Credit unions: Organization and operations— Chartering and field of membership policy update,

 
CONTENT

[Federal Register: September 14, 1998 (Volume 63, Number 177)]

[Proposed Rule]

[Page 49163-49238]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr14se98-26]

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Part II

National Credit Union Administration

12 CFR Part 701

Organization and Operations of Federal Credit Unions; Proposed Rule

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

SUMMARY: The recently enacted Credit Union Membership Access Act modified NCUA's chartering and field of membership authority. Accordingly, NCUA is proposing a number of amendments to its policies to update them consistent with the recent legislation. Additionally, this proposal revises and updates NCUA's chartering and field of membership policy to reflect the advances and changes in chartering requirements since the promulgation of IRPS 94-1. The majority of the revisions reflect NCUA's policy on the types of federal credit union charters and the criteria necessary to amend a credit union's field of membership. The legislation authorizes three types of credit union charters. These charter types include a single occupational or associational common bond, a multiple common bond, or a local community, neighborhood, or rural district serving a well defined area.

Along with a comprehensive update of chartering policy, the format of the chartering manual has been changed to make it more user- friendly. The proposal further clarifies multiple common bond policies, overlap issues, mergers, low-income policies regarding low income charters and service of low income areas, the definition of immediate family members, and the ``once a member always a member'' policy.

DATES: Comments must be postmarked or received by November 13, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the Board. Mail or hand deliver comments to: National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703) 518-6319. E-Mail comments to boardmail@ncua.gov. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, Chairman, Field of Membership Task Force, 4807 Spicewood Springs Road, Suite 5100, Austin, Texas 78759, or telephone (512) 231-7900; Michael J. McKenna, Senior Staff Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, Virginia 22314 or telephone (703) 518-6540; Lynn K. McLaughlin, Program Officer, Office of Examination and Insurance, 1775 Duke Street, Alexandria, Virginia, or telephone (703) 518-6360.

SUPPLEMENTARY INFORMATION:

In 1982, the changing economic environment created safety and soundness concerns which prompted the NCUA Board to revise its chartering policy to permit membership in a federal credit union to consist of multiple groups, provided each group possessed a common bond. Such membership could be accomplished through the chartering process, through charter amendments, or by way of merger to form a single credit union. This policy change strengthened the federal credit union system by enabling NCUA to merge credit unions that otherwise would have failed because of loss of sponsor or other financial or operational downturns. The policy also enabled federal credit unions to diversify their membership and become less dependent on the financial success of one sponsoring company or group. An additional advantage of the policy change was to provide access to credit union service for small groups of people who did not have the resources to charter their own credit unions. The NCUA Board issued subsequent changes to chartering policy in 1984, 1989, 1994, 1996, and 1998, most of which addressed the multiple group policy.

In First National Bank and Trust Co., et al. v. National Credit Union Administration, 90 F.3d 525 (D.C. Cir. 1996), the U.S. Court of Appeals for the District of Columbia Circuit invalidated certain select group additions to the field of membership of a North Carolina credit union (the ``Decision''). In that case, the Court ruled that groups with unlike common bonds could not be joined to form a single credit union. Furthermore, in the consolidated cases of First National Bank and Trust Co., et al. v. NCUA and the American Bankers Association, et al. v. NCUA, et al., the U.S. District Court issued a nationwide injunction prohibiting federal credit unions from adding new select groups to their fields of membership that did not share a common bond (the ``Order''). The Decision and Order affected the operations of approximately 3,600 multiple group federal credit unions serving approximately 158,000 select groups.

On February 25, 1998, the U.S. Supreme Court ruled that NCUA's multiple group policy was impermissible under the Federal Credit Union Act. National Credit Union Administration v. First National Bank & Trust Co. et al., 118 S. Ct. 927 (1998). The Supreme Court stated that groups with unlike common bonds could not be joined to form a single occupational credit union. Congress addressed this issue and recently enacted legislation reinstating NCUA's multiple group policy with some modifications. This is the first time since 1934 that Congress has updated the statutory common bond rules. Accordingly, the NCUA Board is updating its chartering policies by proposing IRPS 98-3.

The purposes of this proposed rule are to:

‹bullet› First, replace IRPS 94-1, as amended by IRPS 96-1 and 98- 1, to bring NCUA's field of membership and chartering policy into compliance with the Credit Union Membership Access Act. Modifications are necessary regarding single occupational/associational common bonds, multiple common bonds, community charters, as well as policies regarding service to low-income areas.

‹bullet› Second, update NCUA's field of membership and chartering policies since the issuance of IRPS 94-1, as amended by IRPS 96-1 and IRPS 98-1.

‹bullet› Third, rewrite and reformat the chartering manual to make it more user-friendly.

The NCUA Board is proposing a number of changes to its chartering policies, but the following are the most significant:

‹bullet› First, issuance of a new multiple group policy. This includes numerical limitations for a select group addition, five statutory criteria for adding a select group to a multiple common bond credit union, mergers of multiple group credit unions, and overlaps.

‹bullet› Second, an update of the definition of single occupational and associational common bonds.

‹bullet› Third, a revised policy on the requirements to charter, expand, or convert to a community charter.

‹bullet› Fourth, a separate chapter on low-income credit unions which addresses the ability of a multiple group credit union to add an underserved area to its field of membership.

‹bullet› Fifth, a definition of immediate family member for purposes of credit union eligibility.

‹bullet› Sixth, a discussion of the statutory authorization for the ``once a member, always a member'' policy.

  1. Chapter and Section Analysis

    1. Chapter 1 of the Chartering Manual

      This chapter sets forth the goals of NCUA's chartering policy, and the requirements and procedures for chartering a new federal credit union.

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      NCUA's definition of economic advisability is set forth in this chapter. The Board wishes to emphasize that when NCUA charters a new credit union, the Agency evaluates the economic advisability of the proposed institution as well as its effect on other credit unions. While NCUA has not set a minimum field of membership size for chartering a federal credit union, experience has suggested that a credit union with fewer than 3,000 primary potential members (e.g., employees of a corporation or members of an association) may not be economically advisable. Therefore, a charter applicant with a proposed field of membership of fewer than 3,000 primary potential members will have to provide significantly more support than a proposed credit union with a larger field of membership. This change not only more accurately reflects the economic reality necessitating increased numbers of primary potential members in order for most groups to meet the economic advisability requirement, but it also recognizes that some groups, even though less than 3,000, can be economically viable as a separate credit union. This modification also makes it operationally consistent with the multiple group expansion requirements. Comments are specifically requested on whether the economic advisability number should be set at a lower or higher level.

      The chapter also addresses the issue of member support as well as the marketing plan and is generally directed to those groups wishing to charter a new credit union.

      This chapter encourages the formation of newly chartered federal credit unions and the use of mentor relationships with existing, well- managed credit unions. NCUA believes that experienced credit unions are a valuable resource to newly chartered credit unions and can provide needed guidance and assistance.

      Chapter 1 discusses the various field of membership designations available to prospective and existing credit unions. These designations include single occupational, single associational, multiple group, or community.

      Finally, this chapter sets forth NCUA's long-standing policy prohibiting the establishment of a federal credit union for the primary purpose of serving the citizens of a foreign nation. As always, federal credit unions are permitted to serve foreign nationals within the field of membership when they reside or work in the United States. Foreign nationals may also be served if they reside in a foreign country, but only when the primary purpose of the credit union's foreign service facility is to serve United States citizens who are credit union members residing in the foreign country.

    2. Chapter 2 of the Chartering Manual

      Chapter 2 sets forth the field of membership requirements for a federal credit union. This chapter is divided into the following comprehensive sections: (1) single occupational charters, (2) single associational charters, (3) multiple group charters, and (4) community charters. Although some basic information applicable to all charters is repeated in the individual sections addressing each charter type, which increased the overall length of the chartering manual, the new format will be more user-friendly by making information easier to locate. a. Single Occupational Common Bond Credit Union

      The NCUA Board is proposing that a federal credit union may include in a single occupational common bond all persons and entities who share that common bond without regard to geographic location. The Board believes eligibility for membership in an occupational common bond can be established in four ways:

      ‹bullet› Employment (or a long-term contractual relationship equivalent to employment) in a single corporation or other legal entity makes that person part of an occupational common bond of employees of the entity;

      ‹bullet› Employment in a corporation or other legal entity with an ownership interest of not less than 10 percent in or by another legal entity makes that person part of an occupational common bond of employees of the two legal entities;

      ‹bullet› Employment in a corporation or other legal entity which is related to another legal entity (such as a company under contract and possessing a strong dependency relationship with another company) makes that person part of an occupational common bond of employees of the two entities; or

      ‹bullet› Employment or attendance at a school.

      Occupational Common Bond Amendments

      There are a number of ways an occupational credit union can amend its field of membership. The proposed rule sets forth when NCUA may approve an amendment to expand a credit union's field of membership.

      One instance requiring an amendment is when the sponsor organization is involved in a corporate restructuring. A credit union can continue to provide service to a group that is spun-off only if it otherwise qualifies as part of the single occupational common bond, or if the credit union converts to a multiple group credit union.

      A second instance requiring an amendment is when the entire field of membership is acquired by another corporation. The credit union can serve the employees of the new corporation, including any subsidiaries of the acquiring corporation, after receiving NCUA approval. In this instance the credit union remains a single common bond credit union. Overlaps

      As a general rule, NCUA will not charter two or more credit unions to serve the same single occupational group. Consequently, overlap protection is provided for single occupational credit unions. However, an overlap may be permitted when two or more credit unions are attempting to serve the same group if the overlap's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union.

      The proposal sets forth when NCUA will permit an overlap of an occupational credit union and what NCUA considers in reviewing an overlap. However, an occupational credit union will rarely, if ever, be protected from overlap by a community charter. Where a federally insured state credit union's field of membership is broadly stated, NCUA will exclude its field of membership from overlap protection. b. Single Associational Common Bond Credit Union

      The proposal sets forth the definition of associational common bond. An associational common bond consists of individuals (natural persons) and/or groups (non natural persons) whose members participate in activities developing common loyalties, mutual benefits, and mutual interests. This proposal permits an associational common bond to include members of the association, groups which are not comprised primarily of natural person members but are members of the association, and employees of the association, as well as the association. NCUA may grant an associational charter without regard to the geographic location of the association's members or headquarters. This means a credit union can serve a widely dispersed membership base if NCUA determines that it has the ability to serve the area.

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      Associations based primarily on a client-customer relationship do not meet associational common bond requirements. For example, members of an automobile club, such as the American Automobile Association, which primarily sells services, would not qualify as an associational common bond.

      If an association subsequently changes its bylaws, the credit union cannot serve the new members of the association until the revised charter and bylaws are approved by NCUA through a field of membership amendment. Overlaps

      As a general rule, NCUA will not charter two or more credit unions to serve the same single associational group. Consequently, overlap protection is provided for single associational credit unions. However, an overlap may be permitted when two or more credit unions are attempting to serve the same group if the overlap's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union.

      The proposal sets forth when NCUA will permit an overlap of an associational credit union and what NCUA considers in reviewing an overlap. An associational credit union will rarely, if ever, be protected from overlap by a community charter. Where a federally insured state credit union's field of membership is broadly stated, NCUA will exclude its field of membership from any overlap protection. c. Multiple Common Bond Credit Union

      The Credit Union Membership Access Act reinstated NCUA's multiple common bond policy with some modifications. A multiple common bond credit union may serve a combination of distinct, definable, occupational and/or associational common bonds.

      Multiple common bond credit unions can add groups with dissimilar common bonds, which are called select groups. These groups must be within reasonable proximity of the credit union. That is, the groups must be within the service area of one of the credit union's service facilities. A service facility is defined as a place where shares are accepted for members' accounts, loan applications are accepted, and loans are disbursed. This definition includes a credit union owned branch, a shared branch, or a credit union owned electronic facility that meets, at a minimum, these requirements. This definition does not include an ATM. Multiple Group Amendments

      Before a credit union can add a new occupational or associational select group, NCUA must determine in writing that five statutory criteria have been met.

      The first criteria is that the credit union did not engage in any unsafe or unsound practice which is material during the one year period preceding the filing of the application. The NCUA Board defines an unsafe or unsound practice for this criteria to mean any action, or lack of action, which would result in an abnormal risk or loss to the credit union, its members, or the Naitonal Credit Union share Insurance Fund. The determination of an unsafe and unsound practice will be decided by the regional director.

      The second criteria is that the credit union is adequately capitalized. NCUA defines adequately capitalized to mean the credit union has a net worth ratio of not less than 6 percent. NCUA is requesting comment on what criteria should be considered when defining ``adequately capitalized'' for newly chartered credit unions.

      The third criteria is that the credit union has the administrative capability and the financial resources to serve the proposed group. To determine whether the credit union has met this criteria, NCUA will review the credit union's most recent examination report or, if necessary, contact the credit union directly.

      The fourth criteria is that the credit union must demonstrate that any potential harm the expansion may have on any other credit union and its members is clearly outweighed by the probable beneficial effect of the expansion. NCUA will perform an overlap analysis as set forth in Chapter 2, Section IV.E of NCUA's Chartering and Field of Membership Manual to determine whether this criteria has been met.

      The fifth criteria is that NCUA must determine that the formation of a separate credit union is not practical or does not meet the economic advisability criteria set forth in Chapter 1 of NCUA's Chartering and Field of Membership Manual.

      The proposal also sets forth the documentation requirements to add a select group and NCUA's procedures for amending the field of membership. This proposal does not include any provisions for the Streamlined Expansion Procedure because NCUA must make a written determination on all multiple group expansions. Corporate Restructuring

      Due to a corporate restructuring of a select group, a credit union may be required to request an amendment to its field of membership if it wishes to continue to provide service to that group. NCUA permits a multiple common bond credit union to retain in its field of membership a sold or spun-off group to which it has been providing service, without regard to location, if the original group is clearly identifiable and requests continued service. NCUA views this as a housekeeping amendment and not a field of membership expansion. Mergers

      The proposed rule sets forth the requirements for the merger into, and by, a multiple common bond credit union. Generally, the requirements applicable to field of membership expansions apply to a credit union merging into a multiple common bond credit union. If the continuing credit union in a proposed merger is federally chartered and the merging credit union has a select group of 3,000 or more persons (excluding family members), the merger can be approved if NCUA's expansion requirements are met. If the expansion requirements are not met, this may require a credit union to spin-off a select group of 3,000 or more persons from the merging credit union.

      The proposal also clarifies requirements applicable to mergers of multiple group credit unions for safety and soundness reasons and emergency situations. The numerical limitation does not apply to mergers where there are safety and soundness concerns or the emergency criteria exist. Overlaps

      NCUA will generally not approve an overlap unless the expansion's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union. The proposal sets forth the issues NCUA will consider in reviewing the overlap. In general, if the overlapped credit union does not object, and NCUA determines that there are no safety and soundness problems, the overlap will be permitted. If, however, the overlapped credit union objects to the overlap, a thorough review as set forth in the proposal is required. Generally, NCUA will permit overlaps between multiple common bond credit unions and community chartered credit unions without performing an overlap analysis, since NCUA has determined

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      that in these types of overlaps the benefit of the overlap to the member will always outweigh the harm to either credit union. A multiple common bond credit union will rarely, if ever, be protected from overlap by a community charter. d. Community Charters

      NCUA's current community chartering policy is addressed by the recent legislation and accordingly must be modified. The legislation requires that a community charter be based on ``a well-defined local community, neighborhood, or rural district.'' The NCUA Board believes that the addition of the word ``local'' by Congress means that review of what constitutes a community is required. NCUA's most recent policy has been to limit the community to a single, geographically well- defined area, where residents interact. The NCUA Board believes that while the current criteria remain applicable and are essential in determining what constitutes a community for chartering purposes, the addition of the word ``local'' in the statutory language in the community chartering requirements requires NCUA to reevaluate how it views community. Furthermore, due to the evolving nature of communities and the intent evidenced in the legislation, NCUA is proposing to require that the residents either have common interests or interaction. It will be up to the charter applicant to decide and provide evidence on whether the individuals in the geographic area interact or have common interests. Either or both will be sufficient for community chartering requirements.

      NCUA continues to recognize four types of affinity on which a community common bond can be based--persons who live, work, worship, or attend school in the community. Businesses and other legal entities within the community boundaries may also qualify for membership. However, community credit unions can not serve persons who are paid from or supervised from a business located within the community, if the employees do not live, work, worship or attend school in the community. Given the diversity of community characteristics throughout the country, the intent of the legislation, and NCUA's goal of making credit union service available to all eligible groups who wish to have it, NCUA has established the following requirements for community charters:

      ‹bullet› The geographic area's boundaries must be clearly defined;

      ‹bullet› The charter applicant must establish that the area is a well-defined ``local community, neighborhood, or rural district;'' and

      ‹bullet› The residents must have common interests or interact.

      ``Well-defined'' means the proposed area has specific geographic boundaries. ``Local community, neighborhood, or rural district'' encompasses several factors including interaction and/or common interests. Simply being able to draw a boundary around an area does not meet the requirements for a well-defined local community as that term is used in the new legislation. The meaning of well-defined local community includes a variety of factors including, but not limited to, a geographic limitation. Most prominent is the criteria that the residents of the well-defined local community interact and/or have common interests. Although the chartering manual does not precisely define interaction, it does suggest that a greater burden needs to be met when either the geographic size or the population of the area is large. In determining interaction and/or common interests, a number of factors become relevant. For example, the existence of a single major trade area, shared governmental facilities, local festivals, area newspapers, among others, are significant indicia of community interaction and/or common interests. Conversely, an area which has numerous trade areas, multiple taxing authorities, or multiple political jurisdictions tend to diminish the factors that demonstrate the existence of a local community.

      In general, a large population in a small geographic area or a small population in a large geographic area, may meet NCUA community chartering requirements. For example, an ethnic neighborhood, a rural area, a county, or a political subdivision within the county, with less than 300,000 residents will often have sufficient interaction and/or common interests to meet community charter requirements.

      Conversely, a large population in a large geographic area will not normally meet NCUA community chartering requirements. It is unlikely that an entire state, a major metropolitan city, a densely populated county, or an area covering multiple counties with significant population, will have sufficient interaction and/or common interests. Therefore, if the credit union is interested in serving this type of expanded area as a community charter, the burden of demonstrating interaction and/or common interests will be significantly greater than the evidence necessary for a smaller area. For example, the proposed community charter requirements make it difficult for a state or a large city such as New York, Boston, Dallas, or Los Angeles, to meet the requirements of a local community.

      The well defined local community, neighborhood, or rural district will most easily be met if the area to be served is a recognized political jurisdiction, not greater than a county or its equivalent, and if the population of the requested well-defined area does not exceed 300,000. Generally, the single jurisdiction will most often coincide with a county, or its political equivalent. Multiple smaller political subdivisions within a county or its equivalent, such as a ``city'' or a ``school district,'' would also qualify. For this type of community charter, the applicant must only submit a letter demonstrating how the area meets the indicia for community interaction or common interests. In addition, the applicant must provide evidence of the political jurisdiction and size of the population. At its discretion, NCUA may request more documentation demonstrating the area is a well-defined local community, neighborhood, or rural district. If the requested area is not a single political jurisdiction or exceeds 300,000, more extensive and detailed documentation, as discussed in this proposal, must be provided to support that the proposed area is a well-defined local community. This proposal does not limit community charters to a recognized single political jurisdiction, or to a proposed area where the population is 300,000 or less. Simply, additional documentation is required if the proposed community charter exceeds an area greater than a county or 300,000 in population. Specific comments are requested as to whether a streamlined approach for community charter approval is appropriate and, if so, in accordance with what criteria.

      The NCUA Board believes that a low-income area meeting the low- income definition found in Section 701.34 of NCUA's Rules and Regulations, has many of the common characteristics and demographics of a local community, and generally lacks the basic financial services found in more affluent communities. When reviewing low-income community charter applications, NCUA's documentation requirements are more flexible. A new charter applicant applying to serve a low-income neighborhood of 300,000 residents in a major metropolitan city will have fewer documentation requirements than would be required in a standard community charter package. For example, an applicant seeking to serve such a low-income community need only provide evidence

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      demonstrating well-defined community boundaries and that the area meets the low-income definition. Overlaps

      A credit union seeking a community charter must contact all federally insured credit unions with a service facility in the proposed service area. A community credit union can overlap any other type of credit union charter. If safety and soundness concerns exist, NCUA may, on rare occasions, provide overlap protection from a community charter for a limited period of time, generally 12 to 24 months. Extensions will be granted for continued serious safety and soundness concerns. The timeframe for the duration of the exclusionary clause will be specifically listed in Section 5 of the community credit union's charter.

      In the past, exclusionary clauses have been permitted for reasons other than for safety and soundness, such as when there is an agreement between the overlapping credit unions. An exclusionary clause, under circumstances other than for safety and soundness, would not be permitted under the current proposal if the overlapping credit union is a community charter. Specific comments are requested as to whether exclusionary clauses are appropriate for community charters, and, if so, under what circumstances.

      A credit union that converts to a community charter may continue to serve existing members of the credit union who are not within the community, pursuant to the statutory provision that once a person becomes a credit union member, he or she can remain a member. A community credit union may not, however, add new members, or serve groups outside the community. e. Changes Applicable to All Federal Credit Unions Emergency Mergers

      NCUA is issuing clarifying language regarding emergency mergers and purchase and assumption agreements for occupational, associational and community charters. Among other minor modifications, NCUA is removing the 12 month period within which insolvency must occur, since it is not required by the Federal Credit Union Act. Definition of Immediate Family Member

      As required by the new legislation, the proposed regulation defines an individual who is eligible for membership in a credit union on the basis of the relationship of such individual to another person who is eligible for membership in such credit union. This is commonly referred to as immediate family members. Members of their immediate families is defined as related persons i.e., blood, marriage, or other recognized family relationships in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, and stepsiblings. The immediate family member must be related to the credit union member. In other words, once a person becomes a member, then that person's immediate family could join. Once a Member Always a Member

      The statute authorizes that once a person becomes a member of the credit union, such a person or organization may remain a member until the person chooses to withdraw from the credit union, unless the person is expelled as provided in Section 118 of the Federal Credit Union Act. This provision codifies the ``once a member, always a member'' policy.

    3. Chapter 3 of the Chartering Manual

      Low-income credit unions play an especially important part in the credit union movement. Therefore, NCUA has developed a separate chapter setting forth special policies for low-income credit unions and special chartering policies for underserved areas. The intent of these policies is to encourage the formation of new credit unions and the expansion of existing credit unions into underserved and low-income areas.

      The Credit Union Membership Access Act authorizes credit union service to people of modest means and the addition of underserved areas to the field of membership of a multiple common bond credit union with the approval of NCUA. The legislation defines an underserved area as a local community, neighborhood, or rural district that is an ``investment area'' as defined in Section 103(16) of the Community Development Banking and Financial Institutions Act of 1994.

      An investment area includes any of the following:

      ‹bullet› An area encompassed or located in an Enpowerment Zone or Enterprise Community designated under section 1391 or the Internal Revenue Code of 1996 (26 U.S.C. 1391);

      ‹bullet› An area where the percentage of the population living in poverty is at least 20 percent and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area in a Metropolitan Area where the median family income is at or below 80 percent of the Metropolitan Area median family income or the national Metropolitan Area median family income, whichever is greater; and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area outside of a Metropolitan Area, where the median family income is at or below 80 percent of the statewide non- Metropolitan Area median family income or the national non-Metropolitan Area median family income, whichever is greater; and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area where the unemployment rate is at least 1.5 times the national average and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area where the percentage of occupied distressed housing (as indicated by lack of complete plumbing and occupancy of more than one person per room) is at least 20 percent and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area located outside of a Metropolitan Area with a county population loss between 1980 and 1990 of at least 10 percent and the area has significant unmet needs for loans or equity investments.

      Although the new legislation specifically authorizes flexible policies regarding multiple group credit unions providing service to underserved areas, it is NCUA's determination that previous Agency policies allowing similar service to poor and disadvantaged areas should also be permitted. Accordingly, the criteria established for multiple group credit unions will also apply to single occupational, single associational, and community credit unions desiring to serve underserved areas. The charter type of the credit union will not change based on service to underserved area.

      In addition, the area must be underserved based on data considered by the NCUA Board and the Federal Banking Agencies. Once an underserved area has been added to a multiple group credit union's field of membership with NCUA's approval, the credit union must establish and maintain an office or facility in the community.

      Prior to approving an underserved area to a multiple group credit union's field of membership, NCUA will evaluate current service to groups within the field of membership by analyzing the credit union's penetration rates. If the credit union has a low penetration rate of existing groups, it will have a greater burden of showing

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      that it can adequately serve the requested underserved area.

    4. Chapter 4 of the Chartering Manual

      This chapter discusses the requirements and procedures for conversion of a state credit union to a federal credit union and conversion of a federal credit union to a state credit union. The proposed policy for charter conversions is basically the same as current policy. The major change concerns changing the credit union's name on all signs, records, accounts, investments, stationery and other documents. The new policy establishes that the credit union has 180 days from the effective date of the conversion to change its signs, records, accounts, investments, and stationery. The credit union may reissue, with its new name, its outstanding debit cards, ATM cards, credit cards, at the time of renewal. Share drafts with the credit union's name can be used by the member until depleted. This provision applies to both types of conversions, state-to-federal and federal-to- state. If the state credit union is not federally insured, it must change its name and must immediately cease using any credit union documents referencing federal insurance and a federal name, including checks and credit cards.

    5. Items in Process

      Until this rule is finalized, NCUA must operate under interim policies. These policies primarily affect the chartering and conversion to a community charter, the approval of field of membership amendments for multiple common bond credit unions, and the eligibility of immediate family members. If NCUA received a community charter application, including conversions and expansions, prior to the enactment of the Credit Union Membership Access Act, NCUA will process the application under IRPS 94-1, as amended by IRPS 96-1 and IRPS 98-1, as required by Section 103 of the statutory amendments. If the application is denied by NCUA during the interim period after passage of the legislation, and the credit union subsequently submits a new application, the new rules contained in this proposal, if finalized, apply.

      Amendments to multiple common bond credit unions cannot be approved until this rule is finalized. If NCUA receives amendment requests during this interim period, it will return the request to the credit union. However, amendments to single occupational/assocational common bond credit unions will continue to be processed.

      Under IRPS 94-1, credit unions have the ability to define immediate family through a credit union adopted bylaw amendment. Congress is requiring NCUA to specifically define immediate family member and submit the rule to Congress for review. Therefore, those immediate family members who are defined in the credit union's bylaws are eligible to join the credit union until notified by NCUA.

    6. Grandfather Provision

      The Credit Union Membership Access Act permits any person or organization, who is a member of any federal credit union at the date of enactment, unless expelled under Section 118 of the Federal Credit Union Act, to maintain membership in the credit union. The Act also permits a member, or subsequent new member, of any group, whose members constituted a portion of the membership of any federal credit union at the date of enactment, to continue to be eligible for membership in the credit union. For example, an employee of a select group who was eligible for membership prior to August 7, 1998, but did not join the credit union, is still eligible to join the credit union. This also applies to new employees hired subsequent to the date of enactment.

  2. Regulatory Procedures

    Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small credit unions (primarily those under $1 million in assets). The proposed rule will not 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

    NCUA has determined that several requirements of this proposal constitute collections of information under the Paperwork Reduction Act. The requirements are that federal credit unions: (1) complete a charter application or conversion application; and (2) provide written requests for changes in a credit union's field of membership. These documents are necessary to ensure the safety and soundness of credit unions as well as ensuring that the legal requirements of the Act have been met. Other aspects of this proposal reduce the paperwork requirements from the current rule.

    It is NCUA's view that some aspects of the time it takes a credit union to complete a charter application, charter amendment, or a community conversion or expansion application is not a burden created by this regulation but is the usual and customary practice in the normal operations of a business entity. However, NCUA estimates that it should take a credit union an average of 80 hours to develop a written charter or conversion request. NCUA estimates that it will receive 80 charter or conversion requests in any given year. The annual reporting burden would be 6,400 hours to comply with this requirement. NCUA also estimates that it should take a credit union an average of two hours to provide a written request for changes in a credit union's field of membership. NCUA estimates that it will receive 9,000 of these requests in any given year. The annual reporting burden would be 18,000 hours to comply with this requirement. The total annual burden hours imposed by the proposed rule is 24,400 hours.

    The Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget (OMB) require that the public be provided an opportunity to comment on information collection requirements, including an agency's estimate of the burden of the collection of information.

    The NCUA Board invites comment on: (1) whether the collection of the information is necessary for the proper performance of the functions of NCUA, including whether the information will have practical utility; (2) the accuracy of NCUA's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of collection of information on those who are to respond, including through the use of appropriate automated electronic, mechanical, or other technological collection techniques or other forms of information technology; e.g., permitting electronic submission of responses.

    OMB is required to make a decision concerning the collection of information 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 Board on the proposed regulation.

    Organizations and individuals desiring to submit comments on the information collection requirements should direct them to the Office of

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    Information and Regulatory Affairs, OMB, Room 10235, New Executive Office Building, Washington, D.C. 20503; Attention: Alex Hunt, Desk Officer for NCUA. Comments must also be sent to NCUA, 1775 Duke Street, Alexandria, VA 22314-3428; Attention: Jim Baylen, Director, office of Administration, Telephone No. (703) 518-6410; Fax No. (703) 518-6433. Comments should be postmarked by November 13, 1998. All comments submitted in response to these proposed regulations will be available for public inspection, during and after the comment period, at NCUA's Central Office, 6th Floor, Law Library, 1775 Duke Street, Alexandria, VA between the hours of 9 a.m. and 1 p.m., Monday through Friday of each week except federal holidays, and by appointment through the Law Librarian at telephone no. (703) 518-6540.

    Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its actions on state interests. This proposed rule makes no significant changes with respect to state credit unions and therefore, will not materially affect state interests.

    Congressional Review

    Congress, by statute, has determined that NCUA's definition of ``immediate family or household'' as well as NCUA's definition of a ``well-defined local community, neighborhood, or rural district,'' shall be treated as a major rule for purposes of chapter 8 of title 5 United States Code.

    List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on August 31, 1998. Becky Baker, Secretary of the Board.

    Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

    PART 701--ORGANIZATION AND OPERATION 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 31 U.S.C. 3717. Section 701.31 is also authorized by 12 U.S.C. 1601 et seq., 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by 12 U.S.C. 4311-4312.

    2. Section 701.1 is revised to read as follows:

      Sec. 701.1 Federal credit union chartering, field of membership modifications, and conversions.

      National Credit Union Administration policies concerning chartering, field of membership modifications, and conversions are set forth in Interpretive Ruling and Policy Statement 98-3, Chartering and Field of Membership Policy. Copies may be obtained by contacting NCUA at the address found in Sec. 792.2(g)(1) of this chapter. The IRPS is incorporated into this section.

      (Approved by the Office of Management and Budget under control number 3133-0015.)

      IRPS 98-3--[Added]

      Note: The text of the Interpretive Ruling and Policy Statement (IRPS 98-3) does not appear in the Code of Federal Regulations.

    3. IRPS 98-3 is added to read as follows:

      Chapter 1--Federal Credit Union Chartering

      I--Goals of NCUA Chartering Policy

      The National Credit Union Administration's (NCUA) chartering and field of membership policies are directed toward achieving the following goals:

      ‹bullet› To encourage the formation of credit unions;

      ‹bullet› To uphold the provisions of the Federal Credit Union Act;

      ‹bullet› To promote thrift and credit extension;

      ‹bullet› To promote credit union safety and soundness; and

      ‹bullet› To make quality credit union service available to all eligible persons.

      NCUA may grant a charter to single occupational/associational groups, multiple groups, or communities if:

      ‹bullet› The occupational, associational, or multiple groups possess an appropriate common bond or the community represents a well- defined local community, neighborhood, or rural district;

      ‹bullet› The subscribers are of good character and are fit to represent the proposed credit union; and

      ‹bullet› The establishment of the credit union is economically advisable.

      Generally, these are the primary criteria that NCUA will consider. In unusual circumstances, however, NCUA may examine other factors, such as other federal law or public policy, in deciding if a charter should be approved.

      II--Types of Charters

      The Federal Credit Union Act recognizes three types of federal credit union charters--single common bond (occupational and associational), multiple common bond (more than one group each having a common bond of occupation or association), and community.

      The requirements that must be met to charter a single occupational/ associational group, multiple groups, or a community federal credit union are described in Chapter 2. Special rules for credit unions serving low-income groups are described in Chapter 3.

      If a federal credit union charter is granted, Section 5 of the charter will describe the credit union's field of membership, which defines those persons and entities eligible for membership. Generally, federal credit unions are only able to grant loans and provide services to persons within the field of membership who have become members of the credit union.

      III--Subscribers

      Federal credit unions are generally organized by persons who volunteer their time and resources and are responsible for determining the interest, commitment, and economic advisability of forming a federal credit union. The organization of a successful federal credit union takes considerable planning and dedication.

      Persons interested in organizing a federal credit union should contact one of the credit union trade associations or the NCUA regional office serving the state in which the credit union will be organized. Lists of NCUA offices and credit union trade associations are shown in the appendices. NCUA will provide information to groups interested in pursuing a federal charter and will assist them in contacting an organizer.

      While anyone may organize a credit union, a person with training and experience in chartering new federal credit unions is generally the most effective organizer. However, extensive involvement by the group desiring credit union service is essential.

      The functions of the organizer are to provide direction, guidance, and advice on the chartering process. The organizer also provides the group with information about a credit union's functions and purpose as well as technical assistance in preparing and submitting the charter application. Close communication and cooperation between the organizer and the proposed members are critical to the chartering process.

      The Federal Credit Union Act requires that seven or more natural persons--the ``subscribers''--present to NCUA for approval a sworn organization certificate stating at a minimum:

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      ‹bullet› The name of the proposed federal credit union;

      ‹bullet› The location of the proposed federal credit union and the territory in which it will operate;

      ‹bullet› The names and addresses of the subscribers to the certificate and the number of shares subscribed by each;

      ‹bullet› The initial par value of the shares;

      ‹bullet› The detailed proposed field of membership; and

      ‹bullet› The fact that the certificate is made to enable such persons to avail themselves of the advantages of the Federal Credit Union Act.

      False statements on any of the required documentation filedin obtaining a federal credit union charter may be grounds for federal criminal prosecution.

      IV--Economic Advisability

      IV.A--General

      Before chartering a federal credit union, NCUA must be satisfied that the institution will be viable and that it will provide needed services to its members. Economic advisability is essential in order to qualify for a credit union charter.

      NCUA will conduct an independent on-site investigation of each charter application to ensure that the proposed credit union can be successful. In general, the success of any credit union depends on: (a) the character and fitness of management; (b) the depth of the members' support; and (c) present and projected market conditions.

      IV.B--Proposed Management's Character and Fitness

      The Federal Credit Union Act requires NCUA to ensure that the subscribers are of good ``general character and fitness.'' Prospective officials and employees will be the subject of credit and background investigations. The investigation report must demonstrate each applicant's ability to effectively handle financial matters. Employees and officials should also be competent, experienced, honest and of good character. Factors that may lead to disapproval of a prospective official or employee include criminal convictions, indictments, and acts of fraud and dishonesty. Further, factors such as serious or unresolved past due credit obligations and bankruptcies disclosed during credit checks may disqualify an individual.

      NCUA also needs reasonable assurance that the management team will have the requisite skills--particularly in leadership and accounting-- and the commitment to dedicate the time and effort needed to make the proposed federal credit union a success.

      Section 701.14 of NCUA's Rules and Regulations set forth the procedures for NCUA approval of officials of newly chartered credit unions. If the application of a prospective official or employee to serve is not acceptable to the regional director, the group can propose an alternate to act in that individual's place. If the charter applicant feels it is essential that the disqualified individual be retained, the individual may appeal the regional director's decision to the NCUA Board. If an appeal is pursued, action on the application may be delayed. If the appeal is denied by the NCUA Board, an acceptable new applicant must be provided before the charter can be approved.

      IV.C--Member Support

      While NCUA has not set a minimum field of membership size for chartering a federal credit union, experience has demonstrated that a credit union with fewer than 3,000 primary potential members (e.g., employees of a corporation or members of an association) generally is not economically advisable. Therefore, a charter applicant with a proposed field of membership of fewer than 3,000 primary potential members will have to provide significantly more support than a proposed credit union with a larger field of membership. For example, a small occupational group should demonstrate a commitment for significant long-term support from the employer.

      Economic advisability is a major factor in determining whether the credit union will be chartered. An important consideration is the degree of support from the field of membership. The charter applicant must be able to demonstrate that membership support is sufficient to ensure viability.

      IV.D--Present and Future Market Conditions--Business Plan

      The ability to provide effective service to members, compete in the marketplace, and to adapt to changing market conditions is key to the survival of any enterprise. Before NCUA will charter or convert a credit union, a business plan based on realistic and supportable projections and assumptions must be submitted.

      The business plan should contain, at a minimum, the following elements:

      ‹bullet› Mission statement;

      ‹bullet› Analysis of market conditions, including if applicable, geographic, demographic, employment, income, housing, and economic data;

      ‹bullet› Identify any overlapped credit unions (discussed in Chapter 2);

      ‹bullet› Evidence of member support;

      ‹bullet› Goals for shares, loans, and for number of members;

      ‹bullet› Financial services needed/desired;

      ‹bullet› Financial services to be provided to members of all segments within the field of membership;

      ‹bullet› How/when services are to be implemented;

      ‹bullet› Organizational/management plan addressing qualification and planned training of officials/employees;

      ‹bullet› Plan for continuity--directors, committee members and management staff;

      ‹bullet› Operating facilities, to include office space/equipment and supplies, safeguarding of assets, insurance coverage, etc.;

      ‹bullet› Type of record keeping system, including consideration of a data processing system;

      ‹bullet› Detailed semiannual pro forma financial statements (balance sheet, income and expense projections) for 1st and 2nd year, including assumptions--e.g., loan and dividend rates;

      ‹bullet› Plans for operating independently and adequately accumulating capital;

      ‹bullet› Written policies (shares, lending, investments, funds management, capital accumulation, dividends, collections, etc.);

      ‹bullet› Source of funds to pay expenses during initial months of operation, including any subsidies, assistance, etc., and terms or conditions of such resources; and

      ‹bullet› Evidence of sponsor commitment (or other source of support) if subsidies are critical to success of the federal credit union. Evidence may be in the form of letters, contracts, financial statements from the sponsor, and any other such document on which the proposed federal credit union can substantiate its projections.

      While the business plan may be prepared with outside assistance, the subscribers and proposed officials must understand and support the submitted business plan.

      V--Steps in Organizing a Federal Credit Union

      V.A--Getting Started

      Following the guidance contained throughout this policy, the organizers should submit wording for the proposed field of membership (the persons, organizations and other legal entities the credit union will serve) to NCUA early in the application process for written preliminary approval. The proposed field of membership must meet all common bond or community requirements.

      Once the field of membership has been given preliminary approval, and

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      the organizer is satisfied the application has merit, the organizers should conduct an organizational meeting to elect seven to ten persons to serve as subscribers. The subscribers should locate willing individuals capable of serving on the board of directors, credit committee, supervisory committee, and as chief operating officer/ manager of the proposed credit union.

      Subsequent organizational meetings may be held to discuss the progress of the charter investigation, to announce the proposed slate of officials, and to respond to any questions posed at these meetings.

      If NCUA approves the charter application, the subscribers, as their final duty, will elect the board of directors of the proposed federal credit union. The new board of directors will then appoint the supervisory committee.

      V.B--Charter Application Documentation

      V.B.1--General

      As discussed previously in this Chapter, the organizers of a federal credit union charter must, at a minimum, provide evidence that:

      ‹bullet› The group(s) possesses an appropriate common bond or the geographical area to be served is a well-defined local community, neighborhood, or rural district;

      ‹bullet› The subscribers, prospective officials, and employees are of good character and fitness; and

      ‹bullet› The establishment of the credit union is economically advisable.

      As part of the application process, the organizers must submit the following forms, which are available in Appendix D of this Manual:

      ‹bullet› Federal Credit Union Investigation Report, NCUA 4001;

      ‹bullet› Organization Certificate, NCUA 4008;

      ‹bullet› Report of Official and Agreement to Serve, NCUA 4012;

      ‹bullet› Applications and Agreements for Insurance of Accounts, NCUA 9500; and Certification of Resolutions, NCUA 9501.

      Each of these forms is described in more detail in the following sections. V.B.2--Federal Credit Union Investigation Report, NCUA 4001

      The application for a new federal credit union will be submitted on NCUA 4001. (State-chartered credit unions applying for conversion to federal charter will use NCUA 4000. See Chapter 4 for a full discussion.) The organizer is required to certify the information and recommend approval or disapproval, based on the investigation of the request. Instructions and guidance for completing the form are provided on the reverse side of the form. V.B.3--Organization Certificate, NCUA 4008

      This document, which must be completed by the subscribers, includes the seven criteria established by the Federal Credit Union Act. NCUA staff assigned to the case will assist in the proper completion of this document. V.B.4--Report of Official and Agreement to Serve, NCUA 4012

      This form documents general background information of each official and employee of the proposed federal credit union. Each official and employee must complete and sign this form. The organizers must review each of the NCUA 4012s for elements that would prevent the prospective official or employee from serving. Further, such factors as serious, unresolved past due credit obligations and bankruptcies disclosed during credit checks may disqualify an individual. V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500

      This document contains the agreements with which federal credit unions must comply in order to obtain National Credit Union Share Insurance Fund (NCUSIF) coverage of member accounts. The document must be completed and signed by both the chief executive officer and chief financial officer. A federal credit union must qualify for federal share insurance. V.B.6--Certification of Resolutions, NCUA 9501

      This document certifies that the board of directors of the proposed federal credit union has resolved to apply for NCUSIF insurance of member accounts and has authorized the chief executive officer and chief recording officer to execute the Application and Agreements for Insurance of Accounts. This form must be signed by both the chief executive officer and recording officer of the proposed federal credit union.

      VI--Name Selection

      It is the responsibility of the federal credit union organizers or officials of an existing credit union to ensure that the proposed federal credit union name or federal credit union name change does not constitute an infringement on the name of any corporation in its trade area. This responsibility also includes researching any service marks or trademarks used by any other corporation (including credit unions) in its trade area. NCUA will ensure, to the extent possible, that the credit union's name:

      ‹bullet› Is not already being officially used by another federal credit union;

      ‹bullet› Will not be confused with NCUA or another federal or state agency, or with another credit union; and

      ‹bullet› Does not include misleading or inappropriate language.

      The last three words in the name of every credit union chartered by NCUA must be ``Federal Credit Union.''

      The word ``community,'' while not required, can only be included in the name of federal credit unions that have been granted a community charter.

      VII--NCUA Review

      VII.A--General

      NCUA may provide preliminary approval of the proposed federal credit union's field of membership. Additionally, credit and background investigations may be conducted concurrently by NCUA with other work being performed by the organizers and subscribers to reduce the likelihood of delays in the chartering process.

      Once NCUA receives a complete charter application package, an acknowledgment of receipt will be sent to the organizers. At some point during the review process, a staff member will be assigned to perform an on-site contact with the proposed officials and others having an interest in the proposed federal credit union.

      NCUA staff will review the application package and verify its accuracy and reasonableness. A staff member will inquire into the financial management experience, and the suitability and commitment of the proposed officials and employees and will make an assessment of economic advisability. The staff member will also provide guidance to the subscribers in the proper completion of the Organization Certificate, NCUA 4008.

      The staff member will analyze the prospective credit union's business plan for realistic projections, attainable goals, adequate service to all segments of the field of membership, sufficient start-up capital, and time commitment by the proposed officials and employees. Any concerns will be reviewed with the organizers and discussed with the prospective credit union's officials. Additional on-site contacts by NCUA staff may be necessary. The organizers and subscribers will be expected to take the steps necessary to resolve any issues or concerns. Such resolution efforts may delay processing the application.

      NCUA staff will then make a recommendation to the regional director

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      regarding the charter application. The recommendation may include specific provisions to be included in a Letter of Understanding and Agreement. In most cases, NCUA will require the prospective officials to adhere to certain operational guidelines. Generally, the agreement is for a limited term of two to four years. A sample Letter of Understanding and Agreement is found in Appendix B.

      VII.B--Regional Director Approval

      Once approved, the board of directors of the newly formed federal credit union will receive a signed charter and standard bylaws from the regional director. Additionally, the officials will be advised of the name of the examiner assigned responsibility for supervising and examining the credit union.

      VII.C--Regional Director Disapproval

      When a regional director disapproves any charter application, in whole or in part, the organizers will be informed in writing of the specific reasons for the disapproval. Where applicable, the regional director will provide information concerning options or suggestions that the applicant could consider for gaining approval or otherwise acquiring credit union service. The letter of denial will include the procedures for appealing the decision.

      VII.D--Appeal of Regional Director Decision

      If the regional director denies a charter application, in whole or in part, that decision may be appealed to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial and must address the specific reasons for denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal with a recommendation to the NCUA Board.

      Before appealing, the prospective group may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. The request will not be considered as an appeal, but as a request for reconsideration by the regional director. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. If the charter application is again denied, the group may proceed with the appeal process within 60 days of the date of the last denial.

      VII.E--Commencement of Operations

      Assistance in commencing operations is generally available through the various credit union trade organizations listed in Appendix E.

      All new federal credit unions are also encouraged to establish a mentor relationship with a trained, experienced credit union individual or an existing credit union. The mentor should provide guidance and assistance to the new credit union through attendance at meetings and general oversight review. Upon request, NCUA will provide assistance in finding a qualified mentor.

      VIII--Future Supervision

      Each federal credit union will be examined regularly by NCUA to determine that it remains in compliance with applicable laws and regulations and to determine that it does not pose undue risk to the National Credit Union Share Insurance Fund. The examiner will contact the credit union officials shortly after approval of the charter in order to arrange for the initial examination (usually within the first six months of operation).

      The examiner will be responsible for monitoring the progress of the credit union and providing the necessary advice and guidance to ensure it is in compliance with applicable laws and regulations. The examiner will also monitor compliance with the terms of any required Letter of Understanding and Agreement. Typically, the examiner will require the credit union to submit copies of monthly board minutes and financial statements.

      The Federal Credit Union Act requires all newly chartered credit unions, up to two years after the charter anniversary date, to obtain NCUA approval prior to appointment of any new board member, credit or supervisory committee member, or senior executive officer. Section 701.14 of the NCUA Rules and Regulations sets forth the notice and application requirements. If NCUA issues a Notice of Disapproval, the newly chartered credit union is prohibited from making the change.

      NCUA may disapprove an individual serving as a director, committee member or senior executive officer if it finds that the competence, experience, character, or integrity of the individual indicates it would not be in the best interests of the members of the credit union or of the public to permit the individual to be employed by or associated with the credit union. If a Notice of Disapproval is issued, the credit union may appeal the decision to the NCUA Board.

      IX--Corporate Federal Credit Unions

      A corporate federal credit union is one that is operated primarily for the purpose of serving other credit unions. Corporate federal credit unions operate under and are administered by the NCUA Office of Corporate Credit Unions.

      X--Groups Seeking Credit Union Service

      NCUA will attempt to assist any group in chartering a credit union or joining an existing credit union. If the group is not eligible for federal credit union service, NCUA will refer the group to the appropriate state supervisory authority where different requirements may apply.

      XI--Field of Membership Designations

      For monitoring purposes, NCUA will designate a credit union based on the following criteria:

      Single Occupational: If a credit union serves a single occupational sponsor, such as ABC Corporation, it will be designated as an occupational credit union, followed by the name, ABC Corporation.

      Single Associational: If a credit union serves a single associational sponsor, such as the Knights of Columbus, it will be designated as an associational credit union.

      Multiple Group: If a credit union serves more than one group, each of which has a common bond of occupation and/or association, it will be designated as a multiple group credit union.

      Community: All community credit unions will be designated as such, followed by a description of their geographic boundaries (e.g. city or county). More than one credit union may serve the same community.

      XII--Serving Foreign Nationals

      The Federal Credit Union Act authorizes a federal credit union to serve foreign nationals within the field of membership when they reside in or work in the United States. Foreign nationals may also be served if they reside in a foreign country, but only when the primary purpose of the credit union's foreign service facility is to serve United States citizens who are credit union members residing in the foreign country. In order to be served, the foreign nationals must be within the field of membership of the group for which the credit union maintains an office on foreign soil.

      NCUA policy prohibits the establishment of a federal credit union on foreign soil for the primary purpose

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      of serving the citizens of a foreign nation.

      Chapter 2--Field of Membership Requirements for Federal Credit Unions

      I--Introduction

      I.A.1--General

      As set forth in Chapter 1, the Federal Credit Union Act provides for three types of federal credit union charters--single common bond (occupational or associational), multiple common bond (multiple groups), and community. Section 109 (12 U.S.C. 1759) of the Federal Credit Union Act sets forth the membership criteria for each of these three types of credit unions.

      The field of membership, which is specified in Section 5 of the charter, defines those persons and entities eligible for membership. A single common bond federal credit union consists of one group which has a common bond of occupation or association. A multiple common bond federal credit union consists of more than one group, each of which has a common bond of occupation or association. A community federal credit union consists of persons or organizations within a well defined local community, neighborhood, or rural district.

      Once chartered, a federal credit union can amend its field of membership; however, the same common bond or community requirements for chartering the credit union must be satisfied. Since there are differences in the three types of charters, special rules, which are fully discussed in the following sections of this Chapter may apply to each. I.A.2--Special Low-Income Rules

      Generally, federal credit unions can only grant loans and provide services to persons who have joined the credit union. The Federal Credit Union Act states that one of the purposes of federal credit unions is ``to serve the productive and provident credit needs of individuals of modest means.'' Although field of membership requirements are applicable, special rules set forth in Chapter 3 may apply to low-income designated credit unions and those credit unions assisting low-income groups or to a federal credit union that adds an underserved community to its field of membership.

      II--Occupational Common Bond

      II.A.--General

      A single occupational common bond federal credit union may include in its field of membership all persons and entities who share that common bond. NCUA permits a person's membership eligibility in a single occupational common bond group to be established in four ways:

      ‹bullet› Employment (or a long-term contractual relationship equivalent to employment) in a single corporation or other legal entity makes that person part of an single occupational common bond;

      ‹bullet› Employment in a corporation or other legal entity with a controlling ownership interest (which shall not be less than 10 percent) in or by another legal entity makes that person part of a single occupational common bond;

      ‹bullet› Employment in a corporation or other legal entity which is related to another legal entity (such as a company under contract and possessing a strong dependency relationship with another company) makes that person part of a single occupational common bond; or

      ‹bullet› Employment or attendance at a school makes that person part of a single occupational common bond.

      A geographic limitation is not a requirement for a single occupational common bond. However, for purposes of describing the field of membership, the geographic areas being served will be included in the charter. For example:

      ‹bullet› Employees, officials, and persons who work regularly under contract in Miami, Florida for ABC Corporation or the subsidiaries listed below;

      ‹bullet› Employees of ABC Corporation who are paid from * * *;

      ‹bullet› Employees of ABC Corporation who are supervised from * * *;

      ‹bullet› Employees of ABC Corporation who are headquartered in * * *; and/or

      ‹bullet› Employees of ABC Corporation who work in the United States.

      So that NCUA may monitor any potential field of membership overlaps, each group to be served (e.g., employees of subsidiaries, franchisees, and contractors) must be separately listed in Section 5 of the charter.

      The corporate or other legal entity (i.e., the employer) may also be included in the common bond--e.g., ``ABC Corporation.'' The corporation or legal entity will be defined in the last clause in Section 5 of the credit union's charter.

      A charter applicant must provide documentation to establish that the single occupational common bond requirement has been met.

      Some examples of a single occupational common bond are:

      ‹bullet› Employees of the Hunt Manufacturing Company who work in West Chester, Pennsylvania. (common bond--same employer with geographic definition);

      ‹bullet› Employees of the Buffalo Manufacturing Company who work in the United States. (common bond--same employer with geographic definition);

      ‹bullet› Employees, elected and appointed officials of municipal government in Parma, Ohio. (common bond--same employer with geographic definition);

      ‹bullet› Employees of Johnson Soap Company and its majority owned subsidiary, Johnson Toothpaste Company, who work in, are paid from, are supervised from, or are headquartered in Augusta and Portland, Maine. (common bond--parent and subsidiary company with geographic definition);

      ‹bullet› Employees of those contractors who work regularly at the U.S. Naval Shipyard in Bremerton, Washington. (common bond--employees of contractors with geographic definition);

      ‹bullet› Employees, doctors, medical staff, technicians, medical and nursing students who work in or are paid from the Newport Beach Medical Center, Newport Beach, California. (single corporation with geographic definition);

      ‹bullet› Employees of JLS, Incorporated and MJM, Incorporated working for the LKM Joint Venture Company in Catalina Island, California. (common bond--same employer--ongoing dependent relationship); or

      ‹bullet› Employees of and students attending Georgetown University. (common bond--same occupation).

      Some examples of insufficiently defined single occupational common bonds are:

      ‹bullet› Employees of manufacturing firms in Seattle, Washington. (no defined sponsor or industry);

      ‹bullet› Persons employed or working in Chicago, Illinois. (no occupational common bond); or

      ‹bullet› Employees of all colleges and universities in the State of Texas. (not a single occupational common bond).

      II.B--Occupational Common Bond Amendments

      II.B.1--General

      Section 5 of every single occupational federal credit union's charter defines the field of membership, i.e., common bond groups the credit union can legally serve. Only those persons or legal entities specified in the field of membership can be served. There are a number of instances in which Section 5 must be amended by NCUA.

      First, a new group sharing the credit union's common bond is added to the field of membership. This may occur through agreement between the group and the credit union directly, or through a merger, corporate acquisition, purchase and assumption (P&A), or spin-off.

      [[Page 49175]]

      Second, if the entire field of membership is acquired by another corporation, the credit union can serve the employees of the new corporation and any subsidiaries after receiving NCUA approval.

      Third, a federal credit union qualifies to change its common bond from:

      ‹bullet› A single occupational common bond to a single associational common bond;

      ‹bullet› A single occupational common bond to a community charter; or

      ‹bullet› A single occupational common bond to a multiple common bond.

      Fourth, a federal credit union removes a group from its field of membership through agreement with the group, a spin-off, or because the group is no longer in existence.

      An existing single occupational common bond federal credit union that submits a request to amend its charter must provide documentation to establish that the occupational common bond requirement has been met.

      All amendments to an occupational common bond credit union's field of membership must be approved by the regional director. The regional director may approve an amendment to expand the field of membership if:

      ‹bullet› The common bond requirements of this section are satisfied;

      ‹bullet› The group to be added has provided a written request for service to the credit union;

      ‹bullet› The change is economically advisable; and

      ‹bullet› The group presently does not have credit union service available other than through a community charter (if non community credit union service is available, the region must conduct an overlap analysis). II.B.2--Corporate Restructuring

      If the single common bond group that comprises a federal credit union's field of membership undergoes a substantial restructuring, the result is often that portions of the group are sold or spun off. This is an event which requires a change to the credit union's field of membership. NCUA will not permit a single common bond credit union to maintain in its field of membership a sold or spun-off group to which it has been providing service unless the group otherwise qualifies for membership in the credit union or if the credit union converts to a multiple common bond credit union. II.B.3--Economic Advisability

      Prior to granting a common bond expansion, NCUA will examine the amendment's likely effect on the credit union's operations and financial condition, and its likely impact on other credit unions. In most cases, the information needed for analyzing the effect of adding a particular group will be available to NCUA through the examination and financial and statistical reports; however, in particular cases, a regional director may require additional information prior to making a decision. With respect to a proposed expansion's effect on other credit unions, the requirements on overlapping fields of membership set forth in Section II.E are also applicable. II.B.4--Documentation Requirements

      A federal credit union requesting a common bond expansion must submit a formal written request, using the Application for Field of Membership Amendment (NCUA 4015), or its equivalent, to the appropriate NCUA regional director. The request must be signed by an authorized credit union representative.

      The Application for Field of Membership Amendment (NCUA 4015) must be accompanied by the following:

      ‹bullet› A letter signed by an authorized representative of the group to be added. Wherever possible, this letter must be submitted on the group's letterhead stationery. The regional director may accept such other documentation or certification as deemed appropriate. This letter must indicate:

      ‹bullet› How the group shares the credit union's occupational common bond;

      ‹bullet› That the group wants to be added to the applicant federal credit union's field of membership;

      ‹bullet› Whether the group presently has other credit union service available; and

      ‹bullet› The number of persons currently included within the group to be added and their locations.

      ‹bullet› If the group is eligible for membership in any other credit union, documentation must be provided to support inclusion of the group under the overlap standards set forth in Section II.E.

      II.C--NCUA'S Procedures for Amending the Field of Membership

      II.C.1--General

      All requests for approval to amend a federal credit union's charter must be submitted to the appropriate regional director. II.C.2--Regional Director's Decision

      All amendment requests will be reviewed by NCUA staff in order to ensure conformance to NCUA policy.

      In some cases, an on-site review by a staff member may be required by the regional director before acting on a proposed amendment. In addition, the regional director may, after taking into account the significance of the proposed field of membership amendment, require the applicant to submit a business plan addressing specific issues.

      The financial and operational condition of the requesting credit union will be considered in every instance. NCUA will carefully consider the economic advisability of expanding the field of membership of a credit union with financial or operational problems.

      In most cases, field of membership amendments will only be approved for credit unions that are operating satisfactorily. Generally, if a federal credit union is having difficulty providing service to its current membership, or is experiencing financial or other operational problems, it may have more difficulty serving an expanded field of membership.

      Occasionally, however, an expanded field of membership may provide the basis for reversing current financial problems. In such cases, an amendment to expand the field of membership may be granted notwithstanding the credit union's financial or operational problems. The applicant credit union must clearly establish that the expanded field of membership is in the best interest of the members and will not increase the risk to the NCUSIF. II.C.3--Regional Director Approval

      If the requested amendment is approved by the regional director, the credit union will be issued an amendment to Section 5 of its charter. II.C.4--Regional Director Disapproval

      When a regional director disapproves any application, in whole or in part, to amend the field of membership under this chapter, the applicant will be informed in writing of the:

      ‹bullet› Specific reasons for the action;

      ‹bullet› If appropriate, options or suggestions that could be considered for gaining approval; and

      ‹bullet› Appeal procedure. II.C.5--Appeal of Regional Director Decision

      If a field of membership expansion, merger, or spin-off is denied by the regional director, the federal credit union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial, and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and

      [[Page 49176]]

      present the appeal to the Board with a recommendation.

      Before appealing, the credit union may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. The request will not be considered as an appeal, but as a request for reconsideration by the regional director. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. If the request is again denied, the credit union may proceed with the appeal process to the NCUA Board within 60 days of the date of the last denial by the regional director.

      II.D--Mergers, Purchase and Assumptions, and Spin-Offs

      In general, other than the addition of common bond groups, there are three additional ways a federal credit union with a single occupational common bond can expand its field of membership:

      ‹bullet› By taking in the field of membership of another credit union through a common bond or emergency merger;

      ‹bullet› By taking in the field of membership of another credit union through a common bond or emergency purchase and assumption (P&A); or

      ‹bullet› By taking a portion of another credit union's field of membership through a common bond spin-off. II.D.1--Common Bond Mergers

      Generally, the requirements applicable to field of membership expansions found in this chapter apply to mergers where the continuing credit union has a federal charter. That is, the two credit unions must share a common bond.

      Where the merging credit union is state-chartered, the common bond rules applicable to a federal credit union apply.

      Mergers must be approved by the NCUA regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union, and, as applicable, the state regulators. II.D.2--Emergency Mergers

      An emergency merger may be approved by NCUA without regard to common bond or other legal constraints. An emergency merger involves NCUA's direct intervention and approval. The credit union to be merged must either be insolvent or likely to become insolvent, and NCUA must determine that:

      ‹bullet› An emergency requiring expeditious action exists;

      ‹bullet› Other alternatives are not reasonably available; and

      ‹bullet› The public interest would best be served by approving the merger.

      If not corrected, conditions that could lead to insolvency include, but are not limited to:

      ‹bullet› Abandonment by management;

      ‹bullet› Loss of sponsor;

      ‹bullet› Serious and persistent record keeping problems; or

      ‹bullet› Serious and persistent operational concerns.

      In an emergency merger situation, NCUA will take an active role in finding a suitable merger partner (continuing credit union). NCUA is primarily concerned that the continuing credit union has the financial strength and management expertise to absorb the troubled credit union without adversely affecting its own financial condition and stability.

      As a stipulated condition to an emergency merger, the field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any common bond restrictions and without changing the character of the continuing federal credit union for future amendments. Under this authority, therefore, a single occupational common bond federal credit union may take into its field of membership any dissimilar charter type.

      The common bond characteristic of the continuing credit union in an emergency merger does not change. That is, even though the merging credit union is a multiple common bond or community, the continuing credit union will remain a single common bond credit union. Similarly, if the merging credit union is also an unlike single common bond, the continuing credit union will remain a single common bond credit union. Future common bond expansions will be based on the continuing credit union's original single common bond.

      Emergency mergers involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulators. II.D.3--Purchase and Assumptions (P&As)

      Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. If the P&A is the result of insolvency or danger of insolvency, then the emergency merger provisions apply and it is not necessary to meet common bond requirements.

      A P&A has limited application because, in most cases, the failing credit union must be placed into involuntary liquidation. However, in the few instances where a P&A may be appropriate, the assuming federal credit union, as with emergency mergers, may acquire the entire field of membership if the emergency merger criteria are satisfied. Specified loans, shares, and certain other designated assets and liabilities, without regard to common bond restrictions, may also be acquired without changing the character of the continuing federal credit union for purposes of future field of membership amendments.

      If the purchased and/or assumed credit union's field of membership does not share a common bond with the purchasing and/or assuming credit union, then the continuing credit union's original common bond will be controlling for future common bond expansions.

      P&As involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the continuing credit union is located, with the concurrence of the regional director of the purchased and/or assumed credit union and, as applicable, the state regulators. II.D.4--Spin-Offs

      A spin-off occurs when, by agreement of the parties, a portion of the field of membership, assets, liabilities, shares, and capital of a credit union are transferred to a new or existing credit union. A spin- off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.

      All common bond requirements apply regardless of whether the spin- off becomes a new credit union or goes to an existing federal charter.

      The request for approval of a spin-off must be supported with a plan that addresses, at a minimum:

      ‹bullet› Why the spin-off is being requested;

      ‹bullet› What part of the field of membership is to be spun off;

      ‹bullet› Whether the affected credit unions have a common bond (applies only to single occupational credit unions);

      ‹bullet› Which assets, liabilities, shares, and capital are to be transferred;

      ‹bullet› The financial impact the spin-off will have on the affected credit unions;

      ‹bullet› The ability of the acquiring credit union to effectively serve the new members;

      ‹bullet› The proposed spin-off date; and

      [[Page 49177]]

      ‹bullet› Disclosure to the members of the requirements set forth above.

      The spin-off request must also include current financial statements from the affected credit unions and the proposed voting ballot.

      For federal credit unions spinning off a group, membership notice and voting requirements and procedures are the same as for mergers (see Part 708 of the NCUA Rules and Regulations), except that only the members directly affected by the spin-off--those whose shares are to be transferred--are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. Voting requirements for federally insured state credit unions are governed by state law.

      Spin-offs involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the credit unions are located and the state regulators, as applicable. Spin-offs in the same region also require approval by the state regulator, as applicable.

      II.E--Overlaps

      II.E.1--General

      An overlap exists when a group of persons is eligible for membership in two or more credit unions. As a general rule, NCUA will not charter two or more credit unions to serve the same single occupational group. An overlap is permitted when the expansion's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union. However, when two or more credit unions are attempting to serve the same occupational group, an overlap can be permitted.

      Proposed or existing credit unions must only investigate the possibility of an overlap with federally insured credit unions prior to submitting an application for a proposed charter or expansion.

      When an overlap situation does arise, officials of the involved credit unions must attempt to resolve the overlap issue. If the matter is resolved between the affected credit unions, the applicant must submit a letter to that effect from the credit union whose field of membership already includes the subject group.

      If no resolution is possible or the overlapped credit union fails to provide a letter, an application for a new charter or field of membership expansion may still be submitted, but must also include information regarding the overlap and documented attempts at resolution. Documentation on the interests of the group, such as a petition signed by a majority of the group's members, will be strongly considered.

      An overlap will not be considered adverse to the overlapped credit union if:

      ‹bullet› The overlapped credit union does not object to the overlap;

      ‹bullet› The overlap is incidental in nature--the group of persons in question is so small as to have no material effect on the original credit union; or

      ‹bullet› there is limited participation by members or employees of the group in the original credit union after the expiration of a reasonable period of time.

      In reviewing the overlap, the regional director will consider:

      ‹bullet› The nature of the issue;

      ‹bullet› Efforts made to resolve the matter;

      ‹bullet› Financial effect on the overlapped credit union;

      ‹bullet› The desires of the group(s);

      ‹bullet› Whether the original credit union fails to provide requested service;

      ‹bullet› The desire of the sponsor organization; and

      ‹bullet› The best interests of the affected group and the credit union members involved.

      Potential overlaps of a federally insured state credit union's field of membership by a federal credit union will generally be analyzed in the same way as if two federal credit unions were involved. Where a federally insured state credit union's field of membership is broadly stated, NCUA will exclude its field of membership from any overlap protection.

      New charter applicants and every single occupational common bond group which comes before the regional director for affiliation with an existing federal credit union must advise the regional director in writing whether the group is included within the field of membership of any other credit union. If cases arise where the assurance given to a regional director concerning unavailability of credit union service is inaccurate, the misinformation is grounds for removal of the group from the federal credit union's charter.

      Generally, NCUA will permit single occupational federal credit unions to overlap community charters without performing an overlap analysis. II.E.2--Overlap Issues as a Result of Organizational Restructuring

      A federal credit union's field of membership will always be governed by the common bond descriptions contained in Section 5 of its charter. Where a sponsor organization expands its operations internally, by acquisition or otherwise, the credit union may serve these new entrants to its field of membership if they are part of the common bond described in Section 5. Where acquisitions are made which add a new subsidiary, the group cannot be served until the subsidiary is included in the field of membership.

      Overlaps may occur as a result of restructuring or merger of the parent organization. Credit unions affected by organizational restructuring or merger should attempt to resolve overlap issues among themselves. If an agreement is reached, they must apply to NCUA for a modification of their fields of membership to reflect the groups each will serve. NCUA will make the final decision regarding field of membership amendments, taking into account the credit unions' agreements, safety and soundness concerns, the desires of the members, the significance of the overlap, and other relevant issues.

      In addition, credit unions must submit to NCUA documentation explaining the restructuring and providing information regarding the new organizational structure. To help in future monitoring of overlaps, the credit union must identify divisions and subsidiaries and the locations of each. Where the sponsor and its employees desire to continue service, NCUA may use wording such as the following:

      ‹bullet› Employees of Lucky Corporation, formerly a subsidiary of Tool, Incorporated, located in Charleston, South Carolina. II.E.3--Exclusionary Clauses

      An exclusionary clause is a limitation which precludes the credit union from serving the primary members of a portion of a group otherwise included in its field of membership.

      When two credit unions agree and/or NCUA has determined that overlap protection is appropriate for safety and soundness reasons, an exclusionary clause will be included in the expanding federal credit union's charter.

      Exclusionary clauses are very difficult for credit unions and NCUA to monitor properly. Additionally, exclusionary clauses can be ineffective or create obvious inequities--one spouse may be eligible for membership in a federal credit union while the other may not; one employee may be eligible for credit union service while a co-worker may not. If, for safety and soundness reasons, an exclusionary clause is appropriate, the overlap protection only applies to primary members, which may only provide limited protection.

      [[Page 49178]]

      One example of an appropriate use of an exclusionary clause may be where there is a merger of two corporations served by two credit unions which will continue to independently serve their respective groups as they had prior to their sponsors' consolidation. The addition of an exclusionary clause to the field of membership of one or both of the credit unions may be the best way to clarify the division of service responsibility within the new corporate entity.

      When an exclusionary clause is included in a federal credit union's field of membership, NCUA will define:

      ‹bullet› The identity of the group;

      ‹bullet› Whether the exclusion is to apply to the entire group or only to those who are actually members of another credit union;

      ‹bullet› Whether the exclusion is to apply only to the current members of the group or to future members as well; and

      ‹bullet› Whether the exclusion is to apply for a limited time period.

      Examples of exclusionary wording are:

      ‹bullet› Persons who work for Pearl Jam Company, except those who work in, are paid from, or are supervised from San Francisco, California.

      ‹bullet› Persons who work for the Fastball Co., except those employed by the Ranger Division as of June 30, 1996.

      ‹bullet› Persons who work for CAT Co., except those who were members of the St. Bonaventure Federal Credit Union as of June 30, 1996.

      Exclusionary clauses granted prior to the adoption of this new chartering manual will remain in effect unless the two credit unions agree to remove them. This requires NCUA approval.

      II.F--Charter Conversion

      A single common bond federal credit union may apply to convert to any other type of charter provided the field of membership requirements of the new charter type are met. A group currently within the field of membership of the converting credit union which would not otherwise qualify as a group with the new charter cannot be served by the converting credit union; however, members of record can continue to be served.

      In order to support a case for a conversion, the applicant federal credit union may be required to develop a detailed business plan as specified in Chapter 1, Section IV.D.

      II.G--Removal of Groups from the Field of Membership

      A credit union may request removal of a group from its field of membership for various reasons. The most common reasons for this type of amendment are:

      ‹bullet› The group is within the overlapping field of membership of two credit unions and one wishes to discontinue service;

      ‹bullet› The federal credit union cannot continue to provide adequate service to the group;

      ‹bullet› The group has ceased to exist;

      ‹bullet› the group does not respond to repeated requests to contact the credit union or refuses to provide needed support; or

      ‹bullet› The group initiates action to be removed from the field of membership.

      When a federal credit union requests an amendment to remove a group from its field of membership, the regional director will determine why the credit union wishes to remove the group and whether the existing members of the group will continue membership. If the regional director concurs with the request, membership may continue for those who are already members under the ``once a member, always a member'' provision of the Federal Credit Union Act.

      II.H--Other Persons Sharing Common Bond

      A number of persons, by virtue of their close relationship to a common bond group, may be included, at the charter applicant's option, in the field of membership. These include the following:

      ‹bullet› Spouses of persons who died while within the field of membership of this credit union;

      ‹bullet› Employees of this credit union;

      ‹bullet› Persons retired as pensioners or annuitants from the above employment;

      ‹bullet› Volunteers;

      ‹bullet› Members of their immediate families; and

      ‹bullet› Organizations of such persons.

      Members of their immediate families is defined as related persons i.e., blood, marriage, or other recognized family relationships in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, and stepsiblings. The immediate family member must be related to the credit union member.

      Volunteers, by virtue of their close relationship with a sponsor group, may be included. Examples include volunteers working at a hospital or church.

      Under the Federal Credit Union Act, once a person becomes a member of the credit union, such person may remain a member of the credit union until the person chooses to withdraw or is expelled from the membership of the credit union. This is commonly referred to as ``once a member, always a member.''

      III--Associational

      Common Bond

      III.A.1--General

      A single associational federal credit union may include in its field of membership, regardless of location, all members and employees of a recognized association. A single associational common bond consists of individuals (natural persons) and/or groups (non natural persons) whose members participate in activities developing common loyalties, mutual benefits, and mutual interests.

      Individuals and groups eligible for membership in a single associational credit union can include the following:

      ‹bullet› Natural person members of the association (for example, members of a union or church members);

      ‹bullet› Non-natural person members of the association;

      ‹bullet› Employees of the association (for example, employees of the labor union or employees of the church); and

      ‹bullet› The association.

      Generally, a single associational common bond does not include a geographic definition. However, a proposed or existing federal credit union may limit its field of membership to a single association or geographic area. NCUA may impose a geographic limitation if it is determined that the applicant credit union does not have the ability to serve a larger group or there are other operational concerns. All single associational common bonds will include a definition of the group that may be served based on the effective date of the association's charter and bylaws. If the associational charter crosses NCUA regional boundaries, each of the affected regional directors must be consulted prior to NCUA action on the charter.

      Qualifying associational groups must hold meetings open to all members, must sponsor other activities which demonstrate that the members of the group meet to accomplish the objectives of the association, and must have an authoritative definition of who is eligible for membership. Usually, this will be found in the association's charter and bylaws.

      The common bond for an associational group cannot be established simply on the basis that the association exists. In determining whether a group satisfies associational common bond requirements for a federal credit union charter, NCUA will

      [[Page 49179]]

      consider the totality of the circumstances, such as:

      ‹bullet› Whether members pay dues;

      ‹bullet› Whether members participate in the furtherance of the goals of the association;

      ‹bullet› Whether the members have voting rights;

      ‹bullet› Whether the association maintains a membership list;

      ‹bullet› The clarity of the association's definition and compactness of its membership; and

      ‹bullet› The frequency of meetings.

      A support group whose members are continually changing or whose duration is temporary may not meet the single associational common bond criteria. Individuals or honorary members who only make donations to the association are not eligible to join the credit union. Other classes of membership that do not meet to accomplish the goals of the association would not qualify.

      Educational groups--for example, parent-teacher organizations, alumni associations, and student organizations in any school--and church groups constitute associational common bonds and may qualify for a federal credit union charter. Homeowner associations, tenant groups, co-ops, consumer groups, and other groups of persons having an ``interest in'' a particular cause and certain consumer cooperatives may also qualify as an association.

      The terminology ``Alumni of Jacksonville State University'' is insufficient to demonstrate an associational common bond. To qualify as an association, the alumni association must meet the requirements for an associational common bond. The alumni of a school must first join the alumni association, and not merely be alumni of the school to be eligible for membership.

      Associations based primarily on a client-customer relationship do not meet associational common bond requirements. However, having an incidental client-customer relationship does not preclude an associational charter as long as the associational common bond requirements are met. For example, a fraternal association that offers insurance, which is not a condition of membership, may qualify as a valid associational common bond.

      Applicants for a single associational common bond federal credit union charter or a field of membership amendment to include an association must provide, at the request of the regional director, a copy of the association's charter, bylaws, or other equivalent documentation, and any legal documentation required by the state or other governing authority.

      The associational sponsor itself may also be included in the field of membership--e.g., ``Sprocket Association''--and will be shown in the last clause of the field of membership. III.A.2--Subsequent Changes to Association's Bylaws

      If the association's membership or geographical definitions in its charter and bylaws are changed subsequent to the effective date stated in the field of membership, the credit union must submit the revised charter or bylaws for NCUA's consideration and approval prior to serving members of the association added as a result of the change. III.A.3--Sample Single Associational Common Bonds

      Some examples of associational common bonds are:

      ‹bullet› Regular members of Locals 10 and 13, IBEW, in Florida, who qualify for membership in accordance with their charter and bylaws in effect on May 20, 1997;

      ‹bullet› Members of the Hoosier Farm Bureau who live or work in Grant, Logan, or Lee Counties of Indiana, who qualify for membership in accordance with its charter and bylaws in effect on March 7, 1997;

      ‹bullet› Members of the Shalom Congregation in Chevy Chase, Maryland;

      ‹bullet› Regular members of the Corporate Executives Association, located in Westchester, New York, who qualify for membership in accordance with its charter and bylaws in effect on December 1, 1997;

      ‹bullet› Members of the University of Wisconsin Alumni Association, located in Green Bay, Wisconsin; or

      ‹bullet› Members of the Marine Corps Reserve Officers Association.

      Some examples of insufficiently defined single associational common bonds are:

      ‹bullet› All Lutherans in the United States. (too broadly defined); or

      ‹bullet› Veterans of U.S. military service. (group is too broadly defined; no formal association of all members of the group).

      Some examples of unacceptable single associational common bonds are:

      ‹bullet› Alumni of Amos University. (no formal association); or

      ‹bullet› Customers of Fleetwood Insurance Company. (policyholders or primarily customer/client relationships do not meet associational standards).

      ‹bullet› Employees of members of the Reston, Virginia Chamber of Commerce. (not a sufficiently close tie to the associational common bond).

      III.B--Associational Common Bond Amendments

      III.B.1--General

      Section 5 of every associational federal credit union's charter defines the field of membership, i.e., common bond groups, the credit union can legally serve. Only those persons who, or legal entities that, join the credit union and are specified in the field of membership can be served. There are three instances in which Section 5 must be amended by NCUA.

      First, a new group that shares the credit union's common bond is added to the field of membership. This may occur through agreement between the group and the credit union directly, or through a merger, purchase and assumption (P&A), or spin-off.

      Second, a federal credit union qualifies to change its common bond from:

      ‹bullet› A single associational common bond to a single occupational common bond;

      ‹bullet› A single associational common bond to a community charter; or

      ‹bullet› A single associational common bond to a multiple common bond.

      Third, a federal credit union removes a group from its field of membership through agreement with the group, a spin-off, or the group is no longer in existence.

      An existing single associational federal credit union that submits a request to amend its charter must provide documentation to establish that the associational common bond requirement has been met.

      All amendments to an associational common bond credit union's field of membership must be approved by the regional director. The regional director may approve an amendment to expand the field of membership if:

      ‹bullet› The common bond requirements of this section are satisfied;

      ‹bullet› The group to be added has provided a written request for service to the credit union;

      ‹bullet› The change is economically advisable; and

      ‹bullet› The group presently does not have credit union service available other than through a community credit union (if non community credit union service is available, the region must conduct an overlap analysis.) III.B.2--Organizational Restructuring

      If the single common bond group that comprises a federal credit union's field of membership undergoes a substantial restructuring, the result is often that portions of the group are sold or spun-off. This is an event which requires a

      [[Page 49180]]

      change to the credit union's field of membership. NCUA may not permit a single associational credit union to maintain in its field of membership a sold or spun-off group to which it has been providing service unless the group otherwise qualifies for membership in the credit union or the credit union converts to a multiple common bond credit union. III.B.3--Economic Advisability

      Prior to granting a common bond expansion, NCUA will examine the amendment's likely impact on the credit union's operations and financial condition and its likely effect on other credit unions. In most cases, the information needed for analyzing the effect of adding a particular group will be available to NCUA through the examination and financial and statistical reports; however, in particular cases, a regional director may require additional information prior to making a decision. With respect to a proposed expansion's effect on other credit unions, the requirements on overlapping fields of membership set forth in Section III.E are also applicable. III.B.4--Documentation Requirements

      A federal credit union requesting a common bond expansion must submit a formal written request, using the Application for Field of Membership Amendment, NCUA 4015, or its equivalent, to the appropriate NCUA regional director. The request must be signed by an authorized credit union representative.

      NCUA 4015, must be accompanied by the following:

      ‹bullet› A letter signed by an authorized representative of the group to be added. Wherever possible, this letter must be submitted on the group's letterhead stationery. The regional director may accept such other documentation or certification as deemed appropriate. This letter must indicate:

      ‹bullet› How the group shares the credit union's associational common bond;

      ‹bullet› That the group wants to be added to the applicant federal credit union's field of membership;

      ‹bullet› Whether the group presently has other credit union service available; and

      ‹bullet› The number of persons currently included within the group to be added and their locations.

      ‹bullet› The most recent copy of the group's charter and bylaws or equivalent documentation.

      ‹bullet› If the group is eligible for membership in any other credit union, documentation must be provided to support inclusion of the group under the overlap standards set forth in Section III.E.

      III.C--NCUA Procedures for Amending the Field of Membership

      III.C.1--General

      All requests for approval to amend a federal credit union's charter must be submitted to the appropriate regional director. III.C.2--Regional Director's Decision

      All amendment requests will be reviewed by NCUA staff in order to ensure conformance to NCUA policy.

      In some cases, an on-site review by a staff member may be required by the regional director before acting on a proposed amendment. In addition, the regional director may, after taking into account the significance of the proposed field of membership amendment, require the applicant to submit a business plan addressing specific issues.

      The financial and operational condition of the requesting credit union will be considered in every instance. The economic advisability of expanding the field of membership of a credit union with financial or operational problems must be carefully considered.

      In most cases, field of membership amendments will only be approved for credit unions that are operating satisfactorily. Generally, if a federal credit union is having difficulty providing service to its current membership, or is experiencing financial or other operational problems, it may have more difficulty serving an expanded field of membership.

      Occasionally, however, an expanded field of membership may provide the basis for reversing current financial problems. In such cases, an amendment to expand the field of membership may be granted notwithstanding the credit union's financial or operational problems. The applicant credit union must clearly establish that the expanded field of membership is in the best interest of the members and will not increase the risk to the NCUSIF. III.C.3--Regional Director Approval

      If the requested amendment is approved by the regional director, the credit union will be issued an amendment to Section 5 of its charter. III.C.4--Regional Director Disapproval

      When a regional director disapproves any application, in whole or in part, to amend the field of membership under this chapter, the applicant will be informed in writing of the:

      ‹bullet› Specific reasons for the action;

      ‹bullet› If appropriate, options or suggestions that could be considered for gaining approval; and

      ‹bullet› Appeal procedures. III.C.5--Appeal of Regional Director Decision

      If a field of membership expansion, merger, or spin-off is denied by the regional director, the federal credit union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal to the NCUA Board with a recommendation.

      Before appealing, the credit union may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. The request will not be considered as an appeal, but as a request for reconsideration by the regional director. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. If the request is again denied, the credit union may proceed with the appeal process to the NCUA Board within 60 days of the date of the last denial by the regional director.

      III.D--Mergers, Purchase and Assumptions, and Spin-Offs

      In general, other than the addition of common bond groups, there are three additional ways a federal credit union with a single associational common bond can expand its field of membership:

      ‹bullet› By taking in the field of membership of another credit union through a common bond or emergency merger;

      ‹bullet› By taking in the field of membership of another credit union through a common bond or emergency purchase and assumption (P&A); or

      ‹bullet› By taking a portion of another credit union's field of membership through a common bond spin-off. III.D.1--Common Bond Mergers

      Generally, the requirements applicable to field of membership expansions found in this section apply to mergers where the continuing credit union is a federal charter. That is, the two credit unions must share a common bond.

      Where the merging credit union is state-chartered, the common bond rules applicable to a federal credit union apply.

      [[Page 49181]]

      Mergers must be approved by the NCUA regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union, and, as applicable, the state regulators. III.D.2--Emergency Mergers

      An emergency merger may be approved by NCUA without regard to common bond or other legal constraints. An emergency merger involves NCUA's direct intervention and approval. The credit union to be merged must either be insolvent or likely to become insolvent, and NCUA must determine that:

      ‹bullet› An emergency requiring expeditious action exists;

      ‹bullet› Other alternatives are not reasonably available; and

      ‹bullet› The public interest would best be served by approving the merger.

      If not corrected, conditions that could lead to insolvency include, but are not limited to:

      ‹bullet› Abandonment by management;

      ‹bullet› Loss of sponsor;

      ‹bullet› Serious and persistent record keeping problems; or

      ‹bullet› Serious and persistent operational concerns.

      In an emergency merger situation, NCUA will take an active role in finding a suitable merger partner (continuing credit union). NCUA is primarily concerned that the continuing credit union has the financial strength and management expertise to absorb the troubled credit union without adversely affecting its own financial condition and stability.

      As a stipulated condition to an emergency merger, the field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any common bond restrictions and without changing the character of the continuing federal credit union for future amendments. Under this authority, therefore, a single associational common bond federal credit union may take into its field of membership any dissimilar charter type.

      The common bond characteristic of the continuing credit union in an emergency merger does not change. That is, even though the merging credit union is a multiple common bond or community, the continuing credit union will remain a single common bond credit union. Similarly, if the merging credit union is an unlike single common bond, the continuing credit union will remain a single common bond credit union. Future common bond expansions will be based on the continuing credit union's single common bond.

      Emergency mergers involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulators. III.D.3--Purchase and Assumptions (P&As)

      Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. If the P&A is the result of insolvency or danger of insolvency, then the emergency merger provisions apply and it is not necessary to meet common bond requirements.

      A P&A has limited application because, in most cases, the failing credit union must be placed into involuntary liquidation. However, in the few instances where a P&A may be appropriate, the assuming federal credit union, as with emergency mergers, may acquire the entire field of membership if the emergency merger criteria are satisfied. Specified loans, shares, and certain other designated assets and liabilities, may also be acquired without regard to common bond restrictions and without changing the character of the continuing federal credit union for purposes of future field of membership amendments.

      If the purchased and/or assumed credit union's field of membership does not share a common bond with the purchasing and/or assuming credit union, then the continuing credit unions' original common bond will be controlling for future common bond expansions.

      If the P&A is not the result of an insolvency or danger of insolvency, then the common bond rules apply to those assets purchased and liabilities assumed.

      P&As involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the continuing credit union is located, with the concurrence of the regional director of the purchased and/or assumed credit union and, as applicable, the state regulators. III.D.4--Spin-Offs

      Generally, a spin-off occurs when, by agreement of the parties, a portion of the field of membership, assets, liabilities, shares and capital of a credit union, are transferred to a new or existing credit union. A spin-off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.

      All single associational common bond requirements apply regardless of whether the spin-off becomes a new credit union or goes to an existing federal charter.

      The request for approval of a spin-off must be supported with a plan that addresses, at a minimum:

      ‹bullet› Why the spin-off is being requested;

      ‹bullet› What part of the field of membership is to be spun off;

      ‹bullet› Whether the affected credit unions have the same common bond (applies only to single associational credit unions);

      ‹bullet› Which assets, liabilities, shares, and capital are to be transferred;

      ‹bullet› The financial impact the spin-off will have on the affected credit unions;

      ‹bullet› The ability of the acquiring credit union to effectively serve the new members;

      ‹bullet› The proposed spin-off date; and

      ‹bullet› Disclosure to the members of the requirements set forth above.

      The spin-off request must also include current financial statements from the affected credit unions and the proposed voting ballot.

      For federal credit unions spinning off a group, membership notice and voting requirements and procedures are the same as for mergers (see Part 708 of the NCUA Rules and Regulations), except that only the members directly affected by the spin-off--those whose shares are to be transferred--are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. Voting requirements for federally insured state credit unions are governed by state law.

      Spin-offs involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the credit unions are located and the state regulators, as applicable. Spin-offs in the same region also require approval by the state regulator, as applicable.

      III.E--Overlaps

      III.E.1--General

      An overlap exists when a group of persons is eligible for membership in two or more credit unions. As a general rule, NCUA will not charter two or more credit unions to serve the same single associational group. An overlap is permitted when the expansion's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union. However, when two or more credit unions are attempting to serve the same

      [[Page 49182]]

      associational group, an overlap can be permitted.

      Proposed or existing credit unions must only investigate the possibility of an overlap with federally insured credit unions prior to submitting an application for a proposed charter or expansion.

      When an overlap situation does arise, officials of the involved credit unions must attempt to resolve the overlap issue. If the matter is resolved between the credit unions, the applicant must submit a letter to that effect from the credit union whose field of membership already includes the subject group.

      If no resolution is possible or the overlapped credit union fails to provide a letter, an application for a new charter or field of membership expansion may still be submitted, but must also include information regarding the overlap and documented attempts at resolution. Documentation on the interests of the group, such as a petition signed by a majority of the group's members, will be strongly considered.

      An overlap will not be considered adverse to the overlapped credit union if:

      ‹bullet› The overlapped credit union does not object to the overlap;

      ‹bullet› The overlap is incidental in nature--the group of persons in question is so small as to have no material effect on the original credit union;

      ‹bullet› There is limited participation by members of the group in the original credit union after the expiration of a reasonable period of time; or

      ‹bullet› The field of membership is broadly stated, such as a national association.

      In reviewing the overlap, the regional director will consider:

      ‹bullet› The nature of the issue;

      ‹bullet› Efforts made to resolve the matter;

      ‹bullet› Financial effect on the overlapped credit union;

      ‹bullet› The desires of the group(s);

      ‹bullet› Whether the original credit union fails to provide requested service;

      ‹bullet› The desire of the sponsor organization; and

      ‹bullet› The best interests of the affected group and the credit union members involved.

      Potential overlaps of a federally insured state credit union's field of membership by a federal credit union will generally be analyzed in the same way as if two federal credit unions were involved. Where a federally insured state credit union's field of membership is broadly stated, NCUA will exclude its field of membership from any overlap protection.

      New charter applicants and every single associational common bond group which comes before the regional director for affiliation with an existing federal credit union must advise the regional director in writing whether the group is included within the field of membership of any other credit union. If cases arise where the assurance given to a regional director concerning unavailability of credit union service is inaccurate, the misinformation is grounds for removal of the group from the federal credit union's charter.

      Generally, NCUA will permit single associational federal credit unions to overlap community charters without performing an overlap analysis. III.E.2--Overlap Issues as a Result of Organizational Restructuring

      A federal credit union's field of membership will always be governed by the common bond descriptions contained in Section 5 of its charter. Where a sponsor organization expands its operations internally, by acquisition or otherwise, the credit union may serve these new entrants to its field of membership if they are part of the common bond described in Section 5.

      Overlaps may occur as a result of restructuring or merger of the parent organization. Credit unions affected by organizational restructuring or merger should attempt to resolve overlap issues among themselves. If an agreement is reached, they must apply to NCUA for a modification of their fields of membership to reflect the groups each will serve. NCUA will make the final decision regarding field of membership amendments, taking into account the credit unions' agreements, safety and soundness concerns, the desires of the members, the significance of the overlap and other relevant issues. III.E.3--Exclusionary Clauses

      An exclusionary clause is a limitation which precludes the credit union from serving the primary members of a portion of a group otherwise included in its field of membership.

      When two credit unions agree and/or NCUA has determined that overlap protection is appropriate for safety and soundness reasons, an exclusionary clause will be included in the expanding federal credit union's charter.

      Exclusionary clauses are very difficult for credit unions and NCUA to monitor properly. Additionally, exclusionary clauses can be ineffective or create obvious inequities--one spouse may be eligible for membership in a federal credit union while the other may not; one member may be eligible for credit union service while another may not. If, for safety and soundness reasons, an exclusionary clause is appropriate, the overlap protection only applies to primary members, which may only provide limited protection.

      One example of an appropriate use of an exclusionary clause may be where there is a merger of two labor unions served by two credit unions which will continue to serve their groups as they had prior to their sponsors' consolidation. The addition of an exclusionary clause to the field of membership of one or both of the credit unions may be the best way to clarify the division of service responsibility within the new corporate entity.

      When an exclusionary clause is included in a federal credit union's field of membership, NCUA will define:

      ‹bullet› The group to be excluded;

      ‹bullet› Whether the exclusion is to apply to the entire group or only to those who are actually members of another credit union;

      ‹bullet› Whether the exclusion is to apply only to the current members of the group or to future members as well; and

      ‹bullet› Whether the exclusion is to apply for a limited time period.

      Examples of exclusionary wording are:

      ‹bullet› Members of K of C Council #10, except members of the XYZ Federal Credit Union as of June 30, 1996; or

      ‹bullet› Members of the American Bar Association, except those located in Washington, D.C.

      Exclusionary clauses granted prior to the adoption of this new chartering manual will remain in effect unless the two credit unions agree to remove them. This requires NCUA approval.

      III.F--Charter Conversions

      A single common bond associational federal credit union may apply to convert to any other type of charter. A conversion is no different than applying for a charter or expanding the field of membership--field of membership requirements must be met. A group currently within the field of membership of the converting credit union, but which would not otherwise qualify as a member of the new charter, cannot be served by the converting credit union; however, members of record can continue to be served.

      In order to support a case for a conversion, the applicant federal credit union must develop a detailed business plan as specified in Chapter 1, Section IV.D.

      III.G--Removal of Groups From the Field of Membership

      A credit union may request removal of a group from its field of membership for various reasons. The most common reasons for this type of amendment are:

      [[Page 49183]]

      ‹bullet› The group is within the overlapping field of membership of two credit unions and one wishes to discontinue service;

      ‹bullet› The federal credit union cannot continue to provide adequate service to the group;

      ‹bullet› The group has ceased to exist;

      ‹bullet› The group does not respond to repeated requests to contact the credit union or refuses to provide needed support; or

      ‹bullet› The group initiates action to be removed from the field of membership.

      When a federal credit union requests an amendment to remove a group from its field of membership, the regional director will determine why the credit union wishes to remove the group and whether the existing members of the group will continue membership. If the regional director concurs with the request, membership may continue for those who are already members under the ``once a member, always a member'' provision of the Federal Credit Union Act.

      III.H--Other Persons Sharing Common Bond

      A number of persons by virtue of their close relationship to a common bond group may be included, at the charter applicant's option, in the field of membership. These include the following:

      ‹bullet› Spouses of persons who died while within the field of membership of this credit union;

      ‹bullet› Employees of this credit union;

      ‹bullet› Volunteers;

      ‹bullet› Members of their immediate families; and

      ‹bullet› Organizations of such persons.

      ``Members of their immediate families'' is defined as related persons i.e., blood, marriage, or other recognized family relationships in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, and stepsiblings. The immediate family member must be related to the credit union member.

      Volunteers, by virtue of their close relationship with a sponsor group, may be included. One example is volunteers working at a church.

      Under the Federal Credit Union Act, once a person becomes a member of the credit union, such person may remain a member of the credit union until the person chooses to withdraw or is expelled from the membership of the credit union. This is commonly referred to as ``once a member, always a member.''

      IV--Multiple Occupational/Associational Common Bonds

      IV.A.1--General

      A federal credit union may be chartered to serve a combination of distinct, definable single occupational and/or associational common bonds. This type of credit union is called a multiple common bond credit union. Each group in the field of membership must have its own occupational or associational common bond. For example, a multiple common bond credit union may include two unrelated employers, or two unrelated associations, or a combination of two or more employers or associations. Additionally, these groups must be within reasonable proximity of the credit union. That is, the groups must be within the service area of one of the credit union's service facilities. These groups are referred to as select groups.

      A federal credit union's service area is the area that can reasonably be served by the service facilities accessible to the groups within the field of membership. The service area will most often coincide with that geographic area primarily served by the service facility. Additionally, the groups served by the credit union must have access to the service facility. A service facility is defined as a place where shares are accepted for members' accounts, loan applications are accepted, and loans are disbursed. This definition includes a credit union owned branch, a shared branch, or a credit union owned electronic facility that meets, at a minimum, these requirements. This definition does not include an ATM.

      The select group as a whole will be considered to be within a credit union's service area when:

      ‹bullet› A majority of the persons in a select group live, work, or gather regularly within the service area;

      ‹bullet› The group's headquarters is located within the service area; or

      ‹bullet› The group's ``paid from'' or ``supervised from'' location is within the service area. IV.A.2--Sample Multiple Group Field of Membership

      An example of a multiple group field of membership is:

      ``The field of membership of this federal credit union shall be limited to the following:

    4. Employees of Teltex Corporation who work in Wilmington, Delaware;

    5. Partners and employees of Smith & Jones, Attorneys at Law, who work in Wilmington, Delaware;

    6. Members of the M&L Association who live in Wilmington, Delaware, and qualify for membership in accordance with its charter and bylaws in effect on December 31, 1997.''

      IV.B--Multiple Group Amendments

      IV.B.1--General

      Section 5 of every multiple group federal credit union's charter defines the field of membership and select groups the credit union can legally serve. Only those persons or legal entities specified in the field of membership can be served. There are a number of instances in which Section 5 must be amended by NCUA.

      First, a new select group is added to the field of membership. This may occur through agreement between the group and the credit union directly, or through a merger, corporate acquisition, purchase and assumption (P&A), or spin-off.

      Second, a federal credit union qualifies to change its charter from:

      ‹bullet› A single occupational/associational charter to a multiple group charter;

      ‹bullet› A multiple group to a single occupational/associational charter;

      ‹bullet› A multiple group to a community charter; or

      ‹bullet› A community to a multiple group charter.

      Third, a federal credit union removes a group from its field of membership through agreement with the group, a spin-off, or because the group is no longer in existence. IV.B.2--Numerical Limitation of Select Groups

      An existing multiple group federal credit union that submits a request to amend its charter must provide documentation to establish that the multiple group requirements have been met. All amendments to a multiple group credit union's field of membership must be approved by the regional director.

      NCUA will approve groups of less than 3,000 persons (excluding family members) to a credit union's field of membership, if the agency determines in writing that the following criteria are met:

      ‹bullet› The credit union has not engaged in any unsafe or unsound practice, as determined by the regional director, which is material during the one year period preceding the filing to add the group;

      ‹bullet› The credit union is ``adequately capitalized.'' NCUA defines adequately capitalized to mean if the credit union has a net worth of not less than 6 percent;

      [[Page 49184]]

      ‹bullet› The credit union has the administrative capability to serve the proposed group and the financial resources to meet the need for additional staff and assets to serve the new group;

      ‹bullet› Any potential harm the expansion may have on any other credit union and its members is clearly outweighed by the probable beneficial effect of the expansion. With respect to a proposed expansion's effect on other credit unions, the requirements on overlapping fields of membership set forth in Section IV.E are also applicable; and

      ‹bullet› If the formation of a separate credit union by such group is not practical or consistent with safety and soundness standards.

      NCUA encourages the formation of separately chartered credit unions for groups consisting of 3,000 or more persons (excluding family members). If the formation of a separate credit union by such a group is not practical because the group lacks sufficient volunteer and other resources to support the efficient and effective operations of a credit union or does not meet the economic advisability criteria outlined in Chapter 1, the group may be added to a multiple common bond credit union's field of membership. However, NCUA must determine in writing that all the requirements set forth above are met and the group must be within the credit union's service area. IV.B.3.--Documentation Requirements

      A multiple group credit union requesting a select group expansion must submit a formal written request, using the Application for Field of Membership Amendment (NCUA 4015), or its equivalent, to the appropriate NCUA regional director. The request must be signed by an authorized credit union representative.

      The Application for Field of Membership Amendment (NCUA 4015) must be accompanied by the following:

      ‹bullet› A letter signed by an authorized representative of the group to be added. Wherever possible, this letter must be submitted on the group's letterhead stationery. The regional director may, accept such other documentation or certification as deemed appropriate. This letter must indicate:

      ‹bullet› The group's occupational or associational common bond;

      ‹bullet› That the group wants to be added to the federal credit union's field of membership;

      ‹bullet› Whether the group presently has other credit union service available;

      ‹bullet› The number of persons currently included within the group to be added and their locations; and

      ‹bullet› Evidence that the groups are within reasonable proximity of the credit union.

      ‹bullet› If the group is eligible for membership in any other credit union, documentation must be provided to support inclusion of the group under the overlap standards set forth in Section IV.E. IV.B.4--Corporate Restructuring

      If a select group within a federal credit union's field of membership undergoes a substantial restructuring, a change to the credit union's field of membership may be required if the credit union is to continue to provide service to the select group. NCUA permits a multiple common bond credit union to maintain in its field of membership a sold or spun-off select group to which it has been providing service, without regard to location, if the original group is clearly identifiable, and the group requests continued service, documented by a letter from an official representative of the group. This type of amendment to the credit union's charter is not considered an expansion, therefore the criteria relating to adding new groups are not applicable.

      IV.C--NCUA's Procedures for Amending the Field of Membership

      IV.C.1--General

      All requests for approval to amend a federal credit union's charter must be submitted to the appropriate regional director. IV.C.2--Regional Director's Decision

      All amendment requests will be reviewed by NCUA staff in order to ensure conformance to NCUA policy.

      In some cases, an on-site review by a staff member may be required by the regional director before acting on a proposed amendment. In addition, the regional director may, after taking into account the significance of the proposed field of membership amendment, require the applicant to submit a business plan addressing specific issues.

      The financial and operational condition of the requesting credit union will be considered in every instance. An expanded field of membership may provide the basis for reversing adverse trends. In such cases, an amendment to expand the field of membership may be granted notwithstanding the credit union's adverse trends. The applicant credit union must clearly establish that the approval of the expanded field of membership meets the requirements of IV.B.2 and will not increase the risk to the NCUSIF. IV.C.3--Regional Director Approval

      If the requested amendment is approved by the regional director, the credit union will be issued an amendment to Section 5 of its charter. IV.C.4--Regional Director Disapproval

      When a regional director disapproves any application, in whole or in part, to amend the field of membership under this chapter, the applicant will be informed in writing of the:

      ‹bullet› Specific reasons for the action;

      ‹bullet› If appropriate, options or suggestions that could be considered for gaining approval; and

      ‹bullet› Appeal procedure. IV.C.5--Appeal of Regional Director Decision

      If a field of membership expansion, merger, or spin-off is denied by the regional director, the federal credit union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial, and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal to the Board with a recommendation.

      Before appealing, the credit union may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. The request will not be considered as an appeal, but as a request for reconsideration by the regional director. If the request is again denied, the credit union may proceed with the appeal process to the NCUA Board within 60 days of date of the last denial by the regional director.

      IV.D--Mergers, Purchase and Assumptions, and Spin-Offs

      In general, other than the addition of select groups, there are three additional ways a multiple group federal credit union can expand its field of membership:

      ‹bullet› By taking in the field of membership of another credit union through a merger;

      ‹bullet› By taking in the field of membership of another credit union through an purchase and assumption (P&A); or

      ‹bullet› By taking a portion of another credit union's field of membership through a spin-off.

      [[Page 49185]]

      With the exception of emergency mergers and P&As, in all cases the requirements of IV.B.2 must be met. If the merger, spin-off, or P&A is the result of safety and soundness concerns or an emergency situation as described in IV.D.2 and IV.D.3, the numerical limitation does not apply. IV.D.1--Mergers of Multiple Group Credit Unions

      Generally, the requirements applicable to field of membership expansions found in this section apply to mergers where the continuing credit union is a federal charter. If the requirements of IV.B.2 are not met, the merger will not be approved by NCUA.

      If the merger is approved, the merging credit union's field of membership will be transferred intact to the continuing credit union and can continue to be served.

      Where the merging credit union is state-chartered, the field of membership rules applicable to a federal credit union apply.

      Mergers must be approved by the NCUA regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union, and, as applicable, the state regulators. IV.D.2--Emergency Mergers

      An emergency merger may be approved by NCUA without regard to field of membership rules or other legal constraints. An emergency merger involves NCUA's direct intervention and approval. The credit union to be merged must either be insolvent or likely to become insolvent, and NCUA must determine that:

      ‹bullet› An emergency requiring expeditious action exists;

      ‹bullet› Other alternatives are not reasonably available; and

      ‹bullet› The public interest would best be served by approving the merger.

      If not corrected, conditions that could lead to insolvency include, but are not limited to:

      ‹bullet› Abandonment by management;

      ‹bullet› Loss of sponsor;

      ‹bullet› Serious and persistent record keeping problems; or

      ‹bullet› Serious and persistent operational concerns.

      In an emergency merger situation, NCUA will take an active role in finding a suitable merger partner (continuing credit union). NCUA is primarily concerned that the continuing credit union has the financial strength and management expertise to absorb the troubled credit union without adversely affecting its own financial condition and stability.

      As a stipulated condition to an emergency merger, the field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any field of membership restrictions including numerical limitation requirements and without changing the character of the continuing federal credit union for future amendments. Under this authority, a multiple common bond credit union may merge with any single occupational/associational, multiple common bond, or community charter and that credit union can continue to serve the merging credit union's field of membership. Subsequent field of membership expansions must be consistent with multiple group policies.

      Emergency mergers involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulators. IV.D.3--Purchase and Assumptions (P&As)

      Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. Generally, the requirements applicable to field of membership expansions found in this chapter apply to purchase and assumptions where the purchasing credit union is a federal charter.

      A P&A has limited application because, in most cases, the failing credit union must be placed into involuntary liquidation. However, in the few instances where a P&A may occur, the assuming federal credit union, as with emergency mergers, may acquire the entire field of membership if the emergency merger criteria are satisfied. Specified loans, shares, and certain other designated assets and liabilities, without regard to field of membership restrictions, may also be acquired without changing the character of the continuing federal credit union for purposes of future field of membership amendments. Subsequent field of membership expansions must be consistent with multiple group policies.

      P&As involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the continuing credit union is located, with the concurrence of the regional director of the purchased and/or assumed credit union and, as applicable, the state regulators. IV.D.4--Spin-Offs

      A spin-off occurs when, by agreement of the parties, a portion of the field of membership, assets, liabilities, shares, and capital of a credit union are transferred to a new or existing credit union. A spin- off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.

      All requirements of IV.B.2 and IV.B.3 apply if the spun-off group goes to an existing federal charter.

      The request for approval of a spin-off must be supported with a plan that addresses, at a minimum:

      ‹bullet› Why the spin-off is being requested;

      ‹bullet› What part of the field of membership is to be spun off;

      ‹bullet› Which assets, liabilities, shares, and capital are to be transferred;

      ‹bullet› The financial impact the spin-off will have on the affected credit unions;

      ‹bullet› The ability of the acquiring credit union to effectively serve the new members;

      ‹bullet› The proposed spin-off date; and

      ‹bullet› Disclosure to the members of the requirements set forth above.

      The spin-off request must also include current financial statements from the affected credit unions and the proposed voting ballot.

      For federal credit unions spinning off a group, membership notice and voting requirements and procedures are the same as for mergers (see Part 708 of the NCUA Rules and Regulations), except that only the members directly affected by the spin-off--those whose shares are to be transferred--are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. Voting requirements for federally insured state credit unions are governed by state law.

      Spin-offs involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the credit unions are located and the state regulators, as applicable. Spin-offs in the same region also require approval by the state regulator, as applicable.

      IV.E--Overlaps

      IV.E.1--General

      An overlap exists when a group of persons is eligible for membership in two or more credit unions, including state charters. An overlap is permitted when the expansion's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in the field of membership clearly outweighs any adverse effect on the overlapped credit union.

      [[Page 49186]]

      Proposed or existing credit unions must investigate the possibility of an overlap prior to submitting an application for a proposed charter or expansion.

      When an overlap situation does arise, officials of the expanding credit union must ascertain the views of the overlapped credit union. If the overlapped credit union does not object, the applicant must submit a letter or other documentation to that effect. If the overlapped credit union does not respond, the expanding credit union must notify NCUA in writing of its attempt to obtain the overlapped credit union's comments.

      NCUA will generally not approve an overlap unless the expansion's beneficial effect in meeting the convenience and needs of the members of the group proposed to be included in field of membership clearly outweighs any adverse effect on the overlapped credit union.

      In reviewing the overlap, the regional director will consider:

      ‹bullet› The view of the overlapped credit union(s);

      ‹bullet› Whether the overlap is incidental in nature--the group of persons in question is so small as to have no material effect on the original credit union;

      ‹bullet› Whether there is limited participation by members or employees of the group in the original credit union after the expiration of a reasonable period of time;

      ‹bullet› Whether the original credit union fails to provide requested service;

      ‹bullet› Financial effect on the overlapped credit union;

      ‹bullet› The desires of the group(s);

      ‹bullet› The desire of the sponsor organization; and

      ‹bullet› The best interests of the affected group and the credit union members involved.

      Generally, if the overlapped credit union does not object, and NCUA determines that there is no safety and soundness problem, the overlap will be permitted.

      Potential overlaps of a federally insured state credit union's field of membership by a federal credit union will generally be analyzed in the same way as if two federal credit unions were involved. Where a federally insured state credit union's field of membership is broadly stated, NCUA will exclude its field of membership from any overlap protection.

      New charter applicants and every select group which comes before the regional director for affiliation with an existing federal credit union must advise the regional director in writing whether the group is included within the field of membership of any other credit union. If cases arise where the assurance given to a regional director concerning unavailability of credit union service is inaccurate, the misinformation is grounds for removal of the group from the federal credit union's charter.

      Generally, NCUA will permit multiple group federal credit unions to overlap community charters without performing an overlap analysis. IV.E.2--Overlap Issues as a Result of Organizational Restructuring

      A federal credit union's field of membership will always be governed by the field of membership descriptions contained in Section 5 of its charter. Where a sponsor organization expands its operations internally, by acquisition or otherwise, the credit union may serve these new entrants to its field of membership if they are part of any select group listed in Section 5. Where acquisitions are made which add a new subsidiary, the group cannot be served until the subsidiary is included in the field of membership.

      Overlaps may occur as a result of restructuring or merger of the parent organization. When such overlaps occur, each credit union must request a field of membership amendment to reflect the new groups each wishes to serve. NCUA will review these requests as it does any select group addition. The credit union can continue to serve any current group in its field of membership that is acquiring a new group or has been acquired by a new group. The new group cannot be served by the credit union until the field of membership amendment is approved by NCUA.

      In addition, credit unions must submit to NCUA documentation explaining the restructuring and providing information regarding the new organizational structure. To help in future monitoring of overlaps, the credit union must identify divisions and subsidiaries and the locations of each. Where the sponsor and its employees desire to continue service, NCUA may use wording such as the following:

      ‹bullet› Employees of MHS Corporation, formerly a subsidiary of Tool, Incorporated, located in Charleston, South Carolina. IV.E.3--Exclusionary Clauses

      An exclusionary clause is a limitation which precludes the credit union from serving the primary members of a portion of a group otherwise included in its field of membership.

      When NCUA determines that overlap protection is appropriate for safety and soundness reasons, an exclusionary clause will be included in the expanding federal credit union's charter.

      Exclusionary clauses are very difficult for credit unions and NCUA to monitor properly. Additionally, exclusionary clauses can be ineffective or create obvious inequities--one spouse may be eligible for membership in a federal credit union while the other may not; one employee may be eligible for credit union service while a co-worker may not. If, for safety and soundness reasons, an exclusionary clause is appropriate, the overlap protection only applies to primary members, which may only provide limited protection.

      One example of an appropriate use of an exclusionary clause may be where there is a merger of two corporations served by two credit unions which will continue to serve their groups as they had prior to their sponsors' consolidation. The addition of an exclusionary clause to the field of membership of one or both of the credit unions may be the best way to clarify the division of service responsibility within the new corporate entity.

      When an exclusionary clause is included in a federal credit union's field of membership, NCUA will define:

      ‹bullet› The identity of the group;

      ‹bullet› Whether the exclusion is to apply to the entire group or only to those who are actually members of another credit union;

      ‹bullet› Whether the exclusion is to apply only to the current members of the group or to future members as well; and

      ‹bullet› Whether the exclusion is to apply for a limited time period.

      Examples of exclusionary wording are:

      ‹bullet› Persons who work for Monty Sugar Company, except those who work in, are paid from, or are supervised from San Francisco, California.

      ‹bullet› Persons who work for the EWJ Co., except those employed by the JEC Division as of June 30, 1997.

      ‹bullet› Persons who work for KLB Co, except those who were members of the St. Bonaventure Federal Credit Union as of June 30, 1997.

      Exclusionary clauses granted prior to the adoption of this new chartering manual will remain in effect unless the two credit unions agree to remove them. This requires NCUA approval.

      IV.F--Charter Conversion

      A multiple common bond federal credit union may apply to convert to any other type of charter provided the field of membership requirements of the new charter type are met. Groups within the existing charter which cannot

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      qualify in the new charter can not be served except for members of record.

      In order to support a case for a conversion, the applicant federal credit union may be required to develop a detailed business plan as specified in Chapter 1, Section IV.D.

      IV.G--Removal of Groups From the Field of Membership

      A credit union may request removal of a group from its field of membership for various reasons. The most common reasons for this type of amendment are:

      ‹bullet› The group is within the overlapping field of membership of two credit unions and one wishes to discontinue service;

      ‹bullet› The federal credit union cannot continue to provide adequate service to the group;

      ‹bullet› The group has ceased to exist;

      ‹bullet› The group does not respond to repeated requests to contact the credit union or refuses to provide needed support; or

      ‹bullet› The group initiates action to be removed from the field of membership.

      When a federal credit union requests an amendment to remove a group from its field of membership, the regional director will determine why the credit union wishes to remove the group and whether the existing members of the group will continue membership. If the regional director concurs with the request, membership may continue for those who are already members under the ``once a member, always a member'' provision of the Federal Credit Union Act.

      IV.H--Other Persons Sharing Common Bond

      A number of persons, by virtue of their close relationship to a common bond group, may be included, at the charter applicant's option, in the field of membership. These include the following:

      ‹bullet› Spouses of persons who died while within the field of membership of this credit union;

      ‹bullet› Employees of this credit union;

      ‹bullet› Persons retired as pensioners or annuitants from the above employment;

      ‹bullet› Volunteers;

      ‹bullet› Members of their immediate families; and

      ‹bullet› Organizations of such persons.

      ``Members of their immediate families'' is defined as related persons i.e., blood, marriage, or other recognized family relationships in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, and stepsiblings. The immediate family member must be related to the credit union member.

      Volunteers, by virtue of their close relationship with a sponsor group, may be included. Examples include volunteers working at a hospital or church.

      Under the Federal Credit Union Act, once a person becomes a member of the credit union, such person may remain a member of the credit union until the person chooses to withdraw or is expelled from the membership of the credit union. This is commonly referred to as ``once a member, always a member.''

      V--Community Charter Requirements

      V.A.1--General

      Community charters must be based on ``a well-defined local community, neighborhood, or rural district.'' NCUA policy is to limit the community to a single, geographically well-defined area where individuals have common interests or interact.

      NCUA recognizes four types of affinity on which a community charter can be based--persons who live in, worship in, attend school in, or work in the community. Businesses and other legal entities within the community boundaries may also qualify for membership. More than one credit union may serve the same community area provided there are no safety and soundness concerns and it is economically feasible. Given the diversity of community characteristics throughout the country and NCUA's goal of making credit union service available to all eligible groups who wish to have it, NCUA has established the following requirements for community charters:

      ‹bullet› The geographic area's boundaries must be clearly defined;

      ‹bullet› The charter applicant must establish that the area is a ``well-defined local, community, neighborhood, or rural district;'' and

      ‹bullet› The residents must have common interests or interact. V.A.2 --Documentation Requirements

      In addition to the documentation requirements set forth in Chapter 1 to charter a credit union, a community credit union applicant must provide special documentation addressing the proposed area to be served and community service policies.

      A community credit union is unique in that it must meet the statutory requirements that the proposed community area is (1) well- defined, and (2) a local community, neighborhood, or rural district.

      ``Well-defined'' means the proposed area has specific geographic boundaries. Geographic boundaries may include a city, township, county (or its political equivalent), or clearly identifiable neighborhood. Although congressional districts or other political boundaries which are subject to occasional change, and state boundaries are well-defined areas, they do not meet the second requirement that the proposed area be a local community, neighborhood, or rural district.

      The meaning of local community, neighborhood, or rural district includes a variety of factors. Most prominent is the requirement that the residents of the proposed community area interact or have common interests. In determining interaction and/or common interests, a number of factors become relevant. For example, the existence of a single major trade area, shared governmental or civic facilities, or area newspaper is significant evidence of community interaction and/or common interests. Conversely, numerous trade areas, multiple taxing authorities, and multiple political jurisdictions, tend to diminish the characteristics of a local area.

      Population and geographic size are also significant factors in determining whether the area is local in nature. A large population in a small geographic area or a small population in a large geographic area, may meet NCUA community chartering requirements. For example, an ethnic neighborhood, a rural area, a city, and a county with less than 300,000 residents will generally have sufficient interaction and/or common interests to meet community charter requirements.

      Conversely, a larger population in a large geographic area may not meet NCUA community chartering requirements. It is more difficult for a major metropolitan city, a densely populated county, or an area covering multiple counties with significant population to have sufficient interaction and/or common interests, and to therefore demonstrate that these areas meet the requirement of being ``local.'' In such cases, the burden of demonstrating interaction and/or common interests will be greater than the evidence necessary for a smaller and less densely populated area.

      In most cases, for a community credit union, the ``well-defined local community, neighborhood, or rural district'' requirement will be met if the area to be served is in a recognized single political jurisdiction, i.e., a county or its political equivalent or any

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      political subdivisions contained therein, and if the population of the requested well-defined area does not exceed 300,000. If the proposed area meets this criteria, the credit union must only submit a letter describing how the area meets the standards for community interaction or common interests. If NCUA does not find sufficient evidence of community interaction or common interests, more detailed documentation will be necessary to support that the proposed area is a well-defined community. The credit union must also provide evidence of the political jurisdiction and population.

      If the area to be served is not contained within a recognized single political jurisdiction or if the population of the area to be served exceeds 300,000, or if required by NCUA, the application must include documentation to support that it is a well-defined local community, neighborhood, or rural district. Some of that documentation may include:

      ‹bullet› The defined political jurisdictions;

      ‹bullet› Major trade areas (shopping patterns and traffic flows);

      ‹bullet› Shared/common facilities (for example, educational, medical, police and fire protection, school district, water, etc.);

      ‹bullet› Organizations and clubs within the community area;

      ‹bullet› Newspapers or other periodicals published for and about the area;

      ‹bullet› Maps designating the area to be served. One map must be a regional or state map with the proposed community outlined. The other map must outline the proposed community and the identifying geographic characteristics of the surrounding areas;

      ‹bullet› Common characteristics and background of residents (for example, income, religious beliefs, primary ethnic groups, similarity of occupations, household types, primary age group, etc.); or

      ‹bullet› Other documentation that demonstrates that the area is a community where individuals have common interests or interact.

      A new or converting credit union must provide a list of federally insured credit unions presently in the area and evidence that these credit unions were contacted regarding the community charter.

      A community credit union is frequently more susceptible to competition from other local financial institutions and generally does not have substantial support from any single sponsoring company or association. As a result, a community credit union will often encounter financial and operational factors that differ from an occupational or associational charter. Its diverse membership may require special marketing programs targeted to different segments of the community. For example, the lack of payroll deduction creates special challenges in the development of savings promotional programs and in the collection of loans.

      Accordingly, it is essential for the proposed community credit union to develop a detailed and practical business plan for at least the first two years of operation. The proposed credit union must not only address the documentation requirements set forth in Chapter 1, but also focus on the accomplishment of the unique financial and operational factors of a community charter.

      Community credit unions will be expected to follow, to the fullest extent economically possible, the marketing and/or business plan submitted with their application. The community credit union will be expected to regularly review its business plan as well as membership and loan penetration rates throughout the community to determine if the entire community is being adequately served. V.A.3--Special Documentation Requirements for a Converting Credit Union

      An existing federal credit union may apply to convert to a community charter. Groups currently in the credit union's field of membership but outside the new community credit union's boundaries may not be included in the new community charter.

      The documentation requirements set forth in section V.A.2 must be met before a community charter can be approved. Demonstrating community support, as discussed in Chapter 1, is not required for converting credit unions. In order to support a case for a conversion to community charter, the applicant federal credit union must develop a business plan incorporating the following data:

      ‹bullet› Current financial statements, including the income statement and a summary of loan delinquency;

      ‹bullet› Pro forma financial statements for the first two years after the proposed conversion, including assumptions--e.g., member, share, loan, and asset growth;

      ‹bullet› Financial services to be provided to members;

      ‹bullet› Location of service facilities;

      ‹bullet› Anticipated financial impact on the credit union in terms of need for additional employees and fixed assets; and

      ‹bullet› Anticipated financial impact on the credit union of not being able to serve new members of existing groups that are located outside of the community boundaries. The credit union should also identify alternative financial services available to those groups.

      Before approval of an application to convert to a community credit union, NCUA must be satisfied that the institution will be viable and that it will provide needed services to its members. V.A.4--Community Boundaries

      The geographic boundaries of a community federal credit union are the areas defined in its charter, usually with north, east, south, and west boundaries.

      A community that is a recognized legal entity, may be stated in the field of membership--for example, ``Gus Township, Texas'' or ``Kristi County, Virginia.'' V.A.5--Special Community Charters

      A community field of membership may include persons who work or attend school in a particular industrial park, shopping mall, office complex, or similar development. The proposed field of membership must have clearly defined geographic boundaries. V.A.6--Sample Community Fields of Membership

      A community charter does not have to include all four affinities (i.e., residing, working, worshipping, or going to school in a community). Some examples of community fields of membership are:

      ‹bullet› Persons who live, work, worship, or attend school in, and businesses located in the area of Johnson City, Tennessee, bounded by Fern Street on the north, Long Street on the east, Fourth Street on the south, and Elm Avenue on the west;

      ‹bullet› Persons who live or work in Green County, Maine;

      ‹bullet› Persons who live, worship, or work in and businesses and other legal entities located in Independent School District No. 1, DuPage County, Illinois;

      ‹bullet› Persons who live, worship, work, or attend school at the University of Dayton, in Dayton, Ohio; or

      ‹bullet› Persons who work for businesses located in Clifton Country Mall, in Clifton Park, New York.

      Some examples of insufficiently defined community field of membership definitions are:

      ‹bullet› Persons who live or work within and businesses located within a ten-mile radius of Washington, D.C. (using a radius does not establish a well-defined area); or

      ‹bullet› Persons who live or work in the industrial section of New York, New York. (not a well-defined neighborhood, community, or rural district).

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      Some examples of unacceptable local communities, neighborhoods, or rural districts are:

      ‹bullet› Persons who live or work in the Greater Boston Metropolitan Area. (does not meet the definition of local community, neighborhood, or rural district).

      ‹bullet› Persons who live or work in the State of California. (does not meet the definition of local community, neighborhood, or rural district).

      V.B--Field of Membership Amendments

      A community credit union may amend its field of membership by redefining its geographic boundaries, including additional affinities, or removing exclusionary clauses. Persons who live, work, worship, or attend school within the proposed well-defined local community, neighborhood or rural district must have common interests or interact. The burden of proof for establishing existence of the community is placed upon the applicant credit union.

      Prior to granting a field of membership expansion, NCUA will examine the expansion's potential effect on the credit union's operations and financial condition and its likely impact on other credit unions.

      Generally, if a community credit union applies to amend its geographic boundaries, or an occupational or associational credit union applies to convert to a community charter, an NCUA staff member will make an on-site evaluation of the proposal.

      V.C--NCUA Procedures for Amending the Field of Membership

      V.C.1--General

      All requests for approval to amend a community credit union's charter must be submitted to the appropriate regional director. If a decision cannot be made within a reasonable period of time, the regional director will notify the credit union. V.C.2--NCUA's Decision

      The financial and operational condition of the requesting credit union will be considered in every instance. The economic advisability of expanding the field of membership of a credit union with financial or operational problems must be carefully considered.

      In most cases, field of membership amendments will only be approved for credit unions that are operating satisfactorily. Generally, if a federal credit union is having difficulty providing service to its current membership, or is experiencing financial or other operational problems, it may have more difficulty serving an expanded field of membership.

      Occasionally, however, an expanded field of membership may provide the basis for reversing current financial problems. In such cases, an amendment to expand the field of membership may be granted notwithstanding the credit union's financial or operational problems. The applicant credit union must clearly establish that the expanded field of membership is in the best interest of the members and will not increase the risk to the NCUSIF. V.C.3--NCUA Approval

      If the requested amendment is approved by NCUA, the credit union will be issued an amendment to Section 5 of its charter. V.C.4--NCUA Disapproval

      When NCUA disapproves any application to amend the field of membership, in whole or in part, under this chapter, the applicant will be informed in writing of the:

      ‹bullet› Specific reasons for the action;

      ‹bullet› If appropriate, options or suggestions that could be considered for gaining approval; and

      ‹bullet› Appeal procedures. V.C.5--Appeal of Regional Director Decision

      If a field of membership expansion, merger, or spin-off is denied by the regional director, the federal credit union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal to the NCUA Board with a recommendation.

      Before appealing, the credit union may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. The request will not be considered as an appeal, but a request for reconsideration by the regional director. The regional director will have 30 business days from the date of the receipt of the request for reconsideration to make a final decision. If the charter amendment is again denied, the credit union may proceed with the appeal process to the NCUA Board within 60 days of the date of the last denial by the regional director.

      V.D--Mergers, Purchase and Assumptions, and Spin-Offs

      There are three additional ways a community federal credit union can expand its field of membership:

      ‹bullet› By taking in the field of membership of another credit union through a standard or emergency merger;

      ‹bullet› By taking in the field of membership through a standard or emergency purchase and assumption (P&A); or

      ‹bullet› By taking a portion of another credit union's field of membership through a spin-off. V.D.1--Standard Mergers

      Generally, the requirements applicable to field of membership expansions apply to mergers where the continuing credit union is a community federal charter.

      Where both credit unions are community charters, the continuing credit union must meet the criteria for expanding the community boundaries. A community credit union can not merge into a single occupational/associational, or multiple common bond credit union, except in an emergency merger. However, a single occupational/ associational, or multiple common bond credit union can merge into a community charter as long as the merging credit union has a service facility within the community boundaries or a majority of the merging credit union's field of membership would qualify for membership in the new community charter. While a community charter may take in an occupational, associational, or multiple group credit union in a merger, it will remain a community charter.

      Groups within the merging credit union's field of membership located outside of the community boundaries may not continue to be served. However, the credit union may continue to serve members of record.

      Where a state credit union is merging into a community federal credit union, the continuing federal credit union's field of membership will be worded in accordance with NCUA policy. Any subsequent field of membership expansions must comply with applicable amendment procedures.

      Mergers must be approved by the NCUA regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union, and, as applicable, the state regulators. V.D.2--Emergency Mergers

      An emergency merger may be approved by NCUA without regard to

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      field of membership requirements or other legal constraints. An emergency merger involves NCUA's direct intervention and approval. The credit union to be merged must either be insolvent or likely to become insolvent, and NCUA must determine that:

      ‹bullet› An emergency requiring expeditious action exists;

      ‹bullet› Other alternatives are not reasonably available; and

      ‹bullet› The public interest would best be served by approving the merger.

      If not corrected, conditions that could lead to insolvency include, but are not limited to:

      ‹bullet› Abandonment by management;

      ‹bullet› Loss of sponsor;

      ‹bullet› Serious and persistent record keeping; or

      ‹bullet› Serious and persistent operational concerns.

      In an emergency merger situation, NCUA will take an active role in finding a suitable merger partner (continuing credit union). NCUA is primarily concerned that the continuing credit union has the financial strength and management expertise to absorb the troubled credit union without adversely affecting its own financial condition and stability.

      As a stipulated condition to an emergency merger, the field of membership of the merging credit union may be transferred intact to the continuing federal credit union without regard to any field of membership restrictions, including the service facility requirement, without changing the character of the continuing federal credit union for future amendments. Under this authority, a federal credit union may take in any dissimilar field of membership.

      Even though the merging credit union is a single common bond credit union or multiple common bond credit union or community credit union, the continuing credit union will remain a community charter. Future community expansions will be based on the continuing credit union's original community area.

      Emergency mergers involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulator. V.D.3--Purchase and Assumptions (P&As)

      Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. If the P&A is the result of insolvency or danger of insolvency, then the emergency merger provisions apply and it is not necessary to meet field of membership requirements.

      A P&A has limited application because, in most instances, the failing credit union must be placed into involuntary liquidation. However, in the few instances where a P&A may occur, the assuming federal credit union, as with emergency mergers, may acquire the entire field of membership. Specified loans, shares, and certain other designated assets and liabilities may also be acquired without regard to field of membership restrictions and without changing the character of the continuing federal credit union for purposes of future field of membership amendments.

      If the P&A does not meet the emergency criteria, then only members of record can be obtained unless they otherwise qualify for membership in the community charter.

      P&As involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is located, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulator. V.D.4--Spin-Offs

      Generally, a spin-off occurs when, by agreement of the parties, a portion of the field of membership, assets, liabilities, shares and capital of a credit union, are transferred to a new or existing credit union. A spin-off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.

      All field of membership requirements apply regardless of whether the spin-off goes to a new or existing federal charter.

      The request for approval of a spin-off must be supported with a plan that addresses, at a minimum:

      ‹bullet› Why the spin-off is being requested;

      ‹bullet› What part of the field of membership is to be spun off;

      ‹bullet› Whether the field of membership requirements are met;

      ‹bullet› Which assets, liabilities, shares, and capital are to be transferred;

      ‹bullet› The financial impact the spin-off will have on the affected credit unions;

      ‹bullet› The ability of the acquiring credit union to effectively serve the new members;

      ‹bullet› The proposed spin-off date; and

      ‹bullet› Disclosure to the members of the requirements set forth above.

      The spin-off request must also include current financial statements from the affected credit unions and the proposed voting ballot.

      For federal credit unions spinning off a portion of the community, membership notice and voting requirements and procedures are the same as for mergers (see Part 708 of the NCUA Rules and Regulations), except that only the members directly affected by the spin-off--those whose shares are to be transferred--are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. Voting requirements for federally insured state credit unions are governed by state law.

      V.E--Overlaps

      V.E.1--General

      Generally, an overlap exists when a group of persons is eligible for membership in two or more credit unions, including state charters. In general, no overlap protection will be provided to single occupational and associational, multiple group, and community credit unions from another community charter.

      If safety and soundness concerns exist, NCUA may, on rare occasions, provide overlap protection from a community charter for a limited period of time, generally 12 to 24 months. Extensions may be granted for persistent safety and soundness problems.

      A proposed credit union, an expanding credit union, or credit unions converting to a community charter, must identify any overlapped credit unions prior to submitting an application for a new proposed charter or expansion. A list of overlapped federally insured credit unions must be provided to NCUA.

      A newly chartered community credit union that has been in existence less than two years (as opposed to a credit union converting to a community charter), proposing to serve an area where there is no other community credit union service, can not be overlapped by another federal community charter for a period of one year from the effective date of charter. If safety and soundness concerns persist, overlap protection can be extended by the regional director for an additional period of time, generally 12 to 24 months. This one year moratorium, and possible extension, will provide an opportunity for the new charter to become economically viable. New community credit unions chartered after the date of the original community charter for the same community are not entitled to overlap protection. V.E.2--Exclusionary Clauses

      Exclusionary clauses are rarely appropriate for inclusion in a

      [[Page 49191]]

      community credit union's field of membership and may only be granted if there are safety and soundness concerns. Exclusionary clauses granted prior to the adoption of this new chartering manual will remain in effect unless the two credit unions agree to remove them, or a credit union petitions NCUA to remove an exclusionary clause and NCUA determines that removal is in the best interests of the members.

      Where NCUA has determined that for safety and soundness reasons an exclusionary clause must be included in the field of membership of a community charter, the exclusionary clause will be for a limited period of time generally 12 to 24 months. Extensions can only be granted for continued serious safety and soundness concerns. The timeframe for the duration of the exclusionary clause will be specifically listed in Section 5, of the credit union's charter.

      V.F--Charter Conversions

      Although rare, a community federal credit union may convert to a single occupational or associational, or multiple group credit union. The converting credit union must meet all occupational, associational, and multiple group common bond requirements as applicable. The converting credit union may continue to serve members of record of the prior field of membership as of the date of the conversion. A change to the credit union's field of membership and designated common bond will be necessary.

      V.G--Other Persons With a Relationship to the Community

      A number of persons who have a close relationship to the community may be included, at the charter applicant's option, in the field of membership. These include the following:

      ‹bullet› Spouses of persons who died while within the field of membership of this credit union;

      ‹bullet› Employees of this credit union;

      ‹bullet› Volunteers in the community;

      ‹bullet› Members of their immediate families; and

      ‹bullet› Organizations of such persons.

      ``Members of their immediate families'' is defined as related persons i.e., blood, marriage, or other recognized family relationships in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild. For the purposes of this definition, immediate family member includes stepparents, stepchildren, and stepsiblings. The immediate family member must be related to the credit union member.

      Under the Federal Credit Union Act, once a person becomes a member of the credit union, such person may remain a member of the credit union until the person chooses to withdraw or is expelled from the membership of the credit union. This is commonly referred to as ``once a member, always a member.''

      Chapter 3--Low-Income Credit Unions and Credit Unions Serving Underserved Areas

      I--Introduction

      One of the primary reasons for the creation of federal credit unions is to make credit available to people of modest means for provident and productive purposes. To help NCUA fulfill this mission, the agency has established special operational policies for federal credit unions that serve low-income groups and underserved areas. The policies provide a greater degree of flexibility that will enhance and invigorate capital infusion into low-income groups, low-income communities, and underserved areas. These unique policies are necessary to provide credit unions serving low-income groups with financial stability and potential for controlled growth.

      II--Low-Income Credit Union

      II.A--Defined

      A low-income credit union is defined in Section 701.34 of the NCUA Rules and Regulations as one where a majority of its members either earn less than 80 percent of the average for all wage earners as established by the Bureau of Labor Statistics, or whose annual household income falls at or below 80 percent of the median household income for the nation. The term ``low income'' also includes members who are full-time or part-time students in a college, university, high school, or vocational school.

      To obtain a low-income designation from NCUA, an existing credit union must establish that a majority of its members meet the low-income definition. An existing community credit union that serves a geographic area where a majority of residents meet the annual income standard is presumed to be serving predominantly low-income members. A low-income designation for a new credit union charter may be based on a majority of the potential membership. The low-income qualification must be maintained in order to retain the low-income designation.

      II.B--Special Programs

      Credit unions with a low-income designation (except student credit unions) have greater flexibility in accepting non member deposits insured by the NCUSIF, and may offer secondary capital accounts to strengthen its capital base. It also may participate in special funding programs such as the Community Development Revolving Loan Program for Credit Unions (CDRLP) if it is involved in the stimulation of economic development and community revitalization efforts.

      The CDRLP provides both loans and grants for technical assistance to low-income credit unions. The requirements for participation in the revolving loan program are in Part 705 of the NCUA Rules and Regulations. Only operating credit unions are eligible for participation in this program.

      II.C--Low-Income Documentation

      A federal credit union charter applicant or existing credit union wishing to receive a low-income designation should forward a separate request for the designation to the regional director, along with appropriate documentation supporting the request.

      For community charter applicants, the supporting material should include the median household income or annual wage figures for the community to be served. If this information is unavailable, the applicant should identify the individual zip codes or census tracts that comprise the community and NCUA will assist in obtaining the necessary demographic data.

      Similarly, if single occupational or associational or multiple group common bond charter applicants can not supply income data on its potential members, they should provide the regional director with a list which includes the number of potential members, sorted by their residential zip codes, and NCUA will assist in obtaining the necessary demographic data.

      An existing credit union can perform a loan or membership survey to determine if the credit union is primarily serving low-income members.

      II.D--Third Party Assistance

      A low-income federal credit union charter applicant may contract with a third party to assist in the chartering and low-income designation process. If the charter is granted, a low-income credit union may contract with a third party to provide necessary management services. Such contracts should not exceed the duration of one year subject to renewal.

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      II.E--Special Rules for Low-Income Federal Credit Unions

      In recognition of the unique efforts needed to help make credit union service available to low-income groups, NCUA has adopted special rules that pertain only to low-income credit union charters, as well as field of membership additions for low-income credit unions. These special rules provide additional latitude to enable underserved, low- income individuals to gain access to credit union service.

      NCUA permits credit union chartering and field of membership amendments based on associational groups formed for the sole purpose of making credit union service available to low-income persons. The association must be defined so that all of its members will meet the low-income definition of Section 701.34 of the NCUA Rules and Regulations. Any multiple group credit union can add low-income associations to their fields of membership.

      A low-income community federal credit union has additional latitude in serving persons who are affiliated with the community. In addition to serving members who live, work, worship, or go to school in the community, a low-income community federal credit union may also serve persons who perform volunteer services, participate in programs to alleviate poverty or distress, or who participate in associations headquartered in the community.

      Examples of a low-income community and an associational based low- income federal credit union are as follows:

      ‹bullet› Persons who live in [the target area]; persons who regularly work, worship, attend school, perform volunteer services, or participate in associations headquartered in [the target area]; persons participating in programs to alleviate poverty or distress which are located in [the target area]; incorporated and unincorporated organizations located in [the target area] or maintaining a facility in

      [the target area] ; and organizations of such persons.

      ‹bullet› Members of the Canarsie Economic Assistance League, in Brooklyn, NY, an association whose members all meet the low-income definition of Section 701.34 of the NCUA Rules and Regulations.

      III--Service to Underserved Communities

      All federal credit unions may include in their fields of membership, without regard to location, communities satisfying the definition for serving underserved areas in the Federal Credit Union Act. The Act defines an underserved area as a local community, neighborhood, or rural district that is an ``investment area'' as defined in Section 103(16) of the Community Development Banking and Financial Institutions Act of 1994.

      An investment area includes any of the following:

      ‹bullet› An area encompassed or located in an Enpowerment Zone or Enterprise Community designated under section 1391 or the Internal Revenue Code of 1996 (26 U.S.C. 1391);

      ‹bullet› An area where the percentage of the population living in poverty is at least 20 percent and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area in a Metropolitan Area where the median family income is at or below 80 percent of the Metropolitan Area median family income or the national Metropolitan Area median family income, whichever is greater; and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area outside of a Metropolitan Area, where the median family income is at or below 80 percent of the statewide non- Metropolitan Area median family income or the national non-Metropolitan Area median family income, whichever is greater; and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area where the unemployment rate is at least 1.5 times the national average and the area has significant unmet needs for loans or equity investments;

      ‹bullet› An area where the percentage of occupied distressed housing (as indicated by lack of complete plumbing and occupancy of more than one person per room) is at least 20 percent and the area has significant unmet needs for loans or equity investments;

      An area located outside of a Metropolitan Area with a county population loss between 1980 and 1990 of at least 10 percent and the area has significant unmet needs for loans or equity investments.

      In addition, the local community, neighborhood, or rural district must be underserved, based on data considered by the NCUA Board and the Federal banking agencies.

      Once an underserved area has been added to a federal credit union's field of membership, the credit union must establish and maintain an office or facility in the community. A service facility is defined as a place where shares are accepted for members' accounts, loan applications are accepted and loans are disbursed. This definition includes a credit union owned branch, a shared branch, a mobile branch, or a credit union owned electronic facility that meets, at a minimum, these requirements. This definition does not include an ATM.

      The federal credit union adding the underserved community must document that the community meets the definition for serving underserved areas in the Federal Credit Union Act. The charter type of a federal credit union adding such a community will not change and therefore the credit union will not be able to receive the benefits afforded to low-income designated credit unions, such as expanded use of non member deposits and access to the Community Development Revolving Loan Program for Credit Unions.

      A federal credit union that desires to include an underserved community in its field of membership must first develop a business plan specifying how it will serve the community. The business plan, at a minimum, must identify the credit and depository needs of the community and detail how the credit union plans to serve those needs. The credit union will be expected to regularly review the business plan, as well as loan penetration rates in the community to determine if the community is being adequately served. NCUA will require periodic reports on its service to the underserved community and may review the credit union's service to persons in the community during examinations.

      Chapter 4--Charter Conversions

      I--Introduction

      A charter conversion is a change in the jurisdictional authority under which a credit union operates.

      Federal credit unions receive their charters from NCUA and are subject to its supervision, examination, and regulation.

      State-chartered credit unions are incorporated in a particular state, receiving their charter from the state agency responsible for credit unions and subject to the state's regulator. If the state- chartered credit union's deposits are federally insured it will also fall under NCUA's jurisdiction.

      A federal credit union's power and authority are derived from the Federal Credit Union Act and NCUA Rules and Regulations. State- chartered credit unions are governed by state law and regulation. Certain federal laws and regulations also apply to federally insured state chartered credit unions.

      There are two types of charter conversions: federal charter to state charter and state charter to federal charter. Common bond and community requirements are not an issue from NCUA's standpoint in the case of a federal to state charter conversion. The

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      procedures and forms relevant to such a conversion have been included.

      II--Conversion of a State Credit Union to a Federal Credit Union

      II.A --General Requirements

      Any state-chartered credit union may apply to convert to a federal credit union. In order to do so it must:

      ‹bullet› Comply with state law regarding conversion;

      ‹bullet› File proof of compliance with NCUA;

      ‹bullet› File the required conversion application, proposed federal credit union organization certificate, and other documents with NCUA;

      ‹bullet› Comply with the requirements of the Federal Credit Union Act, e.g., chartering and reserve requirements; and

      ‹bullet› Be granted federal share insurance by NCUA.

      Conversions are treated the same as any initial application for a federal charter, including mandatory on-site examination by NCUA. NCUA will also consult with the appropriate state authority regarding the credit union's current financial condition, management expertise, and past performance. Since the applicant in a conversion is an ongoing credit union, the economic advisability of granting a charter is more readily determinable than in the case of an initial charter applicant.

      A converting state credit union's field of membership must conform to NCUA's chartering policy. The field of membership will be phrased in accordance with NCUA chartering policy. Subsequent changes must conform to NCUA chartering policy in effect at that time. The converting credit union may continue to serve members of record.

      If the converting credit union is a community charter and the new federal charter is community-based, it must meet the community field of membership requirements set forth in Chapter 2, Section V. If the state chartered credit union's community boundary is more expansive than the approved federal boundary, only members of record outside of the new community boundary may continue to be served.

      II.B--Submission of Conversion Proposal to NCUA

      The following actions must be taken before submitting a conversion proposal:

      ‹bullet› The credit union board must approve a proposal for conversion.

      ‹bullet› The Application to Convert (NCUA 4401) must be completed. Its purpose is to provide the regional director with information on the present operating policies and financial condition of the credit union and the reasons why the conversion is desired. A continuation sheet may be used if space on the form is inadequate. Particular attention should be given to answering the question on the reasons for conversion. These reasons should be stated in specific terms, not as generalities.

      ‹bullet› The application must be accompanied by all required attachments including the following:

      ‹bullet› Written evidence regarding whether the state regulator is in agreement with the conversion proposal;

      ‹bullet› The Application and Agreements for Insurance of Accounts (NCUA 9500);

      ‹bullet› The Federal Credit Union Investigation Report, Conversion of State Charter to Federal Charter (NCUA 4000);

      ‹bullet› The most current financial report and delinquent loan schedule; and

      ‹bullet› The Organization Certificate (NCUA 4008). Only Part (3) and the signature/notary section of page 4 should be completed and, where applicable, signed by the credit union officials. The NCUA regional office will complete the other sections of this document.

      If the state charter is applying to become a federal community charter, it must also comply with the documentation requirements included in Chapter 2, Sections V.A.2 and V.A.3.

      II.C--NCUA Consideration of Application to Convert

      II.C.1--Review by the Regional Director

      The application will be reviewed to determine that it is complete and that the proposal is in compliance with Section 125 of the Federal Credit Union Act. This review will include a determination that the state credit union's field of membership is in compliance with NCUA's chartering policies. The regional director may make further investigation into the proposal and may require the submission of additional information to support the request to convert. At this point, NCUA will conduct an on-site review of the credit union. II.C.2--On-Site Review

      NCUA will conduct an on-site examination of the books and records of the credit union. Non-federally insured credit unions will be assessed an insurance application fee. II.C.3--Approval by the Regional Director and Conditions to the Approval

      The conversion will be approved by the regional director if it is in compliance with Section 125 of the Federal Credit Union Act and meets the criteria for federal insurance. Where applicable, the regional director will specify any special conditions that the credit union must meet in order to convert to a federal charter, including changes to the credit union's field of membership in order to conform to NCUA's chartering policies. Some of these conditions may be set forth in a Letter of Understanding and Agreement (LUA), which requires the signature of the officials and the regional director. II.C.4--Notification

      The regional director will notify both the credit union and the state regulator of the decision on the conversion.

      II.D--Action by Board of Directors

      II.D.1--General

      Upon being informed of the regional director's preliminary approval, the board must:

      ‹bullet› Comply with all requirements of the state regulator that will enable the credit union to convert to a federal charter and cease being a state credit union;

      ‹bullet› Obtain a letter or official statement from the state regulator certifying that the credit union has met all of the state requirements and will cease to be a state credit union upon its receiving a federal charter. A copy of this document must be submitted to the regional director;

      ‹bullet› Obtain a letter from the private share insurer (includes excess share insurers), if applicable, certifying that the credit union has met all withdrawal requirements. A copy of this document must be submitted to the regional director; and

      ‹bullet› Submit a statement of the action taken to comply with any conditions imposed by the regional director in the preliminary approval of the conversion proposal and, if applicable, submit the signed LUA. II.D.2--Application for a Federal Charter

      When the regional director has received evidence that the board of directors has satisfactorily completed the actions described above, the federal charter and new Certificate of Insurance will be issued.

      The credit union may then complete the conversion as discussed in the following section. A denial of a conversion application can be appealed. (See Chapter 1, section VII.D)

      II.E--Completion of the Conversion

      II.E.1--Effective Date of Conversion

      The date on which the regional director approves the Organization

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      Certificate and the Application and Agreements for Insurance of Accounts is the date on which the credit union becomes a federal credit union. The regional director will notify the credit union and the state regulator of the date of the conversion. II.E.2--Assumption of Assets and Liabilities

      As of the effective date of the conversion, the federal credit union will be the owner of all of the assets and will be responsible for all of the liabilities and share accounts of the state credit union. II.E.3--Board of Directors' Meeting

      Upon receipt of its federal charter, the board will hold its first meeting as a federal credit union. At this meeting, the board will transact such business as is necessary to complete the conversion as approved and to operate the credit union in accordance with the requirements of the Federal Credit Union Act and NCUA Rules and Regulations.

      As of the commencement of operations, the accounting system, records, and forms must conform to the standards established by NCUA. II.E.4--Change of the Credit Unions Name

      Changing of the credit union's name on all signage, records, accounts, investments, stationery, and other documents should be accomplished as soon as possible after conversion. The credit union has 180 days from the effective date of the conversion to change its signage and promotional material. This requires the credit union to discontinue using any remaining stock of ``state credit union'' stationery immediately, and discontinue using credit cards, ATM cards, etc. within 180 days after the effective date of the conversion, or the reissue date--whichever is later. Member share drafts with the state chartered name can be used by the member until depleted. II.E.5-- Reports to NCUA

      Within 10 business days after commencement of operations, the recently converted federal credit union must submit to the regional director the following:

      ‹bullet› Report of Officials (NCUA 4501); and

      ‹bullet› Financial and Statistical Reports, as of the commencement of business of the federal credit union.

      III--Conversion of a Federal Credit Union to a State Credit Union

      III.A--General Requirements

      Any federal credit union may apply to convert to a state credit union. In order to do so, it must:

      ‹bullet› Notify NCUA prior to commencing the process to convert to a state charter and state the reason(s) for the conversion;

      ‹bullet› Comply with the requirements of Section 125 of the Federal Credit Union Act that enable it to convert to a state credit union and to cease being a federal credit union; and

      ‹bullet› Comply with applicable state law and the requirements of the state regulator.

      It is important that the credit union provide an accurate disclosure of the reasons for the conversion. These reasons should be stated in specific terms, not as generalities.

      III.B--Special Provisions Regarding Federal Share Insurance

      If the federal credit union intends to continue federal share insurance after the conversion to a state credit union, it must submit an Application for Insurance of Accounts (NCUA 9600) to the regional director at the time it requests approval of the conversion proposal. The regional director has the authority to approve or disapprove the application.

      If the converting federal credit union does not intend to continue federal share insurance or if its application for continued insurance is denied, insurance will cease in accordance with the provisions of Section 206 of the Federal Credit Union Act.

      If, upon its conversion to a state credit union, the federal credit union will be terminating its federal share insurance or converting from federal to non-federal share insurance, it must comply with the membership notice and voting procedures set forth in Section 206 of the Federal Credit Union Act and Part 708 of NCUA's Rules and Regulations, and address the criteria set forth in Section 205(c) of the Federal Credit Union Act.

      Where the state credit union will be non federally insured, federal insurance ceases on the effective date of the charter conversion. If it will be otherwise uninsured, then federal insurance will cease one year after the date of conversion subject to the restrictions in Section 206(d)(1) of the Federal Credit Union Act. In either case, the state credit union will be entitled to a refund of the federal credit union's NCUSIF capitalization deposit and any unused portion of the federal insurance premium after the final date on which any of its shares are federally insured.

      The NCUA Board reserves the right to delay the refund of the capitalization deposit for up to one year if it determines that payment would jeopardize the NCUSIF.

      III.C--Submission of Conversion Proposal to NCUA

      Upon approval of a proposition for conversion by a majority vote of the board of directors at a meeting held in accordance with the federal credit union's bylaws, the conversion proposal will be submitted to the regional director and will include:

      ‹bullet› A current financial report;

      ‹bullet› A current delinquent loan schedule;

      ‹bullet› An explanation and appropriate documents relative to any changes in insurance of member accounts;

      ‹bullet› A resolution of the board of directors;

      ‹bullet› A proposed Notice of Special Meeting of the Members (NCUA 4221);

      ‹bullet› A copy of the ballot to be sent to all members (NCUA 4506);

      ‹bullet› Evidence that the state regulator is in agreement with the conversion proposal; and

      ‹bullet› A statement of reasons supporting the request to convert.

      III.D--Approval of Proposal To Convert

      III.D.1--Review by the Regional Director

      The proposal will be reviewed to determine that it is complete and is in compliance with Section 125 of the Federal Credit Union Act. The regional director may make further investigation into the proposal and require the submission of additional information to support the request. III.D.2--Conditions to the Approval

      The regional director will specify any special conditions that the credit union must meet in order to proceed with the conversion. III.D.3--Approval by the Regional Director

      The proposal will be approved by the regional director if it is in compliance with Section 125 and, in the case where the state credit union will no longer be federally insured, the notice and voting requirements of Section 206 of the Federal Credit Union Act. III.D.4--Notification

      The regional director will notify both the credit union and the state regulator of the decision on the proposal.

      III.E--Approval of Proposal by Members

      The members may not vote on the proposal until it is approved by the

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      regional director. Once approval of the proposal is received, the following actions will be taken by the board of directors:

      ‹bullet› The proposal must be submitted to the members for approval and a date set for a meeting to vote on the proposal. The proposal may be acted on at the annual meeting or at a special meeting for that purpose. The members must also be given the opportunity to vote by written ballot to be filedby the date set for the meeting.

      ‹bullet› Members must be given advance notice (NCUA 4221) of the meeting at which the proposal is to be submitted. The notice must:

      ‹bullet› Specify the purpose, time and place of the meeting;

      ‹bullet› Include a brief, complete, and accurate statement of the reasons for and against the proposed conversion, including any effects it could have upon share holdings, insurance of member accounts, and the policies and practices of the credit union;

      ‹bullet› Specify the costs of the conversion, i.e., changing the credit union's name, examination and operating fees, attorney and consulting fees, tax liability, etc.;

      ‹bullet› Inform the members that they have the right to vote on the proposal at the meeting, or by written ballot to be filednot later than the date and time announced for the annual meeting, or at the special meeting called for that purpose;

      ‹bullet› Be accompanied by a Ballot for Conversion Proposal (NCUA 4506); and

      ‹bullet› State in bold face type that the issue will be decided by a majority of members who vote.

      ‹bullet› The proposed conversion must be approved by a majority of all of the members who vote on the proposal, a quorum being present, in order for the credit union to proceed further with the proposition, provided federal insurance is maintained. If the proposed state chartered credit union will not be federally insured, 20 percent of the total membership must participate in the voting, and of those, a majority must vote in favor of the proposal. Ballots cast by members who did not attend the meeting but who submitted their ballots in accordance with instructions above will be counted with votes cast at the meeting. In order to have a suitable record of the vote, the voting at the meeting should be by written ballot as well.

      ‹bullet› The board of directors shall, within 10 days, certify the results of the membership vote to the regional director. The statement shall be verified by affidavits of the Chief Executive Officer and the Recording Officer on NCUA 4505.

      III.F--Compliance With State Laws

      If the proposal for conversion is approved by a majority of all members who voted, the board of directors will:

      ‹bullet› Ensure that all requirements of state law and the state regulator have been accommodated;

      ‹bullet› Ensure that the state charter or the license has been received within 90 days from the date the members approved the proposal to convert; and

      ‹bullet› Ensure that the regional director is kept informed as to progress toward conversion and of any material delay or of substantial difficulties which may be encountered.

      If the conversion cannot be completed within the 90-day period, the regional director should be informed of the reasons for the delay. The regional director may set a new date for the conversion to be completed.

      III.G--Completion of Conversion

      In order for the conversion to be completed, the following steps are necessary:

      ‹bullet› The board of directors will submit a copy of the state charter to the regional director within 10 days of its receipt. This will be accompanied by the federal charter and the federal insurance certificate. A copy of the financial reports as of the preceding month- end should be submitted at this time.

      ‹bullet› The regional director will notify the credit union and the state regulator in writing of the receipt of evidence that the credit union has been authorized to operate as a state credit union.

      ‹bullet› The credit union shall cease to be a federal credit union as of the effective date of the state charter.

      ‹bullet› If the regional director finds a material deviation from the provisions that would invalidate any steps taken in the conversion, the credit union and the state regulator shall be promptly notified in writing. This notice may be either before or after the copy of the state charter is filedwith the regional director. The notice will inform the credit union as to the nature of the adverse findings. The conversion will not be effective and completed until the improper actions and steps have been corrected.

      ‹bullet› Upon ceasing to be a federal credit union, the credit union shall no longer be subject to any of the provisions of the Federal Credit Union Act, except as may apply if federal share insurance coverage is continued. The successor state credit union shall be immediately vested with all of the assets and shall continue to be responsible for all of the obligations of the federal credit union to the same extent as though the conversion had not taken place. Operation of the credit union from this point will be in accordance with the requirements of state law and the state regulator.

      ‹bullet› If the regional director is satisfied that the conversion has been accomplished in accordance with the approved proposal, the federal charter will be canceled.

      ‹bullet› There is no federal requirement for closing the records of the federal credit union at the time of conversion or for the manner in which the records shall be maintained thereafter. The converting credit union is advised to contact the state regulator for applicable state requirements.

      ‹bullet› The credit union shall neither use the words ``Federal Credit Union'' in its name nor represent itself in any manner as being a federal credit union.

      ‹bullet› Changing of the credit union's name on all signage, records, accounts, investments, stationery, and other documents should be accomplished as soon as possible after conversion. Unless it violates state law, the credit has 180 days from the effective date of the conversion to change its signage and promotional material. This requires the credit union to discontinue using any remaining stock of ``state credit union'' stationery immediately, and discontinue using credit cards, ATM cards, etc. within 180 days after the effective date of the conversion, or the reissue date--whichever is later Member share drafts with the federal chartered name can be used by the member until depleted. If the state credit union is not federally insured, it must change its name and must immediately cease using any credit union documents referencing federal insurance.

      ‹bullet› If the state credit union is to be federally insured, the regional director will issue a new insurance certificate.

      Appendix A--Glossary

      These definitions apply only for use with this Manual. Definitions are not intended to be all inclusive or comprehensive. This Manual, the Federal Credit Union Act, and NCUA Rules and Regulations, as well as state laws, may be used for further reference.

      Adequately capitalized--A credit union is considered adequately capitalized when it has a net worth ratio (capital-to-asset ratio) of at least 6 percent. A multiple common bond credit union must be adequately capitalized in order to add new groups to its charter.

      Affinity--A relationship upon which a community charter is based. Acceptable affinities include living, working, worshiping, or attending school in a community.

      Appeal--The right of a credit union or charter applicant to request a formal review

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      of a regional director's adverse decision by the National Credit Union Administration Board.

      Associational common bond--A common bond comprised of members and employees of a recognized association. It includes individuals (natural persons) and/or groups (non natural persons) whose members participate in activities developing common loyalties, mutual benefits, and mutual interests.

      Business plan--Plan submitted by a charter applicant or existing federal credit union addressing the economic advisability of a proposed charter or field of membership addition.

      Charter--The document which authorizes a group to operate as a credit union and defines the fundamental limits of its operating authority, generally including the persons the credit union is permitted to accept for membership. Charters are issued by the National Credit Union Administration for federal credit unions and by the designated state chartering authority for credit unions organized under the laws of that state.

      Common bond--The characteristic or combination of characteristics which distinguishes a particular group of persons from the general public. There are two common bonds which can serve as a basis for a group forming a federal credit union or being included in an existing federal credit union's field of membership: occupational--employment by the same company or related companies; and associational--membership in the same association.

      Community credit union--A credit union whose field of membership consists of persons who live, work, worship, or attend school in the same well-defined local community, neighborhood, or rural district.

      Credit union--A member-owned, not-for-profit cooperative financial institution formed to permit those in the field of membership specified in the charter to save, borrow, and obtain related financial services. Federal credit unions are chartered as corporations pursuant to the Federal Credit Union Act.

      Economic advisability--An overall evaluation of the credit union's or charter applicant's ability to operate successfully.

      Emergency merger--Pursuant to Section 205(h) of the Federal Credit Union Act, authority of NCUA to merge two credit unions without regard to common bond policy.

      Exclusionary clause--A limitation, written in a credit union's charter, which precludes the credit union from serving a portion of a group which otherwise could be included in its field of membership. Exclusionary clauses are used to prevent certain overlaps of fields of membership between credit unions.

      Federal share insurance--Insurance coverage provided by the National Credit Union Share Insurance Fund and administered by the National Credit Union Administration. Coverage is provided for qualified accounts in all federal credit unions and participating state credit unions.

      Field of membership--The persons (including organizations and other legal entities) a credit union is permitted to accept for membership.

      Immediate family member--Also referred to as ``members of their immediate families,'' this term is defined as related persons (i.e., blood, marriage or other recognized family relationships) in the same household (under the same roof), or if not in the same household, as a grandparent, parent, spouse, sibling, child, or grandchild.

      Letter of Understanding and Agreement--Agreement between NCUA and federal credit union officials not to engage in certain activities and/or to establish reasonable operational goals. These are normally entered into with new charter applicants for a limited time.

      Low income credit union--A low-income credit union is defined in Section 701.34 of the NCUA Rules and Regulations as one where a majority of its members either earn less than 80 percent of the average for all wage earners as established by the Bureau of Labor Statistics, or whose annual household income falls at or below 80 percent of the median household income for the nation. The term ``low income'' also includes members who are full-time or part-time students in a college, university, high school, or vocational school.

      Mentor--An individual who provides guidance and assistance to newly chartered, small, or low-income credit unions. All new federal credit unions are encouraged to establish a mentor relationship with a trained, experienced credit union individual or an existing credit union.

      Merger--Absorption by one credit union of all of the assets, liabilities and equity of another credit union. Mergers must be approved by the National Credit Union Administration and by the appropriate state regulator whenever a state credit union is involved.

      Multiple common bond credit union--A credit union whose field of membership consists of more than one group, each of which has a common bond of occupation or association.

      Occupational common bond--Employment by the same entity or related entities.

      Once a member, always a member--A provision of the Federal Credit Union Act which permits an individual to remain a member of the credit union until he or she chooses to withdraw or is expelled from the membership of the credit union. Under this provision, leaving a group that is named in the credit union's charter does not terminate an individual's membership in the credit union.

      Overlap--The situation which results when a group is eligible for membership in more than one credit union.

      Potential membership--Persons eligible to join a federal credit union.

      Primary members--Members or employees who belong to an associational or occupational group, or persons who live, work, worship, or attend school within a community chartered credit union's field of membership.

      Purchase and assumption--Purchase of all or part of the assets of and assumption of all or part of the liabilities of one credit union by another credit union. The purchased and assumed credit union must first be placed into involuntary liquidation.

      Service area--The area that can reasonably be served by the service facilities accessible to the groups within the field of membership.

      Service facility--A place where shares are accepted for members' accounts, loan applications are accepted, and loans are dispersed.

      Single associational common bond credit union--A credit union whose field of membership includes members and employees of a recognized association.

      Single common bond credit union--A credit union whose field of membership consists of one group which has a common bond of occupation or association.

      Single occupational common bond credit union--A credit union whose field of membership consists of employees of the same entity or related entities.

      Spin-off--The transfer of a portion of the field of membership, assets, liabilities, shares, and capital of one credit union to a new or existing credit union.

      Subscribers--For a federal credit union, at least seven individuals who sign the charter application and pledge at least one share.

      Underserved community--A local community, neighborhood, or rural district that is an ``investment area'' as defined in Section 103(16) of the Community Development Banking and Financial Institutions Act of 1994. The area must also be underserved based on other NCUA and federal banking agency data.

      Unsafe or unsound practice--Any action, or lack of action, which would result in an abnormal risk or loss to the credit union, its members, or the National Credit Union Share Insurance Fund.

      Appendix B--Letter of Understanding and Agreement

      To the Board of Directors and Other Officials

      Federal Credit Union

      Since the purposes of credit unions are to promote thrift and to make funds available for loans to credit union members for provident and productive purposes, and since newly chartered credit unions do not generally have sufficient reserves to cover large losses on loans or meet unduly large liquidity requirements, Federal insurance coverage of member accounts under the National Credit Union Share Insurance Fund will be granted to the above named credit union subject to the conditions listed in this Letter of Understanding and Agreement and in the Organization Certificate and Application and Agreements for Insurance of Accounts. These terms are listed below and are subject to acceptance by authorized credit union officials.

    7. The credit union will refrain from soliciting or accepting brokered fund deposits from any source without the prior written approval of the Regional Director.

    8. The credit union will refrain from the making of large loans, that is, loans in excess of 5 percent of unimpaired capital and surplus, to any one member or group of members without the prior written approval of the Regional Director.

    9. The credit union will not establish or invest in a Credit Union Service Organization

      [[Page 49197]]

      (CUSO) without the prior written approval of the Regional Director.

    10. The credit union will not enter into any insurance programs whereby the credit union member finances the payment of insurance premiums through loans from the credit union.

    11. Any special insurance plan/program, that is, insurance other than usual and normal surety bonding or casualty or liability or loan protection and life savings insurance coverage, which the credit union officials intend to undertake, will be submitted to the Regional Director of the National Credit Union Administration for written approval prior to the officials committing the credit union thereto.

    12. The credit union will prepare and mail to the district examiner financial and statistical reports as required by the Federal Credit Union Act and Bylaws by the 20th of each month following that for which the report is prepared.

    13. As the credit union's officials gain experience and the credit union achieves target levels of growth and profitability, the above terms and conditions may be renegotiated by the two parties.

      We, the undersigned officials of the ____________ Federal Credit Union, as authorized by the board of directors, acknowledge receipt of and agree to the attached Letter of Understanding and Agreement dated ____________.

      This Letter of Understanding and Agreement has been voluntarily entered into with the National Credit Union Administration. We agree to comply with all terms and conditions expressed in this Letter of Understanding and Agreement.

      Should the NCUA Board determine that these terms and conditions have not been complied with or that the board of directors or other officials have not conducted the affairs of the credit union in a sound and prudent manner, the NCUA Board may terminate insurance coverage of the credit union. If actions by the officials, in violation of this Letter of Understanding and Agreement, cause the credit union to become insolvent, the officials assume such personal liability as may result from their actions.

      The term of this Letter of Understanding and Agreement shall be for the period of at least 24 months from the date the credit union is insured. This Letter of Understanding and Agreement may, at the option of the Regional Director, be extended for an additional 24 months at the end of the initial term of this agreement.

      Dated this ________ (day) of____________ (month) __________ (year).

      NATIONAL CREDIT UNION ADMINISTRATION BOARD ON BEHALF OF THE NATIONAL CREDIT UNION SHARE INSURANCE FUND

      ---------------------------------------------------------------------- Regional Director

      ---------------------------------------------------------------------- Federal Credit Union

      By: ---------------------------------------------------------------------- Chief Executive Officer

      Date

      ---------------------------------------------------------------------- Chief Financial Officer

      Date

      ---------------------------------------------------------------------- Secretary

      Date

      Appendix C--NCUA Offices

      Central Office

      1775 Duke Street, Alexandria, VA 22314-3428, Commercial: 703-518- 6300

      Region I--Albany

      9 Washington Square, Washington Avenue Extension, Albany, NY 12205- 5512, Commercial: 518-862-7400, FAX: 518-862-7420, Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont

      Region II--Capital

      1775 Duke Street, Suite 4206, Alexandria, VA 22314-3437, Commercial: 703-519-4600, FAX: 703-519-4620, Delaware, District of Columbia, Maryland, New Jersey, Pennsylvania, Virginia

      Region III--Atlanta

      7000 Central Parkway, Suite 1600, Atlanta, GA 30328-4598, Commercial: 678-443-3300, FAX: 678-443-3020, Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Puerto Rico, South Carolina, Tennessee, Virgin Islands

      Region IV--Chicago

      4225 Naperville Road, Suite 125, Lisle, IL 60532-3658, Commercial: 630-955-4100, FAX: 630-955-4120, Illinois, Indiana, Michigan, Missouri, Ohio, Wisconsin, West Virginia

      Region V--Austin

      4807 Spicewood Springs Road, Suite 5200, Austin, TX 78759-8490, Commercial: 512-482-4500, FAX: 512-482-4511, Arizona, Colorado, Iowa, Kansas, Minnesota, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas

      Region VI--Pacific

      2300 Clayton Road, Suite 1350, Concord, CA 94520-2407, Commercial: 925-363-6200, FAX: 925-363-6220, Alaska, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington, Wyoming

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      Appendix E--Associations

      Credit Union National Association (CUNA), P.O. Box 431, Madison, WI 53701, 608-231-4000 National Association of Federal Credit Unions (NAFCU), 38 N. 10th Street, Suite 300, Arlington, VA 22201, 703-522-4770 National Association of State Credit Union Supervisors (NASCUS), 1901 North Fort Myer Drive, Suite 201, Arlington, VA 22209, 703-528- 8351 National Federation of Community Development Credit Unions (NFCDCU), 120 Wall Street, 10th Floor, New York, NY 10005-3902, 212-809-1850

      [FR Doc. 98-24285Filed9-11-98; 8:45 am]

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