. 12 U.S.C. 1766(a), 1785(b), 1785(c), 1789(a). Part 708b of NCUA’s rules implements this authority and applies to both corporate credit union and natural person credit unions. 12 CFR part 708b. The rule provides for NCUA review and approval of any merger involving a federally-insured credit union. 12 CFR 708b.104(a). Where a merging credit union is a federal credit union, members have the right to vote on whether to approve the merger, subject to one exception; NCUA may permit a merger without a member vote if it determines the FCU is in danger of insolvency and a merger will protect the National Credit Union Share Insurance Fund. 12 CFR 708b.106, 708b.105(b). As with any maturing industry, consolidation in the nation’s credit unions is occurring and is expected to continue. Efforts to increase efficiencies through improved economies of scale, along with improvements in information technology and the increasing costs associated with compliance, all contribute to the trend toward consolidation. The increasingly competitive marketplace for financial services in which credit unions operate adds additional pressure to consolidate. Most of this consolidation is occurring through voluntary mergers of credit unions. With the increase in merger activity, some credit unions may find themselves in the position of being a potential merger partner with more than one other credit union. In this position, management of the credit union will naturally want to evaluate competing opportunities and should consider which of the potential merger partners offers the best fit, in terms of member philosophy and continued or expanded services and products for its membership. pwalker on PROD1PC71 with PROPOSALS B. Proposed Rule The NCUA Board is concerned that prospective merger partners may seek to improperly influence the outcome of deliberations by a board of directors of the merging credit union. The support of senior management officials of a credit union considered for merger may influence a decision to approve a merger plan with a particular merger partner. Thus, a potential merger partner might agree to provide financial incentives in VerDate Aug<31>2005 16:49 Apr 20, 2007 Jkt 211001 exchange for support from senior management. This proposed rule would require all federally-insured credit unions to describe any financial arrangements providing a material increase in compensation or benefit to a senior management official in the merger plan submitted to the NCUA. For purposes of the disclosure requirement, the proposal defines a material increase as an increase of 15% above the official’s current compensation or $10,000, whichever is greater. Compensation includes salary as well as any indirect compensation such as bonus, deferred compensation or other financial reward. NCUA would determine, on a case by case basis, whether to request further details about an arrangement in connection with its review of the merger plan. Where a merging credit union is federally chartered, the proposal would also require disclosure of the existence of a material increase in compensation to its members before their vote on the merger. State law governs whether members of a state-chartered credit union are entitled to vote; therefore, NCUA is only proposing this requirement for federal credit unions. Any individual member of a federal credit union wishing to review the details of the arrangement would be entitled to inspect the credit union’s records detailing the arrangement. The inspection would be at an office of the credit union during regular business hours and a member requesting it would need to submit a request in writing to the credit union at least one day before the date announced for the meeting called for the purpose of voting on the merger. NCUA notes that the proposed creation of a member inspection right in the context of merger related compensation arrangements is specific to these limited circumstances. Simultaneously with the adoption of this proposal, NCUA is also proposing a broader, more general rule to govern member access to federal credit union records. In accordance with settled rules of construction, a more specific provision in a rule takes precedence over a broader provision of general applicability. Norman j. Singer, statutes and statutory construction, § 51.05 (6th Ed., 2000). Thus, a member asserting a right to review documents relating to merger related compensation would be entitled to follow the procedures outlined in this rule and not the general procedures relating to member access to records. The proposed rule would permit a member to review merger related PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 compensation records without making or retaining copies at ‘‘an’’ office of the credit union, including branch office locations. The Board recognizes that requested documents may be at a credit union office at some distance from where members may live and that conducting a review may be difficult or expensive for members. The Board expects credit unions and their members to work out reasonable arrangements about how a review can take place that are mutually acceptable. For example, a credit union may agree to provide photocopies to a branch office location convenient to the member. The Board solicits comment on this subject. The NCUA Board believes this proposed rule will help assure that management’s decision to recommend a merger is based on sound business judgment reflecting the best interests of the members. The Board also notes the proposal tracks an Office of Thrift Supervision (OTS) regulation that requires disclosure of officer compensation, among other matters, in a merging thrift’s merger approval application; the OTS rule states an increase in compensation paid to an officer, director or controlling person of a merging federal thrift or savings bank is presumed to be unreasonable and a sale of control if it exceeds the greater of 15% or $10,000. 12 CFR 563.22(d)(1)(vi)(C). The Board also notes comparable disclosure requirements relating to economic benefits for directors and senior management officials are in NCUA’s rule on conversions of insured credit unions to mutual savings banks. 12 CFR 708a.4(d)(1)(iii). The proposed rule addresses arrangements providing material economic benefits to board members or senior management officials of the merging credit union. The NCUA Board believes these individuals are most likely to be in a position to negotiate personally advantageous compensation arrangements. The Board also understands retention agreements and bonuses for persons holding managerial or technical positions may be essential for a successful merger, and the proposed rule does not prohibit offering retention agreements or bonuses that a continuing credit union believes are appropriate, including arrangements affecting senior management officials. In this respect, the Board notes it does not intend to substitute its business judgment for that of the boards of the merging and continuing credit unions on marketplace demands and reasonable compensation arrangements. The proposed rule change focuses on E:\FR\FM\23APP1.SGM 23APP1 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules pwalker on PROD1PC71 with PROPOSALS transparency and the principle that full disclosure usually results in more informed and better membership decisions. The Board recognizes that, in some cases, officials of the merging credit union may be retained by the continuing credit union and assigned additional duties with greater responsibilities. In those cases, the continuing credit union may offer to pay officials relatively greater compensation than they earned with the merging credit union. Credit unions should be able to support these types of increases in compensation, bonuses, or retention agreements in the required disclosures. The proposed rule would simply require a description of these arrangements in the merger plan and, in the case of a merging federal credit union, disclosure of their existence to the membership before their vote on approving the merger. State law governs whether members of a merging state chartered credit union are entitled to vote on a proposed merger. If a state law requires a state supervisory authority’s approval, NCUA’s rule requires evidence that the state supervisory authority has approved the merger as part of the material submitted to the appropriate Regional Director. 12 CFR 708b.104(a)(6). For corporate credit unions, the NCUA Merger and Conversion Manual specifies that credit unions submit their merger requests to NCUA’s Office of Corporate Credit Unions. NCUA 8056/M 6300 (June 2005). C. Proposed Amendments Definitions. The proposal adds two new definitions to the rule. ‘‘Merger related financial arrangement’’ is defined to mean an increase in direct or indirect compensation of 15% or $10,000, whichever is greater, that any board member or senior management official of a merging credit union may receive in connection with a merger transaction. Such an increase is considered material and would need to be disclosed. The term does not include an agreement to retain a senior management official in a comparable managerial role with the continuing credit union, so long as the agreement is limited to retention and does not include any financial component resulting in a material increase, as defined, above the official’s existing compensation package. The second new definition, ‘‘senior management official,’’ includes the chief executive officer (who may hold the title of president or treasurer/manager), any assistant chief executive officer, and the VerDate Aug<31>2005 16:49 Apr 20, 2007 Jkt 211001 chief financial officer. This definition conforms to other NCUA rules affecting members of senior management of credit unions; see, e.g., 12 CFR part 703. Disclosures. The proposed rule would add to the rule’s provisions describing the merger plan and the approval of the merger proposal by members of the merging credit union. 12 CFR 708b.103(a), 106(a)(2). The new provisions require financial arrangements providing a material increase in compensation or benefits for senior management officials and related to a merger to be described in the merger plan and, in the case of a merging federal credit union, disclosed to the membership in the balloting materials. These disclosure obligations would only be triggered where the proposed financial arrangement results in an increase in compensation equal to 15% or $10,000, whichever is greater. Furthermore, the rule would simply require that the disclosure to the members indicate the existence of a material financial arrangement involving one or more senior management officials. Any individual member would be entitled to inspect the credit union’s records pertaining to the arrangement, at the credit union’s office during business hours. Regulatory Procedures Regulatory Flexibility Act The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small credit unions (those under ten million dollars in assets). Most of the mergers of federal credit unions involve small credit unions. In almost all cases, the small credit union merges into a much larger continuing credit union. The larger credit union is available to assist the small credit union with each step in the merger process, keeping the economic impact on the small credit union to a minimum. Accordingly, the Board does not anticipate that this proposed rule would have a significant economic impact on a substantial number of small credit unions, and, therefore, a regulatory flexibility analysis is not required. Paperwork Reduction Act The proposed changes to part 708b contain information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), NCUA is submitting a copy of this proposed rule as part of an information collection package to the Office of Management and Budget PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 20069 (OMB) for its review and approval for revision of Collection of Information, Mergers of Federally Insured Credit Unions, Control Number 3133–0024. The proposed changes ensure that NCUA has sufficient information to determine whether to approve a proposed merger. The changes would also help ensure, in the case of a merging federal credit union, that members have sufficient and accurate information to exercise their vote properly concerning the proposed merger. In the five-year period ending June 30, 2006, NCUA approved 1,567 mergers involving federally insured credit unions. On average for the past five years, therefore, there were approximately 313 mergers each year that would be covered by the proposed rule. NCUA estimates less than one percent of these mergers will involve merger related financial arrangements as defined in the proposed rule. NCUA estimates it will take the merging credit unions about five hours to describe any merger related financial arrangements and include the description in the merger plan and, in cases involving a merging federal credit union, to make materials available to members upon request. One percent of 313, treating the two merging credit unions as one respondent, or 3.1 times five hours per respondent equals sixteen (rounding up from fifteen and one-half) total annual burden hours associated with this revision to the existing collection of information associated with this rule, OMB Control Number 3133–0024. Total Annual Burden Hours = Sixteen The Paperwork Reduction Act and OMB regulations require that the public be provided an opportunity to comment on the paperwork requirements, including an agency’s estimate of the burden of the paperwork requirements. The NCUA Board invites comment on: (1) Whether the paperwork requirements are necessary; (2) the accuracy of NCUA’s estimates on the burden of the paperwork requirements; (3) ways to enhance the quality, utility, and clarity of the paperwork requirements; and (4) ways to minimize the burden of the paperwork requirements. Comments should be sent to: OMB Reports Management Branch, New Executive Office Building, Room 10202, Washington, DC 20503; Attention: Mark Menchik, Desk Officer for NCUA. Please send NCUA a copy of any comments submitted to OMB. The Paperwork Reduction Act requires OMB to make a decision concerning the collection of information E:\FR\FM\23APP1.SGM 23APP1 20070 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules contained in these proposed regulations between 30 and 60 days after publication of this document in the Federal Register. Therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. This does not affect the deadline for the public to comment to the NCUA on the proposed regulations. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. The proposed rule would not have substantial direct effects on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this proposed rule does not constitute a policy that has federalism implications for purposes of the executive order. The Treasury and General Government Appropriations Act, 1999—Assessment of Federal Regulations and Policies on Families The NCUA has determined that this proposed rule would not affect family well-being within the meaning of § 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. 105–277, 112 Stat. 2681 (1998). List of Subjects 12 CFR Part 708b Credit unions, Mergers of credit unions, Reporting and recordkeeping requirements. By the National Credit Union Administration Board on April 12, 2007. Mary F. Rupp, Secretary of the Board. PART 708b—MERGERS OF FEDERALLY-INSURED CREDIT UNIONS; VOLUNTARY TERMINATION OR CONVERSION OF INSURED STATUS pwalker on PROD1PC71 with PROPOSALS 1. The authority citation for part 708b continues to read as follows: Authority: 12 U.S.C. 1766(a), 1785(b), 1785(c), and 1789(a). 2. Amend § 708b.2 by removing current alphabetical paragraph designations (a) through (k) and adding new definitions of ‘‘merger related 16:49 Apr 20, 2007 Jkt 211001 DEPARTMENT OF TRANSPORTATION § 708b.2 14 CFR Part 39 Definitions. * * * * * Merger related financial arrangement means a material increase in compensation (including indirect compensation, for example, bonuses, deferred compensation, or other financial rewards) or benefits that any board member or senior management official of a merging credit union may receive in connection with a merger transaction. For purposes of this definition, a material increase is an increase of 15% or $10,000, whichever is greater. * * * * * Senior management official means the chief executive officer (who may hold the title of president or treasurer/ manager), any assistant chief executive officer, and the chief financial officer. * * * * * 3. Amend § 708b.103 by redesignating paragraphs (a)(7) through (10) as paragraphs (a)(8) through (11) and adding new paragraph (a)(7) to read as follows: § 708b.103 Preparation of merger plan. (a) * * * (7) Description of any merger related financial arrangement, as defined in § 708b.2. * * * * * 4. Amend § 708b.106: A. By removing the semicolon at the end of paragraph (a)(2)(ii) and adding ‘‘,and disclosure of the existence of any merger related financial arrangement, as defined in § 708b.2;’’ and B. By adding a new paragraph (a)(2)(vii) to read as follows: § 708b.106 Approval of the merger proposal by numbers. For the reasons stated above, NCUA proposes to amend 12 CFR part 708b as follows: VerDate Aug<31>2005 financial arrangement’’ and ‘‘senior management official’’ in alphabetical order to read as follows: (a) * * * (2) * * * (vii) Inform the members they have the right to inspect the credit union’s records pertaining to any merger related financial arrangement, as defined in § 708b.2, by submitting a request in writing to the credit union at least one day before the date announced for the meeting called for the purpose of voting on the merger. The inspection must occur at an office of the credit union during regular business hours and is limited to the right to review pertinent documents on site, without making or retaining copies. * * * * * [FR Doc. E7–7608 Filed 4–20–07; 8:45 am] BILLING CODE 7535–01–P PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 Federal Aviation Administration [Docket No. FAA–2006–26494; Directorate Identifier 2006–CE–79–AD] RIN 2120–AA64 Airworthiness Directives; Alpha Aviation Design Limited (Type Certificate No. A48EU Previously Held by APEX Aircraft and AVIONS PIERRE ROBIN) Model R2160 Airplanes Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Supplemental notice of proposed rulemaking (NPRM); reopening of the comment period. AGENCY: SUMMARY: We are revising an earlier NPRM for the products listed above. This proposed AD results from mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as: * * * unchecked corrosion developing on the wing spars due to access for inspections being difficult under normal maintenance practices, which could lead to an unsafe condition and possibly a catastrophic failure of the wing * * * The proposed AD would require actions that are intended to address the unsafe condition described in the MCAI. DATES: We must receive comments on this proposed AD by May 23, 2007. ADDRESSES: You may send comments by any of the following methods: • DOT Docket Web site: Go to http://dms.dot.gov and follow the instructions for sending your comments electronically. • Fax: (202) 493–2251. • Mail: Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL–401, Washington, DC 20590– 0001. • Hand Delivery: Room PL–401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. Examining the AD Docket You may examine the AD docket on the Internet at http://dms.dot.gov; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., E:\FR\FM\23APP1.SGM 23APP1

Agencies

[Federal Register Volume 72, Number 77 (Monday, April 23, 2007)]
[Proposed Rules]
[Pages 20067-20070]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-7608]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708b


Disclosure of Merger Related Compensation Arrangements

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: NCUA is issuing a proposed rule on mergers to require all 
federally insured credit unions to include in the merger plan submitted 
to NCUA a description of any arrangements providing a material increase 
in compensation or benefits to senior management officials in 
connection with the merger. The proposed rule also requires federal 
credit unions to disclose the existence of such compensation 
arrangements in the materials provided to members voting on whether to 
approve the merger. The proposed rule will ensure members of a merging 
federal credit union and NCUA are fully informed about arrangements 
providing for a material increase in compensation or benefits to senior 
management officials before considering whether to approve the merger. 
NCUA believes this requirement will assure merger decisions are based 
on the best interests of the members.

DATES: Comments must be received on or before June 22, 2007.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/news/proposed_regs/
proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule Part 708b (Disclosure of Merger Related 
Compensation)'' in the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Ross Kendall, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

[[Page 20068]]

A. Background

    The Federal Credit Union Act (Act) authorizes the NCUA Board to 
prescribe rules regarding mergers of federally-insured credit unions 
and changes in insured status and requires written approval of the 
Board before one or more federally-insured credit unions merge. 12 
U.S.C. 1766(a), 1785(b), 1785(c), 1789(a). Part 708b of NCUA's rules 
implements this authority and applies to both corporate credit union 
and natural person credit unions. 12 CFR part 708b. The rule provides 
for NCUA review and approval of any merger involving a federally-
insured credit union. 12 CFR 708b.104(a). Where a merging credit union 
is a federal credit union, members have the right to vote on whether to 
approve the merger, subject to one exception; NCUA may permit a merger 
without a member vote if it determines the FCU is in danger of 
insolvency and a merger will protect the National Credit Union Share 
Insurance Fund. 12 CFR 708b.106, 708b.105(b).
    As with any maturing industry, consolidation in the nation's credit 
unions is occurring and is expected to continue. Efforts to increase 
efficiencies through improved economies of scale, along with 
improvements in information technology and the increasing costs 
associated with compliance, all contribute to the trend toward 
consolidation. The increasingly competitive marketplace for financial 
services in which credit unions operate adds additional pressure to 
consolidate.
    Most of this consolidation is occurring through voluntary mergers 
of credit unions. With the increase in merger activity, some credit 
unions may find themselves in the position of being a potential merger 
partner with more than one other credit union. In this position, 
management of the credit union will naturally want to evaluate 
competing opportunities and should consider which of the potential 
merger partners offers the best fit, in terms of member philosophy and 
continued or expanded services and products for its membership.

B. Proposed Rule

    The NCUA Board is concerned that prospective merger partners may 
seek to improperly influence the outcome of deliberations by a board of 
directors of the merging credit union. The support of senior management 
officials of a credit union considered for merger may influence a 
decision to approve a merger plan with a particular merger partner. 
Thus, a potential merger partner might agree to provide financial 
incentives in exchange for support from senior management.
    This proposed rule would require all federally-insured credit 
unions to describe any financial arrangements providing a material 
increase in compensation or benefit to a senior management official in 
the merger plan submitted to the NCUA. For purposes of the disclosure 
requirement, the proposal defines a material increase as an increase of 
15% above the official's current compensation or $10,000, whichever is 
greater. Compensation includes salary as well as any indirect 
compensation such as bonus, deferred compensation or other financial 
reward. NCUA would determine, on a case by case basis, whether to 
request further details about an arrangement in connection with its 
review of the merger plan.
    Where a merging credit union is federally chartered, the proposal 
would also require disclosure of the existence of a material increase 
in compensation to its members before their vote on the merger. State 
law governs whether members of a state-chartered credit union are 
entitled to vote; therefore, NCUA is only proposing this requirement 
for federal credit unions. Any individual member of a federal credit 
union wishing to review the details of the arrangement would be 
entitled to inspect the credit union's records detailing the 
arrangement. The inspection would be at an office of the credit union 
during regular business hours and a member requesting it would need to 
submit a request in writing to the credit union at least one day before 
the date announced for the meeting called for the purpose of voting on 
the merger.
    NCUA notes that the proposed creation of a member inspection right 
in the context of merger related compensation arrangements is specific 
to these limited circumstances. Simultaneously with the adoption of 
this proposal, NCUA is also proposing a broader, more general rule to 
govern member access to federal credit union records. In accordance 
with settled rules of construction, a more specific provision in a rule 
takes precedence over a broader provision of general applicability. 
Norman j. Singer, statutes and statutory construction, Sec.  51.05 (6th 
Ed., 2000). Thus, a member asserting a right to review documents 
relating to merger related compensation would be entitled to follow the 
procedures outlined in this rule and not the general procedures 
relating to member access to records.
    The proposed rule would permit a member to review merger related 
compensation records without making or retaining copies at ``an'' 
office of the credit union, including branch office locations. The 
Board recognizes that requested documents may be at a credit union 
office at some distance from where members may live and that conducting 
a review may be difficult or expensive for members. The Board expects 
credit unions and their members to work out reasonable arrangements 
about how a review can take place that are mutually acceptable. For 
example, a credit union may agree to provide photocopies to a branch 
office location convenient to the member. The Board solicits comment on 
this subject.
    The NCUA Board believes this proposed rule will help assure that 
management's decision to recommend a merger is based on sound business 
judgment reflecting the best interests of the members. The Board also 
notes the proposal tracks an Office of Thrift Supervision (OTS) 
regulation that requires disclosure of officer compensation, among 
other matters, in a merging thrift's merger approval application; the 
OTS rule states an increase in compensation paid to an officer, 
director or controlling person of a merging federal thrift or savings 
bank is presumed to be unreasonable and a sale of control if it exceeds 
the greater of 15% or $10,000. 12 CFR 563.22(d)(1)(vi)(C). The Board 
also notes comparable disclosure requirements relating to economic 
benefits for directors and senior management officials are in NCUA's 
rule on conversions of insured credit unions to mutual savings banks. 
12 CFR 708a.4(d)(1)(iii).
    The proposed rule addresses arrangements providing material 
economic benefits to board members or senior management officials of 
the merging credit union. The NCUA Board believes these individuals are 
most likely to be in a position to negotiate personally advantageous 
compensation arrangements. The Board also understands retention 
agreements and bonuses for persons holding managerial or technical 
positions may be essential for a successful merger, and the proposed 
rule does not prohibit offering retention agreements or bonuses that a 
continuing credit union believes are appropriate, including 
arrangements affecting senior management officials. In this respect, 
the Board notes it does not intend to substitute its business judgment 
for that of the boards of the merging and continuing credit unions on 
marketplace demands and reasonable compensation arrangements. The 
proposed rule change focuses on

[[Page 20069]]

transparency and the principle that full disclosure usually results in 
more informed and better membership decisions.
    The Board recognizes that, in some cases, officials of the merging 
credit union may be retained by the continuing credit union and 
assigned additional duties with greater responsibilities. In those 
cases, the continuing credit union may offer to pay officials 
relatively greater compensation than they earned with the merging 
credit union. Credit unions should be able to support these types of 
increases in compensation, bonuses, or retention agreements in the 
required disclosures. The proposed rule would simply require a 
description of these arrangements in the merger plan and, in the case 
of a merging federal credit union, disclosure of their existence to the 
membership before their vote on approving the merger.
    State law governs whether members of a merging state chartered 
credit union are entitled to vote on a proposed merger. If a state law 
requires a state supervisory authority's approval, NCUA's rule requires 
evidence that the state supervisory authority has approved the merger 
as part of the material submitted to the appropriate Regional Director. 
12 CFR 708b.104(a)(6). For corporate credit unions, the NCUA Merger and 
Conversion Manual specifies that credit unions submit their merger 
requests to NCUA's Office of Corporate Credit Unions. NCUA 8056/M 6300 
(June 2005).

C. Proposed Amendments

    Definitions. The proposal adds two new definitions to the rule. 
``Merger related financial arrangement'' is defined to mean an increase 
in direct or indirect compensation of 15% or $10,000, whichever is 
greater, that any board member or senior management official of a 
merging credit union may receive in connection with a merger 
transaction. Such an increase is considered material and would need to 
be disclosed. The term does not include an agreement to retain a senior 
management official in a comparable managerial role with the continuing 
credit union, so long as the agreement is limited to retention and does 
not include any financial component resulting in a material increase, 
as defined, above the official's existing compensation package. The 
second new definition, ``senior management official,'' includes the 
chief executive officer (who may hold the title of president or 
treasurer/manager), any assistant chief executive officer, and the 
chief financial officer. This definition conforms to other NCUA rules 
affecting members of senior management of credit unions; see, e.g., 12 
CFR part 703.
    Disclosures. The proposed rule would add to the rule's provisions 
describing the merger plan and the approval of the merger proposal by 
members of the merging credit union. 12 CFR 708b.103(a), 106(a)(2). The 
new provisions require financial arrangements providing a material 
increase in compensation or benefits for senior management officials 
and related to a merger to be described in the merger plan and, in the 
case of a merging federal credit union, disclosed to the membership in 
the balloting materials. These disclosure obligations would only be 
triggered where the proposed financial arrangement results in an 
increase in compensation equal to 15% or $10,000, whichever is greater. 
Furthermore, the rule would simply require that the disclosure to the 
members indicate the existence of a material financial arrangement 
involving one or more senior management officials. Any individual 
member would be entitled to inspect the credit union's records 
pertaining to the arrangement, at the credit union's office during 
business hours.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under ten million 
dollars in assets). Most of the mergers of federal credit unions 
involve small credit unions. In almost all cases, the small credit 
union merges into a much larger continuing credit union. The larger 
credit union is available to assist the small credit union with each 
step in the merger process, keeping the economic impact on the small 
credit union to a minimum. Accordingly, the Board does not anticipate 
that this proposed rule would have a significant economic impact on a 
substantial number of small credit unions, and, therefore, a regulatory 
flexibility analysis is not required.

Paperwork Reduction Act

    The proposed changes to part 708b contain information collection 
requirements. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), NCUA is submitting a copy of this proposed rule as 
part of an information collection package to the Office of Management 
and Budget (OMB) for its review and approval for revision of Collection 
of Information, Mergers of Federally Insured Credit Unions, Control 
Number 3133-0024.
    The proposed changes ensure that NCUA has sufficient information to 
determine whether to approve a proposed merger. The changes would also 
help ensure, in the case of a merging federal credit union, that 
members have sufficient and accurate information to exercise their vote 
properly concerning the proposed merger.
    In the five-year period ending June 30, 2006, NCUA approved 1,567 
mergers involving federally insured credit unions. On average for the 
past five years, therefore, there were approximately 313 mergers each 
year that would be covered by the proposed rule. NCUA estimates less 
than one percent of these mergers will involve merger related financial 
arrangements as defined in the proposed rule. NCUA estimates it will 
take the merging credit unions about five hours to describe any merger 
related financial arrangements and include the description in the 
merger plan and, in cases involving a merging federal credit union, to 
make materials available to members upon request. One percent of 313, 
treating the two merging credit unions as one respondent, or 3.1 times 
five hours per respondent equals sixteen (rounding up from fifteen and 
one-half) total annual burden hours associated with this revision to 
the existing collection of information associated with this rule, OMB 
Control Number 3133-0024.

Total Annual Burden Hours = Sixteen

    The Paperwork Reduction Act and OMB regulations require that the 
public be provided an opportunity to comment on the paperwork 
requirements, including an agency's estimate of the burden of the 
paperwork requirements. The NCUA Board invites comment on: (1) Whether 
the paperwork requirements are necessary; (2) the accuracy of NCUA's 
estimates on the burden of the paperwork requirements; (3) ways to 
enhance the quality, utility, and clarity of the paperwork 
requirements; and (4) ways to minimize the burden of the paperwork 
requirements.
    Comments should be sent to: OMB Reports Management Branch, New 
Executive Office Building, Room 10202, Washington, DC 20503; Attention: 
Mark Menchik, Desk Officer for NCUA. Please send NCUA a copy of any 
comments submitted to OMB.
    The Paperwork Reduction Act requires OMB to make a decision 
concerning the collection of information

[[Page 20070]]

contained in these proposed regulations between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, a 
comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication. This does not affect the 
deadline for the public to comment to the NCUA on the proposed 
regulations.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of Sec.  654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

List of Subjects 12 CFR Part 708b

    Credit unions, Mergers of credit unions, Reporting and 
recordkeeping requirements.

    By the National Credit Union Administration Board on April 12, 
2007.
Mary F. Rupp,
Secretary of the Board.
    For the reasons stated above, NCUA proposes to amend 12 CFR part 
708b as follows:

PART 708b--MERGERS OF FEDERALLY-INSURED CREDIT UNIONS; VOLUNTARY 
TERMINATION OR CONVERSION OF INSURED STATUS

    1. The authority citation for part 708b continues to read as 
follows:

    Authority: 12 U.S.C. 1766(a), 1785(b), 1785(c), and 1789(a).

    2. Amend Sec.  708b.2 by removing current alphabetical paragraph 
designations (a) through (k) and adding new definitions of ``merger 
related financial arrangement'' and ``senior management official'' in 
alphabetical order to read as follows:


Sec.  708b.2  Definitions.

* * * * *
    Merger related financial arrangement means a material increase in 
compensation (including indirect compensation, for example, bonuses, 
deferred compensation, or other financial rewards) or benefits that any 
board member or senior management official of a merging credit union 
may receive in connection with a merger transaction. For purposes of 
this definition, a material increase is an increase of 15% or $10,000, 
whichever is greater.
* * * * *
    Senior management official means the chief executive officer (who 
may hold the title of president or treasurer/manager), any assistant 
chief executive officer, and the chief financial officer.
* * * * *
    3. Amend Sec.  708b.103 by redesignating paragraphs (a)(7) through 
(10) as paragraphs (a)(8) through (11) and adding new paragraph (a)(7) 
to read as follows:


Sec.  708b.103  Preparation of merger plan.

    (a) * * *
    (7) Description of any merger related financial arrangement, as 
defined in Sec.  708b.2.
* * * * *
    4. Amend Sec.  708b.106:
    A. By removing the semicolon at the end of paragraph (a)(2)(ii) and 
adding ``,and disclosure of the existence of any merger related 
financial arrangement, as defined in Sec.  708b.2;'' and
    B. By adding a new paragraph (a)(2)(vii) to read as follows:


Sec.  708b.106  Approval of the merger proposal by numbers.

    (a) * * *
    (2) * * *
    (vii) Inform the members they have the right to inspect the credit 
union's records pertaining to any merger related financial arrangement, 
as defined in Sec.  708b.2, by submitting a request in writing to the 
credit union at least one day before the date announced for the meeting 
called for the purpose of voting on the merger. The inspection must 
occur at an office of the credit union during regular business hours 
and is limited to the right to review pertinent documents on site, 
without making or retaining copies.
* * * * *
[FR Doc. E7-7608 Filed 4-20-07; 8:45 am]
BILLING CODE 7535-01-P