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 108.304 - Issuance of Subordinated Debt Securities

Universal Citation: 10 CA Code of Regs 108.304

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

(a) General. No association shall issue subordinated debt securities pursuant to this section or amend the terms of such securities unless it has obtained written approval of the commissioner. Approval of the issue under this section is required only in order to qualify it under Section 101.100(h) as part of statutory net worth to the extent provided in that section, and may be obtained either before or after the securities are issued, but no approval shall be granted unless issuance of the securities and the form and manner of filing of the application are in accordance with the provisions of this section.

(b) Eligibility requirements. In determining whether the commissioner will process an application by an association for approval of the issuance of subordinated debt securities pursuant to this section, the commissioner will consider the following factors:

(1) whether the issuance of such securities by the applicant is authorized by applicable law and regulation and is not inconsistent with any provision of the applicant's charter, constitution, or bylaws; and

(2) whether in the opinion of the commissioner the overall policies, condition, and operation of the applicant do not afford a basis for supervisory objection to the application. Bases for supervisory objection may include the following:
(A) net worth, without regard to the amount of any subordinated debt securities to be included in net worth, does not meet the requirements of Section 6900 of the law.

(B) scheduled items exceed 2.5 percent of specified assets;

(C) appraised losses have not been offset by specific reserves to the extent required by the commissioner;

(D) actual and anticipated income from operations, after distribution of earnings to the holders of savings accounts, payment of dividends on equity securities and payment of interest on borrowings but before income taxes, is not demonstrably sufficient for payment of interest and amortization of debt, discount, and related expenses of the proposed issue.

(c) Application form; supporting information. An application for approval of the issuance of subordinated debt securities by an association pursuant to this section shall be in letter form setting forth all of the terms and provisions relating to the proposed issue and showing that all of the requirements of this section have been or will be met, and numbered in accordance with the numbering of this section.

(d) Requirements as to securities. Subordinated debt securities issued pursuant to this section shall meet all of the following requirements unless one or more of such requirements, not including paragraphs (1)(A) and (1)(B), which are not eligible for waiver, are waived by the commissioner.

(1) Form of certificate. Each certificate evidencing subordinated debt issued by an association pursuant to this section shall:
(A) Bear on its face, in bold-face type, the following legend: "This security is not a savings account or deposit and it is not insured by the Federal Savings and Loan Insurance Corporation";

(B) Clearly state that the security:
1. is subordinated on liquidation, as to principal, interest, and premium, if any, to all claims (including post-default interest) against the association having the same priority as savings account holders or any higher priority;

2. is unsecured by the assets of the issuing association, or any of its affiliates; and

3. is not eligible as collateral for any loan by the issuing association;

(C) State or refer to a document stating the terms under which the association may prepay the obligation, which shall include at least the right to prepay without premium or other penalty during the fifteen months immediately prior to the maturity date;

(D) State or refer to a document stating that no payment of principal shall be accelerated without the approval of the commissioner if after giving effect to such payment the association would fail to meet the net statutory worth requirements of Section 6900 of the law;

(E) Be in a minimum original amount of at least $50,000, except that the minimum original amount shall be $10,000 for securities meeting the requirements of Section 108.306(f)(2)(B) and upon partial prepayment a certificate for the amount then outstanding may be issued in substitution therefor.

(2) Limitation as to term. No subordinated debt security issued by an association pursuant to this section shall have an original period to maturity of less than 7 years. During the first six years that such a security is outstanding, the total of all required sinking fund payments, other required prepayments and required reserve allocations with respect to the portion of such six years as have elapsed shall at no time exceed the original principal amount thereof multiplied by a fraction the numerator of which is the number of years which have elapsed since the issuance of the security and the denominator of which is the number of years covered by the original period to maturity.

(3) Limitations on sale to certain institutions. No association may sell any subordinated debt securities issued pursuant to this section to a Federal Home Loan Bank or, except with prior written approval of the commissioner in a supervisory situation, to the Federal Savings and Loan Insurance Corporation.

(e) Filing of application. The application for approval of the issuance of subordinated debt securities under this section is filed with the commissioner by transmitting the original and two copies of the application and all supporting documents to the commissioner in Los Angeles or San Francisco.

(f) Additional requirements. The commissioner may impose on the applicant such requirements or conditions with regard to the securities or the offering or issuance thereof as the commissioner may deem necessary or desirable for the protection of purchasers or the applicant.

(g) Limitation on offering period. Following the date of the approval of the application by the commissioner the association shall have an offering period of not more than one year in which to complete the sale of the subordinated debt securities issued pursuant to this section. The commissioner may extend such offering period if a written request showing good cause for such extension is filed not later than 30 days before the expiration of such offering period or any previous extension thereof.

(h) Reports. Within 30 days after completion of the sale of the subordinated debt securities issued pursuant to prior approval under this section, the association shall transmit a written report to the commissioner stating the number of purchasers, the total dollar amount of securities sold, and the amount of net proceeds received by the association.

1. Change without regulatory effect renumbering former Section 231.4 to Section 108.304 (Register 87, No. 14). For prior history, see Register 83, No. 16.

Note: Authority cited: Section 5255, Financial Code. Reference: Section 6702, Financial Code.

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