California Code of Regulations
Title 10 - Investment
Chapter 2 - Savings and Loan Commissioner
Subchapter 8 - Operations-Investments and Borrowings
Article 3 - Investments and Borrowings
Section 108.303 - Borrowing Limitations

Universal Citation: 10 CA Code of Regs 108.303

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) General.

(1) Except as the commissioner may otherwise approve by advice in writing, an association may borrow and may exceed the limitations specified in Sections 6716 and 6717 of the law only in accordance with the provisions of this section.

(2) As used in this section, the term "outside borrowing" means a borrowing from other than a Federal Home Loan Bank or other similar agency.

(b) Power to borrow. The association may borrow money without limitation and pledge and otherwise encumber any of its assets to secure its debts.

(c) Right of Purchase.

(1) General rule. For any secured outside borrowing, the terms of such borrowing shall provide that the commissioner and the Federal Savings and Loan Insurance Corporation receive prompt written notification of any default on the obligation and, before a sale or other disposition of any portion of the collateral, that the Federal Savings and Loan Insurance Corporation shall have 30 days after written receipt of notice of such proposed sale or other disposition to exercise a right to repurchase such collateral at the price to be paid at such sale or to acquire such collateral at the value to be assigned to it in any other disposition.

(2) Exception. The notice and right of purchase required by paragraph (c)(1) above shall not apply to collateral consisting of liquid assets as defined in Section 523.10 of the Bank System Regulations or collateral that would qualify as liquid assets but for their remaining term to maturity.

(d) Required statement for all securities evidencing outside borrowings. Each security shall bear on its face, in a prominent place, the following legend: "This security is not a savings account or a deposit and it is not insured by the Federal Savings and Loan Insurance Corporation."

(e) Filing requirements for outside borrowings with maturities in excess of one year.

(1) Unless the association meets the net worth requirement of Section 6900 of the law and, at the close of its most recent semi-annual period, it had a ratio of scheduled items (other than assets acquired in a merger instituted for supervisory reasons) to specified assets not in excess of 2.5 percent, it shall, at least ten business days prior to issuance, file with the commissioner a notice of intent to issue securities evidencing such borrowings. Such notice shall contain a summary of the terms of the security, including:
(A) principal amount of the securities;

(B) anticipated interest rate range and price range at which the securities are to be sold;

(C) minimum denomination;

(D) stated and average effective maturity;

(E) mandatory and optional prepayment provisions;

(F) description, amount, and maintenance of collateral if any;

(G) trustee provisions if any;

(H) events of default and remedies of default; and

(I) any provisions which restrict, conditionally or otherwise, the operations of the association.

(2) The commissioner shall have ten (10) business days after receipt of such filing to object to the issuance of such securities. The commissioner shall object if the terms or covenants of the proposed issue are deemed to place unreasonable burdens on, or convey to the security holders undue control over, the operations of the association. If no objection is taken, the association shall have one hundred twenty (120) calendar days within which to issue such securities.

(f) Minimum denominations of securities evidencing outside borrowings.

(1) General rule. The minimum denomination of the security shall be $100,000.

(2) Exceptions.
(A) There is no minimum denomination for securities:
1. issued in a private placement to institutional investors;

2. constituting evidence of a borrowing from a commercial bank; or

3. complying with 12 CFR Section 563.8-4 of the Federal Home Loan Bank Insurance Regulations and evidencing an obligation maturing in less than 90 days to repurchase direct obligations of, or obligations that are fully guaranteed as to principal and interest by, the United States or any agency thereof.

(B) The minimum denomination may be $10,000, if the securities are not offered or sold at any office of the association or any of its affiliates, and
1. they are not sold to more than 35 persons or offered by any advertisement, including any broadcast or written communication published in a newspaper, magazine or similar medium, or by any letter, circular, or other written communication, sent, given, or communicated to more than 35 persons who prior to such communication have not indicated an interest in purchasing the securities, and any purchases by such persons are for their own account and not with a view to distribution; or

2. prior to or simultaneously with any offering, and prior to issuance, purchasers of such securities have been furnished an offering circular which conforms to the requirements of paragraphs (g) and (h) of this section; or

3. the maturity of the securities does not exceed one year.

(g) Disclosure. No association shall, directly or indirectly in connection with the offer, sale, or issuance of a security evidencing a borrowing pursuant to this section, make any statement that:

(1) is false or misleading with respect to any material fact; or

(2) omits to state any material fact (A) necessary in order to make the statements made, in light of circumstances under which they were made, neither false nor misleading, or (B) necessary to correct any earlier statement that has subsequently become false or misleading.

(h) Offering circular.

(1) Review. No final offering circular shall be furnished to purchasers under subdivision (f)(2)(B) 2 of this section unless it is filed with the commissioner and declared effective prior to its use.

(2) Content. A final offering circular under this section shall be in a form satisfactory to the commissioner. At a minimum, it shall contain information in detail comparable to that required under the Securities Act of 1933, General Form of Registration S-1, or S-7 if the issuing association meets the eligibility requirements prescribed by the Securities and Exchange Commission for use of that form, and Item 7 of Form PS as prescribed in Part 563b of the Rules and Regulations for Insurance of Accounts ("Insurance Regulations") ( 12 CFR Part 563b).

(3) Financial statements. A final offering circular under this section shall contain the association's latest audited annual statement of condition and audited statements of operations for each of its last three years. It shall also contain the association's latest unaudited statements of condition and operations on a comparative basis for the quarter ending within one hundred twenty (120) days of its latest amendment. Such financial statements shall be prepared in accordance with the requirements of Section 563 c.1 of the Insurance Regulations. The issuer shall also make available promptly upon request to each purchaser of a security issued subject to the requirements of subdivision (f)(2)(B)2 (including purchasers upon resale) while the securities are outstanding, audited annual statements of condition and operation and comparative unaudited quarterly statements of condition and operations for the first three quarters.

(i) Note accounts. For purposes of this section, note accounts are not borrowings.

1. Change without regulatory effect renumbering former Section 231.3 to Section 108.303 (Register 87, No. 14). For prior history, see Register 83, No. 16.

Note: Authority cited: Section 5255, Financial Code. Reference: Sections 6419 and 6712- 6719, Financial Code.

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