Staff Guidance for Financial Institutions Filing Proxy Statements in Connection with the TARP Capital Purchase Program
On October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 (EESA), which established the Troubled Asset Relief Program (TARP). The United States Department of Treasury is responsible for establishing and administering the TARP. As part of the TARP, Treasury established the Capital Purchase Program (CPP) to provide funding to eligible financial institutions. To participate, a financial institution that receives preliminary approval for the CPP must enter into an agreement to issue certain securities to the Treasury. For additional information regarding the EESA, the TARP, and the requirements for participation in the CPP, see http://www.treasury.gov/initiatives/eesa/.
In many cases, a financial institution seeking to issue securities may be required to solicit and obtain shareholder approval for the authorization of the securities. To solicit shareholder approval, a financial institution must comply with the federal securities laws and any applicable state laws. The federal securities laws require certain financial institutions to file a proxy statement on Schedule 14A when soliciting shareholder approval.1
The staff understands that financial institutions that participate in the CPP are subject to time constraints in obtaining shareholder approval and completing the funding transaction with Treasury. The staff is reviewing or has reviewed a number of preliminary proxy statements filed by institutions seeking to participate in the CPP. In an effort to provide financial institutions with information to aid them in preparing their proxy statements, we are listing actual comments the staff has issued in its filing reviews. Financial institutions may want to consider these comments when preparing their proxy statement disclosure. It is important to note that these comments may or may not relate to a financial institution's own particular facts and circumstances and that these comments may not address all material disclosure items it should present to its shareholders in connection with any proxy solicitation. Each financial institution should consider its own facts and circumstances when preparing its proxy statement disclosure. Direct any questions regarding these comments to (202) 551-3770.
Discuss why you plan to participate in the Capital Purchase Program or are considering participating.
Disclose whether you have applied to participate in the Treasury Department's Capital Purchase Program and describe the status of your application.
Disclose the material terms of your participation in the Capital Purchase Program. Describe the material terms of the securities and warrants you will issue to the Treasury Department.
Disclose the estimated proceeds of your proposed sale of securities to the Treasury Department and disclose how you expect to use them.
Please discuss how your participation in the Capital Purchase Program may
Disclose, if true, that the Treasury Department is not obligated to accept your application to participate in the Capital Purchase Program and that the estimated proceeds of your proposed sale of securities to the Treasury Department are not guaranteed.
Discuss any material effect on your liquidity, capital resources or results of operations if the proposal is approved and the Treasury Department denies your application.
Disclose whether you will modify any plans or contracts to comply with limits on executive compensation established by Section 111 of the Emergency Economic Stabilization Act of 2008.
Item 13 of Schedule 14A requires you to include financial information in your proxy statement if you are seeking authorization to issue common or preferred stock under certain circumstances. If you have not included financial information in your proxy statement, please explain to us why you believe financial statements are not material in connection with issuing the warrants to purchase comment stock. See Note A to Schedule 14A and Instruction 1 to Item 13(a) of Schedule 14A.
Issues to Consider With Regard to Pro Forma Financial Statements
Although there are a number of issues you should consider when preparing pro forma financial statements, the following sample comments relating to a possible sale of securities to the Treasury Department may help you evaluate your financial statement requirements.
Where you expect the proceeds of the sale of securities to the Treasury Department to have a material impact on your balance sheet or income statement, our rules require you to provide pro forma statements that comply with Article 11 of Regulation S-X in your proxy statement. If you expect the proceeds of the sale of securities to the Treasury Department to have a material impact on your financial statements, you may provide a textual discussion of the pro forma effect rather than pro forma financial statements.
In evaluating the impact of the potential sale of securities to the Treasury Department, you must consider the material effect of the transaction, including:
Your assumptions regarding the use of proceeds from the transactions, such as an assumption regarding the pay down of existing debt or the investment of the proceeds in federal funds sold, must be factually supportable. You should consider only those plans for the proceeds that meet the factually supportable criteria.
Where you determine that the proceeds of the sale of securities to the Treasury Department will have a material impact on your balance sheet or income statement and elect to prepare and provide pro forma financial statements, you should include, in your proxy statement, a pro forma balance sheet for the most recent balance sheet date and a pro forma income statement for the most recent annual and interim periods that address the impact of both the minimum and maximum proceeds of the sale. If you choose to provide a textual discussion in lieu of pro forma financial statements, please address the minimum and maximum proceeds of the sale as well as the other items noted in the following paragraph.
In preparing pro forma financial statements, discuss any relevant assumptions you have made and briefly describe any pro forma adjustments such as your assumptions about interest savings on proceeds applied to pay down debt and interest income earned on proceeds invested. State, if true, that you used the treasury stock method for purposes of evaluating the effect of the warrants on diluted shares outstanding. Describe the methodologies you used to allocate the transaction process among the securities you may issue to the Treasury Department (relative fair value) and to accrete the discount on the preferred stock.
If you do not believe the sale of the securities to the Treasury Department will have a material impact on your balance sheet or income statement, provide us with your quantitative and qualitative analysis supporting your conclusion. In your analysis, discuss the impact to each of the items noted above as well as to total shareholders' equity and your capital ratios.