A. With approval of the supervisor and of the stockholders owning two-thirds of the issued and outstanding shares of the association entitled to vote, a permanent capital stock association may issue and sell its capital debentures or notes. With approval of the supervisor and of a majority of its members entitled to vote, an association without permanent capital stock may issue and sell its capital debentures or notes. The principal amount of any capital debentures or notes outstanding at any time shall not exceed seventy-five percent of an association’s net worth.

B. Capital debentures or notes issued by a permanent capital stock association may be converted into shares of stock in accordance with the provisions of the debentures or notes and under any terms or conditions prescribed by, or approved by, the supervisor. Convertible debentures or notes may be issued without offering them to existing stockholders or members of the association if so provided in the articles of incorporation of the association at the time of its organization or by later amendment.

C. Capital debentures or notes are an unsecured indebtedness of the association and are subordinate to the claims of depositors and all other creditors of the association, regardless of whether the claims of the depositors or other creditors arose before or after the issuance of the capital debentures or notes. In the event of liquidation of the association, all depositors and other creditors of the association shall be paid in full before any payment is made of principal or interest on the outstanding capital debentures or notes. After payment to depositors and creditors, capital debentures or notes shall be paid pro rata regardless of the date of their issuance. No payment of the principal of outstanding capital debentures or notes shall be made unless, after the payment, the aggregate of the net worth and capital debentures or notes then outstanding is equal to the aggregate of the foregoing items immediately after the original issue of the capital debentures or notes.

D. The amounts of outstanding capital debentures or notes legally issued by any association shall be treated as capital for the purpose of computing reserve requirements, but for the purpose of computing the ad valorem tax, the capital debentures or notes shall be treated as an indebtedness and not as capital.

E. Every state-chartered association having capital debentures or notes outstanding shall accumulate and maintain from its earnings a reserve fund for the retirement of the capital debentures or notes. Amounts to be transferred to the reserve fund at each dividend or interest payment date shall be equal to the total principal amount of capital debentures or notes issued, divided by the number of dividend or interest payment periods anticipated during the period of time the debentures or notes are to be outstanding.