Section R20-4-318. Service Corporations -- A.R.S. § 6-446(5)

A.      General service corporations. An association may, if permitted by the terms of its articles of incorporation, invest in the capi- tal stock, obligations or other securities of any service corpora- tion organized under the laws of this state, if:

1.        The entire capital stock of such service corporation is available for purchase by, and only by, any and all sav- ings and loan associations with a home office in this state, and the capital stock is owned by more than one savings and loan association;

2.        Not more than 33 1/3% of the outstanding capital stock of such service corporation is, or may be, owned by any sav- ings and loan association;

3.        Every eligible savings and loan association is permitted to own an equal amount of the capital stock of such ser- vice corporation or on such uniform basis as may be fixed by such corporation, each such association is permitted to own an amount of capital stock that is a stated percentage of its assets or savings capital at the time of any purchase by it of such stock; and

4.        Substantially all of the activities of such service corpora- tion, performed directly or through one or more wholly- owned subsidiaries or joint ventures, consist of one or more of the following:

a.         Originating, purchasing, selling, and servicing any of the following:

i.         Loans and participations in loans on a prudent basis and secured by real estate, including bro- kerage and warehousing of such real estate loans;

ii.        Loans, and participations in loans, secured by first liens upon mobile homes, including bro- kerage and warehousing of such mobile home loans;

iii.      Loans, with or without security, for the altering, repairing, improving, equipping or furnishing of any residential real estate;

b.        Making any investment of the types specified in Sections 545.9 and 545.9-3 of the regulations of the Federal Home Loan Bank Board;

c.         Making investments in the accounts of associations holding capital stock in the corporation;

d.        Performing the following services, primarily for savings and loan associations with home offices in Arizona:

i.         Clerical services, accounting, data processing and internal auditing;

ii.        Credit information, appraising, construction loan inspection, and abstracting;

iii.      Development and administration of personnel benefit programs including life insurance, health insurance, and pension or retirement plans;

iv.       Research, studies and surveys;

v.        Purchasing of office supplies, furniture and equipment;

vi.       Development and operation of storage facilities for microfilm or other duplicate records;

vii.     Advertising and other services to procure and retain both savings accounts and loans;

e.         Acquisition of unimproved real estate lots and other unimproved real estate for the purpose of prompt development and subdivision, principally for con- struction of housing or for resale to others for such construction, or for use as mobile home sites;

f.         Development and subdivision of and construction of improvements (including improvements to be used for commercial or community purposes when inci- dental to a housing project) for sale or for rental on, real estate referred to in subsection (A)(4)(e);

g.        Acquisition of improved residential real estate and mobile homes to be held for rental;

h.        Acquisition of improved residential real estate for remodeling, rehabilitation, modernization, renova- tion, or demolition and rebuilding for sale or for rental;

i.         Maintenance and management of rental real estate referred to in subsections (A)(4)(f), (g), and (h), and any real estate owned by holders of its capital stock;

j.         Serving as insurance broker or agent primarily deal- ing in policies for savings and loan associations, their borrowers and accountholders which provide protection such as homeowners’, fire, theft, automo- bile, life, health, accident, and title, excluding pri- vate mortgage insurance;

k.        Serving in the capacity of trustee under deeds of trust, or escrow agent;

l.         Activities reasonably incidental to the activities described in the foregoing subparagraphs of subsec- tion (A)(4); and

m.       Such other activities, reasonably related to the activ- ities of savings and loan associations as the Superin- tendent may approve upon application therefor by any such service corporation.

B.       Other service corporations. In addition to investment in a ser- vice corporation which meets the requirements of subsection

(A) of this rule, an association may invest in the capital stock, obligations, or other securities of any service corporation orga- nized under the laws of Arizona, if:

1.        The entire capital stock of such corporation is held by one or more savings and loan associations or federal associa- tions with a home office in Arizona;

2.        The activities of such corporation, performed directly or through one or more wholly-owned subsidiaries or joint ventures, consist solely of one or more of the activities specified in subparagraphs (a) through (l), of subsection (A), paragraph (4) of this rule, and such other activities, reasonably related to the activities of a savings and loan association, as the Superintendent may approve upon application therefor by such corporation; and

3.        The following limitations are complied with:

a.         if less than five savings and loan associations (including any federal association) hold capital stock in such corporation or one such association holds more than 40% of such stock, such corporation, including any subsidiary, does not incur or have out- standing at any time debt in excess of the following limitations:

(1)     in the case of all unsecured debt (to holders of its capital stock and to others), an amount equal to two times its net worth;

(2)     in the case of all debt (secured and unsecured, to holders of its capital stock and to others), except as permitted by subdivision 3(a)(3) in an amount equal to ten times its net worth;

(3)     in the case of all debt (secured and unsecured, to a holder of its capital stock and others) engaged solely in the activities specified in sub- section (A), paragraph (4), subdivision (a)(i) of this rule, an amount equal to 20 times its net worth;

(4)     secured debt will be deemed to be unsecured for the purposes of this subsection (B), para- graph (3), subdivision (a) to the extent that such debt exceeds the market value of any security at the time the loan is made;

b.        the approval of the Superintendent is obtained for any investment by such service corporation in a joint venture or the acquisition of a going business if a director, officer or controlling person of any savings and loan association owning any of the service cor-

poration’s capital stock has a direct or indirect bene- ficial interest in the joint venture or going business.

C.      Amount of investment

1.        Except as provided in subsection (C), paragraph (2), an association may not make any investment under this Sec- tion if its aggregate outstanding investment in the capital stock, obligations or other securities of service corpora- tions would thereupon exceed 1% of assets. The limita- tion in the preceding sentence includes all loans, secured and unsecured, and all guarantees of such loans, to ser- vice corporations, or any subsidiaries thereof, and to joint ventures of such service corporations or subsidiaries, whether or not such association is a stockholder therein.

2.        In addition to amounts which may be invested within the limitation set forth in subsection (C), paragraph (1), an association which has a net worth of at least 5% of with- drawable accounts may loan additional amounts to ser- vice corporations, or any subsidiaries thereof, and to joint ventures of such service corporations or subsidiaries, as follows:

a.         an aggregate outstanding amount not to exceed 20% of such associations net worth may be invested in loans made to service corporations, or any subsidiar- ies thereof, and to joint ventures of such service cor- porations or subsidiaries; and

b.        the limitation set forth in subsection (C), paragraph

(1) shall not be applicable to loans to any service corporation which qualifies as a service corporation under subsection (A) of this rule, or to any service corporation in which the lending association does not have any investment made under the authority of this rule.

D.      No association may invest in the capital stock, obligations, or other securities of any service corporation unless said service corporation has filed with the Superintendent a certified copy of a resolution of its board of directors that:

1.        In the case of a service corporation described in subsec- tion (A) of this rule, such corporation will permit and pay the cost of such examination of the corporation by the Superintendent as the Superintendent from time to time deems necessary to determine the propriety of any invest- ment by an association under this rule; and

2.        In the case of a service corporation described in subsec- tion (B) of this rule, such corporation will permit and pay the cost of such examination and/or audit by the Superin- tendent as the Superintendent may from time to time deem necessary.

E.       Whenever a service corporation engages in an activity which is not permissible for, or exceeds the limitations on, a service corporation in which an association may invest, or whenever the capital stock ownership requirements of this rule are not met, an association having an investment in such corporation, including any subsidiary thereof, shall dispose of such invest- ment promptly unless, within 90 days following the date of mailing of written notice by the Superintendent to such invest- ing association, the impermissible activity is discontinued, the limitation is complied with, or the capital stock ownership requirement is met.

F.       A service corporation may establish and maintain one or more branch offices within the state of Arizona for the purpose of carrying on the functions of the service corporation. No ser- vice corporation may establish or maintain a branch office out- side of the state of Arizona except with the specific approval of the Superintendent upon application therefor by such ser- vice corporation.

G.      In the case of any investment by an association in a service corporation which was specifically approved by the Superin- tendent prior to September 26, 1974, said approval is hereby deemed to apply to such investment on and after September 26, 1974, if the activities of such corporation consist only of those activities approved by the Superintendent and any activi- ties described in subsection (B), paragraph (2) of this rule, and if the limitations of this rule are complied with.

H.      The term “joint venture” means any joint undertaking by a ser- vice corporation or a wholly-owned subsidiary thereof with one or more persons or legal entities in any form, including a joint tenancy, tenancy in common, or partnership and includ- ing investment in a corporation other than a wholly-owned subsidiary.

I.        The term “aggregate outstanding investment” means the sum of amounts paid for the acquisition of capital stock or securi- ties and amounts invested in obligations of service corpora- tions less amounts received for the sale of capital stock or securities of service corporations and amounts paid to an asso- ciation to retire obligations of service corporations.

J.        The terms “unsecured debt” and “unsecured loan” exclude accounts payable incurred in the ordinary course of business and paid within 60 days.

Effective 9-26-74

Historical Note

Former Rule 18. R20-4-318 recodified from R4-4-318 (Supp. 95-1).